UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-KSB
Annual Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended
December 31, 2002
Commission file number
333-67232
XFONE, INC.
(Name of small business issuer in its charter)
Nevada 11-3618510
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
960 High Road
London, United Kingdom N12 9RY
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 011.44.2084469494
(Former name and former address if changed since last report)
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 Par Value OTC Bulletin Board
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|
The issuer's revenues for its most recent fiscal year were $5,986,298.
As of March 26, 2003, there were 5,071,539 shares of our common stock issued and
outstanding; as of June 4, 2004, there were 6,105,445 shares of our common stock
issued and outstanding.
We have incorporated by reference, our Form SB-2 Registration Statement and all
amendments thereto.
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-KSB
YEAR ENDED DECEMBER 31, 2002
PART I
Item 1. Description of Business .........................................3
Item 2. Description of Property.........................................12
Item 3. Legal Proceedings...............................................13
Item 4 Submission of Matters to a Vote of Security Holders.............14
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........15
Item 6. Management's Discussion and Analysis or Plan of Operation.......17
Item 7. Financial Statements............................................21
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.............................22
Item 8A. Controls and Procedures.........................................22
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act...............22
Item 10. Executive Compensation..........................................24
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters......................25
Item 12. Certain Relationships and Related Transactions..................27
Item 13. Exhibits and Reports on Form 8-K................................33
Item 14. Principal Accountant Fees and Services..........................35
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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Forward-Looking Statements
The words or phrases "would be," "will allow," "intends to," "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," 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.
Statements made herein are as of the date of the filing of this Form 10-KSB 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.
PART I
Item 1. Description of Business
General
We were incorporated in the State of Nevada on September 1, 2000 to acquire our
wholly owned subsidiary Swiftnet, Ltd. and to conduct Swiftnet's
telecommunications business. Swiftnet was incorporated under the laws of the
United Kingdom on February 12, 1990. We completed the acquisition of Swiftnet on
October 4, 2000 through a share exchange whereby we acquired all of Swiftnet's
issued and outstanding stock in exchange for 2.4 million shares of our newly
issued common stock. At the time of the share exchange, the 2.4 million shares
represented 55% of our issued shares. As a result of the share exchange,
Swiftnet became our subsidiary, the members of Swiftnet's board of directors
were appointed to our board of directors and Swiftnet's officers became our
officers. We are authorized to issue 25,000,000 shares of common stock. As of
March 26, 2003, there are 5,071,539 shares of common stock issued and
outstanding; as of June 4, 2004, there were 6,105,445 shares of our common stock
issued and outstanding. We are authorized to issue 50,000,000 shares of
preferred stock, no shares of which are issued and outstanding.
We have never been the subject of a bankruptcy, receivership or similar
proceeding.
Our principal executive offices are located at Britannia House, 960 High Road,
London, United Kingdom N12 9RY. Our telephone number is 011.44.2084469494.
BUSINESS
We provide long distance voice and data communications services solely through
our subsidiary, Swiftnet, Ltd., which has conducted communications service
operations in the United Kingdom since 1990. Swiftnet's business consists of
selling various telecommunication related services, including telephone,
facsimile, e-mail, calling cards, and Internet driven applications. Because our
operations are conducted solely through Swiftnet, we have provided the same
services since our inception. Our customers are located in 78 countries in
Europe, Australia, North America, South America, Asia, and Africa. Approximately
75% of our revenues are derived from our United Kingdom customers.
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Our future business plans include negotiating with more carriers, continuing our
media advertising campaign, conducting our added value services, and recruiting
new agents, resellers and managers to sell our telecommunications services on a
performance incentive basis.
Our Principal Services and their Markets:
We use network switching and transport facilities of Tier I and Tier II long
distance providers such as Worldcom International, Ltd. Tier 1. Tier 1 calls are
typically transferred via large telephone operators in which the service level
is usually very high. Tier 2 calls usually have lower cost prices and are routed
through smaller companies or other routings.
On or about June 2, 2001, we began to provide our services 24 hours a day, 7
days a week.
We provide the following telecommunication services:
o Indirect telephone service: Using 1XXX access [similar to XX-XX-XXXX
in the US] we resell telephone services provided by other carriers or
through the use of our own platform. 1XXX access is a code number that
people in Great Britain can dial in order to reach certain other
carriers. This enables us to take calls originated by customers and
route them to different destinations.
o PIN access using 0800 free numbers: Using 0800 free numbers and PIN
access codes for client identification, our customers can call from
almost any phone, including British Telecom pay phones, to access our
platform and make calls to any destination.
o Mobile access using 0800 free numbers: This service is similar to our
PIN access service but uses mobile telephone devices. The
identification of the client is automatic and PIN identifier numbers
are not required.
o Email to Facsimile service: Our Email2Fax service allows customers
with an Internet Email account to send facsimiles at a discounted
cost. The email arrives at our Internet server which we send via
facsimile through high-speed facsimile modems to the proper
destination. We issue a confirmation every 15 minutes indicating: (a)
all successful or failed facsimile transmissions; and (b) a complete
list of transmissions, including date and time of delivery,
destination number, pages, duration, subject, and answerback of the
transmission. Email2Fax will send a facsimile based on a pre-defined
table of retries. If a facsimile does not go through within the
pre-defined time, Email2Fax will cancel the facsimile and a report of
the failed transmission will be included in the next status report.
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o Print to Facsimile service: Similar to our Email2Fax service, anyone
with Windows 95 and an Internet browser will be able to utilize our
Print2Fax service to send a facsimile through their printer driver,
usually at a discounted cost. Using any Windows application that
supports printing, the user selects the printer driver to receive a
dialog box that allows entry of: (a) the recipient name and fax number
(including multiple recipients, sent directly "To" or copied "CC"; (b)
the sender's name; and (c) the subject.
o Facsimile to Email or Cyber Number: This service allows the user to
receive facsimile messages directly to an email address through the
use of a personal identification number.
o Facsimile Broadcast: This service enables our business customers to
quickly send thousands of facsimiles to various destinations.
o Nodal Services: This service enables our business customers to use a
small platform located in their respective country, to establish their
own messaging services within that country, including sending and
receiving customer facsimiles utilizing store and forward delivery.
o Auracall: This is a service that was introduced in approximately March
2002. The Auracall services can be accessed by any business or
residential user through our website at www.auracall.com. When
customers need to make an international or national call they can dial
the appropriate designed number for that country and save on calling
rates over the current British Telecommunications published rates by
gaining access to our switch and providing savings on a per minute
basis.
o International Toll Free Calling Card Service: We began offering
international toll free calling card service during approximately
June 2002 from the United States, Canada, France, Germany, Greece,
Israel, Chile, Columbia, Japan, Thailand, Hong Kong, Indonesia,
Australia, New Zealand, Belgium, Netherlands, Austria, Italy,
Switzerland, Spain, Poland, Hungary, Ireland, Norway, Philippines,
South Korea and Sweden. We also offer Story Telecom Ltd.'s branded
calling cards.
o Internet Based Customer Service and Billing Interface
In June 2002, we completed the creation of our Internet based customer
service and billing interface at www.xfone.com, which includes on-line
registration, full account control, and payment and billing functions
and information retrieval. To complete our Internet based customer
service and billing interface, we enhanced our Internet operations by,
among other things, fine-tuning our website which consisted of
integrating and adding more services, perfecting our billing system,
and launching our Internet operations in beta format. During 2003,
we plan to continue enhancing this service at an estimated cost of
$100,000.
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Discontinued Service:
From approximately 1990 until January 2002, we offered an Email2telex service
which allowed a user with an Internet email account to send telexes to anywhere
in the world at a discounted cost. In January of 2002, we discontinued offering
this service due to low demand.
Our Platforms:
A platform generally could be any personal computer with telecommunications
applications, such as calling cards and transferring call applications. We
operate the following platforms in our business:
o Telsis Switch that enables us to interconnect with other telephone
carriers;
o Calling cards and prepay platforms that enable us to use voice prompts
and to accept pin numbers; and
o Messaging platform that manages facsimile broadcasts and messaging
applications.
Revenues:
The percentage of our revenues are derived from the following:
o Approximately 70% from our telephone services;
o Approximately 15% from our messaging services, including facsimile,
nodal and e-mail related services; and
o Approximately 15% from our calling cards, including 0800 and pin
access.
Our Customers:
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 businesses are treated the same as residential
customers. Larger businesses' PBX units are reprogrammed.
o Government Agencies - Includes the United Nations World Economic
Forum, the Argentine Embassy, and the Israeli Embassy.
o Resellers, such as WorldNet, VSAT, and Voicenet - We provide them with
our telephone and messaging services for a wholesale price. For
WorldNet, we also supply the billing system.
Our Billing Practices:
We charge our customers based on usage by full or partial minutes. Our rates
vary with distance, duration, time, and type of call, but are not dependent upon
the facilities selected for the call transmission. The standard terms for our
regular telephone customers require that payments are due 21 days from the date
of the invoice. Our prepay telephone services represent around 20 percent of our
revenues. Our supplier's standard terms are payment within 30 days from invoice
date; however, payments are being made up to 90 days from date of invoice
without interest or penalty.
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Divisions:
We operate the following divisions:
o Partner Division - Our Partner Division operates as a separate profit
center by attempting to recruit new resellers and agents to market our
products and services and to provide support and guidance to resellers
and agents. We currently have 20 active resellers and 21 active agents.
o Operations Division - Our Operations Division provides the following
operational functions to our business: (a) 24 hour/7 day a week
technical support; (b) inter-company network; (c) hardware and
software installations; and (d) operating switch and other platforms.
o Administration Division - Our Administration Division provides the
billing, collection, credit control, and customer support aspects of
our business.
o Research and Development - The function of our Research and
Development Division is to develop and improve our billing system,
switch and telephony platforms, websites and special projects.
o Retail - Our Retail Division is responsible our marketing and selling
campaigns that target potential and existing retail customers.
Geographic Markets:
Our primary geographic market is the United Kingdom. We also have customers in
Angola, Australia, Austria, Bangladesh, Belgium, Benin, Brazil, Bulgaria,
Cambodia, Cameroon, Canada, China, Congo, Croatia, Cyprus, Czech Republic,
Denmark, Egypt, Finland, France, Germany, Gibraltar, Greece, Guinea, Hong Kong,
India, Indonesia, Iran, Irish Republic, Israel, Italy, Ivory Coast, Japan, North
Korea, South Korea, Kuwait, Latvia, Lebanon, Liberia, Lithuania, Malawi,
Malaysia, Maldives Isles, Mauritius, Nepal, Netherlands, New Zealand, Niger,
Nigeria, Norway, Oman, Pakistan, Panama, Philippines, Poland, Portugal, Qatar,
Russia, Saudi Arabia, Sierra Leone, Singapore, Slovak Republic, South Africa,
Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Togo, Turkey,
U.A.E, Uganda, USA and Vietnam.
Our Distribution and Marketing Methods:
We use the following distribution methods to market our services:
o We actively recruit independent contractor agents and resellers who
purchase telephone traffic directly from us at an approximately 25%
discount, and who then resell this telephone traffic to their
customers at a mark-up according to their own price lists;
o We use direct marketing, primarily using facsimile broadcasts;
o We utilize agents that sell our services directly to customers at our
established prices; these agents receive a commission of approximately
10% of the total sale amount less any bad debts;
o We attend telecommunications trade shows in the United Kingdom to
promote our services;
o We advertise on a monthly basis in "Comms Dealer", a
telecommunications agents/resellers trade magazine; and
o During November 2002, we started utilizing the Internet as an
additional distribution channel for our services. We utilize Xfone.com
as our brand name for our new e-commerce telecommunications
operations. We plan to build a brand name with the launch of
"xfone.com" by advertising our Internet services, partnering with
other websites, and offering attractive rates and quality of lines.
We do not have in-house sales personnel.
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Material Agreements:
Reseller Agreements
We have agreements with approximately 20 resellers, including VSAT and Worldnet.
Our reseller agreement with Worldnet may be terminated with 7 days notice. Our
reseller agreement with VSAT provides that we receive payment directly from a
customer secured by VSAT and we then remit to VSAT their portion of the sale.
Story Telecom Ltd. Agreement
Our subsidiary, Swiftnet, owns a 40% interest in Story Telecom Ltd. This 40%
interest was conveyed to Swiftnet in accordance with the terms of a September
30, 2002 agreement. The parties to the agreement, us, Swiftnet, Ltd., and Mr.
Nir Davidson who is the Managing Director of Story Telecom, Ltd, agreed to
establish a joint business to develop, sell, market, and distribute
telecommunications products bearing the name of Story Telecom Ltd.
Under the agreement, Swiftnet will supply Story Telecom Ltd. with:
(a) Cost plus 6% prices (to cover certain costs) with the base cost plus
percentage for the first three months of operations at 4%;
(b) Its technological backbone;
(c) Technical help service (24 Hours/7 Days a week); and
(d) Use of relevant software and hardware including switch, billing, and
IVR.
Under the agreement, Nir Davidson will supply Story Telecom Ltd. with the
following:
(a) Marketing and sales;
(b) Distribution channels; and
(c) Management in which Nir Davidson will function as the Managing Director
of Story Telecom Ltd.
In addition, the agreement provides that Nir Davidson will have the option to
purchase our shares of common stock within a 12 month period after the September
30, 2002 agreement, according to the formula specified in paragraph 28 of the
agreement. Since the filing of our original Form 10-KSB on March 31, 2003, the
right for the options was cancelled, on September 30, 2003, because Story
Telecom failed to meet the sales and profit criteria.
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Supplier Agreements
Our agreement with WorldCom International, Ltd. may be terminated by either
party with thirty days notice. In addition, the contract may be terminated
immediately if either other party has committed a material breach of the
agreement that is incapable of remedy. Any breach capable of remedy must be
corrected within 15 days. To our knowledge, we are in compliance with all
material terms of the agreement. We do not have an exclusive agreement with
WorldCom International, Ltd.; Worldcom International, Ltd. provides these same
services to our competitors.
We also have agreements with British Telecom and Teleglobe as suppliers of
telephone routing and switching services.
Our Future Business Plans
Our other future plans include the following:
Media Advertising
We initiated a media advertising campaign in the last quarter of 2002 that
consists of advertising our services in newspapers. Contingent upon satisfactory
advertising results, market conditions and sufficient cash flow, we will
continue our media campaign for approximately 12 months at an estimated cost of
$200,000. Our anticipated source for the cost of our media advertising campaign
is from positive cash-flow from our operations.
Promoting our Added Value Services Such as Cyber Number and Email2 Facsimile
We are considering whether to promote our added value services such as cyber
number and email facsimile services by Internet advertising and advertisements
in professional and business magazines and with direct marketing via mail and
facsimile. Our anticipated source for the cost of this possible promotion is
positive cash flow from operations.
Evaluating Our Pricing Structure to Determine Whether we can Offer More
Competitive Prices
We will evaluate our pricing structure by comparing our pricing structure with
our competitors and attempt to increase our efficiencies in customer purchases,
customer service, operations, and marketing in order to keep our costs at a
minimum. Our evaluation is a continuous internal process which does not require
us to spend additional funds.
Recruiting New Agents, Resellers, and Managers based on Performance Based
Incentives
We have continued our recruitment process which we began in January 2001; to
date, we have recruited approximately 17 new agents, 11 new resellers, and 3
managers. During the period from April 2003 until December 2003, we plan to
recruit approximately 15 new agents, 10 resellers and 3 managers based on
performance-based incentives. These personnel will receive performance based
incentives consisting of a percentage of profits and/or revenues. We will
recruit these personnel through professional meetings, meetings and professional
conferences, and personal connections. The estimated cost of our recruiting
process is $10,000. Our anticipated source for the recruitment is our positive
cash flow from operations.
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Negotiating with More Carriers
We will negotiate with more carriers for the purpose of reducing our cost base
and risk. We will conduct these negotiations on a continuous basis. We do not
anticipate material costs to conduct these negotiations.
Developing Incoming and Outgoing Interconnection with Various Telephone Carriers
and Incorporating Our Switch and Messaging Platform that Interfaces to our
Prepay and Billing Systems
Since our inception, we have attempted to develop incoming and outgoing
interconnection with various telephone carriers that will involve negotiations
with various telephone carriers, acquisition and installment of telephone lines,
and enhancement of our switch capacity. In addition we will incorporate our
switch and messaging platform that interfaces to our prepay and billing systems
that will involve software development and integration. The purpose of
developing this aspect of our business is to enhance capacity and enable on line
integrated billing to our customers and resellers. The estimated cost of further
enhancing this aspect of our business is $50,000. Our anticipated source for
completing this aspect of our business is positive cash flow from operations.
Competitive Business Conditions
The communications and information services industry is highly competitive and
varied. Many of our existing and potential competitors have financial,
personnel, marketing, customer bases and other financial resources significantly
greater than ours. Our competitors include:
o Large regional carriers in the United Kingdom such as British Telecom;
o Smaller regional carriers such as Quip.com;
o Wireless telecommunications providers such as Vodafone; and
o International carriers.
Currently, there are approximately 160 licensed telecom carriers in the United
Kingdom market. Most of these competitors have greater financial, personnel, and
marketing resources greater than we do. In addition, most of these competitors
have the flexibility to introduce new service and pricing options that may be
more attractive to our existing as well as our future potential customers. As a
result, these competitors have greater growth and profit potential than we do.
We will attempt to overcome the competitive advantages of our competitors by:
o Enhancing our personal contact with our customers and local agents;
o Providing our customers with the option to control and see their
account over the Internet;
o Negotiating volume discounts with our underlying carriers; and
o Increasing our ability to direct customer call traffic over the
transmission networks of more than one carrier.
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Principal Suppliers:
WorldCom International, Ltd. is our principal supplier of telephone routing and
switching services, representing approximately 65% of such services to us. Our
other suppliers are British Telecom and Teleglobe, both of which supply
telephone routing and switching services. These companies furnish us with less
than 35% of these type of services to us.
Dependence on Major Customers:
During 2002, we had no customer accounts that accounted for more than 10% of our
revenues. Collectively, the United Kingdom accounts for approximately 75% of our
revenues. We do not anticipate than any customer or country, besides the United
Kingdom, will account for more than 10% of our revenues during 2003.
Patents, trademarks and licenses:
We do not have any patents or trademarks, nor have we filed any applications for
patents or trademarks. Our subsidiary, Swiftnet, Ltd., is licensed in the United
Kingdom as an international telecommunication carrier.
Regulatory Matters:
In 1996, our subsidiary, Swiftnet, Ltd., was granted a license to operate a
telecommunications system from the Secretary of State for Trade and Industry of
the United Kingdom. The license may be revoked upon thirty days notice in the
event of certain conditions.
We are affected by regulations introduced by Secretary of State for Trade and
Industry of the United Kingdom. Since the break up of the United Kingdom
telecommunications duopoly consisting of British Telecom and Mercury in 1991 it
has been the stated goal of Secretary of State for Trade and Industry to create
a competitive marketplace. Secretary of State for Trade and Industry has imposed
mandatory rate reductions on British Telecom in the past, which are expected to
continue for the near future. We do not believe that any regulations introduced
by Secretary of State for Trade and Industry will interfere with or
substantially hurt our business.
We believe that we are in substantial compliance with applicable laws and
regulations. To the extent that these laws and regulations are changed or new
laws or regulations are adopted, we may be required to obtain additional
licenses or renew, modify or replace our existing licenses. If we fail to comply
with these laws, we could lose our license or be subjected to other sanctions
that could result in substantial costs to us.
Since only messaging services but no calls by our customers originate in the
United States, we do not believe that we are subject to any telecommunications
laws or regulations in the United States. In the future, if our services expand,
it is possible that we will become subject to the telecommunications laws and
regulations of the United States. If this occurs, compliance with such laws will
involve higher costs than we now have in Europe.
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Cost of Compliance with Environmental Laws
We currently have no costs associated with compliance with environmental
regulations. We do not anticipate any future costs associated with environmental
compliance; however, there can be no assurance that we will not incur such costs
in the future.
Research and Development:
Other than developing and expanding our telecommunications applications and our
website, we do not intend to undertake any significant research and development
activities. We have incurred less than 50,000 Pounds Sterling or approximately
$71,000 US in aggregate research and development expenses since January 1, 1998.
During fiscal year 2002, we spent $51,200 on research and development.
Employees
We have 9 full-time employees consisting of:
o 1 Chief Executive Officer;
o 1 President;
o 1 research and development manager; and
o 6 employees in our administration department;
We also have 3 part-time employees that operate in shifts, helping our
administrative employees.
Reports to Security Holders
We are subject to the informational requirements of the Securities Exchange Act
of 1934. Accordingly, we file annual, quarterly and other reports and
information with the Securities and Exchange Commission. You may read and copy
these reports and other information we file at the Securities and Exchange
Commission's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Our filings are also available to the public from commercial
document retrieval services and the Internet world wide website maintained by
the Securities and Exchange Commission at www.sec.gov.
Item 2. Description of Property
Our corporate headquarters are located at 960 High Road, London N12 9RY - United
Kingdom. This 1600 square foot facility has four offices, one computer room, one
operation room that controls the computer room, entrance hall, main hall,
accounting, secretarial and administration and a kitchen. Our office is located
on the fifth floor of a six floor building with a concierge, two elevators and
parking facilities. Our premises were leased on a 5 year term, which was due to
expire on December 12, 2001. The yearly lease payments are approximately
$23,421.00 (15,900 Pound Sterling). On December 20, 2002, we renewed our lease
for a period of 10 years, with a five year cancellation option. Our current
lease expires on December 20, 2012. The yearly lease payments have been
increased to $34,320 (24,000 Pound Sterling).
Our offices are in good condition and are sufficient to conduct our operations.
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We do not own any property nor do we have any plans to acquire any property in
the future. We do not intend to renovate, improve or develop any properties. We
are not subject to competitive conditions for property and currently have no
property to insure. We have no policy with respect to investments in real estate
or interests in real estate and no policy with respect to investments in real
estate mortgages. We have no policy with respect to investments in securities of
or interests in persons primarily engaged in real estate activities.
Item 3. Legal Proceedings
In July 2001 we filed a lawsuit in the court of Petach - Tikva, Israel against
Ryfcom, Ltd. and its Chief Executive Officer, Mr. Paltiel Porat. In this
lawsuit, we allege an unpaid debt due to us in the amount of $107,528 from
Ryfcom for services rendered by us. The debt arose from an agreement between us
and Ryfcom, a provider of calling card services operating in Israel, in which
traffic originating from Ryfcom calling cards was delivered through our system
in London. Mr. Porat signed a personal guarantee agreement to secure the all of
Ryfcom's obligations under our agreement with Ryfcom. Before the judgment, Mr.
Paltiel repaid the amount of approximately $15,000. On January 6, 2003, the
court of Petach Tikva, rendered a judgment in favor of Swiftnet. According to
the judgment Mr. Paltiel has to repay the remainder of the money, approximately
$92,000, plus the court fee that was paid by Swiftnet of approximately $1,500,
plus expenses in the amount of $9,300. All amounts are linked until fully paid
by the Israeli Consumer Price Index.
We are involved in a potential dispute with a former director of Swiftnet Ltd,
Yehuda Shenhav, regarding Mr. Shenhav's claim that Swiftnet unjustly removed him
from Swiftnet's board of directors. From April 2000 to May 2000, Swiftnet
desired to enhance its finance and management team by removing Mr. Shenhav from
its board of directors and replacing him with our President/Principal Executive
Officer/Principal Financial Officer/Principal Accounting Officer, Mr. Guy
Nissenson. Mr. Shenhav has never participated in any board meetings and was
never actively involved in the management of Swiftnet. The proposed enhancement
of our finance and management team was in preparation for Swiftnet's plan to
become a Securities and Exchange Commission reporting company and later an OTC
Bulletin Board traded company. Despite our invitations and correspondence to Mr.
Shenhav to exercise his rights through proxy regarding his proposed removal from
Swiftnet's Board of Directors, he never properly exercised his rights. On June
16, 2000, over 75% of Swiftnet's shareholders passed resolutions removing Mr.
Shenhav from Swiftnet's Board of Directors and replaced him with Mr. Guy
Nissenson. We have never received any communications from Mr. Shenhav
threatening litigation in this matter; however, Mr. Shenhav claims that the
process by which he was removed from Swiftnet's Board of Directors was not
lawful. No actual litigation has been initiated in this matter and we have not
received any other communications from Mr. Shenhav regarding any such claims
since approximately July 2000.
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Although we believe that Mr. Shenhav's claims have no merit and we will
vigorously defend any such claims should they be litigated, there are no
assurances that we will prevail in such litigation. Any judgment that may be
brought against us in connection with such a matter may have an adverse effect
upon our financial condition. In addition, should additional shares be issued to
the former director/shareholder, the value of your investment will be diluted.
No litigation has been filed regarding this matter as of the date of this
prospectus.
In August 2002, we filed a summary procedure lawsuit in the court of Tel - Aviv,
Israel against MG Telecom Ltd. and its Chief Executive Officer, Mr. Avner Shur.
In this lawsuit, we allege an unpaid debt due to us in the amount of $50,000
from MG Telecom for services rendered by us. The debt arose from an agreement
between us and MG Telecom, a provider of calling card services, in which traffic
originating from MG Telecom calling cards was delivered through our system in
London. Mr. Shur signed a personal guarantee agreement to secure the MG Telecom
obligations under our agreement with MG Telecom. Mr. Shur has filed a request
for leave to defend. The court has not rendered a judgment in the matter and we
are unable to determine the future dispositions of this matter. Since the filing
of our original Form 10-KSB on March 31, 2003, the court session for the hearing
of the evidence was scheduled for February 24, 2004, but postponed to March 22,
2004, at which time an evidentiary hearing was held. An additional evidentiary
hearing will be held on September 6, 2004.
Other than the above, we are not a party to any pending legal proceeding, nor is
our property the subject of such a legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
We held a shareholders meeting on December 19, 2002 at our principal executive
offices. The purpose of the meeting was the election of directors and to propose
the payment of a dividend to our shareholders. A quorum represented by 86% of
our total common shares was present or represented by proxy.
Dividend:
On December 19, 2002, we declared our first cash dividend in the amount of $0.02
per common share. The cash dividend was payable on January 15, 2003 to our
common stockholders of record at the close of business on December 31, 2002.
Apart from this dividend, we have not declared any cash dividends on our common
stock since our inception. At the present time, we cannot determine whether we
will issue any further dividends in the future. Any decisions as to future
payment of dividends will depend on our earnings and financial position and such
other factors, as the Board of Directors deems relevant.
14
Election of Directors:
Our Bylaws provide that each Director is elected by the Shareholders at
each annual meeting and shall hold the office until the next annual meeting of
shareholders and until that director's successor shall have been elected and
qualified. The affirmative vote of the holders of a plurality of the shares of
our common stock present in person or represented by proxy and entitled to vote
at the Annual Meeting is required for the election of the Directors. On December
19, 2002, the following directors were elected:
Name Age Position
Abraham Keinan 53 Chairman of the Board
Guy Nissenson 28 President, CEO and Director
Eyal Harish 50 Director
Shemer Schwarz 28 Director
No other matters were submitted to a vote of our security holders during the
fourth quarter of the year ended December 31, 2002.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
Below is the market information pertaining to the range of the high and low bid
information of our common stock for each quarter since our common stock has been
quoted on the OTC Bulletin Board. Our common stock is quoted on the OTC Bulletin
Board under the symbol XFNE. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
2002 Low High
Fourth Quarter $ .66 $1.45
Third Quarter $ .70 $1.33
Second Quarter $ .70 $3.65
First Quarter $ .75 $ .75
2001 Low High
Fourth Quarter $ .00 $ .00
Third Quarter $ .00 $ .00
Second Quarter $ .00 $ .00
First Quarter $ .00 $ .00
No regular trading market exists for our common stock and there is no assurance
that a regular trading market will develop, or if developed will be sustained. A
shareholder in all likelihood, therefore, will not be able to resell their
securities should he or she desire to do so when eligible for public resales.
Furthermore, it is unlikely that a lending institution will accept our
securities as pledged collateral for loans unless a regular trading market
develops.
15
Holders.
At December 31, 2002, there were 125 holders of record of our common stock. We
have one class of common stock outstanding.
Dividends.
On December 19, 2002, we declared our first cash dividend in the amount of $0.02
per common share. The cash dividend was payable on January 15, 2003 to our
common stockholders of record at the close of business on December 31, 2002.
Apart from this dividend, we have not declared any cash dividends on our common
stock since our inception and we do not anticipate at the present time paying
further dividends in the foreseeable future. Currently, we plan to retain future
earnings, if any, for use in our business. Any decisions as to future payment of
dividends will depend on our earnings and financial position and such other
factors, as the Board of Directors deems relevant.
Issuance of Securities
On August 1, 2002, we sold 2,631 shares of our common stock to Mr. Vic Chhabria
at $0.95 per share or an aggregate of $2,500.
On September 1, 2002, we sold 2,551 shares of our common stock to Mr. Vic
Chhabria at $0.98 per share or an aggregate of $2,500.
On October 1, 2002, we sold 3,333 shares of our common stock to Mr. Vic Chhabria
at $0.75 per share or an aggregate of $2,500.
On November 1, 2002, we sold 4330 shares of our common stock to Mr. Vic Chhabria
at $0.58 per share or an aggregate of $2,500.
On December 1, 2001, we sold 3030 shares of our common stock to Mr. Vic Chhabria
at $0.83 per share or an aggregate of $2,500.
We sold these shares of our common stock to Mr. Vic Chhabria based on a July
23, 2002 agreement we entered into with him that includes the following terms:
o As a valuable reseller of our services, we will sell Mr. Chhabria
$2,500 worth of our common stock on the first of every month beginning
August 2002;
o The shares that will be issued to Mr. Chhabria will be allotted from
treasury and will be restricted;
o The share price will be determined on the first trading day of every
month, less a 25% discount;
o The $2,500 will be made on the first of the month; and
o The agreement is for 12 months and can be altered or continued by
written consent from both sides.
16
We relied upon Section 4(2) and Regulation S of the Securities Act of 1933, as
amended for the above issuances. None of these issuance involved underwriters,
underwriting discounts or commissions or any public offer in the United States.
We placed restrictive legends on all certificates issued. We believed that
Regulation S and Section 4(2) were available because:
o We are an operational company with revenues and not a blank check
company;
o Sales were not made by general solicitation or advertising;
o Sales were made only to an accredited investor or investor who
represented that he was a sophisticated enough to evaluate the risks
of the investment;
o No offers or sales were made to persons in the United States; and
o No direct selling efforts were made in the United States.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
The following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of our consolidated results of
operations and financial condition. The terms "Company", "we", "our" or "us" are
used in this discussion to refer to Xfone, Inc. and its wholly owned subsidiary,
Swiftnet.
Years ended December 31, 2002 and 2001
The US Dollars amounts for both 2002 and 2001 are presented herein at the
current rate of £1 to $1.6 for convenience purposes.
Consolidated Statement of Operations
Revenues. Revenues for the year ended December 31, 2002 increased by 41%
to £3,741,436 ($5,968,298), from £2,658,905 ($4,254,248) for the same
period in 2001. The increase in revenues is attributed mainly to growth in
revenues generated from our voice telephony services.
Cost of Revenues. Cost of revenues consists primarily of traffic time purchased
from telephone companies and other related charges. Cost of revenues increased
by 35% to £2,194,792 ($3,511,667) for the year ended December 31, 2002,
from £1,629,604 ($2,607,366) for the year ended December 31, 2001,
representing 58.7% and 61.3% of the total revenues for the year ended December
31, 2002 and December 31, 2001, respectively. The decrease in cost of revenues
is attributable to lower rates that we negotiated and concluded with our
suppliers.
17
Gross Profit. Gross profit is total revenues less cost of revenues. Gross profit
excludes general corporate expenses, finance expenses and income tax. For the
year ended December 31, 2002 and 2001, respectively, gross profit was
£1,546,644 ($2,474,631) and £1,029,301 ($1,646,882) which represents
a 50% increase. The gross profit as a percentage of revenues increased to 41.3%
for the year ended December 31 2002, from 38.7% for the year ended December 31,
2001. The increase of the gross profit as a percentage of revenues is attributed
to the lower rates that the company paid in the year ended December 31, 2002.
Research and Development. Research and development expenses were £32,000
($51,200) and £30,791 ($49,265) for the year ended December 31, 2002 and
2001, respectively, which represents 1% and 1.2% of revenues for the years ended
December 31, 2002 and 2001, for the same periods, respectively. These expenses
consist of labor costs of our research and development manager and other related
costs. Main developments relate to the development of the Xfone web site and its
interconnections, and 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
£320,418 ($512,668) from £219,238 ($350,781) for the year ended
December 31, 2002 and 2001, respectively. Marketing and selling expenses as a
percentage of revenues were 8.6% and 8.2% for the year ended December 31, 2002
and 2001, respectively.
General and Administrative Expenses. General and administrative expenses
increased to £878,624 ($1,405,799) for the year ended December 31, 2002
from £543,936 ($870,298) for the year ended December 31,2001. As a
percentage of revenues, general and administrative expenses increased to 23.5%
for the year ended December 31, 2002, from 20.5% for the year ended December 31,
2001. This increase is mainly attributable to expenses related to the growth in
our operations and our status as a public company.
Financing Expenses. Financing expenses, net, decreased to £12,837
($20,539) for the year ended December 31, 2002 from £30,982 ($49,571) for
the year ended December 31, 2001.
Income Before Taxes. Income before taxes for the year ended December 31, 2002
increased by 53% to £313,794 ($502,071) from £205,363 ($328,581) for
the year ended December 31, 2001. The increase of the income before taxes is
attributable primarily to the increase of 41% in our revenues and the lesser
increase of 35% in our cost of revenues. Income before taxes as a percentage of
revenues was 8.4 for the year ended December 31, 2002 and 7.7% for the year
ended December 31, 2001.
18
Taxes on Income. United Kingdom companies are usually subject to income tax at
the corporate rate of 20%-30%. Taxes on income for the year ended December 31,
2002, amounted to £72,813 (116,501) which represents 23% of the income
before taxes, as compared with £59,757 ($95,611) for the year ended
December 31, 2001 representing 29% of the income before taxes. The decrease in
the percentage of taxes on such income before taxes is attributable primarily to
the carry forward loss of the parent company.
Net Income. Net income for the year ended December 31, 2002 amounted to
£240,981 ($385,570)representing 6.4% of our revenues, as compared with
£145,606 ($232,970), representing 5.4% of the revenues for the year ended
December 31, 2001. The increase in the net income is mainly attributable to the
53% growth in our Income before taxes and our lesser increase of 22% in the
taxes on income.
Earning per share
The earning per share of common stock for the year ended December 31, 2002 was
£0.05 ($0.08) for the basic 5,030,444 weighted average shares of common
stock and £0.04 (0.07) for diluted number of shares of common stock
including the option to buy 500,000 shares of common stock.
Balance Sheet
Current Assets. Current Assets amounted to £1,658,835 ($2,654,136) as of
December 31, 2002 as compared to £1,194,762 ($1,911,619) as of December
31, 2001. This increase of £464,073 ($742,517) is mainly attributable to a
32% increase in account receivable and a 64% increase in cash both of which are
a result of our growth in business activities and profitability.
Loan to shareholder. Loan to shareholder, Mr. Abraham Keinan, our chairman of
the board, amounted to £303,130 ($485,008) as of December 31, 2002, as
compared to £282,347 ($451,755) as of December 31,2001. As of December 31,
2002, £45,558 ($72,893) of the loan is classified as a current asset. This
loan to shareholder was made to our Chairman of the Board, Abraham Keinan, and
was made prior to the passage of the Sarbanes Oxley Act. There has been no
material modification of the loan since the passage of the Sarbanes Oxley Act.
Fixed assets. Fixed assets after accumulated depreciation increased to
£252,894 ($404,630) as of December 31, 2002 as compared with
£158,437 ($253,499) as of December 31,2001. Purchase of equipment during
the year ended December 31, 2001 amounted to £152,757 ($244,411);
depreciation for the same period amounted to £58,300 $93,280.
19
Current Liabilities. As of December 31, 2002, current liabilities increased by
£347,697 ($556,315) to £1,462,027 ($2,339,243) as compared with
£1,114,330 ($1,782,928) as of December 31, 2001. This increase is mainly
attributable to an increase of £214,607 ($343,371) in trade payables that
increased as a result of the 35% growth in cost of revenues.
Liquidity and Capital resources September 30, 2002.
Net cash provided by operating activities for the year ended December 31, 2002
was £345,379 ($552,606). The cash provided by operating activities was
primarily attributable to our net Income of £240,981 ($385,570)
complemented by depreciation for the amount of £58,300 ($93,280).
Investment activities used £153,272 ($245,235) primarily for purchase of
equipment. Net financing activities used £613 ($981). Cash at December 31,
2002 amounted to £471,963 ($755,141), an increase of £192,720
($308,352) since December 31,2001. Our current assets for December 31, 2002 are
higher than our current liabilities by £196,808 ($314,893). Our
commitments for capital expenditures as of December 31, 2002 were £41,193
($65,909), the purpose of these commitments was buying new equipment.
We shall continue to finance our operations and fund the commitments for capital
expenditures mainly from the cash provided from operating activities. We also
have an unused $200,000 credit facility that a United Kingdom bank made
available to our subsidiary, Swiftnet. We believe that our future cash flow from
operations together with our current cash and the unused bank facility will be
sufficient to finance our activities through the years 2003 and 2004. For
business expansion purposes requiring additional capital, we intend to raise
funds through a public or private placement sale of our securities and/or by
obtaining financing from a financial institution; however, there are no
assurances that we will be successful in obtaining funding through any means.
Impact of Inflation and Currency Fluctuations.
As of December 31, 2002, we deal with only two currencies United Kingdom Pounds
and United States 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 United Kingdom pounds, the long-term loan to a shareholder is all in
United Kingdom Pounds.
Our cost of revenues is all in United Kingdom pounds. Most of our liabilities,
operating and financing expenses are in United Kingdom pounds. The reminder of
the assets, liabilities, revenues and expenditures are in United States 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 United Kingdom pounds.
Conversely, any increase in the value of the United Kingdom pound in relation to
the United States 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.
If we are unable to match our revenues with our expenses, inflation would affect
our operational results. If the 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 our
profitability.
20
Item 7. Financial Statements
See the index to consolidated financial statements and consolidated financial
statement schedules included herein as Item 13.
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Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2002
21
CONTENTS
--------
PAGE
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1
Balance Sheet 2-3
Statements of Operations 4
Statement of Changes in Shareholders' Equity 5
Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Xfone, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Xfone, Inc. and
Subsidiary as of December 31, 2002, the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the two
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used in
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Xfone, Inc. and Subsidiary as
of December 31, 2002, and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.
/s/Chaifetz & Schreiber, P.C.
Chaifetz & Schreiber, P.C.
21 Harbor Park Drive N.
Port Washington, NY 11050
March 25, 2003
F-1
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Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
December 31, December 31,
2002 2002
------------ ------------
Convenience translation
into U.S. $
Current assets
Cash £ 471,963 $ 755,141
Accounts receivable, net 960,729 1,537,166
Prepaid expenses and other receivables 180,585 288,936
Loan to shareholder 45,558 72,893
------------ ------------
Total Current Assets 1,658,835 2,654,136
------------ ------------
Loan to shareholder 257,572 412,115
------------ ------------
Investments 515 824
------------ ------------
Fixed assets
Cost 559,471 895,154
Less - accumulated depreciation (306,577) (490,523)
------------ ------------
Total fixed assets 252,894 404,631
------------ ------------
Total assets £2,169,816 $3,471,706
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
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Xfone, Inc. and Subsidiary
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CONSOLIDATED BALANCE SHEET
December 31, December 31,
2002 2002
------------ -----------------------
Convenience translation
into U.S. $
------------ -----------------------
Current liabilities
Dividend payable £ 63,261 $ 101,218
Notes payable - current portion 4,000 6,400
Trade payables 1,176,183 1,881,893
Other liabilities and accrued expenses 197,053 315,285
Obligations under capital leases -
current portion 21,530 34,448
------------ -----------------------
Total current liabilities 1,462,027 2,339,244
Deferred taxes 25,000 40,000
Notes payable 7,167 11,467
Obligation under capital lease 34,026 54,442
------------ -----------------------
Total liabilities 1,528,220 2,445,153
------------ -----------------------
Shareholders' equity
Preferred stock - 50,000,000 shares
authorized, none issued
Common stock:
25,000,000 shares authorized,
£.0006896 par value;
5,060,889 issued and outstanding 3,490 5,584
Contributions in excess of shares 180,219 288,350
Receipt on account of shares - -
Retained earnings 457,887 732,619
------------ -----------------------
Total shareholders' equity 641,596 1,026,553
------------ -----------------------
Total liabilities
and shareholders' equity £2,169,816 $3,471,706
============ =======================
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
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Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended Years Ended
December 31, December 31,
2002 2001 2002 2001
---------- ---------- ---------- ------------
Convenience translation
into U.S. $
---------- ---------- -------------------------
Revenues £3,741,436 £2,658,905 $5,986,298 $4,254,248
Cost of revenues (2,194,792) (1,629,604) (3,511,667) (2,607,366)
---------- ---------- ---------- ------------
Gross profit 1,546,644 1,029,301 2,474,631 1,646,882
---------- ---------- ---------- ------------
Operating expenses:
Research and development (32,000) (30,791) (51,200) (49,265)
Marketing and selling (320,418) (219,238) (512,668) (350,781)
General and administrative (878,624) (543,936) (1,405,799) (870,298)
---------- ---------- ---------- ------------
Total operating expenses (1,231,042) (793,965) (1,969,667) (1,270,344)
Operating profit 315,602 235,336 504,964 376,538
Financing expenses - net (12,837) (30,982) (20,539) (49,571)
Other income 11,029 1,009 17,646 1,614
---------- ---------- ---------- ------------
Income before taxes 313,794 205,363 502,071 328,581
Taxes on income (72,813) (59,757) (116,501) (95,611)
---------- ---------- ---------- ------------
Net income £ 240,981 £ 145,606 $ 385,570 $ 232,970
========== ========== ========== ============
Earnings Per Share:
Basic £ 0.05 £ 0.03 $ 0.08 $ 0.05
========== ========== ========== ============
Diluted £ 0.04 £ 0.03 $ 0.07 $ 0.04
========== ========== ========== ============
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
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Xfone, Inc. and Subsidiary
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Number of Contributions Total
Ordinary Share in excess of Retained Shareholders'
Shares Capital par value Earnings Equity
--------- -------- ---------- -------- -------------
Balance at January 1, 2001 4,800,000 £ 3,310 £ 134,143 £ 134,561 £ 272,014
Issuance of ordinary shares 200,000 138 6,760 - 6,898
Net income - - - 145,606 145,606
--------- -------- ---------- -------- -------------
Balance at December 31, 2001 5,000,000 £ 3,448 £ 140,903 £ 280,167 £ 424,518
--------- -------- ---------- -------- -------------
Balance at January 1, 2002 5,000,000 3,448 140,903 280,167 424,518
Issuance of shares 60,889 42 39,316 - 39,358
Net income - - - 240,981 240,981
Dividend - - - (63,261) (63,261)
--------- -------- ---------- -------- -------------
Balance at December 31, 2002 5,060,889 £ 3,490 £ 180,219 £ 457,887 £ 641,596
========= ======== ========== ======== =============
Convenience translation
into U.S. $:
Balance at January 1, 2002 5,000,000 $5,517 $225,445 $448,267 $679,229
Issuance of shares 60,889 67 62,905 - 62,972
Net income - - - 385,570 385,570
Dividend - - - (101,218) (101,218)
--------- -------- ---------- -------- -------------
Balance at December 31, 2002 5,060,889 $5,584 $288,350 $732,619 $1,026,553
========= ======== ========== ======== =============
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
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Xfone, Inc. and Subsidiary
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Years
Ended Ended
December 31, December 31,
2002 2001 2002 2001
----------------------- -------------------------
Convenience translation
into U.S. $
Cash flow from operating activities
Net income £240,981 £145,606 $385,570 $232,970
Adjustments to reconcile net income to net cash
provided by operating activities 104,398 35,665 167,036 57,064
----------------------- --------------------------
Net cash provided by operating activities 345,379 181,271 552,606 290,034
----------------------- --------------------------
Cash flow from investing activities
Investments made in year (515) - (824) -
Purchase of equipment (152,757) (108,377) (244,411) (173,403)
----------------------- --------------------------
Net cash used in investing activities (153,272) (108,377) (245,235) (173,403)
----------------------- --------------------------
Cash flow from financing activities
Repayment of long term debt (9,970) - (15,952) -
Proceeds from issuance of long term debt - 9,904 - 15,846
Proceeds from issuance of common stock 10,583 - 16,933 -
----------------------- --------------------------
Net cash provided by financing activities 613 9,904 981 15,846
----------------------- --------------------------
Net increase in cash
Cash, beginning of year 279,243 196,445 446,789 314,312
Cash, at end of year £471,963 £279,243 $755,141 $446,789
======================= ==========================
Supplement disclosures of cash flow information:
Net cash paid during the year for:
Income taxes £41,723 £ - $66,757 $ -
======================= ==========================
Interest £12,816 £6,496 $20,506 $ 10,394
======================= ==========================
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
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Xfone, Inc. and Subsidiary
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
(1) Adjustments to reconcile net income to net cash provided by operating
activities:
Years Years
Ended Ended
December 31, December 31,
2002 2001 2002 2001
------------------------- -------------------------------
Convenience translation
into U.S. $
------------------------- -------------------------------
Depreciation £58,300 £37,012 $93,280 $59,219
----------- ----------- ------------- -------------
Stock issued for professional services 28,775 6,898 46,040 11,037
----------- ----------- ------------- -------------
Changes in assets and liabilities:
Increase in trade receivables (233,770) (431,873) (374,032) (690,997)
(Increase) decrease in other receivables (65,570) 58,793 (104,912) 94,068
Increase in shareholder loans (20,783) (66,212) (33,253) (105,939)
Increase in trade payables 214,607 461,466 343,371 738,346
Increase (decrease) in other payables 117,839 (50,419) 188,542 (80,670)
Increase in deferred taxes 5,000 20,000 8,000 32,000
----------- ----------- ------------- -------------
Total adjustments 17,323 (8,245) 27,716 (13,192)
----------- ----------- ------------- -------------
£104,398 £35,665 $167,036 $57,064
=========== =========== ============= =============
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 - Organization 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
("£") 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 December 31, 2002. The translation
was made solely for the convenience of the readers. It should be noted that
the £figures do not necessarily represent the current cost amounts of
the various elements presented and that the translated U.S. dollar figures
should not be construed as a representation that the £ currency
amounts actually represented, or could be converted into, U.S. dollars. The
representative rate of exchange of the £ at December 31, 2002 was
£1 = 1.60 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 of America. 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. Allowance for Doubtful Accounts
The allowance is determined based upon management's evaluation of
receivables doubtful of collection on a specific basis. Such allowances for
doubtful accounts are as follows:
£
December 31, 2002 190,550
December 31, 2001 115,550
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
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.
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.)
F. Revenue Recognition (cont.)
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).
G. Use of Estimates
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 reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
H. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 143 "Accounting For Asset Retirement Obligations" which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. In August 2001, the FASB issued SFAS No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" which addresses
financial accounting and reporting for the impairment of long-lived assets.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
With Exit or Disposal Activities" which addresses the accounting and
reporting for costs associated with exit or disposal activities and
primarily, provides for the recognition of a liability when related costs
are incurred rather than when an entity commits to an exit or disposal
plan. In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation - "Transition and Disclosure" which provides
alternative methods of transition for a voluntary change to fair value
based method of accounting for stock-based employee compensation. The
adoption of these statements are not expected to have a material effect on
the Company's financial condition, results of operations or cash flows.
I. Earnings Per Share
Earnings per share are calculated and reported in accordance with Statement
of Financial Accounting Standards No. 128, Earnings 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 or resulted in the issuance of common stock
that then shared in the earnings of the entity.
F-10
--------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 2 - Significant Accounting Policies (Cont.)
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 and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns.
Note 3 - Prepaid Expenses and Other Receivables
December 31, December 31,
2002 2002
----------- -----------------------
Convenience translation
into US$
----------- -----------------------
Due from Swiftglobal, Ltd. (nonaffiliated entity) £ 59,274 $94,839
Other prepaid expenses 59,127 94,603
Due from related entities 30,921 49,473
Others receivables 31,263 50,021
----------- -----------------------
£180,585 $288,936
=========== =======================
Note 4 - Loans to Shareholders
The Company has a non-interest bearing demand loan of £45,558 due
from a shareholder, our chairman of the board Mr. Abraham Keinan. In
addition, the Company has a non-interest bearing loan of £257,572,
due from such shareholder which has been classified as noncurrent.
F-11
--------------------------------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 5 - Fixed Assets
December 31, December 31,
2002 2002
------------ ----------------------------------
Convenience translation into U.S.$
------------ ----------------------------------
Cost
Machinery and equipment £289,871 $463,794
Office furniture and equipment 59,409 95,054
Motor vehicle 35,000 56,000
Development costs 32,060 51,296
Property held under capital lease:
Switching equipment 143,131 229,010
------------ ----------------------------------
£559,471 $895,154
============ ==================================
Accumulated Depreciation
Machinery and equipment £206,244 $329,990
Office furniture and equipment 46,200 73,920
Motor vehicle 23,925 38,280
Development costs 8,015 12,824
Property held under capital lease:
Switching equipment 22,193 35,509
------------ ----------------------------------
£306,577 $490,523
============ ==================================
Note 6 - Investments
During 2002, the Company entered into two business ventures acquiring
approximately 47% of Auracall Limited and 40% of Story Telecom Limited,
both start up entities in the U.K.
F-12
-----------------------------------------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
-----------------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 7 -Other Liabilities and Accrued Expenses
December 31, December 31,
2002 2002
------------ --------------------------------
Convenience translation into US$
------------ --------------------------------
Corporate taxes £ 86,549 $138,478
Professional fees 30,201 48,322
Payroll and other taxes 37,338 59,741
Others 42,965 68,744
------------ --------------------------------
£197,053 $315,285
Note 8 - Notes Payable
December 31, December 31,
2002 2002
------------ --------------------------------
Convenience translation into US$
------------ --------------------------------
First National Finance - maturity 2005,
annual Interest rate 7.16% £ 6,000 $9,600
Newcourt - maturity 2005, annual interest
rate 7.16% 5,167 8,267
------------ --------------------------------
11,167 17,867
Less: current portion (4,000) (6,400)
------------ --------------------------------
Notes payable - non current £ 7,167 $11,467
============ ================================
F-13
--------------------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 8 - Notes Payable (cont.)
B. Maturities of notes payable are as follows:
Convenience translation into
U.S. $
----------------------------
December 31
-----------
2003 £ 4,000 $6,400
2004 4,000 6,400
2005 3,167 5,067
-------- ----------------------------
£ 11,167 $17,867
======== ============================
Note 9 - Capital Lease Obligations
The Company is the lessee of switching equipment under capital leases
expiring in various years through 2005. 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 is included in depreciation expense for 2002.
Minimum future lease payments under capital leases as of December 31, 2002
for each of the next three years are:
Convenience translation into
U.S. $
----------------------------
December 31
-----------
2003 £ 25,710 $41,136
2004 25,710 41,136
2005 14,876 23,802
Total minimum lease payments
Less: amount representing interest (10,740) (17,184)
-------- ----------------------------
Present value of net minimum lease payment £ 55,556 $88,890
======== ============================
Interest rates on capitalized leases vary up to 9.6%.
F-14
--------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------
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. SFAS 109, additionally requires the establishment of a
valuation allowance to reflect the likelihood of realization of deferred
tax assets. The Company does not file consolidated tax returns. At December
31, 2002, Xfone had deferred tax assets of approximately £6,500,
resulting from its net operating loss. The Company has not been able to
determine that it is more likely than not that the deferred tax asset will
be realized and has, therefore, provided a valuation allowance for the
total amount of the benefit.
The following table reflects the Company's deferred tax liabilities at
December 31, 2002:
Convenience
translation into U.S. $
-----------------------
Net operating loss deduction £ 6,500 $10,400
Valuation allowance (6,500) (10,400)
Accelerated tax writeoff of fixed assets 25,000 40,000
------- -----------------------
Net deferred liability £25,000 $40,000
======= =======================
The provision for income taxes differs from the amount computed by applying
the statutory income tax rate to income before taxes, excluding the loss
included therein of £65,252 for the year ended December 31, 2001, for
which no benefit has been recognized, as follows:
Years Ended Years Ended
December 31, December 31,
2002 2001 2002 2001
--------- --------- --------- ---------
Convenience translation
into U.S. $
-------------------------
Income tax computed at statutory rate £73,066 £53,682 $116,906 $85,891
Effect of permanent differences 6,663 6,075 10,661 9,720
Utilization of net operating loss (6,916) - (11,066) -
Provision for income taxes £72,813 £59,757 $116,501 $95,611
========= ========= ========= =========
The net operating loss carryforward at December 31, 2002 was approximately
£32,000 and expires in the year 2021.
F-15
--------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 11 - Capital Structure, Stock Options and Dividend
Campbeltown Business Ltd., a shareholder, has the option from the Company
and one of its directors to purchase 500,000 additional shares of Xfone for
the amount of $200,000. This transaction can be executed either by Xfone
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.
During November 2001, the Company issued 105,000 shares of common stock to
its attorneys as compensation for services rendered in connection with the
successful initial registration and offering of the Companies' shares which
was effective December 28, 2001. The value of the stock at the time of its
issuance was charged to professional fees. During July 2001, the Company
issued 95,000 shares of common stock to the Swiftnet Management Fund to be
distributed by such fund at will.
In 2002, the Company issued 45,014 shares of common stock at a value of
£28,775 as compensation for professional services rendered to the
Company.
On December 19, 2002, the Company declared a dividend of $0.02 per share to
stockholders of record on December 31, 2002, payable on January 15, 2003.
F-16
--------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------
Note 12 - Earnings Per Share
-----------------------------------------------------------
2002
Weighted Average
-----------------------------------------------------------
Income Shares Per Share Per Share
(Numerator) (Denominator) Amounts Amounts
-----------------------------------------------------------
Convenience
translation
into U.S. $
-----------------------------------------------------------
Net Income £ 240,981
Basic EPS:
£ 240,981 5,030,444 £0.05 $0.08
Income available to common stockholders
Effect of dilutive securities:
Options - 500,000 - -
Diluted EPS:
Income available to common stockholders £ 240,981 5,530,444 £0.04 $0.07
-----------------------------------------------------------
2001
Weighted Average
-----------------------------------------------------------
Income Shares Per Share Per Share
(Numerator) (Denominator) Amounts Amounts
-----------------------------------------------------------
Convenience
translation
into U.S. $
-----------------------------------------------------------
Net Income £ 145,606
Basic EPS:
£ 145,606 4,848,333 £ 0.03 $0.05
Income available to common stockholders
Effect of dilutive securities:
Options - 500,000 - -
Diluted EPS:
Income available to common stockholders £ 145,606 5,348,333 £ 0.03 $0.04
F-17
----------------------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
----------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 13 - Selected Statement of Operations Data
Years Years
Ended Ended
December 31, December 31,
2002 2001 2002 2001
-------- -------- -------- --------
Convenience translation
into U.S. $
-------- -------- ------------------------
A. Marketing & Selling:
Advertising £ 22,401 £ 4,904 $ 35,842 $ 7,847
Consultancy 59,372 39,187 94,995 62,699
Commissions 174,835 139,827 279,735 223,723
Others 63,810 35,320 102,096 56,512
-------- -------- -------- --------
£320,418 £219,238 $512,668 $350,781
======== ======== ======== ========
B. General & Administrative:
Salaries & benefits £268,884 £180,952 $430,215 $289,524
Rent & maintenance 90,916 47,623 145,466 76,197
Communications 11,539 28,619 18,462 45,791
Professional fees 142,863 156,959 228,581 251,134
Bad debts 226,984 84,427 363,174 135,083
Depreciation 58,300 37,012 93,280 59,219
Others 79,138 8,344 126,621 13,350
-------- -------- -------- --------
£878,624 £543,936 $1,405,799 $870,298
======== ======== ======== ========
F-18
----------------------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
----------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 13 - Selected Statement of Operations Data (cont.)
Years Years
Ended Ended
December 31, December 31,
2002 2001 2002 2001
-------- -------- -------- --------
Convenience translation
into U.S. $
-------- -------- -------------------------
C. Financing Expenses, Net:
Bank interest & charges £ 1,607 £ 25,741 $ 2,571 $ 41,186
Interest on capital lease 8,476 3,808 13,562 6,093
Foreign currency exchange 21 - 34 -
Other interest and charges 2,733 1,433 4,372 2,292
-------- -------- -------- --------
£ 12,837 £ 30,982 $ 20,539 $ 49,571
======== ======== ======== ========
F-19
-------------------------------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
-------------------------------------------------------------------------------------------------------
Note 14 - Related Party Transactions
Years Years
Ended Ended
December 31, December 31,
--------------------- -----------------------------------
2002 2001 2002 2001
--------------------- -----------------------------------
Convenience translation into U.S. $
--------------------- -----------------------------------
Shareholders' salaries £63,448 £42,000 $101,517 $ 67,200
Shareholders' pensions £ - £ 3,300 $ - $ 5,280
Campbeltown Business Ltd.:
Consulting and professional fees £59,372 £78,375 $ 94,995 $125,400
Vision Consultants Limited:
Consulting expense £25,000 £ - $ 40,000 $ -
Story Telecom Limited :
Accounts receivable, net £ 3,606 £ - $ 5,770 $ -
Due from related entities £14,725 £ - $ 23,560 $ -
Revenues £ 3,716 £ - $ 5,946 $ -
Auracall Limited :
Due from related entities £16,196 £ - $ 25,914 $ -
Trade payables £12,362 £ - $ 19,779 $ -
Commission expense £73,661 £ - $117,858 $ -
F-20
--------------------------------------------------------------------------------
Xfone, Inc. and Subsidiary
--------------------------------------------------------------------------------
Note 15 - Financial Commitments
The Company has annual rent commitments under a non-cancellable operating
lease of £38,200, which terminates in December 2012.
Note 16 - Economic Dependency and Credit Risk
Approximately, 14% and 13% of total 2002 revenues were derived,
respectively, from two customers and approximately 12% of total 2001
revenues was derived from one of these customers.
Approximately, 19% and 18% of the total accounts receivable - net at 2002
were due from the aforementioned two customers, respectively.
F-21
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
There have been no disagreements with accountants on accounting and financial
disclosure.
Item 8A. Controls and Procedures
As of December 31, 2002, 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 December 31, 2002.
There has been no change in our internal control over financial reporting during
the last quarter, which ended December 31, 2002, that has materially affected or
is reasonably likely to materially affect our internal control over financial
reporting.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
DIRECTORS AND EXECUTIVE OFFICERS
Our Board of Directors elects our executive officers annually. A majority vote
of the directors who are in office is required to fill vacancies. Each director
shall be elected for the term of one year, and until his successor is elected
and qualified, or until his earlier resignation or removal. Our bylaws provide
that we have at least one director. Our directors and executive officers are as
follows:
-------------------- ---------- ---------------------------------------------
Name Age Position
-------------------- ---------- ---------------------------------------------
Abraham Keinan 53 Chairman of the Board of Directors
-------------------- ---------- ---------------------------------------------
Guy Nissenson 28 President, Principal Executive Officer,
Principal Financial Officer, Principal
Accounting Officer and Director
-------------------- ---------- ---------------------------------------------
Eyal Harish 50 Director
-------------------- ---------- ---------------------------------------------
Shemer Schwartz 28 Director
-------------------- ---------- ---------------------------------------------
Mr. Abraham Keinan has been our Chairman of the Board of Directors and our
Principal Financial and Accounting Officer since our inception. Abraham Keinan
founded Swiftnet, Ltd., in January 1991. From 1991 to present, he has been
Swiftnet's Managing Director. Abraham Keinan received a Bachelor of Science
Degree in Mechanical Engineering from Ben-Gurion University, Beer-Sheeva -
Israel.
Mr. Guy Nissenson has been our President, Principal Executive Officer, and a
Director since our inception. Guy Nissenson joined Swiftnet, Ltd. in October
1999 and became a director of Swiftnet, Ltd. in May 2000. He was a marketing
manager of RADA Electronics Industries from May 1997 to October 1998. Guy
Nissenson was an audit and control officer with the rank of Lieutenant of the
Israeli Defense Forces - Central Drafting Base and other posts from March 1993
to May 1997. In July 2000, Guy Nissenson received a Bachelor of Science Degree
in Business Management from Kings College - University of London.
22
Dr. Eyal Harish has been one of our directors since December 19, 2002. From 1980
to present, Dr. Harish has been in his own private practice in Israel as a
dentist. Prior to becoming a dentist, from 1974 to 1980, Dr. Harish was an
Administration Manager with Consortium Holdings, an Israel based communication
company. Dr. Harish is the brother-in-law of Mr. Keinan, our Chairman of the
Board.
Mr. Shemer Schwartz has been one of our directors since December 19, 2002. From
November 1991 to present, Mr. Schwartz has been an Application Team Leader of RF
Waves, an Israel based high technology company in the field of wireless
communication. From 1996 to 2001, Mr. Schwartz was a Captain in the R&D Center
of the Israeli Defense Forces Intelligence. In 1995, Mr. Schwartz received a BSc
degree in Physics and Mathematics from the Hebrew University in Jerusalem.
SIGNIFICANT EMPLOYEES
Mrs. Bosmat Houston, 41 years of age, has been our Research and Development
Manager since our inception. She joined Swiftnet, Ltd., in September 1991 as its
Research and Development Manager. Mrs. Houston received a Bachelor of Science
Degree in Computer Science from the Technion - Institution of Technology, Haifa
- Israel in 1986.
Other than as identified above, we have no significant employees.
FAMILY RELATIONSHIPS
Dr. Harish, one of our directors, is the brother-in-law of Mr. Keinan, our
Chairman of the Board. Other than this family relationship, there are no other
family relationships among our officers, directors, or persons nominated for
such positions.
LEGAL PROCEEDINGS
No officer, director, or persons nominated for such positions, promoter or
significant employee has been involved in legal proceedings that would be
material to an evaluation of our management.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the our executive
officers, directors and persons who beneficially own more than 10% of
our common stock to file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulations
to furnish us with copies of all Section 16(a) forms filed by such persons.
Based solely on our review of such forms furnished to us and representations
from certain reporting persons, we believe that all filing requirements
applicable to our executive officers, directors and more than 10% stockholders
were complied with during the most recent fiscal year, ended December 31, 2002.
23
Item 10. Executive Compensation
The following table sets forth summary information concerning the compensation
received for services rendered to it during the current year and the years ended
December 31, 2001 and 2002 respectively by our Chief Executive Officer, Abraham
Keinan who is the managing director of Swiftnet and Guy Nissenson, who is our
President/Principal Executive Officer/Principal Financial Officer/Principal
Accounting Officer and a Director. Abraham Keinan is our only executive officer
who received aggregate compensation during our last fiscal year which exceeded,
or would exceed on an annualized basis, $100,000.
---------------------------------------------------------------------------------------------------
Summary Compensation Chart
---------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
--------------------- ---------------------------------- ----------------------------------- ------
Name & Year Salary ($) Bonus($) Other($) Restricted Options($) L/Tip($) All
Position Stock Awards Other
--------------- ----- -------------- --------- --------- ------------- ----------- --------- ------
Abraham Keinan 2002 $45,000 9,588 67,500 0 0 0 0
Chairman/CEO (30000 Pound (6,372 (45,000
Sterling) Pound Pound
Sterling) Sterling)
2001 $42,300 0 0 0 0 0 0
(30000 Pound
Sterling)
2000 $22,095 0 0 0 0 0 0
(15000 Pound
Sterling)
---------------------------------------------------------------------------------------------------
Our chairman of the Board of Directors, Mr. Abraham Keinan, does not have a
written employment agreement with us. Since January 2001, we have agreed to pay
him a salary of $3,525 (2,500 Pound Sterling) per month. Abraham Keinan receives
pension benefits and a company car.
On May 11, 2000, we entered into a written employment agreement with our
President/Principal Executive Officer/Principal Financial Officer/Principal
Accounting Officer and Director, Guy Nissenson. Under the agreement, Guy
Nissenson will work on business development, sales and marketing. We have agreed
to pay him a salary of $1,473 (1000 Pound Sterling) per month, subject to a
future increase of $1,473 (1000 Pound Sterling) if Swiftnet reaches average
sales of $257,775 (175,000 Pound Sterling) per month. In addition, we have
agreed that if we grant options to Abraham Keinan, we will grant Guy Nissenson
options to buy Swiftnet or us according to the following formula: 50% of the
options with same price and conditions that Abraham Keinan will receive, subject
to our reaching a benchmark of $176,760 (120,000 Pound Sterling) average sales
per month during Guy Nissenson activities or in the 12 months thereafter. The
agreement with Guy Nissenson can be terminated by either party with one month
notice.
24
On October 15, 2002, our Board of Directors approved a bonus and success fee
whereby if we receive monthly revenues in excess of $485,000 then Mr. Keinan and
our consultant, Campbeltown Business, Ltd. shall receive 1% of the revenues for
each month where our revenues reach $485,000 up to a maximum of one million
dollars.
Our research and development manager, Mrs. Bosmat Houston, has an employment
agreement us which provides that we pay her a salary of $3,337 (2266 Pound
Sterling) per month. She is not subject to a covenant not to compete. We may
terminate Mrs. Houston's agreement with 8 weeks notice. She may terminate the
agreement with one week notice.
Board Compensation
Other than provided above, our directors do not receive any compensation for
their services as directors, although some directors are reimbursed for
reasonable expenses incurred in attending board or committee meetings.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth the ownership of our Common Stock as of the date
of this Form 10-KSB by:
o Each shareholder known by us to own beneficially more than 5% of our
common stock;
o Each executive officer;
o Each director or nominee to become a director; and
o All directors and executive officers as a group.
25
--------- ----------------------- --------------------- --------------- --------
Title of Name & Address of Amount of Beneficial Nature of Percent
Class Beneficial Owner Ownership Ownership of Class
--------- ----------------------- --------------------- --------------- --------
Common Abraham Keinan 2,342,333 Direct 46.2
Chairman of the Board
4 Wycombe Gardens
London Nw11 8al
United Kingdom
--------- ----------------------- --------------------- --------------- --------
Common Vision Consultants (1) 1,302,331 Indirect (1) 25.7
Kings Court
POB N-3944
Bay Street
Nassau, Bahamas
--------- ----------------------- --------------------- --------------- --------
Common Eyal Harrish 15,000 Direct 0.3
Director
3 Moshe Dayan Street
Raanana, Israel
--------- ----------------------- --------------------- --------------- --------
Common Shemer Schwartz 0 Not Applicable 0.0
Director
960 High Road
London N12 9RY
United Kingdom
--------- ----------------------- --------------------- --------------- --------
Common Campbeltown 720,336 Indirect (2) 14.4
Business, Ltd. (2)
P.O. Box 3152
Road Town, Tortola,
British Virgin Islands
--------- ----------------------- --------------------- --------------- --------
Common All directors and
executive officers 4,380,000 86.6
as a group
--------- ----------------------- --------------------- --------------- --------
This table is based on information from our stock records. All of the above
shareholders reflect the ownership of our shares of common stock, either
directly or indirectly, of our executive officers and directors. Unless
otherwise indicated in the footnotes to this table, we believe that each of the
shareholders named in this table has sole or shared voting and investment power
with respect to the shares indicated as beneficially owned. Except as otherwise
noted, herein, we are not aware of any arrangements which may result in a change
in our control. The Chairman of our Board of Directors, Abraham Keinan, and our
President/Principal Executive Officer/Principal Financial Officer/Principal
Accounting Officer, Guy Nissenson, have entered into a shareholders agreement
with each other, on behalf of their respective companies, Vision Consultants and
Campbeltown Business, Ltd., pursuant to which each party has a right of first
refusal on any proposed sale of our stock by the other party.
26
(1) Our Chairman of the Board, Abraham Keinan, owns 100% of the stock of Vision
Consultants, which was incorporated in Nassau, Bahamas. The sole business
purpose of this corporation is to hold and manage Mr. Keinan's investments.
(2) Guy Nissenson, our Principle Executive Officer/Director and his family are
shareholders of Campbeltown Business, Ltd. In accordance with a Stock Purchase
Agreement, clarified on July 30, 2001, Campbeltown Business, Ltd. has an option
to acquire 10% of our outstanding stock if we become listed on the OTC Bulletin
Board before December 31, 2005. We became listed on the OTC Bulletin Board on
March 25, 2002. Campbeltown Business, Ltd. has not exercised its option as of
February 28, 2003, and Campbeltown Business, Ltd. has until December 31, 2005 to
exercise its option. Campbeltown Business, Ltd. also has a first right of
refusal on any of our securities offerings until December 31, 2005, so long as
Campbeltown Business, Ltd. owns more than 4% of our outstanding stock. To the
extent that we issue any shares to Abraham Keinan, Campbeltown Business, Ltd.
has the right to purchase or acquire such number of our shares on the same terms
and conditions as Abraham Keinan such that the relative percentage ownership of
Abraham Keinan and Campbeltown Business, Ltd. remains the same.
Change in Control
We are not currently engaged in any activities or arrangements that we
anticipate will result in a change in our control.
Item 12. Certain Relationships and Related Transactions
On September 1, 2000, in accordance with our first board of directors meeting,
we issued 1,730,000 shares of our common stock to our founder and director,
Abraham Keinan for services rendered to us in our corporate formation.
Specifically, Mr. Keinan's services consisted of the establishment of our
business concept and providing his technical expertise to our business. Our
Board of Directors valued Mr. Keinan's services at $247,390.
On or about April 6, 2000 Swiftnet, Ltd., our subsidiary, entered into an
agreement with Adar International Inc. and Sydney J. Golub whereby they would
assist Swiftnet Ltd. to become a publicly traded company. This agreement
provided for:
o A proposed merger between Swiftnet Ltd. and Adar Alternative Two, Inc.
whereby Adar Alternative Two was to acquire all of Swiftnet's
outstanding stock;
o The filing of an S-4 Registration Statement prepared by Attorney
Michael T. Williams registering shares issued in the merger between
Swiftnet and Adar Alternative Two, Inc;
o Closing of the merger after the effectiveness of the S-4 Registration
Statement; and
o Adar Alternative Two Inc. being the surviving corporation and changing
its name to Xfone, Inc.
27
After the closing of the merger, Swiftnet, Ltd.'s would have controlled 96% of
the common stock of Adar Alternative Two Inc., Sidney Golub would have
controlled 2%, and Michael T. Williams would have controlled 2%. Swiftnet Ltd.
agreed to the proposed terms of the agreement based on the advice of its
Attorney, Michael T. Williams that the proposed transactions were the most
beneficial and expeditious method for Swiftnet Ltd. to have its common shares
quoted on the OTC Bulletin Board. On approximately July 6, 2001, our new
counsel, Hamilton, Lehrer and Dargan, P.A., advised us that neither the S-4
registration statement nor the proposed merger would accomplish our objective of
having Swiftnet, Ltd.'s common shares quoted on the OTC Bulletin Board. We then
instructed Hamilton, Lehrer and Dargan, P.A. to request Adar Alternative Two's
counsel, Mr. Burt Wiand, to affect the withdrawal of the S-4 registration
statement. The Adar Alternative Two S-4 registration statement was withdrawn on
or about October 12, 2001 and we proceeded with our Form SB-2 registration
statement.
On or about October 4, 2000, we acquired 11,000 of the A equity outstanding
common shares of Swiftnet and 11,000 of the B voting common shares of Swiftnet,
representing all of Swiftnet's issued and outstanding stock in exchange for 2.4
million shares of our newly issued common stock. As a result of this
transaction, Swiftnet became our subsidiary. In the exchange, our shares were
valued at $0.143 per share for a total of approximately $344,187 and Swiftnet's
A and B shares were valued at $15.64 per share for a total of $344,187. There
was no monetary exchange in the Swiftnet acquisition.
Since inception through December 31, 2000, we have, along with our subsidiary,
Swiftnet, Ltd., loaned Abraham Keinan a total of 216,133 Pound Sterling or
approximately $322,586 based upon the exchange rate at December 31, 2000. We
provided the loan to Mr. Keinan to promote his loyalty and continued service as
our Chairman of the Board of Directors. This loan is reflected in a promissory
note payable in ten equal installments of approximately $19,150 beginning
January 1, 2002 and ending on January 1, 2011. This note is non-interest
bearing.
28
On May 5, 2000, Swiftnet, Ltd. entered into an 18-month renewable consulting
agreement with Campbeltown Business, Ltd., a private company owned by Guy
Nissenson, our President/Principal Executive Officer/Principal Financial
Officer/Principal Accounting Officer and a Director, and his family. We renewed
this agreement for an additional 18 month period beginning on November 5, 2001
and ending on July 5, 2003. We plan to renew this agreement for an additional 18
month term in after the expiration of the current term on July 5, 2003. Swiftnet
agreed to provide the following services to us: (a) analysis of proposed
acquisitions; (b) seek markets for our telecommunications services in additional
countries; (c) formulate strategies for our future growth plans; and (d)
introduce potential customers to our business. Under the agreement, we are
obligated to pay Campbeltown Business, Ltd. 2,000 UK Pound Sterling
(approximately $2,946) per month, along with an additional monthly performance
bonus based upon Swiftnet, Ltd., attaining the following revenue levels for
consulting services in the area of business development and management
activities:
------------------------------------------- --------------------------------
TARGET AMOUNT OF ADDITIONAL MONTHLY BONUS
REVENUES PER MONTH
------------------------------------------- --------------------------------
Less than 125,000 Pounds (UK) 0 Pounds (UK)
------------------------------------------- --------------------------------
Between 125,000 - 150,000 Pounds (UK) 1,250 Pounds (UK)
(approximately $ 184,125 - $ 220,950 US) (approximately $ 1,841 US)
------------------------------------------- --------------------------------
Between 150,000 - 175,000 (UK) 2,500 Pounds (UK)
(approximately $ 220,950 - $ 257,775 US) (approximately $ 3,583 US)
------------------------------------------- --------------------------------
Over 175,000 Pounds (UK) 2,750 Pounds (UK)
(approximately $ 257,775 US) (approximately $ 4,050 US)
------------------------------------------- --------------------------------
On May 11, 2000, Swiftnet, Ltd. and our Chairman of the Board of Directors,
Abraham Keinan, entered into an employment agreement with Guy Nissenson, our
President/Principal Executive Officer/Principal Financial Officer/Principal
Accounting Officer and a Director. This agreement does not expire. Under the
terms of the agreement, Swiftnet has employed Mr. Nissenson for the purpose of
business development and sales and marketing, at a base rate of 1000 pounds (UK)
per month (approximately $1,433 US). When Swiftnet reaches average sales of
175,000 pounds (UK) per month for a three month period, Guy Nissenson's salary
will be increased to 2,000 pounds (approximately $2,866 US) per month. In
addition, the agreement provides that Guy Nissenson will receive an unspecified
number of options to acquire our stock that is limited to 50% of the options
that Abraham Keinan receives. As such, the agreement protects Mr. Nissenson's
rights to have at least 50% of the options rights that Mr. Keinan will have.
Because Mr. Keinan has not received any options to date, the option amount terms
are not specified. At such time as the options are received by Mr. Keinan, our
Board of Directors will establish the terms of the options. Mr. Nissenson can
transfer the right of these options to another company or person at his
discretion. Swiftnet may only cancel these options if : (1) Guy Nissenson no
longer works with Swiftnet; or (2) if within twelve months of Guy Nissenson's
employment with the company, Swiftnet and any other companies that may buy or
merge into Swiftnet in the future, do not reach average revenues (over a three
consecutive month period) of at least 120,000 pounds (UK). Because the average
sales per month have exceeded 120,000 pounds within a twelve month period of Mr.
Nissenson's employment, Swiftnet cannot cancel the options.
29
On June 19th, 2000, Swiftnet, Ltd. entered into a Stock Purchase Agreement with
Abraham Keinan and Campbeltown Business Ltd., a company owned by Guy Nissenson
and his family. This agreement was made in contemplation of the April 6, 2000
Swiftnet, Ltd./Adar International, Inc. merger being completed, whereby Adar
International, Inc. was to acquire all of Swiftnet, Ltd.'s outstanding common
stock.
The June 19, 2000 agreement provides that:
o Abraham Keinan confirmed that all his businesses activities and
initiatives in the field of telecommunications are conducted through
Swiftnet, and would continue for at least 18 months after the
conclusion of this transaction.
o Campbeltown Business, Ltd. declared that it is not involved in any
business that competes with Swiftnet and would not be involved in such
business at least for 18 months after this transaction is concluded.
This agreement term has been satisfied by Campbeltown Business, Ltd.
o Campbeltown Business, Ltd. would invest $100,000 in Swiftnet, Ltd. in
exchange for 20% of the total issued shares of Swiftnet, Ltd.;
Campbeltown Business, Ltd. would also receive 5% of the issued and
outstanding shares of our company following our acquisition with
Swiftnet.
o Swiftnet, Ltd. and Keinan would guarantee that Campbeltown Business,
Ltd.'s 20% interest in the outstanding shares of Swiftnet would be
exchanged for at least 10% of our outstanding shares and that
Campbeltown Business, Ltd. would have in total at least 15% of our
total issued shares after our acquisition occurred.
o Campbeltown Business, Ltd. would have the right to nominate 33% of the
members of our board of directors and Swiftnet's board of directors.
When Campbeltown Business, Ltd. ownership in our common stock was less
than 7%, Campbeltown Business, Ltd. would have the right to nominate
only 20% of our board members but always at least one member. In the
case that Campbeltown Business, Ltd. ownership in our common stock was
less than 2%, this right would expire. In the case that Adar group
transaction is not concluded and Campbeltown Business, Ltd. sells all
of its shares in Swiftnet, the right for 33% board members in Swiftnet
will expire.
30
o Campbeltown Business, Ltd. would have the right to nominate a vice
president in Swiftnet and/or our common stock. It is agreed that Mr.
Guy Nissenson is nominated now. If for any reason Guy Nissenson will
leave his position, Campbeltown Business, Ltd. and Abraham Keinan will
agree on another nominee. The Vice President will be employed with
suitable conditions. This right will expire when both conditions
happen: Campbeltown Business, Ltd. is no longer a shareholder in
Swiftnet and it owns less than 2% of our common stock.
o Campbeltown Business, Ltd. has the option to purchase additional
shares of Swiftnet that will represent 10% of all issued shares after
the transaction for $200,000 US. This transaction can be executed
either by Swiftnet issuing new shares, or by Abraham Keinan selling
his private shares (as long as he has an adequate amount of shares),
as Abraham Keinan will decide. This option will expire on December 31,
2005. Campbeltown Business, Ltd. can exercise this option in parts. If
this option is exercised before the conclusion of Adar Group
transaction Keinan and Swiftnet will make sure and guarantee that the
shares owned by Campbeltown Business, Ltd. because of exercising this
option will be exchanged by the same percentage of ownership in our
common stock. It is agreed that if Campbeltown Business, Ltd.
exercised only part of the option buying Swiftnet shares it will have
the right to exercise the remainder of the option for our shares at
the same terms. As long as Swiftnet is not a public company or is
merged/bought/taken over by a third party only half of the option
above could be taken.
o Alternatively to the right described in the point above after the
conclusion of Adar group transaction Campbeltown Business, Ltd. will
have the option to purchase shares of Xfone that will represent 10% of
all issued and outstanding shares at the first day of flotation (after
the transaction) for the amount of $200,000 US. It is Campbeltown
Business, Ltd. decision what alternative to choose. This transaction
can be executed either by Xfone issuing new shares, or by Abraham
Keinan selling his private shares in Xfone (as long as he has an
adequate amount of shares), as Abraham Keinan will decide. The option
can be executed in parts and will expire on December 31, 2005.
o Campbeltown Business, Ltd. will have the right to participate under
the same terms and conditions in any investment or transaction that
involve equity rights in Swiftnet or us conducted by Abraham Keinan
at the relative ownership portion.
31
o In the event that Swiftnet or we will seek for money in a private
placement for equity or any other rights, Campbeltown Business, Ltd.
will have the right of first refusal on any transaction or part of it
until December 31, 2005 or as long as it owns over 7% of Swiftnet
equity or 4% of our common stock.
o Keinan and Campbeltown Business, Ltd. have signed a right of first
refusal agreement for the sale of their shares.
o Until we conduct a public offering or are traded on a stock market, we
are not permitted to issue any additional shares or equity rights
without a written agreement from Campbeltown Business, Ltd. This
right expires when Campbeltown Business, Ltd. no longer owns any
equity interest or shares in our company or our subsidiary, Swiftnet.
After our formation, on July 30, 2001, and as a result of the rescission of the
Swiftnet, Ltd./Adar International, Inc. merger transaction, the June 19, 2000
stock purchase agreement between Campbeltown Business, Ltd. and Swiftnet was
supplemented by a letter of understanding between Campbeltown Business, Ltd. and
us. This letter of understanding provides that we must complete our Form SB-2
registration statement and obtain quotation of our common stock on the OTC
Bulletin Board. Our stock is quoted on the OTC Bulletin Board under the symbol
"XFNE".
On October 15, 2002, our Board of Directors approved a bonus and success fee
whereby if we receive monthly revenues in excess of $485,000 then Mr. Keinan and
our consultant, Campbeltown Business, Ltd. shall receive 1% of the revenues for
each month where our revenues reach $485,000 up to a maximum of one million
dollars.
On August 5, 2000, Swiftnet, Ltd. and Abraham Keinan entered into an agreement
with an unrelated individual, Nissim Levy, who was to secure a credit facility
of $200,000 (US) on behalf of Swiftnet, Ltd. The purpose of the credit facility
was to finance Swiftnet's proposed growth plan, including the purchase of a
switch, the IP system, development software, other equipment and for working
capital purposes. Mr. Levy was also to provide Swiftnet with a bank guarantee
for purposes of securing the $200,000 credit facility. At the time, Mr. Levy had
no relationship or association with us or our management or Swiftnet, Ltd.,
other than being a personal friend of Mr. Keinan. As of the date of this
prospectus, the credit facility is not used because Swiftnet was able to pay for
the equipment and working capital from its growth and increased ability to
generate cash and its securing of a long term equipment loan to purchase the
necessary equipment. In accordance with the terms of the agreement, Swiftnet
issued to Zeneca Commercial S.A., a company owned and controlled by Mr. Levy, a
total of 100,000 shares representing 2% of its then outstanding shares, which
were subsequently exchanged for 100,000 shares of our stock. Under the terms of
the agreement, if we do not conduct an initial public offering by August 5,
2001, Mr. Levy has the option to surrender his shares to Swiftnet's nominee, at
which time we will be obligated to pay Mr. Levy 5% of the outstanding balance on
the bank loan from its inception and until repayment. Even though we did not
conduct a public offering by August 5, 2001, Mr. Levy has not exercised this
option to date; accordingly, there is no change in the status of the agreement
at this time. Mr. Levy's option to surrender his shares expires on May 8, 2003.
Other than the above transactions, we have not entered into any material
transactions with any promoter, director, executive officer, and nominee for
director, beneficial owner of five percent or more of our common stock, or
family members of such persons.
32
Item 13. Exhibits and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
Financial Statements.
The following Financial Statements and Report of Independent Accountants are
contained in this Form 10-KSB
Page in the
Form 10-KSB
-----------
Independent Auditors' Report - Chaifetz & Schreiber, P.C. F-1
Balance Sheets - As of December 31, 2002 F-2 to F-3
Statements of Operations - For the years ended
December 31, 2001 and 2002 F-4
Statement of Changes in Shareholders' Equity -
For the years ended December 31, 2001 and 2002 F-5
Statements of Cash Flows for the years ended
December 31, 2002 and 2001 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-21
33
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)
3.2 Bylaws of Xfone, Inc.(1)
3.3 Articles of Incorporation of Swiftnet Ltd.(1)
3.4 Bylaws of Swiftnet Ltd.(1)
4. Specimen Stock Certificate(1)
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(4)
21. List of Subsidiaries(1)
24. Consent of Hamilton, Lehrer & Dargan, P.A. included in Exhibit 5(1)
31. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32. Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(1) Denotes previously filed exhibits: filed on August 10, 2001 with Xfone,
Inc.'s Form SB-2 registration statement, file # 333-67232.
(2) Denotes previously filed exhibits: filed on October 16, 2001 with Xfone,
Inc.'s Form SB-2/Amendment 1 registration statement, file # 333-67232.
(3) Denotes previously filed exhibit: filed on November 28, 2001 with Xfone,
Inc.'s Form SB-2/Amendment 2 registration statement, file # 333-67232.
(4) Denotes previously filed exhibit: filed on March 3, 2003 with Xfone,
Inc.'s Form SB-2 Post Effective Amendment Number 2 registration statement,
file # 333-67232.
34
(b) Reports on Form 8-K
We filed a Form 8-K on December 5, 2003 in connection with Item 5, Other Events
and Regulation FD Disclosure, with an attached exhibit, Exhibit 3.5(ii) -
Amended Bylaws of Xfone, Inc. dated December 5, 2002, to disclose that on
December 5, 2002, our Board of Directors, by unanimous written consent, took
action to amend our bylaws.
We filed a Form 8-K on December 20, 2003 in connection with Item 5, Other Events
and Regulation FD Disclosure, with an attached exhibit, Exhibit 99 - Xfone press
release dated December 19, 2002, to disclose that we held a Shareholders meeting
on December 19, 2002 at 16:00 at our principal executive offices in order to
elect our directors and to resolve to pay dividends in the amount of $0.02 per
share on January 15, 2003 to the stockholders of record as of December 31, 2002.
On December 23, 2003, we filed an amendment to this Form 8-K to correct a
typographical error.
Item 14. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed for the fiscal year ended December 31, 2002 for
professional services rendered by the principal accountant for the audit of our
annual financial statements and review of the financial statements included in
our Form 10-KSB or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for these fiscal
periods were estimated as follows: we paid our accountant, Chaifetz &
Schreiber, P.C. $29,500.
Audit-Related Fees
None.
Tax Fees
The aggregate fees billed for the fiscal year ended December 31, 2002 for
professional services rendered by the principal accountant for tax compliance,
tax advice and tax planning were estimated as follows: we paid our
accountant, Chaifetz & Schreiber, P.C. $2,500.
All Other Fees
None.
Audit Fees
The aggregate fees billed for the fiscal year ended December 31, 2001 for
professional services rendered by the principal accountant for the audit of our
annual financial statements and review of the financial statements included in
our Form 10-KSB or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for these fiscal
periods were estimated as follows: we paid our accountant, Chaifetz & Schreiber,
P.C. $13,000.
Audit-Related Fees
None.
Tax Fees
The aggregate fees billed for the fiscal year ended December 31, 2001 for
professional services rendered by the principal accountant for tax compliance,
tax advice and tax planning were estimated as follows: we paid our accountant,
Chaifetz & Schreiber, P.C. $2,000.
All Other Fees
None.
35
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
XFONE, INC.
(Registrant)
By /s/Guy Nissenson
Date: June 9, 2004 Guy Nissenson
President, Principal Executive Officer,
Principal Financial Officer, Principal
Accounting Officer, and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/Abraham Keinan
Abraham Keinan Chairman of the Board June 9, 2004
of Directors
/s/Guy Nissenson
Guy Nissenson President, June 9, 2004
Principal Executive Officer,
Principal Financial Officer,
Principal Accounting Officer,
and Director
/s/Eyal Harish
Eyal Harish Director June 9, 2004
36