Tshuva succeeding: Deltathree about to sign contract with Microsoft

Yitzhak Tshuva's Deltathree will transmit Internet telephony on Microsofts Messenger service. The Deltathree share skyrocketed 85% with the opening of trade.

When businessman Yitzhak Tshuva acquired Deltathree.com (Nasdaq: DDDC) three months ago from businessman Ronald Lauder, the popular view was that Tshuva was eyeing the cash reserves of the company, which was considered a stock exchange shell. At the time of the acquisition, the company had $4 million in cash and short-term investments, making this assumption plausible.

Tshuva is now proving that his intentions may be of a different nature. The company is notifying the stock exchange today that it is close to reaching an agreement with Microsoft. Under the agreement, Deltathrees solution will be integrated with Microsofts messenger platform. Deltathree specializes in Internet telephony.

Microsoft will cooperate with Deltathrees iConnectHere division. This division will install the SIP communications protocol in Microsoft, enabling PC users to transfer calls to any telephone line in the world. According to Deltathrees announcement, the only clause in the agreement still being negotiated is Deltathrees payment to Microsoft for adding the service to the messenger interface. Deltathree believes the service will begin operating through Microsofts instant messaging service as early as the fourth quarter of 2001, and that the agreement will be signed within a few weeks.

The announcement of the upcoming agreement comes at a very interesting time for Deltathree. The company received a warning two months ago that its shares would be delisted, since its share price had fallen below $1 and remained there for a month. Nasdaq gave Deltathree an ultimatum that it had 90 days to get its share price back over $1, or its shares would be delisted and transferred to over-the-counter trade.

With the start of trade today, the Deltathree share skyrocketed 85% from $0.26 to $0.48. Lauder sold RSLs 67% Deltathree holding at $0.80 per share, 8% above the market price, and received a total of $15.6 million. The share has since fallen substantially, despite Tshuva-appointed company chairman Lenny Roths declaration that Deltathree would continue operating as a going concern. The company may now be rescued from delisting.

Until recently, Deltathree was RSLs great hope. The company deals in a variety of Internet telephony services, one of which gives people the capability of conducting calls between a computer and a telephone. Deltathree also developed a box that provides unified messaging service (a combination of e-mail, voice messages, and faxes). In addition, its IT click services enable subscribers to view the web sites of retail companies providing technical support services or advice to buyers - help in buying a computer on the Internet, for example. Subscribers can also call representatives of these companies by pressing a button.

The list of services offered includes regular telephone and fax services that do not require a computer; these global roaming services enable the user to receive telephony services from a wide variety of countries around the world through an access code, and provide him with a free dialing number.

In the second quarter this year, Deltathree posted $2.8 million in revenue, compared with $7.9 million in the corresponding quarter last year, a 65% decline. Despite the sharp decline in revenue, the company reduced its net loss from $8.6 million ($0.30 per share) in the second quarter of 2000 to $6.5 million ($0.23 per share) in the second quarter this year. Deltathrees cash reserves fell to $13.3 million, compared with $20.8 million during the corresponding period last year, while short-term investments declined from $30.5 million to $22.2 million.

At the same time, the company announced it is upgrading its forecast for the end of the year, and expects to reduce its loss per share to $1.05 for 2001, compared with its previous forecast of $1.15-1.17. The company also expects to reach balance in EBITDA in 2002.

Published by Israel's Business Arena on September 24, 2001

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