- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2011

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 x 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 November 14, 2011, 41,186,596 shares of the Company’s common stock, $0.001 par value per share, were issued and outstanding.

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XFONE, INC. AND SUBSIDIARIES

Index

		Page
PART I:	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements and Notes (Unaudited) - Period Ended September 30, 2011	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	29

PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults upon Senior Securities	31
Item 4.	(Removed and Reserved)	31
Item 5.	Other Information	31
Item 6.	Exhibits	31

SIGNATURES		37

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PART I:

FINANCIAL INFORMATION

Item 1.	Condensed Consolidated F inancial Statements and Notes (Unaudited) - Period Ended September 30, 2011

Xfone, Inc. and Subsidiaries


CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2011

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CONTENTS	PAGE

Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010	5

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (unaudited)	7

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited)	8

Notes to Condensed Consolidated Financial Statements (unaudited)	10

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Xfone, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2011		2010
	(unaudited)

CURRENT ASSETS:
Cash	$	2,013,930	$	1,217,427
Accounts receivable, net		3,333,338		3,096,242
Prepaid expenses and other receivables		5,623,819		3,077,060
Deferred taxes		740,260		627,044
Inventory		191,060		181,874

Total current assets		11,902,407		8,199,647

BONDS ISSUANCE COSTS, NET		1,215,572		1,432,607

OTHER LONG-TERM ASSETS		3,245,614		3,147,373

RESTRICTED CASH		2,806,168		1,112,912

FIXED ASSETS, NET		67,301,217		58,544,792

INTANGIBLE ASSETS, NET		1,510,256		1,206,871

Total assets	$	87,981,234	$	73,644,202

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Xfone, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
	September 30,		December 31,
	2011		2010
		(unaudited)

CURRENT LIABILITIES:
Short-term bank credit and current maturities of notes payable	$	3,427,534	$	3,281,420
Trade payables		7,876,311		6,465,065
Other liabilities and accrued expenses		4,296,066		5,111,129
Current maturities of obligations under capital leases		540,413		829,045
Current maturities of bonds		4,226,617		3,933,014

Total current liabilities		20,366,941		19,619,673

DEFERRED TAXES, NET		2,387,776		2,791,430

NOTES PAYABLE TO THE UNITED STATES DEPARTMENT OF AGRICULTURE, NET OF CURRENT MATURITIES		23,233,855		9,492,448

NOTES PAYABLE, NET OF CURRENT MATURITIES		4,221,990		3,210,873

BONDS PAYABLES, NET OF CURRENT MATURITIES		15,123,660		15,289,906

OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT MATURITIES		488,550		605,626

OTHER LONG-TERM LIABILITIES		66,836		128,560

Total liabilities		65,889,608		51,138,516

COMMITMENTS AND CONTINGENT LIABILITIES

SHAREHOLDERS' EQUITY:
Common stock of $0.001 par value per share: 75,000,000 shares authorized; 21,119,488 issued and outstanding at September 30, 2011 and December 31, 2010		21,119			21,119
Additional paid-in capital		48,243,572			48,077,378
Foreign currency translation adjustment		(1,910,706	)		(1,910,706	)
Retained earnings (deficit)		(24,262,359	)		(23,682,105	)

Total Equity		22,091,626			22,505,686

Total liabilities and shareholders' equity	$	87,981,234		$	73,644,202

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Xfone, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues
Services on Fiber-To-The-Premise network	$	3,417,271		$	2,634,074		$	9,403,832		$	7,288,042
Leased local loop services and other		11,184,371			12,344,483			33,554,184			36,677,512
Total Revenues		14,601,642			14,978,557			42,958,016			43,965,554

Expenses
Cost of services (excluding depreciation and amortization shown below)		7,063,847			7,169,583			20,925,151			21,354,450
Selling, general and administrative		5,202,866			5,988,544			15,730,833			17,910,714
Depreciation and amortization		1,453,983			1,091,206			3,850,446			3,144,840
Financing expenses, net		(421,121	)		2,340,159			2,831,573			3,597,274
Other expenses		115,453			159,712			405,299			453,048
Total Expenses		13,415,028			16,749,204			43,743,302			46,460,326

Income (loss) from continued operations before taxes and non-controlling interest		1,186,614			(1,770,647	)		(785,286	)		(2,494,772	)

Income tax benefit (expense)		(177,952	)		250,690			342,567			503,306

Net Income (loss) from continued operations		1,008,662			(1,519,957	)		(442,719	)		(1,991,466	)

Loss from discontinued operations in the United Kingdom and Israel, before taxes		(137,535	)		(957,320	)		(137,535	)		(862,444	)

Capital gain from the disposal of the discontinued operations in the United Kingdom and Israel		-			1,217,374			-			1,217,374

Income tax expense on discontinued operations in the United Kingdom and Israel		-			(4,040	)		-			(189,295	)

Net income (loss)		871,127			(1,263,943	)		(580,254	)		(1,825,831	)

Less: Net income (loss) attributed to non-controlling interest (related to discontinued operations)		-			26,693			-			(136,786	)

Net income (loss) attributed to shareholders	$	871,127		$	(1,237,250	)	$	(580,254	)	$	(1,962,617	)

Basic and diluted income (loss) per share:
Income (loss) from continued operations	$	0.05		$	(0.07	)	$	(0.02	)	$	(0.10	)
Income (loss) from discontinued operations		(0.01	)		0.01			(0.01	)		-
Basic and diluted income (loss) per share	$	0.04		$	(0.06	)	$	(0.03	)	$	(0.10	)

Basic weighted average number of shares outstanding:		21,119,488			21,119,488			21,119,488			20,295,714

Diluted weighted average number of shares outstanding:		21,119,488			21,169,288			21,119,488			20,295,714

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Xfone, Inc. and Subsidiaries
CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS
(Unaudited)

	Nine months ended
	September 30,
	2011			2010
Cash flow from operating activities:
Net loss	$	(580,254	)	$	(1,825,831	)
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,850,446			3,478,200
Compensation in connection with the issuance of warrants and options issued for professional services		166,194			535,512
Increase (decrease) in bad debt provision		303,296			126,637
Capital gain from disposal of discontinued operations		-			(1,217,374	)
Impairment of goodwill		-			800,000
Accrued interest and exchange rate on bonds		127,357			1,560,312
Expense of discounted debt from related party and related warrants		544,991			538,291
Gain on the disposal of fixed assets		(5,000	)		-
Decrease (increase) in bonds issuance cost, net		217,035			220,598
Decrease (increase) in account receivables		(540,392	)		146,891
Decrease (increase) in inventories		(9,186	)		1,028
Decrease (increase) in long-term receivables		(98,241	)		(465,451	)
Decrease (increase) in prepaid expenses and other receivables		456,760			(783,212	)
Increase (decrease) in other long-term liabilities		(61,724	)		776,361
Increase (decrease) in trade payables		(130,742	)		(962,381	)
Increase (decrease) in other liabilities and accrued expenses		(815,064	)		371,059
Deferred tax provision		(516,870	)		(721,895	)

Net cash provided by operating activities		2,908,606			2,578,745

Cash flow from investing activities:
Proceeds from disposal of fixed assets		5,000			-
Purchase of assets from CoBridge Telecom, LLC		(306,030	)		-
Proceeds from disposal of discontinued operations, net		-			2,795,116
Purchase of equipment		(1,814,559	)		(3,329,104	)
Purchase of equipment for the projects under the United States Department of Agriculture		(9,640,514	)		(2,959,488	)

Net cash used in investing activities		(11,756,103	)		(3,493,476	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Xfone, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

	Nine months ended
	September 30,
	2011				2010
Cash flow from financing activities:
Repayment of short-term loans from banks and others			(398,954	)			(380,121	)
Repayment of capital lease obligation			(753,003	)			(240,540	)
Increase (decrease) in short-term bank credit, net			-				(3,766,326	)
Proceeds from long-term loans from banks			-				406,835
Proceeds from long-term loans from the United States Department of Agriculture			11,504,124				2,337,087
Repayment of long term loans from United States Department of Agriculture			(436,519	)			(315,022	)
Increase (decrease) in trade payable related to the projects finance by the United States Department of Agriculture			1,421,608				(51,987	)
Proceeds from exercise of options			-				75,753
Proceeds from issuance of shares and detachable warrants, net of issuance expenses			-				3,948,760
Decrease (increase) in restricted cash			(1,693,256	)			1,710,117
Proceeds from long-term loans			-				2,467,888

Net cash provided by financing activities			9,644,000				6,192,444
Effect of exchange rate changes on cash and cash equivalents			-				21,009
Net increase (decrease) in cash and cash equivalents			796,503				5,298,722
Cash and cash equivalents at the beginning of the period			1,217,427				2,819,393
Cash and cash equivalents at the end of period		$	2,013,930			$	8,118,115

Supplemental disclosure of cash flows activities:

Cash paid for:
Interest	$	1,539,704	$	1,332,045
Taxes	$	150,000	$	156,251

Purchase of fixed assets by capital lease arrangements	$	314,702	$	570,462

Proceeds receivable from long-term loans from the United States Department of Agriculture	$	3,003,518		-

The accompanying notes are an integral part of these condensed consolidated financial statements

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 1 - Organization and Nature of Business

Xfone, Inc. (the "Company" or "Xfone") was incorporated in the State of Nevada, U.S.A. in September 2000. The Company is a holding and managing company providing, through its subsidiaries, integrated communications services which include voice, video and data over its Fiber-To-The-Premise (“FTTP”) and other networks. The Company currently has operations in Texas, Mississippi and Louisiana.

Xfone's holdings in subsidiaries as of September 30, 2011 were as follows:

	●	NTS Communications, Inc. ("NTS") and its seven wholly owned subsidiaries, NTS Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona, Inc., Communications Brokers Inc., NTS Telephone Company, LLC, NTS Management Company, LLC and PRIDE Network, Inc.
	●	Xfone USA, Inc. and its two wholly owned subsidiaries, eXpeTel Communications, Inc. and Gulf Coast Utilities, Inc. (collectively, "Xfone USA").

Purchase of assets and liabilities of CoBridge Telecom, LLC.

On April 25, 2011, NTS Communications, Inc., (“NTS”) entered into an Asset Purchase Agreement (the “Agreement”) with CoBridge Telecom, LLC, (“CoBridge”), pursuant to which CoBridge agreed to sell NTS all of CoBridge’s assets in and around the communities of Colorado City, Levelland, Littlefield, Morton, and Slaton Texas pursuant to the terms of the Agreement. CoBridge provided cable television service in those communities via coaxial cable facilities. As part of the transaction, NTS also agreed to assume certain liabilities of CoBridge which are necessary to continue operation of the Assets. The sale and purchase closed on July 1, 2011.

The following table summarizes the fair values of the assets acquired and liabilities assumed, as of July 1, 2011:

Fixed assets	$	369,411
Customer relationship		771,071
Current liabilities		120,381

Net assets acquired		1,020,101

Purchase price:
Cash paid		306,030
Note payable (*)		714,071

Total	$	1,020,101

(*) Purchase price is subject to adjustments based on the number of CoBridge’s customers who will sign up for NTS’s service in the relevant markets.

Disposition of UK Subsidiaries (Swiftnet, Auracall, Equitalk.co.uk and Story Telecom)

On January 29, 2010, the Company entered into an agreement (the “Agreement”) with Abraham Keinan, a significant shareholder and then Chairman of the Board of the Company (“Keinan”), and AMIT K LTD, a company registered in England & Wales which is wholly owned and controlled by Keinan (“Buyer”), for the sale of Swiftnet Limited ("Swiftnet"), Auracall Limited ("Auracall"), Equitalk.co.uk Limited ("Equitalk") and Story Telecom, Inc. and its wholly owned U.K. subsidiary, Story Telecom Limited (collectively, "Story Telecom") (collectively, the “UK Subsidiaries”), which the Company owned (the “Transaction”). Pursuant to the Agreement, the consideration paid by Buyer and/or Keinan to Xfone would be comprised of the following components:

		1.	A release of the Company from the repayment of the loan from Iddo Keinan, the son of Mr. Keinan and an employee of Swiftnet dated December 10, 2009, pursuant to which Iddo Keinan extended to Swiftnet a loan of £860,044 ($1,344,073);
		2.	A redemption of the credit facility which the Company had obtained from Bank Leumi (UK) Plc. of £150,000 ($234,420), thereby releasing the Company from its obligation to Bank Leumi (UK) Plc.;
		3.	An annual earn-out payment over the following years beginning on the consummation of the Transaction. The aggregate Earn-Out Payments shall be equal to but shall not exceed $1,858,325 in the aggregate; and
		4.	Cancellation of intercompany balances between the Company and the UK Subsidiaries amounting to $1,009,037.

On July 29, 2010 the Company completed its disposition of the UK Subsidiaries.

As a result of the Agreement to sell the UK Subsidiaries, the assets and liabilities related to the UK Subsidiaries have been classified as “held for sale” in the Company’s financial statements in accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets. ASC 360 requires an asset group that is held for sale to be recorded at the lower of its carrying amount or fair value less costs to sell. As a result of classifying the Company's UK subsidiaries as discontinued operations, the Company recorded a goodwill impairment of $800,000 during 2010.

-10-

Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 1 - Organization and Nature of Business (cont.)

The net loss on the sale of the UK Subsidiaries was calculated as follows:

Gross proceeds:
Release from the repayment of a loan	$	1,344,073
Release from a repayment of credit line		234,420
Release from retirement and employment termination liabilities		937,677
Aggregate future Earn-Out receivables (*)		1,444,494
Transaction costs		(55,495	)

Net proceeds		3,905,169

Net book value of the UK Subsidiaries:
Cash		494,060
Account receivables		718,214
Other current assets		2,272,316
Fixed assets, net		879,989
Trade payable		(1,539,926	)
Other current liabilities		(1,894,363	)
Other long-term liability		(166,824	)
Goodwill and other intangible assets		4,942,739
Realization of cumulative translation adjustment		905,279

Net assets		6,611,484

Loss before taxes		(2,706,315	)

Tax benefit		442,032

Net loss on the sale of the UK Subsidiaries (**)	$	(2,264,283	)

(*) Earn-Out receivables were recorded at a discounted value.

(**) Net loss on the sale of the UK Subsidiaries includes a loss of $905,279 from changes in translation of assets and liabilities of the UK Subsidiaries from GBP to USD. This amount was previously included in the Company's shareholders' equity.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 1 - Organization and Nature of Business (cont.)

The result of the discontinued operations in the U.K. are as follows:

	Three months ended			Nine months ended
	September 30, 2010			September 30, 2010

Revenues (*)	$	1,260,792		$	7,125,187
Cost of revenues		545,512			2,629,875

Gross profit		715,280			4,495,312

Operating expenses:
Marketing and selling		435,251			2,661,304
General and administrative		1,150,975			2,446,034
Impairment of goodwill		-			800,000
Total operating expenses		1,586,226			5,907,338

Operating loss		(870,946	)		(1,412,026	)

Financing expenses, net		(8,688	)		(76,297	)

Loss before taxes		(879,634	)		(1,488,323	)

Income tax expense		(4,662	)		(4,662	)

Net loss from discontinued operation in the United Kingdom	$	(884,296	)	$	(1,492,985	)

(*) Includes the results of the UK Subsidiaries from July 1, 2010 until closing date of the Transaction on July 29, 2010.

(*) Intercompany revenues, for services provided by the discontinued operation in the UK to the discontinued operation in Israel, of $843,522 for the period ended July 29, 2010, are attributed to the discontinued operations in the UK. The associated costs of these revenues are also attributed to the discontinued operations in the UK.

Disposition of Israeli Subsidiary (Xfone 018)

On August 31, 2010 (the “Closing Date”), the Company completed the disposition (the “Transaction”) of its 69% interest in Xfone 018 Ltd. (“Xfone 018”) pursuant to an agreement, dated May 14, 2010 (including any amendments and supplement thereto, the “Agreement”), by and between the Company, Newcall Ltd. (the former 26% minority owner of Xfone 018) (“Newcall”), Margo Pharma Ltd. (the former 5% minority owner of Xfone 018), and Marathon Telecom Ltd., the buyer of Xfone 018 (“Marathon Telecom”).

The original gross purchase price to be paid by Marathon Telecom under the Agreement was $7,850,000. On the Closing Date, the parties agreed to reduce the gross purchase price to $7,802,000 and deposited with a trustee (the “Trustee”) an amount equal to 15% of the reduced gross purchase price (the “Deposit”), such Deposit is to act as collateral for the indemnification of Marathon Telecom pursuant to the provisions of Section 17 of the Agreement. The Deposit is to be disbursed by the Trustee in two equal parts, the first of which was already disbursed on April 4, 2011, and the second to be disbursed by December 31, 2011, unless Marathon Telecom provides the Trustee with an indemnification notice.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 1 - Organization and Nature of Business (cont.)

In connection with the consummation of the Transaction, Xfone 018 repaid all outstanding debts owed to its bank, to the Company and to Newcall, and we received 69% of the net proceeds from the sale. The gross proceeds to the Company were approximately $4,900,000, subject to disbursement of the Deposit by the Trustee according to the schedule set forth above. In connection with the Transaction, on September 13, 2010 the Company paid $118,985 as finder's fee to Mr. Ilan Shoshani, the owner of Newcall.

As a result of the agreement to sell Xfone 018, the assets and liabilities related to Xfone 018 have been classified as “held for sale” in the Company’s financial statements in accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets. ASC 360 requires an asset group that is held for sale to be recorded at the lower of its carrying amount or fair value less costs to sell.

The net profit on the sale of Xfone 018 was calculated as follows:

Gross proceeds:
Cash (less Transaction costs)	$	5,560,567
Cash held in escrow		1,695,817
Allocation of proceeds to Minority Partners		(2,308,285	)

Net proceeds		4,948,099

Net book value of Xfone 018:
Cash		433,314
Account receivables		1,690,699
Other current assets		206,735
Fixed assets, net		1,446,789
Other non-current assets		276,814
Short-term bank credit and current maturities of notes payable		(466,864	)
Trade payable		(1,667,384	)
Other current liabilities		(149,019	)
Notes payable, net of current maturities		(349,177	)
Other long-term liability		(125,218	)
Minority interest		(372,451	)
Realization of cumulative translation adjustment		100,172

Net assets		1,024,410

Profit before capital gain taxes		3,923,689

Tax expense		2,538,179

Net profit on the sale of Xfone 018	$	1,385,510

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 1 - Organization and Nature of Business (cont.)

The result of the discontinued operations in Israel are as follows:

	Three months ended			Nine months ended
	September 30, 2010			September 30, 2010

Revenues (*)	$	1,942,380		$	6,477,810
Cost of revenues		1,392,814			3,799,730

Gross profit		549,566			2,678,080

Operating expenses:
Marketing and selling		162,534			610,465
General and administrative		429,269			1,312,228
Total operating expenses		591,803			1,922,693

Operating profit (loss)		(42,237	)		755,387

Financing expenses, net		(35,449	)		(129,508	)

Income (loss) before taxes		(77,686	)		625,879

Income tax benefit (expense)		622			(184,633	)

Net income (loss)		(77,064	)		441,246

Income (loss) attributed to non-controlling interest		26,693			(136,786	)

Net income (loss) from discontinued operation in the Israel	$	(50,371	)	$	304,460

(*) Includes the results of Xfone 018 from July 1, 2010 until closing date of the Transaction on August 31, 2010.

(*) Intercompany revenues, for services provided by the discontinued operation in Israel to the discontinued operation in the UK, of $74,285 for the period ended August 31, 2010, are attributed to the discontinued operations in Israel. The associated costs of these revenues are also attributed to the discontinued operations in Israel.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 2 - Significant Accounting Policies

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 September 30, 2011 (unaudited) and December 31, 2010 (audited), the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2011 and 2010, and the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company's financial position, results of operations and cash flows on a basis consistent with that of the Company's 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 for the year ended December 31, 2010.

The Company has evaluated subsequent events occurring through the date on which this Quarterly Report on Form 10-Q was filed.

Principles of Consolidation and Basis of Financial Statement Presentation

The 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. 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 the event that equity is reduced to zero or below.

Foreign Currency Translation

For operations in local currency environments, assets and liabilities are translated at year-end exchange rates with cumulative translation adjustments included as a component of shareholders’ equity and income and expense items are translated at average foreign exchange rates prevailing during the year. Foreign currency transactions gains and losses are included in the results of operations.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when purchased.

Restricted Cash

At September 30, 2011 and December 31, 2010 restricted cash include proceeds held by NTS Telephone Company, LLC and PRIDE Network, Inc. that were received from the United States Department of Agriculture to develop its FTTP infrastructure in northwestern Texas and southern Louisiana.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 2 - Significant Accounting Policies (Cont.)

Accounts Receivable

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 $706,770 and $387,336 at September 30, 2011 and December 31, 2010, respectively.

Other Intangible Assets

Other intangible assets consist of a license to provide communication services in the United States.

Customer relations related to mergers and acquisitions are amortized over a period between 2-13 years from the date of the purchase.

Earnings Per Share

Basic earning per share (EPS) is computed by dividing income available to common shareholders 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. All outstanding warrants and options were excluded from the calculation of diluted loss per share since they would have an anti-dilutive effect due to the Company's loss and net loss to shareholders which were reported for the nine months ended September 30, 2011 and 2010.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with “FASB ASC 718-10.” Stock-based compensation expense recognized during the period is based on the value of the portion of share-based awards that are ultimately expected to vest during the period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock is determined based on the number of shares granted and the closing price of the Company’s common stock on the date of grant. Compensation expense for all share-based payment awards is recognized using the straight-line amortization method over the vesting period.

Reclassification

Certain prior period balances in the balance sheet and the statement of cash flows were reclassified to appropriately present foreign currency translation adjustment related to the Company’s decision to change its functional and reporting currency from the Great Britain Pounds to the U.S. dollar for the period before January 1, 2007 and amounts held as restricted cash and expenses related to discounted debt and related warrants. Such reclassifications did not impact the Company's net income or stockholders' equity.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 2 - Significant Accounting Policies (Cont.)

Income Taxes

The Company and its subsidiaries account for income taxes in accordance with FASB ASC No. 740, “Income Taxes.” This topic 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 bases 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.

Deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting, or according to the expected reversal dates of the specific temporary differences if not related to an asset or liability for financial reporting.

The Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The first step is recognition: the Company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability.

Derivative Instruments

Effective January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities— an amendment of FASB Statement No. 133, as codified in ASC 815. ASC 815 requires entities to provide qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of any gains and losses on derivative contracts, and details of credit risk related contingent features in their hedged positions. ASC 815 also requires entities to disclose more information about the location and amounts of derivative instruments in financial statements; how derivatives and related hedges are accounted for; and how the hedges affect the entity's financial position, financial performance, and cash flows. The adoption of this new guidance on January 1, 2009 has been incorporated into the notes to the Company's consolidated financial statements. As of September 30, 2011, the Company does not have open positions.

	L.	Recent Accounting Pronouncements
1.	Intangibles-Goodwill and Other (Topic 350). In September 2011, the FASB issued “Intangibles- Goodwill and Other (Topic 350)-Testing Goodwill for Impairment” (Accounting Standards Update (ASU) 2011-08), which requires an entity to first assess qualitative factors such as macroeconomic conditions, industry and market considerations etc to determine whether the existence of events leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If an entity determines that it is not more likely than not that its fair value is less than its carrying amount, then the first and second steps of the goodwill impairment test are not necessary. If an entity determines that it is more likely than not that its fair value is less than its carrying amount, then the first step of the two-step goodwill impairment test is necessary. ASU 2011-08 will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 2011. For annual and interim goodwill impairment tests performed as of a date before September 15, 2011, early adoption is permitted if financial statements for the most recent annual or interim period have not yet been issued. Accordingly, adoption of the new guidance has not impacted the Company’s financial statements.
2.	Fair Value Measurements and Disclosures. In January 2010, the FASB issued “Fair Value Measurements and Disclosures—Improving Disclosures about Fair Value Measurements” (Accounting Standards Update (ASU) 2010-06), which requires new disclosures and explanations for transfers of financial assets and liabilities between certain levels in the fair value hierarchy. ASU 2010-06 also clarifies that fair value measurement disclosures are required for each class of financial asset and liability, which may be a subset of a caption in the consolidated balance sheets, and those disclosures should include a discussion of inputs and valuation techniques. For financial assets and liabilities subject to lowest-measurements, ASU 2010-06, further requires that the Company separately present purchases, sales, issuances, and settlements instead of netting these changes. With respect to matters other than lowest-level measurements, the Company adopted ASU 2010-06 beginning with the quarter ended March 31, 2010 with the remaining disclosure requirements becoming effective for fiscal years and interim periods beginning on or after December 15, 2010 (i.e., the quarter ending March 31, 2011, for the Company). Adoption of this standard did not have any material impact on the Company's financial statements.

Intangibles-Goodwill and Other. In December 2010, the FASB issued “Intangibles- Goodwill and Other-When to perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (Accounting Standards Update (ASU) 2010-28), which requires the entity to assess whether it is more likely than not that a goodwill impairment exists for each reporting unit with a zero or negative carrying amount. If it is more likely than not that a goodwill impairment exists, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any by evaluating the adverse qualitative factors. ASU 2010-28 became effective for a public entity for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. Adoption of this standard required recording a cumulative-effect adjustment to beginning retained earnings in the period of adoption. Accordingly, adoption of the new guidance has not impacted the Company’s financial statements.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 2 - Significant Accounting Policies (Cont.)

Business Combinations (Topic 805). In December 2010, the FASB issued “Business Combinations (Topic 805) - Disclosure of Supplementary Pro Forma Information for Business Combinations” (Accounting Standards Update (ASU) 2010-29). If a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. If comparative financial statements are not presented, the revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period (supplemental pro forma information). ASU 2010-29 also expands the supplemental pro forma disclosures to include the description of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the business combination(s) included in the reported pro forma revenue and earnings. ASU 2010-29 is applied prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010; earlier application is permitted. The Company has not completed any business combinations since January 1, 2010. Accordingly, adoption of the new guidance has not impacted the Company’s financial statements.

Note 3 – Notes payable

NTS Communications, Inc. had a loan with a commercial bank with an outstanding amount of $2,025,485 as of September 30, 2011 with a maturity date of October 13, 2011. The loan bore interest at a rate equivalent to 2% above the Wall Street Journal Prime rate, but not less than 6% per annum and was repayable in equal principal and interest monthly installments of $100,000 each. The loan was secured by an assignment of all of NTS’ trade accounts receivable, equipment and inventory. The loan was repaid on October 2011 as part of the agreement with ICON Agent, LLC as further described in Note 8.

NTS Telephone Company, LLC, a wholly owned subsidiary of NTS Communications, Inc., received approval from the Rural Utilities Service (“RUS”), a division of the United States Department of Agriculture, for an $11.8 million debt facility to complete a telecommunications overbuild project in Levelland, Texas. The principal of the RUS loan is repaid monthly starting one year from the advance date until full repayment after 17 years from each advance date. The loan bears interest at the average yield on outstanding marketable obligations of the United States having the final maturity comparable to the final maturity of the advance. Advances are provided as the construction progresses, and the interest rate is set based upon the prevailing rate at the time of each individual advance. The note is non-recourse to NTS and all other NTS subsidiaries and is secured by NTS Telephone's assets which were $ 13.7 million at September 30, 2011. As of September 30, 2011, the current average weighted interest rate on the outstanding advances was 3.75%.

The total outstanding amount of these loans as of September 30, 2011 and December 31, 2010 were $10,489,130 and $8,218,438, respectively. The loans are to be repaid in monthly installments until 2024.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 3 - Notes payable (Cont.)

The total aggregate amount of these loans and grants as of September 30, 2011 that has been utilized were $10,491,182 and $7,331,687, respectively. The loans are to be repaid in monthly installments until 2029. The loans are non-recourse to NTS and all other NTS subsidiaries and are secured by PRIDE Network's assets which were $11.8 million at September 30, 2011. As of September 30, 2011, the current average weighted interest rate on the outstanding advances was 4.02%.

On March 23, 2010, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an existing shareholder, Burlingame Equity Investors, LP (“Burlingame”). As part of the Purchase Agreement, the Company issued a senior promissory note in the aggregate principal amount of $3,500,000 (the “Promissory Note”). Interest accrues at an annual rate of 10% and is payable quarterly. The Promissory Note is not secured and has equal liquidation rights with the Company's Series A Bonds issued in Israel on December 13, 2007. The Company evaluated the fair value of each of the three securities that were issued under the Purchase Agreement (i.e., the Promissory Note, 2,173,913 shares of the Company’s common stock, and a warrant to purchase 950,000 shares of the Company’s common stock) and recorded the Promissory Note at its allocated relative fair value of $2,556,240. The difference between the allocated relative fair value and the principal amount will be expense ratably over the life of the Promissory Note.

On May 2, 2011, the Company entered into a First Amendment to the Promissory Note, pursuant to which the Company and Burlingame agreed to extend the maturity date of the Promissory Note from March 22, 2012 to March 22, 2013.

The effective rate of the Promissory Note is calculated at 22.1%.

Note 4 –Rights Offering

On July 6, 2011 the Company announced that its Board of Directors has approved a rights offering (the "Rights Offering") in which Company’s stockholders will receive non-transferable and non-tradable rights to purchase one (1) additional share of the Company common stock, par value $0.001 for each share owned as of the record date, for a subscription price of $0.30 per share (each, a "Right"). The Company’s stockholders who exercise their Rights in full may also exercise an oversubscription privilege to purchase, on a pro rata basis, a portion of the unsubscribed shares, at the same price of $0.30 per share, subject to certain limitations. The record date for the Rights Offering was September 22, 2011 and the Rights Offering expired on October 26, 2011.

On November 2, 2011, the Company completed the Rights Offering and raised $6,020,132 from its shareholders for 20,067,108 shares of its common stock. Taking into account the oversubscription rights, there was a demand for 95% of the offered shares.

Because the Rights Offering was at a price per share which is lower than the market price at the time of announcement, the Company has authorized a reduction of the exercise price of its outstanding warrants by an average of 41.4% and approved the issuance of 3,728,775 options to its directors and employees at an exercise price of $1.10 per share. The adjustment of the exercise price of the warrants and the issuance of new options was done to maintain the same value of the warrants and options prior to the announcement of the Rights Offering based on the Black-Scholes model.

Note 5 - Geographical segments Information

As of January 1, 2010, the Company has one reporting segment. The Company's operations in the United Kingdom and Israel are reported as discontinued operations (Note 1C and 1D).

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 6 – Legal proceedings

Eliezer Tzur et al. vs. 012 Telecom Ltd. et al.

On January 19, 2010, Eliezer Tzur et al. (the “Petitioners”) filed a request to approve a claim as a class action (the “Class Action Request”) against Xfone 018 Ltd. (“Xfone 018”), the Company’s former 69% Israel-based subsidiary, and four other Israeli telecom companies, all of which are entities unrelated to the Company (collectively with Xfone 018, the “Defendants”), in the District Court in Petach Tikva, Israel (the “Israeli Court”). The Petitioners’ claim alleges that the Defendants have not fully fulfilled their alleged legal requirement to bear the cost of telephone calls by consumers to the Defendants’ respective technical support numbers. One of the Petitioners, Mr. Eli Sharvit (“Mr. Sharvit”), seeks damages from Xfone 018 for the cost such telephone calls allegedly made by him during the 5.5-year period preceding the filing of the Class Action Request, which he assessed at NIS 54.45 (approximately $15.71). The Class Action Request, to the extent it pertains to Xfone 018, states total damages of NIS 7,500,000 (approximately $2,164,502) which reflects the Petitioners’ estimation of damages caused to all consumers that (pursuant to the Class Action Request) allegedly called Xfone 018’s technical support number during a certain period defined in the Class Action Request.

On February 22, 2011, Xfone 018 and Mr. Sharvit entered into a settlement agreement, which following the request of the Israeli Court was supplemented on May 3, 2011 and amended on July 18, 2011 (the “Settlement Agreement”). Pursuant to the Settlement Agreement, Xfone 018 agreed to compensate its current and past registered customers of international calling services (the “Services”) who called its telephone service center from December 15, 2004 until December 31, 2009, due to a problem in the Services, and were charged for such calls (the “Compensation”). The Compensation includes a right for a single, up to ten minutes, free of charge, international call to one landline destination around the world, and shall be valid for a period of six months. In addition, Xfone 018 agreed to pay Mr. Sharvit a one-time special reward in the amount of NIS 10,000 (approximately $2,886) (the “Reward”). Xfone 018 further agreed to pay Mr. Sharvit attorneys' fee for professional services in the amount of NIS 40,000 (approximately $11,544) plus VAT (the “Attorneys Fee”). In return, Mr. Sharvit and the members of the Represented Group (as defined in the Settlement Agreement) agreed to waive any and all claims in connection with the Class Action Request. As required by Israeli law in such cases, the Settlement Agreement is subject to the approval of the Israeli Court. A deliberation with respect to the Class Action Request has been scheduled by the Israeli Court for March 4, 2012. It is expected that the Israeli Court will consider Xfone 018 and Mr. Sharvit's request to approve the Settlement Agreement on or before said date.

On May 14, 2010, the Company entered into an agreement (including any amendment and supplement thereto, the “Agreement”) with Marathon Telecom Ltd. for the sale of the Company’s majority (69%) holdings in Xfone 018. Pursuant to Section 10 of the Agreement, the Company is fully and exclusively liable for any and all amounts, payments or expenses which will be incurred by Xfone 018 as a result of the Class Action Request. Section 10 of the Agreement provides that the Company shall bear any and all expenses or financial costs which are entailed by conducting the defense on behalf of Xfone 018 and/or the financial results thereof, including pursuant to a judgment or settlement (it was agreed that in the event that Xfone 018 will be obligated to provide services at a reduced price, the Company shall bear only the cost of such services). Section 10 of the Agreement further provides that the defense by Xfone 018 shall be performed in full cooperation with the Company and with mutual assistance. It is agreed between the Company and Xfone 018 that subject to and upon the approval of the Settlement Agreement by the Israeli Court, the Company shall bear and/or pay: (i) the costs of the Compensation; (ii) the Reward; (iii) the Attorneys Fee; and (iv) Xfone 018 attorneys' fees for professional services in connection with the Class Action Request, estimated at approximately NIS 75,000 (approximately $21,645).

In the event the Settlement Agreement is not approved by the Israeli Court, Xfone 018 shall vigorously defend the Class Action Request.

Danny Jay & Stephanie Tollison vs. NTS Communications, Inc.

On December 20, 2010, the Company’s wholly-owned subsidiary, NTS Communications, Inc. (“NTS”), received a demand letter from Danny J. and Stephanie Tollison (the “Petitioners”) claiming $3 million in damages stemming from the search of Mr. Tollison’s home and his wife’s business by the FBI. The Petitioners alleged that the search was effected because of incorrect information provided by NTS to the FBI pursuant to a subpoena. The investigation was dropped when the FBI was unable to find what they were looking for and identified another suspect.

On July 19, 2011 the Petitioners filed suit in 350th District Court of Taylor County, Texas seeking $5 million in economic and non-economic damages and asserting breach of contract, negligence, gross negligence, defamation, libel, invasion of privacy, and intentional infliction of emotional distress claims. On NTS’ request due to questions of federal law, the case has been moved to the United States District Court for the Northern District of Texas. It is scheduled for trial on April 1, 2013. NTS’ insurance carrier has agreed to defend the suit and has referred the matter to its counsel. NTS anticipates that its insurance carrier will cover all costs and damages without any liability to NTS.

Note 7 – Liquidity

As of September 30, 2011, the Company reported a working capital deficit of $8,464,534 compared to a deficit of $11,420,026 on December 31, 2010. In order to overcome the deficit in the Company’s working capital, the Company decided to take the following actions: (i) On May 2, 2011 the Company reached an agreement with Burlingame Equity Investors, LP to extend the maturity date of the Senior Promissory Note from March 22, 2012 to March 22, 2013; (ii) The offering of non-transferable and non-tradable subscription rights to purchase up to 21,119,488 shares of the Company’s common stock, par value $0.001 per share at a subscription price of $0.30 per share. On November 2, 2011, the Company successfully raised $6,020,132 in a rights offering for its shareholders. (iii) On October 6, 2011, the Company and its subsidiaries entered into a term loan, guarantee and security agreement (the “Agreement”) with ICON Agent, LLC, acting as agent for the Lenders, ICON Equipment and Corporation Infrastructure Fund Fourteen, L.P and Hardwood Partners, LLC, for the principal amount of the loan $7,500,000 which will be payable over five years with the first principal payment starting 12 months from the date of funding.The Company believes that these actions will enable us to pay our current obligations.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

Note 8 – Subsequent Event

Loan agreement with ICON Agent, LLC

On October 6, 2011, the Company entered into a term loan, guarantee and security agreement (the “Agreement”) between the following: (1) ICON Agent, LLC, acting as agent for the Lenders, ICON Equipment and Corporation Infrastructure Fund Fourteen, L.P and Hardwood Partners, LLC.; (2) the Company, as Guarantor; (3) Xfone USA, Inc., NTS Communications, Inc., Gulf Coast Utilities, Inc., eXpeTel Communications, Inc., NTS Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona, Inc., Communications Brokers, Inc., and N.T.S. Management Company, LLC, acting as Borrowers and Guarantors; and (4) PRIDE Network, Inc., and NTS Telephone Company, LLC (together with the Borrowers and Guarantors acting as Credit Parties).

The principal amount of the loan to be extended pursuant to the Agreement is $7,500,000 (the “Loan”) bearing interest of 12.75% payable in 60 consecutive monthly installments with the first 12 monthly payments being payments of accrued interest only. The Loan is to be secured by a lien against all of each Borrower's and Guarantor's property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title, or interest; provided, however, that none of the assets of PRIDE Network, Inc. and NTS Telephone Company, LLC are being used as collateral for the Loan and are specifically excluded. The funding of the loan was made on October 27, 2011.

The Company will use the proceeds of the Loan to pay off existing loan from commercial bank and for other general working capital and corporate purposes.

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Item 2. Management’s Discussion and An alysis 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 Xfone, Inc.'s (referred to herein as the "Company", or "Xfone", "we", "our", "ours" and "us") 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 our plans, objectives and expectations for future operations. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our 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 us or any other person that our objectives or plans will be achieved.

You should read the following discussion and analysis in conjunction with the Condensed Consolidated Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Quarterly Report.

Our 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, and changing government regulations domestically and internationally affecting our businesses.

US Dollars are denoted herein by “USD”, New Israeli Shekels are denoted herein by “NIS”, and the UK Pound Sterling is denoted herein by “GBP”.

OVERVIEW

We were incorporated in Nevada, U.S.A. in September 2000. We are a holding and managing company providing, through our subsidiaries, integrated communications services which include voice, video and data over our Fiber-To-The-Premise ("FTTP") and other networks. We currently have operations in Texas, Mississippi and Louisiana.

Our principal executive offices are located in Lubbock, Texas.

Purchase of assets and liabilities of CoBridge Telecom, LLC

On April 25, 2011, NTS Communications, Inc., (“NTS”) entered into an Asset Purchase Agreement (the “Agreement”) with CoBridge Telecom, LLC, (“CoBridge”), pursuant to which NTS purchased all of CoBridge’s assets in and around the communities of Colorado City, Levelland, Littlefield, Morton, and Slaton Texas pursuant to the terms of the Agreement. CoBridge provided cable television service in those communities via coaxial cable facilities. As part of the transaction, NTS also agreed to assume certain liabilities of CoBridge which are necessary to continue operation of the Assets. The sale and purchase closed on July 1, 2011. The p urchase price is subject to adjustments based on the number of CoBridge’s customers who will sign up for NTS’s service in the relevant markets.

Divestitures

Subsequent to the year ended December 31, 2009, our board of directors made a strategic decision to concentrate on our operations in the U.S. As a result of this decision, we decided to divest our operations in the United Kingdom (“UK”), and Israel. The assets, liabilities and results of operations of the UK and Israel operations have been classified as discontinued operations for all periods presented.

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Discontinued operations in the UK. On January 29, 2010, we entered into an agreement (the “Agreement”) with Abraham Keinan, a significant shareholder and then Chairman of the Board of Xfone, Inc. (“Keinan”), and AMIT K LTD, a company registered in England & Wales which is wholly owned and controlled by Keinan (“Buyer”), for the sale of Swiftnet Limited (“Swiftnet”), Auracall Limited (“Auracall”), Equitalk.co.uk Limited (“Equitalk”) and Story Telecom, Inc. and its wholly owned UK subsidiary, Story Telecom Limited (collectively, “Story Telecom”) (collectively, the “UK Subsidiaries”), which we owned (the “Transaction”). Pursuant to the Agreement, the consideration paid by Buyer and/or Keinan to us would be comprised of the following components:

		1.	A release of us from the repayment of the loan from Iddo Keinan, the son of Mr. Keinan and an employee of Swiftnet, dated December 10, 2009, pursuant to which Iddo Keinan extended to Swiftnet a loan of £860,044 ($1,344,073);
		2.	A redemption of the credit facility which the Company had obtained from Bank Leumi (UK) Plc. of £150,000 ($234,420), thereby releasing us from our obligation to Bank Leumi (UK) Plc.;
		3.	An annual earn-out payment over the following years beginning on the consummation of the Transaction. The aggregate Earn-Out Payments shall be equal to but shall not exceed $1,858,325 in the aggregate; and
		4.	Cancellation of intercompany balances between us and the UK Subsidiaries amounting to $1,009,037.

On July 29, 2010 we completed the disposition of the UK Subsidiaries.

As a result of the Agreement to sell the UK Subsidiaries, the assets and liabilities related to the UK Subsidiaries have been classified as “held for sale” in our financial statements in accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets. ASC 360 requires an asset group that is held for sale to be recorded at the lower of its carrying amount or fair value less costs to sell. As a result of classifying our UK subsidiaries as discontinued operations, we recorded a goodwill impairment of $800,000 during 2010.

Discontinued operations in Israel. On August 31, 2010 (the “Closing Date”), we completed the disposition (the “Transaction”) of our 69% interest in Xfone 018 Ltd. (“Xfone 018”) pursuant to an agreement, dated May 14, 2010 (including any amendment and supplement thereto, the “Agreement”), by and between us, Newcall Ltd. (the former 26% minority owner of Xfone 018) (“Newcall”), Margo Pharma Ltd. (the former 5% minority owner of Xfone 018), and Marathon Telecom Ltd., the buyer of Xfone 018 (“Marathon Telecom”).

The original gross purchase price to be paid by Marathon Telecom under the Agreement was $7,850,000. On the Closing Date, the parties agreed to reduce the gross purchase price to $7,802,000 and deposited with a trustee (the “Trustee”) an amount equal to 15% of the reduced gross purchase price (the “Deposit”), such Deposit is to act as collateral for the indemnification of Marathon Telecom pursuant to the provisions of Section 17 of the Agreement. The Deposit is to be disbursed by the Trustee in two installments, the first of which was already disbursed on April 4, 2011, and the second to be disbursed by December 31, 2011, unless Marathon Telecom provides the Trustee with an indemnification notice.

In connection with the consummation of the Transaction, Xfone 018 repaid all outstanding debts owed to its bank, to us and to Newcall, and we received 69% of the net proceeds from the sale. The gross proceeds to the Company were approximately $4,900,000, subject to disbursement of the Deposit by the Trustee according to the schedule set forth above.

In connection with the Transaction, on September 13, 2010 we paid $118,985 as finder's fee to Mr. Ilan Shoshani, the owner of Newcall.

As a result of the agreement to sell Xfone 018, the assets and liabilities related to Xfone 018 have been classified as “held for sale” in our financial statements in accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets. ASC 360 requires an asset group that is held for sale to be recorded at the lower of its carrying amount or fair value less costs to sell.

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RESULTS OF OPERATIONS

Financial Information – Percentage of Revenues:

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Revenues:
Services on Fiber-To-The-Premise network		23.4	%		17.6	%		21.9	%		16.6	%
Leased local loop services and other		76.6	%		82.4	%		78.1	%		83.4	%
Total Revenues		100.0	%		100.0	%		100.0	%		100.0	%

Expenses:
Cost of services (excluding depreciation and amortization)		48.4	%		47.9	%		48.7	%		48.6	%
Selling, general and administrative		35.6	%		40.0	%		36.6	%		40.7	%
Depreciation and amortization		10.0	%		7.3	%		9.0	%		7.2	%
Financing expenses, net		(2.9)	%		15.5	%		6.6	%		8.2	%
Other expenses		0.8	%		1.1	%		0.9	%		1.0	%
Total expenses		91.9	%		111.8	%		101.8	%		105.7	%

Income (loss) from continued operations before taxes and non-controlling interest		8.1	%		(11.8)	%		(1.8)	%		(5.7)	%

Net Income (loss) from continued operations		6.9	%		(10.1)	%		(1.0)	%		(4.5)	%

Net Income (loss) attributed to shareholders		6.0	%		(8.3)	%		(1.4)	%		(4.5)	%

COMPARISON OF THE NINE MONTHS PERIODS ENDED SEPTEMBER 30, 2011 AND SEPTEMBER 30, 2010

Revenues. Revenues for the nine month period ended September 30, 2011 decreased by 2.3% to $42,958,016 from $43,965,554 for the same period in 2010. Revenues from our Fiber-To-The-Premise ("FTTP") network in the nine months ended September 30, 2011 increased 29.0% to $9,403,832 from $7,288,042 in the same period in 2010. As percentage of total sales, FTTP revenues in the nine months period ended September 30, 2011 increased to 21.9% from 16.6% for the same period in 2010. We expect our FTTP revenues to continue to increase in the last quarter of 2011 as a result of increasing our market share in Levelland, TX and the communities which are located in the area of the PRIDE Network projects.

Revenues from our leased local loop include revenues from wholesale, other carriers and other non-FTTP customers. Revenues from leased local loop in the nine months period ended September 30, 2011 decreased 8.5% to $33,554,184 from $36,677,512 for the same period in 2010. As percentage of total sales, leased local loop revenues in the nine months period ended September 30, 2011 decreased to 78.1% from 83.4% for the same period in 2010. The decrease in our non-FTTP revenues mainly resulted from decrease in sale of peripheral telecommunication equipment, termination of wholesale traffic and attrition of residential customers. The decrease in the non-FTTP revenues was offset with revenues from assets that were purchased from CoBridge Telecom, LLC (“CoBridge”) in Levelland, Texas. The transaction was closed in July 1, 2011 and revenues from these assets were recorded from the closing date. We expect that the decline in revenues from non-FTTP residential customer will continue in 2011 but will be offset by the increase in FTTP revenues from connecting new customers which are located in the regions the PRIDE projects.

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Cost of services (excluding depreciation and amortization). Cost of services consists primarily of facilities and traffic time purchased from other telephone companies and content for our video services. Cost of services for the nine months period ended September 30, 2011 decreased 2.0% to $20,925,151 from $21,354,450 for the same period in 2010. Cost of services, as a percentage of revenues in the nine month period ended September 30, 2011, remained at the same level compared to the same period in 2010. We expect that the cost of services, as percentage of revenues, will decline as we increase the portion of revenues generated from our high-margin FTTP services.

Selling, General and Administrative Expenses. Selling expenses consist primarily of compensation costs for our sales, administrative and management employees. Selling, general and administrative expenses for the nine months period ended September 30, 2011, decreased 12.2% to $15,730,833 from $17,910,714 for the same period in 2010. The decrease in the expenses resulted mainly from reduction in personnel and savings in the corporate expenses as a result of the divestiture of the UK and Israeli operations in addition to the decrease in payroll and sales commission. General and administrative expenses include stock options compensation which relates to stock options that were granted to our employees and directors and vest during the reported period. Total stock option compensation in the nine months ended September 30, 2011 decreased by $369,318 (or 69.0%) to $166,194 from $535,512 for the same period in 2010.

Depreciation and amortization. Depreciation and amortization expenses for the nine months period ended September 30, 2011, increased by $705,606 (or 22.4%) to $3,850,446 from $3,144,840 for the same period in 2010. The increase was due to the large investments in the development of the FTTP networks and the purchase of fixed and intangible assets from CoBridge.

Financing Expenses. Financing expenses, net, for the nine months period ended September 30, 2011 decreased by approximately 21.3% to $2,831,573 from $3,597,274 for the same period in 2010. Financing expenses consist of interest payable on our financial obligations, the measurement of our Bonds which are stated in NIS and linked to the Israeli Consumer Price Index (the “CPI”). Financing expenses for the nine months period ended September 30, 2010 also includes the effect of the currency exchange rate on intercompany balances with our former subsidiaries which reported in NIS and GBP as their functional currencies, until the divestiture of these subsidiaries during the third quarter of 2010. The decrease in financing expenses is a result of an increase of 4.6% in the USD against the NIS and adjustment to the inflation of 2.7% during the nine months period ended September 30, 2011 versus the devaluation of 2.9% in the USD against the NIS and adjustment to the inflation of 1.6% in the same period in 2010. Financial expenses also includes expenses related to warrants that were issued to Burlingame Equity Investors, LP ("Burlingame") on March 2010 and expenses of the difference between the allocated relative fair value and the principal amount of the loan from Burlingame from March 2010.

Other Expenses. Other expenses for the quarter ended September 30, 2011 decreased by approximately 10.5% to $405,299 from $453,048 for the same period in 2010. Other expenses consist of real estate taxes.

Income taxes. We conduct our business in several states in the US. Therefore, our operating income is subject to varying rates of state tax in the US. Consequently, our effective tax rate is dependent upon the geographic distribution of our earnings or losses. However, we expect that our income taxes will not materially vary in relation to the geographic distribution of our profits inside the US. Including corporate expenses related to the discontinued operation in Israel, we had an effective tax rate of 37.1% and 20.2% for the nine months ended September 30, 2011 and 2010, respectively. The increase in income tax expense is primarily due to reconciliation of tax items with the filing of our 2010 tax return.

COMPARISON OF THE THREE MONTHS PERIODS ENDED SEPTEMBER 30, 2011 AND SEPTEMBER 30, 2010

Revenues. Revenues for the quarter ended September 30, 2011 decreased by 2.5% to $14,601,642 from $14,978,577 for the same period in 2010. Revenues from our Fiber-To-The-Premise ("FTTP") network in the quarter ended September 30, 2011 increased 29.7% to $3,417,271 from $2,634,074 in the same period in 2010. As percentage of total sales, FTTP revenues in the quarter ended September 30, 2011 increased to 23.4% from 17.6% for the same period in 2010. The growth of FTTP revenues is expected to continue due to the increase in our market share in Levelland, TX and the communities which are located in the area of the PRIDE Network projects.

Revenues from our leased local loop includes revenues from wholesale, other carriers and other non-FTTP customers. Revenues from leased local loop in the quarter ended September 30, 2011 decreased 9.4% to $11,184,371 from $12,344,483 for the same period in 2010. As percentage of total sales, leased local loop revenues in the quarter ended September 30, 2011 decreased to 76.6% from 82.4% for the same period in 2010. The decrease in our non-FTTP revenues mainly resulted from decrease in sale of peripheral telecommunication equipment, termination of wholesale traffic and attrition of residential customers. The decrease in the non-FTTP revenues was offset with revenues from assets that were purchased from CoBridge in Levelland, TX. The transaction was closed in July 1, 2011 and revenues from these assets were recorded from the closing date as non-FTTP revenues. We expect that the decline in revenues from non-FTTP residential customer will continue in 2011.

Cost of services (excluding depreciation and amortization). Cost of services consists primarily of facilities and traffic time purchased from other telephone companies and content for our video services. Cost of services for the quarter ended September 30, 2011 decreased 1.5% to $7,063,847 from $7,169,583 for the same period in 2010. Cost of services, as a percentage of revenues in the quarter ended September 30, 2011, increased to 48.4%, from 47.9% for the same period in 2010. We expect that the cost of services, as percentage of revenues, will decline as we increase the portion of revenues generated from our high-margin FTTP services.

Selling, General and Administrative Expenses. Selling expenses consist primarily of compensation costs for our sales, administrative and management employees. Selling, general and administrative expenses for the quarter ended September 30, 2011, decreased 13.1% to $5,202,866 from $5,988,544 for the same period in 2010. The decrease in the expenses resulted mainly from reduction in personnel and savings in the corporate expenses as a result of the divestiture of the UK and Israeli operations in addition to the decrease in payroll and sales commission. General and administrative expenses include stock options compensation which relates to stock options that were granted to our employees and directors and vest during the reported period. Total stock option compensation in the quarter ended September 30, 2011 decreased by $59,562 (or 70.8 %) to $24,567 from $84,129 for the same period in 2010.

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Depreciation and amortization. Depreciation and amortization expenses for the quarter ended September 30, 2011, increased by $362,777 (or 33.2%) to $1,453,983 from $1,091,206 for the same period in 2010. The increase was due to the large investments in the development of the FTTP networks and the purchase of fixed and intangible assets from CoBridge.

Financing Expenses. Financing income, net, for the quarter ended September 30, 2011 was $421,121 compared to financial expense, net, of $2,340,159 for the same period in 2010. Financing expenses consist of interest payable on our financial obligations, the measurement of our Bonds which are stated in NIS and linked to the Israeli Consumer Price Index (the “CPI”). Financing expenses for the quarter ended September 30, 2010 also includes the effect of the currency exchange rate on intercompany balances with our former subsidiaries which report in NIS and GBP as their functional currencies. The increase in financing expenses is a result of an evaluation of 8.7% in the USD against the NIS and adjustment to the inflation of 0.6% during the third quarter of 2011 versus the devaluation of 5.4% in the USD against the NIS and adjustment to the deflation of 1.2% in the same period in 2010. Financial expenses also includes expenses related to warrants that were issued to Burlingame Equity Investors, LP ("Burlingame") on March 2010 and expenses of the difference between the allocated relative fair value and the principal amount of the loan from Burlingame from March 2010.

Other Expenses. Other expenses for the quarter ended September 30, 2011 decreased by approximately 27.7% to $115,453 from $159,712 for the same period in 2010. Other expenses consist of real estate taxes.

Income taxes. We conduct our business in several states in the US. Therefore, our operating income is subject to varying rates of state tax in the US. Consequently, our effective tax rate is dependent upon the geographic distribution of our earnings or losses. However, we expect that our income taxes will not materially vary in relation to the geographic distribution of our profits inside the US. We had an effective tax rate of 15.0% and 14.2% for the three months ended September 30, 2011 and 2010, respectively. Our effective tax rate in the third quarter of 2011 and 2010 remained at the same level and is lower than our expected effective tax rate of 35% due to reconciliation of tax items with the filing of our 2010 and 2009 tax returns.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of September 30, 2011 amounted to $2,013,930, compared to $1,217,427 as of December 31, 2010, an increase of $796,503. Net cash provided by operating activities in the nine months ended September 30, 2011 was $2,908,606, an increase of $329,861 compared to $2,578,745 which was provided by operating activities in the nine months ended September 30, 2010. The increase in cash flow from operating activities is mostly related to the decline in the loss from continued operation and the following changes in working capital: (1) an increase in accounts receivable of $540,392 in the quarter ended September 30, 2011 compared to a decrease of $146,891 in the same period of 2010; (2) a decrease in prepaid expenses and other receivables of $456,760 in the quarter ended September 30, 2011 compared to an increase of $783,212 in the same period of 2010; (3) an increase in the provision for bad debt of $303,296 in the quarter ended September 30, 2011 compared to an increase of $126,637 in the same period of 2010; (4) a decrease in other liabilities and accrued expenses of $815,064 in the quarter ended September 30, 2011 compared to an increase of $371,059 in the same period of 2010 and (5) a decrease in trade payables of $130,742 in the quarter ended September 30, 2011 compared to a decrease of $962,381 in the same period of 2010. Cash used for investing activities in the quarter ended September 30, 2011 was $11,756,103 compared to $3,493,476 in the same period of 2010. Of that amount, $9,640,514 is attributable to the build out of our FTTP projects in Levelland, TX and the PRIDE Network projects, $306,030 to the purchase of assets from CoBridge and $1,814,559 to the purchase of other equipment. Net cash provided by financing activities for the quarter ended September 30, 2011 was $9,644,000 and is primarily attributable to proceeds from long-term loans from the United States Department of Agriculture which are offset by repayment of the capital lease obligations and loans from a bank.

Capital lease obligations. We are the lessee of switching and other telecom equipment under capital leases expiring on various dates from 2011 through 2016.

The following table represents our contractual obligations and commercial commitments, excluding interest expense, as of September 30, 2011:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years

Domestic credit facility	$	2,025,485	$	2,025,485	$	-	$	-	$	-
Domestic Note Payable		1,132,716		652,073		480,643		-		-
Other notes payable		3,741,348		-		3,741,348		-		-
Notes Payable from the United States Department of Agriculture		20,980,312		749,975		1,499,951		1,499,951		17,230,435
Bonds		19,350,277		4,226,617		7,756,159		7,367,501		-
Capital leases		1,028,963		540,413		488,550		-		-
Operating leases		3,704,726		2,129,709		1,516,176		58,841		-

Total contractual cash obligations	$	51,963,827	$	10,324,272	$	15,482,827	$	8,926,293	$	17,230,435

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As of September 30, 2011, we reported a working capital deficit of $8,464,534 compared to a deficit of $11,420,026 on December 31, 2010. In order to overcome the deficit in our working capital, we reached an agreement on May 2, 2011 with Burlingame Equity Investors, LP to extend the maturity date of the Senior Promissory Note from March 22, 2012 to March 22, 2013. We raised $6,020,132 in a subscription rights offering for our shareholders to purchase up to 21,119,488 shares of our common stock at a subscription price of $0.30 per share. The net proceeds from the Rights Offering will be used for general corporate purposes, including, but not limited to, capital expenditures and working capital. On October 6, 2011, we and our subsidiaries entered into a term loan, guarantee and security agreement (the “Agreement”) with ICON Agent, LLC, for the principal amount of the loan $7,500,000 which will be payable over five years with the first principal payment starting 12 months from the date of funding. We will use the proceeds of the Loan to payoff existing short term loan from a commercial bank and for other general working capital and corporate purposes. We believe that these actions will enable us to pay our current obligations.

Xfone, Inc.

The Series A Bonds

On December 13, 2007 (the “Date of Issuance”), we issued non-convertible bonds 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) (the “Series A Bonds”).

The Series A Bonds accrue annual interest that is paid semi-annually on the 1st of June and on the 1st of December of every year from 2008 until 2015 (inclusive). The principal of the Series A Bonds is repaid in eight equal annual payments on the 1st of December of every year from 2008 until 2015 (inclusive). The principal and interest of the Series A Bonds are linked to the Israeli CPI.

On November 4, 2008, we filed a public prospectus (the “Prospectus”) with the Israel Securities Authority (the “ISA”) and the Tel Aviv Stock Exchange ("TASE") for listing of the Series A Bonds for trading on the TASE. On November 11, 2008 (the “Date of Listing”), the Series A Bonds commenced trading on the TASE. From the Date of Issuance until the Date of Listing, the Series A Bonds accrued annual interest at a rate of 9%. As of the Date of Listing, the interest rate for the unpaid balance of the Series A Bonds was reduced by 1% to an annual interest rate of 8%.

The Series A Bonds may only be traded in Israel. The Series A Bonds are currently rated Baa3 with a negative outlook by Midroog Limited, an Israeli rating company which is a subsidiary of Moody’s Investor Services.

On March 25, 2008, we issued the holders of the Series A Bonds, for no additional consideration, 956,020 (non-tradable) warrants, each exercisable at an exercise price of $3.50 with a term of 4 years, commencing on September 2, 2008.

Securities Purchase Agreement

On March 23, 2010, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an existing shareholder, Burlingame Equity Investors, LP (“Burlingame”), for the issuance of the following securities for an aggregate purchase price of $6,000,000:

	(1) A senior promissory note in the aggregate principal amount of $3,500,000. Interest accrues at an annual rate of 10% and is payable quarterly. The note ranks pari passu in rights of liquidation with our Series A Bonds.
	(2) 2,173,913 shares of our common stock at a price of $1.15 per share for a total purchase price of $2,500,000.
	(3) A warrant to purchase 950,000 shares of our common stock, which shall be exercisable at a price of $2.00 per share for a period of 5 years. The number of shares issuable upon exercise of the Warrant, and/or the applicable exercise price, may be proportionately adjusted in the event of a stock dividend, distribution, subdivision, combination, merger, consolidation, sale of assets, spin-off or similar transactions.

Following the execution of the Purchase Agreement, the transaction was consummated, and Burlingame paid the Purchase Price and we delivered the Note to Burlingame. We used the net proceeds from the transaction for working capital purposes.

On May 2, 2011, the maturity date of the senior promissory note was extended from March 22, 2012 to March 22, 2013.

Subscription Agreement

On March 23, 2010, we entered into a Subscription Agreement with certain investors affiliated with Gagnon Securities LLC, an existing shareholder, for the issuance of 500,000 shares of Company's common stock at a purchase price of $1.15 per share for an aggregate purchase price of $575,000. We used the net proceeds from the transaction for working capital purposes.

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Rights Offering

On July 6, 2011 our Board of Directors have approved a rights offering (the "Rights Offering") in which our stockholders will receive non-transferable and non-tradable rights to purchase one (1) additional share of our common stock, par value $0.001 for each share owned as of the record date, for a subscription price of $0.30 per share (each, a "Right"). Our stockholders who exercise their Rights in full may also exercise an oversubscription privilege to purchase, on a pro rata basis, a portion of the unsubscribed shares, at the same price of $0.30 per share, subject to certain limitations. The record date for the Rights Offering was September 22, 2011 and the Rights Offering expired on October 26, 2011.

On November 2, 2011, we completed the Rights Offering and raised $6,020,132 from our shareholders for 20,067,108 shares of our common stock. Taking into account the oversubscription rights, there was a demand for 95% of the offered shares.

Because the Rights Offering was at a price per share which is lower than the market price at the time of announcement, we have authorized a reduction of the exercise price of our outstanding warrants by an average of 41.4% and approved the issuance of 3,728,775 options to our directors and employees at an exercise price of $1.10 per share. The adjustment of the exercise price of the warrants and the issuance of new options was done to maintain the same value of the warrants and options prior to the announcement of the Rights Offering based on the Black-Scholes model.

Loan agreement with ICON Agent, LLC

The company will use the proceeds of the Loan to pay off existing loan from commercial bank and for other general working capital and corporate purposes.

US subsidiaries

NTS Communications, Inc. had a loan with a commercial bank with an outstanding amount of $2,025,485.31 as of September 30, 2011 with a maturity date of October 13, 2011. The loan bore interest at a rate equivalent to 2% above the Wall Street Journal Prime rate, but not less than 6% per annum and was repayable in equal principal and interest monthly installments of $100,000 each. The loan was secured by an assignment of all of NTS’ trade accounts receivable, equipment and inventory. The loan was repaid on October 2011 as part of the agreement with ICON Agent, LLC.

NTS Telephone Company, LLC, a wholly owned subsidiary of NTS Communications, Inc., has received approval from the Rural Utilities Service (“RUS”), a division of the United States Department of Agriculture, for an $11.8 million debt facility to complete a telecommunications overbuild project in Levelland, Texas. The principal of the RUS loan is repaid monthly starting one year from the initial advance date until full repayment after 17 years. The loan bears interest at the average yield on outstanding marketable obligations of the United States having the final maturity comparable to the final maturity of the advance. Advances are provided as the construction progresses, and the interest rate is set based upon the prevailing rate at the time of each individual advance. The note is non-recourse to NTS and all other NTS subsidiaries and is secured by NTS Telephones assets which were $13.7 million at September 30, 2011. As of September 30, 2011, the current average weighted interest rate on the outstanding advances was 3.75%. The total aggregate outstanding amount of these loans as of September 30, 2011 were $10,489,130.

PRIDE Network, Inc., a wholly owned subsidiary of NTS Communications, Inc., has received approval from the Broadband Initiative Program of the American Recovery and Reinvestment Act, for a total of $99.9 million funding in form of $45.9 million in grants and $54 million in 19 to 20-year loans. The loans bear interest at the US Treasury rate for comparable loans with comparable maturities. The funding will allow us to develop our FTTP infrastructure, known as the PRIDE Network projects, in northwestern Texas and further expand it to communities in southern Louisiana. Construction work of PRIDE Network's FTTP infrastructure started in October 2010. The total aggregate amount of these loans and grants as of September 30, 2011 were $10,491,182 and $7,331,687, respectively. The loans are to be repaid in monthly installments until 2029. The loans are non-recourse to NTS and all other NTS subsidiaries and are secured by PRIDE Network's assets which were $11.8 million at September 30, 2011. As of September 30, 2011, the annual average weighted interest rate on the outstanding advances was 4.02%.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

Following the divestiture of our UK and Israeli operations, all of our assets, liabilities (except the Series A Bonds), revenues and expenditures are in USD.

Notwithstanding having our Series A Bonds stated in NIS and linked to the Israeli CPI, during the nine months ended September 30, 2011, our outstanding liability was decreased by approximately $900,000 as a result of the devaluation of the NIS in relation with the USD.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. 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.

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PA RT II:

OTHER INFORMATION

Item 1.

Legal Proceedings

Eliezer Tzur et al. vs. 012 Telecom Ltd. et al.

On January 19, 2010, Eliezer Tzur et al. (the “Petitioners”) filed a request to approve a claim as a class action (the “Class Action Request”) against Xfone 018 Ltd. (“Xfone 018”), our former 69% Israel-based subsidiary, and four other Israeli telecom companies, all of which are entities unrelated to us (collectively with Xfone 018, the “Defendants”), in the District Court in Petach Tikva, Israel (the “Israeli Court”). The Petitioners’ claim alleges that the Defendants have not fully fulfilled their alleged legal requirement to bear the cost of telephone calls by consumers to the Defendants’ respective technical support numbers. One of the Petitioners, Mr. Eli Sharvit (“Mr. Sharvit”), seeks damages from Xfone 018 for the cost such telephone calls allegedly made by him during the 5.5-year period preceding the filing of the Class Action Request, which he assessed at NIS 54.45 (approximately $14 ). The Class Action Request, to the extent it pertains to Xfone 018, states total damages of NIS 7,500,000 (approximately $2,015,587 ) which reflects the Petitioners’ estimation of damages caused to all consumers that (pursuant to the Class Action Request) allegedly called Xfone 018’s technical support number during a certain period defined in the Class Action Request.

On February 22, 2011, Xfone 018 and Mr. Sharvit entered into a settlement agreement, which following the request of the Israeli Court was supplemented on May 3, 2011 and amended on July 18, 2011 (the “Settlement Agreement”). Pursuant to the Settlement Agreement, Xfone 018 agreed to compensate its current and past registered customers of international calling services (the “Services”) who called its telephone service center from December 15, 2004 until December 31, 2009, due to a problem in the Services, and were charged for such calls (the “Compensation”). The Compensation includes a right for a single, up to ten minutes, free of charge, international call to one landline destination around the world, and shall be valid for a period of six months. In addition, Xfone 018 agreed to pay Mr. Sharvit a one-time special reward in the amount of NIS 10,000 (approximately $2,687 ) (the “Reward”). Xfone 018 further agreed to pay Mr. Sharvit attorneys' fee for professional services in the amount of NIS 40,000 (approximately $10,750 ) plus VAT (the “Attorneys Fee”). In return, Mr. Sharvit and the members of the Represented Group (as defined in the Settlement Agreement) agreed to waive any and all claims in connection with the Class Action Request. As required by Israeli law in such cases, the Settlement Agreement is subject to the approval of the Israeli Court. A deliberation with respect to the Class Action Request has been scheduled by the Israeli Court for March 4, 2012. It is expected that the Israeli Court will consider Xfone 018 and Mr. Sharvit's request to approve the Settlement Agreement on or before said date.

On May 14, 2010, we entered into an agreement (including any amendment and supplement thereto, the “Agreement”) with Marathon Telecom Ltd. for the sale of our majority (69%) holdings in Xfone 018. Pursuant to Section 10 of the Agreement, we are fully and exclusively liable for any and all amounts, payments or expenses which will be incurred by Xfone 018 as a result of the Class Action Request. Section 10 of the Agreement provides that we shall bear any and all expenses or financial costs which are entailed by conducting the defense on behalf of Xfone 018 and/or the financial results thereof, including pursuant to a judgment or settlement (it was agreed that in the event that Xfone 018 will be obligated to provide services at a reduced price, we shall bear only the cost of such services). Section 10 of the Agreement further provides that the defense by Xfone 018 shall be performed in full cooperation with us and with mutual assistance. It is agreed between us and Xfone 018 that subject to and upon the approval of the Settlement Agreement by the Israeli Court, we shall bear and/or pay: (i) the costs of the Compensation; (ii) the Reward; (iii) the Attorneys Fee; and (iv) Xfone 018 attorneys' fees for professional services in connection with the Class Action Request, estimated at approximately NIS 75,000 (approximately $20,156 ).

In the event the Settlement Agreement is not approved by the Israeli Court, Xfone 018 shall vigorously defend the Class Action Request.

Danny Jay & Stephanie Tollison vs. NTS Communications, Inc.

On December 20, 2010, our wholly-owned subsidiary, NTS Communications, Inc. (“NTS”), received a demand letter from Danny J. and Stephanie Tollison (the “Petitioners”) claiming $3 million in damages stemming from the search of Mr. Tollison’s home and his wife’s business by the FBI. The Petitioners alleged that the search was effected because of incorrect information provided by NTS to the FBI pursuant to a subpoena. The investigation was dropped when the FBI was unable to find what they were looking for and identified another suspect.

On July 19, 2011 the Petitioners filed suit in 350 th District Court of Taylor County, Texas seeking $5 million in economic and non-economic damages and asserting breach of contract, negligence, gross negligence, defamation, libel, invasion of privacy, and intentional infliction of emotional distress claims. On NTS’ request due to questions of federal law, the case has been moved to the United States District Court for the Northern District of Texas. It is scheduled for trial on April 1, 2013. NTS’ insurance carrier has agreed to defend the suit and has referred the matter to its counsel. NTS anticipates that its insurance carrier will cover all costs and damages without any liability to NTS.

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Item 1A .

Risk F actors

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults upon Senior Securities

None.

Item 4.

( Removed and Reserved)

Item 5.

Other Information

None.

Item 6.

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)
3.3	Memorandum of Association of Swiftnet Limited. (1)
3.4	Articles of Association of Swiftnet Limited. (1)
3.6	Bylaws of Xfone USA, Inc. (7)
3.12	Reamended and Restated Bylaws of Xfone, Inc. dated November 18, 2010. (68)
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)

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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)

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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)

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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, 2010, by and between Xfone, Inc. and Dionysos Investments (1999) Ltd. (55)
10.132	Employment Agreement between NTS Communications, Inc. and Niv Krikov dated July 1, 2010. (59)
10.133	Agreement dated November 20, 2010 between Xfone, Inc., David Sela and Blokshtil Ltd. (English translation). (60)
10.134	Loan Agreement dated as of December 10, 2010, between Swiftnet Limited, Iddo Keinan, Xfone, Inc., Auracall Limited, Equitalk.co.uk Limited and Story Telecom Limited. (61)
10.135	General Release and Settlement Agreement dated December 28, 2010 between Xfone, Inc., and the selling shareholders of NTS Communications, Inc. (62)
10.136	Agreement dated January 29, 2010 by and between Xfone, Inc., Abraham Keinan, and AMIT K Limited. (63)
10.137	Agreement dated January 29, 2010 by and between Xfone, Inc. and Abraham Keinan. (63)
10.138	Agreement dated January 29, 2010 by and between Abraham Keinan, Guy Nissenson and Campbeltown Business Ltd. (63)
10.139	Securities Purchase Agreement dated effective as of March 23, 2010. (64)

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10.140	Form of Subscription Agreement dated as of March 23, 2010. (64)
10.141	Contract dated May 14, 2010 by and between Xfone, Inc., Newcall Ltd., Margo Pharma, Ltd., and Marathon Telecom Ltd. [English translation] (65)
10.142	Employment Agreement entered into on June 30, 2010 between Xfone, Inc. and Guy Nissenson [Free translation from Hebrew] (66)
10.143	First Amendment to Consulting Agreement dated June 30, 2010 between Xfone, Inc. and Guy Nissenson (66)
10.144	Severance Agreement entered into on September 20, 2010 between Xfone, Inc. and Guy Nissenson. (67)
10.145	Third Amendment to Financial Services and Business Development Consulting Agreement dated December 27, 2010, by and between Xfone, Inc. and Dionysos Investments (1999) Ltd. (69)
10.146	First Amendment to Senior Promissory Note, Dated as of May 2, 2011 (71)
10.147	Term Loan, Guarantee and Security Agreement dated October 6, 2011 (72)
16.2	Letter dated June 1, 2010 from Stark Winter Schenkein & Co., LLP to the Securities and Exchange Commission. (58)
21.1	List of Subsidiaries (Amended as of March 17, 2011) (70)
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.*

*Denotes exhibits filed herewith.

(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.
	(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.

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		(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.
		(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, 2010 with Xfone, Inc.‘s Form 8-K.
		(56)	Denotes previously filed exhibit: filed on April 1, 2010 with Xfone, Inc.‘s Form 10-K.
		(58)	Denotes previously filed exhibit: filed on June 3, 2010 with Xfone, Inc.‘s Form 8-K/A.
		(59)	Denotes previously filed exhibit: filed on July 1, 2010 with Xfone, Inc.‘s Form 8-K.
		(60)	Denotes previously filed exhibit: filed on November 30, 2010 with Xfone, Inc.‘s Form 8-K.
		(61)	Denotes previously filed exhibit: filed on December 11, 2010 with Xfone, Inc.‘s Form 8-K.
		(62)	Denotes previously filed exhibit: filed on December 29, 2010 with Xfone, Inc.‘s Form 8-K.
		(63)	Denotes previously filed exhibits: filed on January 29, 2010 with Xfone, Inc.‘s Form 8-K.
		(64)	Denotes previously filed exhibits: filed on March 23, 2010 with Xfone, Inc.‘s Form 8-K.
		(65)	Denotes previously filed exhibits: filed on June 1, 2010 with Xfone, Inc.’s Form 8-K.
		(66)	Denotes previously filed exhibits: filed on June 30, 2010 with Xfone, Inc.’s Form 8-K.
		(67)	Denotes previously filed exhibits: filed on September 20, 2010 with Xfone, Inc.’s Form 8-K.
		(68)	Denotes previously filed exhibit: filed on November 18, 2010 with Xfone, Inc.’s Form 8-K.
		(69)	Denotes previously filed exhibit: filed on December 27, 2010 with Xfone, Inc.’s Form 8-K.
		(70)	Denotes previously filed exhibit: filed on March 18, 2011 with Xfone, Inc.’s Form 10-K.
		(71)	Denotes previously filed exhibit: filed on May 2, 2011 with Xfone, Inc.’s Form 8-K.
		(72)	Denotes previously filed exhibit: filed on October 6, 2011 with Xfone, Inc.’s Form 8-K.

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SIGNA TURES

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.

Date: November 14, 2011	By:	/s/ Guy Nissenson
		Guy Nissenson
		President, Chief Executive Officer and Director
		(principal executive officer)



Date: November 14, 2011	By:	/s/ Niv Krikov
		Niv Krikov
		Principal Accounting Officer, Treasurer, Chief Financial Officer and Director (principal accounting and financial officer)

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EXHIBIT INDEX

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)
3.3	Memorandum of Association of Swiftnet Limited. (1)
3.4	Articles of Association of Swiftnet Limited. (1)
3.6	Bylaws of Xfone USA, Inc. (7)
3.12	Reamended and Restated Bylaws of Xfone, Inc. dated November 18, 2010. (68)
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)

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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)

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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)

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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, 2010, by and between Xfone, Inc. and Dionysos Investments (1999) Ltd. (55)
10.132	Employment Agreement between NTS Communications, Inc. and Niv Krikov dated July 1, 2010. (59)
10.133	Agreement dated November 20, 2010 between Xfone, Inc., David Sela and Blokshtil Ltd. (English translation). (60)
10.134	Loan Agreement dated as of December 10, 2010, between Swiftnet Limited, Iddo Keinan, Xfone, Inc., Auracall Limited, Equitalk.co.uk Limited and Story Telecom Limited. (61)
10.135	General Release and Settlement Agreement dated December 28, 2010 between Xfone, Inc., and the selling shareholders of NTS Communications, Inc. (62)
10.136	Agreement dated January 29, 2010 by and between Xfone, Inc., Abraham Keinan, and AMIT K Limited. (63)
10.137	Agreement dated January 29, 2010 by and between Xfone, Inc. and Abraham Keinan. (63)
10.138	Agreement dated January 29, 2010 by and between Abraham Keinan, Guy Nissenson and Campbeltown Business Ltd. (63)
10.139	Securities Purchase Agreement dated effective as of March 23, 2010. (64)

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10.140	Form of Subscription Agreement dated as of March 23, 2010. (64)
10.141	Contract dated May 14, 2010 by and between Xfone, Inc., Newcall Ltd., Margo Pharma, Ltd., and Marathon Telecom Ltd. [English translation] (65)
10.142	Employment Agreement entered into on June 30, 2010 between Xfone, Inc. and Guy Nissenson [Free translation from Hebrew] (66)
10.143	First Amendment to Consulting Agreement dated June 30, 2010 between Xfone, Inc. and Guy Nissenson (66)
10.144	Severance Agreement entered into on September 20, 2010 between Xfone, Inc. and Guy Nissenson. (67)
10.145	Third Amendment to Financial Services and Business Development Consulting Agreement dated December 27, 2010, by and between Xfone, Inc. and Dionysos Investments (1999) Ltd. (69)
10.146	First Amendment to Senior Promissory Note, Dated as of May 2, 2011 (71)
10.147	Term Loan, Guarantee and Security Agreement dated October 6, 2011 (72)
16.2	Letter dated June 1, 2010 from Stark Winter Schenkein & Co., LLP to the Securities and Exchange Commission. (58)
21.1	List of Subsidiaries (Amended as of March 17, 2011) (70)
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.*

*Denotes exhibits filed herewith.

(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.
	(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.

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		(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.
		(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, 2010 with Xfone, Inc.‘s Form 8-K.
		(56)	Denotes previously filed exhibit: filed on April 1, 2010 with Xfone, Inc.‘s Form 10-K.
		(58)	Denotes previously filed exhibit: filed on June 3, 2010 with Xfone, Inc.‘s Form 8-K/A.
		(59)	Denotes previously filed exhibit: filed on July 1, 2010 with Xfone, Inc.‘s Form 8-K.
		(60)	Denotes previously filed exhibit: filed on November 30, 2010 with Xfone, Inc.‘s Form 8-K.
		(61)	Denotes previously filed exhibit: filed on December 11, 2010 with Xfone, Inc.‘s Form 8-K.
		(62)	Denotes previously filed exhibit: filed on December 29, 2010 with Xfone, Inc.‘s Form 8-K.
		(63)	Denotes previously filed exhibits: filed on January 29, 2010 with Xfone, Inc.‘s Form 8-K.
		(64)	Denotes previously filed exhibits: filed on March 23, 2010 with Xfone, Inc.‘s Form 8-K.
		(65)	Denotes previously filed exhibits: filed on June 1, 2010 with Xfone, Inc.’s Form 8-K.
		(66)	Denotes previously filed exhibits: filed on June 30, 2010 with Xfone, Inc.’s Form 8-K.
		(67)	Denotes previously filed exhibits: filed on September 20, 2010 with Xfone, Inc.’s Form 8-K.
		(68)	Denotes previously filed exhibit: filed on November 18, 2010 with Xfone, Inc.’s Form 8-K.
		(69)	Denotes previously filed exhibit: filed on December 27, 2010 with Xfone, Inc.’s Form 8-K.
		(70)	Denotes previously filed exhibit: filed on March 18, 2011 with Xfone, Inc.’s Form 10-K.
		(71)	Denotes previously filed exhibit: filed on May 2, 2011 with Xfone, Inc.’s Form 8-K.
		(72)	Denotes previously filed exhibit: filed on October 6, 2011 with Xfone, Inc.’s Form 8-K.