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Deltathree Reports Second Quarter 2010 Financial Results

Adjusted EBITDA Financial Disclosure

Investors are cautioned that adjusted EBITDA is not a measure of liquidity or financial performance under generally accepted accounting principles ("GAAP"). In addition, it should not be construed as an alternative to any other measures of performance determined in accordance with GAAP, or as an indicator of the company's operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that it fails to address. Adjusted EBITDA financial information is presented because deltathree believes that it is helpful to some investors as one measure of the company's operations. deltathree cautions investors that non-GAAP financial information such as adjusted EBITDA, by its nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare deltathree's results with the results from other reporting periods and with the results of other companies.

About deltathree

Founded in 1996, deltathree, Inc. is a global provider of video and voice over Internet Protocol (VoIP) telephony services, products, hosted solutions and infrastructures for service providers, resellers and direct consumers. Supporting tens of thousands of active users around the world, deltathree serves customers through its two primary distribution channels: the service provider and reseller channel and the direct-to-consumer channel. deltathree's advanced solutions offer service providers and resellers a full spectrum of private label IP-based digital voice and video products and services, as well as a back-office suite of services. Utilizing advanced Session Initiation Protocol (SIP) technology, deltathree provides all the components to support a complete VoIP service deployment. deltathree's direct-to-consumer channel consists of the iConnectHere direct-to-consumer offering and joip, which powers the VoIP service of Panasonic's Globarange hybrid phone.

For more information about deltathree please visit: www.deltathree.com .

For more information about iConnectHere, please visit our website at www.iconnecthere.com .

For more information about joip Mobile, please visit our website at www.joipmobile.com .

Except for historical matters contained herein, the matters discussed in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that these forward-looking statements reflect numerous assumptions and involve risks and uncertainties that may affect deltathree's business and prospects and cause actual results to differ materially from these forward-looking statements. Among the factors that could cause actual results to differ are: our ability to obtain additional capital in the near-term to finance operations;  our ability to reduce our costs and expenses and expand our revenues; our ability to retain key personnel and employees needed to support our services and ongoing operations; our dependence on a small number of key customers for a significant percentage of our revenue; our lack of sales and business development personnel in our service provider and direct-to-consumer divisions; decreasing rates of telecommunications services; the public's acceptance of VoIP telephony, and the level and rate of customer acceptance of our new products and services; the competitive environment of Internet telephony and our ability to compete effectively; fluctuations in our quarterly financial results; our ability to maintain and operate our computer and communications systems without interruptions or security breaches; our ability to operate in international markets; our ability to provide quality and reliable service, which is in part dependent upon the proper functioning of equipment owned and operated by third parties; the uncertainty of future governmental regulation; our ability to protect our intellectual property against infringement by others, and the costs and diversion of resources relating to any claims that we infringe the intellectual property rights of third parties; our ability to comply with governmental regulations applicable to our business; the need for ongoing product and service development in an environment of rapid technological change; and other risks  referenced from time to time in our filings with the SEC and available on the Internet at http://www.sec.gov . Except as required under the federal securities laws and the rules and regulations of the SEC, deltathree does not have any intention or obligation to update publicly any forward-looking statements after the distribution of this news release, whether as a result of new information, future events, changes in assumptions or otherwise.

DELTATHREE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in thousands)
     
  June 30, 2010 December 31, 2009
ASSETS    
Current assets:    
Cash and cash equivalents $ 1,225 $ 1,514
Restricted cash and Short-term investments  368 366
Accounts receivable, net  299 270
Prepaid expenses and other current assets  390 409
Inventory  27  29
     
Total current assets 2,309 2,588
     
Property and equipment, net 492 654
Deposits  73 67
Total assets $ 2,874 $ 3,309
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Current portion of capital leases $ 67 $ 144
Accounts payable and accrued expenses  1,962 1,912
Deferred revenues   623 657
Other current liabilities   1,560 1,868
Short-term loan from a related party  1,000 --
     
Total current liabilities 5,212 4,581
     
Long-term liabilities:    
Capital leases, net of current portion  --  3
Severance pay obligations  158 150
Total long-term liabilities 158 153
Total liabilities 5,370 4,734
     
Stockholders' equity (deficiency):    
Common stock, par value $0.001 per share - authorized: 200,000,000 shares; issued and outstanding: 72,030,505 at December 31, 2009, and 72,214,873 at June 30, 2010  72 72
Additional paid-in capital  174,538 174,324
Accumulated deficit (177,106) (175,821)
Total stockholders' equity (deficiency) (2,496) (1,425)
     
Total liabilities and stockholders' equity (deficiency) $ 2,874 $ 3,309
 
DELTATHREE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except share and per share data)
         
  Three months ended June 30, Six month ended June 30,
  2010 2009 2010 2009
         
Revenues $3,394 $5,253 $6,459 $10,505
         
Costs and operating expenses:        
Cost of revenues 3,074 4,553 5,574 8,764
Research and development expenses 150 117 283 240
Selling and marketing expenses 174 301 375 687
General and administrative expenses  648 1,256 1,225 1,977
Depreciation and amortization  104 252 222 526
         
Total costs and operating expenses 4,151 6,479 7,680 12,194
         
Loss from operations (757) (1,226) (1,221) (1,689)
         
Capital gain  --   --   --   14
Other non-operating income  --   --   --   15
Interest (expense) income, net (52) (31) (52) (32)
         
Loss before income taxes  (809) (1,257) (1,273) (1,692)
         
Income taxes 4 4 12 10
         
Net loss $ (813) $ (1,261) $ (1,285) $ (1,702)
         
Net loss per share – basic and diluted $ (0.01) $ (0.02) $ (0.02) $ (0.02)
         
Basic and diluted weighted average number of shares outstanding 72,233,580 71,932,405 72,202,852 71,932,405
 
DELTATHREE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
     
  Six months ended June 30,
  2010 2009
Cash flows from operating activities    
     
Net loss  $ (1,285)  $ (1,702)
     
Adjustments to reconcile loss for the period to net cash used in operating activities:  
Depreciation of property, plant and equipment 222 526
Write-off of fixed asset  --  20
Capital gain  --  (14)
Stock based compensation  214 60
Provision for losses on accounts receivable 3 180
Change in liability for severance pay, net 8 (33)
Exchange rates differences on deposits , net (6) 2
     
Changes in operating assets and liabilities:    
(Increase) decrease in accounts receivable (32) 124
Decrease (increase) in prepaid expenses and other current assets 19 (37)
Decrease (increase) in inventory 2 (3)
Increase in accounts payable and accrued expenses 50 152
(Decrease) in deferred revenues (34) (56)
(Decrease) increase in other current liabilities (308) 343
  138 1,264
     
Net cash (used in) operating activities (1,147) (438)
     
Cash flows from investing activities:    
Purchase of property and equipment  (60)  (49)
Proceeds from disposal of property and equipment  --  60
(Increase) in short-term investments  (2)  --
Net cash (used in) provided by investing activities (62) 11
     
Cash flows from financing activities:    
Short-term loan from a related party 1,000 --
Proceeds from issuance of shares, net -- 1,070
Payment of capital leases (80) (76)
Net cash provided by financing activities 920 994
     
Decrease in cash and cash equivalents (289) 567
Cash and cash equivalents at beginning of year 1,514 1,788
Cash and cash equivalents at end of the year  $ 1,225  $ 2,355
     
Supplemental schedule of cash flow information:    
Cash paid for:    
Taxes  $ 12  $ 10
     
Supplemental schedule of financing activities:    
Cash received from:    
Proceeds from issuance of shares  --   $ 1,170
Direct costs paid for services due to issuance of shares  --   $ (100)
Total proceeds  $ --  $ 1,070
 
DELTATHREE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(Unaudited)
($ in thousands, except share and per share data)
     
  Six months ended June 30,
  2010 2009
     
Net loss in accordance with Generally Accepted Accounting Principles  $ (1,285)  $ (1,702)
     
Depreciation and amortization  $ 222  $ 526
Stock-based compensation  $ 214  $ 60
Interest (expense), net  $ (52)  $ (32)
Income taxes  $ 12  $ 10
     
Adjusted EBITDA  $ (785)  $ (1,074)
     
Basic and diluted adjusted EBITDA per share  $ (0.01) $ (0.01)
     
Basic and diluted weighted average number of shares outstanding  72,233,580 71,932,405

deltathree defines adjusted EBITDA as earnings before stock-based compensation, interest, income taxes, depreciation and amortization.

CONTACT:  Grayling
          Investor Relations Contact:
          Erik Knettel
          1-646-284-9415
          ir@deltathree.com

          deltathree, Inc.
          Ziv Zviel, Chief Financial Officer and Treasurer
          1-212-500-4860
          ziv.zviel@deltathree.com

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