UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended
March 31,
2009
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ____________ to ____________
Commission
file number:
001-32521
XFONE,
INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
11-3618510
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
5307
W. Loop 289
Lubbock,
Texas 79414
(Address
of principal executive offices)
806-771-5212
(Registrant’s
telephone number, including area code)
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
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).
Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated
filer
o
|
Accelerated
filer
o
|
Non-accelerated
filer
o
|
Smaller
reporting
company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
As of May
13, 2009,
18,376,075
shares of the Company’s common stock, $0.001 par value, were issued and
outstanding
XFONE,
INC. AND SUBSIDIARIES
Index
|
Page
|
|
3
|
|
3
|
|
20
|
|
27
|
|
27
|
|
|
|
28
|
|
28
|
|
29
|
|
29
|
|
29
|
|
29
|
|
29
|
|
29
|
|
36
|
|
|
PART I:
FINANCIAL
INFORMATION
Item
1:
|
Financial
Statements and Condensed Notes (Unaudited) - Period Ended March 31,
2009
|
Xfone,
Inc. and Subsidiaries
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
|
|
March
31, 2009
|
Xfone,
Inc. and Subsidiaries
|
|
CONDENSED
CONSOLIDATED BA
LANCE SHEETS
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Unaudited
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,193,809
|
|
|
$
|
3,078,474
|
|
Restricted
deposit
|
|
|
87,803
|
|
|
|
-
|
|
Accounts
receivable, net
|
|
|
6,412,044
|
|
|
|
7,834,003
|
|
Prepaid
expenses and other receivables
|
|
|
4,108,513
|
|
|
|
4,291,637
|
|
Deferred
taxes
|
|
|
2,771,282
|
|
|
|
2,795,473
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
16,573,451
|
|
|
|
17,999,587
|
|
|
|
|
|
|
|
|
|
|
INVENTORY
|
|
|
295,467
|
|
|
|
302,547
|
|
|
|
|
|
|
|
|
|
|
BONDS
ISSUANCE COSTS , NET
|
|
|
1,685,780
|
|
|
|
1,696,278
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
TAXES
|
|
|
2,113,206
|
|
|
|
2,146,010
|
|
|
|
|
|
|
|
|
|
|
OTHER
LONG TERM ASSETS
|
|
|
399,190
|
|
|
|
474,408
|
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS, NET
|
|
|
51,362,291
|
|
|
|
50,020,597
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS, NET
|
|
|
2,832,659
|
|
|
|
3,051,839
|
|
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
27,413,481
|
|
|
|
27,413,481
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
102,675,525
|
|
|
$
|
103,104,747
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Xfone,
Inc. and Subsidiaries
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March
31,
|
December
31,
|
|
|
2009
|
|
|
2008
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
Short-term
bank credit and current maturities of notes payable
|
|
$
|
4,423,899
|
|
|
$
|
5,295,014
|
|
Trade
payables
|
|
|
8,036,516
|
|
|
|
9,689,330
|
|
Other
liabilities and accrued expenses
|
|
|
7,218,910
|
|
|
|
7,674,870
|
|
Current
maturities of obligations under capital leases
|
|
|
240,772
|
|
|
|
288,688
|
|
Current
maturities of bonds
|
|
|
3,596,677
|
|
|
|
3,492,127
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
23,516,774
|
|
|
|
26,440,029
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
TAXES
|
|
|
8,272,345
|
|
|
|
8,362,920
|
|
|
|
|
|
|
|
|
|
|
NOTES
PAYABLE, NET OF CURRENT MATURITIES
|
|
|
6,267,185
|
|
|
|
4,113,093
|
|
|
|
|
|
|
|
|
|
|
BONDS
PAYABLES , NET OF CURRENT MATURITIES
|
|
|
18,121,085
|
|
|
|
20,062,127
|
|
|
|
|
|
|
|
|
|
|
OBLIGATIONS
UNDER CAPITAL LEASES , NET OF CURRENT MATURITIES
|
|
|
251,246
|
|
|
|
307,596
|
|
|
|
|
|
|
|
|
|
|
OTHER
LONG TERM LIABILITIES
|
|
|
472,919
|
|
|
|
537,252
|
|
|
|
|
|
|
|
|
|
|
SEVERANCE
PAY
|
|
|
167,945
|
|
|
|
122,362
|
|
|
|
|
|
|
|
|
|
|
MINORITY
INTEREST
|
|
|
234,349
|
|
|
|
214,795
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
57,303,848
|
|
|
|
60,160,174
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Common
stock of $0.001 par value: 75,000,000 shares authorized; 18,376,075
issued and outstanding at December 31, 2008 and March 31,
2009
|
|
|
18,376
|
|
|
|
18,376
|
|
Additional
paid-in capital
|
|
|
42,925,015
|
|
|
|
42,772,998
|
|
Foreign
currency translation adjustment
|
|
|
(2,991,551)
|
|
|
|
(2,953,651)
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(5,374)
|
|
|
|
-
|
|
Retained
earnings
|
|
|
5,425,211
|
|
|
|
3,106,850
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
45,371,677
|
|
|
|
42,944,573
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
102,675,525
|
|
|
$
|
103,104,747
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Xfone,
Inc. and Subsidiaries
|
CONDENSED
CONSOLIDATED INCOME
STATEMENTS
|
(Unaudited)
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
21,474,435
|
|
|
$
|
15,793,098
|
|
Cost
of revenues
|
|
|
11,778,457
|
|
|
|
7,656,273
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
9,695,978
|
|
|
|
8,136,825
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
11,458
|
|
|
|
15,010
|
|
Marketing
and selling
|
|
|
2,714,610
|
|
|
|
2,665,629
|
|
General
and administrative
|
|
|
6,003,537
|
|
|
|
4,311,720
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
8,729,605
|
|
|
|
6,992,359
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
966,373
|
|
|
|
1,144,466
|
|
Financing
income (expenses), net
|
|
|
1,462,072
|
|
|
|
(903,169
|
)
|
|
|
|
|
|
|
|
|
|
Income
before minority interest and taxes
|
|
|
2,428,445
|
|
|
|
241,297
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
(19,554)
|
|
|
|
(82,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
|
2,408,891
|
|
|
|
158,823
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit (expense)
|
|
|
(90,530)
|
|
|
|
(77,693
|
)
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,318,361
|
|
|
$
|
81,130
|
|
|
|
|
|
|
|
|
|
|
Basic
net profit per share
|
|
$
|
0.126
|
|
|
$
|
0.005
|
|
|
|
|
|
|
|
|
|
|
Diluted
net profit per share
|
|
$
|
0.126
|
|
|
$
|
0.005
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used for computing:
|
|
|
|
|
|
Basic
profit per share
|
|
|
18,376,075
|
|
|
|
15,323,690
|
|
|
|
|
|
|
|
|
|
|
Diluted
profit per share
|
|
|
18,376,075
|
|
|
|
15,392,258
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Xfone,
Inc. and Subsidiaries
|
|
CONDENSED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31 ,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,318,361
|
|
|
$
|
81,130
|
|
Adjustments
required to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
985,169
|
|
|
|
507,210
|
|
Compensation in
connection with the issuance of warrants and options issued for
professional services
|
|
|
152,017
|
|
|
|
98,450
|
|
Minority
interest
|
|
|
19,554
|
|
|
|
82,474
|
|
Accrued
interest and exchange rate on bonds
|
|
|
(1,836,492)
|
|
|
|
750,423
|
|
Decrease
(increase) in account receivables
|
|
|
780,335
|
|
|
|
(66,874
|
)
|
Bad
debt provision
|
|
|
464,506
|
|
|
|
(82,022
|
)
|
Decrease
(increase) in inventories
|
|
|
7,090
|
|
|
|
(12,763
|
)
|
Decrease
in long term receivables
|
|
|
69,835
|
|
|
|
10,874
|
|
Decrease
in bonds issuance costs, net
|
|
|
10,498
|
|
|
|
10,032
|
|
Decrease
in prepaid expenses and other receivables
|
|
|
154,430
|
|
|
|
646,555
|
|
Decrease
in deferred tax asset
|
|
|
56,995
|
|
|
|
64,620
|
|
Increase
(decrease) in trade payables
|
|
|
(1,460,163)
|
|
|
|
1,224,642
|
|
Increase
(decrease) in other liabilities and accrued expenses
|
|
|
(414,207)
|
|
|
|
(1,933,566
|
)
|
Increase
(decrease) in severance pay
|
|
|
54,411
|
|
|
|
(67,861
|
)
|
Unrealized
loss from hedging on foreign currency
|
|
|
(5,374)
|
|
|
|
-
|
|
Increase
(decrease) in other long term liabilities
|
|
|
(30,687)
|
|
|
|
-
|
|
Decrease
in deferred tax liabilities
|
|
|
(90,588
|
)
|
|
|
(44,837
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
1,235,690
|
|
|
|
1,268,487
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
Investment
in short term deposit
|
|
|
(87,803)
|
|
|
|
-
|
|
Proceeds
from short term deposit
|
|
|
-
|
|
|
|
27,467,049
|
|
Purchase
of equipment
|
|
|
(2,244,007)
|
|
|
|
(791,129
|
)
|
Acquisition
of minority interest in Story Telecom, Inc.
|
|
|
-
|
|
|
|
(690,207
|
)
|
Acquisition
of NTS Communications, Inc. including acquisition costs
|
|
|
-
|
|
|
|
(38,812,656
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing
activities
|
|
|
(2,331,810)
|
|
|
|
(12,826,943
|
)
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Xfone,
Inc. and Subsidiaries
|
|
|
|
|
|
CONDENSED
STATEMENTS OF CASH FLOWS (Continued)
|
(Unaudited)
|
|
Three
Months Ended
|
|
|
March
31 ,
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
Repayment
of long term loans from banks and others
|
|
|
(678,208)
|
|
|
|
(189,978
|
)
|
Decrease
in capital lease obligation
|
|
|
(104,305)
|
|
|
|
(22,285
|
)
|
Increase
in short-term bank credit, net
|
|
|
546,271
|
|
|
|
360,540
|
|
Proceeds
from long term loans from banks
|
|
|
190,868
|
|
|
|
-
|
|
Proceeds
from long term loans from the United States Department of
Agriculture
|
|
|
1,272,939
|
|
|
|
-
|
|
Proceeds
from issuance of shares and detachable warrants, net of issuance
expenses
|
|
|
-
|
|
|
|
14,523,536
|
|
Net
cash provided by financing activities
|
|
|
1,227,565
|
|
|
|
14,671,813
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(16,110)
|
|
|
|
(275,887
|
)
|
Net
increase in cash and cash equivalents
|
|
|
115,335
|
|
|
|
2,837,470
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the beginning of the period
|
|
|
3,078,474
|
|
|
|
5,835,607
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
3,193,809
|
|
|
$
|
8,673,077
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial
statements.
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOL
ID
ATED FINANCIAL
STATEMENTS
MARCH
31, 2009
(Unaudited)
|
Note
1 - Organization and Nature of Business
|
A.
|
Xfone,
Inc. ("Xfone" or "the Company") was incorporated in Nevada, U.S.A. in
September 2000 and is a provider of voice, video and data
telecommunications services, including: local, long distance and
international telephony services; video; prepaid and postpaid calling
cards; cellular services; Internet services; messaging services (Email/Fax
Broadcast, Email2Fax and Cyber-Number); and reselling opportunities, with
operations in the United States, United Kingdom and Israel. Xfone serves
customers worldwide.
|
Xfone's
holdings in subsidiaries as of March 31, 2009 were as follows:
|
●
|
NTS
Communications, Inc. ("NTS") and its six wholly owned
subsidiaries, NTS Construction Company, Garey M. Wallace Company, Inc.,
Midcom of Arizona, Inc., Communications Brokers Inc., NTS Telephone
Company, LLC and NTS Management Company, LLC - wholly owned U.S.
subsidiary.
|
|
●
|
Xfone
USA, Inc. and its two wholly owned subsidiaries, eXpeTel Communications,
Inc. and Gulf Coast Utilities, Inc. (collectively, "Xfone USA") -
wholly owned U.S. subsidiary.
|
|
|
|
|
●
|
Swiftnet
Limited ("Swiftnet") - wholly owned U.K.
subsidiary.
|
|
●
|
Equitalk.co.uk
Limited ("Equitalk") - wholly owned U.K.
subsidiary.
|
|
●
|
Auracall
Limited ("Auracall") - wholly owned U.K. subsidiary of
Swiftnet.
|
|
●
|
Story
Telecom, Inc. and its wholly owned U.K. subsidiary, Story Telecom Limited
(collectively, "Story Telecom") - wholly owned U.S.
subsidiary.
|
|
●
|
Xfone
018 Ltd. ("Xfone 018") - majority owned Israeli subsidiary in which Xfone
holds a 69% ownership share.
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
|
Note
2 - Significant Accounting Policies
The
financial statements are prepared in accordance with generally accepted
accounting principles in the United States. The significant accounting policies
followed in the preparation of the financial statements, applied on a consistent
basis, are as follows:
|
A.
|
Principles
of Consolidation and Basis of Financial Statement
Presentation
|
The
interim condensed consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America ("US GAAP") and include the accounts of the Company and its
subsidiaries. All significant inter-company balances and transactions have been
eliminated in consolidation. A minority interest in the loss of a subsidiary
will be recorded according to the respective equity interest of the minority and
up to its exposure and/or legal obligation to cover the subsidiary losses in
case of equity reduced to zero or below.
|
B.
|
Foreign
Currency Translation
|
The
Company's functional and reporting currency is the U.S. dollar for the reason
that a majority of the Company's transactions and balances are
denominated in U.S. dollars.
Accordingly,
monetary accounts maintained in currencies other than the U.S. dollar are
re-measured into U.S. dollars in accordance with SFAS No. 52 "Foreign Currency
Translation" ("SFAS No. 52"). All gains and losses of the re-measurement of
monetary balance sheet items are reflected in the consolidated income statements
as financial income or expenses as appropriate. The Company's functional
currency is US$, the Company's financial records are maintained in US$, and the
Company's financial statements are prepared in US$. The functional currency of
Swiftnet, Equitalk and Story Telecom is GBP, the financial records of these
subsidiaries are maintained in GBP and the financial statements of these
subsidiaries are prepared in GBP. The functional currency of Xfone 018 is New
Israeli Shekels ("NIS"), the financial records of Xfone 018 are maintained in
NIS, and the financial statements of Xfone 018 are prepared in NIS.
Foreign
currency transactions during the period are translated into each company's
denominated currency at the exchange rates ruling at the transaction dates.
Gains and losses resulting from foreign currency transactions are included in
the consolidated income statements. Assets and liabilities denominated in
foreign currencies at the balance sheet date are translated into each company's
denominated currency at period-end exchange rates. All exchange differences are
dealt with in the consolidated income statements. The financial statements of
the Company's operations based outside of the United States have been translated
into US$ in accordance with SFAS No. 52. When translating functional currency
financial statements into US$, period-end exchange rates are applied to the
consolidated balance sheets, while average period rates are applied to
consolidated income statements. Translation gains and losses are recorded in
translation reserve as a component of shareholders' equity.
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
|
Note
2 - Significant Accounting Policies (Cont.)
At March
31, 2009, restricted cash includes cash held in a bank as security against
a currency forward contract to hedge a financial obligation of the Company
stated in NIS. The forward contract matures on May 28, 2009. The cash is
invested in a daily interest-bearing deposit. During the period ended March 31,
2009, the Company recorded $5,374 of unrealized hedging losses on foreign
currency.
Accounts
receivable are recorded at net realizable value consisting of the carrying
amount less the allowance for uncollectible accounts.
The
Company uses the allowance method to account for uncollectible accounts
receivable balances. Under the allowance method, estimate of uncollectible
customer balances is made using factors such as the credit quality of the
customer and the economic conditions in the market. An allowance for doubtful
accounts is determined with respect to those amounts that the Company has
determined to be doubtful of collection. When an account balance is past due and
attempts have been made to collect the receivable through legal or other means
the amount is considered uncollectible and is written off against the allowance
balance.
Accounts
receivable are presented net of an allowance for doubtful accounts of $1,716,452
and $1,172,453 at March 31, 2009 and 2008, respectively.
|
E.
|
Other
Intangible Assets
|
Other
intangible assets with determinable lives consist of license to provide
communication services in Israel and are amortized over the 20 year term of the
license.
Customer
relations and trade name related to mergers and acquisitions are amortized over
a period between 2-13 years from the date of the purchase.
Basic
earning per share (EPS) is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
|
G.
|
Stock-Based
Compensation
|
Effective
the beginning of the first quarter of fiscal year 2006, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 123R ("SAFA 123R)
using the modified prospective transition method. Under this method, prior
periods are not restated. The Company use the Black-Scholes option pricing model
which requires extensive use of accounting judgment and financial estimates,
including estimates of the expected term participants will retain their vested
stock options before exercising them, the estimated volatility of its common
stock price over the expected term, and the number of options that will be
forfeited prior to the completion of their vesting requirements. Application of
alternative assumptions could produce significantly different estimates of the
fair value of stock-based compensation and consequently, the related amounts
recognized in the Condensed Consolidated Income Statements. The provisions of
SFAS 123R apply to new stock options and stock options outstanding, but not yet
vested, on the date the Company adopted SFAS 123R.
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
|
Note
2 - Significant Accounting Policies (Cont.)
|
H.
|
Goodwill
and Indefinite- Lived Purchased Intangible
Assets
|
SFAS No.
142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), establishes a
method of testing goodwill and other indefinite-lived intangible assets for
impairment on an annual basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit below
its carrying value. The Company’s assessments involve determining an estimate of
the fair value of the Company’s reporting units in order to evaluate whether an
impairment of the current carrying amount of goodwill and other indefinite-lived
assets exists. The first step of the goodwill impairment test, used to identify
potential impairment, compares the fair value of a reporting unit with its
carrying amount, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is not considered
impaired, and thus the second step of the impairment test is unnecessary. If the
carrying amount of a reporting unit exceeds its fair value, the second step of
the goodwill impairment test is performed to measure the amount of impairment
loss, if any. Fair values are derived based on an evaluation of past and
expected future performance of the Company’s reporting units. A reporting unit
is an operating segment or one level below an operating segment. A component of
an operating segment is a reporting unit if the component constitutes a business
for which discrete financial information is available and the Company’s
executive management team regularly reviews the operating results of that
component. In addition, the Company combines and aggregates two or more
components of an operating segment as a single reporting unit if the components
have similar economic characteristics. The Company’s reportable segments under
the guidance of SFAS No. 131, “Disclosures about Segments of an Enterprise and
Related Information,” are its reporting units.
The
second step of the goodwill impairment test, used to measure the amount of
impairment loss, compares the implied fair value of the reporting unit goodwill
with the carrying amount of that goodwill. If the carrying amount of the
reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess. The loss
recognized cannot exceed the carrying amount of goodwill. The implied fair value
of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination is determined. The Company allocates the
fair value of a reporting unit to all of the assets and liabilities of that unit
(including any unrecognized intangible assets) as if the reporting unit had been
acquired in a business combination and the fair value of the reporting unit was
the price paid to acquire the reporting unit. The excess of the fair value of a
reporting unit over the amounts assigned to its assets and liabilities is the
implied fair value of goodwill.
The
Company utilizes the discounted cash flow approach when determining the fair
value of each reporting unit as part of its annual assessments. As stated above,
goodwill is tested for impairment on an annual basis and more often if
indications of impairment exist. The results of the Company’s analysis indicated
that no reduction in the carrying amount of goodwill was required.
Certain
amounts in the 2008 financial statements have been reclassified to conform to
the current year presentation.
The
interim condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information, including note disclosures, normally included in financial
statements which are prepared in accordance with US GAAP has been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures included are adequate to make the information
presented not misleading.
In
management’s opinion, the condensed consolidated balance sheet as of
March 31, 2009 (unaudited) and December 31, 2008 (audited), the
unaudited condensed consolidated income statements for the three months ended
March 31, 2009 and 2008, and the unaudited condensed consolidated
statements of cash flows for the three months ended March 31, 2009 and
2008, contained herein, reflect all adjustments, consisting solely of normal
recurring items, which are necessary for the fair presentation of our financial
position, results of operations and cash flows on a basis consistent with that
of our prior audited consolidated financial statements. However, the results of
operations for the interim periods may not be indicative of results to be
expected for the full fiscal year. Therefore these financial
statements should be read in conjunction with the audited financial statements
and notes thereto and summary of significant accounting policies included in the
Company’s Form 10-K, as amended, for the year ended December 31,
2008.
The
Company and its subsidiaries account for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" ("SFAS 109"). This statement prescribes the use of the liability method,
whereby deferred tax asset and liability account balances are determined based
on differences between financial reporting and tax base of assets and
liabilities and are measured using the enacted tax rates that will be in effect
when the differences are expected to reverse. The Company and its subsidiaries
provide a valuation allowance, if necessary, to reduce deferred tax assets to
their estimated realizable value.
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
|
Note
2 - Significant Accounting Policies (Cont.)
|
L.
|
Derivative
Instruments
|
Effective
January 1, 2009, the Company adopted the disclosure requirements of SFAS
No. 161 “Disclosures about Derivative Instruments and Hedging Activities,
an Amendment of SFAS Statement No. 133” (“SFAS No. 161”). To protect
against the increase in value of forecasted foreign currency cash flows
resulting from interest payments on the Company's bonds stated in the Israeli
currency, the NIS, during the year, the Company instituted a foreign currency
cash flow hedging program. The Company hedges portions of the anticipated
interest payment denominated in NIS with hedging contracts. Accordingly, when
the dollar strengthens against the foreign currencies, the decline in present
value of future foreign currency expenses is offset by losses in the fair value
of the hedging contracts. Conversely, when the dollar weakens, the increase in
the present value of future foreign currency cash flows is offset by gains in
the fair value of the hedging contracts. These hedging contracts are designated
as cash flow hedges, as defined by SFAS No. 133 “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS No. 133”) and are all effective
hedges of these expenses. In accordance with SFAS No. 133, for derivative
instruments that are designated and qualify as a cash flow hedge (i.e. hedging
the exposure to variability in expected future cash flows that is attributable
to a particular risk), the effective portion of the gain or loss on the
derivative instrument is reported as a component of other comprehensive income
and reclassified into earnings in the same period or periods during which the
hedged transaction affects earnings. Any gain or loss on a derivative instrument
in excess of the cumulative change in the present value of future cash flows of
the hedged item is recognized in current earnings during the period of change.
As of March 31, 2009, the aggregate amount of hedging contracts held by the
Company to offset foreign currency fluctuations was $867,110.
The
amount recorded in financing expenses in the Condensed Consolidated Income
Statements for the quarter ended March 31, 2009 that resulted from the
above referenced hedging transactions was $5,374.
Note
3 – Notes payable
1.
|
NTS has
a $4,000,000 revolving line of credit with a commercial bank.
The facility is secured by an assignment of all NTS's trade accounts
receivable. The line bears interest at a rate equivalent to Wall
Street Journal Prime. At March 31, 2009, the total amount
advanced was $3,850,000. During April 2009, NTS agreed with the
commercial bank to replace the previous amounts and terms which matured on
March 10, 2009, with the following:
|
a.
|
Revolving
credit line of $2,000,000 bearing an annual interest of 6%. The revolving
credit line matures on April 27,
2010.
|
b.
|
Long-term
loan of $2,000,000 bearing interest equal to the Wall Street Prime Daily.
The principal will be repaid on a monthly basis starting June 25, 2009
with each payment of principal equals to $61,212. The final principal
payment is scheduled to be made on May
2012.
|
2.
|
NTS
Telephone Company, LLC, a wholly owned subsidiary of NTS, has
received approval from the Rural Utilities Service (“RUS”), a division of
the United States Department of Agriculture, for an $11.8 million,
17-year debt facility to complete a telecommunications overbuild project
in Levelland, Texas. The RUS loan is non-recourse to NTS and all other NTS
subsidiaries and is a cost-of-money loan,
bearing interest at the average rate for 10-year U.S.
Treasury obligations. Advances are requested as the construction
progresses, and the interest rate is set based upon the prevailing
rate at the time of each individual advance. The current average rate
is approximately 3.17%.
|
3.
|
On
March 17, 2009, Xfone 018 received the bank's approval for an increase in
its short-term credit line to a total facility of 5,250,000 NIS
($1,242,310). Xfone 018 undertook to comply, as of March 31, 2009, with
certain covenants concerning its capital and the annual ratio between its
total liabilities and EBITDA.
The total aggregate
amount of these loans as of March 31, 2009 and December 31, 2008 are
$2,677,911 and $1,404,971,
respectively.
|
Note
4 - Capital Structure, stock options, warrants
The
Company’s aggregate equity-based compensation expense for the three months
ended March 31, 2009 and 2008 totaled $152,017 and $98,450,
respectively.
On April
30, 2009, the Company issued an aggregate of 321,452 warrants to purchase shares
of the Company’s common stock to Wade Spooner, former President and Chief
Executive Officer of Xfone USA, Inc., pursuant to the terms of a certain
Separation Agreement and Release dated August 15, 2008 between Mr. Spooner,
Xfone USA, Inc. and the Company. The total value of the warrants, based on
Black-Scholes option-pricing-model, is $11,627.
On April
30, 2009, the Company issued an aggregate of 160,727 warrants to purchase shares
of the Company’s common stock to Ted Parsons, former Executive Vice President
and Chief Marketing Officer of Xfone USA, Inc., pursuant to the terms of a
certain Separation Agreement and Release dated August 15, 2008 between Mr.
Parsons, Xfone USA, Inc. and the Company. The total value of the warrants, based
on Black-Scholes option-pricing-model, is $5,813.
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
|
Note 4
- Capital Structure, stock options, warrants (Cont.)
|
|
Three
months ended
March
31, 2009
|
|
|
|
Number
of options
|
|
|
Weighted
average exercise price
|
|
Options
outstanding at the beginning of the period (a)
|
|
|
6,366,000
|
|
|
$
|
3.55
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
Options
outstanding at the end of the period
|
|
|
6,366,000
|
|
|
$
|
3.55
|
|
|
|
|
|
|
|
|
|
|
Options
vested and exercisable
|
|
|
4,865,000
|
|
|
$
|
2.74
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted
|
|
|
|
|
|
$
|
-
|
|
(a)
Includes options under contractual obligation as specified in notes 4A
and 4B below.
The
following table summarizes information about options outstanding and exercisable
at March 31, 2009:
|
|
Range
price ($)
|
Number
of options
|
Weighted
average remaining contractual life (years)
|
Weighted
average exercise price
|
$0.47-
$0.81
|
6,366,000
|
2.84
|
$2.74
|
A.
|
On
August 26, 2007, the Company entered into a contractual obligation to
grant the General Manager of Xfone 018 the following number of options to
purchase shares of the Company’s Common Stock, under the
Company’s 2007 Stock Incentive Plan (the
“Plan”):
|
|
|
i.
|
Within
30 days of adoption of the Plan, the Company will grant options to
purchase 300,000 shares of Common Stock, at an exercise price of $3.50 per
share, of which (i) options to purchase 75,000 shares will vest on August
26, 2008; and (ii) options to purchase 18,750 shares will be vest at the
end of every 3 month period thereafter.
|
|
|
ii.
|
At
the end of each calendar year between 2008 and 2011, and upon the
achievement by Xfone 018 100% of its Targets (as determined in the General
Manager's employment agreement) for each such year, the General Manager of
Xfone 018 will be granted options to purchase 25,000 shares of the
Company’s Common Stock under the Plan, for an exercise price of $3.50 per
share, which will be exercisable 30 days after the Company publishes its
annual financial statements for such
year.
|
The
options will expire 120 days after termination of employment with Xfone
018.
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
|
Note 4
- Capital Structure, stock options, warrants (Cont.)
B.
|
On
February 26, 2008, NTS entered into Employment Agreements with each of
Barbara Baldwin, who, prior to the closing, served as NTS’ President and
CEO, Jerry Hoover, who, prior to the closing, served as NTS’ Executive
Vice President - Chief Financial Officer, and Brad Worthington, who, prior
to the closing, served as NTS’ Executive Vice President - Chief Operating
Officer (each an “Officer,” and collectively the
“Officers”). The Employment Agreements provide for continued
employment of the Officers with NTS in their respective capacities, and
are for five-year terms each, effective as of the Closing
Date.
Pursuant
to the terms of the Employment Agreements, the Officers were granted the
following stock option awards under the Company’s 2007 Stock Incentive
Plan on the Closing Date: Ms. Baldwin was granted options to purchase
250,000 shares of the Company’s Common Stock, and each of Messrs. Hoover
and Worthington was granted options to purchase 400,000 shares of the
Company’s Common Stock. Each option is immediately exercisable,
expires five years from the grant date, and has an exercise price of
$2.794. The total value of the options, based on Black-Scholes
option pricing model is $1,412,507. Additionally, at the end of each
Officer’s second year employment, the Officer will be granted options
to purchase 267,000 shares of the Company’s Common Stock, which will be
immediately exercisable at $5.00 per share, and will expire five years
from such grant date. The total value of the options, based on
Black-Scholes option-pricing-model, is
$882,316.
|
The
following table summarizes information about warrants outstanding and
exercisable at March 31, 2009:
|
|
Three
months ended
March
31, 2009
|
|
|
|
Number
of Warrants
|
|
|
Weighted
average exercise price
|
|
Warrants
outstanding at the beginning of the period
|
|
|
7,497,888
|
|
|
$
|
3.68
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(1,136,737
|
)
|
|
$
|
5.50
|
|
Warrants
outstanding at the end of the period
|
|
|
6,361,151
|
|
|
$
|
3.36
|
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
|
Note 5
- Segment Information
Geographical
segments
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
United
Kingdom
|
|
$
|
3,650,540
|
|
|
$
|
4,807,424
|
|
United
States
|
|
|
15,650,013
|
|
|
|
8,707,504
|
|
Israel
|
|
|
2,173,882
|
|
|
|
2,278,170
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
21,474,435
|
|
|
|
15,793,098
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
United
Kingdom
|
|
|
1,866,298
|
|
|
|
1,699,124
|
|
United
States
|
|
|
8,655,816
|
|
|
|
4,987,869
|
|
Israel
|
|
|
1,256,343
|
|
|
|
969,280
|
|
|
|
|
|
|
|
|
|
|
Total
cost of revenues
|
|
|
11,778,457
|
|
|
|
7,656,273
|
|
|
|
|
|
|
|
|
|
|
Gross
profit:
|
|
|
|
|
|
|
|
|
United
Kingdom
|
|
|
1,784,242
|
|
|
|
3,108,300
|
|
United
States
|
|
|
6,994,197
|
|
|
|
3,719,635
|
|
Israel
|
|
|
917,539
|
|
|
|
1,308,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,695,978
|
|
|
|
8,136,825
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
United
Kingdom
|
|
|
1,360,142
|
|
|
|
2,104,044
|
|
United
States
|
|
|
6,069,097
|
|
|
|
3,455,169
|
|
Israel
|
|
|
749,629
|
|
|
|
924,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,178,868
|
|
|
|
6,483,344
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit (Loss)
|
|
|
|
|
|
|
|
|
United
Kingdom
|
|
|
424,100
|
|
|
|
1,004,256
|
|
United
States
|
|
|
925,100
|
|
|
|
264,466
|
|
Israel
|
|
|
167,910
|
|
|
|
384,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,517,110
|
|
|
|
1,653,481
|
|
|
|
|
|
|
|
|
|
|
Expenses
related to the Headquarters in the US
|
|
|
550,737
|
|
|
|
509,015
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit
|
|
$
|
966,373
|
|
|
$
|
1,144,466
|
|
|
|
|
|
|
|
|
|
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
|
Note 6 – Related Party
Transactions
1.
|
Agreement
with Minority interest partner in Xfone
018
|
According
to an agreement between the Company, Xfone 018 Ltd. and the 26% minority
interest partner in Xfone 018 (the “Minority Partner”), the Minority Partner
provided in 2004 a bank guarantee of 10,000,000 NIS ($2,433,682) to the Ministry
of Communications of the State of Israel which replaced an existing bank
guarantee given by the Company in connection with Xfone 018’s license to provide
international telecom services in Israel. As part of the agreement, the Company
agreed to indemnify the Minority Partner for any damage caused to him due to the
forfeiture of the bank guarantee with the Ministry of Communications on account
of any act and/or omission of Xfone 018, provided that the said act or omission
is performed against the opinion of the Minority Partner or without his
knowledge. On March 26, 2009, a payment of NIS 380,162 ($89,958) was made
to the Minority Partner as consideration for interest loss imposed on
the Minority Partner in connection with providing the bank
guarantee.
According
to the above-mentioned agreement with the Minority Partner, the Minority Partner
provided in the fourth quarter of 2004, a shareholder loan of approximately
$400,000 to Xfone 018 (the “Minority Partner Loan”). The Minority Partner Loan
is payable after four years with annual interest of 4% and linkage to the
Israeli consumer price index. On March 26, 2009, a repayment, by way of off set,
of NIS 995,433 ($235,550) was made to the Minority Partner in
connection with the Minority Partner Loan. As of March 31, 2009, the balance of
the Minority Partner Loan is 960,680 NIS ($229,389).
2.
|
Dionysos
Investments (1999) Ltd. Financial Services and Business Development
Consulting Agreement
|
A
Financial Services Consulting Agreement was entered into on November 18, 2004,
between Dionysos Investments (1999) Ltd., an Israeli company (“Dionysos
Investments”) and the Company with respect to certain services (the “Dionysos
Investments Consulting Agreement”).
Under the
Dionysos Investments Consulting Agreement, Dionysos Investments agrees to assist
the Company in connection with services related to financial activities,
financial reports, mergers & acquisitions and other business development
work (the “Services”).
On
January 15, 2009,
pursuant to the recommendation
of the Audit Committee of the Company and the resolution of the Board of
Directors,
the Company and Dionysos Investments entered into
a Second
Amendment to the Consulting Agreement
(the “Amendment”). According to the Amendment, the Consulting Agreement will be
renewed for an additional two-year period, ending on December 31, 2010, and
Dionysos will be paid £8,000 (approximately $12,072) per month, plus
reimbursements for expenses incurred
in
connection
with the Services
, and will
receive a success fee of 0.5% of the gross proceeds for any investments in the
Company made by Israeli investors during fiscal 2009 and/or 2010 that result
from Dionysos’ services to the Company.
The
parties also agreed that in or about December 2010, the Audit Committee and
Board of Directors would review and reconsider for approval the above-mentioned
compensation for a
ny future term(s).
Mr. Haim Nissenson, a consultant of the Company since
its inception and father of Mr. Guy Nissenson, the Company's President, Chief
Executive Officer and Director, is the Managing Director of Dionysos. Dionysos
is owned and controlled by certain members of the Nissenson family, other than
Mr. Guy Nissenson.
Note 7
– Legal proceedings
I.
FCC Enforcement Bureau
On March
6, 2006, the FCC’s Enforcement Bureau initiated an investigation into Telephone
Electronic Company’s (“TEC”) compliance with FCC Rules for compensation of
payphone service providers. The Enforcement Bureau issued requests
for production to TEC, its affiliates and subsidiaries. TEC was a
majority shareholder of NTS Communications, Inc. ("NTS") at the time of this
investigation, prior to our acquisition of NTS on February 26,
2008. On April 26, 2006, NTS filed its response to the request for
production. The FCC has the authority to issue fines for violations
of its regulations. NTS believes it is in compliance and will not
incur any fine. The investigation is pending.
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
|
II.
Omer Fleisig vs. Israel 10 - Shidury Haruts Hahadash Ltd. and Xfone 018
Ltd.
On
December 16, 2008, Omer Fleisig filed a request to approve a claim as a class
action (the "Class Action Request") against Xfone 018 Ltd. ("Xfone 018"), a 69%
owned Israel based subsidiary of the Company, and Israel 10 - Shidury Haruts
Hahadash Ltd., an entity unrelated to the Company ("Israel 10"), in the District
Court in Petach Tikva, Israel. Fleisig attempted to participate in a
television call-in game show, which was produced by Israel 10, using Xfone 018’s
international telecom services. The claim alleges that although Fleisig's two
attempts to participate in the show were unsuccessful because he received a busy
signal when trying to call in, he was billed by Xfone 018 for both
attempts. Fleisig seeks damages for the billed attempts. He was billed
approximately $2.50 for the calls. The Class Action Request states total damages
of NIS 24,750,000 (approximately $6,033,642) which reflects Fleisig's estimation
of damages caused to all participants in the game show which (pursuant to the
Class Action Request) allegedly received a busy signal while trying
to call in to the game during a certain period defined in the
Class Action Request. All parties are currently attempting to reach an
understanding regarding the scope of the Class Action Request and its
justification, if at all. The matter is pending.
III.
Teresa Leffler vs. Marshall Wingard and Xfone USA
On
February 24, 2009, Teresa Leffler, a former employee of Xfone USA, Inc., filed a
complaint with the Circuit court of Rankin County, Mississippi, alleging sexual
discrimination and sexual harassment by a former employee of Xfone USA, Marshall
Wingard, and Xfone USA, that allegedly resulted in injury to her job and
reputation, lost wages, mental and physical pain and suffering. Ms. Leffler
seeks compensatory damages in the amount of $300,000 and punitive damages in the
amount of $300,000. Xfone USA has entered into an agreement to pay for Mr.
Wingard’s defense. The filing of the complaint follows Ms. Leffler’s receipt of
a Notice of Right to Sue (the “Notice”) issued by the U.S. Equal Employment
Opportunity Commission (the “EEOC”) on November 21, 2008. The Notice also
stated that the EEOC was terminating its processing of the charge. Xfone
USA and Mr. Wingard filed their Original Answers on April 15,
2009. Mr. Winegard was dismissed with prejudice from the suit by
agreement and stipulation on May 12, 2009. The matter is
pending.
IV.
NTS Communications, Inc. vs. Global Crossing Telecommunications,
Inc.
On March
27, 2009, NTS Communications, Inc. (“NTS”) filed suit against Global
Crossing Telecommunications, Inc. (“Global Crossing”) in the 160th District
Court of Dallas County, Texas seeking $441,148.51 for unpaid telecommunications
services, which NTS had provided in November and December 2008. The suit stems
from a certain Telecommunications Agreement entered into between NTS and Global
Crossing, which had an effective date of November 2, 2006. On April 15,
2009, Global Crossing removed the case to Federal Court, and on April 17, 2009,
Global Crossing filed an Original Answer denying NTS’ claim. Global
Crossing also filed a Counterclaim alleging that NTS failed to perform its
obligations under the Telecommunications Agreement and federal law between 2006
and 2008, and seeks damages in the amount of $8,000,000. On April 30, 2009,
Xfone claimed indemnity from NTS’ former shareholders with respect to the
damages sought by Global Crossing in the Counterclaim, pursuant to the
protections available to Xfone for suffering adverse consequences under the
terms of the Stock Purchase Agreement and Escrow Agreement entered into in
connection with Xfone’s purchase of NTS. NTS filed its Original Answer to the
Counterclaim on May 7, 2009. This matter is pending.
Note 8
– Subsequent events
On April
3, 2009, NTS created its seventh wholly-owned subsidiary, PRIDE Network, Inc.
PRIDE Network, Inc.
,
is a Texas
corporation formed by NTS for the purpose of seeking grants or loans from the
United States Government to build Advanced Broadband Network(s) in select areas
of the United States
Item
2.
|
Management’s
Discussion and Analysis of
Financial Condition and Results of
Operations
|
FORWARD-LOOKING
STATEMENTS
The
information set forth in this Management's Discussion and Analysis of Financial
Condition and Results of Operations (“MD&A”) contains certain
“forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995, including,
among others (i) expected changes in the Company's revenues and profitability,
(ii) prospective business opportunities and (iii) the Company's strategy for
financing its business. Forward-looking statements are statements other than
historical information or statements of current condition. Some forward-looking
statements may be identified by use of terms such as “believes”, “anticipates”,
“intends” or “expects”. These forward-looking statements relate to the plans,
objectives and expectations of the Company for future operations. Although the
Company believes that its expectations with respect to the forward-looking
statements are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, in light of the risks and
uncertainties inherent in all future projections, the inclusion of
forward-looking statements in this Quarterly Report should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
You
should read the following discussion and analysis in conjunction with the
Condensed Financial Statements and Notes attached hereto, and the other
financial data appearing elsewhere in this Quarterly Report.
The
Company's revenues and results of operations could differ materially from those
projected in the forward-looking statements as a result of numerous factors,
including, but not limited to, the following: the risk of significant natural
disaster, the inability of the Company to insure against certain risks,
inflationary and deflationary conditions and cycles, currency exchange rates,
changing government regulations domestically and internationally affecting our
products and businesses.
OVERVIEW
Xfone,
Inc. was incorporated in Nevada, U.S.A. in September 2000. The Company is a
holding and managing company providing international voice, video and data
communications services with operations in the United States, the United Kingdom
and Israel offering a wide range of services, including: local, long distance
and international telephony services; video; prepaid and postpaid calling cards;
cellular services; Internet services; messaging services (Email/Fax Broadcast,
Email2Fax and Cyber-Number); and reselling opportunities. The Company serves
customers worldwide.
The
Company's principal executive offices are in Lubbock, Texas,
RESULTS
OF OPERATIONS
Financial
Information - Percentage of Revenues
|
Three
months ended
March
31,
|
|
|
2009
|
|
|
2008
|
|
Revenues
|
100
|
%
|
|
100
|
%
|
Cost
of Revenues
|
-54.8
|
%
|
|
-48.5
|
%
|
Gross
Profit
|
45.2
|
%
|
|
51.5
|
%
|
Operating
Expenses:
|
|
|
|
|
|
Research
and Development
|
-0.1
|
%
|
|
-0.1
|
%
|
Marketing
and Selling
|
-12.6
|
%
|
|
-16.9
|
%
|
General
and Administrative
|
-28
|
%
|
|
-27.5
|
%
|
Total
Operating Expenses
|
-40.7
|
%
|
|
-44.5
|
%
|
Income
before Taxes
|
11.2
|
%
|
|
0.8
|
%
|
Net
Income
|
10.8
|
%
|
|
0.3
|
%
|
COMPARISON
OF THE THREE MONTHS PERIOD ENDED MARCH 31, 2009 AND MARCH 31, 2008
Revenues
. Revenues for
the three months ended March 31, 2009 increased 36% to $21,474,435 from
$15,793,098 for the same period in 2008. The increase of $5,681,337 in the
consolidated revenues is attributed to $6,942,509 increase in our revenues in
the United States which is partially offset by $104,288 decrease in revenues in
Israel and $1,156,884 decrease in revenues in the United Kingdom. In the first
three months of 2009, revenues in the United States as a percentage of total
revenues increased to 72.9% from 55.1% for the same period in 2008, whereas
revenues in the United Kingdom and Israel as a percentage of total revenues
decreased to 17% and 10.1% from 30.4% and 14.4%, respectively.
Revenues
in the United States for the three months ended March 31, 2009 increased 79.7%
to $15,650,013 from $8,707,504 for the same period in 2008. The increase in
revenues is a result of the inclusion of the revenues of NTS Communications,
Inc. ("NTS"), our wholly owed U.S. subsidiary, in the amount of approximately
$13.2 million for the three months ended March 31, 2009, in comparison to the
inclusion of its revenues in the amount of approximately $6 million only from
its acquisition date, on February 26, 2008 for the three months ended March
31, 2008.
The
increase in revenues was offset by a decrease in revenues from other carriers
and due to attrition of residential customers.
Revenues
in the United Kingdom for the three months ended March 31, 2009 decreased 24.1%
to $3,650,540 from $4,807,424 for the same period in 2008. While our earned
revenues in the UK were at substantially the same level during the first quarter
of 2008 and 2009, we experienced this 24.1% decrease due to the devaluation of
the GBP against the US dollar which occurred mainly during the second half of
2009.
Revenues
in Israel for the three months ended March 31, 2009 decreased 4.6% to $2,173,882
from $2,278,170 for the same period in 2008. While our nominal revenues in
Israel increased 11% as a result of new marketing channels, we experienced
the slight decrease in reported revenues due to the revaluation of the U.S.
dollar against the NIS during the second half of 2009.
Our
primary geographic markets are the United States, the United Kingdom and
Israel. However, we serve customers worldwide.
Cost of Revenues
. Cost of
revenues consists primarily of traffic time purchased from telephone companies
and other related charges. Cost of revenues for the three months ended March 31,
2009 increased 53.8% to $11,778,457 from $7,656,273 for the same period in 2008.
Cost of revenues as a percentage of revenues in the three months ended March 31,
2009 increased to 54.8% from 48.5% in the same period in 2008.
Cost of
revenues as a percentage of revenues in the United States in the three months
ended March 31, 2009 decreased to 55.3% from 57.3% in the same period in 2008 as
a result of a decrease in sales of low-margin products mainly to residential and
to other carriers.
Cost of
revenues as a percentage of revenues in the UK and Israel for the three months
ended March 31, 2009 increased to 51.1% and 57.8%, respectively, from 35.3% and
42.5%, respectively, in the same period in 2008, as a result of an increase in
the cost of traffic time and increase in sales of products with lower
margin.
Research and Development
.
Research and development expenses for the three months ended March 31, 2009 and
for the same period in 2008 were 0.1% of total revenues. The research and
development activities are located only in the U.K and represent the payroll of
those who are engaged in development activities. We estimate that the research
and development expenses will remain in the same level until the end of
2009.
Marketing and Selling
Expenses
. Marketing and selling expenses consist primarily of commissions
to agents and resellers. Other marketing and selling expenses are related to
compensation attributed to employees engaged in marketing and selling
activities, promotion, advertising and related expenses. Marketing and selling
expenses for the three months ended March 31, 2009 increased to $2,714,610 from
$2,665,629 for the same period in 2008. Marketing and selling expenses as a
percentage of revenues decreased to 12.6% for the three months ended March 31,
2009 from 16.9% for the same period in 2008. The decrease is mainly attributed
to decrease in commission-based revenues in the UK, certain reduction in
personnel towards the end of 2008 and the revaluation of the U.S. dollar
against the GBP and the NIS. Such decrease was offset by the inclusion of the
marketing and selling expenses of NTS in the amount of approximately $905,000
for the three months ended March 31, 2009, in comparison to the inclusion of its
marketing and selling expenses in the amount of approximately $370,000 only from
February 26, 2008 for the three months ended March 31, 2008.
General and Administrative
Expenses
. General and administrative expenses consist primarily of
compensation costs for administration, finance and general management personnel
and consulting fees. General and administrative expenses for the three months
ended March 31, 2009 increased 39.2% to $6,003,537 from $4,311,720 for the same
period in 2008. The increase resulted from the inclusion of the general and
administration expenses of NTS in the amount of approximately $4.1 million for
the three months ended March 31, 2009, in comparison to the inclusion of its
general and administration expenses in the amount of approximately $1.5 million
only from February 26, 2008 for the three months ended March 31, 2008. Such
increase was offset by certain reduction in personnel towards the end of 2008
and the revaluation of the U.S. dollar against the GBP and the NIS.
Financing Expenses
, net.
Financing income, net,
for the three months ended March 31, 2009 increased to financial profits of
$1,462,072 from financial expenses of ($903,169) for the same period in 2008.
Approximately $2,360,000 of the financial income is attributed to the effect of
fluctuation in the exchange rate of the NIS on our Bonds which are stated in NIS
and linked to the Israeli CPI which is offset by approximately $590,000 of
interest payable on the Bonds. The remaining financial expenses of approximately
$304,000 consists of interest expenses on our interest bearing obligations and
the effect of currency exchange rate on intercompany balances with our
subsidiaries which report in NIS and GBP as their
functional currencies.
Net Income.
Net income for the
three months ended March 31, 2009 was $2,318,361 compared to net income of
$81,130 for the same period in 2008.
Earning Per Share.
Basic and
diluted net profit per share of common stock for the three months ended March
31, 2009 was $0.126, compared to basic and diluted net loss per share of common
stock of $0.005 for the same period in 2008.
LIQUIDITY
AND CAPITAL RESOURCES
Cash and
cash equivalents as of March 31, 2009, amounted to $3,193,809 compared to
$3,078,474 as of December 31, 2008, an increase of $115,335. Net cash
provided by operating activities in the three months ended March 31, 2009, was
$1,235,690. Cash used for investing activities in the three months ended
March 31, 2009 was $2,331,810, and is primarily attributable to the
purchase of fixed assets. Net cash provided in financing activities for the
three months ended March 31, 2009 was $1,227,565, and is primarily attributable
to proceeds from long-term bank loans in an aggregate amount of
$1,463,807, $1,272,939 of which was received as a non- recourse loan from
the United States Department of Agriculture, increase of short-term bank credit
of $46,271 and the repayment of financial obligations of $782,513.
Our
capital investments are primarily for the build-out of our fiber network, the
purchase of equipment and software for services that we provide or intend to
provide.
Capital
lease obligations: We are the lessee of switching and other telecom equipment
and motor vehicles under capital leases expiring on various dates from 2009
through 2012.
As of
March 31, 2009, the minimum future lease payments are:
2009
|
|
$
|
185,983
|
|
2010
|
|
|
157,175
|
|
2011
|
|
|
127,158
|
|
2012
|
|
|
21,702
|
|
|
|
|
|
|
Total
|
|
$
|
492,018
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
455,903
|
|
Less:
amount representing interest
|
|
|
36,115
|
|
|
|
|
|
|
Present
value of net minimum lease payment
|
|
$
|
492,018
|
|
We will
continue to finance our operations and fund the current commitments for
capital expenditures mainly from the cash provided from operating activities and
from private and/or public placements.
Xfone,
Inc.
On
December 13, 2007 (the “Date of Issuance”), we accepted offers, for the issuance
of securities to Israeli institutional investors, for total gross proceeds of
NIS 100,382,100 (approximately $25,562,032, based on the exchange rate as of
December 13, 2007) par value non-convertible bonds (Series A) (the “Bonds”). The
Bonds were issued for an amount equal to their par value.
The
Bonds accrue annual interest that is paid semi-annually on the 1
st
of June and on the 1
st
of December of every year
from 2008 until 2015 (inclusive). The principal of the Bonds is repaid in eight
equal annual payments on the 1
st
of December of every year
from 2008 until 2015 (inclusive). The principal and interest of the Bonds are
linked to the Israeli Consumer Price Index.
On
November 4, 2008, we filed a public prospectus (the “Prospectus”) with the
Israel Securities Authority and the Tel Aviv Stock Exchange ("TASE") for
listing of the Bonds for trading on the TASE. On November 11, 2008 (the
“Date of Listing”), the Bonds commenced trading on the TASE. From the Date of
Issuance until the Date of Listing, the Bonds accrued annual interest at a
rate of 9%. As of the Date of Listing, the interest rate for the unpaid balance
of the Bonds was reduced by 1% to an annual interest rate of 8%.
The Bonds
may only be traded in Israel. The Bonds were rated A3 by Midroog Limited, an
Israeli rating company which is a subsidiary of Moody’s Investor Services. On
February 19, 2009, Midroog filed its annual monitoring report (the “Monitoring
Report”) with the TASE. According to the Monitoring Report, Midroog’s rating
committee reaffirmed the A3 rating assigned to the Bonds. However, the rating
committee decided on a negative outlook on the rating of the Bonds, largely, but
not exclusively, due to the increase of the risk level in the business
environment in which we operate, resulting from the increasing recession in the
United States and the threat it poses on our business, since our core activity
is based in the U.S. While the Monitoring Report recognizes that we show
relative stability in our financial results and adherence to our expected cash
flow coverage ratios, it cites our currency exposure resulting from the New
Israeli Shekel index-linked bonds in relation to the U.S. dollar, which is our
major activity currency.
On
December 1, 2008, we borrowed 400,000 NIS (approximately $97,347) (the “Loan”)
from an individual lender unrelated to us pursuant to a Loan Agreement entered
into on the same date, for general working capital purposes and/or for our
repurchase of the Bonds. The Loan is to be repaid no later than 12 months
from the date of the Loan. The Loan bears interest at an annual rate of 8% and
is (including any interest accrued thereon) linked to the Israeli Consumer Price
Index. The interest is payable quarterly, at the end of each three-month period,
commencing from the Loan date and continuing until the Loan is fully repaid. The
first interest payment on the amount of 7,985 NIS (approximately $1,889)
was made on March 20, 2009.
We have a
credit facility from Bank Leumi (UK) plc (“Bank Leumi”), of up to £150,000
($227,311), which we obtained on November 26, 2008 for general working capital
purposes (the “Credit Facility”). The Credit Facility is available for six
months, and will be reviewed by Bank Leumi in May 2009. The Credit
Facility is secured by a bank guarantee given to Bank Leumi by FIBI London. The
guarantee is based upon a £150,000 deposit by Iddo Keinan, son of Abraham
Keinan, our Chairman of the Board, and employee of our wholly-owned UK based
subsidiary, Swiftnet Limited, with FIBI London. The Credit Facility bears
interest at a rate based on the London Interbank Offered Rate (“LIBOR”), plus
one percent per annum, payable at the end of each three-month interest period.
If we were to draw funds in excess of the agreed £150,000 amount without prior
consent of Bank Leumi, we will be charged interest at the Base Rate, which is
currently 5.5% plus 5% per annum for Sterling balances. During fiscal
2008, we have drawn down the full £150,000 ($227,311) of this Credit
Facility. The first interest payment on the amount of 1,836
GBP (approximately $2,607) was made on February 27, 2009.
US subsidiaries
Our U.S.
subsidiary, NTS Communications, Inc. ("NTS")
has a $4,000,000
revolving line of credit with a commercial bank. The facility is
secured by an assignment of all NTS's trade accounts receivable. The line
bears interest at a rate equivalent to Wall Street Journal Prime. At March 31,
2009, the total amount advanced was $3,850,000. During April 2009, NTS
agreed with the commercial bank to replace the previous amounts and terms which
matured on March 10, 2009, with the following:
1.
|
Revolving
credit line of $2,000,000 bearing an annual interest of 6%. The revolving
credit line matures on April 27,
2010.
|
2.
|
Long-term
loan of $2,000,000 bearing interest equal to the Wall Street Prime Daily.
The principal will be repaid on a monthly basis starting June 25, 2009
with each payment of principal equal to $61,212. Final principal payment
is expected to be made on May
2012.
|
In
addition, NTS has $2,400,000 notes payable for the purchase of certain fixed
assets. These notes payable are secured by fixed assets in the form of
installment loan agreements.
Our U.S
subsidiary, NTS Telephone Company, LLC, a wholly owned subsidiary of NTS has
received approval from the Rural Utilities Service (“RUS”), a division of the
United States Department of Agriculture, for an $11.8 million, 17-year debt
facility to complete a telecommunications overbuild project in Levelland, Texas.
The RUS loan is non-recourse to NTS and all other NTS subsidiaries and is
cost-of-money loan, bearing interest at the average rate
for 10-year U.S. Treasury obligations. Advances are requested as
the construction progresses, and the interest rate is set based upon the
prevailing rate at the time of each individual advance. The current average
rate is approximately 3.17%.
The total
aggregate amount of these loans as of March 31, 2009 and December 31, 2008 is
$2,677,911 and $1,404,971 respectively.
Our U.S.
subsidiary, Xfone USA, Inc., has certain loan facilities with certain liens
on its fixed assets in the form of installment loan agreements. The total
aggregate amount of these loans as of March 31, 2009 is
$244,870.
Upon the
assignment of the Interconnection Agreement between WS Telecom, Inc. and
BellSouth Telecommunications, Inc. to Xfone USA, Inc., and consummation of the
merger on March 10, 2005, Xfone, Inc. and its subsidiaries Swiftnet Limited and
Xfone 018 Ltd., individually and/or jointly, agreed to guarantee all undisputed
debts owed to BellSouth Telecommunications by Xfone USA in accordance with the
assigned Interconnection Agreement. The guarantee was given on December 16,
2004, and became effective upon the consummation of the merger on March 10,
2005.
UK
subsidiaries
On April
18, 2002 Bank Leumi (UK) plc issued company credit cards to two directors of
Swiftnet Limited, and by way of securing the balances on these cards, took a
First Party Charge over Swiftnet to the sum of £50,000 ($75,770).
As of
April 10, 2003, Equitalk.co.uk Limited, our U.K. based subsidiary since July
2006, has received loan facilities from Barclays Bank plc in the form of a
Government Small Firms Loan Guarantee Scheme Loan Agreement whereby Barclays
would lend Equitalk £150,000 ($227,311). As part of the agreement a Debenture
charge was raised on all the assets of Equitalk. As of December 31,
2008 the loan was fully repaid.
Israeli
subsidiary
Our
Israel based subsidiary, Xfone 018 Ltd. has received credit facilities from Bank
Hapoalim B.M. in Israel in order to finance its activities. As of March 31,
2009, the credit facilities include a revolving credit line of 500,000
NIS ($121,684), a short-term credit line of 5,250,000
NIS ($1,277,683), and long-term credit line of 1,290,000
NIS ($313,945). In addition, the bank made available to Xfone 018 a
long-term facility of 3,150,000 NIS ($766,610) to procure equipment. The credit
facilities are secured with: (a) a floating charge on Xfone 018 assets;
securities, banknotes, unissued capital stock, reputation, and any property and
right including profits thereof Xfone 018 has or may have at any time and in any
manner; (b) a fixed charge on its telecommunication equipment (including
switches) and insurance rights thereof; (c) assignment of rights by way of
pledge on the Partner Communications Company Ltd. contract, the Cellcom Israel
Ltd. contract, the Pelephone Communications Ltd. contract, and the credit
companies contracts with Xfone 018; (d) We and Swiftnet Limited issued a Letter
of Guarantee, unlimited in amount, in favor of the bank, guaranteeing all debt
and indebtedness of Xfone 018 towards the bank; (e) Xfone 018 undertook to
comply, as of March 31, 2009, with certain covenants concerning its capital and
the annual ratio between its total liabilities and EBITDA.
As of
March 31, 2009, Xfone 018 has a balance due of 3,351,153 NIS ($800,179)
under the credit facility.
According
to an agreement between us, Xfone 018 Ltd. and the 26% minority interest partner
in Xfone 018 (the “Minority Partner”), in 2004 the Minority Partner
provided a bank guarantee of 10,000,000 NIS ($2,433,682) to the Ministry of
Communications of the State of Israel which replaced an existing bank guarantee
given by us in connection with Xfone 018’s license to provide international
telecom services in Israel. As part of the agreement, we agreed to indemnify the
Minority Partner for any damage caused to him due to the forfeiture of the bank
guarantee with the Ministry of Communications on account of any act and/or
omission of Xfone 018, provided that the said act or omission is performed
against the opinion of the Minority Partner or without his knowledge. On
March 26, 2009, a payment of NIS 380,162 ($89,958) was made to the Minority
Partner as consideration for interest loss imposed on the Minority Partner
in connection with providing the bank guarantee.
According
to the above-mentioned agreement with the Minority Partner, during the fourth
quarter of 2004, the Minority Partner provided a shareholder loan of
approximately $400,000 to Xfone 018 (the “Minority Partner Loan”). The Minority
Partner Loan was established for four years, unless otherwise agreed between the
parties, with annual interest of 4% and linkage to the Israeli consumer price
index. On March 26, 2009, a repayment, by way of off set, of
NIS 995,433 ($235,550) was made to the Minority Partner in connection
with the Minority Partner Loan. As of March 31, 2009, the balance of the
Minority Partner Loan is 960,680 NIS ($229,389).
According
to the agreement with the Minority Partner and a Term Note of $800,000 which was
executed in July 2004 by Xfone 018 in favor of the Company, as of March 31,
2009, we provided to Xfone 018 a shareholder loan in an aggregate amount of
$536,818.
As of
March 31, 2009, our Israeli subsidiary activities were financed by the
shareholders loans and by using 3,351,153 NIS ($800,179) of the credit
facility from Bank Hapoalim.
On
November 5, 2007, Bank Hapoalim B.M. in Israel provided a bank guarantee of
322,500 NIS ($78,486) to the Ministry of Communications of the State of Israel
in connection with a November 7, 2007 license to commence an experimental
deployment of Local Telephone Services utilizing Voice over Broadband (VoB)
technology, which was granted to Xfone 018. In connection with the bank
guarantee, Xfone 018 executed an indemnification agreement in favor of Bank
Hapoalim. The bank guarantee will expire on October 29, 2009.
During
February 2008, Xfone 018 Ltd. received a capital lease facilities to purchase
certain communication equipment amounting to $75,095 to be paid in 23 equal
installments. The balance as of March 31, 2009 is $37,283.
On
December 11, 2008, we signed a Letter of Guarantee (the “Guarantee”), pursuant
to which we agreed to guarantee the obligations of Xfone 018 under a certain
contract dated March 13, 2008 (the “Contract”), entered into by and between
Xfone 018 and Tikshoov Digital Ltd. (“Tikshoov”) and a certain Agreement dated
December 11 2008, entered into by and between Xfone 018 and Tikshoov (the
“Agreement”). Pursuant to the Contract, Xfone 018 provides telephone
services to Tikshoov for participants in a television call-in game show. Xfone
018 collects the telephone service fees from the participants and delivers the
fees to Tikshoov, after deducting applicable monthly fees and
costs. Pursuant to the Guarantee, if for any reason Xfone 018 fails
to comply with its obligations under the Contract and pursuant to the Agreement
in whole or in part, we will pay to Tikshoov directly any amounts due and
outstanding. We have agreed to make any payments pursuant to the
Guarantee within three (3) business days upon Tikshoov's first demand, without
deducting any amounts that we may claim from Tikshoov and free of any taxes or
withholdings. The Guarantee terminates and becomes null and void upon
the full satisfaction of Xfone 018's obligations.
On May
10, 2009, Bank Hapoalim B.M. in Israel provided a bank guarantee of 100,000 NIS
($24,337) to the Ministry of Treasury of the State of Israel in connection with
Xfone 018’s participation in a public tender to provide international telecom
services to government offices. In connection with the bank guarantee, Xfone 018
agreed to decrease its short-term credit line from 5,250,000
NIS ($1,277,683) to 5,150,000 NIS ($1,253,346). The bank guarantee
will expire on February 15, 2010.
On May
12, 2009, Bank Hapoalim B.M. in Israel provided a bank guarantee of 202,000 NIS
($49,160) to the Ministry of Communications of the State of Israel in connection
with Xfone 018’s application for a license to commence an experimental
deployment of Local Telephone Services utilizing Voice over Cellular (VoC)
technology. The bank guarantee will expire on November 14,
2010.
IMPACT
OF INFLATION AND CURRENCY FLUCTUATIONS
17% and
10.1% of our revenues in the first quarter of 2009 were derived from our U.K.
and Israeli operations, respectively, compared to 30.4% and 14.4% in the same
period, in 2008. In the first three months of 2009, approximately 39% of the
direct traffic costs in Israel were in GBP and the rest were in NIS compared to
approximately 30% in the same period in 2008. We believe that the U.S. and
Israeli portions of our revenues will increase in the remaining quarters of
2009.
For
continuing transactions made in currencies other then US dollar, we use a
current conversion rate. For non-contingent past transactions made in currencies
other then US dollar, we use the conversion rate of the time of
transaction.
Our
revenues and costs of revenues are mainly in U.S. dollars.
Most of
our assets, liabilities (except the Bonds), revenues and expenditures are in
U.S. dollars and GBP. The remainder of the assets, liabilities, revenues and
expenditures are in NIS. We anticipate that the portion of U.S. dollars will
continue to grow although the portion of GBP will stay significant.
Inflation
in any of the countries where we operate would affect our operational results if
we will not be able to match our revenues with growing expenses caused by
inflation.
Item
3.
|
Quantitative and
Qualitative Disclosures about Market
Risk
|
Not
applicable.
Item
4T.
|
Controls
and Procedures
|
(a)
Management’s Quarterly Report on Internal Control over Financial
Reporting.
As of the
end of the period covered by this Quarterly Report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer/Principal Accounting Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures. Based upon this evaluation, our Chief Executive Officer and
Chief Financial Officer/Principal Accounting Officer have concluded that
information required to be disclosed is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer/Principal
Accounting Officer, to allow for timely decisions regarding required disclosure
of material information required to be disclosed in the reports that we file or
submit under the Exchange Act. Our disclosure controls and procedures are
designed to provide reasonable assurance of achieving these objectives and our
Chief Executive Officer and Chief Financial Officer/Principal Accounting Officer
have concluded that our disclosure controls and procedures are effective to a
reasonable assurance level of achieving such objectives. However, it should
be noted that the design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote.
(b)
Changes in Internal Control Over Financial Reporting.
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation described above during the period covered by
this Quarterly Report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II
:
OTHER
INFORMATION
Item
1.
|
Legal
Proceedings
|
I. FCC Enforcement
Bureau
On March
6, 2006, the FCC’s Enforcement Bureau initiated an investigation into Telephone
Electronic Company’s (“TEC”) compliance with FCC Rules for compensation of
payphone service providers. The Enforcement Bureau issued requests
for production to TEC, its affiliates and subsidiaries. TEC was a
majority shareholder of NTS Communications, Inc. ("NTS") at the time of this
investigation, prior to our acquisition of NTS on February 26,
2008. On April 26, 2006, NTS filed its response to the request for
production. The FCC has the authority to issue fines for violations
of its regulations. NTS believes it is in compliance and will not
incur any fine. The investigation is pending.
II. Omer Fleisig vs. Israel
10 - Shidury Haruts Hahadash Ltd. and Xfone 018 Ltd.
On
December 16, 2008, Omer Fleisig filed a request to approve a claim as a class
action (the "Class Action Request") against Xfone 018 Ltd. ("Xfone 018"), a 69%
owned Israel based subsidiary of the Company, and Israel 10 - Shidury Haruts
Hahadash Ltd., an entity unrelated to the Company ("Israel 10"), in the District
Court in Petach Tikva, Israel. Fleisig attempted to participate in a
television call-in game show, which was produced by Israel 10, using Xfone 018’s
international telecom services. The claim alleges that although Fleisig's two
attempts to participate in the show were unsuccessful because he received a busy
signal when trying to call in, he was billed by Xfone 018 for both
attempts. Fleisig seeks damages for the billed attempts. He was billed
approximately $2.50 for the calls. The Class Action Request states total damages
of NIS 24,750,000 (approximately $6,033,642) which reflects Fleisig's estimation
of damages caused to all participants in the game show which (pursuant to the
Class Action Request) allegedly received a busy signal while trying
to call in to the game during a certain period defined in the
Class Action Request. All parties are currently attempting to reach an
understanding regarding the scope of the Class Action Request and its
justification, if at all. The matter is pending.
III. Teresa Leffler vs.
Marshall Wingard and Xfone USA
On
February 24, 2009, Teresa Leffler, a former employee of Xfone USA, Inc., filed a
complaint with the Circuit court of Rankin County, Mississippi, alleging sexual
discrimination and sexual harassment by a former employee of Xfone USA, Marshall
Wingard, and Xfone USA, that allegedly resulted in injury to her job and
reputation, lost wages, mental and physical pain and suffering. Ms. Leffler
seeks compensatory damages in the amount of $300,000 and punitive damages in the
amount of $300,000. Xfone USA has entered into an agreement to pay for Mr.
Wingard’s defense. The filing of the complaint follows Ms. Leffler’s receipt of
a Notice of Right to Sue (the “Notice”) issued by the U.S. Equal Employment
Opportunity Commission (the “EEOC”) on November 21, 2008. The Notice also
stated that the EEOC was terminating its processing of the charge. Xfone
USA and Mr. Wingard filed their Original Answers on April 15, 2009.
Mr. Wingard was dismissed with prejudice from the
suit by agreement and stipulation on May 12, 2009.
The
matter is pending.
IV. NTS Communications, Inc.
vs. Global Crossing Telecommunications, Inc.
On March
27, 2009, NTS Communications, Inc. (“NTS”) filed suit against Global
Crossing Telecommunications, Inc. (“Global Crossing”) in the 160
th
District
Court of Dallas County, Texas seeking $441,148.51 for unpaid telecommunications
services, which NTS had provided in November and December 2008. The suit stems
from a certain Telecommunications Agreement entered into between NTS and Global
Crossing, which had an effective date of November 2, 2006. On April 15,
2009, Global Crossing removed the case to Federal Court, and on April 17, 2009,
Global Crossing filed an Original Answer denying NTS’ claim. Global
Crossing also filed a Counterclaim alleging that NTS failed to perform its
obligations under the Telecommunications Agreement and federal law between 2006
and 2008, and seeks damages in the amount of $8,000,000. On April 30, 2009,
Xfone claimed indemnity from NTS’ former shareholders with respect to the
damages sought by Global Crossing in the Counterclaim, pursuant to the
protections available to Xfone for suffering adverse consequences under the
terms of the Stock Purchase Agreement and Escrow Agreement entered into in
connection with Xfone’s purchase of NTS. NTS filed its Original Answer to the
Counterclaim on May 7, 2009. This matter is pending.
Not
applicable.
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
None.
Item
3.
|
Defaults
upon Senior Securities
|
None.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
None.
Item
5.
|
Other
Information
|
None.
Exhibit
Number
|
Description
|
2.
|
Agreement
and plan of reorganization dated September 20, 2000, between the Company
and Swiftnet Limited. (1)
|
3.1
|
Articles
of Incorporation of the Company.(1)
|
3.1.1
|
Certificate
of Amendment to the Articles of Incorporation of the Company, dated
January 18, 2007. (56)
|
3.11
|
Reamended
and Restated Bylaws of the Company dated January 15,
2009.(55)
|
4.
|
Specimen
Stock Certificate.(1)
|
10.1
|
Agreement
dated May 11, 2000, between Swiftnet Limited and Guy
Nissenson.(1)
|
10.2
|
Employment
Agreement dated January 1, 2000 with Bosmat Houston.
(1)
|
10.3
|
Loan
Agreement dated August 5, 2000, with Swiftnet Limited, Guy Nissenson, and
Nissim Levy.(1)
|
10.4
|
Promissory
Note dated September 29, 2000, between the Company and Abraham
Keinan.(1)
|
10.5
|
Stock
Purchase Agreement dated June 19, 2000, between Swiftnet Limited, Abraham
Keinan, and Campbeltown Business Ltd. (1)
|
10.6
|
Consulting
Agreement dated May 11, 2000 between Swiftnet Limited and Campbeltown
Business Ltd.(1)
|
10.7
|
Agreement
dated July 30, 2001, with Campbeltown Business Ltd.(1)
|
10.8
|
Contract
dated June 20, 1998, with WorldCom International
Ltd.(1)
|
10.9
|
Contract
dated April 11, 2000, with VoiceNet Inc.(1)
|
10.10
|
Contract
dated April 25, 2000, with InTouchUK.com Ltd.(1)
|
10.11
|
Letter
of Understanding dated July 30, 2001, from Campbeltown Business Ltd. to
the Company.(2)
|
10.12
|
Agreement
dated April 6, 2000, between Adar International, Inc./Mr. Sidney J. Golub
and Swiftnet Limited. (2)
|
10.13
|
Lease
Agreement dated December 4, 1991, between Elmtree Investments Ltd. and
Swiftnet Limited.(2)
|
10.14
|
Lease
Agreement dated October 8, 2001, between Postwick Property Holdings
Limited and Swiftnet Limited. (2)
|
10.15
|
Agreement
dated September 30, 2002, between the Company, Swiftnet Limited., and Nir
Davison.(5)
|
10.16
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Platinum Partners Value Arbitrage Fund LP, Countrywide Partners LLC and
WEC Partners LLC. (6)
|
10.17
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Simon Langbart, Robert Langbart, Arik Ecker, Zwi Ecker, Michael Derman,
Errol Derman, Yuval Haim Sobel, Zvi Sobel, Tenram Investment Ltd.,
Michael Zinn, Michael Weiss. (6)
|
10.18
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Southridge Partners LP and Southshore Capital Fund Ltd.
(6)
|
10.19
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Crestview Capital Master LLC. (6)
|
10.20
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Adam Breslawsky, Oded Levy, Michael Epstein, Steven Frank, Joshua Lobel,
Joshua Kazan and The Oberon Group LLC. (6)
|
10.21
|
Newco
(Auracall Limited) Formation Agreement.(6)
|
10.22
|
Agreement
with ITXC Corporation.(6)
|
10.23
|
Agreement
with Teleglobe International.(6)
|
10.23.1
|
Amendment
to Agreement with Teleglobe International.(6)
|
10.24
|
Agreement
with British Telecommunications.(6)
|
10.25
|
Agreement
with Easyair Limited (OpenAir).(6)
|
10.26
|
Agreement
with Worldnet.(6)
|
10.27
|
Agreement
with Portfolio PR.(6)
|
10.28
|
Agreement
with Stern and Company.(6)
|
10.29
|
Letter
to the Company dated December 31, 2003, from Abraham
Keinan.(6)
|
10.30
|
Agreement
between Swiftnet Limited and Dan Kirschner.(8)
|
10.31
|
Agreement
and Plan of Merger.(7)
|
10.32
|
Escrow
Agreement.(7)
|
10.33
|
Release
Agreement.(7)
|
10.34
|
Employment
Agreement date March 10, 2005, between Xfone USA, Inc. and Wade
Spooner.(7)
|
10.34.1
|
Separation
Agreement and Release, dated August 15, 2008, between Xfone USA, Inc. and
Wade Spooner. (56)
|
10.35
|
Employment
Agreement date March 10, 2005, between Xfone USA, Inc. and Ted
Parsons.(7)
|
10.35.1
|
Separation
Agreement and Release, dated August 15, 2008, between Xfone USA, Inc. and
Ted Parsons. (56)
|
10.36
|
First
Amendment to Agreement and Plan of Merger (to acquire WS Telecom,
Inc.).(11)
|
10.37
|
Finders
Agreement with The Oberon Group, LLC.(11)
|
10.38
|
Agreement
with The Oberon Group, LLC.(11)
|
10.39
|
Management
Agreement between WS Telecom, Inc. and Xfone USA,
Inc.(8)
|
10.40
|
Engagement
Letter to Tommy R. Ferguson, Confidentiality Agreement, and Executive
Inventions Agreement dated August 19, 2004. (11)
|
10.41
|
Voting
Agreement dated September 28, 2004.(11)
|
10.42
|
Novation
Agreement executed September 27, 2004.(11)
|
10.43
|
Novation
Agreement executed September 28, 2004.(11)
|
10.44
|
Investment
Agreement dated August 26, 2004, with Ilan
Shoshani.(12)
|
10.44.1
|
Addendum
and Clarification to the Investment Agreement with Ilan Shoshani dated
September 13, 2004. (12)
|
10.45
|
Agreement
dated November 16, 2004, with Elite Financial Communications
Group.(13)
|
10.46
|
Financial
Services and Business Development Consulting Agreement dated November 18,
2004, with Dionysos Investments (1999) Ltd. (13)
|
10.47
|
Agreement
and Plan of Merger to acquire I-55 Internet Services, Inc. dated August
18, 2005.(14)
|
10.48
|
Agreement
and Plan of Merger to acquire I-55 Telecommunications, LLC dated August
26, 2005.(15)
|
10.49
|
Securities
Purchase Agreement, dated September 27, 2005, by and between the Company
and Laurus Master Fund, Ltd. (16)
|
10.50
|
Secured
Convertible Term Note, dated September 27, 2005, by the Company in favor
of Laurus Master Fund, Ltd.; Adjustment Provision Waiver Agreement, dated
September 27, 2005, by and between the Company and Laurus Fund, Ltd.
(16)
|
10.51
|
Common
Stock Purchase Warrant, dated September 27, 2005, by the Company in favor
of Laurus Master Fund, Ltd. (16)
|
10.52
|
Registration
Rights Agreement, dated September 27, 2005, by and between the Company and
Laurus Master Fund, Ltd. (16)
|
10.53
|
Master
Security Agreement, dated September 27, 2005, by and between the Company,
Xfone USA, Inc., eXpeTel Communications, Inc., Gulf Coast Utilities, Inc.,
and Laurus Master Fund, Ltd. (16)
|
10.54
|
Stock
Pledge Agreement, dated September 27, 2005, by and between the Company,
Xfone USA, Inc., and Laurus Master Fund, Ltd. (16)
|
10.55
|
Subsidiary
Guarantee dated September 27, 2005, by Xfone USA, Inc., eXpeTel
Communications, Inc. and Gulf Coast Utilities, Inc. in favor of Laurus
Master Fund, Ltd. (16)
|
10.56
|
Funds
Escrow Agreement, dated September 27, 2005, by and between the Company,
Laurus Master Fund, Ltd. and Loeb & Loeb LLP; Disbursement Letter,
dated September 27, 2005. (16)
|
10.57
|
Incremental
Funding Side Letter, dated September 27, 2005, by and between the Company
and Laurus Master Fund, Ltd. (16)
|
10.58
|
Securities
Purchase Agreement dated September 28, 2005, by and between the Company
and Crestview Capital Mater, LLC, Burlingame Equity Investors, LP,
Burlingame Equity Investors II, LP, Burlingame Equity Investors
(Offshore), Ltd., and Mercantile Discount - Provident Funds.
(16)
|
10.59
|
Registration
Rights Agreement, dated September 28, 2005, by and between the Company and
Crestview Capital Mater, LLC, Burlingame Equity Investors, LP, Burlingame
Equity Investors II, LP, Burlingame Equity Investors (Offshore), Ltd., and
Mercantile Discount - Provident Funds. (16)
|
10.60
|
Common
Stock Purchase Warrant, dated September 28, 2005, by the Company in favor
of the Crestview Capital Mater, LLC, Burlingame Equity Investors, LP,
Burlingame Equity Investors II, LP, Burlingame Equity Investors
(Offshore), Ltd., and Mercantile Discount - Provident Funds.
(16)
|
10.61
|
Escrow
Agreement, dated September 28, 2005, by and between the Company, the
Purchasers and Feldman Weinstein LLP. (16)
|
10.62
|
Management
Agreement dated October 11, 2005.(17)
|
10.63
|
First
Amendment to Agreement and Plan of Merger (to acquire I-55 Internet
Services, Inc.), dated October 10, 2005. (17)
|
10.64
|
Letter
Agreement with MCG Capital Corporation dated October 10,
2005.(17)
|
10.65
|
Securities
Purchase Agreement, dated November 23, 2005, between the Company and
Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The
Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd.
(18)
|
10.66
|
Registration
Rights Agreement, dated November 23, 2005, between the Company and
Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The
Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd.
(18)
|
10.67
|
Common
Stock Purchase Warrant, dated November 23, 2005, by the Company in favor
of Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd.,
The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd.
(18)
|
10.68
|
Escrow
Agreement, dated November 23, 2005, between the Company, the Escrow Agent,
and Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd.,
The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd.
(18)
|
10.69
|
Management
Agreement with I-55 Telecommunications, LLC dated October 12,
2005.(19)
|
10.70
|
Agreement
- General Terms and Conditions with EBI Comm, Inc., dated January 1,
2006.(21)
|
10.71
|
Asset
Purchase Agreement with Canufly.net, Inc., dated January 10,
2006.(21)
|
10.72
|
Stock
Purchase Agreement dated May 10, 2006, by and among the Company, Story
Telecom, Inc., Story Telecom Limited, Story Telecom (Ireland) Limited, Nir
Davison, and Trecastle Holdings Limited. (23)
|
10.73
|
Agreement
dated May 25, 2006, by and among the Company and the shareholders of
Equitalk.co.uk Limited. (24)
|
10.74
|
Securities
Purchase Agreement, dated June 19, 2006, by and between the Company and
the Purchasers. (25)
|
10.75
|
Registration
Rights Agreement, dated June 19, 2006, by and between the Company and the
Purchasers. (25)
|
10.76
|
Common
Stock Purchase Warrant, dated June 19, 2006, by the Company in favor of
the Purchasers.(25)
|
10.77
|
Escrow
Agreement, dated June 19, 2006, by and between the Company, the Escrow
Agent, and the Purchasers. (25)
|
10.78
|
Form
of Indemnification Agreement between the Company and its Directors and
Officers.(27)
|
10.79
|
Agreement
to Purchase Promissory Note dated October 31, 2005, with Randall Wade
James Tricou.(27)
|
10.80
|
Agreement
to Purchase Promissory Note dated October 31, 2005, with Rene Tricou -
Tricou Construction. (27)
|
10.81
|
Agreement
to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Bon
Aire Estates. (27)
|
10.82
|
Agreement
to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Bon
Aire Utility. (27)
|
10.83
|
Agreement
to Purchase Promissory Note dated February 3, 2006, with Danny
Acosta.(27)
|
10.84
|
Letter
Agreement dated November 15, 2005, with Oberon Securities,
LLC.(27)
|
10.85
|
Letter
Agreement dated June 15, 2006, with Oberon Securities,
LLC.(27)
|
10.86
|
Second
Amendment to Agreement and Plan of Merger (to acquire WS Telecom, Inc.),
dated June 28, 2006. (27)
|
10.87
|
General
Contract for Services dated January 1, 2005, by and between the Company
and Swiftnet Limited. (27)
|
10.88
|
Service
Agreement dated December 6, 2005, by and between the Company and Elite
Financial Communications Group, LLC. (27)
|
10.89
|
Agreement
for Market Making in Securities dated July 31, 2006, by and between the
Company and Excellence Nessuah Stock Exchange Services Ltd.
(27)
|
10.90
|
Shareholders
Loan Agreement, dated September 27, 2006, by and between Auracall Limited,
Swiftnet Limited, and Dan Kirschner. (28)
|
10.91
|
Service
Agreement, dated November 7, 2006, by and between the Company and
Institutional Marketing Services, Inc. (28)
|
10.92
|
Consultancy
Agreement, dated November 20, 2006, by and between the Company and
Crestview Capital Partners, LLP. (29)
|
10.93
|
Agreement
dated December 24, 2006, by and between the Company, Halman-Aldubi
Provident Funds Ltd., and Halman-Aldubi Pension Funds Ltd. [translation
from Hebrew]. (31)
|
10.94
|
First
Amendment to Financial Services and Business Development Consulting
Agreement dated February 8, 2007, by and between the Company and Dionysos
Investments (1999) Ltd. (33)
|
10.95
|
Agreement
dated February 8, 2007, by and between the Company, Swiftnet Limited,
Campbeltown Business, Ltd., and Mr. Abraham Keinan.
(33)
|
10.96
|
First
Amendment to General Contract for Services, dated March 14, 2007, by and
between the Company and Swiftnet Limited. (34)
|
10.97
|
Employment
Agreement, dated March 28, 2007, between Swiftnet Limited and Abraham
Keinan.(34)
|
10.98
|
Consulting
Agreement, dated March 28, 2007, between the Company and Abraham
Keinan. (34)
|
10.99
|
Employment
Agreement, dated March 28, 2007, between Swiftnet Limited and Guy
Nissenson.(34)
|
10.100
|
Consulting
Agreement, dated March 28, 2007, between the Company and Guy
Nissenson.(34)
|
10.101
|
Settlement
Agreement and Release dated May 31, 2007, by and among Embarq Logistics,
Inc, Xfone USA, Inc. and the Company. (35)
|
10.102
|
Promissory
Note dated May 31, 2007, by Xfone USA, Inc.(35)
|
10.103
|
Parent
Guarantee dated as of May 31, 2007 by the Company in favor of Embarq
Logistics, Inc.(35)
|
10.104
|
Share
Purchase Agreement dated August 15, 2007, by and between Dan Kirschner, as
Seller, Swiftnet Limited, as Buyer, and Xfone, Inc.
(36)
|
10.105
|
Inter-Company
Loan Agreement dated August 15, 2007, by and between Auracall Limited, as
Lender, and Swiftnet Limited, as Borrower. (36)
|
10.106
|
Stock
Purchase Agreement dated August [20], 2007, by and among the Company, NTS
Communications, Inc., and the Shareholders of NTS Communications, Inc.
(37)
|
10.107
|
Letter
of Joint Venture dated June 15, 2007, by and among the Company and NTS
Holdings, Inc.(37)
|
10.107.1
|
Form
of Free Cash Flow Participation Agreement to be Entered into between the
Company and NTS Holdings, Inc. Upon Consummation of the Acquisition.
(37)
|
10.107.2
|
Form
of Employment Agreement to be entered into between NTS Communications,
Inc. and Barbara Baldwin upon Consummation of the Acquisition.
(37)
|
10.107.3
|
Form
of Employment Agreement to be entered into between NTS Communications,
Inc. and Jerry Hoover upon Consummation of the Acquisition.
(37)
|
10.107.4
|
Form
of Employment Agreement to be entered into between NTS Communications,
Inc. and Brad Worthington upon Consummation of the Acquisition.
(37)
|
10.108
|
Employment
Contract signed on August 26, 2007, by and between the Company’s Israeli
based Subsidiary Xfone 018 ltd. and Roni Haliva. (38)
|
10.109
|
Subscription
Agreement for the Purchase of Shares of Common Stock of the Company Dated
October 23, 2007. (39)
|
10.110
|
Subscription
Agreement for the Purchase of Shares of Common Stock of the Company Dated
November 1, 2007. (41)
|
10.111
|
Form
of Subscription Agreement for the Purchase of Units Consisting of Two
Shares of Common Stock and One Common Stock Purchase Warrant.
(42)
|
10.112
|
Form
of Common Stock Purchase Warrant.(42)
|
10.113
|
First
Amendment to Stock Purchase Agreement.(43)
|
10.114.1
|
Employment
agreement dated as of February 26, 2008, by and among NTS
Communications, Inc. and Barbara Baldwin. (44)
|
10.114.2
|
Employment
agreement dated as of February 26, 2008, by and among NTS
Communications, Inc. and Jerry Hoover. (44)
|
10.114.3
|
Employment
agreement dated as of February 26, 2008, by and among NTS
Communications, Inc. and Brad Worthington .(44)
|
10.115
|
Free
cash flow participation agreement dated as of February 26, 2008, by and
among Xfone, Inc. and NTS Holdings, Inc. (44)
|
10.116
|
Escrow
agreement dated as of February 26, 2008, by and among Xfone, Inc., Chris
Chelette, Robert Healea and Kevin Buxkemper the NTS shareholders
representatives, and Trustmark National Bank, as Escrow Agent.
(44)
|
10.117
|
Release,
effective as of February 26, 2008, entered into by each of Barbara
Baldwin, Jerry Hoover and Brad Worthington (44)
|
10.118
|
Noncompetition,
nondisclosure and nonsolicitation agreement dated as of February 26, 2008,
by and among Xfone, Inc., Telephone Electronics Corporation, Joseph D.
Fail, Chris Chelette, Robert Healea, Joey Garner, and Walter Frank.
(44)
|
10.119
|
Second
amendment to stock purchase agreement entered into by each of
February 26, 2008 by and among Xfone, Inc., NTS Communications, Inc. and
Chris Chelette, Robert Healea and Kevin Buxkemper, as the NTS
shareholders representatives. (44)
|
10.120
|
Modification
of Financial Consulting Agreement between Xfone, Inc. and Oberon
Securities, LLC in connection with NTS Communications Transaction.
(45)
|
10.121
|
Fees
Due to Oberon Securities, LLC from Xfone, Inc. in connection with services
provided in conjunction with the acquisition of NTS Communications, Inc.
(45)
|
10.122
|
Agreement
of Principles dated March 17, 2008 by and between Xfone 018 Ltd. and Tiv
Taam Holdings 1 Ltd. [Free Translation from Hebrew].
(46)
|
10.123
|
Compromise
Agreement dated March 25, 2008, between Xfone, Inc., Story Telecom, Inc.,
Story Telecom Limited, Trecastle Holdings Limited and Nir Davison.
(47)
|
10.124
|
Securities
Purchase Agreement dated March 25, 2008, between Xfone, Inc., Trecastle
Holdings Limited and Nir Davison. (47)
|
10.125
|
Third
Amendment to Stock Purchase Agreement entered into as of April 25, 2008 by
and among Chris Chelette, Robert Healea and Kevin Buxkemper, as Sellers’
Representative, NTS Communications, Inc. and Xfone, Inc.
(48)
|
10.126
|
Irrevocable
Option Agreement dated as of July 1, 2008 by and between Abraham
Keinan and Guy Nissenson (49)
|
10.127
|
Indenture,
entered into on December 13, 2007, as amended and restated on October 27,
2008, between Xfone, Inc. and Ziv Haft Trusts Company Ltd. (free
translation from Hebrew). (51)
|
10.128
|
Form
of warrant (free translation from Hebrew). (51)
|
10.129
|
Underwriting
Agreement between Xfone, Inc., Excellence Nessuah Underwriting (1993) Ltd.
and The First International & Co. - Underwriting and Investments Ltd.,
dated November 2, 2008 (free translation from Hebrew).
(52)
|
10.130
|
Market
Making Agreement dated December 24, 2008, by and between Xfone, Inc. and
Harel Finance Trade & Securities Ltd. [Free translation from
Hebrew] (54)
|
10.131
|
Second
Amendment to Financial Services and Business Development Consulting
Agreement dated January 15, 2009, by and between Xfone, Inc. and Dionysos
Investments (1999) Ltd. (55)
|
16.1
|
Letter
dated January 31, 2006 from Chaifetz & Schreiber, P.C. to the
Securities and Exchange Commission. (20)
|
21.1
|
List
of Subsidiaries (Amended as of April 2009) (57)
|
23
|
Consent
of Stark Winter Schenkein & Co., LLP dated April 29, 2009
(57)
|
23.6
|
Consent
of Yarel & Partners C.P.A. (Isr.) dated April 27, 2009.
(57)
|
31.1
|
Certification pursuant to section 302 of the
Sarbanes - Oxley Act of 2002.
|
31.2
|
Certification pursuant to section 302 of the
Sarbanes - Oxley Act of 2002.
|
32.1
|
Certification of Officer pursuant to section 906
of the Sarbanes - Oxley Act of 2002.
|
32.2
|
Certification of Officer pursuant to section 906
of the Sarbanes - Oxley Act of
2002.
|
|
(1)
|
Denotes
previously filed exhibits: filed on August 10, 2001 with Xfone, Inc.’s
SB-2 Registration Statement.
|
|
(2)
|
Denotes
previously filed exhibits: filed on October 16, 2001 with Xfone, Inc.’s
SB-2/Amendment 1 Registration Statement.
|
|
(5)
|
Denotes
previously filed exhibit: filed on March 3, 2003 with Xfone, Inc.’s
SB-2/Post Effective Amendment 2 Registration Statement.
|
|
(6)
|
Denotes
previously filed exhibit: filed on April 15, 2004 with Xfone’s, Inc. SB-2
Amendment 1 Registration Statement.
|
|
(7)
|
Denotes
previously filed exhibit: filed on June 1, 2004 with Xfone, Inc.’s Form
8-K.
|
|
(8)
|
Denotes
previously filed exhibit: filed on June 7, 2004 with Xfone, Inc.’s
SB-2/Amendment 2 Registration Statement.
|
|
(9)
|
Denotes
previously filed exhibit: filed on August 11, 2004 with Xfone’s, Inc. SB-2
Amendment 3 Registration Statement.
|
|
(10)
|
Denotes
previously filed exhibit: filed on September 13, 2004 with Xfone’s, Inc.
SB-2 Amendment 4 Registration Statement.
|
|
(11)
|
Denotes
previously filed exhibits: filed on October 4, 2004 with Xfone, Inc.’s
Form 8-K
|
|
(12)
|
Denotes
previously filed exhibits: filed on November 29, 2004 with Xfone, Inc.’s
Form 8-K.
|
|
(13)
|
Denotes
previously filed exhibits; filed on March 31, 2005 with Xfone, Inc.’s Form
10-KSB.
|
|
(14)
|
Denotes
previously filed exhibit: filed on August 22, 2005 with Xfone, Inc.’s Form
8-K.
|
|
(15)
|
Denotes
previously filed exhibit: filed on August 31, 2005 with Xfone, Inc.’s Form
8-K.
|
|
(16)
|
Denotes
previously filed exhibits: filed on October 3, 2005 with Xfone, Inc.’s
Form 8-K.
|
|
(17)
|
Denotes
previously filed exhibits: filed on October 11, 2005 with Xfone, Inc.’s
Form 8-K/A #1.
|
|
(18)
|
Denotes
previously filed exhibits: filed on November 29, 2005 with Xfone, Inc.’s
Form 8-K.
|
|
(19)
|
Denotes
previously filed exhibit: filed on January 23, 2006 with Xfone, Inc.’s
Form 8-K/A #3.
|
|
(20)
|
Denotes
previously filed exhibit: filed on January 31, 2006 with Xfone, Inc.’s
Form 8-K/A #1.
|
|
(21)
|
Denotes
previously filed exhibit: filed on January 31, 2006 with Xfone, Inc.’s
Form 8-K.
|
|
(23)
|
Denotes
previously filed exhibit: filed on May 16, 2006 with Xfone, Inc.’s Form
8-K.
|
|
(24)
|
Denotes
previously filed exhibit: filed on May 30, 2006 with Xfone, Inc.’s Form
8-K.
|
|
(25)
|
Denotes
previously filed exhibits: filed on June 20, 2006 with Xfone, Inc.’s Form
8-K.
|
|
(27)
|
Denotes
previously filed exhibits: filed on July 31, 2006 with Xfone, Inc.’s Form
8-K.
|
|
(28)
|
Denotes
previously filed exhibits: filed on November 14, 2006 with Xfone, Inc.’s
Form 10-QSB.
|
|
(29)
|
Denotes
previously filed exhibit: filed on November 22, 2006 with Xfone, Inc.’s
Form 8-K.
|
|
(31)
|
Denotes
previously filed exhibit: filed on December 28, 2006 with Xfone, Inc.’s
Form 8-K.
|
|
(33)
|
Denotes
previously filed exhibits: filed on February 8, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(34)
|
Denotes
previously filed exhibits; filed on March 30, 2007 with Xfone, Inc.’s Form
10-KSB.
|
|
(35)
|
Denotes
previously filed exhibits: filed on May 31, 2007 with Xfone, Inc.’s Form
8-K.
|
|
(36)
|
Denotes
previously filed exhibits: filed on August 15, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(37)
|
Denotes
previously filed exhibits: filed on August 22, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(38)
|
Denotes
previously filed exhibit: filed on August 27, 2007 with Xfone, Inc.’s Form
8-K.
|
|
(39)
|
Denotes
previously filed exhibit: filed on October 23, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(40)
|
Denotes
previously filed exhibit: filed on October 25, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(41)
|
Denotes
previously filed exhibit: filed on November 5, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(42)
|
Denotes
previously filed exhibits: filed on December 14, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(43)
|
Denotes
previously filed exhibit: filed on February 14, 2008 with Xfone, Inc.’s
Form 8-K.
|
|
(44)
|
Denotes
previously filed exhibits: filed on February 26, 2008 with Xfone, Inc.’s
Form 8-K.
|
|
(45)
|
Denotes
previously filed exhibits: filed on March 6, 2008 with Xfone, Inc.’s Form
8-K.
|
|
(46)
|
Denotes
previously filed exhibit: filed on March 17, 2008 with Xfone, Inc.’s Form
8-K.
|
|
(47)
|
Denotes
previously filed exhibits: filed on March 25 with Xfone, Inc.’s Form
8-K.
|
|
(48)
|
Denotes
previously filed exhibit: filed on May 1, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(49)
|
Denotes
previously filed exhibit: filed on July 1, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(51)
|
Denotes
previously filed exhibit: filed on October 28, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(52)
|
Denotes
previously filed exhibit: filed on November 4, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(54)
|
Denotes
previously filed exhibit: filed on December 24, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(55)
|
Denotes
previously filed exhibit: filed on January 16, 2009 with Xfone,
Inc.‘s Form 8-K.
|
|
(56)
|
Denotes
previously filed exhibit: filed on April 1, 2009 with Xfone, Inc.‘s
Form 10-K.
|
|
(57)
|
Denotes
previously filed exhibit: filed on April 30, 2009 with Xfone, Inc.‘s
Form 10-K/A.
|
SIGN
ATU
RES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
XFONE,
INC.
|
|
|
|
|
|
|
By:
|
/s/ Guy
Nissenson
|
|
|
|
Guy
Nissenson
|
|
|
|
President,
Chief Executive Officer and Director
(principal
executive officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Niv
Krikov
|
|
|
|
Niv
Krikov
|
|
|
|
Principal
Accounting Officer, Treasurer and
Chief
Financial Officer
(principal accounting
and financial officer)
|
|
|
|
|
|
INDEX
TO EXHIBITS
Exhibit
Number
|
Description
|
2.
|
Agreement
and plan of reorganization dated September 20, 2000, between the Company
and Swiftnet Limited. (1)
|
3.1
|
Articles
of Incorporation of the Company.(1)
|
3.1.1
|
Certificate
of Amendment to the Articles of Incorporation of the Company, dated
January 18, 2007. (56)
|
3.11
|
Reamended
and Restated Bylaws of the Company dated January 15,
2009.(55)
|
4.
|
Specimen
Stock Certificate.(1)
|
10.1
|
Agreement
dated May 11, 2000, between Swiftnet Limited and Guy
Nissenson.(1)
|
10.2
|
Employment
Agreement dated January 1, 2000 with Bosmat Houston.
(1)
|
10.3
|
Loan
Agreement dated August 5, 2000, with Swiftnet Limited, Guy Nissenson, and
Nissim Levy.(1)
|
10.4
|
Promissory
Note dated September 29, 2000, between the Company and Abraham
Keinan.(1)
|
10.5
|
Stock
Purchase Agreement dated June 19, 2000, between Swiftnet Limited, Abraham
Keinan, and Campbeltown Business Ltd. (1)
|
10.6
|
Consulting
Agreement dated May 11, 2000 between Swiftnet Limited and Campbeltown
Business Ltd.(1)
|
10.7
|
Agreement
dated July 30, 2001, with Campbeltown Business Ltd.(1)
|
10.8
|
Contract
dated June 20, 1998, with WorldCom International
Ltd.(1)
|
10.9
|
Contract
dated April 11, 2000, with VoiceNet Inc.(1)
|
10.10
|
Contract
dated April 25, 2000, with InTouchUK.com Ltd.(1)
|
10.11
|
Letter
of Understanding dated July 30, 2001, from Campbeltown Business Ltd. to
the Company.(2)
|
10.12
|
Agreement
dated April 6, 2000, between Adar International, Inc./Mr. Sidney J. Golub
and Swiftnet Limited. (2)
|
10.13
|
Lease
Agreement dated December 4, 1991, between Elmtree Investments Ltd. and
Swiftnet Limited.(2)
|
10.14
|
Lease
Agreement dated October 8, 2001, between Postwick Property Holdings
Limited and Swiftnet Limited. (2)
|
10.15
|
Agreement
dated September 30, 2002, between the Company, Swiftnet Limited., and Nir
Davison.(5)
|
10.16
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Platinum Partners Value Arbitrage Fund LP, Countrywide Partners LLC and
WEC Partners LLC. (6)
|
10.17
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Simon Langbart, Robert Langbart, Arik Ecker, Zwi Ecker, Michael Derman,
Errol Derman, Yuval Haim Sobel, Zvi Sobel, Tenram Investment Ltd.,
Michael Zinn, Michael Weiss. (6)
|
10.18
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Southridge Partners LP and Southshore Capital Fund Ltd.
(6)
|
10.19
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Crestview Capital Master LLC. (6)
|
10.20
|
As
to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant
A, Warrant B and Registration Rights Agreement of Selling Shareholders
Adam Breslawsky, Oded Levy, Michael Epstein, Steven Frank, Joshua Lobel,
Joshua Kazan and The Oberon Group LLC. (6)
|
10.21
|
Newco
(Auracall Limited) Formation Agreement.(6)
|
10.22
|
Agreement
with ITXC Corporation.(6)
|
10.23
|
Agreement
with Teleglobe International.(6)
|
10.23.1
|
Amendment
to Agreement with Teleglobe International.(6)
|
10.24
|
Agreement
with British Telecommunications.(6)
|
10.25
|
Agreement
with Easyair Limited (OpenAir).(6)
|
10.26
|
Agreement
with Worldnet.(6)
|
10.27
|
Agreement
with Portfolio PR.(6)
|
10.28
|
Agreement
with Stern and Company.(6)
|
10.29
|
Letter
to the Company dated December 31, 2003, from Abraham
Keinan.(6)
|
10.30
|
Agreement
between Swiftnet Limited and Dan Kirschner.(8)
|
10.31
|
Agreement
and Plan of Merger.(7)
|
10.32
|
Escrow
Agreement.(7)
|
10.33
|
Release
Agreement.(7)
|
10.34
|
Employment
Agreement date March 10, 2005, between Xfone USA, Inc. and Wade
Spooner.(7)
|
10.34.1
|
Separation
Agreement and Release, dated August 15, 2008, between Xfone USA, Inc. and
Wade Spooner. (56)
|
10.35
|
Employment
Agreement date March 10, 2005, between Xfone USA, Inc. and Ted
Parsons.(7)
|
10.35.1
|
Separation
Agreement and Release, dated August 15, 2008, between Xfone USA, Inc. and
Ted Parsons. (56)
|
10.36
|
First
Amendment to Agreement and Plan of Merger (to acquire WS Telecom,
Inc.).(11)
|
10.37
|
Finders
Agreement with The Oberon Group, LLC.(11)
|
10.38
|
Agreement
with The Oberon Group, LLC.(11)
|
10.39
|
Management
Agreement between WS Telecom, Inc. and Xfone USA,
Inc.(8)
|
10.40
|
Engagement
Letter to Tommy R. Ferguson, Confidentiality Agreement, and Executive
Inventions Agreement dated August 19, 2004. (11)
|
10.41
|
Voting
Agreement dated September 28, 2004.(11)
|
10.42
|
Novation
Agreement executed September 27, 2004.(11)
|
10.43
|
Novation
Agreement executed September 28, 2004.(11)
|
10.44
|
Investment
Agreement dated August 26, 2004, with Ilan
Shoshani.(12)
|
10.44.1
|
Addendum
and Clarification to the Investment Agreement with Ilan Shoshani dated
September 13, 2004. (12)
|
10.45
|
Agreement
dated November 16, 2004, with Elite Financial Communications
Group.(13)
|
10.46
|
Financial
Services and Business Development Consulting Agreement dated November 18,
2004, with Dionysos Investments (1999) Ltd. (13)
|
10.47
|
Agreement
and Plan of Merger to acquire I-55 Internet Services, Inc. dated August
18, 2005.(14)
|
10.48
|
Agreement
and Plan of Merger to acquire I-55 Telecommunications, LLC dated August
26, 2005.(15)
|
10.49
|
Securities
Purchase Agreement, dated September 27, 2005, by and between the Company
and Laurus Master Fund, Ltd. (16)
|
10.50
|
Secured
Convertible Term Note, dated September 27, 2005, by the Company in favor
of Laurus Master Fund, Ltd.; Adjustment Provision Waiver Agreement, dated
September 27, 2005, by and between the Company and Laurus Fund, Ltd.
(16)
|
10.51
|
Common
Stock Purchase Warrant, dated September 27, 2005, by the Company in favor
of Laurus Master Fund, Ltd. (16)
|
10.52
|
Registration
Rights Agreement, dated September 27, 2005, by and between the Company and
Laurus Master Fund, Ltd. (16)
|
10.53
|
Master
Security Agreement, dated September 27, 2005, by and between the Company,
Xfone USA, Inc., eXpeTel Communications, Inc., Gulf Coast Utilities, Inc.,
and Laurus Master Fund, Ltd. (16)
|
10.54
|
Stock
Pledge Agreement, dated September 27, 2005, by and between the Company,
Xfone USA, Inc., and Laurus Master Fund, Ltd. (16)
|
10.55
|
Subsidiary
Guarantee dated September 27, 2005, by Xfone USA, Inc., eXpeTel
Communications, Inc. and Gulf Coast Utilities, Inc. in favor of Laurus
Master Fund, Ltd. (16)
|
10.56
|
Funds
Escrow Agreement, dated September 27, 2005, by and between the Company,
Laurus Master Fund, Ltd. and Loeb & Loeb LLP; Disbursement Letter,
dated September 27, 2005. (16)
|
10.57
|
Incremental
Funding Side Letter, dated September 27, 2005, by and between the Company
and Laurus Master Fund, Ltd. (16)
|
10.58
|
Securities
Purchase Agreement dated September 28, 2005, by and between the Company
and Crestview Capital Mater, LLC, Burlingame Equity Investors, LP,
Burlingame Equity Investors II, LP, Burlingame Equity Investors
(Offshore), Ltd., and Mercantile Discount - Provident Funds.
(16)
|
10.59
|
Registration
Rights Agreement, dated September 28, 2005, by and between the Company and
Crestview Capital Mater, LLC, Burlingame Equity Investors, LP, Burlingame
Equity Investors II, LP, Burlingame Equity Investors (Offshore), Ltd., and
Mercantile Discount - Provident Funds. (16)
|
10.60
|
Common
Stock Purchase Warrant, dated September 28, 2005, by the Company in favor
of the Crestview Capital Mater, LLC, Burlingame Equity Investors, LP,
Burlingame Equity Investors II, LP, Burlingame Equity Investors
(Offshore), Ltd., and Mercantile Discount - Provident Funds.
(16)
|
10.61
|
Escrow
Agreement, dated September 28, 2005, by and between the Company, the
Purchasers and Feldman Weinstein LLP. (16)
|
10.62
|
Management
Agreement dated October 11, 2005.(17)
|
10.63
|
First
Amendment to Agreement and Plan of Merger (to acquire I-55 Internet
Services, Inc.), dated October 10, 2005. (17)
|
10.64
|
Letter
Agreement with MCG Capital Corporation dated October 10,
2005.(17)
|
10.65
|
Securities
Purchase Agreement, dated November 23, 2005, between the Company and
Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The
Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd.
(18)
|
10.66
|
Registration
Rights Agreement, dated November 23, 2005, between the Company and
Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The
Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd.
(18)
|
10.67
|
Common
Stock Purchase Warrant, dated November 23, 2005, by the Company in favor
of Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd.,
The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd.
(18)
|
10.68
|
Escrow
Agreement, dated November 23, 2005, between the Company, the Escrow Agent,
and Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd.,
The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd.
(18)
|
10.69
|
Management
Agreement with I-55 Telecommunications, LLC dated October 12,
2005.(19)
|
10.70
|
Agreement
- General Terms and Conditions with EBI Comm, Inc., dated January 1,
2006.(21)
|
10.71
|
Asset
Purchase Agreement with Canufly.net, Inc., dated January 10,
2006.(21)
|
10.72
|
Stock
Purchase Agreement dated May 10, 2006, by and among the Company, Story
Telecom, Inc., Story Telecom Limited, Story Telecom (Ireland) Limited, Nir
Davison, and Trecastle Holdings Limited. (23)
|
10.73
|
Agreement
dated May 25, 2006, by and among the Company and the shareholders of
Equitalk.co.uk Limited. (24)
|
10.74
|
Securities
Purchase Agreement, dated June 19, 2006, by and between the Company and
the Purchasers. (25)
|
10.75
|
Registration
Rights Agreement, dated June 19, 2006, by and between the Company and the
Purchasers. (25)
|
10.76
|
Common
Stock Purchase Warrant, dated June 19, 2006, by the Company in favor of
the Purchasers.(25)
|
10.77
|
Escrow
Agreement, dated June 19, 2006, by and between the Company, the Escrow
Agent, and the Purchasers. (25)
|
10.78
|
Form
of Indemnification Agreement between the Company and its Directors and
Officers.(27)
|
10.79
|
Agreement
to Purchase Promissory Note dated October 31, 2005, with Randall Wade
James Tricou.(27)
|
10.80
|
Agreement
to Purchase Promissory Note dated October 31, 2005, with Rene Tricou -
Tricou Construction. (27)
|
10.81
|
Agreement
to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Bon
Aire Estates. (27)
|
10.82
|
Agreement
to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Bon
Aire Utility. (27)
|
10.83
|
Agreement
to Purchase Promissory Note dated February 3, 2006, with Danny
Acosta.(27)
|
10.84
|
Letter
Agreement dated November 15, 2005, with Oberon Securities,
LLC.(27)
|
10.85
|
Letter
Agreement dated June 15, 2006, with Oberon Securities,
LLC.(27)
|
10.86
|
Second
Amendment to Agreement and Plan of Merger (to acquire WS Telecom, Inc.),
dated June 28, 2006. (27)
|
10.87
|
General
Contract for Services dated January 1, 2005, by and between the Company
and Swiftnet Limited. (27)
|
10.88
|
Service
Agreement dated December 6, 2005, by and between the Company and Elite
Financial Communications Group, LLC. (27)
|
10.89
|
Agreement
for Market Making in Securities dated July 31, 2006, by and between the
Company and Excellence Nessuah Stock Exchange Services Ltd.
(27)
|
10.90
|
Shareholders
Loan Agreement, dated September 27, 2006, by and between Auracall Limited,
Swiftnet Limited, and Dan Kirschner. (28)
|
10.91
|
Service
Agreement, dated November 7, 2006, by and between the Company and
Institutional Marketing Services, Inc. (28)
|
10.92
|
Consultancy
Agreement, dated November 20, 2006, by and between the Company and
Crestview Capital Partners, LLP. (29)
|
10.93
|
Agreement
dated December 24, 2006, by and between the Company, Halman-Aldubi
Provident Funds Ltd., and Halman-Aldubi Pension Funds Ltd. [translation
from Hebrew]. (31)
|
10.94
|
First
Amendment to Financial Services and Business Development Consulting
Agreement dated February 8, 2007, by and between the Company and Dionysos
Investments (1999) Ltd. (33)
|
10.95
|
Agreement
dated February 8, 2007, by and between the Company, Swiftnet Limited,
Campbeltown Business, Ltd., and Mr. Abraham Keinan.
(33)
|
10.96
|
First
Amendment to General Contract for Services, dated March 14, 2007, by and
between the Company and Swiftnet Limited. (34)
|
10.97
|
Employment
Agreement, dated March 28, 2007, between Swiftnet Limited and Abraham
Keinan.(34)
|
10.98
|
Consulting
Agreement, dated March 28, 2007, between the Company and Abraham
Keinan. (34)
|
10.99
|
Employment
Agreement, dated March 28, 2007, between Swiftnet Limited and Guy
Nissenson.(34)
|
10.100
|
Consulting
Agreement, dated March 28, 2007, between the Company and Guy
Nissenson.(34)
|
10.101
|
Settlement
Agreement and Release dated May 31, 2007, by and among Embarq Logistics,
Inc, Xfone USA, Inc. and the Company. (35)
|
10.102
|
Promissory
Note dated May 31, 2007, by Xfone USA, Inc.(35)
|
10.103
|
Parent
Guarantee dated as of May 31, 2007 by the Company in favor of Embarq
Logistics, Inc.(35)
|
10.104
|
Share
Purchase Agreement dated August 15, 2007, by and between Dan Kirschner, as
Seller, Swiftnet Limited, as Buyer, and Xfone, Inc.
(36)
|
10.105
|
Inter-Company
Loan Agreement dated August 15, 2007, by and between Auracall Limited, as
Lender, and Swiftnet Limited, as Borrower. (36)
|
10.106
|
Stock
Purchase Agreement dated August [20], 2007, by and among the Company, NTS
Communications, Inc., and the Shareholders of NTS Communications, Inc.
(37)
|
10.107
|
Letter
of Joint Venture dated June 15, 2007, by and among the Company and NTS
Holdings, Inc.(37)
|
10.107.1
|
Form
of Free Cash Flow Participation Agreement to be Entered into between the
Company and NTS Holdings, Inc. Upon Consummation of the Acquisition.
(37)
|
10.107.2
|
Form
of Employment Agreement to be entered into between NTS Communications,
Inc. and Barbara Baldwin upon Consummation of the Acquisition.
(37)
|
10.107.3
|
Form
of Employment Agreement to be entered into between NTS Communications,
Inc. and Jerry Hoover upon Consummation of the Acquisition.
(37)
|
10.107.4
|
Form
of Employment Agreement to be entered into between NTS Communications,
Inc. and Brad Worthington upon Consummation of the Acquisition.
(37)
|
10.108
|
Employment
Contract signed on August 26, 2007, by and between the Company’s Israeli
based Subsidiary Xfone 018 ltd. and Roni Haliva. (38)
|
10.109
|
Subscription
Agreement for the Purchase of Shares of Common Stock of the Company Dated
October 23, 2007. (39)
|
10.110
|
Subscription
Agreement for the Purchase of Shares of Common Stock of the Company Dated
November 1, 2007. (41)
|
10.111
|
Form
of Subscription Agreement for the Purchase of Units Consisting of Two
Shares of Common Stock and One Common Stock Purchase Warrant.
(42)
|
10.112
|
Form
of Common Stock Purchase Warrant.(42)
|
10.113
|
First
Amendment to Stock Purchase Agreement.(43)
|
10.114.1
|
Employment
agreement dated as of February 26, 2008, by and among NTS
Communications, Inc. and Barbara Baldwin. (44)
|
10.114.2
|
Employment
agreement dated as of February 26, 2008, by and among NTS
Communications, Inc. and Jerry Hoover. (44)
|
10.114.3
|
Employment
agreement dated as of February 26, 2008, by and among NTS
Communications, Inc. and Brad Worthington .(44)
|
10.115
|
Free
cash flow participation agreement dated as of February 26, 2008, by and
among Xfone, Inc. and NTS Holdings, Inc. (44)
|
10.116
|
Escrow
agreement dated as of February 26, 2008, by and among Xfone, Inc., Chris
Chelette, Robert Healea and Kevin Buxkemper the NTS shareholders
representatives, and Trustmark National Bank, as Escrow Agent.
(44)
|
10.117
|
Release,
effective as of February 26, 2008, entered into by each of Barbara
Baldwin, Jerry Hoover and Brad Worthington (44)
|
10.118
|
Noncompetition,
nondisclosure and nonsolicitation agreement dated as of February 26, 2008,
by and among Xfone, Inc., Telephone Electronics Corporation, Joseph D.
Fail, Chris Chelette, Robert Healea, Joey Garner, and Walter Frank.
(44)
|
10.119
|
Second
amendment to stock purchase agreement entered into by each of
February 26, 2008 by and among Xfone, Inc., NTS Communications, Inc. and
Chris Chelette, Robert Healea and Kevin Buxkemper, as the NTS
shareholders representatives. (44)
|
10.120
|
Modification
of Financial Consulting Agreement between Xfone, Inc. and Oberon
Securities, LLC in connection with NTS Communications Transaction.
(45)
|
10.121
|
Fees
Due to Oberon Securities, LLC from Xfone, Inc. in connection with services
provided in conjunction with the acquisition of NTS Communications, Inc.
(45)
|
10.122
|
Agreement
of Principles dated March 17, 2008 by and between Xfone 018 Ltd. and Tiv
Taam Holdings 1 Ltd. [Free Translation from Hebrew].
(46)
|
10.123
|
Compromise
Agreement dated March 25, 2008, between Xfone, Inc., Story Telecom, Inc.,
Story Telecom Limited, Trecastle Holdings Limited and Nir Davison.
(47)
|
10.124
|
Securities
Purchase Agreement dated March 25, 2008, between Xfone, Inc., Trecastle
Holdings Limited and Nir Davison. (47)
|
10.125
|
Third
Amendment to Stock Purchase Agreement entered into as of April 25, 2008 by
and among Chris Chelette, Robert Healea and Kevin Buxkemper, as Sellers’
Representative, NTS Communications, Inc. and Xfone, Inc.
(48)
|
10.126
|
Irrevocable
Option Agreement dated as of July 1, 2008 by and between Abraham
Keinan and Guy Nissenson (49)
|
10.127
|
Indenture,
entered into on December 13, 2007, as amended and restated on October 27,
2008, between Xfone, Inc. and Ziv Haft Trusts Company Ltd. (free
translation from Hebrew). (51)
|
10.128
|
Form
of warrant (free translation from Hebrew). (51)
|
10.129
|
Underwriting
Agreement between Xfone, Inc., Excellence Nessuah Underwriting (1993) Ltd.
and The First International & Co. - Underwriting and Investments Ltd.,
dated November 2, 2008 (free translation from Hebrew).
(52)
|
10.130
|
Market
Making Agreement dated December 24, 2008, by and between Xfone, Inc. and
Harel Finance Trade & Securities Ltd. [Free translation from
Hebrew] (54)
|
10.131
|
Second
Amendment to Financial Services and Business Development Consulting
Agreement dated January 15, 2009, by and between Xfone, Inc. and Dionysos
Investments (1999) Ltd. (55)
|
16.1
|
Letter
dated January 31, 2006 from Chaifetz & Schreiber, P.C. to the
Securities and Exchange Commission. (20)
|
21.1
|
List
of Subsidiaries (Amended as of April 2009) (57)
|
23
|
Consent
of Stark Winter Schenkein & Co., LLP dated April 29, 2009
(57)
|
23.6
|
Consent
of Yarel & Partners C.P.A. (Isr.) dated April 27, 2009.
(57)
|
31.1
|
Certification pursuant to section 302 of the
Sarbanes - Oxley Act of 2002.
|
31.2
|
Certification pursuant to section 302 of the
Sarbanes - Oxley Act of 2002.
|
32.1
|
Certification of Officer pursuant to section 906
of the Sarbanes - Oxley Act of 2002.
|
32.2
|
Certification of Officer pursuant to section 906
of the Sarbanes - Oxley Act of
2002.
|
|
(1)
|
Denotes
previously filed exhibits: filed on August 10, 2001 with Xfone, Inc.’s
SB-2 Registration Statement.
|
|
(2)
|
Denotes
previously filed exhibits: filed on October 16, 2001 with Xfone, Inc.’s
SB-2/Amendment 1 Registration Statement.
|
|
(5)
|
Denotes
previously filed exhibit: filed on March 3, 2003 with Xfone, Inc.’s
SB-2/Post Effective Amendment 2 Registration Statement.
|
|
(6)
|
Denotes
previously filed exhibit: filed on April 15, 2004 with Xfone’s, Inc. SB-2
Amendment 1 Registration Statement.
|
|
(7)
|
Denotes
previously filed exhibit: filed on June 1, 2004 with Xfone, Inc.’s Form
8-K.
|
|
(8)
|
Denotes
previously filed exhibit: filed on June 7, 2004 with Xfone, Inc.’s
SB-2/Amendment 2 Registration Statement.
|
|
(9)
|
Denotes
previously filed exhibit: filed on August 11, 2004 with Xfone’s, Inc. SB-2
Amendment 3 Registration Statement.
|
|
(10)
|
Denotes
previously filed exhibit: filed on September 13, 2004 with Xfone’s, Inc.
SB-2 Amendment 4 Registration Statement.
|
|
(11)
|
Denotes
previously filed exhibits: filed on October 4, 2004 with Xfone, Inc.’s
Form 8-K
|
|
(12)
|
Denotes
previously filed exhibits: filed on November 29, 2004 with Xfone, Inc.’s
Form 8-K.
|
|
(13)
|
Denotes
previously filed exhibits; filed on March 31, 2005 with Xfone, Inc.’s Form
10-KSB.
|
|
(14)
|
Denotes
previously filed exhibit: filed on August 22, 2005 with Xfone, Inc.’s Form
8-K.
|
|
(15)
|
Denotes
previously filed exhibit: filed on August 31, 2005 with Xfone, Inc.’s Form
8-K.
|
|
(16)
|
Denotes
previously filed exhibits: filed on October 3, 2005 with Xfone, Inc.’s
Form 8-K.
|
|
(17)
|
Denotes
previously filed exhibits: filed on October 11, 2005 with Xfone, Inc.’s
Form 8-K/A #1.
|
|
(18)
|
Denotes
previously filed exhibits: filed on November 29, 2005 with Xfone, Inc.’s
Form 8-K.
|
|
(19)
|
Denotes
previously filed exhibit: filed on January 23, 2006 with Xfone, Inc.’s
Form 8-K/A #3.
|
|
(20)
|
Denotes
previously filed exhibit: filed on January 31, 2006 with Xfone, Inc.’s
Form 8-K/A #1.
|
|
(21)
|
Denotes
previously filed exhibit: filed on January 31, 2006 with Xfone, Inc.’s
Form 8-K.
|
|
(23)
|
Denotes
previously filed exhibit: filed on May 16, 2006 with Xfone, Inc.’s Form
8-K.
|
|
(24)
|
Denotes
previously filed exhibit: filed on May 30, 2006 with Xfone, Inc.’s Form
8-K.
|
|
(25)
|
Denotes
previously filed exhibits: filed on June 20, 2006 with Xfone, Inc.’s Form
8-K.
|
|
(27)
|
Denotes
previously filed exhibits: filed on July 31, 2006 with Xfone, Inc.’s Form
8-K.
|
|
(28)
|
Denotes
previously filed exhibits: filed on November 14, 2006 with Xfone, Inc.’s
Form 10-QSB.
|
|
(29)
|
Denotes
previously filed exhibit: filed on November 22, 2006 with Xfone, Inc.’s
Form 8-K.
|
|
(31)
|
Denotes
previously filed exhibit: filed on December 28, 2006 with Xfone, Inc.’s
Form 8-K.
|
|
(33)
|
Denotes
previously filed exhibits: filed on February 8, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(34)
|
Denotes
previously filed exhibits; filed on March 30, 2007 with Xfone, Inc.’s Form
10-KSB.
|
|
(35)
|
Denotes
previously filed exhibits: filed on May 31, 2007 with Xfone, Inc.’s Form
8-K.
|
|
(36)
|
Denotes
previously filed exhibits: filed on August 15, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(37)
|
Denotes
previously filed exhibits: filed on August 22, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(38)
|
Denotes
previously filed exhibit: filed on August 27, 2007 with Xfone, Inc.’s Form
8-K.
|
|
(39)
|
Denotes
previously filed exhibit: filed on October 23, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(40)
|
Denotes
previously filed exhibit: filed on October 25, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(41)
|
Denotes
previously filed exhibit: filed on November 5, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(42)
|
Denotes
previously filed exhibits: filed on December 14, 2007 with Xfone, Inc.’s
Form 8-K.
|
|
(43)
|
Denotes
previously filed exhibit: filed on February 14, 2008 with Xfone, Inc.’s
Form 8-K.
|
|
(44)
|
Denotes
previously filed exhibits: filed on February 26, 2008 with Xfone, Inc.’s
Form 8-K.
|
|
(45)
|
Denotes
previously filed exhibits: filed on March 6, 2008 with Xfone, Inc.’s Form
8-K.
|
|
(46)
|
Denotes
previously filed exhibit: filed on March 17, 2008 with Xfone, Inc.’s Form
8-K.
|
|
(47)
|
Denotes
previously filed exhibits: filed on March 25 with Xfone, Inc.’s Form
8-K.
|
|
(48)
|
Denotes
previously filed exhibit: filed on May 1, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(49)
|
Denotes
previously filed exhibit: filed on July 1, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(51)
|
Denotes
previously filed exhibit: filed on October 28, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(52)
|
Denotes
previously filed exhibit: filed on November 4, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(54)
|
Denotes
previously filed exhibit: filed on December 24, 2008 with Xfone,
Inc.‘s Form 8-K.
|
|
(55)
|
Denotes
previously filed exhibit: filed on January 16, 2009 with Xfone,
Inc.‘s Form 8-K.
|
|
(56)
|
Denotes
previously filed exhibit: filed on April 1, 2009 with Xfone, Inc.‘s
Form 10-K.
|
|
(57)
|
Denotes
previously filed exhibit: filed on April 30, 2009 with Xfone, Inc.‘s
Form 10-K/A.
|
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