(1)
|
Title of each class of securities
to which transaction
applies:
|
(2)
|
Aggregate number of securities to
which transaction applies:
|
(3)
|
Per unit price or other underlying
value of transaction computed pursuant to Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated and state how it
was determined):
|
(4)
|
Proposed maximum aggregate value
of transaction:
|
(5)
|
Total fee
paid:
|
(1)
|
Amount Previously
Paid:
|
(2)
|
Form, Schedule or Registration
Statement No.:
|
(3)
|
Filing
Party:
|
(4)
|
Date
Filed:
|
By order of the Board of
Directors,
|
||
|
||
Date: November 10,
2008
|
By:
|
/s/ Guy
Nissenson
|
Guy
Nissenson
|
||
President, Chief Executive officer
and Director
|
6
|
|
7
|
|
9
|
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9
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9
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10
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10
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11
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11
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12
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13
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14
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18
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23
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24
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36
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36
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37
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37
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37
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38
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38
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38
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39
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41
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41
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42
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42
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42
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43
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43
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43
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44
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46
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46
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47
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48
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48
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49
|
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49
|
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49
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49
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49
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59
|
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62
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65
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|
66
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68
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71
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72
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72
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77
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82
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83
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83
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83
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84
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85
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85
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87
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90
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90
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90
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90
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91
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92
|
|
92
|
|
92
|
|
Appendix A - Minutes of
Board of Directors Meetings
|
A1
|
(1) Consolidated Financial Statements
of Xfone, Inc. and Subsidiaries as of December 31, 2007, and Consolidated
Financial Statements (Unaudited) of Xfone, Inc. and Subsidiaries as of
June 30, 2008
(2) Consolidated Financial Statements
of NTS Communications, Inc. and Subsidiaries for the years ended July 31,
2007 and 2006
(3) Unaudited Pro Forma Financial
Information for Xfone, Inc. and Subsidiaries
|
B1
|
Appendix C– Separation Agreement and
Release entered into on August 15, 2008 between Xfone USA, Inc., Xfone,
Inc. and Wade Spooner
|
C1
|
Appendix D– Separation Agreement and
Release entered into on August 15, 2008 between Xfone USA, Inc., Xfone,
Inc. and Ted Parsons
|
D1
|
Title
of Class
|
Name, Title & Address of
Beneficial Owner
|
Amount of
Beneficial
Ownership
|
Nature of
Ownership
|
Percent
of Class
|
||||||
Common
|
Abraham
Keinan(1)(3)
Chairman of the
Board
4 Wycombe
Gardens
London NW11
8AL
United
Kingdom
|
4,708,000
|
Direct
|
23.69
|
%
|
|||||
Common
|
Guy
Nissenson(2)(3)
President, Chief Executive
Officer, and Director,
3A Finchley
Park
London N12 9JS
United
Kingdom
|
5,580,500
|
Direct/Indirect
|
28.08
|
%
|
|||||
Common
|
Eyal J.
Harish(4)
Director
18 Bloch St.
Tel Aviv,
Israel
|
90,000
|
Direct
|
0.49
|
%
|
|||||
Common
|
Shemer S.
Schwartz(5)
Director
5 Israel Galili
St.
Kefar Saba,
Israel
|
75,000
|
Direct
|
0.41
|
%
|
|||||
Common
|
Aviu
Ben-Horrin(6)
Director
40 Jabotinski
St.
Kefar Sava,
Israel
|
25,000
|
Direct
|
0.14
|
%
|
|||||
Common
|
Itzhak
Almog(7)
Director
7/A Moledet
St.
Hod Hasharon,
Israel
|
25,000
|
Direct
|
0.14
|
%
|
|||||
Common
|
Morris
Mansour(8)
Director
31 Tenterden
Gardens
London NW4 1TG, United
Kingdom
|
20,000
|
Direct
|
0.11
|
%
|
|||||
Common
|
Israel
Singer(9)
Director
63 Ben Eliezer
St.
Ramat Gan,
Israel
|
20,000
|
Direct
|
0.11
|
%
|
|||||
Common
|
Directors and Executive Officers
as a group (8 persons)(10)
|
7,666,500
|
Direct
|
35.47
|
%
|
|||||
Common
|
Scott Richard
L(11)
700 11th street South, Suite
101
Naples, FL
34102
|
3,362,605
|
Indirect
|
17.54
|
%
|
|||||
Common
|
Gagnon Securities
LLC(12)
1370 Ave. of the Americas, Suite
2400
New York, NY
10019
|
3,206,450
|
Direct
|
16.99
|
%
|
(1)
|
Until June 23, 2004, Abraham
Keinan indirectly held 1,302,331 shares of our Common Stock through Vision
Consultants Limited, a Nassau, Bahamas incorporated company that is 100%
owned by Mr. Keinan. On June 23, 2004, the shares held by Vision
Consultants Limited were transferred to Mr. Keinan as an individual. In
addition, certain stockholders provided Mr. Keinan and Mr. Nissenson with
irrevocable proxies representing a total of 2.25% of our Common Stock. On
November 24, 2004, our board of directors issued 1,500,000 options to Mr.
Keinan on the following terms: Option exercise price - $3.5, vesting date
- 12 month from the date of grant, expiration date - 5 years from the
vesting date. Mr. Keinan’s 4,708,000 shares of Common Stock include
1,500,000 shares issuable upon the exercise of options, exercisable within
60 days from the date of this Proxy Statement.
|
(2)
|
Guy Nissenson, our President,
Chief Executive Officer, and Director, holds 9,000 shares of our Common
Stock and has indirect beneficial ownership of 1,203,500 shares of our
Common Stock and direct beneficial ownership of 1,500,000 shares issuable
upon the exercise of options, exercisable within 60 days from the date of
this Proxy Statement. In addition, certain stockholders provided Mr.
Nissenson and Mr. Keinan with irrevocable proxies representing a total of
2.25% of our Common Stock. To the extent that we issue any shares to
Abraham Keinan, Campbeltown Business Ltd. has the right to purchase or
acquire such number of our shares on the same terms and conditions so that
the relative percentage ownership of Abraham Keinan and Campbeltown
Business Ltd. remains the same. On November 24, 2004, our board of
directors issued 1,500,000 options to Mr. Nissenson on the following
terms: Option exercise price - $3.5, vesting date - 12 month from the date
of grant, expiration date - 5 years from the vesting
date.
On July 1, 2008, Mr. Nissenson and
Mr. Keinan entered into a certain Irrevocable Option Agreement (the
“Option Agreement”). Pursuant to the Option Agreement, Mr. Keinan granted
Mr. Nissenson (individually and/or together with the Nissenson Investors,
as such term is defined in the Option Agreement) an irrevocable and
exclusive option to purchase a minimum of 2,868,000 of the shares of Xfone
common stock, $0.001 par value per share, that he beneficially owns (the
“Option Shares”), at any time from the date of the Option Agreement
through 5:00 p.m. (British Time) on January 1, 2009, at a price per share
of $3.4289277 (the "Option"). In the event that Mr. Nissenson decides
to exercise the Option, Mr. Keinan has the right to sell to the
purchaser(s) of the Option Shares up to an additional 340,000 shares of
Xfone common stock that he owns, at the same price as the Option
Shares.
|
(3)
|
Our Chairman of the Board, Abraham
Keinan, and our President, Chief Executive Officer, and Director, Guy
Nissenson, exercise significant control over stockholder matters through a
September 28, 2004 Voting Agreement between Mr. Keinan, Mr. Nissenson and
Campbeltown Business Ltd., an entity owned and controlled by Mr. Nissenson
and his family. This agreement is for a term of 10 years and provides
that: (a) Messrs Keinan and Nissenson and Campbeltown Business, Ltd.
agree to vote any shares of our Common Stock controlled by them only in
such manner as previously agreed by all these parties; and (b) in the
event of any disagreement regarding the manner of voting, a party to the
agreement will not vote any shares, unless all the parties have settled
the disagreement.
|
(4)
|
Dr. Eyal J. Harish is the
brother-in-law of Abraham Keinan, our Chairman of the Board. Dr. Harish
holds 15,000 shares of our Common Stock and 75,000 shares issuable upon
the exercise of options, exercisable within 60 days from the date of this
Proxy Statement.
|
(5)
|
Mr. Shemer S. Schwartz holds
75,000 shares issuable upon the exercise of options, exercisable within 60
days from the date of this Proxy Statement.
|
(6)
|
Mr. Aviu Ben-Horrin holds 25,000
shares issuable upon the exercise of options, exercisable within 60 days
from the date of this Proxy Statement.
|
(7)
|
Mr. Itzhak Almog holds 25,000
shares issuable upon the exercise of options, exercisable within 60 days
from the date of this Proxy Statement.
|
(8)
|
Mr. Morris Mansour
holds 20,000 shares issuable upon the exercise of options,
exercisable within 60 days from the date of this Proxy
Statement.
|
(9)
|
Mr. Israel Singer
holds 20,000 shares issuable upon the exercise of options,
exercisable within 60 days from the date of this Proxy
Statement.
|
(10)
|
The 2,868,000 shares that are
deemed beneficially owned by both Mr. Keinan and Mr. Nissenson
are counted only once in the total shares reported. See Note 2
above.
|
(11)
|
According to a Schedule 13D/A
filed with the SEC on September 8, 2008, Richard L Scott, the controlling
member of XFN RLSI Investments, LLC, located at 700 11th Street South,
Suite 101, Naples, FL 34102, may be deemed to beneficially own
2,481,300 shares and a warrant to purchase
an additional 800,000 shares of Common Stock, for aggregate beneficial
ownership of 3,281,300 shares. On October 7, 2008, a
Form 4 was filed reflecting beneficial ownership of a total of
2,562,605shares of
Common Stock. The table reflects beneficial ownership of all such shares
and the warrant to purchase 800,000 additional shares.
|
(12)
|
According to a Schedule 13G filed
with the SEC on March 27, 2008, Gagnon Securities LLC, a registered
investment adviser located at 1370 Ave. of the Americas, Suite 2400, New
York, NY, in its capacity as investment advisor, may be deemed to
beneficially own 3,206,450 shares held of record by customer accounts,
foundations, partnerships, trusts, and private investment funds to which
it furnishes investment
advice.
|
Director
|
Class
|
Term
|
Abraham
Keinan
|
Class A
|
Standing for re-election at this 2008 Annual Meeting; upon such re-election, will next
stand for re-election at the 2011 Annual Meeting
|
Guy
Nissenson
|
Class A
|
Standing for re-election at this 2008 Annual Meeting; upon such re-election, will next
stand for re-election at the 2011 Annual Meeting
|
Shemer Shimon
Schwarz
|
Class A
|
Standing for re-election at this 2008 Annual Meeting; upon such re-election, will next
stand for re-election at the 2011 Annual Meeting
|
Eyal Josef
Harish
|
Class B
|
Eligible for re-election at the
2009 Annual Meeting
|
Aviu
Ben-Horrin
|
Class B
|
Eligible for re-election at the
2009 Annual Meeting
|
Itzhak
Almog
|
Class B
|
Eligible for re-election at the
2009 Annual Meeting
|
Morris
Mansour
|
Class C
|
Eligible for re-election at the 2010
Annual Meeting
|
Israel
Singer
|
Class C
|
Eligible for re-election at the
2010 Annual Meeting
|
Name
|
Age
|
Director /
Officer
|
Abraham
Keinan
|
58
|
Chairman of the Board of
Directors, since our inception.
|
Guy
Nissenson
|
33
|
Director, President and Chief
Executive Officer since our inception.
|
Shemer S.
Schwartz
|
33
|
Director, since December 19, 2002,
and is an independent director and a member of our Audit Committee and our
Compensation Committee.
|
Name
|
Age
|
Director /
Officer
|
Eyal J.
Harish
|
56
|
Director, since December 19,
2002.
|
Itzhak
Almog
|
69
|
Director, since May 18, 2006, and
is an independent director and Chairman of our Audit Committee and our
Nominating Committee.
|
Aviu
Ben-Horrin
|
60
|
Director, since November 23, 2004,
and is an independent director.
|
Israel
Singer
|
59
|
Director, since December 28, 2006,
and is an independent director and a member of our Audit
Committee.
|
Morris
Mansour
|
61
|
Director, since December 28, 2006,
and is an independent director and Chairman of our Compensation
Committee and a member of our Nominating
Committee.
|
Niv Krikov
|
38
|
Principal Accounting Officer since
May 9, 2007 and Treasurer and Chief Financial Officer since August 13,
2007.
|
Name and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
($)
|
Option Awards
($)
|
Non-Equity Incentive Plan
Compensation
($)
|
Non-qualified Deferred
Compensation Earnings
($)
|
All Other Compensation
(10)
($)
|
Total
($)
|
|||||||||||||||
Abraham
Keinan
,
Chairman of the
Board
|
2007
|
96,043
|
(1)
|
254,350
|
(2)
|
18,796
|
(3)
|
369,189
|
||||||||||||||||
2006
|
94,032
|
(1)
|
–
|
–
|
–
|
100,710
|
(4)
|
–
|
35,920
|
(3)
|
230,662
|
|||||||||||||
Guy
Nissenson,
President, CEO, and
Director
|
2007
|
96,043
|
(5)
|
242,490
|
(6)
|
31,294
|
(7)
|
338,533
|
||||||||||||||||
2006
|
94,032
|
(5)
|
–
|
–
|
–
|
163,381
|
(8)
|
–
|
26,341
|
(7)
|
283,754
|
|||||||||||||
Niv
Krikov,
Treasurer, CFO and Principal
Accounting Officer (9)
|
2007
|
76,030
|
3,650
|
–
|
–
|
–
|
–
|
–
|
79,680
|
|||||||||||||||
2006
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
(1)
|
Salary paid to Mr. Keinan by our
U.K. based wholly owned subsidiary, Swiftnet Limited, in connection with
his employment as Chairman of the Board. Mr. Keinan has been the Chairman
of the Board of Directors of Swiftnet since its inception in 1990. The
amount shown in the table above for 2006 was paid in British Pound
Sterling (£48,000) and has been translated into U.S. dollars for
convenience purposes using the rate of exchange of the U.S. dollar at
December 31, 2006. The representative rate of exchange of the £ at
December 31, 2006 was £1 = $1.959. The amount shown in the table above for
2007 was paid in British Pound Sterling (£48,000) and has been translated
into U.S. dollars using the average rate of exchange of the U.S. dollar
during 2007. The average rate of exchange of the £ during 2007 was £1 =
$2.001.
|
(2)
|
Pursuant to a Company’s Board of
Directors’ resolution dated December 25, 2006, on March 28, 2007, the
Company and Mr. Keinan entered into a consulting agreement, effective as
of January 1, 2007 (the “Keinan Consulting Agreement”). The Keinan
Consulting Agreement provides that Mr. Keinan shall render the Company
advisory, consulting and other services in relation to the business and
operations of the Company (excluding its business and operations in the
United Kingdom). In consideration of the performance of the Services
pursuant to the Keinan Consulting Agreement, the Company agreed to pay Mr.
Keinan a monthly fee of £10,000 ($17,818) (the “Fee”). Mr. Keinan invoices
the Company at the end of each calendar month, and the Company makes the
monthly payments immediately upon receipt of such invoices. The
amount shown reflects payments to Mr. Keinan pursuant to the Keinan
Consulting Agreement.
|
(3)
|
The amount shown for 2006 reflects
airfare expenses incurred by the Company for the travels of Mr. Keinan’s
wife and payments for a leased car for Mr. Keinan’s use during 2006. The
amount shown for 2007 reflects payments for a leased car for Mr. Keinan’s
use in 2007.
|
(4)
|
On April 2, 2002, our Board of
Directors approved a bonus and success fee whereby if the Company receives
monthly revenues in excess of $485,000 then Mr. Keinan and our former
consultant, Campbeltown Business Ltd. shall receive 1% of such monthly
revenues, up to a maximum of one million dollars (the “Bonus and Success
Fee”). On April 10, 2003, Mr. Keinan and Campbeltown Business waived their
right to receive 1% of the revenues generated by Story Telecom. On
February 8, 2007, an Agreement was entered by and between the Company,
Swiftnet, Campbeltown Business, and Mr. Keinan (the “February 8, 2007
Agreement”). The February 8, 2007 Agreement provides that effective as of
January 1, 2007, the Bonus and Success Fee is cancelled, and that Mr.
Keinan and Campbeltown Business shall have no further right to any
percentage of our revenues. Mr. Keinan agreed to receive a total amount of
only $100,710 (£51,409) as Bonus and Success Fee for 2006, which is
reflected in the table above, and waived the
remainder.
|
(5)
|
Salary paid to Mr. Nissenson by
our U.K. based wholly owned subsidiary, Swiftnet, in connection with his
employment as Director of Business Development. Mr. Nissenson joined
Swiftnet in October 1999 and became a member of its Board of Directors in
May 2000. Mr. Nissenson had been the Managing Director of Swiftnet from
October 2003 until July 2006. The amount shown in the table above for 2006
was paid in British Pound Sterling (£48,000) and has been translated into
U.S. dollars for convenience purposes using the rate of exchange of the
U.S. dollar at December 31, 2006. The representative rate of exchange of
the £ at December 31, 2006 was £1 = $1.959. The amount shown in the table
above for 2007 was paid in British Pound Sterling (£48,000) and has been
translated into U.S. dollars using the average rate of exchange of the
U.S. dollar during 2007. The average rate of exchange of the £ during 2007
was £1 = $2.001.
|
(6)
|
Pursuant to a Company’s Board of
Directors’ resolution dated December 25, 2006, on March 28, 2007, the
Company and Mr. Nissenson entered into a consulting agreement, effective
as of January 1, 2007 (the “Nissenson Consulting Agreement”). The
Nissenson Consulting Agreement provides that Mr. Nissenson shall render
the Company advisory, consulting and other services in relation to the
business and operations of the Company (excluding its business and
operations in the United Kingdom). In consideration of the performance of
the Services pursuant to the Nissenson Consulting Agreement, the Company
agreed to pay Mr. Nissenson a monthly fee of £10,000 ($17,818) (the
“Fee”). Mr. Nissenson invoices the Company at the end of each calendar
month, and the Company makes the monthly payments immediately upon receipt
of such invoices. The amount shown reflects payments to Mr.
Nissenson pursuant to the Nissenson Consulting
Agreement.
|
(7)
|
The amount shown in the table
above reflects airfare expenses incurred by the Company for the travels of
Mr. Nissenson’s wife during 2006 and
2007.
|
(8)
|
On May 11, 2000, Swiftnet and Mr.
Keinan entered into a consulting agreement with Campbeltown Business that
provided that Swiftnet will hire Campbeltown Business as its financial and
business development consultant and will pay Campbeltown Business £2,000
per month together with an additional monthly performance bonus based upon
Swiftnet attaining certain revenue levels (the “Consulting Agreement”). On
April 2, 2002, our Board of Directors approved a bonus and success fee
whereby if the Company receives monthly revenues in excess of $485,000
then Mr. Keinan and Campbeltown Business shall receive 1% of such monthly
revenues, up to a maximum of one million dollars (the “Bonus and Success
Fee”). On April 10, 2003, Mr. Keinan and Campbeltown Business waived their
right to receive 1% of the revenues generated by Story Telecom. On
February 8, 2007, an Agreement was entered by and between the Company,
Swiftnet, Campbeltown Business, and Mr. Keinan (the “February 8, 2007
Agreement”). The February 8, 2007 Agreement provides that effective as of
January 1, 2007, the Bonus and Success Fee is cancelled, and that Mr.
Keinan and Campbeltown Business shall have no further right to any
percentage of our revenues. The February 8, 2007 Agreement further
provides that effective as of January 1, 2007, the Consulting Agreement is
terminated. Campbeltown Business agreed to receive a total amount of only
$163,381 (£83,400) as compensation under the Consulting Agreement and the
Bonus and Success Fee for 2006, and waived the remainder. Campbeltown
Business Ltd., a private company incorporated in the British Virgin
Islands, is owned and controlled by Guy Nissenson and other members of the
Nissenson family. Guy Nissenson owns 20% of Campbeltown Business. The
compensation is shown in the table above as paid to Guy Nissenson due to
his 20% ownership of Campbeltown
Business.
|
(9)
|
Mr. Niv Krikov has been our Vice
President Finance since March 13, 2007, and our Principal Accounting
Officer since May 9, 2007. On August 13, 2007, in accordance with a
resolution of the Board of Directors of the Company, the Company elected
Mr. Krikov as its Treasurer and Chief Financial Officer. Following his
election, Mr. Krikov no longer serves as Vice President Finance of the
Company, but continues to serve as its Principal Accounting
Officer.
|
(10)
|
The Company acknowledges that on
several occasions, consultants may be required to travel frequently for a
long duration around the world. Therefore, in order to enable the
consultants’ spouses to accompany them on certain lengthy trips for a
normal family life, the Company bears travel expenses for the consultants’
spouses.
|
Option
Awards
|
Stock
Awards
|
||||||||||||||||||||||||||||||||||||||||
Name
|
Number of Securities Underlying
Unexercised Options
(#)
Exercisable
|
Number of Securities Underlying
Unexercised Options
(#)
Unexercisable
|
Equity Incentive Plan Awards:
Number of Securities Underlying Unexercised Unearned
Options
(#)
|
Option Exercise
Price
($)
|
Option Expiration
Date
|
Number of Shares or Units of Stock
that Have Not Vested
(#)
|
Market Value of Shares or Units of
Stock that Have Not Vested
($)
|
Equity Incentive Plan Awards:
Number of Unearned Shares, Units or Other Rights that Have Not
Vested
(#)
|
Equity Incentive Plan Awards:
Market or Payout Value of Unearned Shares, Units or Other Rights that Have
Not Vested
($)
|
||||||||||||||||||||||||||||||||
Abraham
Keinan
|
1,500,000
|
(1)
|
–
|
–
|
3.50
|
Nov. 24,
2010
|
–
|
–
|
–
|
–
|
|||||||||||||||||||||||||||||||
Guy
Nissenson
|
1,500,000
|
(1)
|
–
|
–
|
3.50
|
Nov. 24,
2010
|
–
|
–
|
–
|
–
|
|||||||||||||||||||||||||||||||
Niv Krikov
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
(1)
|
These options were granted on
November 24, 2004, vested in full on November 24, 2005, and will expire on
November 24, 2010.
|
1.
|
If the NTS Officer terminates the
Employment Agreement for good reason, NTS will pay the NTS Officer his or
her salary for the remainder of the employment term, except that if the
NTS Officer obtains other employment during that time, such salary
payments will be reduced by the amount received with respect to such other
employment.
|
2.
|
If the NTS Officer terminates his
employment for any reason other than for good reason, the NTS Officer will
be entitled to receive his or her salary only through the date such
termination is effective, and any unexercised vested options to purchase
the Company’s Common Stock and rights to receive any additional options to
purchase the Company’s Common Stock shall be
cancelled.
|
3.
|
If NTS terminates the Employment
Agreement for cause, the NTS Officer will be entitled to receive his or
her salary through the date such termination is effective, and any options
for the Company’s Common Stock issued in any year subsequent to Employment
Year 1 shall be cancelled.
|
4.
|
If the Employment Agreement is
terminated because of the NTS Officer’s death, the NTS Officer will be
entitled to receive his or her salary through the end of the calendar
month in which his or her death occurs, and any right to receive any
additional options to purchase the Company’s Common Stock shall be
cancelled.
|
5.
|
If the Employment Agreement
expires after the performance of the full term and NTS and the NTS Officer
cannot agree on the terms for an extension of the Employment Agreement or
a new employment agreement to replace the Employment Agreement, and the
NTS Officer terminates employment, then the NTS Officer will be entitled
to receive as severance pay his or her salary for a period of three (3)
months following the date of such
termination.
|
6.
|
If the Employment Agreement is
terminated by either party as a result of the NTS Officer’s disability,
NTS will pay the NTS Officer his or her s alary through the remainder of
the calendar month during which such termination is effective and any
right to receive any additional options for the Company’s Common Stock
shall be cancelled.
|
Employment Year during which such
termination occurs:
|
Ms. Baldwin
|
Mr. Hoover
|
Mr.
Worthington
|
|||||||||
Year 1
|
$
|
773,000
|
$
|
487,680
|
$
|
487,680
|
||||||
Year 2
|
$
|
618,400
|
$
|
390,144
|
$
|
390,144
|
||||||
Year 3
|
$
|
463,800
|
$
|
292,608
|
$
|
292,608
|
||||||
Year 4
|
$
|
309,200
|
$
|
195,072
|
$
|
195,072
|
||||||
Year 5
|
$
|
154,600
|
$
|
97,536
|
$
|
97,536
|
1.
|
Within fourteen (14) days from the
date of this agreement, the Company will grant the Executive, under its
2004 Stock Option Plan, 300,000 options for restricted shares of its
Common Stock, at a strike price of $3.50 per share. Such options shall
vest as follows: 75,000 options on the first anniversary of this agreement
and 18,750 each quarter thereafter during which he is employed by
Swiftnet. Such options may be exercised at any time before the tenth
anniversary of the date of the
agreement.
|
2.
|
On or before 31 August 2006, the
Executive will be paid a bonus of £4,000 ($6,593) if he has produced a
business plan that the Board approves for execution in
writing.
|
3.
|
On or before 31 October 2006, the
Executive will be paid a bonus equal to twelve per cent (12%) of the
revenues referable for the month of September 2006 from former customers
of Equitalk, which have transferred to Swiftnet and whose CLIs and other
details have been entered into Swiftnet’s system and set up so as to
ensure that their calls are routed by means of Swiftnet’s switch by 30
September 2006. If such former customers have not paid in relation to such
revenues by 31 December 2006, then the Executive shall repay to Swiftnet
within thirty (30) days, the portion of the bonus that relates to the
non-collected revenues.
|
4.
|
If the share capital of Swiftnet,
the Company or any Associated Company of either is admitted to a
recognized investment exchange in the United Kingdom (a “Listing”) at any
time during the course of the Executive’s employment, the Executive will
be paid a bonus of one point thirty three per cent (1.33%) of the amount
raised on such a Listing. Such bonus will be subject to any applicable law
and appropriate approvals from the American Stock Exchange, SEC and/or UK
Recognized Stock Exchange and shall be paid as soon as reasonably
practicable following the date of the Listing by way of the grant of
options or warrants (exercisable at any time within 5 years of the date of
grant subject to any lock-in periods agreed as part of the Listing
process) exercisable into restricted shares of Common Stock of the
Company. Such options or warrants will be priced at the issue price of the
Listing, according to the Black Scholes option - pricing model, with a
volatility of ninety per cent (90%).
|
5.
|
If Swiftnet, the Company or any
Associated Company acquires the shares, assets of undertaking of any
company or business in the United Kingdom (an “Acquisition”) at any time
during the course of the Executive’s employment, the Executive will be
paid a bonus of one point thirty three per cent (1.33%) of the value of
the Acquisition. Such bonus will be subject to any applicable law and
appropriate approvals from the American Stock Exchange and/or SEC and
shall be paid as soon as reasonably practicable following the date of the
Acquisition and may be satisfied by Swiftnet by procuring that the Company
allots restricted shares of Common Stock to the Executive to the value of
such bonus.
|
6.
|
On or before 31 August 2006, the
Executive and Swiftnet will agree a bonus scheme linked to his individual
performance. An on-target bonus of £4,000 per month will be payable for
each month, such targets to be set so as to reward the Executive for
improving the profitability and revenue of Swiftnet, whilst giving him a
realistic chance of reaching them. The bonus will be paid monthly in
arrears and there shall be no entitlement to receive any bonus once the
Executive’s employment has terminated. The Executive and the Company will
agree a formula to pay the Executive a reduced bonus if targets are not
met and an increased bonus if targets are
exceeded.
|
7.
|
The Executive is entitled to the
same piggyback registration rights with respect to the securities of the
Company allotted to the Executive under the service agreement, as those
enumerated in Clause 3.5 and Schedule 13 of the May 25, 2006 Agreement to
purchase Equitalk.co.uk.
|
1)
|
Within 30 days of adoption of the
2007 Stock Incentive Plan, Mr. Haliva will be granted options to purchase
300,000 shares of Common Stock, at an exercise price of $3.50 per share,
of which (i) options to purchase 75,000 shares will be exercisable
after 12 months have elapsed from the commencement of his employment, but
not before the qualifying date (the “First Exercise Date”); and
(ii) options to purchase 18,750 shares will be exercisable at the end
of every 3 month period, beginning after 3 months have elapsed from the
First Exercise Date.
|
2)
|
At the end of each calendar year
between 2008 and 2011, and upon the achievement by Xfone 018 100% of its
Targets for each such year, Mr. Haliva will be granted options to purchase
25,000 shares of the Registrant’s Common Stock under the 2007 Stock
Incentive Plan, for an exercise price of $3.50 per share, which will be
exercisable 30 days after the Registrant publishes its annual financial
statements for such year.
|
Name
|
Fees Earned or Paid in Cash
(1)
($)
|
Stock Awards
($)
|
Options Awards
($)(9)
|
Non-Equity Incentive Plan
Compensation
($)
|
Nonqualified Deferred Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
Abraham
Keinan(2)
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||||||||
Guy
Nissenson(2)
|
–
|
–
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||||||||
Eyal J.
Harish(3)
|
1,250
|
–
|
–
|
–
|
–
|
–
|
450
|
|||||||||||||||||||||
Shemer S. Schwartz
(4)
|
3,600
|
–
|
–
|
–
|
–
|
–
|
1,100
|
|||||||||||||||||||||
Itzhak
Almog(5)
|
5,200
|
–
|
18,633
|
–
|
–
|
–
|
23,833
|
|||||||||||||||||||||
Aviu
Ben-Horrin(6)
|
2,450
|
–
|
–
|
–
|
–
|
–
|
1,150
|
|||||||||||||||||||||
Israel
Singer(7)
|
1,250
|
–
|
15,081
|
–
|
–
|
–
|
16,331
|
|||||||||||||||||||||
Morris
Mansour(8)
|
1,250
|
–
|
15,081
|
–
|
–
|
–
|
16,331
|
(1)
|
These amounts were paid on
February 11, 2008.
|
(2)
|
The Company does not compensate
Directors who also serve as executive officers for their services on the
Board. Accordingly, Mr. Keinan and Mr. Nissenson did not receive any
compensation for their service on the Company’s Board during fiscal
2007.
|
(3)
|
As of December 31, 2007, Mr.
Harish held 75,000 options, fully exercisable at an exercise price of
$3.50 and with expiration date of November 24,
2010.
|
(4)
|
As of December 31, 2007, Mr.
Schwartz held 75,000 options, fully exercisable at an exercise price of
$3.50 and with expiration date of November 24,
2010.
|
(5)
|
As of December 31, 2007, Mr. Almog
held 25,000 options, fully exercisable at an exercise price of $3.50 and
with expiration date of October 30,
2012.
|
(6)
|
As of December 31, 2006, Mr.
Ben-Horrin held 25,000 options, fully exercisable at an exercise price of
$3.50 and with expiration date of November 24,
2010.
|
(7)
|
As of December 31, 2007, Mr.
Singer held 20,000 options, which will vest in full on June 5, 2008, one
year from grant date, are exercisable at an exercise price of $3.50, and
will expire on June 5, 2013.
|
(8)
|
As of December 31, 2007, Mr.
Mansour held 20,000 options, which will vest in full on June 5, 2008, one
year from grant date, are exercisable at an exercise price of $3.50, and
will expire on June 5, 2013.
|
(9)
|
The amount shown in the table
reflects the dollar amount recognized for fiscal 2007 financial statement
reporting purposes of the outstanding stock options granted to the
directors in accordance with FAS
123R.
|
TARGET AMOUNT OF REVENUES PER
MONTH
|
ADDITIONAL MONTHLY
BONUS
|
Less than £125,000 (approximately
$206,033)
|
£0
|
Between £125,000 -
£150,000
(approximately $206,033 -
$247,239)
|
£1,250 (approximately
$2,060)
|
Between £150,000 -
£175,000
(approximately $247,239 -
$288,446)
|
£2,500 (approximately
$4,121)
|
Over £175,000
(approximately
$288,446)
|
£2,750 (approximately
$4,533)
|
·
|
Abraham Keinan confirmed that all
his businesses activities and initiatives in the field of
telecommunications are conducted through Swiftnet, and would continue for
at least 18 months after the conclusion of this
transaction.
|
·
|
Campbeltown Business declared that
it is not involved in any business that competes with Swiftnet and would
not be involved in such business at least for 18 months after this
transaction is concluded.
|
·
|
Campbeltown Business would invest
$100,000 in Swiftnet, in exchange for 20% of the total issued shares of
Swiftnet;
|
·
|
Campbeltown Business would also
receive 5% of our issued and outstanding shares following our acquisition
with Swiftnet. In June 2000, Campbeltown Business invested the $100,000 in
Swiftnet. We acquired Swiftnet and Campbeltown received 720,336 shares of
our Common Stock for its 20% interest in
Swiftnet.
|
·
|
Swiftnet and Abraham Keinan would
guarantee that Campbeltown Business’ 20% interest in the outstanding
shares of Swiftnet would be exchanged for at least 10% of our outstanding
shares and that Campbeltown Business would have in total at least 15% of
our total issued shares after our acquisition
occurred.
|
·
|
Campbeltown Business would have
the right to nominate 33% of the members of our board of directors and
Swiftnet’s board of directors. When Campbeltown Business ownership in our
Common Stock was less than 7%, Campbeltown Business would have the right
to nominate only 20% of our board members but always at least one member.
In the case that Campbeltown Business ownership in our Common Stock was
less than 2%, this right would
expire.
|
·
|
Campbeltown Business would have
the right to nominate a vice president in Swiftnet. Mr. Guy Nissenson was
nominated as of the time of the June 19, 2000 agreement. If for any reason
Guy Nissenson will leave his position, Campbeltown Business and Abraham
Keinan will agree on another nominee. The Vice President will be employed
with suitable conditions.
|
·
|
Campbeltown Business will have the
right to participate under the same terms and conditions in any investment
or transaction that involve equity rights in Swiftnet or us conducted by
Abraham Keinan at the relative ownership
portion.
|
·
|
Keinan and Campbeltown Business
have signed a right of first refusal agreement for the sale of their
shares.
|
·
|
Until we conduct a public offering
or are traded on a stock market, we are not permitted to issue any
additional shares or equity rights without a written agreement from
Campbeltown Business. This right expires when Campbeltown no longer owns
any equity interest or shares in our company or our subsidiary,
Swiftnet.
|
(i)
|
The parties agree that Dionysos
Investments will be compensated by the Company for the Services provided
to the Company in the amount of £8,000 ($13,186) per month, beginning on
January 1, 2007;
|
(ii)
|
In addition, the Company will pay
Dionysos Investments a one time success fee in the amount of £10,000
($16,483), for initiating, establishing and developing the relationship
between the Company and certain Israeli financial institutions during
fiscal years 2005-2006, relationships which resulted in significant
investments made by certain Israeli financial
institutions;
|
(iii)
|
In addition, the Company will pay
Dionysos Investments a success fee for any future investments in the
Company made by Israeli investors during fiscal year 2007, provided such
investments were a direct or indirect result of the Services provided to
the Company. The success fee will be equal to 0.5% (half percent) of the
gross proceeds of such investments;
and
|
(iv)
|
In addition, the Company will
reimburse Dionysos Investments, based on prior approval by the Audit
Committee of the Company, for expenses incurred, which expenses will
include travel, hotel, meals, courier, report reproduction and other
administrative costs when and where needed. Compensation for any
additional services provided by Dionysos Investments for the Company shall
be as agreed by the parties.
|
Fiscal Year
|
||||||||
2007
|
2006
|
|||||||
Audit Fees
|
$
|
133,668
|
$
|
141,375
|
||||
Audit-Related
Fees
|
7,000
|
19,034
|
||||||
Tax Fees
|
12,500
|
25,000
|
||||||
All Other
|
2,725
|
2,415
|
||||||
Total
|
$
|
155,893
|
$
|
187,824
|
||||
Director
|
Class
|
Abraham
Keinan
|
Class A
|
Guy
Nissenson
|
Class A
|
Shemer Shimon
Schwarz
|
Class A
|
Eyal Josef
Harish
|
Class B
|
Aviu
Ben-Horrin
|
Class B
|
Itzhak
Almog
|
Class B
|
Morris
Mansour
|
Class C
|
Israel
Singer
|
Class
C
|
Director
|
Class
|
Abraham
Keinan
|
Class A
|
Guy
Nissenson
|
Class A
|
Shemer Shimon
Schwarz
|
Class A
|
Eyal Josef
Harish
|
Class B
|
Aviu
Ben-Horrin
|
Class B
|
Itzhak
Almog
|
Class B
|
Morris
Mansour
|
Class C
|
Israel
Singer
|
Class
C
|
1.
|
To make an effort and to take all
actions that are reasonably required, subject to the law and the rules of
the Tel Aviv Stock Exchange Ltd. (the “TASE”), to list the Bonds for
trading on the TASE, such that restrictions on resale will not apply in
accordance with Section 15c of the Israeli Securities Law 5728-1968 (the
“Israeli Securities Law”) on the holders of the Bonds, no later than 12
months from the Date of Issuance.
|
2.
|
Immediately after the issuance the
Company will apply to the TASE to list the Bonds as a “non-tradable
security” with the TASE Clearing House, at the discretion of the Company,
subject to the law and the rules of the TASE.
|
3.
|
Starting from the date of the
Bonds’ listing for trade on the TASE, to the extent such listing occurs,
the interest rate payable for the unpaid balance of the Bonds will be
reduced by 1% (to an annual interest rate of
8%).
|
4.
|
Until the Bonds are listed for
trade on the TASE, in the event that the rating of the Bonds is reduced
from the rating given them at their issuance - A3 by Midroog - to Baa1 (or
an equivalent rating by another rating company), the annual rate of
interest on the Bonds will increase by 0.25%.
|
5.
|
If the Bonds are not listed for
trading within 12 months from the Date of Issuance, any holder of the
Bonds will be allowed (but not required), to redeem his Bonds, in whole or
in part, in an early redemption.
|
6.
|
In the event that by March 31,
2008 the conditions for the release of the proceeds of the offering by the
Trustee, as set forth in the Indenture of the Bonds, are not met, the
issuance will be canceled and the Trustee will return the proceeds of the
offering to the holders of the Bonds, along with interest at an annual
rate of 9%, linked to the CPI, for the period from the Date of Issuance
until the date of the return of the proceeds as stated. The
interest from the proceeds of the offering that have accumulated in the
trust account will be transferred to the Company. The applicable
conditions are: (i) that the Company raises an aggregate of at least $20.0
million in equity financings (this condition has been satisfied subject to
the receipt of certain regulatory approvals); and (ii) that the conditions
(which are not related to the financing of the acquisition) for the
consummation of the NTS Acquisition have been
met.
|
7.
|
The occurrence of certain events
in connection with the Company may lead to the requirement to immediately
redeem the Bonds. Among those events are: (1) customary events such as
non-payment, the appointment of a liquidator or temporary or permanent
conservator, whose appointment is not canceled within a certain period of
time, the placement of a lien on substantive assets of the Company, the
realization of pledges on substantive assets of the Company, the
termination of the Company and when a bank requires immediate repayment of
a substantive amount of credit; (2) specific events that relate to the
period before the Bonds are listed for trade on the TASE such as the
reduction of the rating of the Bonds to Baa2 of Midroog (or an equivalent
rating of another rating company) or to a lower rating, if the Company
issues additional bonds in a manner that causes the current rating of the
Bonds to be reduced, if the Bonds cease to be rated for a period greater
than 30 days, if the proportion of the debt to EBITDA increases above 4:1,
if the Company ceases to control (directly and/or indirectly) NTS
Communications (for this purpose “control” has the meaning as defined in
the Israeli Securities Law) and in the event that Mr. Guy Nissenson ceases
to serve as President and CEO of the Company; (3) additional specific
events such as the payment of a dividend that will cause the proportion of
the shareholders equity to the Company’s balance sheet to be lower than
25%.
|
·
|
$35,414,715 was paid in cash;
and
|
·
|
2,366,892 shares of our Common
Stock were issued to certain NTS Sellers who elected to reinvest all or a
portion of their allocable sale price in our Common Stock, pursuant to the
terms of the NTS Purchase Agreement. Our Board of Directors determined, in
accordance with the NTS Purchase Agreement, the number of shares of our
Common Stock to be delivered to each participating NTS Seller by dividing
the portion of such NTS Seller’s allocable sale price that the NTS Seller
elected to receive in shares of our Common Stock by 93% of the average
closing price of our Common Stock on the American Stock Exchange for the
ten consecutive trading days preceding the trading day immediately prior
to the Closing Date (i.e., $2.74). The aggregate sales price reinvested by
all such NTS Sellers was
$6,485,284.
|
Year Ended
December
31,
|
||||||||
2007
|
2006
|
|||||||
Revenues
|
100
|
%
|
100
|
%
|
||||
Cost of
Revenues
|
-44
|
%
|
-58
|
%
|
||||
Gross
Profit
|
56
|
%
|
42
|
%
|
||||
Operating
Expenses:
|
||||||||
Research and
Development
|
0
|
%
|
0
|
%
|
||||
Marketing and
Selling
|
-24
|
%
|
-13
|
%
|
||||
General and
Administrative
|
-28
|
%
|
-26
|
%
|
||||
Non- recurring
loss
|
-6
|
%
|
0
|
%
|
||||
Total Operating
Expenses
|
-58
|
%
|
-39
|
%
|
||||
Income (loss) before
Taxes
|
-4
|
%
|
2
|
%
|
||||
Net Income
|
-3
|
%
|
2
|
%
|
Six months
ended
June 30,
|
Three months
ended
June 30,
|
||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||
Revenues
|
100%
|
100%
|
100%
|
100%
|
|||||||
Cost of
Revenues
|
-50.5%
|
-44.6%
|
-51.7%
|
-44.1%
|
|||||||
Gross
Profit
|
49.5%
|
55.4%
|
48.3%
|
55.9%
|
|||||||
Operating
Expenses:
|
|||||||||||
Research and
Development
|
-0.1%
|
-0.1%
|
-0.1%
|
-0.1%
|
|||||||
Marketing and
Selling
|
-14.7%
|
-23.6%
|
-13.4%
|
-23.6%
|
|||||||
General and
Administrative
|
-27.4%
|
-25.3%
|
-27.5%
|
-25.5%
|
|||||||
Total Operating
Expenses
|
-42.2%
|
-49.0%
|
-41%
|
-49.2%
|
|||||||
Income (loss) before
Taxes
|
-2.7%
|
4.8%
|
-5%
|
4.9%
|
|||||||
Net Income
(loss)
|
-2.1%
|
3.7%
|
-7.2%
|
3.5%
|
Date
|
||||
2008
|
$ | 86,201 | ||
2009
|
46,573 | |||
$ | 132,774 |
·
|
$35,414,715 was paid in cash;
and
|
·
|
2,366,892 shares of our Common
Stock were issued to certain NTS Sellers who elected to reinvest all or a
portion of their allocable sale price in our Common Stock, pursuant to the
terms of the NTS Purchase Agreement. Our Board of Directors determined, in
accordance with the NTS Purchase Agreement, the number of shares of our
Common Stock to be delivered to each participating NTS Seller by dividing
the portion of such NTS Seller’s allocable sale price that the NTS Seller
elected to receive in shares of our Common Stock by 93% of the average
closing price of our Common Stock on the American Stock Exchange for the
ten consecutive trading days preceding the trading day immediately prior
to the Closing Date (i.e., $2.74). The aggregate sales price reinvested by
all such NTS Sellers was
$6,485,284.
|
·
|
Carrier Pre
Select (CPS): CPS is
a telephony service which enables customers to benefit from our low call
usage charges, without having to make any changes to their existing
telephone lines or numbers. The service allows customers to route all
their outgoing calls over our network. This gives them access to
competitive call rates and a wide range of services. Customers using CPS
only pay line rental to their service operator, while we bill them for all
call charges. CPS is available nationally provided the customer is
connected to a BT local
exchange.
|
·
|
Indirect
Access: This is a
telephony service which enables customers to benefit from our low call
usage charges, without having to make any changes to their existing
telephone lines or numbers. The service allows customers to route a
specific outgoing call over our network by using the prefix code
“1689.”
|
·
|
Calling
Cards: This service
is available to all our subscribers. The Calling Card works by using an
access number and a PIN code, and offers a convenient and easy way to make
calls virtually anywhere in the UK, as well as from 27 other destinations
worldwide.
|
·
|
Email2Fax: Allows users to send fax messages
directly from their email or web
software.
|
·
|
Cyber-Number: Allows users to receive fax
messages directly to their email software via a personal
number.
|
·
|
Email/Fax
Broadcast: This
service allows the user to send multiple personalized faxes and emails to
thousands of users in
minutes.
|
·
|
Our Internet based customer
service and on-line registration (found at www.swiftnet.co.uk) includes
full details on all our products and
services.
|
·
|
Carrier Pre
Select (CPS): CPS is
a telephony service which enables customers to benefit from our low call
usage charges, without having to make any changes to their existing
telephone lines or numbers. The service allows customers to route all
their outgoing calls over our network. This gives them access to
competitive call rates and a wide range of services. Customers using CPS
only pay line rental to their service operator, while we bill them for all
call charges. CPS is available nationally provided the customer is
connected to a BT local
exchange.
|
·
|
Indirect
Access: This is a
telephony service which enables customers to benefit from our low call
usage charges, without having to make any changes to their existing
telephone lines or numbers. The service allows customers to route a
specific outgoing call over our network by using the prefix code
“1664.”
|
·
|
Internet/Data
Service: We provide
high-speed Internet access to residential customers utilizing the digital
data network of Griffin Internet. Our ADSL service provides up to 8 Mbps
of streaming speed combined with Static IP addresses, as well as multiple
mailboxes. Our Internet/Data services are bundled with our voice services
for residential and business
customers.
|
·
|
Conference
Service: We provide
web-managed low cost teleconferencing services through our partnership
with Auracall Limited. Up to 10 people can call in to a conference circuit
and be joined together by dialing the same PIN. There is no need to
reserve a conference call in advance and each caller pays for their own
call.
|
·
|
Our Internet based customer
service and billing interface (found at www.equitalk.co.uk) includes
on-line registration, full account control, and payment and billing
functions and information
retrieval.
|
·
|
Prepaid Calling Cards: Story
Telecom initiates, markets and distributes Prepaid Calling Cards that are
served by our switch and systems. Story Telecom supplies the Prepaid
Calling Cards to retail stores through its network of dealers. The Calling
Card enables the holder to call anywhere in the world by dialing either a
toll free number or a local access number from any telephone that routes
the holder’s call to our Interactive Voice Response System that
automatically asks for the holder’s private PIN code, validates the code
dialed by the customer, and tells the credit balance of the card. The
holder is then instructed to dial to his or her desired destination, at
which time our Interactive Voice Response System tells the holder how long
he or she can speak according to the balance on the card and what the cost
per minute is. The holder of the card can use the card repeatedly until
the balance is zero.
|
·
|
Story Direct and Story Mobile:
These services allow any individual with either a BT line or a mobile
phone to make international calls at a lower cost and without prepayment
for setting up an account with another carrier. These services can be
accessed by any business or residential user through Story Telecom
website, found at www.storytelecom.com. When customers need to make an
international or national call they can dial the appropriate designed
number for that country and save on calling rates over the current BT
published rates or their network operator’s rates by gaining access to our
switch and providing savings on a per minute
basis.
|
·
|
Text & Talk: This service
allows any individual with a mobile phone to make international calls at a
lower cost by purchasing calling credit via a Premium Rate Text. When
customers need to make an international or national call they can dial an
access number followed by their destination
number.
|
·
|
Our Internet based customer
service (found at www.storytelecom.co.uk) includes full details on all our
products and services.
|
·
|
Free Time: This service
allows any individual with a BT line to make international calls at a
lower cost and without prepayment for setting up an account with another
carrier. The Auracall service can be accessed by any business or
residential user through our website at www.auracall.com. When customers
need to make an international or national call they can dial the
appropriate designed number for that country and save on calling rates
over the current BT published rates by gaining access to our switch and
providing savings on a per minute
basis.
|
·
|
T-Talk: This service
allows any individual with a mobile phone to make international calls at a
lower cost by purchasing calling credit via a Premium Rate Text. When
customers need to make an international or national call they can dial an
access number followed by their destination
number.
|
·
|
Our Internet based customer
service (found at www.auracall.co.uk) includes full details on all our
products and services.
|
·
|
Local Telephone
Service: Using our
own network in concentrated local areas throughout Mississippi and
Louisiana and utilizing the underlying network of BellSouth
Telecommunications, Inc. (the new ATT), outside of our local areas, we
provide local dial tone and calling features, such as hunting, call
forwarding and call waiting to both business and residential customers
throughout Louisiana and Mississippi, including T-1 and PRI local
telephone services to business
customers.
|
·
|
Long Distance
Service: We use our
own network where available and QWEST, a nationwide long distance carrier,
as our underlying long distance network provider. In conjunction with
Local Telephone Services, we provide Long Distance Services to our
residential and business customers. We provide two different categories of
long distance services - Switched Services to both residential and small
business customers, which include 1+ Outbound Service, Toll Free Inbound
Service and Calling Card Service. For larger business customers we also
provide Dedicated Services such as T-1 and PRI Services. Our long distance
services are only available to customers who use our local telephone
services.
|
·
|
Internet/Data
Service: We provide
high-speed broadband Internet access to residential and business customers
utilizing our own integrated digital data network and utilizing the
broadband gateway network of the new ATT. Our DSL service provides up to 3
Mbps of streaming speed combined with Dynamic IP addresses, as well as
multiple mailboxes and Web space. Our DSL services also include spam
filter, instant messaging, pop-up blocking, web mail access, and parental
controls. We also provide dial-up Internet access service for quick and
dependable connection to the web. Our Internet/Data services are
stand-alone products or are bundled with our voice services for
residential and business
customers.
|
·
|
Customer
Service: Customer
Service is paramount at Xfone USA and is one of our major differentiating
characteristics, thus tantamount to being one of our product offerings.
Customers have been conditioned to accept poor customer service from the
larger monopoly companies because they have never had any real choice in
service providers, especially in the residential market. Our attentive
customer service department is an additional “product offering” which
sells - as well as retains - customers. The full scope of communications
service entails network service, customer service, and repair
service.
|
·
|
Customer
Premise Equipment (“CPE”): Xfone USA also resells a variety
of CPE and CPE related services to its customers. Primarily,
these sales involve acting with NTS Comunications, Inc. as an authorized
dealer for Toshiba phone systems. These systems are sold to customers
either on a stand-alone basis, or in conjunction with the purchase of
local, long distance, and/or data services from the
company.
|
·
|
Local Services: NTS delivers local
telephony service to its customers through an “on-net” UNE-L connection,
including voice mail, caller ID, forwarding, 3-way calling, blocking, and
PBX services. In addition, NTS sells ”off-net” total service
resale lines which contribute less than 7% of total local service
revenue. NTS provides UNE-L services in Lubbock, Abilene,
Amarillo, Midland, Odessa, Pampa, Plainview, and Wichita Falls,
Texas. NTS provides local services via FTTP in Lubbock and
Wolfforth. NTS provides resold local services throughout Texas
via its resale agreement with
AT&T.
|
·
|
Retail Long Distance Services: NTS
offers a full range of long distance services to its customers, including
competitively priced switched long distance (including intrastate,
interstate, and international), toll-free service, dedicated T-1 long
distance and calling cards. The vast majority of its customers
are concentrated in West Texas. Approximately 10% of long
distance customers are in Arizona, New Mexico, Oklahoma, Kansas, and
Colorado.
|
·
|
Internet Data Services: NTS began
offering broadband service in 1999. Download speeds range from
500 Kilobits to 100 Megabits per second, depending on the end user’s
distance from an NTS collocation or the type of facilities used to deliver
the service. NTS launched dial-up service in
1985. NTS provides broadband and dial-up Internet service in
all of its Texas markets.
|
·
|
Fiber-Based Services (“Fiber to
the Premise or FTTP”): As an integrated telecom provider, NTS is capable
of providing quality triple play (voice, digital video & data) on one
bill at competitive prices to its FTTP customers. NTS offers a
full selection of video services, including basic cable, video on demand,
HDTV and DVR. NTS is a member of the National Cable Television
Cooperative and as a member obtains favorable programming rates from most
major networks. NTS provides FTTP service in Lubbock and
Wolfforth, Texas.
|
·
|
Customer Premise Equipment
(“CPE”): NTS resells a variety of CPE and CPE related services to its
customers. Primarily, these sales involve NTS acting as an
authorized dealer for Toshiba phone systems. These systems are sold to
customers either on a stand-alone basis, or in conjunction with the
purchase of local, long distance, and/or data services from the
company.
|
·
|
Private Line Services: NTS offers
aggregation and resale of leased fiber transport network from AT&T and
other fiber network operators. This service is mostly provided
for carrier customers that need direct network connectivity, as well as
enterprises that require dedicated branch office
connections. Services are generally offered under 1-year
contracts for a fixed amount per month. NTS provides private
line service nationwide.
|
·
|
Wholesale Switched Termination
Services: NTS sells its wholesale-switched minutes to local telecom
companies who do not have the volume to warrant attractive pricing from
AT&T and other large carriers. NTS provides multi-regional
switched termination, switched toll free origination and wholesale
Internet access services to various carrier customers. Services
are generally offered for a fixed amount per minute. NTS
provides wholesale switched termination services to customers via network
connections in NTS POPs and switch
sites.
|
·
|
Our Internet based customer
service (found at www.ntscom.com) includes full details on all our retail
products and services.
|
·
|
International
Telephony Services:
We provide international telephony services with the prefix code of “018”.
We provide these services both to our subscribers and to occasional
customers. The service is offered to both residential and business
customers.
|
·
|
Local Telephony
Services: We provide
to Israeli subscribers local telephony services with the prefix code of
“078”. The service is offered to both residential and business
customers in the framework of an experimental deployment of Local
Telephone Services utilizing Voice over Broadband (VoB)
technology.
|
·
|
XFONECARD: We provide an international toll
free calling card service, available in over 40 countries around the
globe.
|
·
|
SIMPLE: The SIMPLE is a pre programmed,
rechargeable, mobile SIM card which can be used with any unlocked GSM
(Global System for Mobiles) mobile phone virtually anywhere in the world.
SIMPLE allows us to deliver call savings, by diverting the customer
dialing command away from the local mobile operator that the phone is
connected to, and instead, it sends the call to one of the mobile
operators with whom we hold a special agreement. We offer for sale or rent
three types of SIM Cards which may be used from over 90 countries around
the globe - "SIMPLE+", "SIMPLE World" and "SIMPLE Europe". We also offer a
special SIM Card for the U.S.A- "SIMPLE
USA".
|
·
|
International
Telephony Access: We
provide international telephony access to the Israeli telephone network by
selling incoming call minutes to various international operators across
the globe.
|
·
|
Our Internet based customer
service and on-line registration (found at www.018.co.il) includes full
details on all our products and
services.
|
·
|
We use employed, direct sales
executives to sell to medium to large size business customers; these sales
executives have quota attainment requirements and receive a monthly
salary, allowance and are paid
commissions;
|
·
|
We actively recruit independent
contractor agents and resellers who purchase telephone traffic directly
from us at a discount, and who then resell this telephone traffic to their
customers at a mark-up according to their own price
lists;
|
·
|
We utilize agents that sell our
services directly to customers at our established prices; these agents
receive a commission of approximately 5%-12% of the total sale amount less
any bad debts;
|
·
|
We use third party direct sales
organizations (telesales and door-to-door) to register new
customers;
|
·
|
We cooperate with major companies
and worker’s councils;
|
·
|
We have retail and wholesale sales
offices; employees at these sales offices receive annual salaries and
commissions;
|
·
|
We use direct marketing, including
by newspaper, radio and television
advertisements;
|
·
|
We attend telecommunications trade
shows to promote our services;
and
|
·
|
We utilize the Internet as an
additional distribution channel for our
services.
|
·
|
Partner
Division - Our
Partner Division operates as a separate profit center by attempting to
recruit new resellers and agents to market our products and services and
to provide support and guidance to resellers and
agents.
|
·
|
Customer
Service Division - In
the United Kingdom and the United States we operate a live customer
service center that operates 24 hours a day, 7 days a week. In Israel our
customer service center operates 6 days a
week.
|
·
|
Operations
Division - Our
Operations Division provides the following operational functions to our
business: (a) 24 hour/7 day a week technical support;
(b) inter-company network; (c) hardware and software
installations; and (d) operating switch and other
platforms.
|
·
|
Administration
Division - Our
Administration Division provides the billing, collection, credit control,
and customer support aspects of our
business.
|
·
|
Research and
Development Division - The function of our Research and
Development Division is to develop and improve our billing system, switch
and telephony platforms, websites and special
projects.
|
·
|
Marketing
Division - Our
Marketing Division is responsible for our marketing and selling campaigns
that target potential and existing retail
customers.
|
·
|
AT&T Inc. -
25%
|
·
|
British Telecommunications -
20%
|
·
|
Bezeq The Israel Telecommunication
Corp - 7%
|
·
|
Residential
- in the U.S. -
pre-subscribed customers, including for local, long distance, internet and
cable television services; outside of the U.S. - pre-subscribed customers
and customers who must dial a special code to access our switch or acquire
a box that dials
automatically.
|
·
|
Commercial
- we serve small to
complex business customers around the
world.
|
·
|
Governmental
agencies - Including
the United Nations World Economic Forum, certain embassies and the Bank of
Israel. We also provide cities, counties, schools and universities in
Texas with a host of services, including local, long distance, internet
and private line services.
|
·
|
Resellers
- We provide
resellers with our telephone and messaging services for a wholesale
price. We also provide long haul switched termination to a
variety of companies throughout the United States who resell our
services.
|
·
|
Telecommunications
companies - We
provide our services through telecommunication companies (such as British
Telecom and Bezeq The Israel Telecommunication Corp) which collect the
fees relating to such services and forward them to
us.
|
·
|
Mobile Users
- including customers
who can access our switch utilizing our access number and thereafter are
able to make low-cost international calls; customers who purchase, via a
reversed billed SMS, pre-paid credit for international calls and those
using our international roaming SIM
cards.
|
·
|
Naked ADSL: A proposal has
been made to separate between the telephony and internet access in the
"Last Mile". If adopted, this could be beneficial to Xfone 018, as it
would provide Xfone 018 with the opportunity to penetrate the market with
its VOB local calls
services.
|
·
|
Unbundling: A proposal has been
made to force the existing infrastructure providers to enable other
providers to use their infrastructure in fair prices to encourage
competition. If adopted, this could affect Xfone 018’s business by
allowing it to offer a wider range of services at attractive
prices.
|
·
|
MVNO: A proposal has been
made to open the Israeli market to new virtual players in the mobile
arena. If adopted, this could affect Xfone 018’s business by
allowing it to penetrate a new market, which constitutes more than 50% of
the Israeli communication
market.
|
·
|
International Calls: A
proposal has been made to enable mobile operators to supply international
calls based on agreed access charge from the international carriers. If
adopted, this could negatively affect Xfone 018’s business by enlarging
the number of its
competitors.
|
·
|
WIMAX: A proposal has been
made to issue WIMAX frequencies in order to establish new access networks
in Israel. If adopted, this could be beneficial to Xfone 018’s
business by allowing it to penetrate and gain a new market share by direct
access.
|
By order of the Board of
Directors,
|
||
Date: November 10,
2008
|
By:
|
/s/ Guy
Nissenson
|
Guy
Nissenson
|
||
President and Chief Executive
officer
|
|
(i)
|
The
Board of Directors calls for the 2008 Annual Meeting of shareholders of
the Company to be held at 10:30 am ET on December 16, 2008, at the offices
of Gersten Savage LLP located at 600 Lexington Avenue, 9th
Floor, New York, NY 10022, United States (the “Annual
Meeting”).
|
|
(ii)
|
Only
shareholders of record at the close of business on November 10, 2008,
shall be entitled to vote at the Annual
Meeting.
|
|
(iii)
|
Reference
is made to the approval on October 30, 2008 of the Audit Committee of the
Board of Directors of the Company of the appointment of Stark Winter
Schenkein & Co., LLP (“SWS”) as the Company’s Independent Certified
Public Accountants for the fiscal year ended December 31, 2008 and the
first three quarters of the fiscal year ended December 31, 2009, pursuant
to that certain Engagement Letter by and among the Company and SWS, dated
October 30, 2008, attached hereto as Appendix A and
incorporated herein by reference.
|
|
RESOLVED, that the Board of Directors hereby recommends
that the Stockholders of the Company vote "FOR" the approval of the
appointment of SWS as the Company’s Independent Certified Public
Accountants for the ensuing year at the Annual Meeting; and be it
further
|
|
(iv)
|
RESOLVED, that the terms
and conditions of the Separation Agreement and Release with each of
Messrs. Wade Spooner and Ted Parsons, each dated August 15, 2008 (each, a
“Separation Agreement,” and together, the “Separation Agreements”), which
were previously approved by the Board of Directors by resolution on August
13, 2008, are hereby re-approved and/or ratified and/or confirmed in all
respects; and be it further
|
|
(v)
|
RESOLVED, that the
issuances of the New Warrants and the Additional Acquisition Bonus
Warrants to each of Messrs. Spooner and Parsons (as these terms are
defined in each respective Separation Agreement) (collectively, the
“Warrants”), pursuant to the terms of each person’s respective Separation
Agreement, are hereby authorized and/or approved and/or ratified and/or
confirmed in all respects; and be it
further
|
|
(vi)
|
RESOLVED, that the
issuances of the Company's shares of common stock underlying the Warrants
upon exercise (the “Underlying Shares”) are hereby authorized and/or
approved and/or ratified and/or confirmed in all respects; and be it
further
|
|
(vii)
|
RESOLVED, that the Board
of Directors hereby recommends that the Stockholders of the Company vote
"FOR" the approval of the issuances of the Warrants and the Underlying
Shares, pursuant to the terms of the Separation Agreements, at the Annual
Meeting; and be it further
|
|
(viii)
|
RESOLVED, that the
officers of the Company (including the Secretary) be, and they are or any
one of them is, hereby authorized, empowered and directed, from time to
time, in the name and on behalf of the Company to execute, make oath to,
acknowledge and deliver, any and all agreements, orders, directives,
certificates, notices, assignments and other documents, instruments and
papers (including, without limitation, applications to the NYSE Alternext
and the Tel Aviv Stock Exchange for the listing of the Underlying Shares,
and in connection with the preparation and filing of a Registration
Statement with the Securities and Exchange Commission to register the
Underlying Shares, with any amendments, supplements and modifications
thereto) and to take or cause to be taken such steps as they, with and
upon the advice of legal counsel of the Company, may determine to be
necessary, appropriate or advisable to carry out the intent and purposes
of the foregoing resolutions, such determination to be evidenced
conclusively by the execution and delivery of such documents and the
taking of such steps.
|
Xfone,
Inc. and Subsidiaries
|
||||||||||||||
CONSOLIDATED
FINANCIAL STATEMENTS
|
||||||||||||||
As
of December 31, 2007
|
||||||||||||||
CONTENTS
|
B-2
|
|
B-3 | |
B-4
|
|
B-6
|
|
B-7
|
|
B-8
|
|
B-11
|
Yarel
+ Partners
C.P.A
(Isr.)
|
|
Tel-Aviv,
Israel
March
24, 2008
|
An
Independent Member of BKR
International
|
Xfone, Inc. and
Subsidiaries
|
|||||
|
|||||
BALANCE
SHEET
|
|||||
|
|||||
December
31,
|
|||||
2007
|
|||||
|
|||||
CURRENT
ASSETS:
|
|||||
Cash
|
$ | 5,835,608 | |||
Restricted
cash
|
25,562,032 | ||||
Accounts
receivable, net
|
5,886,499 | ||||
Prepaid
expenses and other receivables (Note 3)
|
3,985,307 | ||||
Total
current assets
|
41,269,446 | ||||
MINORITY
INTEREST
|
7,190 | ||||
LONG
TERM ASSETS (including $1,753,503 of bonds issuance cost,
net)
|
2,076,061 | ||||
FIXED
ASSETS, NET (NOTE 4)
|
5,747,758 | ||||
OTHER
ASSETS, NET (NOTE 5)
|
17,948,872 | ||||
Total
assets
|
$ | 67,049,327 | |||
Xfone,
Inc. and Subsidiaries
|
||||
|
||||
BALANCE
SHEET
|
||||
|
||||
December
31,
|
||||
2007
|
||||
|
||||
CURRENT
LIABILITIES:
|
||||
Notes
payable - current portion (Note 7)
|
$
|
1,094,339
|
||
Trade
payables
|
8,287,420
|
|||
Other
liabilities and accrued expenses (Note 6)
|
5,322,045
|
|||
Obligations
under capital leases - current portion (note 9)
|
89,654
|
|||
Current
maturities of Bonds (note 8)
|
3,268,476
|
|||
Total
current liabilities
|
18,061,934
|
|||
DEFERRED
TAXES (NOTE 10)
|
1,103
|
|||
NOTES
PAYABLE (NOTE 7)
|
1,013,808
|
|||
BONDS
(NOTE 8)
|
22,083,892
|
|||
OBLIGATIONS
UNDER CAPITAL LEASES (NOTE 9)
|
31,893
|
|||
SEVERANCE
PAY
|
148,600
|
|||
Total
liabilities
|
41,341,230
|
|||
COMMITMENTS
AND CONTINGENT LIABILITIES (NOTE 11)
|
||||
SHAREHOLDERS'
EQUITY:
|
||||
Common
stock:
|
||||
75,000,000
shares authorized
|
||||
13,467,928
issued and outstanding
|
13,468
|
|||
Contributions
in excess of par value
|
26,494,985
|
|||
Foreign
currency translation adjustment
|
(1,564,814
|
)
|
||
Deferred
stock compensation
|
(295,155
|
)
|
||
Retained
earnings
|
1,059,613
|
|||
Total
shareholders' equity
|
25,708,097
|
|||
Total
liabilities and shareholders' equity
|
$
|
67,049,327
|
||
The
accompanying notes are an integral part of these consolidated financial
statements
|
Xfone, Inc. and
Subsidiaries
|
|||||||
STATEMENTS
OF OPERATIONS
|
Years
Ended
|
||||||||
December
31,
|
||||||||
2007
|
2006
|
|||||||
Revenues
|
$ | 44,723,934 | $ | 37,914,037 | ||||
Cost
of revenues
|
19,626,322 | 21,968,998 | ||||||
Gross
profit
|
25,097,612 | 15,945,039 | ||||||
Operating
expenses:
|
||||||||
Research
and development
|
47,609 | 45,709 | ||||||
Marketing
and selling
|
10,886,883 | 4,937,007 | ||||||
General
and administrative
|
12,335,759 | 9,927,301 | ||||||
Non-
recurring loss (note
11)
|
2,856,803 | - | ||||||
Total
operating expenses
|
26,127,054 | 14,910,017 | ||||||
Operating
profit (loss)
|
(1,029,442 | ) | 1,035,022 | |||||
Financing
expenses, net
|
(515,562 | ) | (540,688 | ) | ||||
Equity
in income of affiliated company
|
132,867 | 60,574 | ||||||
Loss
from a change of holding of affiliated company
|
- | (58,472 | ) | |||||
Other
income
|
- | 84,723 | ||||||
Income
(loss) before minority interest and taxes
|
(1,412,137 | ) | 581,159 | |||||
Minority
interest
|
(297,860 | ) | 81,802 | |||||
Income
(loss) before taxes
|
(1,709,997 | ) | 662,961 | |||||
Income
tax benefit (expense)
|
426,105 | (2,265 | ) | |||||
Net
income (loss)
|
$ | (1,283,892 | ) | $ | 660,696 | |||
Basic
net profit (loss) per share
|
$ | (0.109 | ) | $ | 0.065 | |||
Diluted
net profit (loss) per share
|
$ | (0.109 | ) | $ | 0.065 | |||
Weighted
average number of shares used for computing:
|
||||||||
Basic
profit (loss) per share
|
11,777,645 | 10,135,874 | ||||||
Diluted
profit (loss) per share
|
11,777,645 | 10,135,874 |
The
accompanying notes are an integral part of these consolidated financial
statements
|
Xfone, Inc. and Subsidiaries
|
||||||||||||||||||||||||||
|
||||||||||||||||||||||||||
STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
|
Number
of Ordinary Shares
|
Share Capital
|
Contributions in excess of par value |
Foreign
currency
translation adjustments
|
Deferred
Stock Compensation
|
Retained Earnings | Total Shareholders' Equity | ||||||||||||||||||||||
Balance
at January 1, 2006
|
8,172,671 | $ | 8,684 | $ | 8,354,964 | $ | (228,043 | ) | $ | - | $ | 1,682,809 | $ | 9,818,414 | ||||||||||||||
Deferred
stock compensation, net
|
- | - | 739,131 | - | (739,131 | ) | - | - | ||||||||||||||||||||
Amortization
of deferred compensation
|
- | - | - | - | 227,738 | - | 227,738 | |||||||||||||||||||||
Redemption
of stock
|
(100,000 | ) | (100 | ) | (269,762 | ) | - | - | - | (269,862 | ) | |||||||||||||||||
Stock
issued during the period, net of issuance expenses :
|
||||||||||||||||||||||||||||
For
services
|
40,629 | 47 | 27,381 | - | - | - | 27,428 | |||||||||||||||||||||
For
cash
|
663,825 | 709 | 1,020,717 | - | - | - | 1,021,426 | |||||||||||||||||||||
For
acquisitions
|
1,544,761 | 1,610 | 5,920,870 | - | - | - | 5,922,480 | |||||||||||||||||||||
For
loan repayment
|
831,931 | 204 | 2,790,652 | - | - | - | 2,790,856 | |||||||||||||||||||||
Warrants
granted to consultants for services and others
|
- | - | 425,740 | - | - | - | 425,740 | |||||||||||||||||||||
Currency
translation
|
- | - | - | (1,152,658 | ) | - | - | (1,152,658 | ) | |||||||||||||||||||
Net
income
|
- | - | - | - | - | 660,696 | 660,696 | |||||||||||||||||||||
Balance
at December 31, 2006
|
11,153,817 | $ | 11,154 | $ | 19,009,693 | $ | (1,380,701 | ) | $ | (511,393 | ) | $ | 2,343,505 | $ | 19,472,258 | |||||||||||||
Balance
at January 1, 2007
|
11,153,817 | $ | 11,154 | $ | 19,009,693 | $ | (1,380,701 | ) | $ | (511,393 | ) | $ | 2,343,505 | $ | 19,472,258 | |||||||||||||
Deferred
stock compensation, net
|
- | - | - | - | - | - | - | |||||||||||||||||||||
Amortization
of deferred compensation
|
- | - | - | - | 216,238 | 216,238 | ||||||||||||||||||||||
Stock
issued during the period, net oof
|
- | - | - | - | - | - | - | |||||||||||||||||||||
of
issuance expenses :
|
||||||||||||||||||||||||||||
For
cash
|
2,294,828 | 2,295 | 6,489,955 | - | - | - | 6,492,250 | |||||||||||||||||||||
For
acquisitions
|
20,026 | 20 | (20 | ) | - | - | - | - | ||||||||||||||||||||
Exercise
of options options
|
6,300 | 6 | 22,044 | - | - | - | 22,050 | |||||||||||||||||||||
Shares cancelled | (7,043) | (7) | 7 | - | - | - | - | |||||||||||||||||||||
Fair
value of warrants granted to bonds holders
|
- | - | 973,306 | - | - | - | 973,306 | |||||||||||||||||||||
Currency
translation
|
- | - | - | (184,113 | ) | - | - | (184,113 | ) | |||||||||||||||||||
Net
loss
|
- | - | - | - | - | (1,283,892 | ) | (1,283,892 | ) | |||||||||||||||||||
Balance
at December 31, 2007
|
13,467,928 | $ | 13,468 | $ | 26,494,985 | $ | (1,564,814 | ) | $ | (295,155 | ) | $ | 1,059,613 | $ | 25,708,097 |
Xfone, Inc. and Subsidiaries
|
||||||||
|
||||||||
STATEMENTS
OF CASH FLOWS
|
||||||||
|
||||||||
Years
Ended
|
||||||||
December
31 ,
|
||||||||
2007
|
2006
|
|||||||
Cash
flow from operating activities:
|
||||||||
Net
income (loss)
|
$ | (1,283,892 | ) | $ | 660,696 | |||
Adjustments
required to reconcile net income
|
||||||||
to
net cash provided by (used in)
|
||||||||
operating
activities:
|
||||||||
Depreciation
and amortization
|
1,211,798 | 1,092,085 | ||||||
Compensation in
connection with the issuance of warrants and options issued for
professional services
|
216,238 | 255,166 | ||||||
Minority
interest
|
297,860 | (81,802 | ) | |||||
Currency
differences on convertible notes and loans
|
- | 368 | ||||||
Loss
from a change of holding of affiliated company
|
- | 58,472 | ||||||
Changes
in earnings of equity investments
|
(132,868 | ) | (60,574 | ) | ||||
Decrease
(increase) in account receivables
|
2,796,353 | (1,335,519 | ) | |||||
Decrease
(increase) in long term assets
|
373,258 | - | ||||||
Decrease
(increase) in other receivables
|
(1,703,548 | ) | 771,517 | |||||
Decrease
in shareholder loans receivable
|
- | 242,847 | ||||||
Increase
(decrease) in trade payables
|
663,601 | (1,305,973 | ) | |||||
Increase
(decrease) in other liabilities and accrued expenses
|
2,523,797 | (390,947 | ) | |||||
Increase
(decrease) in severance pay
|
57,160 | 63,305 | ||||||
Decrease
in deferred taxes
|
(180,026 | ) | (51,657 | ) | ||||
Net
cash provided by (used in) operating activities
|
4,839,731 | (82,016 | ) | |||||
Cash
flow from investing activities:
|
||||||||
Investment
in short- term deposit
|
(24,998,173 | ) | - | |||||
Purchase
of other assets
|
- | (1,258 | ) | |||||
Purchase
of equipment
|
(1,322,908 | ) | (871,998 | ) | ||||
Change
in prepaid acquisition costs
|
(479,502 | ) | - | |||||
Change
in long- term receivables
|
- | (106,254 | ) | |||||
Acquisition
of EBI
|
- | (99,372 | ) | |||||
Acquisition
of Canufly
|
- | (506,684 | ) | |||||
Acquisition
of I-55 Internet Services
|
- | (104,560 | ) | |||||
Acquisition
of I-55 Telecommunications
|
- | (30,196 | ) | |||||
Net
cash acquired from the acquisition of Equitalk
|
- | 146,878 | ||||||
Net
cash acquired from the acquisition of Story Telecom
|
- | 65,579 | ||||||
Net
cash acquired from the acquisition of Auracall
|
(612,607 | ) | - | |||||
Net
cash (used in) investing activities
|
(27,413,190 | ) | (1,507,865 | ) |
Xfone,
Inc. and Subsidiaries
|
||||||||
|
||||||||
STATEMENTS
OF CASH FLOWS (Continued)
|
||||||||
|
||||||||
Years
Ended
|
||||||||
December 31
,
|
||||||||
2007
|
2006
|
|||||||
|
||||||||
Cash flow from financing
activities:
|
||||||||
Repayment
of long term loans from banks and others
|
(1,051,079 | ) | (2,544,945 | ) | ||||
Increase
in capital lease obligation
|
(105,968 | ) | 52,511 | |||||
Increase
(decrease) in short-term bank credit, net
|
(1,821,597 | ) | 240,647 | |||||
Proceeds
from long term loans from banks
|
199,437 | 307,412 | ||||||
Repayment
of convertible notes
|
- | (623,812 | ) | |||||
Issuance
of bonds, net of issuance expenses
|
22,821,827 | - | ||||||
Proceeds
from exercise of options
|
22,050 | - | ||||||
Proceeds
from issuance of shares and detachable warrants, net of issuance
expenses
|
7,465,555 | 751,564 | ||||||
Net
cash provided by (used in) financing activities
|
27,530,225 | (1,816,623 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
(339,550 | ) | (262,660 | ) | ||||
Net
increase (decrease) in cash and cash equivalents
|
4,617,216 | (3,669,164 | ) | |||||
Cash
and cash equivalents at the beginning of year
|
1,218,392 | 4,887,556 | ||||||
Cash
and cash equivalents at the end of year
|
$ | 5,835,608 | $ | 1,218,392 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
Supplemental disclosure of non cash investing and
financing activities:
|
||||||||
Cash
paid for:
|
||||||||
Interest
paid
|
$ | 129,308 | $ | 290,404 | ||||
Tax
paid
|
$ | 986 | $ | 111,859 | ||||
Acquisition
of EBI
|
$ | - | $ | 176,326 | ||||
Acquisition
of Canufly
|
$ | - | $ | 354,412 | ||||
Acquisition
of I-55 Internet Services
|
$ | - | $ | 3,195,299 | ||||
Acquisition
of I-55 Telecommunication
|
$ | - | $ | 818,513 | ||||
Acquisition
of Equitalk
|
$ | - | $ | 279,475 | ||||
Purchase
of fixed assets
|
$ | 830,000 | $ | - | ||||
Purchase of fixed assets via capital lease | $ | 26,510 | $ | - | ||||
Capitalization
of finance expenses related with acquisition costs of NTS
Communications
|
$ | 213,179 | $ | - | ||||
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
A.
|
Xfone,
Inc. ("Xfone") was
incorporated in Nevada, U.S.A. in September 2000 and is a provider of
voice, video and data telecommunications services, including: local, long
distance and international telephony services; prepaid and postpaid
calling cards; cellular services; Internet services; messaging services
(Email/Fax Broadcast, Email2Fax and Cyber-Number); and reselling
opportunities, with operations in the United States, the United
Kingdom and Israel.
|
·
|
Swiftnet
Limited ("Swiftnet") - wholly
owned U.K. subsidiary.
|
·
|
Equitalk.co.uk
Limited ("Equitalk") - wholly
owned U.K. subsidiary.
|
·
|
Auracall
Limited ("Auracall") - wholly owned U.K. subsidiary of
Swiftnet.
|
·
|
Xfone
USA, Inc. and its two wholly owned subsidiaries, eXpeTel Communications,
Inc. and Gulf Coast Utilities, Inc. (collectively, " Xfone USA ") - wholly
owned U.S. subsidiary.
|
·
|
Story
Telecom, Inc. and its wholly owned U.K. subsidiary, Story Telecom Limited
(collectively, " Story
Telecom ") - majority owned U.S. subsidiary, in which Xfone holds a
69.6% ownership share.
|
·
|
Xfone
018 Ltd. ("Xfone
018") - majority owned Israeli subsidiary in which Xfone holds a
69% ownership share.
|
B.
|
On
January 1, 2006, Xfone USA, Inc., entered into an Agreement with EBI Comm,
Inc. (“EBI”), a privately held Internet Service Provider, to purchase the
assets of EBI. EBI provided a full range of Internet access options for
both commercial and residential customers in north Mississippi. Based in
Columbus, Mississippi, EBI's services included Dial-up, DSL, T1 Dedicated
Access and Web Hosting. The customer base, numbering approximately 1,500
Internet users, is largely concentrated in the Golden Triangle area, which
includes Columbus, West Point and Starkville, Mississippi. The acquisition
was structured as an asset purchase, providing for Xfone USA to pay EBI
total consideration equal to 50% of the monthly collected revenue from the
customer base during the first 12 months, beginning January 2006. Acquired
assets include the customer base and customer lists, trademarks and all
related intellectual property, fixed assets and all account receivables.
Xfone USA paid a total consideration for this acquisition in the amount of
$85,699 in monthly payments of $10,000 until paid in full, and made the
first of such payments on June 1, 2007 and final payment on January 25,
2008. Payment for this acquisition was recorded as other
assets.
|
EBI
Comm, Inc.
|
||||
Current
assets, excluding cash acquired
|
$ | - | ||
Total
assets acquired
|
- | |||
Total
liabilities
|
176,326 | |||
Net
liabilities assumed
|
$ | 176,326 | ||
Purchase
price:
|
||||
Cash
paid
|
$ | 85,698 | ||
Acquisition
costs
|
13,674 | |||
$ | 99,372 | |||
Goodwill
|
$ | 275,698 |
Xfone,
Inc. and Subsidiaries
|
|||||||||||||
|
|||||||||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
|||||||||||||
Note
1 - Organization
and Nature of Business (Cont.)
|
|||||||||||||
C.
|
On
January 10, 2006 (effective as of January 1, 2006), Xfone USA, Inc.,
entered into an Asset Purchase Agreement with Canufly.net, Inc.
(“Canufly.net”), an Internet Service Provider based in Vicksburg,
Mississippi, and its principal shareholder, Mr. Michael Nassour.
Canufly.net provided residential and business customers with high-speed
Internet services and utilized the facilities-based network of Xfone USA,
as an alternative to BellSouth, to provide Internet connectivity to its
customers. Canufly.net also provided Internet services through a small
wireless application in certain areas in Vicksburg, Mississippi. The
transaction was closed on January 24, 2006. Xfone agreed to pay a total
purchase price of up to $710,633, payable as follows: (i) $185,000 in cash
payable in twelve equal monthly payments, the first installment was paid
at closing, and as of December 31, 2006, the entire amount was paid in
full and in accordance with the Asset Purchase Agreement; (ii) $255,633 in
cash, paid at closing, to pay off the loan with the B&K Bank;
(iii) 33,768 restricted shares of common stock and 24,053 warrants
exercisable at $2.98 per share for a period of five years were issued to
the shareholders of Canufly.net during May 2006. Following the closing in
2006 and due to the satisfaction of certain earnout provisions in the
Asset Purchase Agreement Xfone issued in March 2007 additional 20,026
restricted shares of common stock and 14,364 warrants exercisable at $2.98
per share for a period of five years to the shareholders of
Canufly.net.
|
Canufly.net,
Inc.
|
||||
Current
assets, excluding cash acquired
|
$
|
-
|
||
Fixed
assets
|
36,753
|
|||
Total
assets acquired
|
36,753
|
|||
Current
liabilities
|
-
|
|||
Long-term
liabilities
|
-
|
|||
Total
liabilities
|
-
|
|||
Net
assets assumed
|
$
|
36,753
|
||
Purchase
price:
|
||||
Cash
acquired or commitment in cash, net
|
$
|
495,524
|
||
Acquisition
costs
|
11,160
|
|||
Fair
market value of stock and warrant issued
|
193,951
|
|||
Total
|
700,635
|
|||
Goodwill
|
$
|
663,882
|
||
D.
|
On
May 10, 2006, Xfone, Story Telecom, Inc., Story Telecom Limited, Story
Telecom (Ireland) Limited, Nir Davison, and Trecastle Holdings Limited, a
company controlled by Mr. Davison, entered into the Stock Purchase
Agreement. Pursuant to the Stock Purchase Agreement, Xfone increased its
ownership interest in Story Telecom from 39.2% to 69.6% in a cash
transaction valued at $1,200,000. $900,000 of the total consideration was
applied to payables owed by Story Telecom to Xfone and its subsidiary
Swiftnet Limited for back-end telecommunications services. The
balance of $300,000 was paid to Story Telecom, to be used as working
capital. Story Telecom, Inc., a telecommunication service provider,
operated in the United Kingdom through its two wholly owned subsidiaries,
Story Telecom Limited and Story Telecom (Ireland) Limited (which was
dissolved on February 23, 2007). Story Telecom operates as a division of
Xfone's operations in the United Kingdom. The stock purchase pursuant to
the Stock Purchase Agreement was completed on May 16,
2006. (See Note 18).
Pursuant
to the above-mentioned Stock Purchase Agreement, at certain dates and
provided Story Telecom meets certain business and financial covenants, Nir
Davison and Trecastle Holdings Limited shall have the option to sell to
the Company all of their shares in Story Telecom for U.S. $450,000 in
cash, or equivalent in the Company's common stock (to be decided by the
Company). In addition, at certain dates and provided Story Telecom meets
certain business and financial covenants, the Company shall have the
option to buy from Nir Davison and Trecastle Holdings Limited all of their
shares in Story Telecom for U.S. $900,000 in cash, or equivalent in the
Company's common stock (to be decided by the Company). The Stock Purchase
Agreement further provides that upon request from Story Telecom, and
provided certain conditions are met, the Company shall provide all
consents necessary to make Story Telecom a publicly traded company through
a distribution of its shares as a dividend to the shareholders of the
Company, or a similar transaction. If the Company will fail to provide all
necessary consents it shall have to buy from Nir Davison and Trecastle
Holdings Limited all their shares of Story Telecom for $1,000,000, paid
70% in the Company's shares, valued at market price on an average of 30
trading days, and 30% in cash.
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Story
Telecom, Inc.
|
||||
Current
assets, excluding cash acquired
|
$ | 710,194 | ||
Fixed
assets
|
2,200 | |||
Other
assets
|
- | |||
Total
assets acquired
|
712,394 | |||
Current
liabilities
|
3,541,719 | |||
Long-term
liabilities
|
- | |||
Total
liabilities
|
3,541,719 | |||
Net
liabilities assumed
|
$ | 2,829,325 | ||
Purchase
price:
|
||||
Cash
acquired, net
|
$ | (65,579 | ||
Acquisition
costs
|
- | |||
Total
|
$ | (65,579 | ||
Goodwill
|
$ | 2,690,786 | ||
Trade
name
|
$ | 72,960 |
E.
|
As
of May 10, 2006 the Company had a £1,010,030 receivable from Global VOIP
Services Limited ("Global VOIP"), an Irish company which provided telecom
services. Story Telecom, Inc. and/or its subsidiaries owed £1,010,030 to
Global VOIP. In separate agreements, subsequent to the May 10,
2006 Stock Purchase Agreement, Story Telecom, Inc and/or its subsidiaries
were assigned the £1,010,030 receivable and payable on Global
VOIP's books. The assignment of Global VOIP's receivable and payable
resulted in a non-cash transaction that removed Globe VOIP's receivable
from the books of the Company and results in inter-company receivables and
payables that eliminate in consolidation. There is no income
statement effect to these
transactions.
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
F.
|
On
May 25, 2006, Xfone and the shareholders of Equitalk.co.uk Limited, a
privately held telephone company based in the United Kingdom ("Equitalk")
entered into an Agreement relating to the sale and purchase of Equitalk
(the "Equitalk Agreement"). The Equitalk Agreement provided for Xfone to
acquire Equitalk in a restricted common stock and warrant transaction
valued at $1,650,000. The acquisition was completed on July 3, 2006,
and on that date Equitalk became Xfone's wholly owned subsidiary. In
conjunction with the completion of the acquisition and in exchange for all
of the capital stock of Equitalk, Xfone issued a total of 402,192
restricted shares of its common stock and a total of 281,872 warrants
exercisable at $3.025 per share for a period of five years. Founded in
December 1999, Equitalk, a VC-financed company, was the first fully
automated e-telco in the United Kingdom. Equitalk provides both
residential and business customers with low-cost IDA and CPS voice
services, broadband and
teleconferencing.
|
Equitalk.co.uk
Limited
|
||||
Current
assets, excluding cash acquired
|
$ | 276,442 | ||
Fixed
assets
|
4,251 | |||
Other
assets
|
- | |||
Total
assets acquired
|
280,693 | |||
Current
liabilities
|
446,478 | |||
Long-term
liabilities
|
141,200 | |||
Total
liabilities
|
587,678 | |||
Net
liabilities assumed
|
$ | (306,985 | ||
Purchase
price:
|
||||
Cash
acquired, net
|
$ | (155,030 | ||
Acquisition
costs
|
13,875 | |||
Fair
market value of stock and warrant issued
|
1,420,567 | |||
Total
|
$ | 1,279,412 | ||
Goodwill
|
$ | 1,395,513 | ||
Customer
relations
|
$ | $190,884 |
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
G.
|
On
August 15, 2007, the Company, Swiftnet, and the majority shareholder of
Auracall Limited ("Majority Shareholder") entered into a definitive Share
Purchase Agreement, pursuant to which Swiftnet purchased from the Majority
Shareholder the 67.5% equity interest in Auracall, thereby increasing
Swiftnet’s ownership interest in Auracall from 32.5% to 100%. The purchase
price for the shares was £810,918 (approximately $1,616,158), payable
as follows: £500,000 (approximately $996,500) was paid in cash upon
signing of the Share Purchase Agreement, and the remaining £304,000, plus
interest of £6,918 (approximately $619,658), was payable in monthly
installments which commenced in September 2007 and
continued through March 2008. In connection with the acquisition,
Auracall and Swiftnet entered into an Inter-Company Loan Agreement,
pursuant to which Auracall agreed to lend Swiftnet £850,000 (approximately
$1,694,050) for the sole purpose of and in connection with Swiftnet’s
acquisition of the Auracall shares. The loan is unsecured,
bears interest at a rate of 5% per annum, and is to be repaid in five
years, but may be repaid earlier without charge or penalty.
|
Auracall
Limited
|
||||
Current
assets, excluding cash acquired
|
$
|
875,510
|
||
Fixed
assets
|
30,051
|
|||
Total
assets acquired
|
905,561
|
|||
Current
liabilities
|
1,018,229
|
|||
Net
liabilities assumed
|
(112,668
|
)
|
||
Acquired
net assets (67.5%)
|
(76,051
|
)
|
||
Purchase
price:
|
||||
Cash
acquired, net
|
233,541
|
|||
Deferred
liabilities
|
604,158
|
|||
Acquisition
costs
|
140,900
|
|||
978,599
|
||||
Goodwill
|
$
|
1,054,650
|
||
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
A.
|
Principles of
Consolidation and Basis of Financial Statement
Presentation
|
B.
|
Foreign
Currency
Translation
|
C.
|
Restricted cash
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
D.
|
Accounts
Receivable
|
E.
|
Fixed
Assets
|
Useful
Life
|
||||
Communication
equipment
|
10
years
|
|||
Equipment
held under lease
|
4 years
|
|||
Office
furniture and equipment
|
4-14
years
|
|||
Development
costs
|
3
years
|
|||
Computer
equipment
|
3-4
years
|
|||
Motor
vehicles
|
4
years
|
|||
Building
and plant
|
4-14
years
|
F.
|
Other
Intangible
Assets
|
G.
|
Long-Lived
Assets
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
H.
|
Revenue
Recognition
|
I.
|
Use of
Estimates
|
J.
|
Earnings Per
Share
|
K.
|
Income
Taxes
|
L.
|
Stock-Based
Compensation
|
M.
|
Goodwill and
Indefinite-Lived Purchased Intangible
Assets
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
N.
|
Reclassification
|
O.
|
Recent
Accounting
Pronouncements
|
|
|
|||
|
||||
Deferred
taxes
|
$
|
430,876
|
||
Prepaid
acquisition costs
|
692,681
|
|||
Accrued
income
|
280,364
|
|||
Prepaid
expenses
|
1,453,910
|
|||
Tax
authorities
|
331,105
|
|||
Other
receivables
|
796,371
|
|||
$
|
3,985,307
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Cost
|
||||
Communication
equipment
|
$
|
5,214,315
|
||
Equipment
held under capital lease
|
103,392
|
|||
Office
furniture and equipment
|
2,121,971
|
|||
Development
costs
|
781,614
|
|||
Computer
equipment
|
686,955
|
|||
Motor
vehicles
|
179,041
|
|||
Building
and plant
|
685,730
|
|||
9,773,018
|
||||
Accumulated
Depreciation
|
||||
Communication
equipment
|
1,372,233
|
|||
Equipment
held under capital lease
|
24,267
|
|||
Office
furniture and equipment
|
1,690,335
|
|||
Development
costs
|
344,800
|
|||
Computer
equipment
|
414,712
|
|||
Motor
vehicles
|
30,324
|
|||
Building
and Plant
|
148,589
|
|||
4,025,260
|
||||
$
|
5,747,758
|
|
||||
Cost:
|
||||
Goodwill
|
$
|
16,872,088
|
||
Customer
relations
|
982,448
|
|||
Trade
name
|
73,478
|
|||
License
|
330,365
|
|||
18,258,379
|
||||
Accumulated
amortization:
|
||||
Customer
relations
|
232,475
|
|||
Trade
name
|
17,145
|
|||
License
|
59,887
|
|||
309,507
|
||||
Other
assets, net
|
$
|
17,948,872
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Corporate
taxes
|
$ | 62,648 | ||
Government
authorities
|
372,156 | |||
Payroll
and other taxes
|
94,232 | |||
Accrued
expense (1)
|
4,495,861 | |||
Others
|
297,148 | |||
$ | 5,322,045 |
Annual
Interest
|
|||||
rate
|
|
||||
Convertible
note (1)
|
Prime
+ 1.5%
|
$
|
623,643
|
||
Note
payable to others, due on demand, monthly interest payments
only
|
5%
- 7%
|
327,587
|
|||
Bank
loans
|
0%
|
50,120
|
|||
Loans
payable over 5 years
|
Prime
+ 1.0%
|
615,041
|
|||
Loan
(2)
|
Israeli
Consumer Price Index + 4.0%
|
491,756
|
|||
2,108,147
|
|||||
less
current portion
|
1,094,339
|
||||
Long
term portion
|
$
|
1,013,808
|
|||
1.
|
On
September 27, 2005, a Securities Purchase Agreement (the "Securities
Purchase Agreement") was entered for a $2,000,000 financial transaction by
and among the Company, Xfone USA, Inc., eXpeTel Communications, Inc., Gulf
Coast Utilities, Inc. and Laurus Master Fund, Ltd. The investment, which
took the form of a Convertible Term Note secured by the Company's United
States assets, has a 3 year term and bears interest at a rate equal to
prime plus 1.5% per annum. The Term Note is convertible, under certain
conditions, into shares of the Company's common stock at an initial
conversion price equal to $3.48 per share. In conjunction with this
financial transaction, we issued to Laurus Master Fund 157,500 warrants
which are exercisable at $3.80 per share for a period of five years. The
closing of the financial transaction was on September 28, 2005. The
Securities Purchase Agreement provides that for so long as twenty five
percent (25%) of the principal amount of the Term Note is outstanding, the
Company, without the prior written consent of Laurus Master Fund, shall
not, and shall not permit any of the Subsidiaries (as defined in the
Securities Purchase Agreement) to directly or indirectly declare or pay
any dividends, other than dividends paid to the Company or any of its
wholly-owned Subsidiaries.
|
2.
|
According
to the agreement between the Company, Xfone 018 Ltd. and our 26% minority
interest partner in Xfone 018 (the “Minority Partner”), the Minority
Partner provided in the fourth quarter of 2004, a shareholder loan of
approximately $400,000 to Xfone 018 (the “Minority Partner Loan”). The
Minority Partner Loan is payable after four years with annual interest of
4% and linkage to the Israeli consumer price index. As of December
31, 2007, the balance of the Minority Partner Loan is 1,891,293 NIS
($491,756).
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Year
|
||||
2008
|
$
|
1,094,339
|
||
2009
|
325,607
|
|||
2010
|
134,307
|
|||
2011
|
553,894
|
|||
$
|
2,108,147
|
A.
|
Issuance
of Bonds
|
Bonds
Series A (1)
|
$
|
24,588,726
|
||
Stock
Purchase Warrants (2)
|
973,306
|
|||
Total
|
$
|
25,562,032
|
||
(1)
|
As
of December 31, 2007, the outstanding balance increased by $763,642 due to
interest accrued, linkage to the CPI and effect of the exchange rate of
the new Israeli Shekel.
|
(2)
|
Presented
as part of shareholders' equity.
|
2008
|
$
|
89,654
|
||
2009
|
31,893
|
|||
Total
|
$
|
121,547
|
||
Total
minimum lease payments
|
$
|
136,274
|
||
Less:
amount representing interest
|
(14,727
|
)
|
||
Present
value of net minimum lease payment
|
$
|
121,547
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Deferred
Tax Liabilities:
|
||||
Accelerated
tax write off of fixed assets
|
$ | 1,103 | ||
Deferred
Tax Assets:
|
||||
Carry
forward losses
|
363,768 | |||
Accrued
vacation and severance pay
|
67,108 | |||
Net
deferred taxes liabilities
|
$ | 429,773 |
Income
tax computed at statutory rate
|
$
|
(628,809
|
)
|
|
Effect
of tax authority adjustments
|
35,642
|
|||
Current
income (losses) for which no deferred tax expense (benefit) has been
recorded
|
39,860
|
|||
Difference
between income reported for tax purposes and income for financial
reporting purposes - net
|
30,073
|
|||
Deferred
taxes on losses (utilization of losses)
|
(506,877
|
)
|
||
Taxes
on losses for which a valuation allowance was not provided
|
603,686
|
|||
Taxes
in respect of prior years
|
320
|
|||
Provision
for income taxes
|
$
|
(426,105
|
)
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
A.
|
The
holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common
stock has no pre-emptive or conversion rights or other subscription
rights. There are no sinking fund provisions applicable to the common
stock.
|
B.
|
On
March 28, 2006, Xfone issued to Gersten Savage, LLP 755 restricted shares
of its common stock as consideration for legal services with a value of
£1,480 ($2,900).
|
C.
|
On
March 28, 2006, Xfone issued to Oberon Securities, LLC 30,144 shares of
its common stock pursuant to that certain Letter Agreement dated November
15, 2005, between Xfone and Oberon Securities with a value of £54,302
($106,378).
|
D.
|
On
March 31, 2006, and in conjunction with a Letter Agreement dated October
10, 2005 with MCG Capital Corporation, a major creditor of I-55 Internet
Services, Xfone issued to MCG Capital 667,998 shares of its common stock,
valued at fair value of $2,010,006, in return for retiring its loan
with I-55 Internet Services.
|
E.
|
On
April 6, 2006, Xfone sold 80,000 restricted shares of its common stock,
20,000 warrants exercisable at $3.00 per share, and 20,000 warrants
exercisable at $3.25 per share to Mercantile Discount-Provident Funds. The
warrants are exercisable for a period of 5 years. The total value of the
shares and warrants is £110,072 ($215,630).
|
F.
|
On
April 6, 2006, Xfone sold 90,000 restricted shares of its common stock,
22,500 warrants exercisable at $3.00 per share, and 22,500 warrants
exercisable at $3.25 per share to Hadar Insurance Company Ltd. The
warrants are exercisable for a period of 5 years. The total value of the
shares and warrants is £123,831 ($242,584).
|
G.
|
On
April 6, 2006, Xfone sold 110,000 restricted shares of its common stock,
27,500 warrants exercisable at $3.00 per share, and 27,500 warrants
exercisable at $3.25 per share to the Israeli Phoenix Assurance Company
Ltd. The warrants are exercisable for a period of 5 years. The total value
of the shares and warrants is £151,348 ($296,492).
|
H.
|
On
April 6, 2006, Xfone sold 44,000 restricted shares of its common stock,
11,000 warrants exercisable at $3.00 per share, and 11,000 warrants
exercisable at $3.25 per share to Gaon Gemel Ltd. The warrants are
exercisable for a period of 5 years. The total value of the shares and
warrants is £60,539 ($118,597).
|
I.
|
During
May 2006, and in conjunction with a January 10, 2006 Asset Purchase
Agreement by and among Xfone USA, Inc. and Canufly.net, Inc., Xfone issued
to the shareholders of Canufly.net 33,768 restricted shares of its common
stock and 24,053 warrants, exercisable at $2.98 per share for a period of
five years. The total value of the shares and warrants is £60,752
($112,330).
|
J.
|
On
May 10, 2006, Xfone issued in exchange for services 25,000 warrants
exercisable at $4.00 per share, 25,000 warrants exercisable at $4.50 per
share, 25,000 warrants exercisable at $5.00 per share, and 25,000 warrants
exercisable at $5.50 per share to Elite Financial Communications Group,
LLC. The term of the warrants shall expire at the later of: (i) 36 months
from the day of grant; (ii) 6 months after the underlying shares are
effective.
|
K.
|
During
May 2006, and in conjunction with the merger that consummated on March 31,
2006, Xfone issued to the shareholders of I-55 Internet Services, Inc.
789,863 restricted shares of its common stock valued at $2,380,178 and
603,939 warrants valued at $1,284,722, based on the Black Scholes
option-pricing model. The warrants are convertible on a one to one basis
into restricted shares of Xfone's common stock at an exercise price of
$3.31 per share, and have a term of five years.
|
L.
|
During
May 2006, and in conjunction with the merger that consummated on March 31,
2006, Xfone issued to the sole shareholder of I-55 Telecommunications,
LLC. 223,702 restricted shares of its common stock valued at $671,687 and
79,029 warrants valued at $166,667, based on the Black Scholes
option-pricing model. The warrants are convertible on a one to one basis
into restricted shares of Xfone's common stock at an exercise price of
$3.38 per share, and have a term of five years.
|
M.
|
During
May 2006, and in conjunction with Agreements to Purchase Promissory Notes
dated October 31, 2005 / February 3, 2006 with certain creditors of I-55
Telecommunications, LLC, Xfone issued to the creditors of I-55
Telecommunications 163,933 restricted shares of its common stock and
81,968 warrants at a total value of $492,220, in return for retiring their
individual loans with I-55 Telecommunications. The warrants are
convertible on a one to one basis into restricted shares of Xfone's common
stock at an exercise price of $3.38 per share, and have a term of five
years.
|
N.
|
On
May 30, 2006, Xfone issued 2,736 restricted shares of its common stock to
Elite Financial Communications Group, LLC in exchange for services. The
value of the shares is £4,955
($9,707).
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
O.
|
On
June 28, 2006, Xfone cancelled 5,000 restricted shares of its common stock
which were issued in 2000 to Ofer Weisglass. The shares were issued to Mr.
Weisglass in return for services; however Mr. Weisglass failed to provide
the services to Xfone.
|
|
P.
|
On
July 3 2006, Xfone issued to Preiskel & Co LLP 5,236 restricted shares
of its common stock as consideration for legal services. The value of the
shares is £7,500 ($1,469).
|
|
Q.
|
On
July 5, 2006, and in conjunction with the acquisition that was completed
on July 3, 2006, Xfone issued to the shareholders of Equitalk.co.uk
Limited a total of 402,192 restricted shares of its common stock and a
total of 281,872 warrants exercisable at $3.025 per share for a period of
five years. The total value of the shares and warrants is £717,167
($1,404,930).
|
|
R.
|
On
July 11, 2006, and in conjunction with a March 10, 2005 Employment
Agreement between Xfone USA, Inc. and Wade Spooner, its President and
Chief Executive Officer at that time, Xfone issued to Mr. Spooner an
“Acquisition Bonus” of 32,390 warrants. Xfone was advised by AMEX that the
approval of the shareholders of Xfone is required in order to allow the
issuance and listing of the shares underlying said warrants. The required
approval was obtained on December 28, 2006. The warrants are convertible
on a one to one basis into restricted shares of Xfone's common stock at an
exercise price of $3.285, and have a term of five years. The value of the
warrants is £11,010 ($21,569).
|
|
S.
|
On
July 11, 2006, and in conjunction with a March 10, 2005 Employment
Agreement between Xfone USA, Inc. and Ted Parsons, its Vice President and
Chief Marketing Officer, Xfone issued to Mr. Parsons an “Acquisition
Bonus” of 16,195 warrants. Xfone was advised by AMEX that the approval of
the shareholders of Xfone is required in order to allow the issuance and
listing of the shares underlying said warrants. The required approval was
obtained on December 28, 2006. The warrants are convertible on a one to
one basis into restricted shares of Xfone's common stock at an exercise
price of $3.285, and have a term of five years. The value of the warrants
is £5,506 ($10,785).
|
|
T.
|
On
July 11, 2006, and in conjunction with a Letter Agreement dated June 15,
2006 between Xfone and Oberon Securities, LLC, Xfone issued to Oberon
Securities 243,100 warrants at an exercise price of $2.86 and 37,200
warrants at an exercise price of $3.34. The warrants are convertible on a
one to one basis into restricted shares of Xfone's common stock, and have
a term of five years. The value of the warrants is £180,140
($352,895).
|
|
U.
|
On
July 11, 2006, and in conjunction with a June 19, 2006 Securities Purchase
Agreement Xfone issued to several investors an aggregate of 172,415
warrants. The warrants are convertible on a one to one basis into
restricted shares of Xfone's common stock, at an exercise price of $3.40,
and have a term of five years. The value of the warrants is £91,186
($178,633).
|
|
V.
|
On
September 5, 2006, and in conjunction with a June 19, 2006 Securities
Purchase Agreement Xfone issued to several investors an aggregate of
344,825 restricted shares of common stock. The value of the shares is
£531,163 ($1,040,549).
|
|
W.
|
On
September 19, 2006, and in conjunction with a Letter Agreement dated June
15, 2006 between Xfone and Oberon Securities, LLC, Xfone issued to Oberon
Securities 90,000 restricted shares of common stock. The value of the
shares is £119,512 ($234,124).
|
|
X.
|
On
September 19, 2006, and pursuant to the Service Agreement dated December
6, 2005, that was terminated on August 28, 2006, Xfone cancelled 64,360 of
the 100,000 warrants which were issued to Elite Financial Communications
Group, LLC on May 10, 2006.
|
|
Y.
|
On
November 1, 2006, Xfone issued 6,994 restricted shares of its common stock
to Elite Financial Communications Group, LLC in exchange for services. The
value of the shares is £9,044 ($17,717).
|
|
Z.
|
On
November 20, 2006, Xfone issued in exchange for services 36,000 warrants
exercisable at $3.50 per share, 36,000 warrants exercisable at $4.00 per
share, and 36,000 warrants exercisable at $4.50 per share to Institutional
Marketing Services, Inc. The warrants have a term of five years. In the
event Xfone elects early termination of its agreement with Institutional
Marketing Services, then any warrants that have not yet reached their
vesting date will be cancelled. The value of the warrants is
£27,341($53,561).
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
AA.
|
On
November 27, 2006, Xfone issued in exchange for services 117,676 warrants
exercisable at $3.50 per share to Crestview Capital Master, LLC. The
warrants have a term of five years and shall vest as follows: 29,419
warrants immediately, 29,419 warrants on February 10, 2007, 29,419
warrants on May 10, 2007, and 29,419 warrants on August 10, 2007. The
value of the warrants is £89,662 ($175,648).
|
BB.
|
On
December 26, 2006, and in conjunction with a December 25, 2006 oral stock
purchase agreement, Xfone repurchased from Abraham Keinan, its Chairman of
the Board, 100,000 restricted shares of its common stock at a price of
$2.70 per share (market price at that day was $2.80 per share). The
100,000 shares were returned to Xfone for cancellation. The Agreement was
approved by all non-interested members of the Board of Directors,
following a review and discussion by Xfone's Audit
Committee.
|
CC.
|
On
January 16, 2007, and in conjunction with a December 24, 2006 Securities
Purchase Agreement the Company issued an aggregate of 172,414 warrants to
Halman-Aldubi Provident Funds Ltd. and Halman-Aldubi Pension Funds Ltd.
The warrants are exercisable on a one to one basis into restricted shares
of our common stock, at an exercise price of $3.40, and have a term of
five years. On
February 1, 2007, and in conjunction with a December 24, 2006 Securities
Purchase Agreement the Company issued an aggregate of 344,828 restricted
shares of our common stock, at a purchase price of $2.90 per share, to
Halman-Aldubi Provident Funds Ltd. and Halman-Aldubi Pension Funds
Ltd.
|
DD.
|
On
March 20, 2007, following the closing of the acquisition of the assets of
Canufly.net in 2006, and due to the satisfaction of certain earn out
provisions in the Asset Purchase Agreement, the Company issued to the
shareholders of Canufly.net additional 20,026 restricted shares of common
stock and 14,364 warrants exercisable at $2.98 per share for a period of
five years.
|
EE.
|
On
October 23, 2007, the Company entered into Subscription Agreements with 15
investors affiliated with Gagnon Securities, Inc. which agreed to
purchase an aggregate of 1,000,000 shares of the Company's common stock at
a price of $3.00 per share, for a total subscription amount of
$3,000,000. The 1,000,000 shares were issued on November 6,
2007.
|
FF.
|
On
November 4, 2007, the Company entered into Subscription Agreements with:
(i) XFN - RLSI Investments, LLC, an entity affiliated with Richard L.
Scott Investments, LLC, a U.S. institutional investor, which agreed to
purchase 250,000 shares of the Company's common stock at a price of
$3.00 per share, for a total subscription amount of $750,000; and (ii)
certain Israeli institutional investors, which agreed to purchase an
aggregate of 700,000 shares of the Company's common stock, at a price
of $3.00 per share, for a total subscription amount of $2,100,000 . The
950,000 shares were issued on November 13, 2007.
|
GG.
|
In
conjunction with the consummation of the merger and in exchange for all of
the capital stock of I-55 Telecommunications, LLC, the Company issued
a total of 223,702 shares of common stock valued at $671,687 and 79,029
warrants exercisable for a period of five years into shares of common
stock, with an exercise price of $3.38 (the “Xfone Stock and Warrant
Consideration”). A portion of the Xfone Stock and Warrant Consideration
issued at closing was placed in an escrow. The Company determined a breach
of the representations and warranties in the Merger Agreement resulting
from the failure of I-55 Telecommunications to disclose the liability due
and payable to the Louisiana Universal Service Fund (“LA USF”)
through the period of October 2005, at which time Xfone USA undertook the
management role of I-55 Telecommunications. Pursuant to Section 1(g) of
the Escrow Agreement dated as of March 31, 2006 by and among Xfone
USA, the Escrow Agent, and the President and Sole Member of I-55
Telecommunications, and in accordance with Article 6.02 of the Merger
Agreement, Xfone USA notified the other parties that it believed that it
had suffered a loss of $30,626 pursuant to the provisions of Article 6.02
of the Merger Agreement dated as of August 26, 2005. Having not received
any response from the President and Sole Member of I-55
Telecommunications, nor from his counsel, on October 15, 2007, and after
the allotted response time allowed, Xfone USA instructed the Escrow Agent
(Trustmark National Bank) to deliver from the Escrow Fund of the President
and Sole Member of I-55 Telecommunications, to the Company, 7,043 shares
of Common Stock and 4,838 Xfone Stock Warrants. The 7,043 shares of Common
Stock and 4,838 Xfone Stock Warrants were returned to the Company for
cancellation on October 31, 2007.
|
HH. |
On
February 26, 2008, the Company completed the issuance of 800,000 Units (as
defined below) to XFN-RLSI Investments, LLC, an entity affiliated with
Richard L. Scott Investments, LLC, a U.S. institutional investor, and
500,000 Units to certain investors affiliated with or who are customers of
Gagnon Securities LLC, pursuant to Subscription Agreements entered into
with each of the investors on December 13, 2007. Each “Unit”
consists of two shares of the Company’s Common Stock and one warrant to
purchase one share of Common Stock, exercisable for a period of five years
from the date of issuance at an exercise price of $3.10 per
share. The Units were sold at a price of $6.20 per Unit, for an
aggregate purchase price of $8,060,000, which was held in escrow for the
benefit of the Company pending the receipt by the Company of approvals
from the American Stock Exchange and the Tel Aviv Stock Exchange for the
listing of the shares (including those underlying the warrants), as well
as the closing of the acquisition of NTS (see also note 18).
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Number
of warrants
|
Weighted
average exercise price
|
|||||||
Warrants outstanding
at the beginning of the year
|
4,622,219 | $ | 3.91 | |||||
Granted
|
1,486,778 | $ | 3.13 | |||||
Forfeited
|
(4,838 | ) | $ | 3.38 | ||||
Warrants outstanding
and exercisable at the end of the year
|
6,104,159 | $ | 3.72 |
A.
|
In
November 2004, Xfone's board of directors approved the adoption of the
principal items forming Xfone's 2004 stock option plan (The “2004 Plan”)
for the benefit of employees, officers, directors, consultants and
subcontractors of the Company including its subsidiaries. The 2004
Plan was approved by a special meeting of shareholders on March 13, 2006.
The purpose of the 2004 Plan is to enable the Company to attract and
retain the best available personnel for positions of substantial
responsibility, to provide an incentive to such persons presently engaged
with the Company and to promote the success of the Company business. The
2004 Plan will provides for the grant of options an aggregate of 5,500,000
shares of Xfone's common stock. The 2004 Plan is administered by the
board that determines the persons to whom options are granted, the number
of options that are granted, the number of shares to be covered by each
option, the options may be exercised and whether the options is an
incentive or non-statutory option.
|
|
B.
|
At
November 24, 2004 3,200,000 options were granted under the 2004 Plan
according to the following terms: Option exercise price - $3.50, vesting
date - 12 month from the date of grant, expiration date - 5 years from the
vesting date.
|
|
C.
|
On
February 6, 2005, Xfone's board of directors approved a grant to employees
of 730,000 options under and subject to the 2004 Plan according to the
following terms: Option exercise price of $3.50; Vesting Date - the
vesting of the options will be over a period of 4 years as follows: 25% of
the options are vested after a year from the Date of Grant. Thereafter,
1/16 of the options are vested every 3 months for the following 3 years;
Expiration Date
- 5.5 years from the Grant Date.
|
|
D.
|
On
November 13, 2005, Xfone's Board of Directors ratified the grant
of 600,000 options to Wade Spooner and 300,000 options to Ted
Parsons on March 10, 2005, under the 2004 Plan, pursuant to the terms
described in their March 10, 2005 employment agreements. The stock options
provided for a five (5) year term from the vesting date, a strike price
that is 10% above the closing price of the Company's common stock on the
date of issue of the Options.
|
|
|
E.
|
On
June 8, 2005, Xfone's board of directors approved a grant to Xfone's Chief
Financial Officer, of 300,000 options under and subject to the 2004 Plan
of Xfone according to the following terms: Option exercise price of $3.50;
Vesting Date - the
vesting of the options will be over a period of 4 years as follows: 25% of
the options are vested after a year from the Date of Grant. Thereafter,
1/16 of the options are vested every 3 months for the following 3 years;
Expiration Date - 5.5 years
from the grant date.
|
|
F.
|
On
July 11, 2006, and in conjunction with a July 3, 2006 Service Agreement
between Xfone, Swiftnet Limited and John Mark Burton, the Managing
Director of Xfone's UK based subsidiaries, Xfone's Board of Directors
approved the grant of 300,000 options, under and subject to its 2004 Plan,
to Mr. Burton. The options are convertible on a one to one basis into
restricted shares of Xfone's common stock, at an exercise price of $3.50,
and have a term of ten years. The vesting of the options will be over a
period of 4 years as follows: 75,000 options are vested on July 3, 2007.
Thereafter, 18,750 options are vested every 3 months for the following 3
years.
|
|
G.
|
On
October 30, 2006, Xfone's Board of Directors approved a grant of 25,000
options to Itzhak Almog under and subject to Xfone's 2004 Plan. The
options were granted according to the following terms: Date of Grant -
October 30, 2006; Option exercise price - $3.50; Vesting Date - 12 months
from the Date of Grant; Expiration Date - 5 years from the Vesting
Date.
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
H.
|
On
June 5, 2007, the Company’s Board of Directors approved a grant of 20,000
options to Israel Singer, and a grant of 20,000 options to Morris Mansour.
The options were granted under and subject to the Company’s 2004 Stock
Option Plan with the following terms: Date of Grant - June 5, 2007;
Exercise Price - $3.50 per share; Vesting Date - 12 months from the Date
of Grant; Expiration Date - 5 years from the Vesting
Date.
|
|
I.
|
On
June 5, 2007, the Company’s Board of Directors approved a grant of 200,000
options to Brian Acosta under the Company’s 2004 Plan. The options are
granted under the following terms: Date of Grant - June 5, 2007; Exercise
Price - $3.146 per share; Vesting Date - (a) 25,000 options on March 31,
2009; (b) 50,000 options on March 31, 2010; and (c) 125,000 options on
March 31, 2011; Expiration Date - 5 years from the Vesting Date;
Termination - in the event of termination of employment prior to the
completion of Mr. Acosta’s second year of employment with Xfone USA, then
175,000 of the aforementioned options shall automatically terminate; in
the event of termination of employment during Mr. Acosta’s third year of
employment with Xfone USA, then 125,000 of the aforementioned options
shall automatically terminate. Mr. Acosta is the Chief Technical Officer
of our subsidiary, Xfone USA.
|
|
J.
|
On
June 5, 2007, the Company’s Board of Directors approved a grant of 200,000
options to Hunter McAllister under the Company’s 2004 Plan. The options
are granted under the following terms: Date of Grant - June 5, 2007; Exercise
Price - $3.146 per
share; Vesting Date - (a) 25,000 options on
March 31, 2009; (b) 50,000 options on March 31, 2010; and (c) 125,000
options on March 31, 2011; Expiration Date - 5 years from the
Vesting Date; Termination - in the event of
termination of employment prior to the completion of Mr. McAllister’s
second year of employment with Xfone USA, then 175,000 of the
aforementioned options shall automatically terminate; in the event of
termination of employment during Mr. McAllister’s third year of employment
with Xfone USA, then 125,000 of the aforementioned options shall
automatically terminate. Mr. McAllister is the Vice President Business
Development of our subsidiary, Xfone USA.
|
|
K.
|
On
October 28, 2007, our Board of Directors adopted and approved the
Company’s 2007 Stock Incentive Plan (the "2007 Plan") which is designated
for the benefit of employees, directors, and consultants of the Company
and its affiliates. The 2007 Plan was approved on December 17, 2007, at an
Annual Meeting of shareholders of the Company. The 2007 Plan authorizes
the issuance of awards for up to a total of 8,000,000 shares of our common
stock underlying such awards.
|
|
L.
|
On
August 26, 2007, the Company entered into a contractual obligation to
grant the General Manager of Xfone 018 the following number of options to
purchase shares of the Company’s common stock under the 2007 plan, (the
“Plan”):
(1) Within
30 days of adoption of the Plan, the Company will grant options to
purchase 300,000 shares of Common Stock, at an exercise price of $3.50 per
share, of which (i) options to purchase 75,000 shares will vest on August
26, 2008,; and (ii) options to purchase 18,750 shares will be vest at the
end of every 3 month period thereafter.
(2) At
the end of each calendar year between 2008 and 2011, and upon the
achievement by Xfone 018 100% of its Targets for each such year, the
General Manager of Xfone 018 will be granted options to purchase 25,000
shares of the Company’s Common Stock under the Plan, for an exercise price
of $3.50 per share, which will be exercisable 30 days after the Company
publishes its annual financial statements for such
year.
The
options will expire 120 days after termination of employment with Xfone
018.
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Number
of options
|
Weighted
average exercise price
|
|||||||
Options
outstanding at the beginning of the year
|
5,350,000 | $ | 3.69 | |||||
Granted
(a)
|
740,000 | $ | 3.31 | |||||
Exercised
|
(6,300 | ) | $ | 3.50 | ||||
Forfeited
|
(368,700 | ) | $ | 3.50 | ||||
Options
outstanding at the end of the year
|
5,715,000 | $ | 3.65 | |||||
Options
vested and exercisable
|
3,689,063 | $ | 3.50 | |||||
Weighted
average fair value of options granted
|
$ | 1.13 |
Options
vested and exercisable
|
|||
Range
price ($)
|
Number
of options
|
Weighted
average remaining contractual life (years)
|
Weighted
average exercise price
|
3.50
|
3,689,063
|
4.8
|
$3.02
|
Year
Ended December 31 , 2007
|
|||||||||
Weighted
Average
|
|||||||||
Income
|
Shares
|
Per
Share
|
|||||||
|
Amounts
|
||||||||
|
|||||||||
Net
Income
|
$
|
(1,283,892)
|
|||||||
Basic
EPS:
|
|||||||||
Income
available to common stockholders
|
$
|
(1,283,892)
|
11,777,645
|
$
|
(0.109)
|
||||
Effect
of dilutive securities:
|
|||||||||
Options
and
warrants
(*)
|
-
|
-
|
|||||||
Diluted
EPS:
|
|||||||||
Income
available to common stockholders
|
$
|
(1,283,892)
|
11,777,645
|
$
|
(0.109)
|
Year
Ended December 31 , 2006
|
||||||||||
Weighted
Average
|
||||||||||
Income
|
Shares
|
Per
Share
|
||||||||
|
Amounts
|
|||||||||
|
||||||||||
Net
Income
|
$
|
660,696
|
||||||||
Basic
EPS:
|
||||||||||
Income
available to common stockholders
|
$
|
660,696
|
10,135,874
|
$
|
0.065
|
|||||
Effect
of dilutive securities:
|
||||||||||
Options
and
warrants
(*)
|
-
|
-
|
-
|
|||||||
Diluted
EPS:
|
||||||||||
Income
available to common stockholders
|
$
|
660,696
|
10,135,874
|
$
|
0.065
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Years
ended
|
||||||||
December
31,
|
||||||||
2007
|
2006
|
|||||||
Campbeltown
Business Ltd.:
|
||||||||
Fees
|
$ | 4,302 | $ | 163,381 | ||||
Accrued
Expenses
|
- | 13,615 | ||||||
Vision
Consultants Limited:
|
||||||||
Fees
|
- | 163,381 | ||||||
Accrued
expenses
|
- | - | ||||||
Abraham
Keinan
|
||||||||
Fees
|
254,350 | 100,710 | ||||||
Accrued
expenses
|
20,050 | 11,568 | ||||||
Guy
Nissensson
|
||||||||
Fees
|
242,490 | - | ||||||
Accrued
expenses
|
20,050 | - | ||||||
Story
Telecom Limited:
|
||||||||
Revenues
(*)
|
- | 2,883,942 | ||||||
Commissions
(*)
|
- | 312,300 | ||||||
Auracall
Limited:
|
||||||||
Related
revenues (*)
|
3,324,726 | 1,501,092 | ||||||
Commissions
(*)
|
417,907 | 1,061,259 | ||||||
Due
(to) from Auracall (net)**
|
(142,633 | ) | ||||||
Short-term
loan from Auracall Limited**
|
47,016 | |||||||
Dionysos
Investments (1999) Limited:
|
||||||||
Fees
|
183,363 | 70,524 | ||||||
Accrued
Expenses
|
146,542 | 5,877 | ||||||
Balance:
|
||||||||
Guy
Nissenson
|
- | (22,611 | ) | |||||
Abraham
Keinan
|
(7,205 | ) | (62,670 | ) |
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
A.
|
The
Company leases its facilities in the UK, USA and Israel under operating
lease agreement, which will expire in 2009 through 2012. The minimum lease
payments under non-cancelable operating leases are as
follows:
|
Year
ended December 31,
|
||||
2008
|
$
|
365,649
|
||
2009
|
280,805
|
|||
2010
|
193,257
|
|||
2011
|
178,935
|
|||
2012
|
118,612
|
|||
1,137,258
|
B.
|
Pursuant
to a Company’s Board of Directors’ resolution dated December 25, 2006, on
March 28, 2007, the Company and Mr. Keinan entered into a consulting
agreement, to be effective as of January 1, 2007 (the “Keinan Consulting
Agreement”).
The
Keinan Consulting Agreement provides that Mr. Keinan shall render the
Company advisory, consulting and other services in relation to the
business and operations of the Company (excluding its business and
operations in the United Kingdom).
In
consideration of the performance of the Services pursuant to the Keinan
Consulting Agreement, the Company shall pay Mr. Keinan a monthly fee of
£10,000 ($21,044) (the “Fee”). Mr. Keinan shall invoice the Company at the
end of each calendar month and the Company shall make the monthly payment
immediately upon receiving such
invoice".
|
C.
|
Pursuant
to a Company’s Board of Directors’ resolution dated December 25, 2006, on
March 28, 2007, the Company and Mr. Nissenson entered into a consulting
agreement, to be effective as of January 1, 2007 (the “Nissenson
Consulting Agreement”).
The
Nissenson Consulting Agreement provides that Mr. Nissenson shall render
the Company advisory, consulting and other services in relation to the
business and operations of the Company (excluding its business and
operations in the United Kingdom).
In
consideration of the performance of the Services pursuant to the Nissenson
Consulting Agreement, the Company shall pay Mr. Nissenson a monthly fee of
£10,000 ($21,044) (the “Fee”). Mr. Nissenson shall invoice the Company at
the end of each calendar month and the Company shall make the monthly
payment immediately upon receiving such
invoice.
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
·
|
Abraham
Keinan confirmed that all his businesses activities and initiatives in the
field of telecommunications are conducted through Swiftnet, and would
continue for at least 18 months after the conclusion of this
transaction.
|
||
·
|
Campbeltown
Business declared that it is not involved in any business that competes
with Swiftnet and would not be involved in such business at least for 18
months after this transaction is concluded.
|
||
·
|
Campbeltown
Business would invest $100,000 in Swiftnet, in exchange for 20% of the
total issued shares of Swiftnet;
|
||
·
|
Campbeltown
Business would also receive 5% of the Company's issued and outstanding
shares following the Company's acquisition with Swiftnet. In June 2000,
Campbeltown Business invested the $100,000 in Swiftnet. Xfone acquired
Swiftnet and Campbeltown received 720,336 shares of the Company's common
stock for its 20% interest in Swiftnet.
|
||
·
|
Swiftnet
and Abraham Keinan would guarantee that Campbeltown Business' 20% interest
in the outstanding shares of Swiftnet would be exchanged for at least 10%
of the Company's outstanding shares and that Campbeltown Business would
have in total at least 15% of the Company's total issued shares after the
Company's acquisition occurred.
|
||
·
|
Campbeltown
Business would have the right to nominate 33% of the members of the
Company's board of directors and Swiftnet's board of directors. When
Campbeltown Business ownership in the Company's common stock was less than
7%, Campbeltown Business would have the right to nominate only 20% of the
Company's board members but always at least one member. In the case that
Campbeltown Business ownership in the Company's common stock was less than
2%, this right would expire.
|
||
·
|
Campbeltown
Business would have the right to nominate a vice president in Swiftnet.
Mr. Guy Nissenson was nominated as of the time of the June 19, 2000
agreement. If for any reason Guy Nissenson will leave his position,
Campbeltown Business and Abraham Keinan will agree on another nominee. The
Vice President will be employed with suitable
conditions.
|
||
·
|
Campbeltown
Business will have the right to participate under the same terms and
conditions in any investment or transaction that involve equity rights in
Swiftnet or us conducted by Abraham Keinan at the relative ownership
portion.
|
||
·
|
Keinan
and Campbeltown Business have signed a right of first refusal agreement
for the sale of their shares.
|
D.
|
Mr.
Haim Nissenson, father of Mr. Guy Nissenson, our President, Chief
Executive Officer, and Director, is the Managing Director of Dionysos
Investments. Dionysos Investments is owned and controlled by certain
members of the Nissenson family, other than Mr. Guy Nissenson. On February
8, 2007, pursuant to the recommendations of the Audit Committee of the
Company and the resolutions of its Board of Directors dated December 25,
2006, and February 4, 2007, the Company and Dionysos Investments entered
into a First Amendment to the of the Dionysos Investments Consulting
Agreement from earlier date. As a result, Dionysos Investments will be
compensated by the Company for the Services provided to the Company in the
amount of GBP 8,000 ($16,876) per month, beginning on January 1, 2007 and
will entitled for a success fee for any future investments in the Company
made by Israeli investors during fiscal year 2007, provided such
investments were a direct or indirect result of the Services provided to
the Company. The success fee will be equal to 0.5% (half percent) of the
gross proceeds of such investments. On January 28, 2008, in accordance
with the recommendation of the Audit Committee and in recognition of and
following the successful efforts of Dionysos in raising capital for the
Company in Israel during the Company’s 2007 fiscal year, the Board of
Directors of the Company approved and confirmed by resolution the
engagement of Dionysos to serve as the Company’s consultant for the fiscal
year ended December 31, 2008 at the same level of compensation which was
agreed to and paid for the fiscal year ended December 31,
2007.
|
E.
|
The
Company has commission agreements with various agents that are entitled to
commission of approximately 5%-12% of the total sale amount less any bad
debts.
|
A.
|
Certain
Telecommunication operators act as collection channels for the Company. In
2007 the Company had two major collection channels, one in the U.K. and
one in Israel. Collections through these channels accounted to
approximately 22% and 6% of the Company's total revenues in 2007,
respectively, and 18% and 5% of the Company's total revenues in
2006, respectively. With respect to collection of monies for the
Company, these Telecommunication operators are not deemed to be customers
of the Company.
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
B.
|
Approximately,
25%, 20% and 7% of the Company's purchases are from three suppliers for
the year ended December 31, 2007, and 31%, 28%, 5% are from three
suppliers for the year ended December 31,
2006.
|
Years
Ended
|
||||||||
December
31,
|
||||||||
2007
|
2006
|
|||||||
Revenues:
|
||||||||
United
Kingdom
|
$ | 24,263,610 | $ | 16,951,119 | ||||
United
States
|
12,290,891 | 15,474,206 | ||||||
Israel
|
8,169,433 | 5,488,712 | ||||||
Total
revenues
|
44,723,934 | 37,914,037 | ||||||
Cost
of revenues
|
||||||||
United
Kingdom
|
10,696,915 | 11,834,466 | ||||||
United
States
|
5,904,797 | 7,684,708 | ||||||
Israel
|
3,024,610 | 2,449,824 | ||||||
Total
cost of revenues
|
19,626,322 | 21,968,998 | ||||||
Direct
Gross Profit:
|
||||||||
United
Kingdom
|
13,566,695 | 5,116,653 | ||||||
United
States
|
6,386,094 | 7,789,497 | ||||||
Israel
|
5,144,823 | 3,038,889 | ||||||
25,097,612 | 15,945,039 | |||||||
Operating
expenses:
|
||||||||
United
Kingdom
|
12,556,993 | 3,582,173 | ||||||
United
States
|
* 6,466,501 | * 6,658,270 | ||||||
Israel
|
2,963,461 | 3,209,436 | ||||||
* 21,986,955 | * 13,449,879 | |||||||
Operating
Profit:
|
||||||||
United
Kingdom
|
1,009,702 | 1,534,480 | ||||||
United
States
|
* (80,407 | ) | * 1,131,227 | |||||
Israel
|
2,181,362 | (170,547 | ) | |||||
* 3,110,657 | * 2,495,160 | |||||||
Non-
recurring loss
|
2,856,803 | - | ||||||
Expenses
related to Headquarter in the US
|
* 1,283,296 | * 1,460,138 | ||||||
Operating
Income (Loss)
|
$ | (1,029,442 | ) | $ | 1,035,022 |
|
(*)
Amounts were reclassified in order to present segment information without
the effect of expenses related to operating a Headquarters in the
US.
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
o
|
On
the closing date, NIS 15,500,000 (approximately $4,404,660) (the “First
Installment”);
|
o
|
By
November 20, 2008, NIS 15,500,000 (approximately $4,404,660), subject to
adjustment resulting from linkage to the Consumer Price
Index (the “Second Installment”);
and
|
o
|
By
November 1, 2009, NIS 13,000,000 (approximately $3,694,231), subject to
adjustment resulting from linkage to the Consumer Price Index (the
“Third Installment”).
|
Xfone,
Inc. and Subsidiaries
|
|||||||
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007
|
Xfone,
Inc. and Subsidiaries
|
CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
|
June
30, 2008
|
CONTENTS
|
PAGE
|
B-42
|
|
B-44
|
|
B-45
|
|
B-46
|
Xfone,
Inc. and Subsidiaries
|
||||||||
CONSOLIDATED BALANCE SHEETS
|
||||||||
June
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Unaudited
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
|
$
|
5,447,700
|
$
|
5,835,608
|
||||
Restricted
cash
|
-
|
25,562,032
|
||||||
Accounts
receivable, net
|
8,672,620
|
5,886,499
|
||||||
Prepaid
expenses and other receivables
|
7,548,721
|
3,985,307
|
||||||
Total current
assets
|
21,669,041
|
41,269,446
|
||||||
INVENTORY
|
335,640
|
-
|
||||||
MINORITY
INTEREST
|
-
|
7,190
|
||||||
LONG
TERM ASSETS
|
1,922,373
|
2,076,061
|
||||||
FIXED
ASSETS, NET
|
47,748,078
|
5,747,758
|
||||||
OTHER
ASSETS, NET
|
3,298,259
|
1,076,784
|
||||||
GOODWILL
|
27,151,710
|
16,872,088
|
||||||
Total assets
|
$
|
102,125,101
|
$
|
67,049,327
|
||||
Xfone,
Inc. and Subsidiaries
|
CONSOLIDATED
BALANCE SHEETS
|
June
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Unaudited
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Short-term
bank credit and current maturities of notes payable
|
$
|
4,791,497
|
$
|
1,094,339
|
||||
Trade
payables
|
8,332,911
|
8,287,420
|
||||||
Other
liabilities and accrued expenses
|
8,475,737
|
5,322,045
|
||||||
Current
maturities of obligations under capital leases
|
105,791
|
89,654
|
||||||
Current
maturities of Bonds
|
3,925,758
|
3,268,476
|
||||||
Total current
liabilities
|
25,631,694
|
18,061,934
|
||||||
DEFERRED
TAXES
|
5,519,503
|
1,103
|
||||||
NOTES
PAYABLE
|
3,538,725
|
1,013,808
|
||||||
BONDS
|
26,069,791
|
22,083,892
|
||||||
OBLIGATIONS
UNDER CAPITAL LEASES
|
26,983
|
31,893
|
||||||
SEVERANCE
PAY
|
106,768
|
148,600
|
||||||
MINORITY
INTEREST
|
171,869
|
-
|
||||||
Total
liabilities
|
61,065,333
|
41,341,230
|
||||||
COMMITMENTS
AND CONTINGENT LIABILITIES
|
||||||||
SHAREHOLDERS'
EQUITY:
|
||||||||
Common
stock of $0.001 par value:
|
||||||||
75,000,000
shares authorized June 30, 2008;
|
||||||||
13,467,928
and 18,376,075 issued and outstanding at December 31, 2007 and June
30, 2008, respectively
|
18,376
|
13,468
|
||||||
Additional
paid-in capital
|
43,295,304
|
26,494,985
|
||||||
Foreign
currency translation adjustment
|
(1,596,032
|
)
|
(1,564,814
|
)
|
||||
Stock
compensation fund
|
(835,265
|
) |
(295,155
|
)
|
||||
Retained
earnings
|
177,385
|
|
1,059,613
|
|||||
Total shareholders'
equity
|
41,059,768
|
25,708,097
|
||||||
Total liabilities and
shareholders' equity
|
$
|
102,125,101
|
$
|
67,049,327
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
Xfone,
Inc. and Subsidiaries
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Unaudited)
|
Six months
ended
|
Three months
ended
|
|||||||||||||||
June
30,
|
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Revenues
|
$ | 41,645,820 | $ | 23,153,522 | $ | 25,852,722 | $ | 11,629,806 | ||||||||
Cost
of revenues
|
21,017,261 | 10,323,243 | 13,360,988 | 5,130,021 | ||||||||||||
Gross
profit
|
20,628,559 | 12,830,279 | 12,491,734 | 6,499,785 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
32,580 | 31,796 | 17,570 | 16,018 | ||||||||||||
Marketing
and selling
|
6,138,804 | 5,474,506 | 3,473,175 | 2,742,530 | ||||||||||||
General
and administrative
|
11,415,388 | 5,846,730 | 7,103,668 | 2,959,944 | ||||||||||||
Total
operating expenses
|
17,586,772 | 11,353,032 | 10,594,413 | 5,718,492 | ||||||||||||
Operating
profit
|
3,041,787 | 1,477,247 | 1,897,321 | 781,293 | ||||||||||||
Financing
expenses, net
|
(3,995,580 | ) | (306,695 | ) | (3,092,411 | ) | (166,826 | ) | ||||||||
Equity
profit in income of affiliated company
|
- | 112,585 | - | 33,449 | ||||||||||||
Income
(loss) before minority interest and taxes
|
(953,793 | ) | 1,283,137 | (1,195,090 | ) | 647,916 | ||||||||||
Minority
interest
|
(179,059 | ) | (173,131 | ) | (96,585 | ) | (80,996 | ) | ||||||||
Income
(loss) before taxes
|
(1,132,852 | ) | 1,110,006 | (1,291,675 | ) | 566,920 | ||||||||||
Income
tax expense (benefit)
|
250,624 | (254,172 | ) | 328,317 | (155,481 | ) | ||||||||||
Net
income (loss)
|
$ | (882,228 | ) | $ | 855,834 | $ | (963,358 | ) | $ | 411,439 | ||||||
Earnings
(Loss) Per Share:
|
||||||||||||||||
Basic
|
$ | (0.052 | ) | $ | 0.075 | $ | (0.052 | ) | $ | 0.036 | ||||||
Diluted
|
$ | (0.052 | ) | $ | 0.075 | $ | (0.052 | ) | $ | 0.036 | ||||||
Weighted
average shares outstanding:
|
||||||||||||||||
Basic
|
16,864,161 | 11,481,080 | 18,404,632 | 11,521,916 | ||||||||||||
Diluted
|
16,864,161 | 11,481,080 | 18,404,632 | 11,531,220 | ||||||||||||
Xfone,
Inc. and Subsidiaries
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
Six
Months Ended
June
30,
|
||||||||
2008
|
2007
|
|||||||
Cash
flow from operating activities
|
||||||||
Net
income (loss)
|
$ | (882,228 | ) | $ | 855,834 | |||
Adjustments
required to reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
||||||||
Depreciation
and amortization
|
1,747,552 | 526,688 | ||||||
Compensation
in connection with the issuance of warrants and options
|
342,206 | 121,610 | ||||||
Interest
and currency differences on bonds
|
4,016,886 | - | ||||||
Minority
interest
|
179,059 | 173,131 | ||||||
Equity
in earnings of affiliated company
|
- | (112,585 | ) | |||||
Decrease
(increase) in account receivables
|
872,769 | (1,548,524 | ) | |||||
Decrease
in inventories
|
25,750 | - | ||||||
Increase
(decrease) in severance pay
|
(56,388 | ) | 66,313 | |||||
Increase
in prepaid expenses and other receivables
|
(1,322,344 | ) | (173,028 | ) | ||||
Decrease
in long term receivables
|
111,316 | - | ||||||
Increase
in trade payables
|
76,319 | 906,804 | ||||||
Decrease in
accrual for non-recurring loss (note 6)
|
(3,890,191 | ) | - | |||||
Increase
in other payables
|
93,213 | 259,037 | ||||||
Increase
(decrease) in deferred taxes
|
(852,917 | ) | 1,083 | |||||
Net
cash provided by operating activities
|
461,002 | 1,076,363 | ||||||
Cash
flow from investing activities
|
||||||||
Purchase
of equipment
|
(3,793,465 | ) | (598,246 | ) | ||||
Proceeds
from short term deposit
|
27,467,049 | - | ||||||
Change
in other assets and long-term receivables
|
- | 128,203 | ||||||
Change
in prepaid expenses and other receivables
|
(116,513 | ) | ||||||
Acquisition
of minority interest in Story Telecom, Inc.
|
(690,207 | ) | - | |||||
Acquisition
of NTS Communications, Inc.
|
(39,180,509 | ) | - | |||||
Net
cash (used in) investing activities
|
(16,313,645 | ) | (470,043 | ) | ||||
Cash
flow from financing activities
|
||||||||
Repayment
of long term loans from banks and others
|
(458,874 | ) | (484,170 | ) | ||||
Proceeds
from issuance of shares and detachable warrants, net of issuance
expenses
|
14,496,036 | 853,649 | ||||||
Proceeds
from long term loans from banks
|
3,488,679 | 20,466 | ||||||
Proceeds
from exercise of options
|
14,368 | 22,050 | ||||||
Changes
in capital lease obligation
|
10,125 | 22,545 | ||||||
Payment
of first installment interest on Bonds
|
(1,334,924 | ) | - | |||||
Repayment
of convertible notes
|
(400,000 | ) | (397,025 | ) | ||||
Increase
(decrease) in short term loan and bank credit
|
- | (584,786 | ) | |||||
Net
cash provided by (used in) financing activities
|
15,815,410 | (547,271 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
(350,675 | ) | (75,355 | ) | ||||
Net
(decrease) in cash
|
(387,908 | ) | (16,306 | ) | ||||
Cash
at the beginning of the period
|
5,835,608 | 1,218,392 | ||||||
Cash
at the end of the period
|
$ | 5,447,700 | $ | 1,202,086 |
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
A.
|
Xfone,
Inc. ("Xfone") was incorporated in Nevada, U.S.A. in September 2000 and is
a provider of voice, video and data telecommunications services,
including: local, long distance and international telephony services;
video; prepaid and postpaid calling cards; cellular services; Internet
services; messaging services (Email/Fax Broadcast, Email2Fax and
Cyber-Number); and reselling opportunities, with operations in the United
States, the United Kingdom and
Israel.
|
●
|
Swiftnet
Limited ("Swiftnet") - wholly owned U.K.
subsidiary.
|
●
|
Equitalk.co.uk
Limited ("Equitalk") - wholly owned U.K.
subsidiary.
|
●
|
Auracall
Limited ("Auracall") - wholly owned U.K.
subsidiary.
|
●
|
Xfone
USA, Inc. and its two wholly owned subsidiaries, eXpeTel Communications,
Inc. and Gulf Coast Utilities, Inc. - wholly owned U.S.
subsidiary.
|
●
|
Story
Telecom, Inc. and its wholly owned U.K. subsidiary, Story Telecom Limited
(collectively, " Story Telecom ") - wholly owned U.S.
subsidiary.
|
●
|
NTS
Communications, Inc. and its six wholly owned subsidiaries, NTS
Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona,
Inc., Communications Brokers Inc., NTS telephone Company, LLC and NTS
management Company, LLC - wholly owned U.S.
subsidiary.
|
●
|
Xfone
018 Ltd. ("Xfone 018") - majority owned Israeli subsidiary in which Xfone
holds a 69% ownership share.
|
B.
|
On
July 12, 2007, Story Telecom Limited (“Story Telecom UK”), notified
Mr. Davison, its Managing Director, that it was terminating his
employment, effective as of September 10, 2007. On July 25, 2007, the
Company received notification of a claim filed on July 23, 2007 by Mr.
Davison with the United Kingdom Employment Tribunals against Story Telecom
UK, alleging wrongful termination of his employment as Managing Director.
The claim did not seek any specific damages. On August 21, 2007, the
Company responded to the United Kingdom Employment Tribunal by rejecting
Mr. Davison's claim.
On
March 25, 2008, Story Telecom UK settled the above mentioned
claim.
In
connection with the settlement, the Company purchased the shares of common
stock of Story Telecom, Inc., the parent company of Story Telecom UK
("Story Telecom US"), owned by Mr. Davison and owned by Trecastle Holdings
Limited, a company owned and controlled by Mr. Davison, which increased
the Company's ownership interest in Story Telecom US from 69.6% to
100%. The aggregate purchase price was £270,000 ($538,083). As a
result, Story Telecom US became a wholly owned subsidiary of the
Company.
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
As
part of the settlement, Story Telecom UK agreed to pay Mr. Davison £30,000
($59,787) as compensation for loss of employment, which payment was made
without admission of liability. In addition, Mr. Davison agreed
to file a Withdrawal of Claim with the United Kingdom Employment Tribunal
which was filed on March 31,
2008.
|
Story
Telecom, Inc.
|
|||
Current
Assets, excluding cash acquired
|
$
|
1,820,479
|
|
Fixed
assets
|
9,970
|
||
Total
Assets acquired
|
1,830,449
|
||
Current
liabilities
|
(1,679,409
|
)
|
|
Long
term liabilities
|
(2,400,809
|
)
|
|
Total
liabilities acquired
|
4,080,218
|
||
Net
liabilities assumed
|
$
|
(2,249,769
|
)
|
Acquired
net assets (30.4%)*
|
$
|
-
|
|
Purchase
price:
|
|||
Cash
acquired, net
|
$
|
410,598
|
|
Acquisition
costs
|
279,609
|
||
Total
|
690,207
|
||
Goodwill
|
$
|
690,207
|
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
C.
|
On
February 26, 2008 (the “Closing Date”), the Company completed its
acquisition of NTS Communications, Inc. ("NTS") pursuant to that
certain Stock Purchase Agreement (the “Purchase Agreement”) entered into
on August 22, 2007 with NTS, and the equity owners of NTS as sellers (the
“NTS Shareholders”), as amended on February 14, 2008 and February 26, 2008
.
Upon
closing of the acquisition, NTS and its six wholly owned subsidiaries, NTS
Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona,
Inc., Communications Brokers, Inc., NTS Telephone Company, LLC, and NTS
Management Company, LLC, became the Company's wholly owned
subsidiaries.
The
purchase price for the acquisition was approximately $42,000,000
(excluding acquisition related costs), plus (or less) (i) the difference
between NTS’ estimated working capital and the working capital target for
NTS as set forth in the Purchase Agreement, and (ii) the difference
between amounts allocated by NTS for its fiber optic network build-out
project anticipated in Texas and any indebtedness incurred by NTS in
connection with this project, each of which was subject to the Company’s
advance written approval. After applying this formula, the
final aggregate purchase price was calculated as $41,900,000, and was paid
by the Company as follows: $35,414,715 was paid in cash; and 2,366,892
shares of the Company’s common stock, were issued to certain NTS
Shareholders who elected to reinvest all or a portion of their allocable
sale price in the Company’s Common Stock, pursuant to the terms of the
Purchase Agreement. The Company’s Board of Directors determined, in
accordance with the Purchase Agreement, the number of shares of the
Company’s Common Stock to be delivered to each participating NTS
Shareholder by dividing the portion of such NTS Shareholder’s allocable
sale price that the NTS Shareholder elected to receive in shares of the
Company’s Common Stock by 93% of the average closing price of the
Company’s Common Stock on the American Stock Exchange for the ten
consecutive trading days preceding the trading day immediately prior to
the Closing Date (i.e., $2.74). The aggregate sales price reinvested by
all such NTS Shareholders was $6,485,284.
On
April 25, 2008, we entered into a Third Amendment to the purchase
agreement, pursuant to which we agreed to an extension of time
for the calculation and payment of the post closing working
capital adjustment under the NTS Purchase
Agreement.
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
NTS
Communications, Inc.
|
||||
Current
Assets, excluding cash acquired
|
$
|
5,913,441
|
||
Fixed
assets
|
39,631,997
|
|||
Total
Assets acquired
|
45,545,438
|
|||
Current
liabilities
|
8,076,112
|
|||
Long
Term liabilities
|
9,237,411
|
|||
Total
liabilities acquired
|
17,313,523
|
|||
Net
assets assumed
|
$
|
28,231,915
|
||
Acquired
net assets (100%)
|
$
|
28,231,915
|
||
Purchase
price:
|
||||
Cash
paid, net(*)
|
$
|
34,860,688
|
||
Fair
market value of stock and options issued
|
1,412,507
|
|||
Acquisition
costs
|
3,951,154
|
|||
Total
|
40,224,329
|
|||
Customer
Relationship
|
2,153,000
|
|||
License
|
250,000
|
|||
Goodwill
|
$
|
9,589,414
|
||
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
A.
|
Principles
of Consolidation and Basis of Financial Statement
Presentation
|
B.
|
Foreign
Currency Translation
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
C.
|
Accounts
Receivable
|
D.
|
Other
Intangible Assets
|
E.
|
Long
Term Assets
|
F.
|
Earnings
Per Share
|
G.
|
Stock-Based
Compensation
|
H.
|
Goodwill
and Indefinite- Lived Purchased Intangible
Assets
|
Xfone,
Inc. and Subsidiaries
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
I.
|
Reclassification
|
J.
|
Basis
of Presentation
|
K.
|
Income
Taxes
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
Six
months ended
June
30, 2008
|
||||||||
Number
of options
|
Weighted
average exercise price
|
|||||||
Options
outstanding at the beginning of the period (a)
|
5,715,000
|
$
|
3.65
|
|||||
Granted
(b)
|
1,851,000
|
$
|
3.75
|
|||||
Exercised
|
(4,105
|
)
|
$
|
3.50
|
||||
Forfeited
|
(1,195,895
|
)
|
$
|
4.34
|
||||
Options
outstanding at the end of the period
|
6,366,000
|
$
|
3.55
|
|||||
Options
vested and exercisable
|
4,644,688
|
$
|
2.71
|
|||||
Weighted
average fair value of options granted
|
$
|
1.24
|
Range
price ($)
|
Number
of options
|
Weighted
average remaining contractual life (years)
|
Weighted
average exercise price
|
2.794-5.00
|
4,644,688
|
3.50
|
$2.71
|
A.
|
On
August 26, 2007, the Company entered into a contractual obligation to
grant the General Manager of Xfone 018 the following number of options to
purchase shares of the Company’s common stock, $0.001 par value per share
(“Common Stock”), under the Company’s 2007 Stock Incentive
Plan (the “Plan”):
|
i.
|
Within
30 days of adoption of the Plan, the Company will grant options to
purchase 300,000 shares of Common Stock, at an exercise price of $3.50 per
share, of which (i) options to purchase 75,000 shares will vest on August
26, 2008; and (ii) options to purchase 18,750 shares will be vest at the
end of every 3 month period thereafter.
|
ii.
|
At
the end of each calendar year between 2008 and 2011, and upon the
achievement by Xfone 018 100% of its Targets (as determined in the General
Manager's employment agreement) for each such year, the General Manager of
Xfone 018 will be granted options to purchase 25,000 shares of the
Company’s Common Stock under the Plan, for an exercise price of $3.50 per
share, which will be exercisable 30 days after the Company publishes its
annual financial statements for such
year.
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
B.
|
On
February 26, 2008, NTS Communications, Inc. entered into Employment
Agreements with each of Barbara Baldwin, who, prior to the closing, served
as NTS’ President and CEO, Jerry Hoover, who, prior to the closing, served
as NTS’ Executive Vice President - Chief Financial Officer, and Brad
Worthington, who, prior to the closing, served as NTS’ Executive Vice
President - Chief Operating Officer (each an “Officer,” and collectively
the “Officers”). The Employment Agreements provide for
continued employment of the Officers with NTS in their respective
capacities, and are for five-year terms each, effective as of the Closing
Date.
Pursuant to the terms of the Employment
Agreements, the Officers were granted the following stock option awards
under the Company’s 2007 Stock Incentive Plan on the Closing Date: Ms.
Baldwin was granted options to purchase 250,000 shares of the Company’s
Common Stock, and each of Messrs. Hoover and Worthington was granted
options to purchase 400,000 shares of the Company’s Common
Stock. Each option is immediately exercisable, expires five
years from the grant date, and has an exercise price of
$2.794. The total value of the options, based on Black-Scholes
option pricing model is $1,412,507. Additionally, at the end of each
Officer’s second year employment, the officer will be granted options
to purchase 267,000 shares of the Company’s Common Stock, which will be
immediately exercisable at $5.00 per share, and will expire five years
from such grant date. The total value of the options, based on
Black-Scholes option-pricing-model is
$882,316.
|
Six
months ended
June
30, 2008
|
||||||||
Number
of Warrants
|
Weighted
average exercise price
|
|||||||
Warrants
outstanding at the beginning of the period
|
6,104,159
|
$
|
3.72
|
|||||
Granted
|
956,020
|
$
|
3.5
|
|||||
Forfeited
|
(44,470
|
)
|
$
|
3.31
|
||||
Warrants
outstanding at the end of the period
|
7,015,709
|
$
|
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
Six
months ended
|
Three
months ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Revenues:
|
||||||||||||||||
United
Kingdom
|
$
|
9,520,525
|
$
|
12,574,190
|
$
|
4,713,101
|
$
|
6,478,252
|
||||||||
United
States
|
27,470,618
|
6,610,958
|
18,763,114
|
3,191,865
|
||||||||||||
Israel
|
4,654,677
|
3,968,374
|
2,376,507
|
1,959,689
|
||||||||||||
Total
revenues
|
41,645,820
|
23,153,522
|
25,852,722
|
11,629,806
|
||||||||||||
Cost
of revenues:
|
||||||||||||||||
United
Kingdom
|
3,525,538
|
5,751,199
|
1,826,414
|
2,871,329
|
||||||||||||
United
States
|
15,591,329
|
3,145,489
|
10,603,460
|
1,551,663
|
||||||||||||
Israel
|
1,900,394
|
1,426,555
|
931,114
|
707,029
|
||||||||||||
Total
cost of revenues
|
21,017,261
|
10,323,243
|
13,360,988
|
5,130,021
|
||||||||||||
Direct
gross profit:
|
||||||||||||||||
United
Kingdom
|
5,994,987
|
6,822,991
|
2,886,687
|
3,606,923
|
||||||||||||
United
States
|
11,879,289
|
3,465,469
|
8,159,654
|
1,640,202
|
||||||||||||
Israel
|
2,754,283
|
2,541,819
|
1,445,393
|
1,252,660
|
||||||||||||
20,628,559
|
12,830,279
|
12,491,734
|
6,499,785
|
|||||||||||||
Operating
expenses:
|
||||||||||||||||
United
Kingdom
|
4,481,117
|
5,834,126
|
2,377,073
|
3,011,607
|
||||||||||||
United
States
|
10,159,870
|
3,129,573
|
6,704,701
|
1,602,168
|
||||||||||||
Israel
|
1,962,378
|
1,314,942
|
1,038,247
|
655,956
|
||||||||||||
16,603,365
|
10,278,641
|
10,120,021
|
5,269,731
|
|||||||||||||
Operating
Profit
|
||||||||||||||||
United
Kingdom
|
1,513,870
|
988,865
|
509,614
|
595,316
|
||||||||||||
United
States
|
1,719,419
|
335,896
|
1,454,953
|
38,034
|
||||||||||||
Israel
|
791,905
|
1,226,877
|
407,146
|
596,704
|
||||||||||||
4,025,194
|
2,551,638
|
2,371,713
|
1,230,054
|
|||||||||||||
Operating
expenses related to the Headquarters in the US
|
983,407
|
1,074,391
|
474,392
|
448,761
|
||||||||||||
Operating
Profit
|
$
|
3,041,787
|
$
|
1,477,247
|
$
|
1,897,321
|
$
|
781,293
|
||||||||
Xfone,
Inc. and Subsidiaries
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
(Unaudited)
|
·
|
On
the closing date, NIS 15,500,000 (approximately $4,374,824) (the “First
Installment”);
|
·
|
By
November 20, 2008, NIS 15,500,000 (approximately $4,374,824), subject to
adjustment resulting from linkage to the Consumer Price
Index (the “Second Installment”);
and
|
·
|
By
November 1, 2009, NIS 13,000,000 (approximately $3,669,207), subject to
adjustment resulting from linkage to the Consumer Price Index (the
“Third Installment”).
|
Page
|
|
B-60
|
|
Financial
statements
|
|
|
|
B-61
|
|
B-63
|
|
B-64
|
|
B-65
|
|
B-67
|
|
Supplementary
information
|
|
B-79
|
|
B-80
|
|
B-81
|
2007
|
2006
|
|||||||
Current
assets
|
||||||||
Cash and cash
equivalents
|
$ |
6,635,181
|
$ |
5,387,759
|
||||
Accounts receivable -
trade
|
3,041,221
|
3,039,745
|
||||||
Allowance for bad
debts
|
(202,735 | ) | (216,181 | ) | ||||
Other receivables
|
224,550
|
221,864
|
||||||
Unbilled revenue
|
1,399,650
|
1,776,210
|
||||||
Prepaid expenses
|
664,082
|
723,248
|
||||||
Accrued interest
|
251
|
142,940
|
||||||
Inventory
|
508,042
|
605,811
|
||||||
Deferred tax
benefit
|
1,154,897
|
237,265
|
||||||
Total current
assets
|
13,425,139
|
11,918,661
|
||||||
Investments
|
4,998
|
639,958
|
||||||
Property,
equipment and improvements
|
100,700,076
|
97,394,616
|
||||||
Less accumulated depreciation
& amortization
|
(72,327,212 | ) | (68,536,765 | ) | ||||
28,372,864
|
28,857,851
|
|||||||
Property, equipment and
improvements in
|
||||||||
development
|
838,345
|
1,206,023
|
||||||
Total property, equipment and
improvements
|
29,211,209
|
30,063,874
|
||||||
Other
assets
|
||||||||
Note receivable – Shareholder
Value, Ltd.
|
- |
1,983,192
|
||||||
Goodwill
|
5,686,997
|
5,686,997
|
||||||
Less amortization of
goodwill
|
(1,278,809 | ) | (1,278,809 | ) | ||||
Deferred tax
benefit
|
- |
438,403
|
||||||
Other assets
|
23,717
|
29,406
|
||||||
Total other
assets
|
4,431,905
|
6,859,189
|
||||||
Total
assets
|
$ |
47,073,251
|
$ |
49,481,682
|
2007
|
2006
|
|||||||
Current
liabilities
|
||||||||
Accounts payable – trade and
carrier charges
|
$ |
2,445,915
|
$ |
3,000,197
|
||||
Note payable
|
- |
1,155,365
|
||||||
Current maturities of long-term
debt
|
445,397
|
693,258
|
||||||
Accrued other
liabilities
|
2,131,113
|
2,187,241
|
||||||
Deferred revenues
|
898,469
|
844,591
|
||||||
Customer deposits
|
50,142
|
50,047
|
||||||
Total current
liabilities
|
5,971,036
|
7,930,699
|
||||||
Long-term
liabilities
|
||||||||
Long-term debt, less current
portion
|
421,432
|
764,999
|
||||||
Deferred income
taxes
|
1,501,474
|
- | ||||||
Total long-term
liabilities
|
1,922,906
|
764,999
|
||||||
Total
liabilities
|
7,893,942
|
8,695,698
|
||||||
Stockholders’
equity
|
||||||||
Common stock, no par value,
authorized
|
||||||||
11,000,000 shares, 1,962,029
shares issued
|
||||||||
in 2007 and 2006
|
4,959,938
|
4,959,938
|
||||||
Additional paid-in
capital
|
1,814,620
|
1,814,620
|
||||||
Retained earnings –
unrestricted
|
55,149,546
|
56,756,221
|
||||||
61,924,104
|
63,530,779
|
|||||||
Treasury stock at cost, 702,878
shares in 2007
|
||||||||
and 2006
|
(22,744,795 | ) | (22,744,795 | ) | ||||
Total stockholders’
equity
|
39,179,309
|
40,785,984
|
||||||
Total
liabilities and stockholders’ equity
|
$ |
47,073,251
|
$ |
49,481,682
|
2007
|
2006
|
|||||||
Revenues
earned
|
$ |
67,421,984
|
$ |
67,340,912
|
||||
Cost
of communication services
|
42,348,164
|
43,579,013
|
||||||
Gross profit
|
25,073,820
|
23,761,899
|
||||||
Selling,
general and administrative expenses
|
23,676,789
|
24,410,455
|
||||||
Income (loss) from
operations
|
1,397,031
|
(648,556 | ) | |||||
Other
income (expenses)
|
||||||||
Interest income
|
382,364
|
401,805
|
||||||
Building lease
|
779,777
|
695,140
|
||||||
Other income
|
63,749
|
88,182
|
||||||
Gain on sale of
assets
|
23,696
|
11,031
|
||||||
Gain on sale of
investments
|
410,702
|
- | ||||||
Interest expense
|
(141,750 | ) | (183,779 | ) | ||||
Total other income
(expenses)
|
1,518,538
|
1,012,379
|
||||||
Income
from continuing operations
|
||||||||
before income
taxes
|
2,915,569
|
363,823
|
||||||
Income
tax provision
|
1,022,245
|
140,681
|
||||||
Net
income
|
$ |
1,893,324
|
$ |
223,142
|
||||
Common
Stock
|
Additional
Paid-In Capital
|
Retained
Earnings
|
Treasury
Stock
|
Total
Stock-holders' Equity
|
||||||||||||||||
Balance,
July 31, 2005
|
$ |
4,959,938
|
$ |
1,814,620
|
$ |
56,533,079
|
$ | (22,744,795 | ) | $ |
40,562,842
|
|||||||||
Net
income
|
- | - |
223,142
|
- |
223,142
|
|||||||||||||||
Balance,
July 31, 2006
|
4,959,938
|
1,814,620
|
56,756,221
|
(22,744,795 | ) |
40,785,984
|
||||||||||||||
Dividend
|
- | - | (3,499,999 | ) | - | (3,499,999 | ) | |||||||||||||
Net
income
|
- | - |
1,893,324
|
- |
1,893,324
|
|||||||||||||||
Balance,
July 31, 2007
|
$ |
4,959,938
|
$ |
1,814,620
|
$ |
55,149,546
|
$ | (22,744,795 | ) | $ |
39,179,309
|
2007
|
2006
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net income
|
$ |
1,893,324
|
$ |
223,142
|
||||
Adjustments
to reconcile net income to net
|
||||||||
cash provided by operating
activities:
|
||||||||
Depreciation and amortization of
fixed assets
|
6,084,457
|
6,855,241
|
||||||
Capitalized
depreciation
|
90,210
|
82,412
|
||||||
Increase (decrease) in deferred
taxes
|
1,022,245
|
140,681
|
||||||
(Gain) loss on sale or disposal
of assets
|
(23,696 | ) | (11,031 | ) | ||||
(Gain) loss on sale of
investments
|
(410,702 | ) | - | |||||
(Increase)
decrease:
|
||||||||
Accounts receivable –
trade
|
(14,922 | ) | (1,492,338 | ) | ||||
Other receivables
|
(2,686 | ) | (160,984 | ) | ||||
Unbilled revenue
|
376,560
|
2,149,444
|
||||||
Accrued interest
|
142,689
|
(42,049 | ) | |||||
Prepaid expenses
|
59,166
|
(296,548 | ) | |||||
Inventory
|
97,769
|
(244,568 | ) | |||||
Other assets
|
5,689
|
6,406
|
||||||
Increase
(decrease):
|
||||||||
Accounts payable –
trade
|
(554,282 | ) | (361,670 | ) | ||||
Customer deposits
|
95
|
419
|
||||||
Deferred revenue
|
53,878
|
(352,408 | ) | |||||
Accrued other
liabilities
|
(56,128 | ) | (244,494 | ) | ||||
Accrued
settlement
|
- | (218,487 | ) | |||||
Net
cash provided (used) by operating activities
|
8,763,666
|
6,033,168
|
||||||
Cash
flows from investing activities:
|
||||||||
Purchase of property, equipment
and improvements
|
(5,238,717 | ) | (10,062,401 | ) | ||||
Proceeds from sale of
assets
|
48,730
|
23,697
|
||||||
Change in partnership
investment
|
1,777
|
(2,527 | ) | |||||
Proceeds from sale of
investments
|
1,043,885
|
- | ||||||
Collection of note
receivable
|
1,983,192
|
- | ||||||
Net
cash provided (used) by investing activities
|
(2,161,133 | ) | (10,041,231 | ) |
2007
|
2006
|
|||||||
Cash
flows from financing activities:
|
||||||||
Principal payments on long-term
debt
|
(699,747 | ) | (1,556,745 | ) | ||||
Dividends paid
|
(3,499,999 | ) | - | |||||
Change in line of credit note
payable
|
(1,155,365 | ) |
1,155,365
|
|||||
Net
cash provided (used) by financing activities
|
(5,355,111 | ) | (401,380 | ) | ||||
Net
increase (decrease) in cash
|
1,247,422
|
(4,409,443 | ) | |||||
Cash/Cash
equivalents, beginning of year
|
5,387,759
|
9,797,202
|
||||||
Cash/Cash
equivalents, end of year
|
$ |
6,635,181
|
$ |
5,387,759
|
||||
Supplementary
disclosures of cash flow information:
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
|
$ |
141,750
|
$ |
183,779
|
||||
Income taxes
|
$ |
-
|
$ |
-
|
||||
Non
cash investing and financing activities:
|
||||||||
Equipment acquired by issuance of
long-term debt
|
$ |
108,319
|
$ |
416,820
|
||||
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES,
Continued
|
2.
|
OTHER
RECEIVABLES
|
2007
|
2006
|
|||||||
Current
portion of employee advances
|
$ | - | $ |
1,360
|
||||
Health
insurance refund
|
- |
99,601
|
||||||
Vender
credit receivable
|
9,079
|
97,554
|
||||||
Miscellaneous
receivables
|
1,670
|
3,474
|
||||||
Receivable
from Shareholder Value Ltd.
|
26,239
|
19,875
|
||||||
Sales
tax refund receivable
|
187,562
|
- | ||||||
$ |
224,550
|
$ |
221,864
|
3.
|
INVESTMENTS
|
2007
|
2006
|
|||||||
Shareholder
Value Ltd.
|
$ |
4,998
|
$ |
6,775
|
||||
Land
|
- |
633,183
|
||||||
$ |
4,998
|
$ |
639,958
|
4.
|
PROPERTY,
EQUIPMENT AND IMPROVEMENTS
|
Estimated
|
|||||||||
Useful
|
|||||||||
2007
|
2006
|
Lives
|
|||||||
Land
|
$ |
440,608
|
$ |
440,608
|
|||||
Communications
system in service
|
53,059,478
|
52,043,496
|
3-15
years
|
||||||
Building
|
2,100,779
|
2,044,684
|
20
years
|
||||||
Leasehold
improvements
|
1,928,760
|
1,923,817
|
5-15
years
|
||||||
Office
equipment
|
1,684,976
|
1,892,489
|
5-10
years
|
||||||
Computer
hardware/software
|
9,459,519
|
11,283,564
|
5- 7
years
|
||||||
Construction
equipment
|
393,915
|
383,064
|
5
years
|
||||||
Vehicles
|
883,759
|
911,869
|
5
years
|
||||||
Data,
telephone and video equipment -
|
|||||||||
fiber
network
|
2,854,657
|
2,935,684
|
3-15
years
|
||||||
Capitalized
installation charges
|
3,422,369
|
3,376,539
|
5
years
|
||||||
Fiber
optic system
|
24,471,256
|
20,158,802
|
18-20
years
|
||||||
Total
property, equipment and improvements
|
$ |
100,700,076
|
$ |
97,394,616
|
Total
depreciation and amortization expense on property, equipment and
improvements for the years ended July 31, 2007 and 2006 was $6,084,457 and
$6,855,241, respectively. Total depreciation expense
capitalized for the years ended July 31, 2007 and 2006 was $90,210 and
$82,412, respectively.
|
5.
|
NOTE
PAYABLE
|
6.
|
LONG-TERM
DEBT
|
2007
|
2006
|
|||||||
GE
Capital Corporation
|
||||||||
Note for the purchase of the CLEC
equipment with a face
|
||||||||
value of $727,276, with monthly
payments of $14,590,
|
||||||||
including interest at 7.42%
through August, 2006, secured
|
||||||||
by the purchased
equipment.
|
$ | - | $ |
14,942
|
||||
Note for the purchase of equipment
with a face
|
||||||||
amount of $108,319, with monthly
payments of $3,468,
|
||||||||
including interest at 9.31%
through July, 2010, secured by
|
||||||||
the purchased
equipment.
|
105,728
|
- | ||||||
Note for the purchase of a DRM
faststart telephone switch
|
||||||||
with a face amount of $1,353,202,
payable in monthly
|
||||||||
installments of $25,518 including
interest at 4.970% through
|
||||||||
September, 2007, secured by the
purchased equipment.
|
50,727
|
346,475
|
||||||
Note for the purchase of equipment
with a face value of $62,835,
|
||||||||
with monthly payments of $1,232,
including interest at 9.30%
|
||||||||
through April, 2011, secured by
the purchased equipment.
|
50,390
|
59,822
|
||||||
|
||||||||
GE
Commercial Finance
|
||||||||
|
||||||||
Note for the purchase of equipment
with a face value of $256,219,
|
||||||||
with monthly payments of $7,568,
including interest at 9.30%
|
||||||||
through March, 2009, secured by
the purchased equipment.
|
161,615
|
233,655
|
||||||
City
Bank
|
||||||||
Note for the purchase of a
tractor, backhoe, trailer, and boring
|
||||||||
machine with a face amount of
$126,575, payable in monthly
|
||||||||
installments of $2,637, including
interest at 4.25% through
|
||||||||
May, 2007, secured by the
purchased equipment.
|
- |
26,412
|
||||||
Note for the purchase of vehicles
with a face value of $73,471,
|
||||||||
payable in monthly installments of
$1,677, including interest at
|
||||||||
4.49% through May, 2009, secured
by the purchased equipment.
|
35,333
|
53,403
|
||||||
|
||||||||
Note for the purchase of equipment
with a face amount of
|
||||||||
$1,064,230, payable in monthly
installments of $17,750,
|
||||||||
plus interest at prime through
April, 2009, secured by the
|
||||||||
purchased
equipment.
|
376,050
|
584,980
|
|
6. LONG-TERM
DEBT, Continued
|
2007
|
2006
|
|||||||
Note for the purchase of a pickup
with a face amount of $16,628
|
||||||||
payable in monthly installments of
$509, including interest at
|
||||||||
6.29% through April, 2009, secured
by the purchased pickup.
|
10,082
|
15,360
|
||||||
Note for the purchase of a pickup
with a face amount of $13,000
|
||||||||
payable in monthly installments of
$306, including interest at
|
||||||||
6.39% through February, 2010,
secured by the purchased pickup.
|
||||||||
This note was retired prior to
maturity.
|
- |
11,797
|
||||||
Note for the purchase of a dump
truck with a face amount of
|
||||||||
$18,000 payable in monthly
installments of $438, including
|
||||||||
interest at 7.75% through
February, 2010, secured by the
|
||||||||
purchased dump
truck.
|
12,258
|
16,376
|
||||||
Note for the purchase of a pickup
with a face amount of $17,244
|
||||||||
payable in monthly installments of
$402, including interest at
|
||||||||
5.49% through October, 2009,
secured by the purchased pickup.
|
10,167
|
14,295
|
||||||
Note for the purchase of two
pickups with a face amount of
|
||||||||
$32,894 payable in monthly
installments of $763, including
|
||||||||
interest at 5.49% through August,
2009, secured by the
|
||||||||
purchased pickups.
|
17,960
|
25,230
|
||||||
CitiCapital
|
||||||||
Note for the purchase of a
trencher and trailer with a face amount
|
||||||||
of $93,800, payable in monthly
installments of $1,849, including
|
||||||||
interest at 6.75% through April,
2009, secured by the purchased
|
||||||||
equipment and guaranty by NTS
Communications, Inc.
|
36,519
|
55,510
|
||||||
$ |
866,829
|
$ |
1,458,257
|
2008
|
$ |
445,397
|
||
2009
|
349,291
|
|||
2010
|
56,638
|
|||
2011
|
15,503
|
|||
2012
|
- | |||
$ |
866,829
|
July
31,
|
Amount
|
||||||
2008
|
$
|
1,386,871
|
|||||
2009
|
1,285,334
|
||||||
2010
|
933,293
|
||||||
2011
|
786,886
|
||||||
2012
|
771,714
|
||||||
Thereafter
|
771,714
|
||||||
|
|||||||
Total
minimum lease payments
|
$
|
5,935,812
|
|
July
31,
|
Amount
|
|||
2008
|
$ |
281,101
|
||
2009
|
135,200
|
|||
2010
|
51,983
|
|||
2011
|
17,854
|
|||
2012
|
4,000
|
|||
Total
minimum future rentals
|
$ |
490,138
|
2007
|
2006
|
|||||||
Income
(loss) from continuing operations
|
||||||||
before taxes
|
$ |
2,915,569
|
$ |
363,823
|
||||
50% meals and
entertainment
|
21,923
|
21,661
|
||||||
Penalties
|
- |
7,142
|
||||||
Taxable
income (loss) – financial
|
2,937,492
|
392,626
|
||||||
Increase
(decrease) in provision for bad debts
|
(8,072 | ) | (615,392 | ) | ||||
Increase
(decrease) in provision for accrued vacation
|
(84,631 | ) |
3,261
|
|||||
Book
depreciation greater (lesser) than tax
|
414,314
|
958,276
|
||||||
Excess
tax gain (loss) on asset disposals
|
- |
4,196
|
||||||
Book
amortization of section 197 intangibles
|
||||||||
greater(lesser) than tax
amortization
|
(512,468 | ) | (512,468 | ) | ||||
Excess
book income over partnership K-1
|
(230 | ) | ||||||
Utilization
of contribution carryover
|
- | (4,101 | ) | |||||
Utilization
of net operating loss carryover
|
(2,746,405 | ) | (226,398 | ) | ||||
Taxable
income (loss)
|
$ |
0
|
$ |
0
|
|
|
2007
|
2006
|
|||||||
Federal
income tax liability at 34%
|
$ |
0
|
$ |
0
|
||||
Increase
(decrease) in deferred income taxes
|
1,022,245
|
140,681
|
||||||
Income
tax provision
|
$ |
1,022,245
|
$ |
140,681
|
|
The
following is an analysis of the components of deferred
taxes:
|
2007
|
2006
|
|||||||||||||||
Current
|
Long-term
|
Current
|
Long-term
|
|||||||||||||
Difference
in financial and
|
||||||||||||||||
tax depreciation
|
$ | - | $ |
7,277,209
|
$ | - | $ |
7,622,182
|
||||||||
Provision
for bad debts
|
(202,735 | ) | - | (210,807 | ) | - | ||||||||||
Provision
for accrued
|
||||||||||||||||
vacation
|
(402,400 | ) | - | (487,030 | ) | - | ||||||||||
Difference
in financial and
|
||||||||||||||||
tax goodwill
amortization
|
- | (2,861,109 | ) | - | (3,373,576 | ) | ||||||||||
Net
operating loss carryforward
|
(2,791,620 | ) | - | - | (5,538,024 | ) | ||||||||||
(3,396,755 | ) |
4,416,100
|
(697,837 | ) | (1,289,418 | ) | ||||||||||
x34 | % | x34 | % | x34 | % | x34 | % | |||||||||
Deferred
tax (benefit)
|
||||||||||||||||
payable
|
$ | (1,154,897 | ) | $ |
1,501,474
|
$ | (237,265 | ) | $ | (438,403 | ) |
11.
|
CONCENTRATION
OF RISK
|
12.
|
SUBSEQUENT
EVENTS
|
2007
|
2006
|
|||||||
Long
distance, toll, and operator assistance
|
$ |
17,166,703
|
$ |
17,811,076
|
||||
Private
lines
|
17,080,956
|
17,492,527
|
||||||
Local
service
|
20,370,117
|
20,028,633
|
||||||
Data
services
|
6,987,319
|
6,606,434
|
||||||
Universal
service fee
|
1,224,633
|
1,095,492
|
||||||
PICC
cost recovery
|
263,570
|
294,879
|
||||||
Regulatory
cost recovery
|
376,387
|
25,328
|
||||||
Carrier
access billing
|
1,292,968
|
1,849,088
|
||||||
Paging
|
691
|
2,403
|
||||||
Telephone
systems sales & services
|
1,836,388
|
1,729,985
|
||||||
Conference
calls
|
48,536
|
43,099
|
||||||
Video
|
982,758
|
480,669
|
||||||
Other
credits
|
(209,042 | ) | (118,701 | ) | ||||
$ |
67,421,984
|
$ |
67,340,912
|
2007
|
2006
|
|||||||
Access
and termination
|
$ |
1,029,596
|
$ |
1,518,241
|
||||
Usage
|
9,473,694
|
8,838,517
|
||||||
Transport
|
3,493,832
|
3,742,851
|
||||||
Private
line
|
8,317,820
|
8,366,757
|
||||||
Local
service access
|
2,335,553
|
2,591,832
|
||||||
CLEC
local service
|
9,494,346
|
10,309,165
|
||||||
Conference
calls
|
20,486
|
19,722
|
||||||
Universal
service fund
|
1,365,518
|
1,145,060
|
||||||
PICC
fund
|
89,731
|
44,234
|
||||||
Amortization
of capitalized Installation charges
|
95,988
|
188,616
|
||||||
Circuit
establishment and maintenance
|
14,131
|
22,451
|
||||||
Video
services
|
490,147
|
236,731
|
||||||
Depreciation
and amortization of
|
||||||||
telecommunications
equipment
|
4,786,055
|
5,354,699
|
||||||
Data
services
|
332,208
|
253,233
|
||||||
Payphone
service charge
|
45,385
|
67,467
|
||||||
800
access & administration fees
|
37,528
|
53,109
|
||||||
Telephone
equipment and warranty
|
886,943
|
808,522
|
||||||
Operator
assistance
|
38,723
|
16,883
|
||||||
Paging
services
|
480
|
923
|
||||||
$ |
42,348,164
|
$ |
43,579,013
|
2007
|
2006
|
|||||||
Advertising
|
$ |
313,409
|
$ |
868,313
|
||||
Automobile
and truck expense
|
183,470
|
199,627
|
||||||
Bad
debt expense
|
249,433
|
257,156
|
||||||
Bank
charges
|
141,723
|
104,110
|
||||||
Business
meals
|
43,619
|
42,825
|
||||||
Collection
agency fees
|
16,128
|
15,803
|
||||||
Commissions
|
890,198
|
885,051
|
||||||
Computer
expense
|
540,307
|
393,124
|
||||||
Contract
labor
|
63,327
|
80,061
|
||||||
Depreciation
|
1,202,414
|
1,311,926
|
||||||
Directors
fees
|
39,000
|
54,000
|
||||||
Dues
and subscriptions
|
50,311
|
58,693
|
||||||
Employee
benefits
|
425,380
|
404,042
|
||||||
Engineering
fees
|
7,120
|
6,213
|
||||||
Entertainment
and promotional
|
111,327
|
143,480
|
||||||
Freight
|
30,029
|
32,798
|
||||||
Insurance
|
2,204,707
|
1,765,040
|
||||||
State
infrastructure assessment
|
293,531
|
189,272
|
||||||
Internet
expenses
|
11,700
|
11,700
|
||||||
Legal
and accounting
|
250,741
|
202,280
|
||||||
Licenses
and fees
|
37,008
|
35,372
|
||||||
Management
fees
|
26,019
|
23,921
|
||||||
Miscellaneous
|
30,488
|
17,102
|
||||||
Office
supplies and expense
|
192,216
|
265,199
|
||||||
Postage
|
271,670
|
323,393
|
||||||
Rent
|
1,649,039
|
1,643,743
|
||||||
Repairs
and maintenance
|
337,756
|
322,797
|
||||||
Salaries
|
11,436,642
|
12,011,601
|
||||||
Taxes
– other
|
472,988
|
468,461
|
||||||
Taxes
– payroll
|
922,607
|
973,558
|
||||||
Telephone
|
188,317
|
251,100
|
||||||
Travel
|
185,097
|
218,712
|
||||||
Training
|
12,725
|
26,730
|
||||||
Trust
and loan fees
|
- |
185
|
||||||
Utilities
|
846,343
|
803,067
|
||||||
$ |
23,676,789
|
$ |
24,410,455
|
Financial
statements
|
Page |
B-84
|
|
B-86
|
|
B-87
|
|
B-89
|
December
31,
|
||||||||
2007
|
2006
|
|||||||
Current
assets
|
||||||||
Cash and cash
equivalents
|
$ | 7,976,454 | $ | 5,400,569 | ||||
Accounts receivable -
trade
|
2,745,499 | 3,340,273 | ||||||
Allowance for bad
debts
|
(206,438 | ) | (222,223 | ) | ||||
Other receivables
|
25,762 | 158,258 | ||||||
Unbilled revenue
|
1,271,708 | 1,629,157 | ||||||
Prepaid expenses
|
779,460 | 723,444 | ||||||
Accrued interest
|
- | 21,382 | ||||||
Inventory
|
562,995 | 360,239 | ||||||
Other
Current Assets
|
- | 288,586 | ||||||
Deferred tax benefit –
Current
|
756,973 | 230,099 | ||||||
Total current
assets
|
13,912,413 | 11,929,784 | ||||||
Investments
|
5,791 | 638,815 | ||||||
Property,
equipment and improvements
|
||||||||
Less accumulated depreciation
& amortization
|
27,544,758 | 28,600,460 | ||||||
Property, equipment and
improvements in
|
||||||||
development
|
1,720,766 | 1,037,666 | ||||||
Total property, equipment and
improvements
|
29,265,524 | 29,638,126 | ||||||
Other
assets
|
||||||||
Note receivable – Shareholder
Value, Ltd.
|
- | 2,005,802 | ||||||
Goodwill
|
5,686,996 | 5,686,996 | ||||||
Less amortization of
goodwill
|
(1,278,809 | ) | (1,278,809 | ) | ||||
Deferred tax benefit –
Long-term
|
- | 341,455 | ||||||
Other assets
|
23,717 | 378,610 | ||||||
Total other
assets
|
4,431,905 | 7,134,054 | ||||||
Total
assets
|
$ | 47,615,633 | $ | 49,340,779 |
December
31,
|
||||||||
2007
|
2006
|
|||||||
Current
liabilities
|
||||||||
Accounts payable – trade and
carrier charges
|
$ | 2,670,852 | $ | 2,959,921 | ||||
Current maturities of long-term
debt
|
502,309 | 1,502,264 | ||||||
Accrued other
liabilities
|
2,591,194 | 2,342,626 | ||||||
Deferred revenues
|
888,857 | 920,104 | ||||||
Other current
liabilities
|
50,142 | 68,810 | ||||||
Total current
liabilities
|
6,703,354 | 7,793,725 | ||||||
Long-term
liabilities
|
||||||||
Long-term debt, less current
portion
|
2,745,867 | 673,994 | ||||||
Deferred income
taxes
|
1,416,612 | 4,583 | ||||||
Total long-term
liabilities
|
4,162,479 | 678,577 | ||||||
Total
liabilities
|
10,865,833 | 8,472,302 | ||||||
Stockholders’
equity
|
||||||||
Common stock, no par value,
authorized
|
||||||||
11,000,000 shares, 1,962,029
shares issued
|
||||||||
in December 31, 2007 and
2006
|
4,959,938 | 4,959,938 | ||||||
Additional paid-in
capital
|
1,814,620 | 1,814,620 | ||||||
Retained earnings –
unrestricted
|
52,720,037 | 56,838,714 | ||||||
59,494,595 | 63,613,272 | |||||||
Treasury stock at cost, 702,878
shares in
|
||||||||
December 31, 2007 and
2006
|
(22,744,795 | ) | (22,744,795 | ) | ||||
Total stockholders’
equity
|
36,749,800 | 40,868,477 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 47,615,633 | $ | 49,340,779 |
Five
months ended December 31,
|
||||||||
2007
|
2006
|
|||||||
Revenues
earned
|
$ | 26,352,595 | $ | 27,921,772 | ||||
Cost
of communication services
|
16,490,365 | 17,850,420 | ||||||
Gross profit
|
9,862,230 | 10,071,352 | ||||||
Selling,
general and administrative expenses
|
8,988,100 | 10,314,870 | ||||||
Income (loss) from
operations
|
874,130 | (243,518 | ) | |||||
Other
income (expenses)
|
||||||||
Interest income
|
89,496 | 151,666 | ||||||
Building lease
|
325,132 | 194,100 | ||||||
Other income
|
34,068 | 147,676 | ||||||
Gain on sale of
assets
|
4,351 | - | ||||||
Interest expense
|
(87,461 | ) | (78,564 | ) | ||||
Total other income
(expenses)
|
365,586 | 414,878 | ||||||
Income
from continuing operations
|
||||||||
before income
taxes
|
1,239,716 | 171,360 | ||||||
Income
tax provision
|
647,263 | 88,864 | ||||||
Net
income
|
$ | 592,453 | $ | 82,496 | ||||
Five
months ended December 31,
|
||||||||
2007
|
2006
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net income
|
$ | 592,453 | $ | 82,496 | ||||
Adjustments
to reconcile net income to net
|
||||||||
cash provided by operating
activities:
|
||||||||
Depreciation and amortization of
fixed assets
|
2,426,861 | 2,547,403 | ||||||
Capitalized
depreciation
|
38,346 | - | ||||||
Increase (decrease) in deferred
taxes
|
313,062 | 353,656 | ||||||
(Gain) loss on sale or disposal
of assets
|
(4,351 | ) | (16,102 | ) | ||||
(Increase)
decrease:
|
||||||||
Accounts receivable –
trade
|
299,425 | (294,486 | ) | |||||
Other receivables
|
198,788 | 63,607 | ||||||
Unbilled revenue
|
127,942 | 147,053 | ||||||
Accrued interest
|
251 | 121,558 | ||||||
Prepaid expenses
|
(115,378 | ) | (196 | ) | ||||
Inventory
|
(54,953 | ) | 245,572 | |||||
Other Current
Assets
|
(308,202 | ) | ||||||
Increase
(decrease):
|
||||||||
Accounts payable –
trade
|
224,937 | (40,276 | ) | |||||
Deferred revenue
|
(9,612 | ) | 75,513 | |||||
Customer deposits
|
8,194 | |||||||
Accrued other
liabilities
|
460,081 | 174,148 | ||||||
Net
cash provided (used) by operating activities
|
4,497,852 | 3,159,938 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchase of property, equipment
and improvements
|
(2,519,522 | ) | (2,988,037 | ) | ||||
Proceeds from sale of
assets
|
4,351 | 30,517 | ||||||
Change in partnership
investment
|
(793 | ) | (1,423 | ) | ||||
Net
cash provided (used) by investing activities
|
(2,515,964 | ) | (2,958,943 | ) |
Five
months ended December 31,
|
||||||||
2007
|
2006
|
|||||||
Cash
flows from financing activities:
|
||||||||
Proceeds on long term
debt
|
$ | 2,595,935 | $ | 567,591 | ||||
Principal payments on long-term
debt
|
(214,588 | ) | (150,410 | ) | ||||
Changes in line of credit note
payable
|
(605,365 | ) | ||||||
Dividend Paid
|
(3,021,962 | ) | ||||||
Net
cash provided (used) by financing activities
|
(640,615 | ) | (188,184 | ) | ||||
Net
increase (decrease) in cash
|
1,341,273 | 12,811 | ||||||
Cash/Cash
equivalents, beginning of year
|
6,635,181 | 5,387,758 | ||||||
Cash/Cash
equivalents, end of year
|
$ | 7,976,454 | $ | 5,400,569 | ||||
Supplementary
disclosures of cash flow information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ | 80,236 | $ | 77,834 | ||||
Income taxes
|
$ | - | $ | - | ||||
Non
cash investing and financing activities:
|
||||||||
Equipment acquired by issuance of
long-term debt
|
$ | - | $ | 125,000 | ||||
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES,
Continued
|
2.
|
SUBSEQUENT
EVENTS
|
Xfone, Inc. and
Subsidiaries
|
||||||||
PRO FORMA BALANCE
SHEETS
|
||||||||
DECEMBER 31,
2007
|
||||||||
(Unaudited)
|
||||||||
Xfone,
Inc.
|
NTS
Communications
|
Pro
forma adjustments
|
Pro
form
Consolidated
|
||||||||||||||
CURRENT
ASSETS:
|
|||||||||||||||||
Cash
|
$
|
5,835,608
|
$
|
7,976,454
|
(3,249,373
|
)
|
(a)
|
$
|
10,562,689
|
||||||||
Restricted
cash
|
25,562,032
|
-
|
(25,562,032
|
)
|
(b)
|
-
|
|||||||||||
Account
Receivables, net
|
5,886,499
|
3,836,531
|
9,723,030
|
||||||||||||||
Prepaid
expenses and other receivables
|
3,985,307
|
1,536,433
|
273,510
|
|
(c)
|
5,795,250
|
|||||||||||
Inventory
|
-
|
562,995
|
|
|
562,995
|
||||||||||||
Total current
assets
|
41,269,446
|
13,912,413
|
26,643,964
|
||||||||||||||
INVESTMENTS
|
-
|
5,791
|
|
5,791
|
|||||||||||||
MINORITY
INTEREST
|
7,190
|
-
|
|
7,190
|
|||||||||||||
LONG
TERM LIABILITIES
|
2,076,061
|
-
|
|
2,076,061
|
|||||||||||||
FIXED
ASSETS, NET
|
5,747,758
|
29,265,524
|
3,020,281
|
(d)
|
38,033,563
|
||||||||||||
OTHER
ASSETS, NET
|
17,948,872
|
4,431,905
|
12,107,122
|
(e)
|
34,487,899
|
||||||||||||
Total
Assets
|
$
|
67,049,327
|
$
|
47,615,633
|
$
|
101,254,468
|
|||||||||||
CURRENT
LIABILITIES
|
|||||||||||||||||
Notes
payables – current portion
|
$
|
1,094,339
|
$
|
502,309
|
$
|
1,596,648
|
|||||||||||
Trade
Payables
|
8,287,420
|
2,670,852
|
10,958,272
|
||||||||||||||
Other
liabilities and accrued expenses
|
5,322,045
|
3,530,193
|
1,200,000
|
(f)
|
10,052,238
|
||||||||||||
Current
maturities of obligations under leases
|
89,654
|
-
|
89,654
|
||||||||||||||
Bonds
– current portion
|
3,268,476
|
-
|
1,953,910
|
(g)
|
5,222,386
|
||||||||||||
Total current
liabilities
|
18,061,934
|
6,703,354
|
27,919,198
|
||||||||||||||
DEFFERED
TAXES
|
1,103
|
1,416,612
|
(1,417,715
|
)
|
(c)
|
-
|
|||||||||||
NOTES
PAYABLE
|
1,013,808
|
2,745,867
|
3,759,675
|
||||||||||||||
OBLIGATIONS
UNDER CAPITAL LEASES
|
31,893
|
-
|
31,893
|
||||||||||||||
BONDS
|
22,083,892
|
-
|
22,083,892
|
||||||||||||||
SEVERANCE
PAY
|
148,600
|
-
|
148,600
|
||||||||||||||
Total
liabilities
|
41,341,230
|
10,865,833
|
53,943,258
|
||||||||||||||
TOTAL
SHAREHOLDERS' EQUITY
|
25,708,097
|
36,749,800
|
(15,146,687
|
)
|
(h)
|
47,311,210
|
|||||||||||
Total
liabilities and shareholders' equity
|
$
|
67,049,327
|
$
|
47,615,633
|
$
|
101,254,468
|
|||||||||||
Xfone,
Inc. and Subsidiaries
|
PRO
FORMA STATEMENTS OF OPERATIONS
|
(Unaudited)
|
YEAR
ENDED DECEMBER 31, 2007
|
Xfone
Inc
|
NTS
Communications
|
Pro
forma adjustments
|
Pro
forma
Consolidated
|
||||||||||||||||
Revenues
|
$ | 44,723,934 | $ | 66,522,841 | $ | 111,246,775 | |||||||||||||
Cost
of Revenues
|
19,626,322 | 40,860,503 | 60,486,825 | ||||||||||||||||
Gross
profit
|
25,097,612 | 25,662,338 | 50,759,950 | ||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||
Research
and development
|
47,609 | - | 47,609 | ||||||||||||||||
Marketing
and selling
|
10,886,883 | 4,473,363 | 15,360,246 | ||||||||||||||||
General
and administrative
|
12,335,759 | 18,232,129 | (3,020,281 | ) |
(a)
|
27,547,607 | |||||||||||||
Non
recurring loss
|
2,856,803 | - | 2,856,803 | ||||||||||||||||
Total operating
expenses
|
26,127,054 | 22,705,492 | 45,812,265 | ||||||||||||||||
Operating
profit (loss)
|
(1,029,442 | ) |
|
2,956,846 | 4,947,685 | ||||||||||||||
Financing
income (expenses), net
|
(515,562 | ) |
|
134,449 | (1,953,909 | ) |
(b)
|
(2,335,022 | ) |
|
|||||||||
Equity
in income of affiliated company
|
132,867 | - | 132,867 | ||||||||||||||||
Other
income
|
- | 480,869 | 480,869 | ||||||||||||||||
Income
(loss) before minority interest and taxes
|
(1,412,137 | ) |
|
3,572,164 | 3,226,399 | ||||||||||||||
Minority
interest
|
(297,860 | ) |
|
- | (297,860 | ) |
|
||||||||||||
Income
before taxes
|
(1,709,997 | ) |
|
3,572,164 | 2,928,539 | ||||||||||||||
Taxes
on income
|
426,105 | (1,486,897 | ) | 1,691,225 |
(c)
|
630,433 | |||||||||||||
Net
Income (loss)
|
$ | (1,283,892 | ) |
|
$ | 2,085,267 | $ | 3,558,972 | |||||||||||
Adjustment
of non recurring loss
|
1,999,762 |
(d)
|
1,999,762 |
(d)
|
|||||||||||||||
Net
income from recurring operations
|
$ | 715,870 | $ | 5,558,734 | |||||||||||||||
Earning
per share:
|
|||||||||||||||||||
Basic
and Diluted
|
$ | (0.109 | ) |
|
$ | 0.193 | |||||||||||||
Adjustment
of non recurring loss
|
0.170 |
(d)
|
0.109 |
(d)
|
|||||||||||||||
Basic
and Diluted
|
$ | 0.061 | $ | 0.302 | |||||||||||||||