According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2006, the Company, as well as certain of its former officers and directors, were named as defendants in a number of purported securities class actions in United States District Court for the Southern District of New York, arising out of the Company’s initial public offering in November 1999. On August 31, 2005, the United States District Court granted preliminary approval of an omnibus settlement of the litigation between the plaintiffs and issuer defendants. Final approval is pending. Under the terms of the settlement, the Company is not conceding any liability and the Company presently does not expect to make any payments under the pending settlement, other than legal fees the Company may incur (which fees are being submitted to the insurance carrier for reimbursement).

The complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint further alleges that the Prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) Lehman Brothers, Merrill Lynch, Bear Stearns and Goldman Sachs had solicited and received excessive and undisclosed commissions from certain investors in exchange for which Lehman Brothers, Merrill Lynch, Bear Stearns and Goldman Sachs allocated to those investors material portions of the restricted number of deltathree shares issued in connection with the deltathree IPO; and (ii) Lehman Brothers, Merrill Lynch, Bear Stearns and Goldman Sachs had entered into agreements with customers whereby Lehman Brothers, Merrill Lynch, Bear Stearns and Goldman Sachs agreed to allocate deltathree shares to those customers in the deltathree IPO in exchange for which the customers agreed to purchase additional deltathree shares in the aftermarket at pre-determined prices.