8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 29, 2010(July 29, 2010)

XFONE, INC.

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of incorporation or organization)

Commission File No. 001-32521

11-3618510

(I.R.S. Employer Identification Number)

5307 W. Loop 289

Lubbock, Texas 79414

 (Address of principal executive offices) (Zip Code)

806-771-5212

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Item 2.01                      Completion of Acquisition or Disposition of Assets.

On July 29, 2010 (the “Closing Date”), Xfone, Inc. (“Xfone”) completed its disposition of Swiftnet Limited (“Swiftnet”), Auracall Limited (“Auracall”), Equitalk.co.uk Limited (“Equitalk”), Story Telecom, Inc. (“Story Telecom”) and Story Telecom Limited (“Story Limited,” and together with Swiftnet, Auracall, Equitalk, Story Telecom, the “UK Subsidiaries”) pursuant to a certain Agreement, dated January 29, 2010 (the “Purchase and Sale Agreement”), by and between Xfone, Abraham Keinan, a significant shareholder and Chairman of the Board of Xfone (“Keinan”), and AMIT K Limited, a company registered in England & Wales which is wholly owned and controlled by Keinan (the “Buyer”).  Additional infor mation relating to the Purchase and Sale Agreement is available in Xfone’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 29, 2010 (the “January 29 Current Report”).

As previously disclosed by Xfone in the January 29 Current Report, the purchase price paid by the Buyer and Keinan to Xfone is $3,500,000, comprised of the following three components:

1. A release by Iddo Keinan, the son of Keinan and an employee of Swiftnet (“Iddo”) and the UK Subsidiaries, of Xfone and NTS Communications, Inc. from any obligations under the loan agreement dated December 10, 2009, pursuant to which Iddo extended to Swiftnet a loan of £860,044.58 ($1,345,541.90) (the “Loan Agreement”), the Security Documents (as that term is defined in the Loan Agreement) and any other ancillary documents thereof, including a release from the repayment of Iddo's Loan (as that term is defined in the Purchase and Sale Agreement) and the related costs and expenses specified in Schedule A of the Loan Agreement.

2. Full redemption by Keinan of the credit facility which Xfone had obtained from Bank Leumi (UK) Plc of £150,000 ($243,802), thereby releasing Xfone from its obligation to Bank Leumi (UK) Plc.

(Items 1 and 2 shall be collectively referred to as the “First Payment”).

The First Payment was fully made as of the Closing Date.

3. Xfone shall be entitled to receive an annual earn-out payment, commencing after the accumulative EBITDA of the UK Subsidiaries, over the years beginning with 2010, has reached an aggregate amount equal to the First Payment and payable not later than March 31 of each successive year, calculated as follows: the product of (A) twenty percent (20%) and (B) the accumulative EBITDA of the UK Subsidiaries for the applicable year (the “Earn-Out Payments”).  The aggregate Earn-Out Payments shall be equal to but shall not exceed $1,858,325 in the aggregate (the “Earn-Out Consideration”).  In the event that Buyer and/or Keinan sell the UK Subsidiaries before the Earn-Out Consideration has been paid to Xfone in full and therefore Buyer and/or Keinan cannot pay the Earn-Out Payments out of the ac cumulative EBITDA of the UK Subsidiaries, Buyer and/or Keinan shall immediately pay to Xfone, upon Xfone’s demand, in cash, $1,858,325, less any amounts previously paid to Xfone as Earn-Out Consideration.

In connection with the foregoing transaction, on the Closing Date, Guy Nissenson, Xfone’s President, Chief Executive Officer and director (“Nissenson”), resigned his directorship of all of the UK Subsidiaries, and Keinan resigned from his directorship of all of Xfone’s subsidiaries.

Xfone’s Audit Committee and Board of Directors approved the transaction on February 15, 2010.  Xfone’s shareholders approved the transaction at a special meeting of Xfone’s stockholders held on July 14, 2010.

The foregoing summary of the Purchase and Sale Agreement and the transaction described above is qualified in its entirety by reference to the definitive transaction document, a copy of which was filed as Exhibit 10.136 with the January 29 Current Report and which is incorporated herein by reference.

As previously disclosed by Xfone in the January 29 Current Report, in connection with the Purchase and Sale Agreement, Xfone and Keinan entered into a second agreement on January 29, 2010 (the “Termination Agreement”), which, effective on the Closing Date, terminated a certain consulting agreement entered into between Xfone and Keinan on March 28, 2007 (the “Consulting Agreement”).  Pursuant to the Termination Agreement, Keinan waives any future monthly fees, beginning on the Closing Date, and the right to an appropriate severance package which Keinan would have been entitled to under the Consulting Agreement.

In addition, pursuant to the Termination Agreement, for as long as Keinan remains a director of Xfone, Keinan shall be deemed a non-independent director and shall not be entitled to any compensation in connection with his directorship.

The foregoing summary of the Termination Agreement and transaction described above is qualified in its entirety by reference to the definitive transaction document, a copy of which was filed as Exhibit 10.137 with the January 29 Current Report and which is incorporated herein by reference.

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Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

In connection with the consummation of the Purchase and Sale Agreement, Mr. Aviu Ben-Horrin and Mr. Eyal J. Harish resigned from their positions on the Board of Directors of Xfone, effective as of July 29, 2010.

The information included in Item 2.01 of this Current Report is incorporated by reference into this Item 5.02.

Item 8.01                        Other Events 

Keinan/Nissenson/Campbeltown Agreement

As previously disclosed by Xfone in the January 29 Current Report, on January 29, 2010, Keinan, Nissenson, and Campbeltown Business Ltd, an entity owned and controlled by Nissenson and his family (“Campbeltown”) entered into an agreement (the “Keinan/Nissenson/Campbeltown Agreement”).  Pursuant to the Keinan/Nissenson/Campbeltown Agreement, on the Closing Date, a certain Voting Agreement dated September 28, 2004 between Keinan, Nissenson and Campbeltown was terminated, and was simultaneously replaced with an irrevocable written appointment by Keinan of Nissenson, to act as Keinan’s proxy in respect of all shares of Xfone’s common stock that Keinan owns or holds now or in the future. The proxy is irrevocable, and will remain in effect for as long as Nissenson is the record or beneficial hold er of 100,000 or more shares of Xfone’s common stock or is a director or an executive officer of Xfone.

Additionally, the Keinan/Nissenson/Campbeltown Agreement provides that, (i) upon the Closing Date, and for as long as Nissenson has voting power over any shares of Xfone's common stock, in any manner whatsoever, and Keinan is a record or beneficial holder of at least 1,000,000 shares of Xfone’s common stock, Nissenson undertakes to vote “FOR” the election/re-election of Keinan as a director of Xfone at any shareholder meeting at which Keinan is standing for election/re-election, and (ii) in the event that Keinan owns less than 1,000,000 shares of Xfone’s common stock (excluding options to purchase shares of common stock), Keinan will resign as a director of Xfone.

The foregoing summary of the Keinan/Nissenson/Campbeltown Agreement and transactions described above is qualified in its entirety by reference to the definitive transaction document, filed as Exhibit 10.138 with the January 29 Current Report and which is incorporated herein by reference.

Item 9.01                       Financial Statements and Exhibits

(a)            Financial Statements of Businesses Acquired

Not applicable.

(b)           Pro Forma Financial Information

The pro forma financial information related to the transaction described in Item 2.01 is hereby incorporated by reference from Xfone’s Definitive Proxy Statement, filed with the SEC on June 15, 2010, and a copy of which is filed herewith as Exhibit 99.1.

(c)           Shell Company Transactions

Not applicable.

(d)           Exhibits

Exhibit No.            Description

99.1                      Excerpt of pro forma financial information from Xfone, Inc.’s Definitive Proxy Statement, filed with the SEC on June 15, 2010.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Xfone, Inc.
Date: July 29, 2010	By:	/s/  Guy Nissenson
		Guy Nissenson
		President, Chief Executive Officer and Director

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Exhibit Index

Exhibit No.                      Description

99.1 Excerpt of pro forma financial information from Xfone, Inc.’s Definitive Proxy Statement, filed with the SEC on June 15, 2010.

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EX-99.1

Xfone, Inc.

Unaudited Pro Forma Consolidated Financial Statements of Xfone, Inc.

The unaudited pro forma condensed combined financial information reflecting the divestiture of Swiftnet Limited, Auracall Limited, Equitalk.co.uk Limited, Story Telecom, Inc. and Story Telecom Limited (collectively,  the "Xfone UK"). is provided for informational purposes only. The pro forma information is not necessarily indicative of what the companies’ results of operations actually would have been had the divestiture been completed at the dates indicated, and it is not necessarily indicative of Xfone’s future results of operations.

The amounts of proceeds in the unaudited pro forma financial statements are based on management’s preliminary valuation estimates. Accordingly, the capital loss in the pro forma adjustments included in the unaudited financial statements are preliminary and have been made for the purpose of providing unaudited pro forma condensed combined financial information and are subject to revision based on a final determination of fair value. In the opinion of the management of the Company, all adjustments have been made that are necessary to present fairly the pro forma data.

The unaudited pro forma consolidated balance sheet reflects the disposition of Xfone UK from the consolidated balance sheet of Xfone and its subsidiaries.

This information should be read in conjunction with Xfone’s audited consolidated financial statements and the related notes filed as part of its Annual Reports on Form 10-K for the fiscal years ended December 31, 2009and its unaudited consolidated financial statements and related notes filed as part of its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010, each of which are attached hereto as Appendix D.

Xfone, Inc. and Subsidiaries
UNAUDITTED PRO FORMA BALANCE SHEETS
March 31, 2010
		Xfone, Inc.		Pro forma adjustments				Pro form Consolidated
CURRENT ASSETS:
Cash	$	7,000,436	$	-			$	7,000,436
Account receivables, net		2,414,936		-				2,414,936
Prepaid expenses and other receivables		2,254,330		1,858,325		(1a)		4,112,655
Deferred taxes		413,691		-				413,691
Inventory		197,498		-				197,498
Total current assets		12,280,891		1,858,325				14,139,216
BONDS ISSUANCE COSTS, NET		1,650,108		-				1,650,108
OTHER LONG-TERM ASSETS		1,222,680		-				1,222,680
FIXED ASSETS, NET		53,557,590		-				53,557,590
OTHER ASSETS, NET		1,723,942		-				1,723,942
ASSETS OF DISCONTINUED OPERATIONS IN THE UNITED KINGDOM		8,475,755		(8,475,755	)	(2)		-
ASSETS OF DISCONTINUED OPERATIONS IN ISRAEL		4,266,937		-				4,266,937
Total Assets	$	83,177,903	$	(6,617,430	)		$	76,560,473
CURRENT LIABILITIES
Short- term bank credit and current portion of notes payables	$	6,626,959	$	(226,604	)	(1b)	$	6,400,355
Trade Payables		7,920,835		-				7,920,835
Other liabilities and accrued income		3,459,025		-				3,459,025
Current maturities of obligations under capital leases		225,737		-				225,737
Current maturities of bonds		4,072,855		-				4,072,855
Total current liabilities		22,305,411		(226,604	)			22,078,807
DEFFERED TAXES		3,202,055		-				3,202,055
NOTES PAYABLE FROM THE UNITED STATES DEPARTMENT OF AGRICULTURE, NET OF CURRENT MATURITIES		5,208,981		-				5,208,981
NOTES PAYABLE, NET OF CURRENT MATURITIES		2,639,240		-				2,639,240
BONDS PAYABLES, NET OF CURRENT MATURITIES		17,690,919		-				17,690,919
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT MATURITIES		198,421		-				198,421
OTHER LONG-TERM LIABILITIES		277,405		-				277,405
SEVERANCE PAY		54,253		-				54,253
LIABILITIES OF DISCONTINUED OPERATIONS IN THE UNITED KINGDOM		3,923,779		(3,923,779	)	(3), (1c)		-
LIABILITIES OF DISCONTINUED OPERATIONS IN ISRAEL		3,207,571		-				3,207,571
Total liabilities		58,708,035		(4,150,383	)			54,557,652
TOTAL SHAREHOLDERS' EQUITY		24,137,064		(2,467,047	)	(4)		21,670,017
NON-CONTROLLING INTEREST		332,804		-				332,804
TOTAL EQUITY		24,469,868		(2,467,047	)			22,002,821
Total liabilities and shareholders' equity	$	83,177,903	$	(6,617,430	)		$	76,560,473

(1). Represents proceeds from the divestiture of the Xfone UK. Pursuant to the agreement to divest Xfone UK, the consideration to be paid by Buyer and/or Keinan to Xfone shall be comprised of the following three components:

a.   An annual earn-out payment over the following years beginning on the consummation of the Transaction. The aggregate Earn-Out Payments shall be equal to but shall not exceed $1,858,325 in the aggregate;

b.   A release of the Company from its obligation to Bank Leumi (UK) Plc. for of £150,000 ($226,604), thereby releasing the Company from its obligation to Bank Leumi (UK) Plc.; and

c.   A release of the Company from the repayment of the loan from Iddo Keinan, the son of Mr. Keinan and an employee of Swiftnet dated December 10, 2009, pursuant to which Iddo Keinan extended to Swiftnet a loan of £860,044 ($1,229,263).

(2). Amount represents:

a.   Consolidate assets of Xfone UK in total amount of $4,279,766 which were classified as "Assets of discontinued operations in the United Kingdom" in Xfone, Inc.'s Condensed Consolidated Balance Sheet.

b.   Intangible assets of $4,195,989 resulted from certain acquisition of entities in Xfone UK.

(3). Amount represents consolidate liabilities of Xfone UK in total amount of $2,694,516 which were classified as "Liabilities of discontinued operations in the United Kingdom" in Xfone, Inc.'s Condensed Consolidated Balance Sheet. This amount does not include a note from related party for amount of $1,229,263 which is accounted for under the proceeds from the divestiture of Xfone UM (see 1c above).

(4). Net proforma loss as of March 31, 2010 from the divestiture of Xfone UK does not take into consideration overhead savings such as retirement of Xfone, Inc. from any severance liability and monthly fees for Mr. Keinan.

Xfone, Inc. and Subsidiaries

UNAUDITTED PRO FORMA STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2009

	Xfone Inc			Xfone UK diverstiture			Pro forma Consolidated
Revenues	$	85,029,883		(3,307,509	)		$	81,722,374
Cost of Revenues		45,067,148		(1,354,586	)			43,712,562
Non-recurring loss		506,176		-				506,176
Gross profit		39,456,559		(1,952,923	)			37,503,636
Operating expenses:
Research and development		53,754		(53,754	)			-
Marketing and selling		10,465,908		(1,137,067	)			9,328,841
General and administrative		25,238,174		(846,231	)	(1)		24,391,943
Non recurring loss		21,441,485		-				21,441,485
Total operating expenses		57,199,321		(2,037,052	)			55,162,269
Operating profit (loss)		(17,742,762	)	84,129				(17,658,633	)
Financing income (expenses), net		(4,110,043	)	50,185				(4,059,858	)
Other expenses		(475,531	)	-				(475,531	)
Income (loss) before taxes		(22,328,336	)	134,314				(22,194,022	)
Tax benefits		169,774		-				169,774
Net Income (loss)		(22,158,562	)	134,314				(22,024,248	)
Less: Net (income) attributed to non-controlling interest		(20,870	)	-				(20,870	)
Net income (loss) attributed to shareholders	$	(22,179,432	)	134,314			$	(22,045,118	)
Basic and diluted earning per share	$	(1.207	)				$	(1.200	)
Weighted average number of shares used for computing basic and diluted earning per share		18,376,075						18,376,075

(1)           Amount includes the saving of fees paid to Mr Keinan during the year ended December 31, 2009 for a total amount of $301,204.

Xfone, Inc. and Subsidiaries

UNAUDITTED PRO FORMA STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2010

	Xfone Inc			Xfone UK diverstiture			Pro forma Consolidated
Revenues	$	14,557,438		-			$	14,557,438
Cost of Revenues		7,704,165		-				7,704,165
Gross profit		6,853,273		-				6,853,273
Operating expenses:
Marketing and selling		1,107,892		-				1,107,892
General and administrative		5,432,000		(74,982	)	(1)		5,357,018
Total operating expenses		6,539,892		(74,982	)			6,464,910
Operating profit		313,381		74,982				388,363
Financing expenses, net		(1,094,726	)	-				(1,094,726	)
Other expenses		(145,245	)	-				(145,245	)
Loss before taxes		(926,590	)	74,982				(851,608	)
Tax benefits		322,229		-				322,229
Net loss from continued operations		(604,361	)	74,982				(529,379	)
Income (loss) from discontinued operations in the United Kingdom and Israel, before taxes		(259,663	)	428,936		(2)		169,273
Income tax expense on discontinued operations in the United Kingdom and Israel		(93,094	)	-				(93,094	)
Net loss		(957,118	)	503,918				(453,200	)
Less: Net income attributed to non-controlling interest		(97,139	)	-				(97,139	)
Net income (loss) attributed to shareholders	$	(1,054,257	)	503,918			$	(550,339	)
Basic and diluted loss per share:
Income (loss) from continued operations		(0.032	)					(0.028	)
Income from discontinued operations		(0.024	)					(0.002	)
Basic and diluted	$	(0.056	)				$	(0.030	)
Weighted average number of shares used for computing basic and diluted earning per share		18,613,772						18,613,772

(1)   Amount includes the saving of fees paid to Mr Keinan during the three months ended March 31, 2010 for a total amount of $74,982.

(2)   Amount represents the net results of Xfone UK for the three months ended March 31, 2010 which were classified as discontinued operations.