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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
Commission file number 000-28063
DELTATHREE, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-4006766
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
75 Broad Street
New York, New York 10004
(Address of principal executive offices) (Zip code)
(212) 500-4850
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No | |
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
As of November 5, 2003, the registrant had 29,361,633 shares of Class A
Common Stock, par value $0.001 per share, outstanding.
================================================================================
DELTATHREE, INC.
Table of Contents
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.......................................................................1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......6
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................10
Item 4. Controls and Procedures...................................................................11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.........................................................................12
Item 2. Change in Securities and Use of Proceeds..................................................13
Item 4. Submission of Matters to a Vote of Security Holders.......................................13
Item 5. Other Information.........................................................................13
Item 6. Exhibits and Reports on Form 8-K..........................................................14
Signatures.........................................................................................15
Exhibit Index......................................................................................16
ii
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
DELTATHREE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of As of
September 30, December 31,
2003 2002
--------- ---------
(unaudited)
($ in thousands)
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 3,326 $ 5,681
Short-term investments ............................................ 15,169 15,552
Accounts receivable, net .......................................... 345 652
Prepaid expenses and other current assets ......................... 737 760
--------- ---------
Total current assets ........................................... 19,577 22,645
--------- ---------
Property and equipment, net ........................................ 5,235 9,452
--------- ---------
Deposits ........................................................... 103 100
--------- ---------
Total assets .................................................. $ 24,915 $ 32,197
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 1,988 $ 2,306
Deferred revenues ................................................. 417 334
Other current liabilities ......................................... 1,922 2,330
--------- ---------
Total current liabilities ...................................... 4,327 4,970
--------- ---------
Long-term liabilities:
Severance pay obligations ......................................... 97 113
--------- ---------
Total liabilities .............................................. 4,424 5,083
--------- ---------
Commitments and contingencies
Stockholders' equity:
Class A common stock, - par value $0.001 .......................... 29 29
Class B common stock, - par value $0.001 .......................... -- --
Additional paid-in capital ........................................ 166,923 166,801
Accumulated deficit ............................................... (146,251) (139,506)
Treasury stock at cost: 257,600 shares of class A common stock as of
September 30, 2003 and December 31, 2002 ......................... (210) (210)
--------- ---------
Total stockholders' equity .................................... 20,491 27,114
--------- ---------
Total liabilities and stockholders' equity .................... $ 24,915 $ 32,197
========= =========
See notes to condensed consolidated financial statements.
1
DELTATHREE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
(unaudited) (unaudited)
($ in thousands, except share data)
Revenues .......................................... $ 3,320 $ 3,214 $ 9,277 $ 9,705
Costs and operating expenses:
Cost of revenues, net ........................... 2,010 2,193 5,827 6,929
Research and development expenses, net .......... 562 772 1,780 2,645
Selling and marketing expenses .................. 888 808 2,542 3,027
General and administrative expenses (exclusive of
non-cash compensation expense shown below) ... 463 623 1,602 1,743
Non-cash compensation expense ................... -- -- -- 270
Depreciation and amortization ................... 1,313 1,675 4,444 4,953
------------ ------------ ------------ ------------
Total costs and operating expenses ........... 5,236 6,071 16,195 19,567
------------ ------------ ------------ ------------
Loss from operations .............................. (1,916) (2,857) (6,918) (9,862)
Interest income, net .............................. 73 194 219 375
------------ ------------ ------------ ------------
Loss before income taxes .......................... (1,843) (2,663) (6,669) (9,487)
Income taxes ...................................... (24) (45) (46) (56)
------------ ------------ ------------ ------------
Net loss .......................................... $ (1,867) $ (2,708) $ (6,745) $ (9,543)
============ ============ ============ ============
Net loss per share - basic and diluted ............ $ (0.06) $ (0.09) $ (0.23) $ (0.33)
============ ============ ============ ============
Weighted average shares outstanding -
basic and diluted (number of shares) ........ 28,976,345 28,885,606 28,940,979 28,885,606
============ ============ ============ ============
See notes to condensed consolidated financial statements
2
DELTATHREE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2003 2002
-------- --------
(unaudited)
Cash flows from operating activities:
Net loss ........................................................ $ (6,745) $ (9,543)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization ............................ 4,444 4,952
Amortization of deferred compensation .................... -- 270
Capital loss (gain), net ................................. (18) 1
Decrease in liability for severance pay, net ............. (16) (66)
Provision for losses on accounts receivable .............. 42 30
Changes in assets and liabilities:
Decrease in accounts receivable .......................... 265 284
Decrease in other current assets ......................... 23 536
Increase in accounts payable ............................. (318) (1,218)
Decrease (increase) in deferred revenues ................. 83 (185)
Decrease in current liabilities .......................... (408) (398)
-------- --------
4,097 4,206
-------- --------
Net cash used in operating activities ......................... (2,648) (5,337)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment ....................... (244) (399)
Proceeds from sale of property and equipment ............. 35 8
Decrease (increase) in deposits ......................... (3) 4
-------- --------
Net cash used in investing activities ........................ (212) (387)
-------- --------
Cash flows from financing activities:
Decrease in short-term investments, net .................. 383 13,850
Proceeds from exercise of employee stock options ......... 122 --
-------- --------
Net cash provided by (used in) financing activities ........... 505 (13,850)
-------- --------
Decrease in cash and cash equivalents ........................... (2,355) (8,126)
Cash and cash equivalents at beginning of year .................. 5,681 13,583
-------- --------
Cash and cash equivalents at end of year ........................ $ 3,326 $ 21,709
======== ========
See notes to condensed consolidated financial statements
3
DELTATHREE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The unaudited condensed consolidated financial statements of
deltathree, Inc. and its subsidiaries (collectively, "the Company"), of which
these notes are a part, have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for annual financial statements. In the opinion of
management of the Company, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation of the financial
information have been included. The results for the interim periods presented
are not necessarily indicative of the results that may be expected for any
future period. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 2002.
2. Net Loss Per Share
The shares issuable upon the exercise of stock options and warrants are
excluded from the calculation of net loss per share, as their effect would be
antidilutive.
3. Stock-Based Compensation
The Company accounts for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and in accordance with FASB Interpretation No. 44.
Pursuant to these accounting pronouncements, the Group records compensation for
stock options granted to employees over the vesting period of the options based
on the difference, if any, between the exercise price of the options and the
market price of the underlying shares at that date. Deferred compensation is
amortized to compensation expense over the vesting period of the options. See
below a pro forma disclosure required in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation", as amended by SFAS No. 148.
If the Company had elected to recognize compensation expense for the
issuance of options to employees of the Company based on the fair value method
of accounting prescribed by SFAS No. 123, net income (loss) and earnings (loss)
per share would have been reduced to the pro forma amounts as follows (in
thousands, except per share amounts):
4
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net Income (Loss):
Reported net income (loss) ............................ $ (1,867) $ (2,708) $ (6,745) $ (9,543)
Add stock-based employee compensation expense,
included in reported net income, net of tax ......... -- -- -- 270
Deduct stock-based employee compensation expense
determined under fair value method, net of tax ...... (127) (311) (531) (946)
-------- -------- -------- --------
Pro forma net income (loss) ........................... $ (1,994) $ (3,019) $ (7,276) $(10,219)
======== ======== ======== ========
Net income (loss) per share:
Basic and diluted, as reported ........................ $ (0.06) $ (0.09) $ (0.23) $ (0.33)
Basic and diluted, pro forma .......................... $ (0.07) $ (0.10) $ (0.25) $ (0.35)
-------- -------- -------- --------
For the purpose of presenting pro forma information required under SFAS
123, the fair value option grant has been estimated on the date of grant using
the Black Scholes option pricing model for grants made after the Company became
a public entity. The following assumptions were used for the nine and three
months periods ended September 30, 2002: dividend yield of 0.00% for all
periods; risk free interest rate of 4.8% for all periods; an expected life of 3
years for all periods; a volatility rate of 150% for the periods. During the
nine and three months ended September 30, 2003 there were no new option grants.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and the Notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2002. This quarterly report
on Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements involve risks
and uncertainties and actual results could differ materially from those
discussed in the forward-looking statements. All forward-looking statements and
risk factors included in this document are made as of the date hereof, based on
information available to us as of the date thereof, and we assume no obligation
to update any forward-looking statement or risk factors.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
Revenues
Revenues decreased approximately $0.4 million or 4.1% to approximately
$9.3 million for the nine months ended September 30, 2003 from approximately
$9.7 million for the nine months ended September 30, 2002. Revenues from
enhanced IP communications services (including our Hosted Communications
Solution) increased by approximately $0.3 million or 3.5% to approximately $8.9
million for the nine months ended September 30, 2003 from approximately $8.6
million for the nine months ended September 30, 2002, due to a greater number of
PC-to-Phone and Phone-to-Phone calls being placed by an increasing user base.
Revenues from carrier transmission services, decreased by approximately
$0.7 million or 63.6% to approximately $0.4 million for the nine months ended
September 30, 2003 from approximately $1.1 million for the nine months ended
September 30, 2002, due primarily to decreased demand from a smaller customer
base. No customer accounted for greater than 10% of our revenues during these
periods.
Costs and Operating Expenses
Cost of revenues. Cost of revenues decreased by approximately $1.1
million or 15.9% to approximately $5.8 million for the nine months ended
September 30, 2003 from approximately $6.9 million for the nine months ended
September 30, 2002, due to both a decrease in the amount of carrier traffic
being terminated, and lower pricing from suppliers.
Research and development expenses. Research and development expenses
decreased by approximately $0.8 million or 30.8% to approximately $1.8 million
for the nine months ended September 30, 2003 from approximately $2.6 million for
the nine months ended September 30, 2002, due to lower personnel costs
associated with the development of new services and enhancements to our existing
services.
Selling and marketing expenses. Selling and marketing expenses
decreased by approximately $0.5 million or 16.7% to approximately $2.5 million
for the nine months ended September 30, 2003 from approximately $3.0 million for
the nine months ended September 30, 2002, due to a decrease in our branding and
promotional activities.
6
General and administrative expenses. General and administrative
expenses (exclusive of non-cash compensation expenses) decreased slightly by
approximately $0.1 million or 5.9% to approximately $1.6 million for the nine
months ended September 30, 2003 from approximately $1.7 million for the nine
months ended September 30, 2002, primarily due to decreased personnel costs,
somewhat offset by increased professional fees.
Non-cash compensation expenses. There were no non-cash compensation
expenses for the nine months ended September 30, 2003 compared to approximately
$270,000 for the nine months ended September 30, 2002, due to the completed
amortization of costs incurred during 1998 and 1999 related to the grants of
options and warrants below the then fair market value during those periods.
Depreciation and amortization. Depreciation and amortization decreased
by approximately $0.6 million or 12.0% to approximately $4.4 million for the
nine months ended September 30, 2003 from approximately $5.0 million for the
nine months ended September 30, 2002.
Loss from Operations
Loss from operations decreased by approximately $3.0 million or 30.3%
to approximately $6.9 million for the nine months ended September 30, 2003 from
approximately $9.9 million for the nine months ended September 30, 2002, due
primarily to the decrease in costs and operating expenses, including non-cash
compensation expenses and selling and marketing expenses. We expect to continue
to incur losses for the foreseeable future.
Interest Income, Net
Interest income, net decreased by approximately $156,000 or 41.3% to
approximately $219,000 for the nine months ended September 30, 2003 from
approximately $375,000 for the nine months ended September 30, 2002, due
primarily to lower interest rates earned on the reduced balance of the remaining
proceeds from our initial public offering.
Income Taxes, Net
We paid net income taxes of approximately $46,000 for the nine months
ended September 30, 2003 compared to approximately $56,000 for the nine months
ended September 30, 2002.
Net Loss
Net loss decreased by approximately $2.8 million or 29.5% to
approximately $6.7 million for the nine months ended September 30, 2003 from
approximately $9.5 million for the nine months ended September 30, 2002 due to
the foregoing factors.
Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002
Revenues
7
Revenues increased approximately $0.1 million or 3.1% to approximately
$3.3 million for the three months ended September 30, 2003 from approximately
$3.2 million for the three months ended September 30, 2002. Revenues from
enhanced IP communications services (including our Hosted Communications
Solution) increased by approximately $0.3 million or 10.3% to approximately $3.2
million for the three months ended September 30, 2003 from approximately $2.9
million for the three months ended September 30, 2002, due to a greater number
of PC-to-Phone and Phone-to-Phone calls being placed by an increasing user base.
Revenues from carrier transmission services, decreased by approximately
$0.3 million or 75.0% to approximately $0.1 million for the three months ended
September 30, 2003 from approximately $0.4 million for the three months ended
September 30, 2002, due primarily to a decreased demand from a somewhat smaller
customer base. No customer accounted for greater than 10% of our revenues during
these periods.
Costs and Operating Expenses
Cost of revenues. Cost of revenues decreased by approximately $0.2
million or 9.1% to approximately $2.0 million for the three months ended
September 30, 2003 from approximately $2.2 million for the three months ended
September 30, 2002, due to both a decrease in the amount of carrier traffic
being terminated, and lower pricing from suppliers.
Research and development expenses. Research and development expenses
decreased by approximately $0.2 million or 27.2% to approximately $0.6 million
for the three months ended September 30, 2003 from approximately $0.8 million
for the three months ended September 30, 2002, due to lower personnel costs
associated with the development of new services and enhancements to our existing
services.
Selling and marketing expenses. Selling and marketing expenses
increased by approximately $0.1 million or 12.5% to approximately $0.9 million
for the three months ended September 30, 2003 from approximately $0.8 million
for the three months ended September 30, 2002, due to a decrease in our branding
and promotional activities.
General and administrative expenses. General and administrative
expenses (exclusive of non-cash compensation expenses) decreased slightly by
approximately $0.1 million or 16.7% to approximately $0.5 million for the three
months ended September 30, 2003 from approximately $0.6 million for the three
months ended September 30, 2002, primarily due to decreased personnel costs,
somewhat offset by increased professional fees.
Non-cash compensation expenses. There were no non-cash compensation
expenses for the three months ended September 30, 2003 and for the three months
ended September 30, 2002, due to the completed amortization of costs incurred
during 1998 and 1999 related to the grants of options and warrants below the
then fair market value during those periods.
Depreciation and amortization. Depreciation and amortization decreased
slightly by approximately $0.4 million or 23.5% to approximately $1.3 million
for the three months ended September 30, 2003 from approximately $1.7 million
for the three months ended September 30, 2002.
Loss from Operations
8
Loss from operations decreased by approximately $1.0 million or 34.5%
to approximately $1.9 million for the three months ended September 30, 2003 from
approximately $2.9 million for the three months ended September 30, 2002, due
primarily to the decrease in costs and operating expenses, including non-cash
compensation expenses and selling and marketing expenses. We expect to continue
to incur losses for the foreseeable future.
Interest Income, Net
Interest income, net decreased by approximately $121,000 or 62.4% to
approximately $73,000 for the three months ended September 30, 2003 from
approximately $194,000 for the three months ended September 30, 2002, due
primarily to lower interest rates earned on the reduced balance of the remaining
proceeds from our initial public offering.
Income Taxes, Net
We paid net income taxes of approximately $24,000 for the three months
ended September 30, 2003 compared to approximately $45,000 for the three months
ended September 30, 2002.
Net Loss
Net loss decreased by approximately $0.8 million or 29.6% to
approximately $1.9 million for the three months ended September 30, 2003 from
approximately $2.7 million for the three months ended September 30, 2002 due to
the foregoing factors.
Liquidity and Capital Resources
Since our inception in March 1996, we have incurred significant
operating and net losses, due in large part to the start-up and development of
our operations. As of September 30, 2003, we had an accumulated deficit of
approximately $146 million. We anticipate that we will continue to incur
operating and net losses as we continue to implement our growth strategy.
As of September 30, 2003, we had cash and cash equivalents of
approximately $3.3 million, marketable securities and other short-term
investments of approximately $15.2 million and working capital of approximately
$15.2 million. We generated negative cash flow from operating activities of
approximately $2.6 million during the nine months ended September 30, 2003
compared with approximately $5.3 million during the nine months ended September
30, 2002. Accounts receivable were approximately $0.3 million and $0.7 million
at September 30, 2003 and September 30, 2002, respectively.
Our capital expenditures were reduced to approximately $244,000 in the
nine months ended September 30, 2003 from the approximately $399,000 expended in
the nine months ended September 30, 2002 as we continued to improve our overall
utilization of our existing domestic and international network infrastructure.
Short-term, we obtain our funding from our utilization of the remaining
proceeds from our initial public offering offset by positive or negative cash
flow from our operations. These proceeds are maintained as cash, cash
equivalents, and short-term investments with an original maturity of twelve
months or less. Based on current trends in our operations, we believe that these
funds will be sufficient to meet our working capital requirements, including
operating losses, and capital expenditure requirements for at least the next
fiscal year, assuming that our business plan is implemented successfully, and
that:
9
o our recent revenue trends, which reflected an increase in our
higher-margin (primarily PC-to-Phone) products and services,
continue to increase;
o our expense trends remain at or near the rates of our third
quarter 2003 rates, which were significantly reduced during
the past twelve months through reductions in personnel,
curtailment of discretionary expenditures, and reduced network
rent and termination rates from our carriers; and
o our net cash-burn rate, which was significantly reduced during
the past twelve months due to the foregoing factors to
approximately $0.6 million in the third quarter of 2003,
continues to improve throughout the remainder of 2003 and
beyond.
To the extent that these trends do not remain steady, or if in the
longer-term we are not able to successfully implement our business strategy, we
may be required to raise additional funds for our ongoing operations. Additional
financing may not be available when needed or, if available, such financing may
not be on terms favorable to us, especially in light of current economic
conditions and the unfavorable market for telecommunications companies in
particular. If additional funds are raised through the issuance of equity
securities, our existing stockholders may experience significant dilution. In
addition, we cannot assure you that any third party will be willing or able to
provide additional capital to us on favorable terms or at all.
Forward-Looking Statements
Certain matters discussed in this Report under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources" contain certain forward-looking
statements which involve risks and uncertainties and depend upon certain
assumptions, some of which may be beyond our control, including, but not limited
to, uncertainty of financial estimates and projections, the competitive
environment for Internet telephony, our limited operating history, changes of
rates of all related telecommunications services, the level and rate of customer
acceptance of new products and services, legislation that may affect the
Internet telephony industry, rapid technological changes, as well as other risks
referenced from time to time in our filings with the Securities and Exchange
Commission, and, accordingly, there can be no assurance with regard to such
statements. All forward-looking statements and risk factors included in this
document are made as of the date hereof, based on information available to us as
of the date thereof, and we assume no obligation to update any forward-looking
statement or risk factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Securities and Exchange Commission's rule related to market risk
disclosure requires that we describe and quantify our potential losses from
market risk sensitive instruments attributable to reasonably possible market
changes. Market risk sensitive instruments include all financial or commodity
instruments and other financial instruments (such as investments and debt) that
are sensitive to future changes in interest rates, currency exchange rates,
commodity prices or other market factors. We believe that our exposure to market
risk is immaterial. We currently do not invest in, or otherwise hold, for
trading or other purposes, any financial instruments subject to market risk.
10
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Our principal executive officer and principal financial officer, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the
period covered by this Quarterly Report on Form 10-Q, have concluded that, based
on such evaluation, our disclosure controls and procedures were adequate and
effective to ensure that material information relating to us was made known to
them by others within deltathree, particularly during the period in which this
quarterly report on Form 10-Q was being prepared.
(b) Changes in Internal Controls.
There were no changes in our internal control over financial reporting,
identified in connection with the evaluation of such internal control that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
11
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
We, as well as certain of our former officers and directors, have been
named as defendants in a number of purported securities class actions in Federal
District Court for the Southern District of New York, arising out of our initial
public offering in November 1999 (the "IPO"). Various underwriters of the IPO
also are named as defendants in the actions. The complaints allege, among other
things, that the registration statement and prospectus filed with the Securities
and Exchange Commission for purposes of the IPO were false and misleading
because they failed to disclose that the underwriters allegedly (i) solicited
and received commissions from certain investors in exchange for allocating to
them shares of our stock in connection with the IPO and (ii) entered into
agreements with their customers to allocate such stock to those customers in
exchange for the customers agreeing to purchase additional shares in the
aftermarket at predetermined prices. On August 8, 2001, the court ordered that
these actions, along with hundreds of IPO allocation cases against other
issuers, be transferred to Judge Scheindlin for coordinated pre-trial
proceedings. In July 2002, omnibus motions to dismiss the complaints based on
common legal issues were filed on behalf of all issuers and underwriters. On
February 19, 2003, the Court issued an opinion granting in part and denying in
part those motions to dismiss. The complaint against the Company was not
dismissed as a matter of law. These cases remain at a preliminary stage and no
discovery proceedings have taken place. We believe that the claims asserted
against us in these cases are without merit and intend to defend ourselves
vigorously against them. A proposed settlement agreement between the plaintiffs
and issuer defendants is in the process of being negotiated and approved.
We are not a party to any other material litigation and are not aware
of any other pending or threatened litigation that could have a material adverse
effect on us or our business taken as a whole.
Item 2. Change in Securities and Use of Proceeds
On November 22, 1999, we offered 6,000,000 shares of our class A common
stock in an initial public offering. These shares were registered with the
Securities and Exchange Commission on a registration statement on Form S-1 (file
no. 333-86503), which became effective on November 22, 1999. We received net
proceeds of approximately $96,255,000 from the sale of 6,900,000 shares at the
initial public offering price of $15.00 per share after deducting underwriting
commissions and discounts and expenses of approximately $6,300,000. The managing
underwriters for our initial public offering were Lehman Brothers Inc., Merrill
Lynch & Co., U.S. Bancorp Piper Jaffray, Lazard Freres & Co. LLC and Fidelity
Capital Markets.
As of September 30, 2003, we had used approximately $34 million of the
net proceeds for sales, marketing and promotional activities, $20 million for
capital expenditures and $15 million for general corporate purposes. Pending use
of the remaining net proceeds, we have invested the remaining net proceeds in
interest-bearing, investment-grade instruments, certificates of deposit, or
direct or guaranteed obligations of the United States.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's security holders
during the third quarter of 2003.
12
Item 5. Other Information
During the quarterly period ended September 30, 2003, Paul White's
employment agreement with the Company was extended until March 1, 2005.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following exhibits are filed herewith:
Exhibit
Number Description
- ------ -----------
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32 Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. The following report was filed on Form 8-K
during the quarter ended September 30, 2003:
On August 7, 2003, we filed a Form 8-K under Item 9 regarding a press
release announcing our financial results and other data for the quarter ended
June 30, 2003, as well as financial guidance for the quarter ending September
30, 2003.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed
on its behalf by the undersigned thereunto duly authorized.
DELTATHREE, INC.
Date: November 6, 2003 By: /s/ Paul C. White
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Name: Paul C. White
Title: Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32 Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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