UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number:  001-32521

XFONE, INC.

(Exact name of registrant as specified in its charter)

Nevada	11-3618510
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5307 W. Loop 289

Lubbock, Texas 79414

 (Address of principal executive offices)

806-771-5212

 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  o  No  o

Indicate by check mark whether the registrant is a large accelerated filer,, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer       o                                                                                                               Accelerated filer     o

Non-accelerated filer          o                                                                                                 Smaller reporting company     x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

As of November 15, 2010, 21,119,488 shares of the Company’s common stock, $0.001 par value, were issued and outstanding

XFONE, INC. AND SUBSIDIARIES

Index

		Page
PART I:	FINANCIAL INFORMATION
Item 1:	Financial Statements and Condensed Notes (Unaudited) - Period Ended September 30, 2010	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults upon Senior Securities	32
Item 4.	(Removed and Reserved)	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
SIGNATURES		39

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PART I:

FINANCIAL INFORMATION

Item 1: Condensed Consolidated Financial Statements and Notes (Unaudited) - Period Ended September 30, 2010

Xfone, Inc. and Subsidiaries

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2010

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CONTENTS	PAGE
Condensed Consolidated Balance Sheets as of  September 30, 2010 (unaudited) and December 31, 2009	5
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)	7
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)	8
Notes to Condensed Consolidated Financial Statements (unaudited)	10

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Xfone, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
	September 30,		December 31,
	2010		2009
	Unaudited
CURRENT ASSETS:
Cash	$	6,407,998	$	2,467,028
Accounts receivable, net		2,922,997		2,855,136
Prepaid expenses and other receivables		2,766,113		2,423,402
Deferred taxes		465,565		569,152
Inventory		198,364		199,392
Current assets of discontinued operations in the United Kingdom		-		2,932,345
Current assets of discontinued operations in Israel		-		2,164,287
Total current assets		12,761,037		13,610,742
BONDS ISSUANCE COSTS , NET		1,505,107		1,725,705
OTHER LONG TERM ASSETS		3,624,986		929,417
FIXED ASSETS, NET		55,831,762		51,546,695
OTHER ASSETS, NET		1,380,222		1,932,771
ASSETS OF DISCONTINUED OPERATIONS IN THE UNITED KINGDOM		-		6,719,663
ASSETS OF DISCONTINUED OPERATIONS IN ISRAEL		-		2,010,289
Total assets	$	75,103,114	$	78,475,282

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

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Xfone, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2010				2009
	Unaudited
CURRENT LIABILITIES:
Short-term bank credit and current maturities of notes payable		$	3,643,380		$	7,029,842
Trade payables			5,571,714			7,120,474
Other liabilities and accrued expenses			3,976,327			3,922,741
Current maturities of obligations under capital leases			668,287			253,634
Current maturities of bonds			4,225,705			3,637,146
Current liabilities of discontinued operations in the United Kingdom			-			4,131,849
Current liabilities of discontinued operations in Israel			-			2,906,259
Total current liabilities			18,085,413			29,001,945
DEFERRED TAXES, NET			2,958,272			3,733,929
NOTES PAYABLE FROM THE UNITED STATES DEPARTMENT OF AGRICULTURE, NET OF CURRENT MATURITIES			7,220,190			5,311,032
NOTES PAYABLE, NET OF CURRENT MATURITIES			3,013,658			43,012
BONDS PAYABLES , NET OF CURRENT MATURITIES			18,482,565			17,510,812
OBLIGATIONS UNDER CAPITAL LEASES , NET OF CURRENT MATURITIES			185,616			256,790
OTHER LONG TERM LIABILITIES			146,478			293,953
SEVERANCE PAY			16,209			50,268
LIABILITIES OF DISCONTINUED OPERATIONS IN THE UNITED KINGDOM			-			172,809
LIABILITIES OF DISCONTINUED OPERATIONS IN ISRAEL			-			418,039
Total liabilities			50,108,401			56,792,589
COMMITMENTS AND CONTINGENT LIABILITIES			-			-

SHAREHOLDERS' EQUITY:
Common stock of $0.001 par value: 75,000,000 shares authorized; 21,119,488 and 18,376,075  issued and outstanding at September 30, 2010 and December 31, 2009		21,119			18,376
Additional paid-in capital		47,919,499			43,362,217
Foreign currency translation adjustment		(1,910,706	)		(2,860,983	)
Retained earnings		(21,035,199	)		(19,072,582	)
Total shareholders' equity		24,994,713			21,447,028
Non – Controlling interest		-			235,665
Total equity		24,994,713			21,682,693
Total liabilities and shareholders' equity	$	75,103,114		$	78,475,282

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

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Xfone, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenues	$	14,978,557		$	15,443,537		$	43,965,554		$	46,548,959
Cost of revenues		7,784,053			8,376,660			23,080,577			25,441,450
Gross profit		7,194,504			7,066,877			20,884,977			21,107,509
Operating expenses:
Marketing and selling		1,199,904			1,092,222			3,380,702			3,417,027
General and administrative		5,265,376			5,434,453			15,948,725			15,921,184
Total operating expenses		6,465,280			6,526,675			19,329,427			19,338,211
Operating profit		729,224			540,202			1,555,550			1,769,298
Financing expenses, net		(2,340,159	)		(2,413,131	)		(3,597,274	)		(3,410,425	)
Other expenses		(159,712	)		(130,264	)		(453,048	)		(319,045	)
Income (loss) from continued operations before taxes and non-controlling interest		(1,770,647	)		(2,003,193	)		(2,494,772	)		(1,960,172	)
Income tax benefit (expense)		250,690			(315,908	)		503,306			4,051
Net Income (loss) from continued operations		(1,519,957	)		(2,319,101	)		(1,991,466	)		(1,956,121	)
Income (loss) from discontinued operations in the United Kingdom and Israel, before taxes		(957,320	)		524,723			(862,444	)		671,932
Capital gain from the disposal of the discontinued operations in the United Kingdom and Israel		1,217,374			-			1,217,374			-
Income tax expense on discontinued operations in the United Kingdom and Israel		(4,040	)		144,631			(189,295	)		(29,536	)
Net income (loss)		(1,263,943	)		(1,649,747	)		(1,825,831	)		(1,313,725	)
Less: Net income (loss) attributed to non-controlling interest (related to discontinued operations)		26,693			(37,844	)		(136,786	)		81,318
Net loss attributed to shareholders	$	(1,237,250	)	$	(1,687,591	)	$	(1,962,617	)	$	(1,232,407	)
Basic income (loss) per share:
Loss from continued operations	$	(0.072	)	$	(0.126	)	$	(0.098	)	$	(0.106	)
Income (loss) from discontinued operations		0.013			0.034			0.001			0.039
Basic loss per share	$	(0.059	)	$	(0.092	)	$	(0.097	)	$	(0.067	)
Diluted income (loss) per share:
Loss from continued operations	$	(0.072	)	$	(0.126	)	$	(0.098	)	$	(0.106	)
Income (loss) from discontinued operations		0.013			0.034			0.001			0.039
Diluted loss per share	$	(0.059	)	$	(0.092	)	$	(0.097	)	$	(0.067	)
Basic weighted average number of shares outstanding:		21,119,488			18,376,075			20,295,714			18,376,075
Diluted weighted average number of shares outstanding:		21,169,288			18,376,075			20,295,714			18,376,075

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

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Xfone, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Nine months ended
	September 30 ,
	2010			2009
Cash flow from operating activities:
Net income (loss)	$	(1,825,831	)	$	(1,313,725	)
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,478,200			3,085,605
Compensation  in connection with the issuance of warrants and options		535,512			452,175
Impairment of goodwill of discontinued operations		800,000			-
Capital gain from disposal of discontinued operations		(1,217,374	)		-
Accrued interest and exchange rate changes on outstanding Bonds		1,560,312			1,782,625
Decrease (increase) in account receivables		146,891			3,272,472
Bad debt provision		126,637			(507,070	)
Decrease (increase) in inventories		1,028			29,575
Decrease (increase) in long term receivables		(465,451	)		(77,050	)
Decrease (increase) in bonds issuance expenses, net		220,598			81,593
Decrease (increase) in prepaid expenses and other receivables		(783,212	)		390,050
Increase (decrease) in trade payables		(1,014,368	)		(810,866	)
Increase (decrease) in other liabilities and accrued expenses		371,059			(2,068,682	)
Increase (decrease) in severance pay		920,918			36,544
Increase (decrease) in other long term liabilities		(144,557	)		(189,644	)
Deferred tax provision		(721,895	)		33,353
Net cash provided by operating activities		1,988,467			4,196,955
Cash flow from investing activities:
Proceeds from disposal of discontinued operations, net		2,795,116			-
Purchase of equipment		(3,329,104	)		(3,651,283	)
Purchase of equipment for the project under the United States Department of Agriculture		(2,959,488	)		(1,855,301	)
Net cash used in investing activities		(3,493,476	)		(5,506,584	)

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

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Xfone, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
	Nine months ended
	September 30 ,
	2010				2009
Cash flow from financing activities:
Repayment of long term loans from banks and others		$	(380,121	)		$	(974,943	)
Repayment of capital lease obligation			(240,540	)			(443,785	)
Repayment of long term loans from United States Department of Agriculture			(315,022	)			-
Proceeds from exercise of options			75,753				-
Proceeds from long term loans			3,006,179				-
Increase (decrease) in short-term bank credit, net			(3,766,326	)			921,378
Proceeds from long term loans from banks			406,835				528,306
Proceeds from long term loans from the United States Department of Agriculture			2,337,087				2,859,493
Proceeds from issuance of shares and detachable warrants, net of issuance expenses			3,948,760				-
Net cash provided by (used in) financing activities			5,072,605				2,890,449
Effect of exchange rate changes on cash and cash equivalents			21,009				(6,023	)
Net increase (decrease) in cash and cash equivalents			3,588,605				1,574,797
Cash and cash equivalents at the beginning of the period (*)			2,819,393				3,078,474
Cash and cash equivalents at the end of the period (*)		$	6,407,998			$	4,653,271

Supplemental disclosure of cash flows activities:
Cash paid for:
Interest	$	1,399,860	$	1,382,300
Taxes	$	407,180	$	200,005

(*) Cash and cash equivalents as of December 31, 2009, September 30, 2009 and December 31, 2008 includes $352,365, $751,123 and $571,209, respectively, of cash related to discountinued operations.

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

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 1 - Organization and Nature of Business

Xfone, Inc. ("Xfone" or "the Company") was incorporated in Nevada, U.S.A. in September 2000. The Company is a holding and managing company providing voice, video and data telecommunications services, including: local, long distance and international telephony services with operations in the United States.

Xfone's holdings in subsidiaries as of September 30, 2010 were as follows:

● NTS Communications, Inc. ("NTS") and its seven wholly owned subsidiaries, NTS Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona, Inc., Communications Brokers Inc., NTS Telephone Company, LLC, NTS Management Company, LLC and PRIDE Network, Inc. - wholly owned U.S. subsidiary.

● Xfone USA, Inc. and its two wholly owned subsidiaries, eXpeTel Communications, Inc. and Gulf Coast Utilities, Inc. (collectively, "Xfone USA") - wholly owned U.S. subsidiary.

On July 29, 2010 the Company completed its disposition of Swiftnet Limited ("Swiftnet"), Auracall Limited ("Auracall"), Equitalk.co.uk Limited ("Equitalk") and Story Telecom, Inc. and its wholly owned U.K. subsidiary, Story Telecom Limited (collectively, "Story Telecom") pursuant to a certain agreement, dated January 29, 2010. See also note 3.

On August 31, 2010 the Company completed its disposition of its 69% interest in Xfone 018 Ltd. (“Xfone 018”) pursuant to a certain agreement, dated May 14, 2010. See also note 3.

Note 2 - Significant Accounting Policies

The interim condensed financial statements are prepared in accordance with generally accepted accounting principles in the United States. The significant accounting policies followed in the preparation of the financial statements, applied on a consistent basis, are as follows:

A. Principles of Consolidation and Basis of Financial Statement Presentation

The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the US ("US GAAP") and include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. Minority interest in the loss of a subsidiary will be recorded according to the respective equity interest of the minority and up to its exposure and/or legal obligation to cover the subsidiary losses in the event that equity is reduced to zero or below.

B. Foreign Currency Translation

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

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 2 - Significant Accounting Policies (Cont.)

C. Accounts Receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less the allowance for uncollectible accounts.

The Company uses the allowance method to account for uncollectible accounts receivable balances. Under the allowance method, an estimate of uncollectible customer balances is made using factors such as the credit quality of the customer and the economic conditions in the market. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. When an account balance is past due and attempts have been made to collect the receivable through legal or other means the amount is considered uncollectible and is written off against the allowance balance.

Accounts receivable are presented net of an allowance for doubtful accounts of $319,134 and $288,912 at September 30, 2010 and December 31, 2009, respectively.

D. Other Intangible Assets

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

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

E. Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For the nine months ended September 30, 2010, there were no dilutive shares as all options and warrants were out-of-the-money.  For the nine months ended September 30, 2010, there were no dilutive shares as the inclusion of in-the-money option and warrants would have been anti-dilutive.

F. Stock-Based Compensation

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

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

 Note 2 - Significant Accounting Policies (Cont.)

G. Reclassification

As reported in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, subsequent to the year ended December 31, 2009, the Company’s board of directors made a strategic decision to concentrate on the Company's operations in the U.S.  As a result of this decision, the Company decided to discontinue its operations in the U.K. and Israel. The assets, liabilities and results of operations of the U.K. and Israel operations have been classified as discontinued operations for all periods presented (see Note 3). Certain amounts in the 2009 financial statements have been reclassified to conform to the current year presentation. Such reclassifications did not impact the Company's gross profit or net income.

H. Basis of Presentation

The interim condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information, including note disclosures, normally included in financial statements which are prepared in accordance with US GAAP has been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.

In management’s opinion, the condensed consolidated balance sheet as of September 30, 2010 (unaudited) and December 31, 2009 (audited), the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2010 and 2009, and the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2010 and 2009, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company's financial position, results of operations and cash flows on a basis consistent with that of the Company's prior audited consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore these financial statements should be read in conjunction with the audited financial statements and notes thereto and summary of significant accounting policies included in the Company’s Form 10-K for the year ended December 31, 2009.

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

I. Income Taxes

The Company accounts for income taxes under FASB ASC 740-10 (Prior Authoritative Literature: Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes). Deferred tax assets and liabilities are based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which are anticipated to be in effect when these differences reverse. The deferred tax provision is the result of the net change in the deferred tax assets and liabilities. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts expected to be realized.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 2 - Significant Accounting Policies (Cont.)

J. Derivative Instruments

Effective January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities— an amendment of FASB Statement No. 133, as codified in ASC 815. ASC 815 requires entities to provide qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of any gains and losses on derivative contracts, and details of credit risk related contingent features in their hedged positions. ASC 815 also requires entities to disclose more information about the location and amounts of derivative instruments in financial statements; how derivatives and related hedges are accounted for; and how the hedges affect the entity's financial position, financial performance, and cash flows. The adoption of this new guidance on January 1, 2009 has been incorporated into the notes to the Company's consolidated financial statements. As of September 30, 2010, the Company does not have open positions.

The amount recorded in financing expenses in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2009 that resulted from the above referenced hedging transactions was $5,374.

K. Recent Accounting Pronouncements

Fair Value Measurements and Disclosures. In January 2010, the FASB issued “Fair Value Measurements and Disclosures—Improving Disclosures about Fair Value Measurements” (Accounting Standards Update (ASU) 2010-06), which requires new disclosures and explanations for transfers of financial assets and liabilities between certain levels in the fair value hierarchy. ASU 2010-06 also clarifies that fair value measurement disclosures are required for each class of financial asset and liability, which may be a subset of a caption in the consolidated balance sheets, and those disclosures should include a discussion of inputs and valuation techniques. For financial assets and liabilities subject to lowest-measurements, ASU 2010-06, further requires that the Company separately present purchases, sales, issuances, and settlements instead of netting these changes. With respect to matters other than lowest-level measurements, the Company adopted ASU 2010-06 beginning with the quarter ended March 31, 2010 with the remaining disclosure requirements becoming effective for fiscal years and interim periods beginning on or after December 15, 2010 (i.e., the quarter ending March 31, 2011, for the Company). Adoption of this standard did not have any material impact on the Company's financial statements.

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Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 3 – Discontinued operations

A. Operations in the U.K.

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

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

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

As a result of the Agreement to sell the UK Subsidiaries, the assets and liabilities related to the UK Subsidiaries have been classified as “held for sale” in the Company’s financial statements in accordance with ASC 360, (formerly SFAS No. 144), Accounting for the Impairment or Disposal of Long-Lived Assets. ASC 360 requires an asset group that is held for sale to be recorded at the lower of its carrying amount or fair value less costs to sell. As a result of classifying, during the three months ended March 31, 2010 the Company's UK subsidiaries as discontinued operations the Company recorded a goodwill impairment of $800,000.

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

Proceeds
Release from the repayment of a loan	$	1,344,073
Release from a repayment of credit line		234,420
Release from retirement and employment termination liabilities (*)		937,677
Aggregate future Earn-Out receivables (**)		1,444,494
Transaction costs		(55,495	)
Net proceeds		3,905,169
Net book value of the UK Subsidiaries:
Cash		494,060
Account receivables		718,214
Other current assets		2,272,316
Fixed assets, net		879,989
Trade payable		(1,539,926	)
Other current liabilities		(1,894,363	)
Other long-term liability		(166,824	)
Goodwill and other intangible assets		4,942,739
Realization of cumulative translation adjustment		905,279
Net assets		6,611,484
Net loss on the sale of the UK Subsidiaries (***)	$	(2,706,315	)

(*) Based on third party valuation of £600,000.

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

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

-14-

Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 3 – Discontinued operations (Cont.)

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2010 (*)			2009			2010			2009
Revenues	$	1,260,792		$	3,808,720		$	7,125,187		$	11,508,526
Cost of revenues		545,512			1,668,120			2,629,875			5,320,582
Gross profit		715,280			2,140,600			4,495,312			6,187,944
Operating expenses:
Marketing and selling		435,251			1,197,611			2,661,304			3,512,766
General and administrative		1,150,975			620,362			2,446,034			1,618,980
Impairment of goodwill		-			-			800,000			-
Total operating expenses		1,586,226			1,817,973			5,907,338			5,131,746
Operating profit (loss)		(870,946	)		322,627			(1,412,026	)		1,056,198
Financing expenses, net		(8,688	)		(13,101	)		(76,297	)		(43,270	)
Income (loss) before taxes		(879,634	)		309,526			(1,488,323	)		1,012,928
Income tax benefit (expense)		(4,662	)		(105,525	)		(4,662)			(108,054	)
Net income (loss) from discontinued operation in the United Kingdom	$	(884,296	)	$	204,001		$	(1,492,985	)	$	904,874

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

(**) Intercompany revenues, for services provided by the discontinued operations in the UK to the discontinued operation in Israel, of $843,522 and $1,484,506 for the period ended July 29, 2010 and the nine months ended September 30, 2009, respectively, are attributed to the discontinued operations in the UK. The associated costs of these revenues are also attributed to the discontinued operations in the UK.

-15-

Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 3 – Discontinued operations (Cont.)

B. Operations in Israel

On May 14, 2010, an agreement (the “Agreement”) was entered into between the Company, the Company’s 31% minority interest partners (the “Minority Partners”) in Xfone 018 Ltd. ("Xfone 018") and Marathon Telecom Ltd. (“Marathon Telecom”), for the sale by the Company of its 69% interest in Xfone 018, and the sale by the Minority Partners of their 31% interest in Xfone 018 (collectively, the “Holdings”) to Marathon Telecom (the “Transaction”). The entry into the Agreement follows the non-binding memorandum of understanding (the “MoU”) which the parties had entered into on March 2, 2010. On August 31, 2010 (the “Closing Date”), the Company completed its disposition (the “Transaction”) of its 69% interest in Xfone 018.

The aggregate purchase price to be paid by Marathon Telecom in exchange for the interests in Xfone 018 was approximately $7,850,000, which represents a price for 100% of the interests in Xfone 018 free of any financial debt. On the Closing Date, the parties agreed to a reduction in the purchase price.  As a result, the purchase price paid by Marathon Telecom for 100% of the interests in Xfone 018, free of any indebtedness, was $7,802,000 (the “Purchase Price”). In connection with the Transaction, the Company will be repaid its debt, and will receive 69% of the net proceeds after all other financial debt of Xfone 018 has been paid.

Pursuant to the Agreement, the consummation of the Transaction was subject to certain conditions and approvals, including, receipt of the approval of the Minister of Communications in Israel which was received on August 11, 2010.

As a result of the Company’s entry into the MoU and the Agreement, the assets and liabilities related to Xfone 018 have been classified as “held for sale” in the Company’s financial statements in accordance with ASC 360, (formerly SFAS No. 144), Accounting for the Impairment or Disposal of Long-Lived Assets. ASC 360 requires an asset group that is held for sale to be recorded at the lower of its carrying amount or fair value less costs to sell.

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

Gross proceeds:
Cash (less Transaction costs)	$	5,560,567
Cash held in escrow		1,695,817
Allocation of proceeds to Minority Partners		(2,308,285	)
Net proceeds		4,948,099
Net book value of Xfone 018:
Cash		433,314
Account receivables		1,690,699
Other current assets		206,735
Fixed assets, net		1,446,789
Other non-current assets		276,814
Short-term bank credit and current maturities of notes payable		(466,864	)
Trade payable		(1,667,384	)
Other current liabilities		(149,019	)
Notes payable, net of current maturities		(349,177	)
Other long-term liability		(125,218	)
Minority interest		(372,451	)
Realization of cumulative translation adjustment		100,172
Net assets		1,024,410
Net profit on the sale of Xfone 018	$	3,923,689

-16-

Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 3 – Discontinued operations (Cont.)

The results of discontinued operations in Israel are as follows:

	Three months ended						Nine months ended
	September 30,						September 30,
	2010 (*)			2009			2010			2009
Revenues	$	1,942,380		$	2,081,211		$	6,477,810		$	6,170,691
Cost of revenues		1,392,814			1,080,355			3,799,730			3,427,201
Gross profit		549,566			1,000,856			2,678,080			2,743,490
Operating expenses:
Marketing and selling		162,534			272,238			610,465			1,074,368
General and administrative		429,269			461,288			1,312,228			1,280,824
Non-recurring loss											506,176
Total operating expenses		591,803			733,526			1,922,693			2,861,368
Operating profit (loss)		(42,237	)		267,330			755,387			(117,878	)
Financing expenses, net		(35,449	)		(52,133	)		(129,508	)		(223,118	)
Income (loss) before taxes		(77,686	)		215,197			625,879			(340,996	)
Income tax expense		622			250,156			(184,633	)		78,518
Net income (loss)		(77,064	)		465,353			441,246			(262,478	)
Income (loss) attributed to non-controlling interest		26,693			(37,844	)		(136,786	)		81,318
Net income (loss) from discontinued operation in the Israel	$	(50,371	)	$	427,509		$	304,460		$	(181,160	)

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

(**) Intercompany revenues, for services provided by the discontinued operation in Israel to the discontinued operation in the UK, of $74,285 and $48,947 for the period ended August 31, 2010 and the nine months ended September 30, 2009, respectively, are attributed to the discontinued operations in Israel. The associated costs of these revenues are also attributed to the discontinued operations in Israel.

-17-

Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 4 – Notes payable

A.   As of September 30, 2010 NTS had two loans ("Loans") outstanding from a commercial bank:

1.

The first loan had an outstanding balance of $1,219,123 as of September 30, 2010.  The first loan was secured by an assignment of all NTS' trade accounts receivable. The loan carried interest at a rate equivalent to Wall Street Journal Prime rate, but not less than 6% per annum. The Wall Street Journal Prime rate was 3.25% at September 30, 2010. The loan was repayable in equal monthly installments of $61,212 each.

2.

The second loan had an outstanding balance of $1,820,134 as of September 30, 2010. The second loan was secured by certain fixed assets. The loan carried interest at a rate equivalent to Wall Street Journal Prime rate, but not less than 6% per annum. The Wall Street Journal Prime rate was 3.25% at September 30, 2010. The loan was repayable in equal monthly installments of $29,762 each.

On October 14, 2010, NTS replaced the Loans with a new loan in the amount of $2,983,531 with a maturity date of October 13, 2011. The new loan bears interest at a rate equivalent to Wall Street Journal Prime rate, but not less than 6% per annum and is repayable in equal monthly installments of $100,000 each. The new loan is secured by an assignment of all of NTS’ trade accounts receivable and certain fixed assets.

B.   NTS Telephone Company, LLC, a wholly owned subsidiary of NTS has received approval from the Rural Utilities Service (“RUS”), a division of the United States Department of Agriculture, for an $11.8 million, 17-year debt facility to complete a telecommunications overbuild project in Levelland, Texas. The RUS loan is non-recourse to NTS and all other NTS subsidiaries and is a cost-of-money loan, bearing interest at the average rate for 10-year U.S. Treasury obligations. Advances are requested as the construction progresses, and the interest rate is set based upon the prevailing rate at the time of each individual advance. The current average interest rate is approximately 2.61%.  The total aggregate amount of these loans as of September 30, 2010 and December 31, 2009 are $7,596,165 and $5,574,100, respectively. The loans are to be repaid in monthly installments until 2024.

C.   Long-term loan from Burlingame Equity Investors, LP ("Burlingame") On March 23, 2010, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an existing shareholder, Burlingame. As part of the Purchase Agreement, the Company issued a senior promissory note in the aggregate principal amount of $3,500,000, maturing on March 22, 2012. Interest accrues at an annual rate of 10% and is payable quarterly. The note has equal liquidation rights with the Company's Series A Bonds issued in Israel on December 13, 2007. The Company evaluated the fair value of each of the three securities that were issued under the Purchase Agreement (i.e., the promissory note, 2,173,913 shares of the Company’s common stock, and a warrant to purchase 950,000 shares of the Company’s common stock) and recorded the promissory note at its fair value of $2,556,240. The difference between the fair value and the principal amount will be expense ratably over the life of the promissory note.

D.   PRIDE Network, Inc., a wholly owned subsidiary of NTS Communications, Inc., has received approval from the Broadband Initiative Program of the American Recovery and Reinvestment Act, for a total $99.9 million funding in form of $45.9 million in grants and $54 million in 19 to 20-year loans. The loans bears interest at the Treasury rate for comparable loans with comparable maturities. The funding will allow us to develop our FTTP infrastructure, known as the PRIDE Network in northwestern Texas and further expand it to communities in southern Louisiana. As of September 30, 2010, PRIDE Network, Inc. did not drawdown any amount under the funding.

-18-

Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 5 - Capital Structure, stock options, warrants

On September 20, 2010, the Company granted the following options to directors and employees under the Company’s 2007 Stock Incentive Plan:

A.

An aggregate of 360,000 options to purchase shares of common stock were granted to directors of the Company. The options vest in equal monthly installments during a period of nine months from date of grant. The options are exercisable at $1.221 per share and expire five years from the date of grant. Based on the assumptions below, the Company estimated that the fair value of the options was $164,121.

B.

(2) An aggregate of 135,000 options to purchase shares of common stock were granted to other employees of the Company and its subsidiaries.  Each option is exercisable at $1.221 per share and expires seven years from the date of grant.  The options will vest as to 25% of the underlying shares on the 12 month anniversary from the date of grant, with the remaining 75% of the options vesting in equal quarterly installments after 15 months from the date of grant. Based on the assumption below, the Company estimated that the fair value of the options at $73,978. The Company’s aggregate equity-based compensation expense for the nine months ended September 30, 2010 and 2009 totaled $535,512 and $452,175, respectively. The weighted average estimated fair value of employee stock options granted on September 20, 2010 was $0.48 per share, using the Black-Scholes option pricing model, with the following weighted average assumptions (annualized percentages):

Volatility	49.4	%
Risk-free interest rate	1.54	%
Dividend yield	0	%
Forfeiture rate	20	%

Note 6 – Severance agreement with the Company's CEO

On September 20, 2010, the Company entered into a Severance Agreement (the “Agreement”) with Guy Nissenson, its President, CEO, director and major shareholder.  The Agreement was entered into pursuant to Section 17 of the Consulting Agreement between the Company and Mr. Nissenson, dated March 28, 2007, and amended on June 30, 2010 (the “Consulting Agreement”).  Pursuant to the Agreement, in the event that (a) either (1) the Company terminates the Consulting Agreement and/or the Employment Agreement between the Company and Mr. Nissenson, dated June 30, 2010 (the “Employment Agreement”), for a reason other than cause, disability or death, or (2) Mr. Nissenson terminates the Consulting Agreement and the Employment Agreement for good reason, and (b) Mr. Nissenson (1) signs and delivers to the Company a Release of Claims satisfactory to the Company, and (2) complies with the applicable terms of the Agreement, the Consulting Agreement and the Employment Agreement, then Mr. Nissenson shall be entitled to certain severance benefits.

The severance benefits include (a) a lump sum payment consisting of (1) 3.5 months’ fee under the Consulting Agreement as then in effect, for each year or part thereof beginning on the inception of the Company and continuing until the termination date, and (2) 3.5 months’ salary under the Employment Agreement as then in effect, for each year or part thereof beginning on the inception of the Company and continuing until the termination date, (b) full vesting of options which would have vested during the one-year period commencing on the termination date and which are not dependent on the achievement of a performance objective or objectives, (c) payment of outstanding and unpaid fees, bonuses, expenses, salaries and employee social and fringe benefits due pursuant to the Consulting Agreement and the Employment Agreement prior to the termination date.

The initial term of the Agreement is 4.5 years, beginning on September 20, 2010.  The term shall be automatically renewed for additional terms of 3 years for as long as the Consulting Agreement and the Employment Agreement are in effect.

-19-

Xfone, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

 (Unaudited)

Note 7 – Legal proceedings

A. FCC Enforcement Bureau

On March 6, 2006, the FCC’s Enforcement Bureau initiated an investigation into Telephone Electronic Company’s (“TEC”) compliance with FCC Rules for compensation of payphone service providers. The Enforcement Bureau issued requests for production to TEC, its affiliates and subsidiaries. TEC was a majority shareholder of NTS Communications, Inc. (“NTS”) at the time of this investigation, prior to the Company's acquisition of NTS, on February 26, 2008. On April 26, 2006, NTS filed its response to the request for production. The FCC has the authority to issue fines for violations of its regulations.  NTS believes it is in compliance and will not incur any fines. The investigation is pending.

B. Teresa Leffler vs. Xfone USA

On February 24, 2009, Teresa Leffler, a former employee of Xfone USA, Inc., the Company's wholly owned MS-based subsidiary, filed a complaint with the Circuit Court of Rankin County, Mississippi, alleging sexual discrimination and sexual harassment by a former employee of Xfone USA, Inc., Marshall Wingard, and Xfone USA, Inc., that allegedly resulted in injury to her job and reputation, lost wages, mental and physical pain and suffering. Ms. Leffler sought compensatory damages in the amount of $300,000 and punitive damages in the amount of $300,000. The filing of the complaint follows Ms. Leffler’s receipt of a Notice of Right to Sue (the “Notice”) issued by the U.S. Equal Employment Opportunity Commission (the “EEOC”) on November 21, 2008.  The Notice also stated that the EEOC was terminating its processing of the charge. Xfone USA, Inc. and Mr. Wingard filed their Original Answers on April 15, 2009. Mr. Wingard was dismissed with prejudice from the suit by agreement and stipulation on May 12, 2009. Xfone USA, Inc. settled Ms. Leffler’s complaint for $2,500 on July 2, 2010, and the case was dismissed with prejudice on July 26, 2010.

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

On January 19, 2010, Eliezer Tzur et al. (the “Petitioners”) filed a request to approve a claim as a class action (the “Class Action Request”) against Xfone 018 Ltd. (“Xfone 018”), our former 69% Israel-based subsidiary, and four other Israeli telecom companies, all of which are entities unrelated to us (collectively with Xfone 018, the “Defendants”), in the District Court in Petach Tikva, Israel (the “Israeli Court”).  The Petitioners’ claim alleges that the Defendants have not fully fulfilled their alleged legal requirement to bear the cost of telephone calls by consumers to the Defendants’ respective technical support numbers. One of the Petitioners, Mr. Eli Sharvit (“Mr. Sharvit”), seeks damages from Xfone 018 for the cost such telephone calls allegedly made by him during the 5.5-year period preceding the filing of the Class Action Request, which he assessed at NIS 54.45 (approximately $14.95). The Class Action Request, to the extent it pertains to Xfone 018, states total damages of NIS 7,500,000 (approximately $2,060,440) which reflects the Petitioners’ estimation of damages caused to all consumers that (pursuant to the Class Action Request) allegedly called Xfone 018’s technical support number during a certain period defined in the Class Action Request. A court hearing with respect to the approval or disapproval of the Class Action Request has been scheduled for January 16, 2011. Xfone 018 and Mr. Sharvit are currently negotiating a settlement. In the event the negotiations fail, or the settlement is not approved by the Israeli Court, as required by law in such cases, Xfone 018 intends to vigorously defend the Class Action Request.   

-20-

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

The information set forth in this Management's Discussion and Analysis of Financial Condition and Results of  Operations (“MD&A”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in Xfone, Inc.'s (referred to herein as the "Company", or "Xfone", "we", "our", "ours" and "us") revenues and profitability, (ii) prospective business opportunities and (iii) our strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, objectives and expectations for future operations. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

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

Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, our inability to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, changing government regulations domestically and internationally affecting our products and businesses.

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

OVERVIEW

We were incorporated in Nevada, US in September 2000. We are a holding and managing company with operations in the United States offering local and long distance communications services which include voice, video and data over its Fiber-To-The-Premise (FTTP) network.

Our principal executive offices are located in Lubbock, Texas.

Divestitures

As reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, subsequent to the year ended December 31, 2009, our board of directors made a strategic decision to concentrate on our operations in the U.S.  As a result of this decision, we decided to divest our operations in the United Kingdom (“UK”), and Israel. The assets, liabilities and results of operations of the U.K. and Israel operations have been classified as discontinued operations for all periods presented.

Detailed discussions of each of these divestitures follow: 

-21-

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

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

Following an approval of the Transaction in a special meeting of our stockholders on July 14, 2010, we completed our disposition of the UK Subsidiaries on July 29, 2010.

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

Proceeds
Release from the repayment of a loan	$	1,344,073
Release from a repayment of credit line		234,420
Release from retirement and employment termination liabilities (*)		937,677
Aggregate future Earn-Out receivables (**)		1,444,494
Costs associated with the Transaction		(55,495	)
Net proceeds		3,905,169
Net book value of the UK Subsidiaries:
Cash		494,060
Account receivables		718,214
Other current assets		2,272,316
Fixed assets, net		879,989
Trade payable		(1,539,926	)
Other current liabilities		(1,894,363	)
Other long-term liability		(166,824	)
Goodwill and other intangible assets		4,942,739
Realization of cumulative translation adjustment		905,279
Net assets		6,611,484
Net loss on the sale of the UK Subsidiaries (***)	$	(2,706,315	)

(*) Based on third paty valuation of £600,000.

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

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

-22-

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2010 (*)			2009			2010			2009
Revenues	$	1,260,792		$	3,808,720		$	7,125,187		$	11,508,526
Cost of revenues		545,512			1,668,120			2,629,875			5,320,582
Gross profit		715,280			2,140,600			4,495,312			6,187,944
Operating expenses:
Marketing and selling		435,251			1,197,611			2,661,304			3,512,766
General and administrative		1,150,975			620,362			2,446,034			1,618,980
Impairment of goodwill		-			-			800,000			-
Total operating expenses		1,586,226			1,817,973			5,907,338			5,131,746
Operating profit (loss)		(870,946	)		322,627			(1,412,026	)		1,056,198
Financing expenses, net		(8,688	)		(13,101	)		(76,297	)		(43,270	)
Income (loss) before taxes		(879,634	)		309,526			(1,488,323	)		1,012,928
Income tax benefit (expense)		(4,662	)		(105,525	)		(4,662)			(108,054	)
Net income (loss) from discontinued operation in the United Kingdom	$	(884,296	)	$	204,001		$	(1,492,985	)	$	904,874

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

(**) Intercompany revenues, for services provided by the discontinued operations in the UK to the discontinued operation in Israel, of $843,522 and $1,484,506 for the period ended July 29, 2010 and the nine months ended September 30, 2009, respectively, are attributed to the discontinued operations in the UK. The associated costs of these revenues are also attributed to the discontinued operations in the UK.

-23-

Discontinued operations in Israel. On May 14, 2010, an agreement (the “Agreement”) was entered into between us, our 31% minority interest partners (the “Minority Partners”) in Xfone 018 Ltd. ("Xfone 018"),  and Marathon Telecom Ltd. (“Marathon Telecom”), for the sale of our 69% interest in Xfone 018 and the sale by the Minority Partners of their 31% interest in Xfone 018 (collectively, the “Holdings”) to Marathon Telecom (the “Transaction”). The entry into the Agreement follows the non-binding memorandum of understanding (the “MoU”) which the parties had entered into on March 2, 2010. On August 31, 2010 (the “Closing Date”), we completed the disposition (the “Transaction”) of our 69% interest in Xfone 018.

The aggregate purchase price to be paid by Marathon Telecom in exchange for the interests in Xfone 018 was approximately $7,850,000, which represents a price for 100% of the interests in Xfone 018 free of any financial debt. On the Closing Date, the parties agreed to a reduction in the purchase price.  As a result, the purchase price paid by Marathon Telecom for 100% of the interests in Xfone 018, free of any indebtedness, was $7,802,000 (the “Purchase Price”). In connection with the Transaction, we will be repaid our debt, and will receive 69% of the net proceeds after all other financial debt of Xfone 018 has been paid.

Pursuant to the Agreement, the consummation of the Transaction was subject to certain conditions and approvals, including, receipt of the approval of the Minister of Communications in Israel which was received on August 11, 2010.

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

Gross proceeds:
Cash (less costs associated with the Transaction)	$	5,560,567
Cash held in escrow		1,695,817
Allocation of proceeds to Minority Partners		(2,308,285	)
Net proceeds		4,948,099
Net book value of Xfone 018:
Cash		433,314
Account receivables		1,690,699
Other current assets		206,735
Fixed assets, net		1,446,789
Other non-current assets		276,814
Short-term bank credit and current maturities of notes payable		(466,864	)
Trade payable		(1,667,384	)
Other current liabilities		(149,019	)
Notes payable, net of current maturities		(349,177	)
Other long-term liability		(125,218	)
Minority interest		(372,451	)
Realization of cumulative translation adjustment		100,172
Net assets		1,024,410
Net profit on the sale of Xfone 018	$	3,923,689

-24-

The results of discontinued operations in Israel are as follows:

	Three months ended						Nine months ended
	September 30,						September 30,
	2010 (*)			2009			2010			2009
Revenues	$	1,942,380		$	2,081,211		$	6,477,810		$	6,170,691
Cost of revenues		1,392,814			1,080,355			3,799,730			3,427,201
Gross profit		549,566			1,000,856			2,678,080			2,743,490
Operating expenses:
Marketing and selling		162,534			272,238			610,465			1,074,368
General and administrative		429,269			461,288			1,312,228			1,280,824
Non-recurring loss											506,176
Total operating expenses		591,803			733,526			1,922,693			2,861,368
Operating profit (loss)		(42,237	)		267,330			755,387			(117,878	)
Financing expenses, net		(35,449	)		(52,133	)		(129,508	)		(223,118	)
Income (loss) before taxes		(77,686	)		215,197			625,879			(340,996	)
Income tax expense		622			250,156			(184,633	)		78,518
Net income (loss)		(77,064	)		465,353			441,246			(262,478	)
Income attributed to non-controlling interest		26,693			(37,844	)		(136,786	)		81,318
Net income (loss) from discontinued operation in the Israel	$	(50,371	)	$	427,509		$	304,460		$	(181,160	)

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

(**) Intercompany revenues, for services provided by the discontinued operation in Israel to the discontinued operation in the UK, of $74,285 and $48,947 for the nine months ended September 30, 2010 and 2009, respectively, are attributed to the discontinued operations in Israel. The associated costs of these revenues are also attributed to the discontinued operations in Israel.

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RESULTS OF OPERATIONS

Financial Information - Percentage of Revenues

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of Revenues		52.0	%		54.2	%		52.5	%		54.7	%
Gross Profit		48.0	%		45.8	%		47.5	%		45.3	%
Operating Expenses:
Marketing and Selling		8.0	%		7.1	%		7.7	%		7.3	%
General and Administrative		35.2	%		35.2	%		36.3	%		34.2	%
Total Operating Expenses		43.2	%		42.3	%		44.0	%		41.5	%
Loss from continued operations before taxes and non-controlling interest		( 11.8)	%		(13.0)	%		(5.7)	%		(4.2)	%
Net loss from continued operations		(10.1)	%		(15.0)	%		(4.5)	%		(4.2)	%
Net loss attributed to shareholders		(8.3)	%		(10.9)	%		(4.5)	%		(2.6)	%

COMPARISON OF THE THREE MONTHS PERIODS ENDED SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009

Revenues. Revenues for the quarter ended September 30, 2010 decreased by 3.0% to $14,978,557 from $15,443,537 for the same period in 2009. FTTP revenues in the quarter ended September 30, 2010 increased by 29.5% to approximately $2,634,000 from approximately $2,035,000 for the same period in 2009. As percentage of total sales, FTTP revenues in the quarter ended September 30, 2010 increased to 17.6% from 13.2% for the same period in 2009. Revenues from our legacy copper network include revenues from Wholesale, other carriers and other non-FTTP customers. Revenues from our legacy copper network in the quarter ended September 30, 2010 decreased by 7.9% to approximately $12,344,000 from approximately $13,409,000 in the same period in 2009. As a percentage of total sales, non-FTTP revenues in the quarter ended September 30, 2010 decreased to 82.4% from 86.8% for the same period in 2009. The increase in our FTTP revenues mainly resulted from the marketing of our services in the city of Levelland, Texas, where we have  completed the build out of the FTTP network in April 2010 while the decrease in the non-FTTP revenues resulted from the continuous attrition of non-FTTP residential customers and wholesale customers.

Cost of Revenues. Cost of revenues consists primarily of facilities and traffic that is purchased from other telephone companies and content for our video services. Cost of revenues for the quarter ended September 30, 2010 decreased by 7.1% to $7,784,053 from $8,376,660 for the same period in 2009. Cost of revenues, as a percentage of revenues in the quarter ended September 30, 2010, decreased to 52.0% from 54.2% for the same period in 2009. The decrease in the cost of revenues, as a percentage of revenues, is the result of the growth in the sales of high-margin FTTP products and a decrease in sales of low-margin products sold mainly to wholesale and non-FTTP residential customers.

Marketing and Selling Expenses. Marketing and selling expenses are primarily related to compensation attributed to employees engaged in marketing and selling activities, promotion, advertising and related expenses. Marketing and selling expenses for the quarter ended September 30, 2010 increased by 9.9% to $1,199,904 from $1,092,222 for the same period in 2009. The increase is the result of a increase in payroll and sales commission.

General and Administrative Expenses. General and administrative expenses consist primarily of consulting fees and compensation costs for administration, finance and general management personnel. General and administrative expenses for the quarter ended September 30, 2010, decreased by 3.1% to $5,265,376 from $5,434,453 for the same period in 2009. The decrease in the general and administrative expenses resulted mainly from reduction in personnel and savings in the corporate expenses as a result of the divestiture of the UK and Israeli operations.

Financing Expenses, net. Financing expenses, net, for the quarter ended September 30, 2010 decreased by approximately 3% to $2,340,159 from $2,413,131 for the same period in 2009. Financing expenses consist of interest payable on our Bonds (as defined below), the measurement of the Bonds which are stated in NIS and linkage to the CPI based on the exchange rate fluctuation in the USD\NIS. It also includes interest expenses on our interest bearing obligations and the effect of the currency exchange rate on intercompany balances with our subsidiaries which report in NIS and GBP as their functional currencies, which is of a temporary nature under the determination of SFAS 52. The decrease in financing expenses is a result of the devaluation of 5.4% in the USD against the NIS during the three months ended September 30, 2010 versus a devaluation of 4.1% in the USD against the NIS in the same period in 2009, expenses related to warrants that were granted to a lender on March 2010 and amortization of fair value of a loan that we took out in March 2010. The increase in financing expenses was offset against a decrease in the interest accumulated on the Bonds’ outstanding principal during the nine months ended September 30, 2010 and the same period in 2009.

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COMPARISON OF THE NINE MONTHS PERIODS ENDED SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009

Revenues. Revenues for the nine months ended September 30, 2010 decreased 5.5% to $43,965,554 from $46,548,959 for the same period in 2009. Revenues from our fiber based products ("Fiber-To-The-Premise revenues" or "FTTP revenues") in the nine months ended September 30, 2010 increased 21.9% to approximately $7,288,000 from approximately $5,981,000 for the same period in 2009. As a percentage of total sales, FTTP revenues in the nine months ended September 30, 2010 increased to 16.6% from 12.8% for the same period in 2009. Revenues from our legacy copper network includes revenues from Wholesale, other carriers and other non-FTTP customers. Revenues from our legacy copper network in the nine months ended September 30, 2010 decreased by 9.6% to approximately $36,678,000 from approximately $40,567,000 in the same period in 2009. As a percentage of total sales, non-FTTP revenues in the nine months ended September 30, 2010 decreased to 83.4% from 87.1% for the same period in 2009. The increase in our FTTP revenues mainly resulted from the marketing of our services in the city of Levelland, Texas, where we have  completed the build out of the FTTP network in April 2010 while the decrease in the non-FTTP revenues resulted from the continuous attrition of non-FTTP residential customers and wholesale customers.

Cost of Revenues. Cost of revenues consists primarily of facilities and traffic that is purchased from other telephone companies and content for our video services. Cost of revenues for the nine months ended September 30, 2010 decreased  by 9.3% to $23,080,577 from $25,441,450 for the same period in 2009. Cost of revenues, as a percentage of revenues in the nine months ended September 30, 2010, decreased to 52.5% from 54.7% for the same period in 2009. The decrease in the cost of revenues, as a percentage of revenues, is the result of the growth in the sales of high-margin FTTP products and a decrease in sales of low-margin products sold mainly to wholesale and non-FTTP residential customers.

Marketing and Selling Expenses. Marketing and selling expenses are primarily related to compensation attributed to employees engaged in marketing and selling activities, promotion, advertising and related expenses. Marketing and selling expenses for the nine months ended September 30, 2010 were slightly lower at $3,380,702 as compared to $3,417,027 for the same period in 2009.

General and Administrative Expenses. General and administrative expenses consists primarily of consulting fees and compensation costs for administration, finance and general management personnel. General and administrative expenses for the nine months ended September 30, 2010, increased by 0.2% to $15,948,725 from $15,921,184 for the same period in 2009. General and administrative expenses include stock options compensation which relates to stock options that were granted to our employees and vest during the reported period. Total stock option compensation in the nine months ended September 30, 2010 increased by $83,337 (or 18.4%) to $535,512 from $452,175 for the same period in 2009. In addition, the continuous growth of the operation in Levelland increases our general and administrative expenses by approximately $192,000.

Financing Expenses, net. Financing expenses, net, for the nine months ended September 30, 2010 increased by approximately 5.5% to $3,597,274 from $3,410,425 for the same period in 2009. Financing expenses consist of interest payable on our Bonds, the measurement of the Bonds which are stated in NIS and linkage to the CPI based on the exchange rate fluctuation in the USD\NIS. It also includes interest expenses on our interest bearing obligations and the effect of the currency exchange rate on intercompany balances with our subsidiaries which report in NIS and GBP as their functional currencies, which is of a temporary nature under the determination of SFAS 52. The increase in financing expenses is a result of the devaluation of 2.9% in the USD against the NIS during the first nine months of 2010 versus a devaluation of 1.2% in the USD against the NIS in the same period in 2009, expenses related to warrants that were granted to a lender on March 2010 and amortization of fair value of a loan that we took out in March 2010. The increase in financing expenses was offset against a decrease in the interest accumulated on the Bonds’ outstanding principal during the nine months ended September 30, 2010 and the same period in 2009.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of September 30, 2010, amounted to $6,407,998 compared to $2,467,028 as of December 31, 2009, an increase of $3,940,970. Net cash provided by operating activities in the nine months ended September 30, 2010 was $1,988,467 a decrease of $2,208,488 compared to net cash flow of $4,196,955 in the same period of 2009. The decrease in cash flow from operating activities is mostly related to the following changes in the working capital: (1) a decrease in accounts receivable of $146,891 in the nine months ended September 30, 2010 compared to a decrease of $3,272,472 in the same period of 2009; (2) increase in prepaid expenses and other receivables of $783,212 in the nine months ended September 30, 2010 compared to a decrease of $390,050 in the same period of 2009; (3) a decrease in the provision for bad debt of $126,637 in the nine months ended September 30, 2010 compared to an increase of $507,070 in the same period of 2009; (4) an increase in long term receivables of $461,451 in the nine months ended September 30, 2010, compared to an increase of $77,050 in the same period of 2009; and (5) an increase in other liabilities and accrued expenses of $371,059 in the nine months ended September 30, 2010 compared to a decrease of $2,068,682 in the same period of 2009. The increase in severance pay of $920,918 in the nine months ended September 30, 2010 is related to retirement obligations in connection with the discontinued operations in the UK. Cash used for investing activities in the nine months ended September 30, 2010 was $3,493,476 compared to $5,506,584 in the same period of 2009. Of that amount, $2,959,488 is attributable to the build out of the project under the United States Department of Agriculture in Levelland, TX, $3,329,104 to the purchase of other equipment and $2,795,116 proceeds from the disposal of discontinued operations. Net cash provided by financing activities for the nine months ended September 30, 2010 was $5,072,605 and is primarily attributable to proceeds from the issuance of a promissory note, shares of stock and warrants to Burlingame Equity Investors, LP and the issuance of shares of stock to Gagnon Securities LLC for total proceeds of $6,575,000.

Our capital investments are primarily related to the build-out of our fiber network, the purchase of equipment and software for services that we provide or intend to provide in Texas, Mississippi and Louisiana.

Capital lease obligations. We are the lessee of switching and other telecom equipment and motor vehicles under capital leases expiring on various dates from 2010 through 2014.

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As of September 30, 2010, we reported a working capital deficit of $5,324,376 compared to a deficit of $15,391,203 on December 31, 2009. We are continuing our effort to renegotiate our short-term debt with a commercial bank to cure the deficit in our working capital.

The following table represents our contractual obligations and commercial commitments, excluding interest expense, as of September 30, 2010.

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Domestic credit facility	$	1,219,123	$	1,219,123	$	-	$	-	$	-
Domestic Note Payable		2,354,661		2,320,253		21,529		12,880		-
Foreign credit facility		-		-		-		-		-
Other notes payable		3,203,366		194,644		3,008,721		-		-
Notes Payable from the United States Department of Agriculture		7,596,165		375,975		751,950		751,950		5,716,291
Bonds		22,708,270		4,395,149		8,790,298		8,790,298		732,525
Capital leases		357,818		201,673		146,969		9,176		-
Operating leases		5,655,573		2,380,009		3,238,487		37,076		-
Total contractual cash obligations	$	43,094,976	$	11,086,826	$	15,957,954	$	9,601,380	$	6,448,816

We believe that funds expected to be generated from operations and the control of capital spending will be sufficient to meet our anticipated cash requirements for operating needs for at least the next 12 months.

XFONE, INC.

The Bonds

On December 13, 2007 (the “Date of Issuance”), we accepted offers, for the issuance of securities to Israeli institutional investors, for total gross proceeds of NIS 100,382,100 (approximately $25,562,032, based on the exchange rate as of December 13, 2007) par value non-convertible bonds (Series A) (the “Bonds”). The Bonds were issued for an amount equal to their par value.

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

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

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The Bonds may only be traded in Israel.  The Bonds were rated A3 by Midroog Limited, an Israeli rating company which is a subsidiary of Moody’s Investor Services. On February 19, 2009, Midroog filed its annual monitoring report (the “Monitoring Report”) with the Tel-Aviv Stock Exchange. According to the Monitoring Report, Midroog’s rating committee reaffirmed the A3 rating assigned to the Bonds. However, the rating committee decided on a negative outlook on the rating of the Bonds, largely, but not exclusively, due to the increase of the risk level in the business environment in which we operate, resulting from the increasing recession in the United States and the threat it poses on our business, since our core activity is based in the U.S.  While the Monitoring Report recognizes that we show relative stability in our financial results and adherence to our expected cash flow coverage ratios, it cites our currency exposure resulting from the NIS index-linked bonds in relation to the USD, which is our major activity currency. On October 26, 2009, Midroog announced a rating downgrade to our series A bonds from A3 to Baa1 and is maintaining the negative outlook. According to the rating report, the rating downgrade reflects a continued downtrend in our revenues, erosion in operating cash flow and coverage ratios, and a significant discrepancy between the level of cash flow and coverage ratios observed at the time of the initial rating and those presently observed. Midroog is maintaining the negative outlook on the rating due to our relatively low liquidity, weak free cash flow and lack of a substantial volume of unused credit facilities. On December 30, 2009, Midroog filed a monitoring report with the TASE announcing the inclusion of the rating of the bond in its watch list with a negative outlook. According to the report Midroog will examine the rating with respect to our ability to repay the full payment due on December 1, 2009, and our future liquidity. On July 1, 2010, Midroog filed with the TASE a rating action report (the “Report”) downgrading the rating of the Bonds from Baa1 to Baa3, announcing that the negative outlook on the rating of the Bonds is replaced with a stable outlook, and removing the rating of the Bonds from Midroog’s watch list.

On March 25, 2008, we issued to the holders of the Bonds, for no additional consideration, non-tradable warrants to purchase an aggregate of 956,020 shares of common stock, each exercisable at an exercise price of $3.50 per share with a term of 4 years, commencing on September 2, 2008.

Promissory Notes

On December 1, 2009, we issued a series of promissory notes in the aggregate amount of approximately $875,000 to various lenders who are either our affiliates or people related to certain of our affiliates and/or business partners.  The notes bear interest at rates between 0% and 10% and mature between one month and one year from issuance.  Certain of the notes are prepayable and contain no prepayment penalties.  A one month note in the amount of approximately $133,000 bears no interest unless it is not paid at maturity and then such loan bears interest at 2% per month until repaid.  The notes are guaranteed by certain of our subsidiaries.  The proceeds of the notes were utilized to repay obligations under our Series A Bonds. As of September 30, 2010, the outstanding balance of these notes was $177,818 which matures on December 2010.

Securities Purchase Agreement

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

1. A senior promissory note in the aggregate principal amount of $3,500,000, maturing on March 22, 2012.  Interest accrues at an annual rate of 10% and is payable quarterly. The note ranks  pari passu  in rights of liquidation with our Series A Bonds.

2. 2,173,913 shares of our common stock at a price of $1.15 per share for a total purchase price of $2,500,000.

3. A warrant to purchase 950,000 shares of our Common Stock, which shall be exercisable at a price of $2.00 per share for a period of 5 years. The number of shares issuable upon exercise of the Warrant, and/or the applicable exercise price, may be proportionately adjusted in the event of a stock dividend, distribution, subdivision, combination, merger, consolidation, sale of assets, spin-off or similar transactions.

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

Subscription Agreement

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

US SUBSIDIARIES

Our U.S subsidiary, NTS Communications, Inc., had a $2,000,000 revolving line of credit with a commercial bank.  The facility was secured by an assignment of all NTS's trade accounts receivable. The credit line carried interest at a rate equivalent to the Wall Street Journal Prime rate. The credit line was repaid on April 27, 2010. A related installment note in the original amount of $2,000,000 was executed on April 27, 2009. This note reduced the nominal and funded balance of the previous $4,000,000 line of credit. The installment note, which matured September 25, 2010, carried interest at the Wall Street Journal Prime rate and is payable in monthly installments of $61,212. As of September 30, 2010, the outstanding balance of the installment note was $1,219,123.

In addition, NTS Communications, Inc., had secured a loan from a commercial bank on September 18, 2007 in the original amount of $2,500,000 which was to be repaid on the following terms: 12 monthly payments of accrued interest only beginning October 18, 2007, followed by 23 monthly payments of $29,762 plus any accrued interest and a 24th and final payment of all unpaid principal and accrued interest due, on or before September 18, 2010. The loan carried interest at a rate equivalent to Wall Street Journal Prime rate. The total aggregate amount of these loan as of September 30, 2010 was $1,820,134.

On October 14, 2010, NTS replaced the revolving line of credit and the loans with a new loan in the amount of $2,983,531 with a maturity date of October 13, 2011. The new loan bears interest at a rate equivalent to Wall Street Journal Prime rate, but not less than 6% per annum and is repayable in equal monthly installments of $100,000 each. The new loan is secured by an assignment of all of NTS’ trade accounts receivable and certain fixed assets.

Rural Utilities Service Debt Facility

NTS Telephone Company, LLC, a wholly owned subsidiary of NTS Communications, Inc., has received approval from the Rural Utilities Service (“RUS”), a division of the United States Department of Agriculture, for an $11.8 million debt facility to complete a telecommunications overbuild project in Levelland, Texas. The principal of the RUS loan is repaid monthly starting one year from the initial advance date until full repayment after 17 years. The loan bears interest at the average yield on outstanding marketable obligations of the United States having the final maturity comparable to the final maturity of the advance. Advances are provided as the construction progresses, and the interest rate is set based upon the prevailing rate at the time of each individual advance. The note is non-recourse to NTS and all other NTS subsidiaries and is secured by NTS Telephones assets which were $9.8 million at September 30, 2010. As of September 30, 2010, the annual average weighted interest rate on the outstanding advances 2.61%. The total aggregate amount of these loans as of September 30, 2010 is $7,596,165.

PRIDE Network, Inc., a wholly owned subsidiary of NTS Communications, Inc., has received approval from the Broadband Initiative Program of the American Recovery and Reinvestment Act, for a total $99.9 million funding in form of $45.9 million in grants and $54 million in 19 to 20-year loans. The loans bear interest at the Treasury rate for comparable loans with comparable maturities. The funding will allow us to develop our FTTP infrastructure, known as the PRIDE Network in northwestern Texas and further expand it to communities in southern Louisiana. Construction work of our FTTP infrastructure started in October 2010.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

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

Notwithstanding having our Bonds stated in NIS and linked to the Israeli Consumer Price Index, during the nine months and three months ended September 30, 2010, our outstanding liability was increased by approximately $200,000 and $1,264,000, respectively, as a result of the revaluation of the NIS in relation with the USD.

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Item 3.                      Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4.                      Controls and Procedures

(a) Management’s Quarterly Report on Internal Control over Financial Reporting.

As of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer/Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer/Principal Accounting Officer have concluded that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer/Principal Accounting Officer, to allow for timely decisions regarding required disclosure of material information required to be disclosed in the reports that we file or submit under the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving these objectives and our Chief Executive Officer and Chief Financial Officer/Principal Accounting Officer have concluded that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives. However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

(b) Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting identified in connection with the evaluation described above during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II:

OTHER INFORMATION

Item 1. Legal Proceedings

FCC Enforcement Bureau EB-06-IH-0904

On March 6, 2006, the FCC’s Enforcement Bureau initiated an investigation into Telephone Electronic Company’s (“TEC”) compliance with FCC Rules for compensation of payphone service providers. The Enforcement Bureau issued requests for production to TEC, its affiliates and subsidiaries. TEC was a majority shareholder of NTS Communications, Inc. (“NTS”) at the time of this investigation, prior our acquisition of NTS, a wholly owned TX-based subsidiary, on February 26, 2008. On April 26, 2006, NTS filed its response to the request for production. The FCC has the authority to issue fines for violations of its regulations.  NTS believes it is in compliance and will not incur any fine. The investigation is pending.

Teresa Leffler vs. Xfone USA

On February 24, 2009, Teresa Leffler, a former employee of Xfone USA, Inc., our wholly owned MS-based subsidiary, filed a complaint with the Circuit Court of Rankin County, Mississippi, alleging sexual discrimination and sexual harassment by a former employee of Xfone USA, Marshall Wingard, and Xfone USA, that allegedly resulted in injury to her job and reputation, lost wages, mental and physical pain and suffering. Ms. Leffler sought compensatory damages in the amount of $300,000 and punitive damages in the amount of $300,000. The filing of the complaint follows Ms. Leffler’s receipt of a Notice of Right to Sue (the “Notice”) issued by the U.S. Equal Employment Opportunity Commission (the “EEOC”) on November 21, 2008.  The Notice also stated that the EEOC was terminating its processing of the charge. Xfone USA and Mr. Wingard filed their Original Answers on April 15, 2009. Mr. Wingard was dismissed with prejudice from the suit by agreement and stipulation on May 12, 2009. Ms. Leffler’s complaint was settled for $2,500 on July 2, 2010, and the case was dismissed with prejudice on July 26, 2010.

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

On January 19, 2010, Eliezer Tzur et al. (the “Petitioners”) filed a request to approve a claim as a class action (the “Class Action Request”) against Xfone 018 Ltd. (“Xfone 018”), our former 69% Israel-based subsidiary, and four other Israeli telecom companies, all of which are entities unrelated to us (collectively with Xfone 018, the “Defendants”), in the District Court in Petach Tikva, Israel (the “Israeli Court”).  The Petitioners’ claim alleges that the Defendants have not fully fulfilled their alleged legal requirement to bear the cost of telephone calls by consumers to the Defendants’ respective technical support numbers. One of the Petitioners, Mr. Eli Sharvit (“Mr. Sharvit”), seeks damages from Xfone 018 for the cost such telephone calls allegedly made by him during the 5.5-year period preceding the filing of the Class Action Request, which he assessed at NIS 54.45 (approximately $$14.95). The Class Action Request, to the extent it pertains to Xfone 018, states total damages of NIS 7,500,000 (approximately $2,060,440) which reflects the Petitioners’ estimation of damages caused to all consumers that (pursuant to the Class Action Request) allegedly called Xfone 018’s technical support number during a certain period defined in the Class Action Request. A court hearing with respect to the approval or disapproval of the Class Action Request has been scheduled for January 16, 2011. Xfone 018 and Mr. Sharvit are currently negotiating a settlement. In the event the negotiations fail, or the settlement is not approved by the Israeli Court, as required by law in such cases, Xfone 018 intends to vigorously defend the Class Action Request.

On May 14, 2010, we entered into an agreement (the “Agreement”) with Marathon Telecom Ltd. for the sale of our majority (69%) holdings in Xfone 018. Pursuant to Section 10 of the Agreement, we are fully and exclusively liable for any and all amounts, payments or expenses which will be incurred by Xfone 018 as a result of the Class Action Request. Section 10 provides that we shall bear any and all expenses or financial costs which are entailed by conducting the defense on behalf of Xfone 018 and/or the financial results thereof, including pursuant to a judgment or settlement (it was agreed that in the event that Xfone 018 will be obligated to provide services at a reduced price, we shall bear only the cost of such services). Section 10 further provides that the defense by Xfone 018 shall be performed in full cooperation with us and with mutual assistance. The Agreement was signed in Hebrew, and an English translation of the Agreement was filed as Exhibit 10.141 to our Current Report on Form 8-K/A dated June 1, 2010.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number	Description
2.	Agreement and plan of reorganization dated September 20, 2000, between the Company and Swiftnet Limited. (1)
3.1	Articles of Incorporation of the Company.(1)
3.1.1	Certificate of Amendment to the Articles of Incorporation of the Company, dated January 18, 2007. (56)
3.11	Reamended and Restated Bylaws of the Company dated January 15, 2009.(55)
3.3	Memorandum of Association of Swiftnet Limited. (1)
3.4	Articles of Association of Swiftnet Limited. (1)
3.6	Bylaws of Xfone USA, Inc. (7)
4.	Specimen Stock Certificate.(1)
10.1	Agreement dated May 11, 2000, between Swiftnet Limited and Guy Nissenson.(1)
10.2	Employment Agreement dated January 1, 2000 with Bosmat Houston. (1)
10.3	Loan Agreement dated August 5, 2000, with Swiftnet Limited, Guy Nissenson, and Nissim Levy.(1)
10.4	Promissory Note dated September 29, 2000, between the Company and Abraham Keinan.(1)
10.5	Stock Purchase Agreement dated June 19, 2000, between Swiftnet Limited, Abraham Keinan, and Campbeltown Business Ltd. (1)
10.6	Consulting Agreement dated May 11, 2000 between Swiftnet Limited and Campbeltown Business Ltd.(1)
10.7	Agreement dated July 30, 2001, with Campbeltown Business Ltd.(1)
10.8	Contract dated June 20, 1998, with WorldCom International Ltd.(1)
10.9	Contract dated April 11, 2000, with VoiceNet Inc.(1)
10.10	Contract dated April 25, 2000, with InTouchUK.com Ltd.(1)
10.11	Letter of Understanding dated July 30, 2001, from Campbeltown Business Ltd. to the Company.(2)
10.12	Agreement dated April 6, 2000, between Adar International, Inc./Mr. Sidney J. Golub and Swiftnet Limited. (2)
10.13	Lease Agreement dated December 4, 1991, between Elmtree Investments Ltd. and Swiftnet Limited.(2)
10.14	Lease Agreement dated October 8, 2001, between Postwick Property Holdings Limited and Swiftnet Limited. (2)
10.15	Agreement dated September 30, 2002, between the Company, Swiftnet Limited., and Nir Davison.(5)
10.16	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Platinum Partners Value Arbitrage Fund LP, Countrywide Partners LLC and WEC Partners LLC. (6)
10.17	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Simon Langbart, Robert Langbart, Arik Ecker, Zwi Ecker, Michael Derman, Errol Derman, Yuval Haim Sobel, Zvi Sobel, Tenram Investment Ltd., Michael Zinn, Michael Weiss. (6)
10.18	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Southridge Partners LP and Southshore Capital Fund Ltd. (6)
10.19	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Crestview Capital Master LLC. (6)
10.20	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Adam Breslawsky, Oded Levy, Michael Epstein, Steven Frank, Joshua Lobel, Joshua Kazan and The Oberon Group LLC. (6)
10.21	Newco (Auracall Limited) Formation Agreement.(6)
10.22	Agreement with ITXC Corporation.(6)
10.23	Agreement with Teleglobe International.(6)
10.23.1	Amendment to Agreement with Teleglobe International.(6)

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10.24	Agreement with British Telecommunications.(6)
10.25	Agreement with Easyair Limited (OpenAir).(6)
10.26	Agreement with Worldnet.(6)
10.27	Agreement with Portfolio PR.(6)
10.28	Agreement with Stern and Company.(6)
10.29	Letter to the Company dated December 31, 2003, from Abraham Keinan.(6)
10.30	Agreement between Swiftnet Limited and Dan Kirschner.(8)
10.31	Agreement and Plan of Merger.(7)
10.32	Escrow Agreement.(7)
10.33	Release Agreement.(7)
10.34	Employment Agreement date March 10, 2005, between Xfone USA, Inc. and Wade Spooner.(7)
10.34.1	Separation Agreement and Release, dated August 15, 2008, between Xfone USA, Inc. and Wade Spooner. (56)
10.35	Employment Agreement date March 10, 2005, between Xfone USA, Inc. and Ted Parsons.(7)
10.35.1	Separation Agreement and Release, dated August 15, 2008, between Xfone USA, Inc. and Ted Parsons. (56)
10.36	First Amendment to Agreement and Plan of Merger (to acquire WS Telecom, Inc.).(11)
10.37	Finders Agreement with The Oberon Group, LLC.(11)
10.38	Agreement with The Oberon Group, LLC.(11)
10.39	Management Agreement between WS Telecom, Inc. and Xfone USA, Inc.(8)
10.40	Engagement Letter to Tommy R. Ferguson, Confidentiality Agreement, and Executive Inventions Agreement dated August 19, 2004. (11)
10.41	Voting Agreement dated September 28, 2004.(11)
10.42	Novation Agreement executed September 27, 2004.(11)
10.43	Novation Agreement executed September 28, 2004.(11)
10.44	Investment Agreement dated August 26, 2004, with Ilan Shoshani.(12)
10.44.1	Addendum and Clarification to the Investment Agreement with Ilan Shoshani dated September 13, 2004. (12)
10.45	Agreement dated November 16, 2004, with Elite Financial Communications Group.(13)
10.46	Financial Services and Business Development Consulting Agreement dated November 18, 2004, with Dionysos Investments (1999) Ltd. (13)
10.47	Agreement and Plan of Merger to acquire I-55 Internet Services, Inc. dated August 18, 2005.(14)
10.48	Agreement and Plan of Merger to acquire I-55 Telecommunications, LLC dated August 26, 2005.(15)
10.49	Securities Purchase Agreement, dated September 27, 2005, by and between the Company and Laurus Master Fund, Ltd. (16)
10.50	Secured Convertible Term Note, dated September 27, 2005, by the Company in favor of Laurus Master Fund, Ltd.; Adjustment Provision Waiver Agreement, dated September 27, 2005, by and between the Company and Laurus Fund, Ltd. (16)
10.51	Common Stock Purchase Warrant, dated September 27, 2005, by the Company in favor of Laurus Master Fund, Ltd. (16)
10.52	Registration Rights Agreement, dated September 27, 2005, by and between the Company and Laurus Master Fund, Ltd. (16)
10.53	Master Security Agreement, dated September 27, 2005, by and between the Company, Xfone USA, Inc., eXpeTel Communications, Inc., Gulf Coast Utilities, Inc., and Laurus Master Fund, Ltd. (16)
10.54	Stock Pledge Agreement, dated September 27, 2005, by and between the Company, Xfone USA, Inc., and Laurus Master Fund, Ltd. (16)
10.55	Subsidiary Guarantee dated September 27, 2005, by Xfone USA, Inc., eXpeTel Communications, Inc. and Gulf Coast Utilities, Inc. in favor of Laurus Master Fund, Ltd. (16)
10.56	Funds Escrow Agreement, dated September 27, 2005, by and between the Company, Laurus Master Fund, Ltd. and Loeb & Loeb LLP; Disbursement Letter, dated September 27, 2005. (16)
10.57	Incremental Funding Side Letter, dated September 27, 2005, by and between the Company and Laurus Master Fund, Ltd. (16)
10.58	Securities Purchase Agreement dated September 28, 2005, by and between the Company and Crestview Capital Mater, LLC, Burlingame Equity Investors, LP, Burlingame Equity Investors II, LP, Burlingame Equity Investors (Offshore), Ltd., and Mercantile Discount - Provident Funds. (16)
10.59	Registration Rights Agreement, dated September 28, 2005, by and between the Company and Crestview Capital Mater, LLC, Burlingame Equity Investors, LP, Burlingame Equity Investors II, LP, Burlingame Equity Investors (Offshore), Ltd., and Mercantile Discount - Provident Funds. (16)

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10.60	Common Stock Purchase Warrant, dated September 28, 2005, by the Company in favor of the Crestview Capital Mater, LLC, Burlingame Equity Investors, LP, Burlingame Equity Investors II, LP, Burlingame Equity Investors (Offshore), Ltd., and Mercantile Discount - Provident Funds. (16)
10.61	Escrow Agreement, dated September 28, 2005, by and between the Company, the Purchasers and Feldman Weinstein LLP. (16)
10.62	Management Agreement dated October 11, 2005.(17)
10.63	First Amendment to Agreement and Plan of Merger (to acquire I-55 Internet Services, Inc.), dated October 10, 2005. (17)
10.64	Letter Agreement with MCG Capital Corporation dated October 10, 2005.(17)
10.65	Securities Purchase Agreement, dated November 23, 2005, between the Company and Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd. (18)
10.66	Registration Rights Agreement, dated November 23, 2005, between the Company and Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd. (18)
10.67	Common Stock Purchase Warrant, dated November 23, 2005, by the Company in favor of Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd. (18)
10.68	Escrow Agreement, dated November 23, 2005, between the Company, the Escrow Agent, and Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd. (18)
10.69	Management Agreement with I-55 Telecommunications, LLC dated October 12, 2005.(19)
10.70	Agreement - General Terms and Conditions with EBI Comm, Inc., dated January 1, 2006.(21)
10.71	Asset Purchase Agreement with Canufly.net, Inc., dated January 10, 2006.(21)
10.72	Stock Purchase Agreement dated May 10, 2006, by and among the Company, Story Telecom, Inc., Story Telecom Limited, Story Telecom (Ireland) Limited, Nir Davison, and Trecastle Holdings Limited. (23)
10.73	Agreement dated May 25, 2006, by and among the Company and the shareholders of Equitalk.co.uk Limited. (24)
10.74	Securities Purchase Agreement, dated June 19, 2006, by and between the Company and the Purchasers. (25)
10.75	Registration Rights Agreement, dated June 19, 2006, by and between the Company and the Purchasers. (25)
10.76	Common Stock Purchase Warrant, dated June 19, 2006, by the Company in favor of the Purchasers.(25)
10.77	Escrow Agreement, dated June 19, 2006, by and between the Company, the Escrow Agent, and the Purchasers. (25)
10.78	Form of Indemnification Agreement between the Company and its Directors and Officers.(27)
10.79	Agreement to Purchase Promissory Note dated October 31, 2005, with Randall Wade James Tricou.(27)
10.80	Agreement to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Tricou Construction. (27)
10.81	Agreement to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Bon Aire Estates. (27)
10.82	Agreement to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Bon Aire Utility. (27)
10.83	Agreement to Purchase Promissory Note dated February 3, 2006, with Danny Acosta.(27)
10.84	Letter Agreement dated November 15, 2005, with Oberon Securities, LLC.(27)
10.85	Letter Agreement dated June 15, 2006, with Oberon Securities, LLC.(27)
10.86	Second Amendment to Agreement and Plan of Merger (to acquire WS Telecom, Inc.), dated June 28, 2006. (27)
10.87	General Contract for Services dated January 1, 2005, by and between the Company and Swiftnet Limited. (27)
10.88	Service Agreement dated December 6, 2005, by and between the Company and Elite Financial Communications Group, LLC. (27)
10.89	Agreement for Market Making in Securities dated July 31, 2006, by and between the Company and Excellence Nessuah Stock Exchange Services Ltd. (27)
10.90	Shareholders Loan Agreement, dated September 27, 2006, by and between Auracall Limited, Swiftnet Limited, and Dan Kirschner. (28)
10.91	Service Agreement, dated November 7, 2006, by and between the Company and Institutional Marketing Services, Inc. (28)
10.92	Consultancy Agreement, dated November 20, 2006, by and between the Company and Crestview Capital Partners, LLP. (29)
10.93	Agreement dated December 24, 2006, by and between the Company, Halman-Aldubi Provident Funds Ltd., and Halman-Aldubi Pension Funds Ltd. [translation from Hebrew]. (31)
10.94	First Amendment to Financial Services and Business Development Consulting Agreement dated February 8, 2007, by and between the Company and Dionysos Investments (1999) Ltd. (33)

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10.95	Agreement dated February 8, 2007, by and between the Company, Swiftnet Limited, Campbeltown Business, Ltd., and Mr. Abraham Keinan. (33)
10.96	First Amendment to General Contract for Services, dated March 14, 2007, by and between the Company and Swiftnet Limited. (34)
10.97	Employment Agreement, dated March 28, 2007, between Swiftnet Limited and Abraham Keinan.(34)
10.98	Consulting Agreement, dated March 28, 2007, between the Company and Abraham Keinan. (34)
10.99	Employment Agreement, dated March 28, 2007, between Swiftnet Limited and Guy Nissenson.(34)
10.100	Consulting Agreement, dated March 28, 2007, between the Company and Guy Nissenson.(34)
10.101	Settlement Agreement and Release dated May 31, 2007, by and among Embarq Logistics, Inc, Xfone USA, Inc. and the Company. (35)
10.102	Promissory Note dated May 31, 2007, by Xfone USA, Inc.(35)
10.103	Parent Guarantee dated as of May 31, 2007 by the Company in favor of Embarq Logistics, Inc.(35)
10.104	Share Purchase Agreement dated August 15, 2007, by and between Dan Kirschner, as Seller, Swiftnet Limited, as Buyer, and Xfone, Inc. (36)
10.105	Inter-Company Loan Agreement dated August 15, 2007, by and between Auracall Limited, as Lender, and Swiftnet Limited, as Borrower. (36)
10.106	Stock Purchase Agreement dated August [20], 2007, by and among the Company, NTS Communications, Inc., and the Shareholders of NTS Communications, Inc. (37)
10.107	Letter of Joint Venture dated June 15, 2007, by and among the Company and NTS Holdings, Inc.(37)
10.107.1	Form of Free Cash Flow Participation Agreement to be Entered into between the Company and NTS Holdings, Inc. Upon Consummation of the Acquisition. (37)
10.107.2	Form of Employment Agreement to be entered into between NTS Communications, Inc. and Barbara Baldwin upon Consummation of the Acquisition. (37)
10.107.3	Form of Employment Agreement to be entered into between NTS Communications, Inc. and Jerry Hoover upon Consummation of the Acquisition. (37)
10.107.4	Form of Employment Agreement to be entered into between NTS Communications, Inc. and Brad Worthington upon Consummation of the Acquisition. (37)
10.108	Employment Contract signed on August 26, 2007, by and between the Company’s Israeli based Subsidiary Xfone 018 ltd. and Roni Haliva. (38)
10.109	Subscription Agreement for the Purchase of Shares of Common Stock of the Company Dated October 23, 2007. (39)
10.110	Subscription Agreement for the Purchase of Shares of Common Stock of the Company Dated November 1, 2007. (41)
10.111	Form of Subscription Agreement for the Purchase of Units Consisting of Two Shares of Common Stock and One Common Stock Purchase Warrant. (42)
10.112	Form of Common Stock Purchase Warrant.(42)
10.113	First Amendment to Stock Purchase Agreement.(43)
10.114.1	Employment agreement dated as of February 26, 2008, by and among NTS Communications, Inc. and Barbara Baldwin. (44)
10.114.2	Employment agreement dated as of February 26, 2008, by and among NTS Communications, Inc. and Jerry Hoover. (44)
10.114.3	Employment agreement dated as of February 26, 2008, by and among NTS Communications, Inc. and Brad Worthington .(44)
10.115	Free cash flow participation agreement dated as of February 26, 2008, by and among Xfone, Inc. and NTS Holdings, Inc. (44)
10.116	Escrow agreement dated as of February 26, 2008, by and among Xfone, Inc., Chris Chelette, Robert Healea and Kevin Buxkemper the NTS shareholders representatives, and Trustmark National Bank, as Escrow Agent. (44)
10.117	Release, effective as of February 26, 2008, entered into by each of Barbara Baldwin, Jerry Hoover and Brad Worthington (44)
10.118	Noncompetition, nondisclosure and nonsolicitation agreement dated as of February 26, 2008, by and among Xfone, Inc., Telephone Electronics Corporation, Joseph D. Fail, Chris Chelette, Robert Healea, Joey Garner, and Walter Frank. (44)
10.119	Second amendment to stock purchase agreement entered into by each of February 26, 2008 by and among Xfone, Inc., NTS Communications, Inc. and Chris Chelette, Robert Healea and Kevin Buxkemper, as the NTS shareholders representatives. (44)
10.120	Modification of Financial Consulting Agreement between Xfone, Inc. and Oberon Securities, LLC in connection with NTS Communications Transaction. (45)
10.121	Fees Due to Oberon Securities, LLC from Xfone, Inc. in connection with services provided in conjunction with the acquisition of NTS Communications, Inc. (45)
10.122	Agreement of Principles dated March 17, 2008 by and between Xfone 018 Ltd. and Tiv Taam Holdings 1 Ltd. [Free Translation from Hebrew]. (46)
10.123	Compromise Agreement dated March 25, 2008, between Xfone, Inc., Story Telecom, Inc., Story Telecom Limited, Trecastle Holdings Limited and Nir Davison. (47)
10.124	Securities Purchase Agreement dated March 25, 2008, between Xfone, Inc., Trecastle Holdings Limited and Nir Davison. (47)
10.125	Third Amendment to Stock Purchase Agreement entered into as of April 25, 2008 by and among Chris Chelette, Robert Healea and Kevin Buxkemper, as Sellers’ Representative, NTS Communications, Inc. and Xfone, Inc. (48)
10.126	Irrevocable Option Agreement dated as of July 1, 2008 by and between Abraham Keinan and Guy Nissenson (49)

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10.127	Indenture, entered into on December 13, 2007, as amended and restated on October 27, 2008, between Xfone, Inc. and Ziv Haft Trusts Company Ltd. (free translation from Hebrew). (51)
10.128	Form of warrant (free translation from Hebrew). (51)
10.129	Underwriting Agreement between Xfone, Inc., Excellence Nessuah Underwriting (1993) Ltd. and The First International & Co. - Underwriting and Investments Ltd., dated November 2, 2008 (free translation from Hebrew). (52)
10.130	Market Making Agreement dated December 24, 2008, by and between Xfone, Inc. and Harel Finance Trade & Securities Ltd. [Free translation from Hebrew] (54)
10.131	Second Amendment to Financial Services and Business Development Consulting Agreement dated January 15, 2009, by and between Xfone, Inc. and Dionysos Investments (1999) Ltd. (55)
10.132	Employment Agreement between NTS Communications, Inc. and Niv Krikov dated July 1, 2009. (59)
10.133	Agreement dated November 20, 2009 between Xfone, Inc., David Sela and Blokshtil Ltd. (English translation). (60)
10.134	Loan Agreement dated as of December 10, 2009, between Swiftnet Limited, Iddo Keinan, Xfone, Inc., Auracall Limited, Equitalk.co.uk Limited and Story Telecom Limited. (61)
10.135	General Release and Settlement Agreement dated December 28, 2009 between Xfone, Inc., and the selling shareholders of NTS Communications, Inc. (62)
10.136	Agreement dated January 29, 2010 by and between Xfone, Inc., Abraham Keinan, and AMIT K Limited. (63)
10.137	Agreement dated January 29, 2010 by and between Xfone, Inc. and Abraham Keinan. (63)
10.138	Agreement dated January 29, 2010 by and between Abraham Keinan, Guy Nissenson and Campbeltown Business Ltd. (63)
10.139	Securities Purchase Agreement dated effective as of March 23, 2010.  (64)
10.140	Form of Subscription Agreement dated as of March 23, 2010. (64)
10.141	Contract dated May 14, 2010 by and between Xfone, Inc., Newcall Ltd., Margo Pharma, Ltd., and Marathon Telecom Ltd. [English translation] (65)
10.142	Employment Agreement entered into on June 30, 2010 between Xfone, Inc. and Guy Nissenson [Free translation from Hebrew] (66)
10.143	First Amendment to Consulting Agreement dated June 30, 2010 between Xfone, Inc. and Guy Nissenson (66)
10.144	Severance Agreement entered into on September 20, 2010 between Xfone, Inc. and Guy Nissenson. (67)
16.2	Letter dated June 1, 2009 from Stark Winter Schenkein & Co., LLP to the Securities and Exchange Commission. (58)
21.1	List of Subsidiaries (Amended as of April 2009) (57)
31.1	Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.*
31.2	Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.*
32.1	Certification of Officer pursuant to section 906 of the Sarbanes - Oxley Act of 2002.*
32.2	Certification of Officer pursuant to section 906 of the Sarbanes - Oxley Act of 2002.*

*Denotes exhibits filed herewith.

(1)	Denotes previously filed exhibits: filed on August 10, 2001 with Xfone, Inc.’s SB-2 Registration Statement.
(2)	Denotes previously filed exhibits: filed on October 16, 2001 with Xfone, Inc.’s SB-2/Amendment 1 Registration Statement.
(5)	Denotes previously filed exhibit: filed on March 3, 2003 with Xfone, Inc.’s SB-2/Post Effective Amendment 2 Registration Statement.
(6)	Denotes previously filed exhibit: filed on April 15, 2004 with Xfone’s, Inc. SB-2 Amendment 1 Registration Statement.
(7)	Denotes previously filed exhibit: filed on June 1, 2004 with Xfone, Inc.’s Form 8-K.
(8)	Denotes previously filed exhibit: filed on June 7, 2004 with Xfone, Inc.’s SB-2/Amendment 2 Registration Statement.
(9)	Denotes previously filed exhibit: filed on August 11, 2004 with Xfone’s, Inc. SB-2 Amendment 3 Registration Statement.
(10)	Denotes previously filed exhibit: filed on September 13, 2004 with Xfone’s, Inc. SB-2 Amendment 4 Registration Statement.
(11)	Denotes previously filed exhibits: filed on October 4, 2004 with Xfone, Inc.’s Form 8-K
(12)	Denotes previously filed exhibits: filed on November 29, 2004 with Xfone, Inc.’s Form 8-K.
(13)	Denotes previously filed exhibits; filed on March 31, 2005 with Xfone, Inc.’s Form 10-KSB.
(14)	Denotes previously filed exhibit: filed on August 22, 2005 with Xfone, Inc.’s Form 8-K.
(15)	Denotes previously filed exhibit: filed on August 31, 2005 with Xfone, Inc.’s Form 8-K.
(16)	Denotes previously filed exhibits: filed on October 3, 2005 with Xfone, Inc.’s Form 8-K.
(17)	Denotes previously filed exhibits: filed on October 11, 2005 with Xfone, Inc.’s Form 8-K/A #1.
(18)	Denotes previously filed exhibits: filed on November 29, 2005 with Xfone, Inc.’s Form 8-K.
(19)	Denotes previously filed exhibit: filed on January 23, 2006 with Xfone, Inc.’s Form 8-K/A #3.
(21)	Denotes previously filed exhibit: filed on January 31, 2006 with Xfone, Inc.’s Form 8-K.
(23)	Denotes previously filed exhibit: filed on May 16, 2006 with Xfone, Inc.’s Form 8-K.
(24)	Denotes previously filed exhibit: filed on May 30, 2006 with Xfone, Inc.’s Form 8-K.

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(25)	Denotes previously filed exhibits: filed on June 20, 2006 with Xfone, Inc.’s Form 8-K.
(27)	Denotes previously filed exhibits: filed on July 31, 2006 with Xfone, Inc.’s Form 8-K.
(28)	Denotes previously filed exhibits: filed on November 14, 2006 with Xfone, Inc.’s Form 10-QSB.
(29)	Denotes previously filed exhibit: filed on November 22, 2006 with Xfone, Inc.’s Form 8-K.
(31)	Denotes previously filed exhibit: filed on December 28, 2006 with Xfone, Inc.’s Form 8-K.
(33)	Denotes previously filed exhibits: filed on February 8, 2007 with Xfone, Inc.’s Form 8-K.
(34)	Denotes previously filed exhibits; filed on March 30, 2007 with Xfone, Inc.’s Form 10-KSB.
(35)	Denotes previously filed exhibits: filed on May 31, 2007 with Xfone, Inc.’s Form 8-K.
(36)	Denotes previously filed exhibits: filed on August 15, 2007 with Xfone, Inc.’s Form 8-K.
(37)	Denotes previously filed exhibits: filed on August 22, 2007 with Xfone, Inc.’s Form 8-K.
(38)	Denotes previously filed exhibit: filed on August 27, 2007 with Xfone, Inc.’s Form 8-K.
(39)	Denotes previously filed exhibit: filed on October 23, 2007 with Xfone, Inc.’s Form 8-K.
(41)	Denotes previously filed exhibit: filed on November 5, 2007 with Xfone, Inc.’s Form 8-K.
(42)	Denotes previously filed exhibits: filed on December 14, 2007 with Xfone, Inc.’s Form 8-K.
(43)	Denotes previously filed exhibit: filed on February 14, 2008 with Xfone, Inc.’s Form 8-K.
(44)	Denotes previously filed exhibits: filed on February 26, 2008 with Xfone, Inc.’s Form 8-K.
(45)	Denotes previously filed exhibits: filed on March 6, 2008 with Xfone, Inc.’s Form 8-K.
(46)	Denotes previously filed exhibit: filed on March 17, 2008 with Xfone, Inc.’s Form 8-K.
(47)	Denotes previously filed exhibits: filed on March 25 with Xfone, Inc.’s Form 8-K.
(48)	Denotes previously filed exhibit: filed on  May 1, 2008 with Xfone, Inc.‘s Form 8-K.
(49)	Denotes previously filed exhibit: filed on  July 1, 2008 with Xfone, Inc.‘s Form 8-K.
(51)	Denotes previously filed exhibit: filed on October 28, 2008 with Xfone, Inc.‘s Form 8-K.
(52)	Denotes previously filed exhibit: filed on November 4, 2008 with Xfone, Inc.‘s Form 8-K.
(54)	Denotes previously filed exhibit: filed on December 24, 2008 with Xfone, Inc.‘s Form 8-K.
(55)	Denotes previously filed exhibit: filed on January 16, 2009 with Xfone, Inc.‘s Form 8-K.
(56)	Denotes previously filed exhibit: filed on April 1, 2009 with Xfone, Inc.‘s Form 10-K.
(57)	Denotes previously filed exhibit: filed on April 30, 2009 with Xfone, Inc.‘s Form 10-K/A.
(58)	Denotes previously filed exhibit: filed on June 3, 2009 with Xfone, Inc.‘s Form 8-K/A.
(59)	Denotes previously filed exhibit: filed on July 1, 2009 with Xfone, Inc.‘s Form 8-K.
(60)	Denotes previously filed exhibit: filed on  November 30, 2009 with Xfone, Inc.‘s Form 8-K.
(61)	Denotes previously filed exhibit: filed on  December 11, 2009 with Xfone, Inc.‘s Form 8-K.
(62)	Denotes previously filed exhibit: filed on  December 29, 2009 with Xfone, Inc.‘s Form 8-K.
(63)	Denotes previously filed exhibits: filed on  January 29, 2010  with Xfone, Inc.‘s Form 8-K.
(64)	Denotes previously filed exhibits: filed on  March 23, 2010  with Xfone, Inc.‘s Form 8-K.
(65)	Denotes previously filed exhibits: filed on June 1, 2010 with Xfone, Inc.’s Form 8-K.
(66)	Denotes previously filed exhibits: filed on June 30, 2010 with Xfone, Inc.’s Form 8-K.
(67)	Denotes previously filed exhibits: filed on September 20, 2010 with Xfone, Inc.’s Form 8-K.

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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 thereunto duly authorized.

	XFONE, INC.
Date: November 15, 2010	By:	/s/ Guy Nissenson
		Guy Nissenson
		President, Chief Executive Officer and Director
		(principal executive officer)

Date: November 15, 2010	By:	/s/ Niv Krikov
		Niv Krikov
		Principal Accounting Officer, Treasurer, Chief Financial Officer and Director (principal accounting and financial officer)

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Exhibit Number	Description
2.	Agreement and plan of reorganization dated September 20, 2000, between the Company and Swiftnet Limited. (1)
3.1	Articles of Incorporation of the Company.(1)
3.1.1	Certificate of Amendment to the Articles of Incorporation of the Company, dated January 18, 2007. (56)
3.11	Reamended and Restated Bylaws of the Company dated January 15, 2009.(55)
3.3	Memorandum of Association of Swiftnet Limited. (1)
3.4	Articles of Association of Swiftnet Limited. (1)
3.6	Bylaws of Xfone USA, Inc. (7)
4.	Specimen Stock Certificate.(1)
10.1	Agreement dated May 11, 2000, between Swiftnet Limited and Guy Nissenson.(1)
10.2	Employment Agreement dated January 1, 2000 with Bosmat Houston. (1)
10.3	Loan Agreement dated August 5, 2000, with Swiftnet Limited, Guy Nissenson, and Nissim Levy.(1)
10.4	Promissory Note dated September 29, 2000, between the Company and Abraham Keinan.(1)
10.5	Stock Purchase Agreement dated June 19, 2000, between Swiftnet Limited, Abraham Keinan, and Campbeltown Business Ltd. (1)
10.6	Consulting Agreement dated May 11, 2000 between Swiftnet Limited and Campbeltown Business Ltd.(1)
10.7	Agreement dated July 30, 2001, with Campbeltown Business Ltd.(1)
10.8	Contract dated June 20, 1998, with WorldCom International Ltd.(1)
10.9	Contract dated April 11, 2000, with VoiceNet Inc.(1)
10.10	Contract dated April 25, 2000, with InTouchUK.com Ltd.(1)
10.11	Letter of Understanding dated July 30, 2001, from Campbeltown Business Ltd. to the Company.(2)
10.12	Agreement dated April 6, 2000, between Adar International, Inc./Mr. Sidney J. Golub and Swiftnet Limited. (2)
10.13	Lease Agreement dated December 4, 1991, between Elmtree Investments Ltd. and Swiftnet Limited.(2)
10.14	Lease Agreement dated October 8, 2001, between Postwick Property Holdings Limited and Swiftnet Limited. (2)
10.15	Agreement dated September 30, 2002, between the Company, Swiftnet Limited., and Nir Davison.(5)
10.16	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Platinum Partners Value Arbitrage Fund LP, Countrywide Partners LLC and WEC Partners LLC. (6)
10.17	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Simon Langbart, Robert Langbart, Arik Ecker, Zwi Ecker, Michael Derman, Errol Derman, Yuval Haim Sobel, Zvi Sobel, Tenram Investment Ltd., Michael Zinn, Michael Weiss. (6)
10.18	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Southridge Partners LP and Southshore Capital Fund Ltd. (6)
10.19	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Crestview Capital Master LLC. (6)
10.20	As to Form: Shares and Warrant Purchase Agreement, Irrevocable Proxy, Warrant A, Warrant B and Registration Rights Agreement of Selling Shareholders Adam Breslawsky, Oded Levy, Michael Epstein, Steven Frank, Joshua Lobel, Joshua Kazan and The Oberon Group LLC. (6)
10.21	Newco (Auracall Limited) Formation Agreement.(6)
10.22	Agreement with ITXC Corporation.(6)
10.23	Agreement with Teleglobe International.(6)
10.23.1	Amendment to Agreement with Teleglobe International.(6)

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10.24	Agreement with British Telecommunications.(6)
10.25	Agreement with Easyair Limited (OpenAir).(6)
10.26	Agreement with Worldnet.(6)
10.27	Agreement with Portfolio PR.(6)
10.28	Agreement with Stern and Company.(6)
10.29	Letter to the Company dated December 31, 2003, from Abraham Keinan.(6)
10.30	Agreement between Swiftnet Limited and Dan Kirschner.(8)
10.31	Agreement and Plan of Merger.(7)
10.32	Escrow Agreement.(7)
10.33	Release Agreement.(7)
10.34	Employment Agreement date March 10, 2005, between Xfone USA, Inc. and Wade Spooner.(7)
10.34.1	Separation Agreement and Release, dated August 15, 2008, between Xfone USA, Inc. and Wade Spooner. (56)
10.35	Employment Agreement date March 10, 2005, between Xfone USA, Inc. and Ted Parsons.(7)
10.35.1	Separation Agreement and Release, dated August 15, 2008, between Xfone USA, Inc. and Ted Parsons. (56)
10.36	First Amendment to Agreement and Plan of Merger (to acquire WS Telecom, Inc.).(11)
10.37	Finders Agreement with The Oberon Group, LLC.(11)
10.38	Agreement with The Oberon Group, LLC.(11)
10.39	Management Agreement between WS Telecom, Inc. and Xfone USA, Inc.(8)
10.40	Engagement Letter to Tommy R. Ferguson, Confidentiality Agreement, and Executive Inventions Agreement dated August 19, 2004. (11)
10.41	Voting Agreement dated September 28, 2004.(11)
10.42	Novation Agreement executed September 27, 2004.(11)
10.43	Novation Agreement executed September 28, 2004.(11)
10.44	Investment Agreement dated August 26, 2004, with Ilan Shoshani.(12)
10.44.1	Addendum and Clarification to the Investment Agreement with Ilan Shoshani dated September 13, 2004. (12)
10.45	Agreement dated November 16, 2004, with Elite Financial Communications Group.(13)
10.46	Financial Services and Business Development Consulting Agreement dated November 18, 2004, with Dionysos Investments (1999) Ltd. (13)
10.47	Agreement and Plan of Merger to acquire I-55 Internet Services, Inc. dated August 18, 2005.(14)
10.48	Agreement and Plan of Merger to acquire I-55 Telecommunications, LLC dated August 26, 2005.(15)
10.49	Securities Purchase Agreement, dated September 27, 2005, by and between the Company and Laurus Master Fund, Ltd. (16)
10.50	Secured Convertible Term Note, dated September 27, 2005, by the Company in favor of Laurus Master Fund, Ltd.; Adjustment Provision Waiver Agreement, dated September 27, 2005, by and between the Company and Laurus Fund, Ltd. (16)
10.51	Common Stock Purchase Warrant, dated September 27, 2005, by the Company in favor of Laurus Master Fund, Ltd. (16)
10.52	Registration Rights Agreement, dated September 27, 2005, by and between the Company and Laurus Master Fund, Ltd. (16)
10.53	Master Security Agreement, dated September 27, 2005, by and between the Company, Xfone USA, Inc., eXpeTel Communications, Inc., Gulf Coast Utilities, Inc., and Laurus Master Fund, Ltd. (16)
10.54	Stock Pledge Agreement, dated September 27, 2005, by and between the Company, Xfone USA, Inc., and Laurus Master Fund, Ltd. (16)
10.55	Subsidiary Guarantee dated September 27, 2005, by Xfone USA, Inc., eXpeTel Communications, Inc. and Gulf Coast Utilities, Inc. in favor of Laurus Master Fund, Ltd. (16)
10.56	Funds Escrow Agreement, dated September 27, 2005, by and between the Company, Laurus Master Fund, Ltd. and Loeb & Loeb LLP; Disbursement Letter, dated September 27, 2005. (16)
10.57	Incremental Funding Side Letter, dated September 27, 2005, by and between the Company and Laurus Master Fund, Ltd. (16)
10.58	Securities Purchase Agreement dated September 28, 2005, by and between the Company and Crestview Capital Mater, LLC, Burlingame Equity Investors, LP, Burlingame Equity Investors II, LP, Burlingame Equity Investors (Offshore), Ltd., and Mercantile Discount - Provident Funds. (16)
10.59	Registration Rights Agreement, dated September 28, 2005, by and between the Company and Crestview Capital Mater, LLC, Burlingame Equity Investors, LP, Burlingame Equity Investors II, LP, Burlingame Equity Investors (Offshore), Ltd., and Mercantile Discount - Provident Funds. (16)

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10.60	Common Stock Purchase Warrant, dated September 28, 2005, by the Company in favor of the Crestview Capital Mater, LLC, Burlingame Equity Investors, LP, Burlingame Equity Investors II, LP, Burlingame Equity Investors (Offshore), Ltd., and Mercantile Discount - Provident Funds. (16)
10.61	Escrow Agreement, dated September 28, 2005, by and between the Company, the Purchasers and Feldman Weinstein LLP. (16)
10.62	Management Agreement dated October 11, 2005.(17)
10.63	First Amendment to Agreement and Plan of Merger (to acquire I-55 Internet Services, Inc.), dated October 10, 2005. (17)
10.64	Letter Agreement with MCG Capital Corporation dated October 10, 2005.(17)
10.65	Securities Purchase Agreement, dated November 23, 2005, between the Company and Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd. (18)
10.66	Registration Rights Agreement, dated November 23, 2005, between the Company and Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd. (18)
10.67	Common Stock Purchase Warrant, dated November 23, 2005, by the Company in favor of Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd. (18)
10.68	Escrow Agreement, dated November 23, 2005, between the Company, the Escrow Agent, and Mercantile Discount - Provident Funds, Hadar Insurance Company Ltd., The Israeli Phoenix Assurance Company Ltd. and Gaon Gemel Ltd. (18)
10.69	Management Agreement with I-55 Telecommunications, LLC dated October 12, 2005.(19)
10.70	Agreement - General Terms and Conditions with EBI Comm, Inc., dated January 1, 2006.(21)
10.71	Asset Purchase Agreement with Canufly.net, Inc., dated January 10, 2006.(21)
10.72	Stock Purchase Agreement dated May 10, 2006, by and among the Company, Story Telecom, Inc., Story Telecom Limited, Story Telecom (Ireland) Limited, Nir Davison, and Trecastle Holdings Limited. (23)
10.73	Agreement dated May 25, 2006, by and among the Company and the shareholders of Equitalk.co.uk Limited. (24)
10.74	Securities Purchase Agreement, dated June 19, 2006, by and between the Company and the Purchasers. (25)
10.75	Registration Rights Agreement, dated June 19, 2006, by and between the Company and the Purchasers. (25)
10.76	Common Stock Purchase Warrant, dated June 19, 2006, by the Company in favor of the Purchasers.(25)
10.77	Escrow Agreement, dated June 19, 2006, by and between the Company, the Escrow Agent, and the Purchasers. (25)
10.78	Form of Indemnification Agreement between the Company and its Directors and Officers.(27)
10.79	Agreement to Purchase Promissory Note dated October 31, 2005, with Randall Wade James Tricou.(27)
10.80	Agreement to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Tricou Construction. (27)
10.81	Agreement to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Bon Aire Estates. (27)
10.82	Agreement to Purchase Promissory Note dated October 31, 2005, with Rene Tricou - Bon Aire Utility. (27)
10.83	Agreement to Purchase Promissory Note dated February 3, 2006, with Danny Acosta.(27)
10.84	Letter Agreement dated November 15, 2005, with Oberon Securities, LLC.(27)
10.85	Letter Agreement dated June 15, 2006, with Oberon Securities, LLC.(27)
10.86	Second Amendment to Agreement and Plan of Merger (to acquire WS Telecom, Inc.), dated June 28, 2006. (27)
10.87	General Contract for Services dated January 1, 2005, by and between the Company and Swiftnet Limited. (27)
10.88	Service Agreement dated December 6, 2005, by and between the Company and Elite Financial Communications Group, LLC. (27)
10.89	Agreement for Market Making in Securities dated July 31, 2006, by and between the Company and Excellence Nessuah Stock Exchange Services Ltd. (27)
10.90	Shareholders Loan Agreement, dated September 27, 2006, by and between Auracall Limited, Swiftnet Limited, and Dan Kirschner. (28)
10.91	Service Agreement, dated November 7, 2006, by and between the Company and Institutional Marketing Services, Inc. (28)
10.92	Consultancy Agreement, dated November 20, 2006, by and between the Company and Crestview Capital Partners, LLP. (29)
10.93	Agreement dated December 24, 2006, by and between the Company, Halman-Aldubi Provident Funds Ltd., and Halman-Aldubi Pension Funds Ltd. [translation from Hebrew]. (31)
10.94	First Amendment to Financial Services and Business Development Consulting Agreement dated February 8, 2007, by and between the Company and Dionysos Investments (1999) Ltd. (33)

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10.95	Agreement dated February 8, 2007, by and between the Company, Swiftnet Limited, Campbeltown Business, Ltd., and Mr. Abraham Keinan. (33)
10.96	First Amendment to General Contract for Services, dated March 14, 2007, by and between the Company and Swiftnet Limited. (34)
10.97	Employment Agreement, dated March 28, 2007, between Swiftnet Limited and Abraham Keinan.(34)
10.98	Consulting Agreement, dated March 28, 2007, between the Company and Abraham Keinan. (34)
10.99	Employment Agreement, dated March 28, 2007, between Swiftnet Limited and Guy Nissenson.(34)
10.100	Consulting Agreement, dated March 28, 2007, between the Company and Guy Nissenson.(34)
10.101	Settlement Agreement and Release dated May 31, 2007, by and among Embarq Logistics, Inc, Xfone USA, Inc. and the Company. (35)
10.102	Promissory Note dated May 31, 2007, by Xfone USA, Inc.(35)
10.103	Parent Guarantee dated as of May 31, 2007 by the Company in favor of Embarq Logistics, Inc.(35)
10.104	Share Purchase Agreement dated August 15, 2007, by and between Dan Kirschner, as Seller, Swiftnet Limited, as Buyer, and Xfone, Inc. (36)
10.105	Inter-Company Loan Agreement dated August 15, 2007, by and between Auracall Limited, as Lender, and Swiftnet Limited, as Borrower. (36)
10.106	Stock Purchase Agreement dated August [20], 2007, by and among the Company, NTS Communications, Inc., and the Shareholders of NTS Communications, Inc. (37)
10.107	Letter of Joint Venture dated June 15, 2007, by and among the Company and NTS Holdings, Inc.(37)
10.107.1	Form of Free Cash Flow Participation Agreement to be Entered into between the Company and NTS Holdings, Inc. Upon Consummation of the Acquisition. (37)
10.107.2	Form of Employment Agreement to be entered into between NTS Communications, Inc. and Barbara Baldwin upon Consummation of the Acquisition. (37)
10.107.3	Form of Employment Agreement to be entered into between NTS Communications, Inc. and Jerry Hoover upon Consummation of the Acquisition. (37)
10.107.4	Form of Employment Agreement to be entered into between NTS Communications, Inc. and Brad Worthington upon Consummation of the Acquisition. (37)
10.108	Employment Contract signed on August 26, 2007, by and between the Company’s Israeli based Subsidiary Xfone 018 ltd. and Roni Haliva. (38)
10.109	Subscription Agreement for the Purchase of Shares of Common Stock of the Company Dated October 23, 2007. (39)
10.110	Subscription Agreement for the Purchase of Shares of Common Stock of the Company Dated November 1, 2007. (41)
10.111	Form of Subscription Agreement for the Purchase of Units Consisting of Two Shares of Common Stock and One Common Stock Purchase Warrant. (42)
10.112	Form of Common Stock Purchase Warrant.(42)
10.113	First Amendment to Stock Purchase Agreement.(43)
10.114.1	Employment agreement dated as of February 26, 2008, by and among NTS Communications, Inc. and Barbara Baldwin. (44)
10.114.2	Employment agreement dated as of February 26, 2008, by and among NTS Communications, Inc. and Jerry Hoover. (44)
10.114.3	Employment agreement dated as of February 26, 2008, by and among NTS Communications, Inc. and Brad Worthington .(44)
10.115	Free cash flow participation agreement dated as of February 26, 2008, by and among Xfone, Inc. and NTS Holdings, Inc. (44)
10.116	Escrow agreement dated as of February 26, 2008, by and among Xfone, Inc., Chris Chelette, Robert Healea and Kevin Buxkemper the NTS shareholders representatives, and Trustmark National Bank, as Escrow Agent. (44)
10.117	Release, effective as of February 26, 2008, entered into by each of Barbara Baldwin, Jerry Hoover and Brad Worthington (44)
10.118	Noncompetition, nondisclosure and nonsolicitation agreement dated as of February 26, 2008, by and among Xfone, Inc., Telephone Electronics Corporation, Joseph D. Fail, Chris Chelette, Robert Healea, Joey Garner, and Walter Frank. (44)
10.119	Second amendment to stock purchase agreement entered into by each of February 26, 2008 by and among Xfone, Inc., NTS Communications, Inc. and Chris Chelette, Robert Healea and Kevin Buxkemper, as the NTS shareholders representatives. (44)
10.120	Modification of Financial Consulting Agreement between Xfone, Inc. and Oberon Securities, LLC in connection with NTS Communications Transaction. (45)
10.121	Fees Due to Oberon Securities, LLC from Xfone, Inc. in connection with services provided in conjunction with the acquisition of NTS Communications, Inc. (45)
10.122	Agreement of Principles dated March 17, 2008 by and between Xfone 018 Ltd. and Tiv Taam Holdings 1 Ltd. [Free Translation from Hebrew]. (46)
10.123	Compromise Agreement dated March 25, 2008, between Xfone, Inc., Story Telecom, Inc., Story Telecom Limited, Trecastle Holdings Limited and Nir Davison. (47)
10.124	Securities Purchase Agreement dated March 25, 2008, between Xfone, Inc., Trecastle Holdings Limited and Nir Davison. (47)
10.125	Third Amendment to Stock Purchase Agreement entered into as of April 25, 2008 by and among Chris Chelette, Robert Healea and Kevin Buxkemper, as Sellers’ Representative, NTS Communications, Inc. and Xfone, Inc. (48)
10.126	Irrevocable Option Agreement dated as of July 1, 2008 by and between Abraham Keinan and Guy Nissenson (49)

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10.127	Indenture, entered into on December 13, 2007, as amended and restated on October 27, 2008, between Xfone, Inc. and Ziv Haft Trusts Company Ltd. (free translation from Hebrew). (51)
10.128	Form of warrant (free translation from Hebrew). (51)
10.129	Underwriting Agreement between Xfone, Inc., Excellence Nessuah Underwriting (1993) Ltd. and The First International & Co. - Underwriting and Investments Ltd., dated November 2, 2008 (free translation from Hebrew). (52)
10.130	Market Making Agreement dated December 24, 2008, by and between Xfone, Inc. and Harel Finance Trade & Securities Ltd. [Free translation from Hebrew] (54)
10.131	Second Amendment to Financial Services and Business Development Consulting Agreement dated January 15, 2009, by and between Xfone, Inc. and Dionysos Investments (1999) Ltd. (55)
10.132	Employment Agreement between NTS Communications, Inc. and Niv Krikov dated July 1, 2009. (59)
10.133	Agreement dated November 20, 2009 between Xfone, Inc., David Sela and Blokshtil Ltd. (English translation). (60)
10.134	Loan Agreement dated as of December 10, 2009, between Swiftnet Limited, Iddo Keinan, Xfone, Inc., Auracall Limited, Equitalk.co.uk Limited and Story Telecom Limited. (61)
10.135	General Release and Settlement Agreement dated December 28, 2009 between Xfone, Inc., and the selling shareholders of NTS Communications, Inc. (62)
10.136	Agreement dated January 29, 2010 by and between Xfone, Inc., Abraham Keinan, and AMIT K Limited. (63)
10.137	Agreement dated January 29, 2010 by and between Xfone, Inc. and Abraham Keinan. (63)
10.138	Agreement dated January 29, 2010 by and between Abraham Keinan, Guy Nissenson and Campbeltown Business Ltd. (63)
10.139	Securities Purchase Agreement dated effective as of March 23, 2010.  (64)
10.140	Form of Subscription Agreement dated as of March 23, 2010. (64)
10.141	Contract dated May 14, 2010 by and between Xfone, Inc., Newcall Ltd., Margo Pharma, Ltd., and Marathon Telecom Ltd. [English translation] (65)
10.142	Employment Agreement entered into on June 30, 2010 between Xfone, Inc. and Guy Nissenson [Free translation from Hebrew] (66)
10.143	First Amendment to Consulting Agreement dated June 30, 2010 between Xfone, Inc. and Guy Nissenson (66)
10.144	Severance Agreement entered into on September 20, 2010 between Xfone, Inc. and Guy Nissenson. (67)
16.2	Letter dated June 1, 2009 from Stark Winter Schenkein & Co., LLP to the Securities and Exchange Commission. (58)
21.1	List of Subsidiaries (Amended as of April 2009) (57)
31.1	Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.*
31.2	Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.*
32.1	Certification of Officer pursuant to section 906 of the Sarbanes - Oxley Act of 2002.*
32.2	Certification of Officer pursuant to section 906 of the Sarbanes - Oxley Act of 2002.*

*Denotes exhibits filed herewith.

(1)	Denotes previously filed exhibits: filed on August 10, 2001 with Xfone, Inc.’s SB-2 Registration Statement.
(2)	Denotes previously filed exhibits: filed on October 16, 2001 with Xfone, Inc.’s SB-2/Amendment 1 Registration Statement.
(5)	Denotes previously filed exhibit: filed on March 3, 2003 with Xfone, Inc.’s SB-2/Post Effective Amendment 2 Registration Statement.
(6)	Denotes previously filed exhibit: filed on April 15, 2004 with Xfone’s, Inc. SB-2 Amendment 1 Registration Statement.
(7)	Denotes previously filed exhibit: filed on June 1, 2004 with Xfone, Inc.’s Form 8-K.
(8)	Denotes previously filed exhibit: filed on June 7, 2004 with Xfone, Inc.’s SB-2/Amendment 2 Registration Statement.
(9)	Denotes previously filed exhibit: filed on August 11, 2004 with Xfone’s, Inc. SB-2 Amendment 3 Registration Statement.
(10)	Denotes previously filed exhibit: filed on September 13, 2004 with Xfone’s, Inc. SB-2 Amendment 4 Registration Statement.
(11)	Denotes previously filed exhibits: filed on October 4, 2004 with Xfone, Inc.’s Form 8-K
(12)	Denotes previously filed exhibits: filed on November 29, 2004 with Xfone, Inc.’s Form 8-K.
(13)	Denotes previously filed exhibits; filed on March 31, 2005 with Xfone, Inc.’s Form 10-KSB.
(14)	Denotes previously filed exhibit: filed on August 22, 2005 with Xfone, Inc.’s Form 8-K.
(15)	Denotes previously filed exhibit: filed on August 31, 2005 with Xfone, Inc.’s Form 8-K.
(16)	Denotes previously filed exhibits: filed on October 3, 2005 with Xfone, Inc.’s Form 8-K.
(17)	Denotes previously filed exhibits: filed on October 11, 2005 with Xfone, Inc.’s Form 8-K/A #1.
(18)	Denotes previously filed exhibits: filed on November 29, 2005 with Xfone, Inc.’s Form 8-K.
(19)	Denotes previously filed exhibit: filed on January 23, 2006 with Xfone, Inc.’s Form 8-K/A #3.
(21)	Denotes previously filed exhibit: filed on January 31, 2006 with Xfone, Inc.’s Form 8-K.
(23)	Denotes previously filed exhibit: filed on May 16, 2006 with Xfone, Inc.’s Form 8-K.
(24)	Denotes previously filed exhibit: filed on May 30, 2006 with Xfone, Inc.’s Form 8-K.

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(25)	Denotes previously filed exhibits: filed on June 20, 2006 with Xfone, Inc.’s Form 8-K.
(27)	Denotes previously filed exhibits: filed on July 31, 2006 with Xfone, Inc.’s Form 8-K.
(28)	Denotes previously filed exhibits: filed on November 14, 2006 with Xfone, Inc.’s Form 10-QSB.
(29)	Denotes previously filed exhibit: filed on November 22, 2006 with Xfone, Inc.’s Form 8-K.
(31)	Denotes previously filed exhibit: filed on December 28, 2006 with Xfone, Inc.’s Form 8-K.
(33)	Denotes previously filed exhibits: filed on February 8, 2007 with Xfone, Inc.’s Form 8-K.
(34)	Denotes previously filed exhibits; filed on March 30, 2007 with Xfone, Inc.’s Form 10-KSB.
(35)	Denotes previously filed exhibits: filed on May 31, 2007 with Xfone, Inc.’s Form 8-K.
(36)	Denotes previously filed exhibits: filed on August 15, 2007 with Xfone, Inc.’s Form 8-K.
(37)	Denotes previously filed exhibits: filed on August 22, 2007 with Xfone, Inc.’s Form 8-K.
(38)	Denotes previously filed exhibit: filed on August 27, 2007 with Xfone, Inc.’s Form 8-K.
(39)	Denotes previously filed exhibit: filed on October 23, 2007 with Xfone, Inc.’s Form 8-K.
(41)	Denotes previously filed exhibit: filed on November 5, 2007 with Xfone, Inc.’s Form 8-K.
(42)	Denotes previously filed exhibits: filed on December 14, 2007 with Xfone, Inc.’s Form 8-K.
(43)	Denotes previously filed exhibit: filed on February 14, 2008 with Xfone, Inc.’s Form 8-K.
(44)	Denotes previously filed exhibits: filed on February 26, 2008 with Xfone, Inc.’s Form 8-K.
(45)	Denotes previously filed exhibits: filed on March 6, 2008 with Xfone, Inc.’s Form 8-K.
(46)	Denotes previously filed exhibit: filed on March 17, 2008 with Xfone, Inc.’s Form 8-K.
(47)	Denotes previously filed exhibits: filed on March 25 with Xfone, Inc.’s Form 8-K.
(48)	Denotes previously filed exhibit: filed on  May 1, 2008 with Xfone, Inc.‘s Form 8-K.
(49)	Denotes previously filed exhibit: filed on  July 1, 2008 with Xfone, Inc.‘s Form 8-K.
(51)	Denotes previously filed exhibit: filed on October 28, 2008 with Xfone, Inc.‘s Form 8-K.
(52)	Denotes previously filed exhibit: filed on November 4, 2008 with Xfone, Inc.‘s Form 8-K.
(54)	Denotes previously filed exhibit: filed on December 24, 2008 with Xfone, Inc.‘s Form 8-K.
(55)	Denotes previously filed exhibit: filed on January 16, 2009 with Xfone, Inc.‘s Form 8-K.
(56)	Denotes previously filed exhibit: filed on April 1, 2009 with Xfone, Inc.‘s Form 10-K.
(57)	Denotes previously filed exhibit: filed on April 30, 2009 with Xfone, Inc.‘s Form 10-K/A.
(58)	Denotes previously filed exhibit: filed on June 3, 2009 with Xfone, Inc.‘s Form 8-K/A.
(59)	Denotes previously filed exhibit: filed on July 1, 2009 with Xfone, Inc.‘s Form 8-K.
(60)	Denotes previously filed exhibit: filed on  November 30, 2009 with Xfone, Inc.‘s Form 8-K.
(61)	Denotes previously filed exhibit: filed on  December 11, 2009 with Xfone, Inc.‘s Form 8-K.
(62)	Denotes previously filed exhibit: filed on  December 29, 2009 with Xfone, Inc.‘s Form 8-K.
(63)	Denotes previously filed exhibits: filed on  January 29, 2010  with Xfone, Inc.‘s Form 8-K.
(64)	Denotes previously filed exhibits: filed on  March 23, 2010  with Xfone, Inc.‘s Form 8-K.
(65)	Denotes previously filed exhibits: filed on June 1, 2010 with Xfone, Inc.’s Form 8-K.
(66)	Denotes previously filed exhibits: filed on June 30, 2010 with Xfone, Inc.’s Form 8-K.
(67)	Denotes previously filed exhibits: filed on September 20, 2010 with Xfone, Inc.’s Form 8-K.

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