UNITED STATES
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 June 30, 2000
Commission file number 000-28063
DELTATHREE.COM, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 13-4006766
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
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430 PARK AVENUE, SUITE 500 10022
NEW YORK, NEW YORK (Zip code)
(Address of principal executive
offices)
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Registrant's Telephone Number, Including Area Code: (212) 421-2350
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 | |
As of June 30, 2000, the registrant had 9,254,369 shares of Class A Common
Stock, par value $0.001 per share, and 19,569,459 shares of Class B Common
Stock, par value $0.001 per share, outstanding.
DELTATHREE.COM, INC.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
(Unaudited) and December 31, 1999............................................1
Condensed Consolidated Statements of Operations for the Three and
Six Month Periods Ended June 30, 2000 (Unaudited) and June 30, 1999
(Unaudited)
3
Condensed Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 2000 (Unaudited)
and June 30, 1999 (Unaudited)................................................4
Notes to Condensed Consolidated Financial Statements.........................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................9
Item 2. Change in Securities and Use of Proceeds...........................10
Item 4. Submission of Matters to a Vote of Security Holders................10
Item 5. Other Information..................................................10
Item 6. Exhibits and Reports on Form 8-K...................................12
Signatures..................................................................13
Exhibit Index...............................................................14
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTATHREE.COM.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except per share data)
JUNE 30, DECEMBER 31,
2 0 0 0 1 9 9 9
------- -------
(UNAUDITED)(AUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,244 $ 89,957
Short-term investments 65,997 11,276
Accounts receivable, net 2,416 903
Due from affiliates 1,820 1,760
Prepaid expenses and other current assets 3,012 3,090
-------- --------
Total current assets 88,489 106,986
-------- --------
INVESTMENTS 90 90
-------- --------
PROPERTY AND EQUIPMENT:
Telecommunications equipment 13,202 9,844
Furniture, fixtures and other 2,595 721
-------- --------
15,797 10,565
Less accumulated depreciation (2,092) (1,066)
-------- --------
Property and equipment, net 13,705 9,499
-------- --------
GOODWILL, NET 17,439 9,457
-------- --------
DEPOSITS 1,162 800
-------- --------
Total assets $120,885 $126,832
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term debt due to affiliates $ 13,026 $ 14,752
Accounts payable 2,167 2,580
Due to affiliates 159 626
Deferred revenues and costs 1,082 538
Other current liabilities 6,135 5,548
-------- --------
Total current liabilities 22,569 24,044
-------- --------
LONG-TERM LIABILITIES:
Long-term debt 314 --
Severance pay obligations 218 208
-------- --------
Total long-term liabilities 532 208
-------- --------
Total liabilities 23,101 24,252
-------- --------
STOCKHOLDER'S EQUITY:
Class A common stock, par value $0.001 9 9
Class B common stock, par value $0.001 20 20
Additional paid-in capital 167,437 157,891
Receivable for capital stock (333) (1,232)
Deferred compensation (6,317) (10,670)
Accumulated deficit (63,032) (43,438)
-------- --------
Total stockholder's equity 97,784 102,580
-------- --------
Total liabilities and stockholder's equity $ 120,885 $ 126,832
========= =========
See notes to condensed consolidated financial statements.
DELTATHREE.COM.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2 0 0 0 1 9 9 9 2 0 0 0 1999
------- ------- ------- -----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues:
Affiliates $ 4,629 $ 1,498 $ 9,387 $ 3,086
Non-affiliates 3,237 671 5,049 1,157
---------- --------- ---------- ---------
Total revenues 7,866 2,169 14,436 4,243
---------- --------- ---------- ---------
Costs and operating expenses:
Cost of revenues 6,221 1,600 11,910 3,314
Research and development expenses 1,572 353 2,774 429
Selling and marketing expenses 6,053 846 10,998 1,461
General and administrative expenses (exclusive of 1,669 903 2,836 1,414
non-cash compensation expense shown below)
Non-cash compensation expenses 1,758 1,894 4,156 2,126
Depreciation and amortization 1,904 503 3,257 1,516
---------- --------- ---------- ---------
Total costs and operating expenses 19,177 6,099 35,931 10,260
---------- --------- ---------- ---------
Loss from operations (11,311) (3,930) (21,495) (6,017)
Interest income (expense), net 976 (589) 1,901 (757)
Minority interest -- 3 -- --
---------- --------- ---------- ---------
Net loss $(10,335) $ (4,516) $(19,594) $ (6,774)
========== ========= ========== =========
Net loss per share - basic and diluted $ (0.36) $ (0.57) $ (0.68) $ (0.86)
========== ========= ========== =========
Weighted average shares outstanding -
basic and diluted 28,737,781 7,875,554 28,688,267 7,875,554
========== ========= ========== =========
DELTATHREE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS ENDED
JUNE 30,
2 0 0 0 1 9 9 9
------- -------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (19,594) $ (6,774)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 3,157 1,624
Amortization of deferred compensation 4,156 2,126
Capital gain (6) --
Minority interest -- (22)
Increase (decrease) in liability for severance pay 10 29
Provision for losses on accounts receivable (18) 24
Changes in assets and liabilities:
Increase in accounts receivable (1,495) 35
Decrease (increase) in other current assets
and due from affiliates 37 538
Decrease in accounts payable (413) (594)
Increase (decrease) in deferred revenues 544 (642)
Increase in current liabilities and due to affiliates 120 609
--------- ----------
6,092 3,727
Net cash used in operating activities (13,502) (3,047)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,885) (916)
Proceeds from disposal of property and equipment 28 --
Increase in deposits (362) (1)
--------- ----------
Net cash used in investing activities (5,219) (917)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term investments (54,721) --
Proceeds from issuance of capital stock -- --
Proceeds from short-term debt from affiliates -- --
Payments of short-term debt from affiliates (1,726)
Proceeds from long-term debt from affiliates -- 4,081
Expenses relating to share issuance in 1999 (272) --
Proceeds from exercise of employee options 413 --
Proceeds (payment) of other long-term debt 314 (78)
--------- ----------
Net cash provided by (used in) financing activities (55,992) 4,003
--------- ----------
Increase (decrease) in cash and cash equivalents (74,713) 39
Cash and cash equivalents at beginning of period 89,957 1,357
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,244 $ 1,396
========= ==========
See notes to condensed consolidated financial statements
DELTATHREE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
1. Basis of Presentation
The unaudited condensed consolidated financial statements of
deltathree.com, 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, 1999.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company 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 the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. 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 the Company as of the date
thereof, and the Company assumes no obligation to update any
forward-looking statement or risk factors.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues
Affiliates. Revenues from affiliates were $9.4 million for the six
months ended June 30, 2000 compared to $3.1 million for the six months
ended June 30, 1999, an increase of $6.3 million or 203.2%. The increase in
revenues from affiliates was due to an increase in sales of calling card
products through our affiliate RSL COM USA. Additionally, the increase in
sales to RSL COM was also facilitated by the growth in our network
resulting in our ability to provide additional capacity to RSL COM and an
increase in demand for our services from RSL COM offset by decreases in
prices.
Non-affiliates. Revenues from non-affiliates were $5.0 million for
the six months ended June 30, 2000 compared to $1.2 million for the six
months ended June 30, 1999, an increase of $3.8 million or 316.7 %.
Revenues from carrier transmission services for telecommunications carriers
other than RSL COM were $850,863 for the six months ended June 30, 2000
compared to $489,723 for the six months ended June 30, 1999, an increase of
$361,140 or 73.7 %. The increase was due primarily to an increased demand
from a larger customer base. Revenues from enhanced IP communications
services were $3.9 million for the six months ended June 30, 2000 compared
to $652,580 for the six months ended June 30, 1999, an increase of $3.2
million or 494.1%. The increase in revenues from enhanced IP communications
services was due to integration service fees received from online partners
as well as a greater number of PC-to-phone and phone-to-phone calls being
placed by an increasing user base.
Revenues from carrier transmission services to RSL COM and other
telecommunications carriers accounted for 28.6% and 83.5% of revenues for
the periods ended June 30, 2000 and June 30, 1999, respectively. Other than
RSL COM, no other customer accounted for greater than 10% of the Company's
revenues during these periods. The Company expects that revenues from
carrier transmission services to RSL COM and other carriers will continue
to account for a majority of its revenues through at least the end of 2000.
Costs and Operating Expenses
Cost of revenues. Cost of revenues were $11.9 million for the six
months ended June 30, 2000 compared to $3.3 million for the six months
ended June 30,1999. The increase in cost of revenues was due primarily to
an increase in the amount of traffic being terminated.
Research and development expenses. Research and development expenses
were $2.8 million for the six months ended June 30, 2000 compared to $0.4
million for the six months ended June 30, 1999. The increase in research
and development expenses was due to greater costs incurred in hiring
additional personnel to develop new services and enhancements to the
Company's existing services.
Selling and marketing expenses. Selling and marketing expenses were
$11.0 million for the six months ended June 30, 2000 compared to $1.5
million for the six months ended June 30, 1999, an increase of $9.5 million
or 633.3%. The increase in selling and marketing expenses was due to a
significant increase in branding costs, promotional activities and
personnel to support the expansion of such marketing and promotional
activities.
General and administrative expenses. General and administrative
expenses (exclusive of non-cash compensation expenses) were $2.8 million
for the six months ended June 30, 2000 compared to $1.4 million for the six
months ended June 30, 1999, an increase of $1.4 million or 100.0%. The
increase in general and administrative expenses was primarily due to hiring
additional personnel and increased occupancy costs. The Company expects
that general and administrative expenses will continue to increase as
additional personnel are recruited to support the Company's growth.
Non-cash compensation expenses. Non-cash compensation expenses were
$4.2 million for the six months ended June 30, 2000 compared to $2.1
million for the six months ended June 30, 1999, an increase of $2.1 million
or 100%. The increase in non-cash compensation expenses was due to the
amortization of costs incurred with the 1997, 1998 and 1999 grants of
options and warrants below the then fair market value.
Depreciation and amortization of goodwill. Depreciation and
amortization of goodwill was $3.3 million for the six months ended June 30,
2000 compared to $1.5 million for the six months ended June 30, 1999, an
increase of $1.8 million or 120.0%. The increase in depreciation and
amortization of goodwill was due to the continued increase in the Company's
fixed assets and the acquisition of YourDay.com, Inc. during the first
quarter of 2000.
Loss from Operations
Loss from operations was $21.5 million for the six months ended June
30, 2000 compared to $6.0 million for the six months ended June 30, 1999,
an increase of $15.5 million or 258.3%. The increase in loss from
operations was due primarily to the increase in costs and operating
expenses, including non-cash compensation expenses and sales and marketing
expenses, as well as a decrease in prices the Company charged for carrier
transmission services. The Company expects to continue to incur losses for
the foreseeable future.
Interest Income (Expense), Net
Interest income, net was $1.9 million for the six months ended June 30,
2000 compared to interest expense of $0.76 million for the six months ended
June 30, 1999, an increase of $2.7 million. The increase in interest income
was primarily due to interest earned on the remaining proceeds from the
Company's initial public offering. The Company incurs interest expense in
connection with its borrowings from RSL COM.
Net Loss
Net loss was $19.6 million for the six months ended June 30, 2000
compared to $6.8 million for the six months ended June 30, 1999, an
increase of $12.8 million or 188%. The increase in net loss was due to the
foregoing factors.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Revenues
Affiliates. Revenues from affiliates were $4.6 million for the three
months ended June 30, 2000 compared to $1.5 million for the three months
ended June 30, 1999, an increase of $3.1 million or 206.7%. The increase in
revenues from affiliates was due to an increase in sales of calling card
products through our affiliate RSL COM USA. Additionally, the increase in
sales to RSL COM was also facilitated by the growth in our network
resulting in our ability to provide additional capacity to RSL COM and an
increase in demand for our services from RSL COM offset by decreases in
prices.
Non-affiliates. Revenues from non-affiliates were $3.2 million for
the three months ended June 30, 2000 compared to $0.67 million for the
three months ended June 30, 1999, an increase of $2.5 million or 376.9%.
Revenues from carrier transmission services for telecommunications carriers
other than RSL COM were $316,521 for the three months ended June 30, 2000
compared to $312,983 for the three months ended June 30, 1999, an increase
of $3,538 or 1.1%. Revenues from enhanced IP communications services were
$2.7 million for the three months ended June 30, 2000 compared to $388,044
for the three months ended June 30, 1999, an increase of $2.3 million or
585.1%. The increase in revenues from enhanced IP communications services
was due to integration service fees received from online partners as well
as a greater number of PC-to-phone and phone-to-phone calls being placed by
an increasing user base.
Revenues from carrier transmission services to RSL COM and other
telecommunications carriers accounted for 24.4% and 83.4% of revenues for
the periods ended June 30, 2000 and June 30, 1999, respectively. Other than
RSL COM, no other customer accounted for greater than 10% of the Company's
revenues during these periods. The Company expects that revenues from
carrier transmission services to RSL COM and other carriers will continue
to account for a majority of its revenues through at least the end of 2000.
Costs and Operating Expenses
Cost of revenues. Cost of revenues were $6.2 million for the three
months ended June 30, 2000 compared to $1.6 million for the three months
ended June 30, 1999. The increase in cost of revenues was due primarily to
an increase in the amount of traffic being terminated.
Research and development expenses. Research and development expenses
were $1.6 million for the three months ended June 30, 2000 compared to
$0.35 million for the three months ended June 30, 1999. The increase in
research and development expenses was due to greater costs incurred in
additional hiring personnel to develop new services and enhancements to the
Company's existing services.
Selling and marketing expenses. Selling and marketing expenses were
$6.1 million for the three months ended June 30, 2000 compared to $0.85
million for the three months ended June 30, 1999, an increase of $5.3
million or 621.0%. The increase in selling and marketing expenses was due
to a significant increase in branding costs, promotional activities and
personnel to support the expansion of such marketing and promotional
activities.
General and administrative expenses. General and administrative
expenses (exclusive of non-cash compensation expenses) were $1.7 million
for the three months ended June 30, 2000 compared to $0.9 million for the
three months ended June 30, 1999, an increase of $0.8 million or 89.0%. The
increase in general and administrative expenses was primarily due to hiring
additional personnel and increased occupancy costs. The Company expects
that general and administrative expenses will continue to increase as
additional personnel are recruited to support the Company's growth.
Non-cash compensation expenses. Non-cash compensation expenses were
$1.8 million for the three months ended June 30, 2000 compared to $1.9
million for the three months ended June 30, 1999, a decrease of $0.1
million or 5.3%.
Depreciation and amortization of goodwill. Depreciation and
amortization of goodwill was $1.9 million for the three months ended June
30, 2000 compared to $0.5 for the three months ended June 30, 1999, an
increase of $1.4 million or 280.0%. The increase in depreciation and
amortization of goodwill was due to the continued increase in the Company's
fixed assets and the acquisition of YourDay.com, Inc. during the first
quarter of 2000.
Loss from Operations
Loss from operations was $11.3 million for the three months ended
June 30, 2000 compared to $3.9 million for the three months ended June 30,
1999, an increase of $7.4 million or 189.7%. The increase in loss from
operations was due primarily to the increase in costs and operating
expenses, including non-cash compensation expenses and sales and marketing
expenses, as well as a decrease in prices the Company charged for carrier
transmission services. The Company expects to continue to incur losses for
the foreseeable future.
Interest Income (Expense), Net
Interest income, net was $0.98 million for the three months ended
June 30, 2000 compared to interest expense of $0.60 million for the three
months ended June 30, 1999, an increase of $1.58 million. The increase in
interest income was primarily due to interest earned on the remaining
proceeds from the Company's initial public offering. The Company incurs
interest expense in connection with its borrowings from RSL COM.
Net Loss
Net loss was $10.3 million for the three months ended June 30, 2000
compared to $4.5 million for the three months ended June 30, 1999, an
increase of $5.8 million or 128.9%. The increase in net loss was due to the
foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash and cash equivalents of
approximately $15.2 million, marketable securities-available for sale of
approximately $66.0 million and working capital of approximately $65.9
million. The Company generated negative cash flow from operating activities
of approximately $13.5 million during the six months ended June 30, 2000
compared with negative cash flow from operating activities of $3.0 million
during the six months ended June 30, 1999. Accounts receivable were
approximately $2.4 million and $1.0 million at June 30, 2000 and June 30,
1999, respectively. Accounts receivable and accounts payable have increased
from period to period as the Company's business has grown.
The Company's capital expenditures increased from approximately $0.9
million in the six months ended June 30, 1999 compared to approximately
$5.2 million in the six months ended June 30, 2000, as the Company expanded
its domestic and international network infrastructure.
The Company registered 6,900,000 of its Class A common Stock on a
Form S-1 registration statement, which became effective on November 22,
1999. The Company received net proceeds, after deducting underwriting
discounts and commissions and offering expenses, of approximately
$96,255,000 from the sale of 6,900,000 at the initial public offering price
of $15.00 per share on November 29, 1999.
The Company believes that its available cash and cash equivalents
will be sufficient to meet its working capital requirements, including
operating losses, and capital expenditure requirements for at least the
next 18 months, assuming the Company's business plan is implemented
successfully. Thereafter, the Company will be required to raise additional
funds. Additional financing may not be available when needed or, if
available, such financing may not be on terms favorable to the Company. If
additional funds are raised through the issuance of equity securities, the
Company's existing stockholders may experience significant dilution. In
addition, the indentures governing outstanding indebtedness of RSL COM
restrict the Company's ability to incur indebtedness. The Company also has
agreed with RSL COM not to incur any debt (other than inter-company debt)
without its written consent so long as the Company is a restricted
subsidiary of RSL COM. Those limitations may require the Company to resort
to other sources of funding, such as the issuance of equity, and the
Company may need to rely upon RSL COM to provide any additional capital to
meet its working capital and capital expenditure requirements, and the
Company cannot assure you that RSL COM or any other third party will be
willing or able to provide additional capital on favorable terms or at all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Securities and Exchange Commission's rule related to market risk
disclosure requires that the Company describe and quantify its 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.
The Company believes its exposure to market risk is immaterial. The Company
currently does not invest in, or otherwise hold, for trading or other
purposes, any financial instruments subject to market risk.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 8, 1999, Aerotel, Ltd. and Aerotel U.S.A. commenced a suit
against us, RSL COM and an RSL COM subsidiary in the United States District
Court for the Southern District of New York. Aerotel alleges that we are
infringing on a patent issued to Aerotel in November 1987 by making, using,
selling and offering for sale prepaid telephone card products in the United
States. Aerotel seeks an injunction to stop us from using the technology
covered by this patent, monetary damages in an unspecified amount and
reimbursement of attorneys' fees. We have answered the complaint, and the
parties are currently engaged in pre-trial discovery. As we continue to
evaluate these claims, we believe that we have meritorious defenses to the
claims and we intend to defend the lawsuit vigorously. However, the outcome
of the litigation is inherently unpredictable and an unfavorable result may
have a material adverse effect on our business, financial condition and
results of operations. Regardless of the ultimate outcome, the litigation
could result in substantial expenses to us and significant diversion of
efforts by our managerial and other personnel.
The Company is 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, the Company offered 6,900,000 shares of its
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. The Company 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 the 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 the date of this report, the Company has used approximately
$66.0 million of the cash proceeds to purchase marketable government
securities. We have not otherwise made any specific allocations with
respect to the net proceeds from the initial public offering. The Company
expects that it will use the net proceeds to be allocated as follows:
o approximately $20 million to fund marketing and promotional
activities;
o approximately $10 million for capital expenditures; and
o the balance for general corporate purposes
The preceding allocations are only an estimate and the amounts that
the Company actually expends will depend upon several factors, including
its available cash, the success of the Company's marketing and promotional
activities and the availability of new business opportunities. Pending use
of the net proceeds, the Company intends to invest the 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
The Company's Annual Meeting of Stockholders (the "Meeting") was held
on June 13, 2000. The following matters were submitted to the Company's
stockholders for their vote, and the results of the votes taken at the
Meeting were as follows:
(1) Nine of the Company's Directors were reelected for a
term of one year:
(a) Elie C. Wurtman: 196,991,959 votes for; 69,745 votes against;
(b) Itzhak Fisher: 196,991,959 votes for; 69,745 votes against;
(c) Donald R. Shassian: 196,991,959 votes for; 69,745 votes against;
(d) Jacob Z. Schuster: 196,991,959 votes for; 69,745 votes against;
(e) Nir Tarlovsky: 196,991,959 votes for; 69,745 votes against;
(f) Avery Fischer: 196,991,959 votes for; 69,745 votes against;
(g) Robert R. Grusky: 196,991,959 votes for; 69,745 votes against;
(h) Oakleigh Thorne: 196,991,959 votes for; 69,745 votes against; and
(i) Yadin Kaufmann: 196,991,959 votes for; 69,745 votes against.
(2) The appointment of Brightman Almagor & Co., a member firm
of Deloitte & Touche Tohmatsu, as the Company's independent
auditors for the fiscal year ending December 31, 2000 was ratified
by the following vote: 196,903,218 votes for; 155,800 votes
against; and 2,686 abstentions.
ITEM 5. OTHER INFORMATION
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 the Company's
control, including, but not limited to, changing market conditions,
competitive and regulatory matters (such as timing and extent of
deregulation of telecommunications market, the size and financial resources
of competitors, etc.), general economic conditions in the markets in which
the Company operates, as well as other risks referenced from time to time
in the Company's filings with the Securities and Exchange Commission, and,
accordingly, there can be no assurance with regard to such statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Securities and Exchange
Commission.
EXHIBIT
NUMBER DESCRIPTION
3.1** Form of Amended and Restated Certificate of
Incorporation of deltathree.com, Inc.
3.2** Form of Amended and Restated By-laws of deltathree.com, Inc.
4.1** Specimen Certificate of Common Stock.
4.2** Specimen Certificate of Class B Common Stock.
4.3** Registration Rights Agreement dated September 1, 1999,
between RSL Communications, Ltd. and deltathree.com, Inc.
10.1** Amended and Restated Services Agreement by and between
RSL Communications, Ltd. and deltathree.com, Inc.,
dated September 3, 1999.
10.2** Credit Facility dated September 1, 1999, between RSL
Communications, Ltd. and deltathree.com, Inc.
10.3** Form of deltathree.com, Inc. 1999 Stock Incentive Plan.
10.4** Form of deltathree.com, Inc. 1999 Employee Stock Purchase Plan.
10.5** Form of deltathree.com, Inc. 1999 Performance Incentive Plan.
10.6** Form of deltathree.com, Inc. 1999 Directors' Plan.
10.7** Employment Agreement effective as of April 1, 1999,
between Amos Sela and deltathree.com, Inc.
10.8** Employment Agreement effective as of April 1, 1999,
between Mark J. Hirschhorn and deltathree.com, Inc.
10.9** Employment Agreement effective as of April 1, 1999,
between Noam Bardin and deltathree.com, Inc.
10.10** Employment Agreement effective as of April 1, 1999,
between Shimmy Zimels and deltathree.com, Inc.
10.11** Employment Agreement effective as of April 1, 1999,
between Elie C. Wurtman and deltathree.com, Inc.
10.12** Employment Agreement effective as of April 1, 1999,
between Jacob A. Davidson and deltathree.com, Inc.
10.13** Investor Rights Agreement dated as of September 29, 1999
between Yahoo! Inc. and deltathree.com, Inc.
10.14** Form of warrant issued to Yahoo! Inc on October 18, 1999.
10.15** Management Agreement dated as of November 1, 1999
between deltathree.com, Inc. and RSL Communications, Ltd.
10.16** Amendment to Services Agreement by and between RSL
Communications, Ltd. and deltathree.com, Inc., dated
November 1, 1999.
10.17** Investor Rights Agreement dated as of October 20, 1999
between CNET Investments, Inc. and deltathree.com, Inc.
10.18** Form of warrant issued to CNET Investments, Inc. on
October 20, 1999.
10.19** Intercompany Compliance Agreement dated as of November 1, 1999,
between RSL Communications, Ltd., RSL Communications PLC and
deltathree.com, Inc.
10.20** Development and Promotion Agreement effective as of
September 22, 1999 between CNET, Inc. and deltathree.com, Inc.
10.21** Form of Proposed Release and Indemnification Agreement
between RSL Communications, Ltd. and deltathree.com, Inc.
10.22+ Agreement and Plan of Merger dated as of February 3,
2000 between deltathree.com, Inc., YourDay Acquisition
Corp., YourDay.com, Inc. and SenseNet Inc.
10.23 Amendment No. 1 to Employment Agreement between Noam Bardin and
deltathree.com, Inc., dated June 1, 2000.
10.24 Amendment No. 1 to Employment Agreement between Shimmy Zimels and
deltathree.com, Inc., dated June 1, 2000.
27.1 Financial Data Schedule.
** Incorporated by reference to the Company's registration
statement on Form S-1 (Registration No. 333-86503).
+ Incorporated by reference to the Company's quarterly
report on Form 10-Q filed on May 15, 2000.
(b) Reports on Form 8-K.
During the second quarter of 2000, the Company did not file any
reports on Form 8-K.
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.COM, INC.
Date: August 14, 2000
By: /s/ Shimmy Zimels
------------------------------
Name: Shimmy Zimels
Title: Vice President and
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1** Form of Amended and Restated Certificate of
Incorporation of deltathree.com, Inc.
3.2** Form of Amended and Restated By-laws of deltathree.com, Inc.
4.1** Specimen Certificate of Common Stock.
4.2** Specimen Certificate of Class B Common Stock.
4.3** Registration Rights Agreement dated September 1, 1999,
between RSL Communications, Ltd. and deltathree.com, Inc.
10.1** Amended and Restated Services Agreement by and between
RSL Communications, Ltd. and deltathree.com, Inc.,
dated September 3, 1999.
10.2** Credit Facility dated September 1, 1999, between RSL
Communications, Ltd. and deltathree.com, Inc.
10.3** Form of deltathree.com, Inc. 1999 Stock Incentive Plan.
10.4** Form of deltathree.com, Inc. 1999 Employee Stock Purchase Plan.
10.5** Form of deltathree.com, Inc. 1999 Performance Incentive Plan.
10.6** Form of deltathree.com, Inc. 1999 Directors' Plan.
10.7** Employment Agreement effective as of April 1, 1999,
between Amos Sela and deltathree.com, Inc.
10.8** Employment Agreement effective as of April 1, 1999,
between Mark J. Hirschhorn and deltathree.com, Inc.
10.9** Employment Agreement effective as of April 1, 1999,
between Noam Bardin and deltathree.com, Inc.
10.10** Employment Agreement effective as of April 1, 1999,
between Shimmy Zimels and deltathree.com, Inc.
10.11** Employment Agreement effective as of April 1, 1999,
between Elie C. Wurtman and deltathree.com, Inc.
10.12** Employment Agreement effective as of April 1, 1999,
between Jacob A. Davidson and deltathree.com, Inc.
10.13** Investor Rights Agreement dated as of September 29, 1999
between Yahoo! Inc. and deltathree.com, Inc.
10.14** Form of warrant issued to Yahoo! Inc on October 18, 1999.
10.15** Management Agreement dated as of November 1, 1999
between deltathree.com, Inc. and RSL Communications, Ltd.
10.16** Amendment to Services Agreement by and between RSL
Communications, Ltd. and deltathree.com, Inc., dated
November 1, 1999.
10.17** Investor Rights Agreement dated as of October 20, 1999
between CNET Investments, Inc. and deltathree.com, Inc.
10.18** Form of warrant issued to CNET Investments, Inc. on
October 20, 1999.
10.19** Intercompany Compliance Agreement dated as of November 1, 1999,
between RSL Communications, Ltd., RSL Communications PLC and
deltathree.com, Inc.
10.20** Development and Promotion Agreement effective as of
September 22, 1999 between CNET, Inc. and deltathree.com, Inc.
10.21** Form of Proposed Release and Indemnification Agreement
between RSL Communications, Ltd. and deltathree.com, Inc.
10.22+ Agreement and Plan of Merger dated as of February 3,
2000 between deltathree.com, Inc., YourDay Acquisition
Corp., YourDay.com, Inc. and SenseNet Inc.
10.23 Amendment No. 1 to Employment Agreement between Noam Bardin and
deltathree.com, Inc., dated June 1, 2000.
10.24 Amendment No. 1 to Employment Agreement between Shimmy Zimels and
deltathree.com, Inc., dated June 1, 2000.
27.1 Financial Data Schedule.
** Incorporated by reference to the Company's registration
statement on Form S-1 (Registration No. 333-86503).
+ Incorporated by reference to the Company's quarterly
report on Form 10-Q filed on May 15, 2000.