Deltathree's capital squeeze

How bad is it at deltathree? Bad enough that the company sent out a press release on Friday announcing it had renegotiated its lease with its NYC landlord to free up $750,000 more of short-term working capital.

Under the agreement deltathree's landlord and subtenant of its offices at 75 Broad Street agreed to release and terminate the letter of credit securing deltathree's obligations under the lease. With other negotiated release of other letters of credit, deltathree expects to get net cash of $750,000 based upon funds that were restricted as of September 30, 2008. The company is also working on securing additional capital funding - good luck with that in this market - as it continues to restructure by cutting operating costs. We're not sure how far the restructuring can go, though. Since the beginning of the year, the company has laid off two-thirds of its staff and subleased its NYC offices.

Earlier in the week, deltathree reported its 3Q 2008 results with the major headline in the release reading, "Senior Management and Board of Directors Exploring Strategic Financing and Transaction Options With Financial Advisor." This is typically code for "We're in bad shape, we've brought in someone from the outside to see what kind of a deal they can broker, maybe we'll get lucky and get bought."

The company's latest financials don't look good, regardless of how you want to look at them. Total revenues were $4.8 million, down from $5.4 million in 2Q08 and $7.3 million in 3Q07. Third quarter GAAP net loss is $4.0 million as compared to a GAAP net loss for 3Q07 of $2.1 million. If you take out the write-off for assets they got from Go2Call, 3Q08 non-GAAP adjusted EBDITA was $400K. As of Sept. 30, 2008, deltathree held approximately $3.3 million in cash, cash equivalents, short & long term investments, plus additional restricted cash.

Currently, deltathree is supporting "tens of thousands" of active users around the world through a service provider/reseller channel and a direct-to-consumer channel. The direct-to-consumer group includes the iConnectHere offering and the joip consumer brand backed/promoted through Panasonic's GLOBARANGE hybrid phone.

For more:
- deltathree reports third quarter results [1] and clawback [2] of $750K on leasing.