UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
Commission File No. 333-67232
XFONE, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
11-3618510
(I.R.S. Employer Identification Number)
960 High Road
London, United Kingdom N12 9RY
(Address of principal executive offices) (Zip Code)
011.44.2084469494
(Registrant's telephone number, including area code)
Registrant has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 14, 2004, the issuer had 6,104,421 shares of common stock outstanding.
Xfone, Inc. and Subsidiary
FORM 10-QSB
QUARTERLY PERIOD ENDED MARCH 31, 2004
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets as of March 31, 2004 (Unaudited) and as of
December 31, 2003.....................................................2 - 3
Statements of Operations (Unaudited) for the Three Months
Ended March 31, 2004 and Year end at December 31, 2003....................4
Statement of Changes in Shareholders' Equity For the Three
Months Ended March 31, 2004...............................................5
Statements of Cash Flow (Unaudited) For the Three Months
Ended March 31, 2004 and Year end at December 31, 2003................6 - 7
Notes to Consolidated Financial Statements.............................8 - 20
Item 2 - Management's Discussion and Analysis and Plan of
Operations...............................................................21
Item 3 - Controls and Procedures...........................................24
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.................................................25
Item 2 - Changes in Securities and Use of Proceeds.........................25
Item 3 - Default Upon Senior Securities....................................26
Item 4 - Submission of Matters to a Vote of Security Holders...............26
Item 5 - Other Information.................................................26
Item 6 - Exhibits and Reports on Form 8-K..................................27
PART I - FINANCIAL INFORMATION
FINANCIAL REPORTS
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XFONE, INC. AND SUBSIDIARY
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CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2004
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XFONE, INC. AND SUBSIDIARY
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CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2004
CONTENTS
PAGE
----
Balance Sheet 2-3
Statement of Operations 4
Statement of Changes in Shareholders' Equity 5
Statement of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-21
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XFONE, INC. AND SUBSIDIARY
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BALANCE SHEET
MARCH 31, DECEMBER 31,
2004 2003
---------------- ----------------
(Unaudited)
CURRENT ASSETS
Cash (pound)2,127,117 (pound)977,008
Accounts receivable, net 1,203,754 1,263,824
Prepaid expenses and other receivables (Note 3) 432,711 340,944
Loan to shareholder (Note 4) 47,032 54,070
---------------- ----------------
TOTAL CURRENT ASSETS 3,810,615 2,635,847
---------------- ----------------
Loan to shareholder (Note 4) 232,666 232,666
---------------- ----------------
FIXED ASSETS (NOTE 5)
Cost 596,445 559,786
Less - accumulated depreciation -158,963 -138,071
---------------- ----------------
TOTAL FIXED ASSETS 437,482 421,715
---------------- ----------------
TOTAL ASSETS (pound)4,480,763 (pound)3,290,228
================ ================
F-2
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XFONE, INC. AND SUBSIDIARY
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BALANCE SHEET
MARCH 31, DECEMBER 31,
2004 2003
---------------- ----------------
Dividend payable -- (pound)86,270
Notes payable - current portion (Note 8) 4,000 4,000
Trade payables 1,446,922 1,637,431
Other liabilities and accrued expenses (Note 7) 278,541 379,809
Obligations under capital leases - current portion 66,684 66,774
---------------- ----------------
TOTAL CURRENT LIABILITIES (pound)1,796,147 (pound)2,174,284
Deferred taxes 36,109 36,109
Notes payable (Note 8) 2,166 3,166
Obligation under capital lease 69,135 86,563
---------------- ----------------
TOTAL LIABILITIES (pound)1,903,556 (pound)2,300,122
---------------- ----------------
Loan to the Chairma of the board and Shareholders
SHAREHOLDERS' EQUITY
Preferred stock - 50,000,000 shares authorised, none issued
Common stock:
25,000,000 shares authorised, (pound).0006896 par value;
6,104,421 and 5,117,684 issued and outstanding,
respectively 4,210 3,530
Contributions in excess of shares 1,676,866 193,514
Retained earnings 896,131 793,062
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 2,577,207 990,106
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (pound)4,480,763 (pound)3,290,228
================ ================
F-3
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XFONE, INC. AND SUBSIDIARY
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STATEMENT OF OPERATIONS
THREE MONTHS THREE MONTHS
MARCH 31, DECEMBER 31,
2004 2003
---------------- ----------------
Revenues (pound)2,307,215 (pound)1,074,662
Cost of revenues -1,561,238 -582,225
---------------- ----------------
Gross profit 745,976 492,437
---------------- ----------------
OPERATING EXPENSES: (Note 13)
Research and development -10,000 -9,000
Marketing and selling -367,207 -199,311
General and administrative -234,168 -191,952
---------------- ----------------
Total operating expenses -611,375 -400,263
---------------- ----------------
Operating profit 134,601 92,174
Financing expenses - net (Note 13) -10,845 -7,355
Other income 5,313 3,154
---------------- ----------------
Income before taxes 129,069 87,973
Taxes on income -26,000 -17,000
---------------- ----------------
Net income (pound)103,069 (pound)70,973
================ ================
EARNINGS PER SHARE:
Basic (pound)0.02 (pound)0.01
================ ================
Diluted (pound)0.01 (pound)0.01
================ ================
F-4
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XFONE, INC. AND SUBSIDIARY
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STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Number of Contributions Total
Ordinary in excess of Retained Shareholders'
Shares Share Capital par value Earnings Equity
---------------- -------------- ---------------- -------------- ----------------
Balance at January 1, 2003 5,060,889 (pound)3,490 (pound)180,219 (pound)457,887 (pound)641,596
Issuance of shares 56,795 40 13,295 -- 13,335
Net income -- -- -- 421,445 421,445
Dividend payable -86270 -- 86,270
---------------- -------------- ---------------- -------------- ----------------
Balance at December 31, 2003 5,117,684 (pound)3,530 (pound)193,514 (pound)793,062 (pound)990,106
---------------- -------------- ---------------- -------------- ----------------
Balance at January 1, 2004 5,117,684 3,530 193,514 793,062 (pound)990,106
Issuance of shares 986,737 680 1,483,352 -- (pound)1,484,031
Net income -- -- -- 103,069 (pound)103,069
Dividend payable -- --
---------------- -------------- ---------------- -------------- ----------------
Balance at March 31, 2004 (pound)6,104,421 (pound)4,210 (pound)1,676,866 (pound)896,131 (pound)2,577,207
================ ============== ================ ============== ================
CONVENIENCE TRANSLATION INTO U.S.$:
Balance at January 1, 2004 5,117,684 $ 6,495 $ 356,066 $ 1,459,234 $ 1,821,795
Issuance of shares 986,737 1,250 2,729,367 -- $ 2,730,618
Net income -- -- -- 189,648 $ 189,648
Dividend payable -- --
-------------- ---------------- -------------- ----------------
Balance at March 31, 2004 6,104,421 $ 7,746 $ 3,085,433 $ 1,648,882 $ 4,742,060
================ ============== ================ ============== ================
F-5
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XFONE, INC. AND SUBSIDIARY
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STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH MARCH
2004 2003
---------------- ----------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income (pound)103,069 (pound)70,974
Adjustments to reconcile net cash
provided by (used in) operating activities -295,544 129,207
---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES -192,475 200,181
---------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES
Investments made in year --
Purchase of equipment -36,659 -38,319
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES -36,659 -38,319
---------------- ----------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of long term debt -1,000 -6,942
Repayment of capital lease obligation -90
Proceeds from issuance of long term debt -17,428
Proceed from sale of fixed assete --
Dividend paid -86270
Proceeds from issuance of common stock-net 1,484,031 4,762
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,379,243 -2,180
---------------- ----------------
Net increase in cash 1,150,109 159,682
Difference rates of exchange
Cash, beginning of year 977,008 471,963
---------------- ----------------
Cash at end of quarter (pound)2,127,117 (pound)631,645
================ ================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2004 2003
---------------- ----------------
Issuance of shares of common stock for
Compensation for professional services
in connection with the offering:
Number of shares 17,500
Amount (pound)28,533
F-6
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XFONE, INC. AND SUBSIDIARY
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STATEMENTS OF CASH FLOWS (CONT.)
(1) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
THREE MONTHS ENDED
MARCH MARCH
2004 2003
---------------- ----------------
Depreciation (pound)20,892 (pound)14,696
Bad debt expense 9,274
Stock issued for professional services 28,533 --
---------------- ----------------
58,699 14,696
CHANGES IN ASSETS AND LIABILITIES:
Decrease in trade receivables 50,796 37,820
(Increase)Decrease in other receivables -91,767 47,722
Decrease in shareholder loan 7,038 24,906
Dividend payable -63,261
(Decrease)Increase in trade payables -190,509 104,079
Decrease in other payables -129,801 -36,755
---------------- ----------------
Total adjustments -354,243 114,511
---------------- ----------------
-(pound)295,544 (pound)129,207
================ ================
The accompanying notes are an integral part of these consolidated financial
statements
F-7
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANISATION AND NATURE OF BUSINESS
A. Xfone, Inc. ("Xfone") was incorporated in Nevada, U.S.A. in
September, 2000 and is a provider of long distance voice and
data telecommunications services, primarily in the United
Kingdom. The financial statements consolidate the operations
of Xfone and Swiftnet Limited. ("Swiftnet"), its wholly owned
U.K. subsidiary, (collectively the "Company")
B. The financial statements of the company have been prepared in
Sterling ("(pound)) since this is the currency of the prime
economic environment, the U.K., in which the operations of the
Company are conducted. Transactions and balances denominated
in Sterling are presented at their original amounts.
Transactions and balances in other currencies are translated
into Sterling in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52 of the U.S. Financial
Accounting Standards Board ("FASB"). Accordingly, items have
been translated as follows: Monetary items - at the exchange
rate effective at the balance sheet date. Revenues and expense
items - at the exchange rates in effect at the date of
recognition of those items. Exchange gains and losses from the
aforementioned translation are included in financing expenses,
net.
C. The financial statements have been translated into U.S.
dollars using the rate of exchange of the U.S. dollar at March
31, 2004. The translation was made solely for the convenience
of the readers. It should be noted that the (pound) figures do
not necessarily represent the current cost amounts of the
various elements presented and that the translated U.S.
dollars figures should not be construed as a representation
that the (pound) currency amounts actually represented, or
could be converted into, U.S. dollars. The representative rate
of exchange of the (pound) at March 31, 2004 was (pound)1 =
1.84 U.S.$.
F-8
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in accordance with generally
accepted accounting principles in the United States. The significant
accounting policies followed in the preparation of the financial
statements, applied on a consistent basis, are as follows:
A. Principles of Consolidation and Basis of Financial Statement
Presentation - The consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP) and include
the accounts of the Company and its wholly-owned subsidiary.
All significant inter-company balances and transactions have
been eliminated in consolidation.
B. Accounts Receivable
Accounts receivable are recorded at net realizable value
consisting of the carrying amount less the allowance for
uncollectible accounts.
The Company uses the allowance method to account for
uncollectible accounts receivable balances. Under the
allowance method, and estimate of uncollectible customer
balances is made using factors such as the credit quality of
the customer and the economic conditions in the market.
Accounts are considered past due once the unpaid balance is 90
days or more outstanding, unless payment terms are extended.
When an accou t balance is past due and attempts have been
made to collect the receivable through legal or other means
the amount is considered uncollectible and is written off
against the allowance balance.
At March 31, 2004 and at December 31, 2003 the accounts
receivable are presented net of an allowance for doubtful
accounts of (pound)152,266 and (pound)142,993, respectively.
C. Investments
Investments in companies in which the company has a 20% to 50%
interest are carried at cost, adjusted for the Company's
proportionate share of their undistributed earnings or losses.
D. Equipment
Equipment is stated at cost. Depreciation is calculated by the
declining balance method over the estimated useful lives of
the assets. Annual rates of depreciation are as follows.
Method Useful Life
------ -----------
Switching equipment straight line 10 years
Machinery and equipment reducing balance 4 years
Furniture and fixtures reducing balance 4 years
Motor vehicles reducing balance 4 years
F-9
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
E. Revenue Recognition
The Company's source of revenues results from charges to
customers for the call minutes they use while on the Company's
telecommunications system. Such revenues are recognized at the
time this service is rendered. Amounts prepaid by customers
are deferred and recorded as a liability and then recorded as
revenue when the customer utilizes the service. Messaging
services customers are being charged on a per minute basis,
per fax page or email. Commissions to agents are accounted as
marketing costs for the Company.
Management believes that the Company's revenue recognition
policies are in accordance with the Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101).
F. Reclassification
Certain reclassification of 2003 amounts have been made to
conform to the 2004 presentation.
G. Use of Estimated
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements, and the reports amounts of revenues and expenses
during the reported period. Actual results could differ from
those estimates.
H. Earnings Per Share
Earnings per share are calculated and reported in accordance
with Statement of Financial Accounting Standards No. 128,
Earning Per Share ("EPS") ("SFAS 128"). Basic EPS is computed
by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock
were exercised or converted into common stock that then shared
in the earnings of the entity.
I. Income Taxes
Income taxes are accounted for under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"
which is an asset and liability approach that requires the
recognition of deferred tax assets for the expected future tax
consequences of events that have been recognized in the
Company's financial statements or tax returns.
F-10
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
J. Stock-Based Compensation
The Company accounts for equity-based compensation
arrangements in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations, and
complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." All equity-based
awards to non-employees are accounted for their gair value in
accordance with SFAS No. 123. Under APB No. 25, compensation
expense is based upon the difference, if any, on the date of
grant, between the fair value of the Company's stock and the
exercise price.
K. New Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148 "Accounting For
Stock-Based Compensation - "Transition and Disclosure" which
provides alternative methods of transition for voluntary
change to fair value based method of accounting for
stock-based employee compensation. The Company does not have
any formal equity based compensation arrangements. However,
when it does issue equity as compensation it continues to
account for such transations in accordance with provisions of
APB No. 25 as permitted under the provisions of SFAS No. 123
(see item J above). The effect of this statement is not
expected to have a material impact on the Company's financial
condition, results of operations or cash flows.
F-11
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 3 - PREPAID EXPENSES AND OTHER RECEIVABLES
MAR-31 DEC-31 MAR-31 DEC-31
---------------- ---------------- ------------ -----------
2004 2003 2004 2003
---------------- ---------------- ------------ -----------
Convenience
translation into US$
Due from Swiftglobal, Ltd. (non-affiliated entity) (pound)36,187 (pound)37,687 $ 66,583 $ 69,344
Other prepaid expenses 263,784 117,650 485,363 216476
Due from Story Ltd (affiliated entity) 15,960 15,960 29,366 29366.4
Others receivables 116,780 169,647 214,875 312,150
---------------- ---------------- ------------ -----------
(pound)432,711 (pound)340,944 $ 796,188 $ 627,337
================ ================ ============ ===========
NOTE 4 - LOAN TO THE CHAIRMA OF THE BOARD AND SHAREHOLDER
The Company has a non-interest bearing loan of (pound)279,698 due from a
shareholder which is to be repaid as follows:
2004 (pound)47,032
2005 116,333
2006 116,333
===============
(pound)279,698
F-12
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
MAR 31, DEC 31, MAR 31, DEC 31,
------------------------------------ ------------------------------------
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
NOTE 5 - FIXED ASSETS Convenience
translation into US$
---------------- ----------------
COST
Equipment held under capital lease (pound)364,577 (pound)364,577 $ 670,822 $ 670,822
Office furniture and equipment 26,593 26,593 48,930 48,931
-- --
Development costs 52,040 32,060 95,754 58,990
Computers Equipment 153,235 136,556 281,952 251,263
---------------- ---------------- ---------------- ----------------
(pound)596,445 (pound)559,786 $ 1,097,459 $ 1,030,006
================ ================ ================ ================
ACCUMULATED DEPRECIATION
Equipment held under capital lease (pound)72,030 (pound)61,869 $ 132,535 $ 113,839
Office furniture and equipment 10,784 9,730 19,842 17,903
-- --
19,283 16,030 35,480 29,495
Computers Equipment 56,866 50,442 104,633 92,813
---------------- ---------------- ---------------- ----------------
(pound)158,963 (pound)138,071 $ 292,492 $ 254,051
================ ================ ================ ================
NOTE 6 - INVESTMENTS
The Company has investments in two business ventures of approximately 47
1/2% of Auracall Limited and 40% of Story, both start up entities in the
U.K. Through March 31, 2004, these entities cumulative respective net
losses have exceeded the Company's investments therein, respectively.
Accordingly, such investments have been reduced to zero. Story and
Auracall Limited buy their telecommunications services from the Company.
F13
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
MAR 31, DEC 31, MAR 31, DEC 31,
---------------- ---------------- ---------------- ----------------
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
NOTE 7 - OTHER LIABILITIES AND ACCRUED EXPENSES Convenience
Convenience
translation into US$
---------------- ----------------
Corporate taxes (pound)158,433 (pound)289,777 $ 291,516 $ 533,190
Professional fees 68,614 29,545 126,250 54,363
Payroll and other taxes 40,057 48,452 73,705 89,152
Due to Auracall Ltd ( Affiliated entity) 275 275 506 506
Others 11,162 11,760 20,539 21,638
---------------- ---------------- ---------------- ----------------
(pound)278,541 (pound)379,809 $ 512,515 $ 698,849
================ ================ ================ ================
NOTE 8 - NOTES PAYABLE
MAR 31, DEC 31, MAR 31, DEC 31,
---------------- ---------------- ---------------- ----------------
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
Convenience
translation into US$
---------------- ----------------
First National Finance - maturity 2004-5, annual
interest rate 7.16% (pound)4,000 (pound)4,000 $ 7,360 $ 7,360
Newcourt - maturity 2004-5, annual interest rate 2,166 3,166 3,986 5,825
---------------- ---------------- ---------------- ----------------
7.16% 6,166 7,166 11,346 13,185
Less: current portion -4,000 -4,000 -7,360 -7,360
---------------- ---------------- ---------------- ----------------
Notes payable - non current (pound)2,166 (pound)3,166 $ 3,986 $ 5,825
================ ================ ================ ================
F-14
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 8 - NOTES PAYABLE (CONT.)
B. MATURITIES OF NOTES PAYABLE ARE AS FOLLOWS
Convenience
translation into U.S.$
---------------------------
MAR 31,
----------
Year 1 (pound)4,000 $ 7,360
Year 2 2,166 3,986
------------ ---------------------------
(pound)6,167 $11,346
============ ===========================
NOTE 9 - CAPITAL LEASE OBLIGATIONS
The Company is the lessee of switching equipment under capital leases
expiring in various years through 2007. The assets and liabilities under
capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. The assets are
depreciated over their estimated productive lives. Depreciation of assets
under capital leases
Minimum future lease payments under capital leases as of March 31, 2004
for each of the next five years are:
Convenience
translation into U.S.$
---------------- ----------------------
MAR. 31,
------------------------------------------
2005 (pound)78,091 $ 143,688
2006 57,145 $ 105,146
2007 15,601 $ 28,707
2008 4,865 $ 8,952
---------------- ----------------------
Total minimum lease payments 155,703 286,493
Less: amount representing interest -19,884 -$36,588
---------------- ----------------------
Present value of net minimum lease payment (pound)135,819 (pound)249,905
================ ======================
Interest rates on capitalized leases vary up to 9.6%, per annum.
F-15
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 10 - INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS 109.
SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the
financial statement and tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax loss and tax credit
carryforward. The Company does not file consolidated tax returns.
The following table reflects the Company's deferred tax liabilities at
March 31, 2004 and December 31, 2003:
March 31, December 31, March 31, December 31,
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
Convenience
translation into U.S.$
------------------------------------
Accelerated taxwrite off of fixed assets (pound)36,109 (pound)36,109 $ 66,441 $ 66,441
---------------- ---------------- ---------------- ----------------
Deferred Tax liability (pound)36,109 (pound)36,109 $ 66,441 $ 66,441
================ ================ ================ ================
F-16
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 11 - CAPITAL STRUCTURE, STOCK OPTIONS AND DIVIDEND
Campbeltown Business Limited ("Campbeltown"), an entity owned by the Nissenson
family including the Company's President and Principal Executive Officer, a
shareholder, holds options from the Company and one of its directors to purchase
500,000 additional shares of the Company for the amount of $200,000. This
transaction can be executed either by the Company issuing new shares, or by the
director selling his private shares as long as he has an adequate amount of
shares, as the director will decide. This option will expire on December 31,
2005.
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.
On February 12, 2004, the Company closed an offering of 986,737 restricted
shares of common stock, with 1,136,737 Warrants A and 986,737 Warrants B.
The Company sold 969,237 shares of common stock with a Warrant A and B
attached for aggregate proceeds of 1,580,278($2,907,711). Costs associated
with this funding were 124,778 ($229,592) from the proceeds of the
offering and an additional 150,000 Warrant A, valued at 33,179($61,050).
Each Warrant A, which is not freely transferable, entitles the owner to
purchase one share, until not later than January/February 2009 at an
exercise price of $5.50. Each Warrant B, which is not freely transferable,
entitles the owner to purchase one share, until not later than until the
earlier of 10 days after this registration statement is effective or 10
days after our common stock is traded on the NASDAQ Small Cap or the
American Stock Exchange. The Warrants B are exercisable at an exercise
price of $3.50 and expire 375 days from the date of purchase of the
attached shares of restricted common stock. The Company sold shares with
attached Warrants A and B to a total of 16 persons and 8 entities.
During January 2004, the Company issued 17,500 shares and 17,500 warrants
A, and 17,500 warrants B for consulting sevices. During January and
February 2004, the company issued 150,000 warrants B for consulting and
prfessional services
F17
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XFONE, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 12 - EARNINGS PER SHARE
THREE MONTHS MARCH 2004
-------------------------------------------------------------------------
Weighted Average
INCOME SHARES PER SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS AMOUNTS
---------------- ---------------- ---------------- ----------------
Convenience
translation
into U.S.$
----------------
Net Income 103,069
BASIC EPS:
Income available to common stockholders 103,069 5,611,052 (pound)0.02 $ 0.03
Effect of dilutive securities:
Options & warrants 1,311,737
DILUTED EPS:
Income available to common stockholders 103,069 6,922,789 (pound)0.01 $ 0.03
THREE MONTHS MARCH 2004
-------------------------------------------------------------------------
Weighted Average
INCOME SHARES PER SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS AMOUNTS
---------------- ---------------- ---------------- ----------------
Convenience
translation
into U.S.$
----------------
Net Income 70,974
BASIC EPS:
Income available to common stockholders 70,974 5,033,444 0.01 $ 0.03
Effect of dilutive securities:
Options 500,000
DILUTED EPS:
Income available to common stockholders 70,974 5,533,444 0.01 $ 0.02
F-18
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XFONE, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 13 - SELECTED STATEMENT OF OPERATIONS DATA
Three Months Three Months Three Months Three Months
MAR.31 MAR.31 MAR.31 MAR.31
---------------- ---------------- ---------------- ----------------
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
Convenience translation into U.S.$
-------------------------------------
A. MARKETING & SELLING:
Advertising (pound)18,766 (pound)5,086 $ 34,529 $ 9,358
Consultancy 13,600 11,570 25,023 21,289
Commissions 334,843 182,655 616,110 336,085
Others -- -- -- --
---------------- ---------------- ---------------- ----------------
(pound)367,207 (pound) 199,311 $ 675,661 $ 366,732
================ ================ ================ ================
B. GENERAL & ADMINISTRATIVE:
Salaries & benefits (pound)93,883 (pound)65,908 $ 172,746 $ 121,271
Rent and maintenance 32,858 22,314 60,458 41,058
Communications 2,873 8,534 5,287 15,703
Professional fees 85,759 55,532 157,796 102,179
Bad debts 9,274 -- 17,063 --
Depreciation 9,523 6,447 17,522 11,862
Others -- 33,217 -- 61,119
---------------- ---------------- ---------------- ----------------
(pound)234,168 (pound)191,952 $ 430,869 $ 353,192
================ ================ ================ ================
F-19
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XFONE, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 13 - SELECTED STATEMENT OF OPERATIONS DATA (cont.)
THREE MONTHS THREE MONTHS
MAR.31 MAR.31 MAR.31 MAR.31
-------------------- ----------------- ------------------- -------------------
2004 2003 2004 2003
-------------------- ----------------- ------------------- -------------------
Convenience translation into U.S.$
---------------------------------------
C. FINANCING EXPENSES, NET:
Bank charges (pound)5,013 (pound)4,121 $ 9,225 $ 7,583
Interest on capital leases 2,497 968 4,595 1,781
Foreign currency exchange -1,523 -3,219 -2,802 -5,923
Other interest and charges 4,857 5,485 8,937 10,092
-------------------- ----------------- ------------------- -------------------
(pound)10,845 (pound)7,355 $19,954 $13,533
==================== ================= =================== ===================
F-20
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XFONE, INC. AND SUBSIDIARY
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NOTE 14 - RELATED PARTY TRANSACTIONS
Three Months Three Months
March 31, December 31, March 31, December 31,
2004 2003 2003 2004 2003 2003
Convenience translation into U.S. $
-----------------------------------
Shareholder's Salaries (pound)24,000 (pound)15,000 $44,160 $27,600
Campbeltown Business Ltd :
Fees 13,222 9,467 24,328 $17,419
Consultancy 14,250 14,250 26,220 $26,220
Trade payables 6,472 6,950 11,908 $12,788
Vision Consultants Limited :
Fees 13,222 9,467 24,328 $17,419
Story Telecom Limited :
Revenues 986,795 54,350 1,815,703 $100,004
Cost of revenues 930,939 51,274 $1,712,928 $94,344
Due from Story Telecom 686,796 429,604 1,263,705 790,471
Trade payables 25,918 22,771 47,689 41,899
Auracall Limited :
Revenues 134,623 8,650 247,706
Cost of revenues 62,426 4,131 114,864
Trade payables 5,860 18,040 10,782 33,194
F-21
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XFONE, INC. AND SUBSIDIARY
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NOTE 17 - SEGMENT INFORMATION (CONTINUED)
Revenues and operating profit
Three Months ended March 31,
2004 2003 2004 2003
Revenues: convenience translation into US $
--------- ---------------------------------
Telephone & Messaging 1,101,668 870,172 $2,027,069 $1,601,116
Mobile 119,560 108,880 219,990 200,339
calling cards 1,085,987 95,610 1,998,216 175,922
---------------- ---------------- ---------- ----------
Total Revenues (pound)2,307,215 (pound)1,074,662 4,245,276 1,977,378
---------------- ---------------- --------- ---------
Direct Operating expenses
Telephone & Messaging 786,833 576,585 1,447,773 1,060,916
Mobile 102,958 99,889 189,443 183,796
calling cards 1,006,290 80,156 1,851,574 147,487
---------------- ---------------- --------- ---------
Total expenses 1,896,081 756,630 3,488,789 1,392,199
---------------- ---------------- --------- ---------
DirectOperating Profit
Telephone & Messaging 314,835 293,587 579,296 540,200
Mobile 16,602 8,991 30,548 16,543
calling cards (pound)79,697 (pound)15,454 146,642 $28,435
---------------- ---------------- --------- ---------
Total Profits 411,134 318,032 756,487 556,744
Corporate and common operating
expenses. 276,533 225,858 508,821 415,579
------- ------- ------- -------
Operating profit 134,601 92,174 247,666 169,600
======= ======= ======= =======
F-22
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XFONE, INC. AND SUBSIDIARY
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NOTE 15 - FINANCIAL COMMITMENTS
The Company has annual rent commitments under a non-cancellable operating lease
of (pound)38,200, which terminates in December 2012. Rent expense for the
quarter ended March 31, 2004 and 2003, was (pound)15,113.
The Company has a performance based incentive agreement with its Chairman of the
Board and Campbeltown for which sets an amount due to such person/entity
amounting to 1% of the Company's revenues exclusive of revenues resulting from
Story.
The Company has an 18 month renewable consulting agreement with Campbeltown,
which is to expire on November 11, 2004 and is expected to be renewed. Under
this agreement Campbeltown agrees to provide (a) analysis of proposed
acquisitions; (b) such markets for the Company's telecommunications services in
additional countries; (c) formulate strategies for the Company's future growth
plans; and (d) introduce potential customers to the Company's business. The
Company is obligated to pay Campbeltown (pound)2,000 ($3,560) per month plus an
additional performance bonus based upon monthly revenue targets as follows:
Target Monthly Revenue Monthly Bonus Convenience
Translation US$
---------------------- -------------- -------------------
Up to(pound)125,000 - -
From(pound)125,000 to(pound)150,000 (pound)1,250 $2,300
From(pound)150,000 to(pound)175,000 (pound)2,500 $4,600
Over(pound)175,000 (pound)2,750 $5,060
The Company has commission agreements with various resellers that are entitled
to 10% of the revenues that they generate.
The Company anticipates annual maintenance of equipment to be
approximately(pound)50,000 ($89,000).
NOTE 16 - ECONOMIC DEPENDENCY AND CREDIT RISK
Approximately, 43% of total quarterly ended March 2004, revenues and 57% of
Accounts Receivables are derived from one customer Story Telecomm.
The Company may periodically maintain cash balances at a commercial bank in
excess of the Federal Deposit Insurance Corporation insurance limit of $100,000.
NOTE 17 - SEGMENT INFORMATION
The percentage of the Company's revenues is derived from the following segments.
Three Months
March 1, 2004 March 1, 2003
Telephone minute billing plus messaging services,
including facsimile, nodal, and e-mail related services 48% 81%
Mobile phone services 5% 10%
Calling cards 47% 9%
--------------
100% 100%
========
The Company has four major types of customers:
o Residential - These customers either must dial "dial 1
service" or acquire a box that dials automatically.
o Commercial - Smaller business are treated the same as
residential customers. Larger businesses' PBX units are
programmed.
o Governmental agencies - Include the United Nations World
Economic Forum, the Argentine Embassy and the Israeli Embassy.
o Resellers, such as WorldNet and Vsat - We provide them with
our telephone and messaging services. For WorldNet we also
provide the billing system.
F-23
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XFONE, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Assets
The assets of the company are for common usage for all reportable segments.
NOTE 18 - SUBSEQUENT EVENTS
During May 2004, the company established an Israely based subsidiary, Xfone
comunications Ltd.("Communications"). Communications applied for a license to
become an international telecom service provider in Israel. According to the
government regulation the company issued a bank guarantee to the government of
Israel for the ammount of 10M NIS, approximately, $2.3M Communications is owned
74% by the Company, 26% by HSN Communication Ltd., an Israeli based company,
that is owned: 40% by Ms Naama Harish, the wife of Dr. Eyal Harish a member of
the board of directors, 40% by Dionysos Investments Ltd., a company owned by
members of the family of the CEO of the Company. The Israeli Government
regulations mandate that a least 26% of the applicant company must be owned by
Israeli citzens residing in Israel. Communications has no operating activity and
is not expected to have any operating activity until its license is granted.
Item 2. Management's Discussion and Analysis
The following discussion provides information that we believe is relevant to our
financial condition and results of operations and should be read in conjunction
with our financial statements and related notes appearing elsewhere in this Form
10-QSB. This discussion contains forward-looking statements based on our current
expectations, assumptions, and estimates. The words or phrases "believe,"
"expect," "may," "anticipates," or similar expressions are intended to identify
"forward-looking statements." Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of risks and
uncertainties pertaining to our business. The terms "we," our" or "us" are used
in this discussion refer to Xfone, Inc. Statements made herein are as of the
date of the filing of this Form 10-QSB with the Securities and Exchange
Commission and should not be relied upon as of any subsequent date. Unless
otherwise required by applicable law, we do not undertake, and we specifically
disclaim any obligation, to update any forward-looking statements to reflect
occurrences, developments, unanticipated events or circumstances after the date
of such statement.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview.
We are a holding company that operates entirely through our subsidiary,
Swiftnet, Ltd., a U.K. based telecommunication service provider and licensed
telecommunication carrier. As of May 14, 2004, Swiftnet, Ltd. is and has been
our source of income. Through Swiftnet, we sell and develop telecommunication
services, including telephony, fax messages, mobile, calling cards, and Internet
driven applications and mainly in the United Kingdom and Europe. In addition,
Swiftnet provides services and telecom solutions to resellers and partners
worldwide. On October 4, 2000, Xfone acquired Swiftnet which had a business plan
to provide comprehensive telecommunication services and products by integrating
new and old products, services and ideas through one website. Swiftnet was
incorporated in 1991 under the laws of the United Kingdom. Until 1999, the main
revenues for Swiftnet were derived from messaging and fax broadcast services.
During the year 2000, Swiftnet shifted its business focus and our focus has
remained on telephony voice services offering comprehensive support packages to
resellers and new services. Utilizing automation and proprietary software
packages, Swiftnet's strategy is to grow without the need of heavy investments
and with lower expenses for operations and registration of new customers.
Approximately 90% of our revenues are derived from our customers located in the
United Kingdom. Our integrated revenue approach led to revenue from each source
as described below and is partially driven by the activities of other revenue
sources. Our revenues are dependent upon the following factors:
o Price competition in telephone rates;
o Demand for our services;
o Individual economic conditions in our markets; and
o Our ability to market our services
We have four major types of customers:
o Residential - These customers either must dial 1XXX or acquire a box
that dials automatically.
o Commercial - Smaller business are treated the same as residential
customers. Larger businesses' PBX (Telephony system) units are
programmed to dial the 1XXX automatically.
o Governmental agencies - Includes the United Nations World Economic
Forum, the Argentine Embassy and the Israeli Embassy.
o Resellers - We provide them with our telephone and messaging
services for a wholesale price, calling cards are treated by
resellers . For WorldNet we also provide the billing system.
Quarter ended March 31, 2004 and 2003.
Financial Information - Percentage of Revenues
Quarter ended March
31:
2004 2003
------------------------
Revenues 100% 100%
Cost of Revenues -68% -53%
Gross Profit 32% 47%
Operating Expenses:
Research and Development - -1%
Marketing and Selling -16% -18%
General and Administrative -10% -19%
Total Operating Expenses -26% -38%
Income before Taxes 6% 8%
Net Income 4% 7%
The US Dollars amounts for 2004 and 2003 are presented herein for convenience
only, at the current rate as of March 31, 2004: (pound)1 to $1.84.
Consolidated Statement of Operations
Revenues. Revenues for the quarter ended March 31, 2004 increased 115% to
(pound)2,307,215 ($4,245,275) from (pound)1,074,662 ($1,977,378) for the same
period in 2003. The increase in our Revenues is primarily attributable to the
revenues that derive from calling card services. Revenues generated from calling
cards grew to (pound)1,085,987 for the quarter ended March 31, 2004 from
(pound)95,610 for the same period of 2003. Main growth was generated by our
affiliated company Story Telecom, generating from calling cards revenues,
(pound)986,795 for the quarter ended March 31, 3004 as compared with
(pound)54,350 for the same period of 2003. All traffic generated by the Story
Telecom calling cards is delivered through our systems.
Segments of Revenues:
The following table reflects a breakdown of our Revenues according to our
segments of services as of March 31, 2004 and 2003:
Percentage of Revenues
2004 2003 2004 2003
---------------- ----------- ---------------- ----------- ----------- -----------
Regular telephony
voice service
and others: (pound)1,101,668 ($2,027,069) (pound)870,120 ($1,601,021) 48% 81%
Mobile (pound)119,560 ($ 219,990) (pound)108,880 ($ 200,339) 5% 10%
Calling Cards (pound)1,085,987 ($1,998,216) (pound)95,610 ($ 175,922) 47% 9%
---------------- ----------- ---------------- ----------- ----------- -----------
Total Revenues (pound)2,307,215 ($4,245,276) (pound)1,074,662 ($1,977,378) 100% 100%
The 26% growth in the regular telephony services is mainly attributable to an
increase of approximately 600 customers in the first quarter of 2004 since the
completion of the first quarter of 2003.
We believe that during the remaining quarterly reporting period during Fiscal
Year 2004, our current business base in the United Kingdom for the same type of
services and customers will continue to generate most of our revenues; however,
we plan to offer some new services and billing alternatives to stronger the
connection with our registered customers and to enable easy usage of our
services to non registered users.
Cost of Revenues. Cost of revenues consists primarily of traffic time purchased
from telephone companies, depreciation of relevant equipment and other related
charges. Cost of revenues increased 172% to (pound)1,561,238 ($2,872,679) for
the three months ended March 31, 2004, from (pound)582,225 ($1,071,294) for the
three months ended March 31, 2003, representing 68% and 54% of the total
revenues for the three months ended March 31, 2004 and March 31, 2003,
respectively. The increase in the cost of revenues as a percentage of revenues
is attributable to the increase of our revenues that derive from the Story
Telecom project that currently focuses on Calling Cards services. The Story
Telecom Project accounts for approximately 43% of our Revenues in the three
months ended March 31, 2004 and approximately 5% in the three months ended March
31, 2003. Our cost of revenues as a percentage of revenues in the Story Telecom
project is approximately 94% while the cost of revenues as a percentage of the
rest of our revenues was 48% for the three months ended March 31, 2004 and 51%
for the three months ended March 31, 2003. This decrease of the cost of revenues
as a percentage of revenues for non Story Telecom related revenues is mainly
attributable to lower prices negotiated with our new and old suppliers and that
we haven't reduced the prices for our services proportionally.
Cost of revenues breakdown:
2004 2003
Regular Telephony Services and others 630,299 ($1,159,750) 522,702 ($961,771)
Story Telecom 930,939 ($1,712,928) 51,273 ($94,343)
Total: (pound)1,561,238 ($2,872,679) (pound)573,975 ($1,056,114)
Should Story Telecom calling cards related revenues continue to grow faster than
our other business segments, our Cost of Revenues as a percentage of Revenues
will continue to increase. If market conditions, such as lower prices proposed
by competitors in the market, forces us to lower the prices that we charge our
customers, our cost of revenues as(pound) percentage of revenues will increase.
Gross Profit. Gross profit is total revenues less cost of revenues. Gross profit
excludes general corporate expenses, finance expenses and income tax. For the
three months ended March 31, 2004 and 2003, respectively, gross profit was
(pound)745,976 ($1,372,596) and (pound)492,437 ($906,084) which represents a 51%
increase. The gross profit as a percentage of revenues decreased to 32% for the
three months ended March 31 2004, from 46% for the three months ended March 31,
2003. Our project with our affiliate, Story Telecom, reduced our gross profit
margin because of the low margins involved in the project and its high volume.
The impact is partially negated by lower rates that we received from our
suppliers that relate to all our services.
Research and Development. Research and development expenses were (pound)10,000
($18,400) and (pound)9,000 ($16,650) for the three months ended March 31, 2004
and 2003, respectively. This represents less than 1% of our revenues for both
periods. These expenses consist of labor costs of our research and development
manager and other related costs. Main developments relate to the development of
our web site and its interconnections, the upgrade of software for our telephone
platforms, billing systems, messaging services, and the resellers support
package.
Marketing and Selling Expenses. Marketing and selling expenses increased to
(pound)367,207 ($675,661) from (pound)199,311 ($366,732) for the three months
ended March 31, 2004 and 2003, respectively. The increase in marketing expenses
is attributable to the increasing revenues derived from commission related
activities, including commissions for resellers of numbers similar to 1-800 or
1-900 with no specific geographical place. Our agreement with resellers can be
terminated within a relatively short notice 7-60 days. Our bigger non affiliated
reseller is Worldnet that generated approximately 6% of our Revenues in 2003,
Worldnet can terminate the agreement with a 7 days notice; should it decide to
terminate this agreement our Revenues will be affected accordingly. Marketing
and selling expenses as a percentage of revenues were 16% and 19% for the three
months ended March 31, 2004 and 2003, respectively.
General and Administrative Expenses. General and administrative expenses
increased by (pound)42,216 ($67,677) to (pound)234,168 ($430,869) from
(pound)191,952 ($353,192) for the three months ended March 31, 2004 and 2003
respectively. As a percentage of revenues, general and administrative expenses
decreased to 10% for the three months ended March 31, 2004 from 18% for the
three months ended March 31, 2003. The increase in our General and
Administrative Expenses is mainly attributable to: (a) an increase of
(pound)27,975 ($51,474) in the salaries and benefits paid to our management and
related employees; and (b) an increase of (pound)30,227 ($55,618) in
professional fees related to the growth in our operations and business
activities. The decrease in total General and Administrative expenses as a
percentage of revenues is mainly attributable to: (a) our 115% growth in
revenues; and (b) to the lesser increase of 21% in our General and
Administrative expenses, which was achieved by controlling expenses and the
usage of automation and computers.
Financing Expenses. Financing expenses, net, increased to (pound)10,845
($19,954) for the three months ended Months 31, 2004 from (pound)7,355 ($13,533)
for the three months ended March 31, 2003.
Income before Taxes. Income before taxes for the three months March 31, 2004
increased by 47% to (pound)129,069 ($237,488) from (pound)87,973 ($161,870) for
the three months ended March 31, 2003. The increase of the income before taxes
is attributable primarily to the increase of 49% in our Gross profit. Income
before taxes as a percentage of revenues was 6% for the three months ended March
31, 2004 and 8% for the three months ended March 31, 2003.
Taxes on Income. United Kingdom companies are usually subject to income tax at
the corporate rate of 20%-30%. Taxes on income for the three months ended March
31, 2004, amounted to (pound)26,000 ($47,840) which represents 20% of the income
before taxes as compared with (pound)17,000 ($31,280) for the three months ended
March 31, 2003 that represents 19% of the income before taxes.
Net Income. Net income for the three months ended March 31, 2004 increased by
45% to (pound)103,069 ($189,648) as compared to (pound)70,973 ($130,590) for the
three months ended March 31, 2003. Net income as percentage of revenues was 4.4%
and 7% for the three months ended March 31, 2004 and 2003 respectively.
Earning per share
The earning per share of common stock for the three months ended 31, 2004 was
(pound)0.02 ($0.03) for the basic weighted average 5,611,052 Shares and
(pound)0.01 ($0.03) for diluted weighted average 6,922,789 shares, including the
options and warrants to buy 2,623,474 shares. Earning per share for the three
months ended March 31, 2004 was (pound)0.01 ($o.o3) for the basic weighted
average 5,030,444 shares and (pound)0.03 ($0.02) for the diluted 5,530,444
shares.
Balance Sheet
Current Assets. Current assets amounted to (pound)3,810,615 ($7,011,529) as of
March 31, 2004 as compared to (pound)2,635,847 ($4,849,958) as of December 31,
2003. This increase in our current assets is mainly attributable to the growth
of (pound)1,150,109 ($2,116,201) in the Cash balance attributable to the funds
we raised during the quarter.
Loan to shareholder. Loan to the shareholder, Mr. Keinan, our Chairman of the
Board of Directors, amounted to (pound)279,698 ($514,644) as of March 31, 2004,
as compared to (pound)286,736 ($527,594) as of December 31, 2003. The decrease
represents a repayment of (pound)7,038 ($12,950). Out of the total amount,
(pound)47,032 ($86,538) is classified as current assets since Mr. Keinan agreed
with us to repay this specific current assets related amount during fiscal year
2004. In March 2004, Mr. Keinan signed a note to repay his loan in four
installments:
2004 (pound)54,070 ($96,245)
2005 (pound)116,333 ($207,073)
2006 (pound)116,333 ($207,073)
Fixed assets. Fixed assets after accumulated depreciation increased to
(pound)437,482 ($804,967) as of March 31, 2004 as compared with (pound)421,715
($775,955) as of December 31, 2003. Growth in fix assets reflects investments in
equipment and systems to enhance our efficiency and capacity.
Current Liabilities. As of March 31, 2003, current liabilities decreased to
(pound)1,796,147 ($3,304,908) as compared with (pound)2,174,284 ($4,000,681) as
of December 31, 2003. The decrease in our current liabilities results mainly
from a decrease of (pound)190,509 ($350,536) in our trade payables and the
decrease of (pound)131,344 in corporate taxes liabilities.
Liquidity and Capital resources December 31 2003.
Cash as of March 31, 2004 amounted to (pound)2,127,117 ($3,913,895) as compared
with (pound)977,008 ($1,739,075) for the year ended December 31, 2003. Since
December 31, 2003 our operations used a net cash amount of (pound)192,475. This
usage is mainly attributable to the decrease of (pound)190,509 in trade payables
and the decrease of (pound)129,801 in other payables. Financing activities,
including the private placement that we completed during the quarter ended March
3e1, 2004 generated proceeds in the amount of (pound)1,379,243 ($2,537,808).
During the three months ended March 31, 2004 we used (pound)(pound)36,659
($67,452) for the purchase of capital equipment. We have lease obligations to
repay (pound)78,091 ($143,687) during fiscal year 2004 and an additional
(pound)77,611 ($142,804) till the end of 2007. Our capital investments are
primarily for the purchase of equipment and software for services that we
provide or intend to provide. In the fiscal year 2004 we may procure additional
equipment, such as Switch modules and other Telecom systems and equipment, to
enhance our capacity in the United Kingdom for the amount of app (pound)100,000
($184,000).
We shall continue to finance our operations and fund the current commitments for
capital expenditures mainly from the cash provided from operating activities.
During January and February 2004, we completed a private placement in which we
raised gross proceeds of $2,907,711. Net new cash proceeds of the Financing,
approximately $2.7 million, are expected to be used for general working capital
and/or investment in equipment and/or for acquisitions and/or business
development. We are currently looking for possible acquisitions of United States
companies that provide telecom services, preferably of the same nature of the
current services provided by our United Kingdom subsidiary, Swiftnet. We are
also evaluating the establishment of subsidiaries or affiliates in two countries
to provide Telecom services of the same nature that we provide through our
United Kingdom subsidiary, Switfnet. In May 2004, we used our cash to establish
a bank guarantee in favor of the Government of Israel. The Government of Israel
has not yet granted us the license to operate an International telecom company;
if we fail to get the license the bank guarantee will be returned to us.
We believe that our future cash flow from operations together with our current
cash will be sufficient to finance our operation activities through the years
2004 and 2005. We will consider different financial alternatives like Bank loans
and or raising additional capital through a public or private placement to fund
possible acquisitions and the establishment of businesses in new locations.
Impact of Inflation and Currency Fluctuations.
As of March 31, 2004 our functional currency remains the United Kingdom Pound,
we do business also with U.S. Dollars. Even when we do business in other
countries rather than the United Kingdom or the United States we sell and buy in
either United Kingdom Pounds or United States Dollars.
Most of our revenues and current assets are in British Pounds, the long-term
loan to a shareholder is all in United Kingdom Pounds. Major part of our cash is
in United States Dollars.
Our cost of revenues is all in British Pounds, most of our liabilities,
operating and financing expenses are in United Kingdom Pounds. The remainder of
the assets, liabilities, revenues and expenditures are in U.S. Dollars.
A devaluation of the United Kingdom Pound in relation to the United States
Dollar will have the effect of decreasing the Dollar value of all assets or
liabilities that are in U.K. Pounds.
Conversely, any increase in the value of the United Kingdom Pound in relation to
the Dollar has the effect of increasing the Dollar value of all United Kingdom
Pounds assets and the Dollar amounts of any United Kingdom liabilities and
expenses.
Inflation would affect our operational results if we shall not be able to match
our Revenues with growing expenses caused by inflation.
If rate of inflation will cause a raise in salaries or other expenses and the
market conditions will not allow us to raise prices proportionally, it will have
a negative effect on the value of our assets and on our potential profitability.
Item 3. Controls and Procedures
As of March 31, 2004, the end of the period covered by this report, an
evaluation was performed under the supervision and with the participation of our
management, including our Principal Executive Officer and Principal Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, our management, including our
Principal Executive Officer and Principal Financial Officer, concluded that our
disclosure controls and procedures were effective as of March 31, 2004.
There have been no changes in our internal control over financial reporting
during the last quarter, which ended March 31, 2004, that have materially
affected or are reasonably likely to materially affect, our internal control
over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
On January 9, 2004, we granted 17,500 restricted shares of our common stock,
17,500 Warrants A, and 17,500 Warrants B to Stern & Company, a limited liability
company registered in New York which is owned, managed and controlled by Shai
Stern, in exchange for strategic planning related services. Each Warrant A is
exercisable into one share of common stock at an exercise price of $5.50 per
share. Each Warrant B is exercisable into one share of common stock at an
exercise price of $3.50 per share. We agreed to register the 17,500 shares of
common stock, the 17,500 shares underlying the Warrants A and the 17,500 shares
underlying the Warrants B. The Warrants A are exercisable at any time before
January 9, 2009. The Warrants B are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We relied upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Stern and Company had a preexisting relationship with Guy Nissenson,
our Principal Executive Officer and President.
On January 9, 2004, we sold 16,667 restricted shares of our common stock, 16,667
Warrants A, and 16,667 Warrants B to WEC Partners, LLC, a Delaware limited
liability company owned and controlled by Ethan Benovitz, Daniel Saks, and Jaime
Hartman, in exchange for $50,000. Each Warrant A is exercisable into one share
of common stock at an exercise price of $5.50 per share. Each Warrant B is
exercisable into one share of common stock at an exercise price of $3.50 per
share. We agreed to register the 16,667 shares of common stock, the 16,667
shares underlying the Warrants A and the 16,667 shares underlying the Warrants
B. The Warrants A are exercisable at any time before January 9, 2009. The
Warrants B are exercisable until the earlier of 10 days after this registration
statement is effective or 10 days after our common stock is traded on the NASDAQ
Small Cap or the American Stock Exchange or up until the date that is 375 days
following the date of purchase. We relied upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933. We believed Section 4(2)
was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. WEC Partners had a preexisting relationship with Guy Nissenson, our
Principal Executive Officer and President.
On January 9, 2004, in exchange for $300,000, we sold 100,000 restricted shares
of our common stock, 100,000 Warrants A, and 100,000 Warrants B to Platinum
Partners Value Arbitrage, a Cayman Islands based limited partnership; Mark
Nordlicht is the Managing Member of Platinum Management LLC, the General Partner
of this limited partnership, which is a limited liability company registered in
new York. Each Warrant A is exercisable into one share of common stock at an
exercise price of $5.50 per share. Each Warrant B is exercisable into one share
of common stock at an exercise price of $3.50 per share. We agreed to register
the 100,000 shares of common stock, the 100,000 shares underlying the Warrants A
and the 100,000 shares underlying the Warrants B. The Warrants A are exercisable
at any time before January 9, 2009. The Warrants B are exercisable until the
earlier of 10 days after this registration statement is effective or 10 days
after our common stock is traded on the NASDAQ Small Cap or the American Stock
Exchange or up until the date that is 375 days following the date of purchase.
We relied upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Platinum Management LLC had a preexisting relationship with Guy
Nissenson, our Principal Executive Officer and President.
On January 9, 2004, we sold 50,000 restricted shares of our common stock, 50,000
Warrants A, and 50,000 Warrants B to Countrywide Partners, LLC, a Delaware
limited liability company owned, managed, and controlled by Harry Adler, in
exchange for $150,000. Each Warrant A is exercisable into one share of common
stock at an exercise price of $5.50 per share. Each Warrant B is exercisable
into one share of common stock at an exercise price of $3.50 per share. We
agreed to register the 50,000 shares of common stock, the 50,000 shares
underlying the Warrants A and the 50,000 shares underlying the Warrants B. The
Warrants A are exercisable at any time before January 9, 2009. The Warrants B
are exercisable until the earlier of 10 days after this registration statement
is effective or 10 days after our common stock is traded on the NASDAQ Small Cap
or the American Stock Exchange or up until the date that is 375 days following
the date of purchase. We relied upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933. We believed Section 4(2) was
available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Countrywide Partners had a preexisting relationship with Guy
Nissenson, our Principal Executive Officer and President.
On or about January 15, 2003, we sold 5,000 restricted shares of our common
stock to WorldNet Global.com Ltd., a United Kingdom corporation controlled by
Vic Chhabria, at a price of $0.50 per share or an aggregate purchase price of
$2,500. On or about February 17, 2003, we sold an additional 5,650 restricted
shares of our common stock to WorldNet Global.com Ltd. at a price of $0.44 per
share or an aggregate purchase price of $2,500. On or about April 24, 2003, we
sold an additional 20,000 restricted shares of our common stock to WorldNet
Global.com Ltd. at a price of $0.25 per share or an aggregate purchase price of
$5,000. On or about May 16, 2003, we sold an additional 9,615 restricted shares
of our common stock to WorldNet Global.com Ltd. at a price of $0.26 per share or
an aggregate purchase price of $2,500. On or about August 28, 2003, we sold an
additional 11,750 restricted shares of our common stock to WorldNet Global.com
Ltd. at a price of $0.425 per share or an aggregate purchase price of $5,000. On
or about September 3, 2003, we sold an additional 4,780 restricted shares of our
common stock to WorldNet Global.com Ltd. at a price of $0.523 per share or an
aggregate purchase price of $2,500. On or about October 27 2003, we sold an
additional 1,025 restricted shares of our common stock to WorldNet Global.com
Ltd. at a price of $2.43 per share or an aggregate purchase price of $2,500. We
relied upon Section 4(2) of the Act for the offers and sales to WorldNet
Global.com, Ltd. We believed that Section 4(2) was available because the sales
did not involve a public offering and there was no general solicitation or
general advertising involved in the sales. WorldNet Global.com Ltd. had a
pre-existing relationship with us as a reseller of our telecommunications
services. We placed legends on the stock certificates stating that the
securities were not registered under the Securities Act of 1933 and set forth
the restrictions on their transferability and sale.
On January 15, 2004, we sold 5,000 restricted shares of our common stock, 5,000
Warrants A, and 5,000 Warrants B to Arik Ecker in exchange for $15,000. Each
Warrant A is exercisable into one share of common stock at an exercise price of
$5.50 per share. Each Warrant B is exercisable into one share of common stock at
an exercise price of $3.50 per share. We agreed to register the 5,000 shares of
common stock, the 5,000 shares underlying the Warrants A and the 5,000 shares
underlying the Warrants B. The Warrants A are exercisable at any time before
January 15, 2009. The Warrants B are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We relied upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Arik Ecker had a preexisting relationship with Guy Nissenson, our
Principal Executive Officer and President.
On January 15, 2004, we sold 8,500 restricted shares of our common stock, 8,500
Warrants A, and 8,500 Warrants B to Zwi Ecker in exchange for $25,500. Each
Warrant A is exercisable into one share of common stock at an exercise price of
$5.50 per share. Each Warrant B is exercisable into one share of common stock at
an exercise price of $3.50 per share. We agreed to register the 8,500 shares of
common stock, the 8,500 shares underlying the Warrants A and the 8,500 shares
underlying the Warrants B. The Warrants A are exercisable at any time before
January 15, 2009. The Warrants B are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We relied upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Zwi Ecker had a preexisting relationship with Guy Nissenson, our
Principal Executive Officer and President.
On January 15, 2004, we sold 13,000 restricted shares of our common stock,
13,000 Warrants A, and 13,000 Warrants B to Simon Langbart in exchange for
$39,000. Each Warrant A is exercisable into one share of common stock at an
exercise price of $5.50 per share. Each Warrant B is exercisable into one share
of common stock at an exercise price of $3.50 per share. We agreed to register
the 13,000 shares of common stock, the 13,000 shares underlying the Warrants A
and the 13,000 shares underlying the Warrants B. The Warrants A are exercisable
at any time before January 15, 2009. The Warrants B are exercisable until the
earlier of 10 days after this registration statement is effective or 10 days
after our common stock is traded on the NASDAQ Small Cap or the American Stock
Exchange or up until the date that is 375 days following the date of purchase.
We relied upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Simon Langbart had a preexisting relationship with Guy Nissenson,
our Principal Executive Officer and President.
On January 15, 2004, we sold 5,000 restricted shares of our common stock, 5,000
Warrants A, and 5,000 Warrants B to Robert Langbart in exchange for $15,000.
Each Warrant A is exercisable into one share of common stock at an exercise
price of $5.50 per share. Each Warrant B is exercisable into one share of common
stock at an exercise price of $3.50 per share. We agreed to register the 5,000
shares of common stock, the 5,000 shares underlying the Warrants A and the 5,000
shares underlying the Warrants B. The Warrants A are exercisable at any time
before January 15, 2009. The Warrants B are exercisable until the earlier of 10
days after this registration statement is effective or 10 days after our common
stock is traded on the NASDAQ Small Cap or the American Stock Exchange or up
until the date that is 375 days following the date of purchase. We relied upon
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Robert Langbart had a preexisting relationship with Guy Nissenson,
our Principal Executive Officer and President.
On January 15, 2004, we sold 3,000 restricted shares of our common stock, 3,000
Warrants A, and 3,000 Warrants B to Michael Derman in exchange for $9,000. Each
Warrant A is exercisable into one share of common stock at an exercise price of
$5.50 per share. Each Warrant B is exercisable into one share of common stock at
an exercise price of $3.50 per share. We agreed to register the 3,000 shares
ofcommon stock, the 3,000 shares underlying the Warrants A and the 3,000 shares
underlying the Warrants B. The Warrants A are exercisable at any time before
January 15, 2009. The Warrants B are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We relied upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Michael Derman had a preexisting relationship with Guy Nissenson,
our Principal Executive Officer and President.
On January 15, 2004, we sold 7,000 restricted shares of our common stock, 7,000
Warrants A, and 7,000 Warrants B to Errol Derman in exchange for $21,000. Each
Warrant A is exercisable into one share of common stock at an exercise price of
$5.50 per share. Each Warrant B is exercisable into one share of common stock at
an exercise price of $3.50 per share. We agreed to register the 7,000 shares of
common stock, the 7,000 shares underlying the Warrants A and the 7,000 shares
underlying the Warrants B. The Warrants A are exercisable at any time before
January 15, 2009. The Warrants B are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We relied upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Errol Derman had a preexisting relationship with Guy Nissenson, our
Principal Executive Officer and President.
On January 15, 2004, we sold 8,000 restricted shares of our common stock, 8,000
Warrants A, and 8,000 Warrants B to Yuval Haim Sobel in exchange for $24,000.
Each Warrant A is exercisable into one share of common stock at an exercise
price of $5.50 per share. Each Warrant B is exercisable into one share of common
stock at an exercise price of $3.50 per share. We agreed to register the 8,000
shares of common stock, the 8,000 shares underlying the Warrants A and the 8,000
shares underlying the Warrants B. The Warrants A are exercisable at any time
before January 15, 2009. The Warrants B are exercisable until the earlier of 10
days after this registration statement is effective or 10 days after our common
stock is traded on the NASDAQ Small Cap or the American Stock Exchange or up
until the date that is 375 days following the date of purchase. We relied upon
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Yuval Haim Sobel had a preexisting relationship with Guy Nissenson,
our Principal Executive Officer and President.
On January 15, 2004, we sold 8,000 restricted shares of our common stock, 8,000
Warrants A, and 8,000 Warrants B to Zvi Sobel in exchange for $24,000. Each
Warrant A is exercisable into one share of common stock at an exercise price of
$5.50 per share. Each Warrant B is exercisable into one share of common stock at
an exercise price of $3.50 per share. We agreed to register the 8,000 shares of
common stock, the 8,000 shares underlying the Warrants A and the 8,000 shares
underlying the Warrants B. The Warrants A are exercisable at any time before
January 15, 2009. The Warrants B are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We relied upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Zvi Sobel had a preexisting relationship with Guy Nissenson, our
Principal Executive Officer and President.
On January 15, 2004, we sold 8,400 restricted shares of our common stock, 8,400
Warrants A, and 8,400 Warrants B to Tenram Investments, Ltd. in exchange for
$25,200. Each Warrant A is exercisable into one share of common stock at an
exercise price of $5.50 per share. Each Warrant B is exercisable into one share
of common stock at an exercise price of $3.50 per share. We agreed to register
the 8,400 shares of common stock, the 8,400 shares underlying the Warrants A and
the 8,400 shares underlying the Warrants B. The Warrants A are exercisable at
any time before January 15, 2009. The Warrants B are exercisable until the
earlier of 10 days after this registration statement is effective or 10 days
after our common stock is traded on the NASDAQ Small Cap or the American Stock
Exchange or up until the date that is 375 days following the date of purchase.
We relied upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Tenram Investments, Ltd. had a preexisting relationship with Guy
Nissenson, our Principal Executive Officer and President.
On January 15, 2004, we sold 10,000 restricted shares of our common stock,
10,000 Warrants A, and 10,000 Warrants B to Michael Zinn in exchange for
$30,000. Each Warrant A is exercisable into one share of common stock at an
exercise price of $5.50 per share. Each Warrant B is exercisable into one share
of common stock at an exercise price of $3.50 per share. We agreed to register
the 10,000 shares of common stock, the 10,000 shares underlying the Warrants A
and the 10,000 shares underlying the Warrants B. The Warrants A are exercisable
at any time before January 15, 2009. The Warrants B are exercisable until the
earlier of 10 days after this registration statement is effective or 10 days
after our common stock is traded on the NASDAQ Small Cap or the American Stock
Exchange or up until the date that is 375 days following the date of purchase.
We relied upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Michael Zinn had a preexisting relationship with Guy Nissenson, our
Principal Executive Officer and President.
On January 22, 2004, we granted 100,000 Warrants A to Hamilton, Lehrer & Dargan,
P.A. in exchange for legal services rendered to us. Each Warrant A is
exercisable into one share of common stock at an exercise price of $5.50 per
share. We agreed to register the 100,000 shares of common stock underlying the
Warrants A. The Warrants A are exercisable at any time before January/February
2009. We relied upon the exemption from registration provided by Section 4(2) of
the Securities Act of 1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Hamilton, Lehrer & Dargan, P.A. had a preexisting relationship with
Guy Nissenson, our Principal Executive Officer and President.
On January 25, 2004, we sold 20,000 restricted shares of our common stock,
20,000 Warrants A, and 20,000 Warrants B to Michael Weiss in exchange for
$60,000. Each Warrant A is exercisable into one share of common stock at an
exercise price of $5.50 per share. Each Warrant B is exercisable into one share
of common stock at an exercise price of $3.50 per share. We agreed to register
the 20,000 shares of common stock, the 20,000 shares underlying the Warrants A
and the 20,000 shares underlying the Warrants B. The Warrants A are exercisable
at any time before January 25, 2009. The Warrants B are exercisable until the
earlier of 10 days after this registration statement is effective or 10 days
after our common stock is traded on the NASDAQ Small Cap or the American Stock
Exchange or up until the date that is 375 days following the date of purchase.
We relied upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Michael Weiss had a preexisting relationship with Guy Nissenson, our
Principal Executive Officer and President.
On January 30, 2004, we sold 16,667 restricted shares of our common stock,
16,667 A Warrants, and 16,667 B Warrants to Oded Levy in exchange for $50,000.
Each A Warrant is exercisable into one share of common stock at an exercise
price of $5.50 per share. Each B Warrant is exercisable into one share of common
stock at an exercise price of $3.50 per share. We agreed to register the 16,667
shares of common stock, the 16,667 shares underlying the A Warrants and the
16,667 shares underlying the B Warrants. The A Warrants are exercisable at any
time before January 30, 2009. The B Warrants are exercisable until the earlier
of 10 days after this registration statement is effective or 10 days after our
common stock is traded on the NASDAQ Small Cap or the American Stock Exchange or
up until the date that is 375 days following the date of purchase. We paid a
finders fee in the amount of $4,000 to Oberon Group, LLC, a limited liability
company registered in New York, which is owned, managed and controlled by Adam
Breslawsky, in connection with the sale. We relied upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933. We believed
Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment.
On January 30, 2004, we sold 66,667 restricted shares of our common stock,
66,667 A Warrants, and 66,667 B Warrants to Southridge Partners, LP, a limited
partnership registered in Delaware, in exchange for $200,000. Stephen Nicks is
the President of the limited partnership's general partner, Southridge Capital
Management. Each A Warrant is exercisable into one share of common stock at an
exercise price of $5.50 per share. Each B Warrant is exercisable into one share
of common stock at an exercise price of $3.50 per share. We agreed to register
the 66,667 shares of common stock, the 66,667 shares underlying the A Warrants
and the 66,667 shares underlying the B Warrants. The A Warrants are exercisable
at any time before January 30, 2009. The B Warrants are exercisable until the
earlier of 10 days after this registration statement is effective or 10 days
after our common stock is traded on the NASDAQ Small Cap or the American Stock
Exchange or up until the date that is 375 days following the date of purchase.
We paid a finders fee in the amount of $16,000 to Oberon Group, LLC, a limited
liability company registered in New York, which is owned, managed and controlled
by Adam Breslawsky, in connection with the sale. We relied upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933. We
believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Southridge Partners, LP had a preexisting relationship with Guy
Nissenson, our Principal Executive Officer and President.
On January 30, 2004,we sold 5,000 restricted shares of our common stock, 5,000 A
Warrants, and 5,000 B Warrants to Adam Breslawsky in exchange for $15,000. Each
A Warrant is exercisable into one share of common stock at an exercise price of
$5.50 per share. Each B Warrant is exercisable into one share of common stock at
an exercise price of $3.50 per share. We agreed to register the 5,000 shares of
common stock, the 5,000 shares underlying the A Warrants and the 5,000 shares
underlying the B Warrants. The A Warrants are exercisable at any time before
January 30, 2009. The B Warrants are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We paid a finders fee in
the amount of $1,200 to Oberon Group, LLC, a limited liability company
registered in New York, which is owned, managed and controlled by Adam
Breslawsky, in connection with the sale. We relied upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933. We believed
Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Adam Breslawsky had a preexisting relationship with Guy Nissenson,
our Principal Executive Officer and President.
On January 30, 2004, we sold 6,667 restricted shares of our common stock, 6,667
Warrants A, and 6,667 Warrants B to Michael Epstein in exchange for $20,000.
Each Warrant A is exercisable into one share of common stock at an exercise
price of $5.50 per share. Each Warrant B is exercisable into one share of common
stock at an exercise price of $3.50 per share. We agreed to register the 6,667
shares of common stock, the 6,667 shares underlying the Warrants A and the 6,667
shares underlying the Warrants B. The Warrants A are exercisable at any time
before January 30, 2009. The Warrants B are exercisable until the earlier of 10
days after this registration statement is effective or 10 days after our common
stock is traded on the NASDAQ Small Cap or the American Stock Exchange or up
until the date that is 375 days following the date of purchase. We paid a
finders fee in the amount of $1,600 to Oberon Group, LLC, a limited liability
company registered in New York, which is owned, managed and controlled by Adam
Breslawsky, in connection with the sale. We relied upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933. We believed
Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment
On January 30, 2004, we sold 13,334 restricted shares of our common stock,
13,334 Warrants A, and 13,334 Warrants B to Stephen Frank in exchange for
$40,000. Each Warrant A is exercisable into one share of common stock at an
exercise price of $5.50 per share. Each Warrant B is exercisable into one share
of common stock at an exercise price of $3.50 per share. We agreed to register
the 13,334 shares of common stock, the 13,334 shares underlying the Warrants A
and the 13,334 shares underlying the Warrants B. The Warrants A are exercisable
at any time before January 30, 2009. The Warrants B are exercisable until the
earlier of 10 days after this registration statement is effective or 10 days
after our common stock is traded on the NASDAQ Small Cap or the American Stock
Exchange or up until the date that is 375 days following the date of purchase.
We paid a finders fee in the amount of $3,200 to Oberon Group, LLC, a limited
liability company registered in New York, which is owned, managed and controlled
by Adam Breslawsky, in connection with the sale. We relied upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933. We
believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment.
On January 30, 2004, we sold 66,667 restricted shares of our common stock,
66,667 Warrants A, and 66,667 Warrants B to Southshore Capital Fund LTD, a
Cayman Islands corporation, in exchange for $200,000. Navigator Management is
the Corporate Director of Southshore Capital Fund, Ltd. and the Director and
control person of Navigator Management is David Sims. Each Warrant A is
exercisable into one share of common stock at an exercise price of $5.50 per
share. Each Warrant B is exercisable into one share of common stock at an
exercise price of $3.50 per share. We agreed to register the 66,667 shares of
common stock, the 66,667 shares underlying the Warrants A and the 66,667 shares
underlying the Warrants B. The Warrants A are exercisable at any time before
January 30, 2009. The Warrants B are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We paid a finders fee in
the amount of $16,000 to Oberon Group, LLC, a limited liability company
registered in New York, which is owned, managed and controlled by Adam
Breslawsky, in connection with the sale. We relied upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933. We believed
Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment
On February 2, 2004, we sold 500,000 restricted shares of our common stock,
500,000 Warrants A, and 500,000 Warrants B to Crestview Capital Master, LLC, a
limited liability company registered in Delaware which is controlled by Richard
Levy and Stuart Flink, in exchange for $1,500,000. Each Warrant A is exercisable
into one share of common stock at an exercise price of $5.50 per share. Each
Warrant B is exercisable into one share of common stock at an exercise price of
$3.50 per share. We agreed to register the 500,000 shares of common stock, the
500,000 shares underlying the Warrants A and the 500,000 shares underlying the
Warrants B. The Warrants A are exercisable at any time before February 2, 2009.
The Warrants B are exercisable until the earlier of 10 days after this
registration statement is effective or 10 days after our common stock is traded
on the NASDAQ Small Cap or the American Stock Exchange or up until the date that
is 375 days following the date of purchase. We paid a finders fee in the amount
of $120,000 to Oberon Group, LLC, a limited liability company registered in New
York, which is owned, managed and controlled by Adam Breslawsky, in connection
with the sale. We relied upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933. We believed Section 4(2) was
available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment.
On February 11, 2004, we sold 3,334 restricted shares of our common stock, 3,334
Warrants A, and 3,334 Warrants B to Joshua Lobel in exchange for $10,000. Each
Warrant A is exercisable into one share of common stock at an exercise price of
$5.50 per share. Each Warrant B is exercisable into one share of common stock at
an exercise price of $3.50 per share. We agreed to register the 3,334 shares of
common stock, the 3,334 shares underlying the Warrants A and the 3,334 shares
underlying the Warrants B. The Warrants A are exercisable at any time before
February 11, 2009. The Warrants B are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We paid a finders fee in
the amount of $800 in connection with the sale. We relied upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933. We
believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Joshua Lobel had a preexisting relationship with Guy Nissenson, our
Principal Executive Officer and President.
On February 11, 2004, we sold 8,334 restricted shares of our common stock, 8,334
Warrants A, and 8,334 Warrants B to Joshua Kazam in exchange for $25,000. Each
Warrant A is exercisable into one share of common stock at an exercise price of
$5.50 per share. Each Warrant B is exercisable into one share of common stock at
an exercise price of $3.50 per share. We agreed to register the 8,334 shares of
common stock, the 8,334 shares underlying the Warrants A and the 8,334 shares
underlying the Warrants B. The Warrants A are exercisable at any time before
February 11, 2009. The Warrants B are exercisable until the earlier of 10 days
after this registration statement is effective or 10 days after our common stock
is traded on the NASDAQ Small Cap or the American Stock Exchange or up until the
date that is 375 days following the date of purchase. We relied upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933. We believed Section 4(2) was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. Joshua Kazam had a preexisting relationship with Guy Nissenson, our
Principal Executive Officer and President.
On February 12, 2004, we sold 20,000 restricted shares of our common stock,
20,000 Warrants A, and 20,000 Warrants B to The Oberon Group, LLC, a limited
liability company registered in New York, which is owned, managed and controlled
by Adam Breslawsky, in exchange for $60,000. Each Warrant A is exercisable into
one share of common stock at an exercise price of $5.50 per share. Each Warrant
B is exercisable into one share of common stock at an exercise price of $3.50
per share. We agreed to register the 20,000 shares of common stock, the 20,000
shares underlying the Warrants A and the 20,000 shares underlying the Warrants
B. The Warrants A are exercisable at any time before February 12, 2009. The
Warrants B are exercisable until the earlier of 10 days after this registration
statement is effective or 10 days after our common stock is traded on the NASDAQ
Small Cap or the American Stock Exchange or up until the date that is 375 days
following the date of purchase. We relied upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933. We believed Section 4(2)
was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. the Oberon Group, LLC had a preexisting relationship with Guy
Nissenson, our Principal Executive Officer and President.
During February 2004, we granted 50,000 Warrants A to The Oberon Group, LLC., a
limited liability company registered in New York, in exchange for services
rendered to us. Each Warrant A is exercisable into one share of common stock at
an exercise price of $5.50 per share. We agreed to register the 50,000 shares of
common stock underlying the Warrants A. The Warrants A are exercisable at any
time before February 2009. We relied upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933. We believed Section 4(2)
was available because:
i. the offer and sale did not involve a public offering;
ii. all certificates were marked with restrictive legends;
iii. each investor represented they were sophisticated enough to evaluate
the merits of the investment; and
iv. the Oberon Group had a preexisting relationship with Guy Nissenson,
our Principal Executive Officer and President.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Index of Exhibits
Exhibit
Number Description
2. Agreement and plan or reorganization between Xfone, Inc. and Swiftnet Ltd.
dated September 20, 2000 (1)
3.1 Articles of Incorporation of Xfone, Inc.(1)
3.2a Bylaws of Xfone, Inc.(1)
3.2b Amended Bylaws of Xfone, Inc.(4)
3.3 Articles of Incorporation of Swiftnet, Ltd.(1)
3.4 Bylaws of Swiftnet, Ltd.(1)
3.5 Amended bylaws of Xfone, Inc.(3)
4. Specimen Stock Certificate(1)
5. Opinion of Hamilton, Lehrer & Dargan, P.A. (6)
10.1 Agreement between Swiftnet Ltd. and Guy Nissenson dated May 11, 2000(1)
10.2 Employment Agreement with Bosmat Houston dated January 1, 2000(1)
10.3 Loan Agreement with Swiftnet Ltd., Guy Nissenson, and Nissim Levy dated
August 5, 2000(1)
10.4 Promissory Note executed between Xfone and Swiftnet Ltd. dated September
29, 2000(1)
10.5 Stock Purchase Agreement between Swiftnet, Ltd, Abraham Keinan, and
Campbeltown Business, Ltd. dated June 19, 2000(1)
10.6 Consulting Agreement between Swiftnet, Ltd. and Campbeltown Business, Ltd.
dated May 5, 2000(1)
10.7 Agreement with Campbeltown Business Ltd. dated July 30, 2001(1)
10.8 Contract with WorldCom International, Ltd. dated June 20, 1998(1)
10.9 Contract with VoiceNet Inc. dated April 11, 2000(1)
10.10 Contract with InTouchUK.com Ltd. dated April 25, 2000(1)
10.11 Letter of Understanding from Campbeltown Business, Ltd. to Xfone, Inc.
dated July 30, 2001 (2)
10.12 Agreement between Adar International, Inc./Mr. Sidney J. Golub and
Swiftnet dated April 6, 2000 (2)
10.13 Lease Agreement between Elmtree Investments, Ltd. and Swiftnet, Ltd. dated
December 4, 1991 (2)
10.14 Lease Agreement between Postwick Property Holdings Limited and Swiftnet,
Ltd. dated October 8, 2001.(2)
10.15 Agreement between Xfone, Inc., Swiftnet, Ltd., and Nir Davidson dated
September 30, 2002 (5)
10.16 As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy,
Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders
Platinum Partners Value Arbitrage Fund LP, Countrywide Partners LLC and WEC
Partners LLC. [3 investors] (6)
10.17 As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy,
Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders
Simon Langbart, Robert Langbart, Arik Ecker, Zwi Ecker, Michael Derman, Errol
Derman,Yuval Haim Sobel, Zvi Sobel, Tenram Investment Ltd., Michael Zinn,
Michael Weiss. [11 investors] (6)
10.18 As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy,
Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders
Southridge Partners LP and Southshore Capital Fund Ltd. [2 investors] (6)
10.19 As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy,
Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders
Crestview Capital Master LLC. [1 investors] (6)
10.20 As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy,
Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders
Adam Breslawsky, Oded Levy, Michael Epstein, Steven Frank, Joshua Lobel, Joshua
Kazan and The Oberon Group LLC. [7 investors] (6)
10.21 Agreement with Newco (Auracall Limited) (6)
10.22 Agreement with ITXC Corporation(6)
10.23 Agreement with Teleglobe International(6)
10.24 Agreement with British Telecommunications(6)
10.25 Agreement with Easyair Limited (OpenAir) (6)
10.26 Agreement with Worldnet(6)
10.27 Agreement with Portfolio PR(6)
10.28 Agreement with Stern and Company(6)
10.29 December 31, 2003 letter to Xfone from A. Keinan(6)
21. List of Subsidiaries(1)
23. Consent of Chaifetz & Schreiber, P.C. (6)
24. Consent of Hamilton, Lehrer & Dargan, P.A. included in Exhibit 5
----------
(1) Denotes previously filed exhibits: filed on August 10, 2001 with Xfone,
Inc.'s SB-2 registration statement, file # 333-67232.
(2) Denotes previously filed exhibits: filed on October 16, 2001 with Xfone,
Inc.'s SB-2/Amendment 1 registration statement, file # 333-67232.
(3) Denotes previously filed exhibit: filed on November 28, 2001 with Xfone,
Inc.'s SB-2/Amendment 2 registration statement, file # 333-67232.
(4) Denotes previously filed exhibit: filed on December 5, 2002 with Xfone,
Inc.'s Form 8-K.
(5) Denotes previously filed exhibit: filed on March 3, 2003 with Xfone,
Inc.'s SB-2/Post Effective Amendment No. 2 registration statement, file #
333-67232
(6) Denotes previously filed exhibit: filed on April 15, 2004 with Xfone,
Inc.'s SB-2/ Amendment 1 registration statement, file #333-113020
We hereby incorporate the following additional documents by reference: (a) our
Forms 10-KSB for the year ended December 31, 2001 which was filed on March 27,
2002, for the year ended December 31, 2002 which was filed on March 31, 2003 and
amended on April 21, 2004, and for the year ended December 31, 2003 which was
filed on April 1, 2004 and amended on April 21, 2004; (b) our Registration
Statement on Form SB-2 and all amendments thereto which was filed on February
23, 2004 and amended on April 15, 2004; and our Registration Statement on Form
SB-2 and all amendments thereto which was filed on August 10, 2001 and amended
on October 16, 2001, November 28, 2001, December 27, 2001, December 28, 2001,
February 4, 2002, March 3, 2003, and April 8, 2003; (c) our Forms 10-QSB and all
amendments thereto for the periods ended: March 31, 2002 which was filed on May
14, 2002, June 30, 2002 which was filed on August 13, 2002 and amended on August
20, 2002, September 30, 2002 which was filed on November 14, 2002, March 31,
2003 which was filed on May 15, 2003 and amended on April 21, 2004, June 30,
2003 which was filed on August 14, 2003 and amended on April 21, 2004, and
September 30, 2003 which was filed on November 10, 2003 and amended on April 21,
2004.
b) Reports on Form 8-K
On February 18, 2004, we filed Form 8-K, Item 5 Other Events, to disclose the
completion of a private placement of shares of our common stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 17, 2004 XFONE, INC.
By: /s/ Guy Nissenson
Guy Nissenson, President/Chief
Executive Officer