----

----

| x | ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|---|------------------------------------------------------------------------------------------------|

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

| Xfone,      Inc.                                           |
|------------------------------------------------------------|
| (Exact      name of registrant as specified in itscharter) |

| Nevada                                                                  |   | 11-3618510                                    |
|-------------------------------------------------------------------------|--------|-----------------------------------------------|
| (State      or other jurisdiction ofincorporation      or organization) |   | (I.R.S.      EmployerIdentification      No.) |

| Title      of each class registered: |   | Name      of each exchange on which registered: |
|--------------------------------------|--------|-------------------------------------------------|
| Common      Stock                    |   | NYSE      Amex LLC                              |
| Common      Stock                    |   | Tel      Aviv Stock Exchange Ltd.               |

| Large      accelerated filer      o                                                           | Accelerated      filer                     o |
|-----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|
| Non-accelerated      filer        o(Do      not check if smaller reporting company) | Smaller      reporting company      þ                                                                                                  |

----

| Part      I   |                                                                                                                  |   |
|---------------|-----------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                  |   |
| Item 1.       | Business                                                                                                              | 3      |
| Item 1A.      | Risk Factors                                                                                                          | 19     |
| Item    1B.   | Unresolved Staff Comments                                                                                             | 20     |
| Item2.        | Properties                                                                                                            | 20     |
| Item 3.       | Legal Proceedings                                                                                                     | 23     |
| Item 4.       | (Removed and Reserved)                                                                                                | 24     |
|          |                                                                                                                  |   |
| Part      II  |                                                                                                                  |   |
|          |                                                                                                                  |   |
| Item 5.       | Market for Registrant’s Common Equity, Related Stockholder      Matters and IssuerPurchases of EquitySecurities | 24     |
| Item 6.       | Selected Financial Data                                                                                               | 27     |
| Item 7.       | Management’s Discussion and Analysis of Financial Condition      and Results ofOperations                       | 27     |
| Item 7A.      | Quantitative and Qualitative Disclosures About Market      Risk                                                       | 41     |
| Item 8.       | Financial Statements and Supplementary Data                                                                           | 42     |
| Item 9.       | Changes In and Disagreements with Accountants on Accounting and      Financial Disclosure                             | 83     |
| Item 9A.      | Controls and Procedures                                                                                               | 83     |
| Item 9B.      | Other Information                                                                                                     | 84     |
|          |                                                                                                                  |   |
| Part      III |                                                                                                                  |   |
|          |                                                                                                                  |   |
| Item 10.      | Directors, Executive Officers, and Corporate      Governance                                                          | 85     |
| Item 11.      | Executive Compensation                                                                                                | 91     |
| Item 12.      | Security Ownership of Certain Beneficial Owners and Management      andRelated Stockholder      Matters               | 101    |
| Item 13.      | Certain Relationships and Related Transactions, and Director      Independence                                        | 104    |
| Item 14.      | Principal Accounting Fees and Services                                                                                | 118    |
|          |                                                                                                                  |   |
| Part      IV  |                                                                                                                  |   |
|          |                                                                                                                  |   |
| Item    15.   | Exhibits, Financial Statement Schedules                                                                               | 119    |
|          |                                                                                                                  |   |
| Signatures    |                                                                                                                  | 125    |

----

.    BUSINESS

----

----

----

----

| · | $35,414,715      was paid in cash; and |
|--------|----------------------------------------|

| · | 2,366,892      shares of our Common Stock were issued to certain NTS Sellers who elected      to reinvest all or a portion of their allocable sale price in our Common      Stock, pursuant to the terms of the NTS Purchase Agreement. Our Board of      Directors determined, in accordance with the NTS Purchase Agreement, the      number of shares of our Common Stock to be delivered to each participating      NTS Seller by dividing the portion of such NTS Seller’s allocable sale      price that the NTS Seller elected to receive in shares of our Common Stock      by 93% of the average closing price of our Common Stock on the American      Stock Exchange for the ten consecutive trading days preceding the trading      day immediately prior to the Closing Date (i.e., $2.74). The aggregate      sales price reinvested by all such NTS Sellers was    $6,485,284. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | Local Services: NTS      delivers local telephony service to its customers through an “on-net”      UNE-L connection, including voice mail, caller ID, forwarding, 3-way      calling, blocking, and PBX services.  In addition, NTS sells      ”off-net” total service resale lines which contribute less      than  10% of total local service revenue.  NTS      provides UNE-L services in Lubbock, Abilene, Amarillo, Midland, Odessa,      Pampa, Plainview, and Wichita Falls, Texas.  NTS provides local      services via FTTP in Lubbock Wolfforth, Levelland, and Smyer,      Texas.  NTS provides resold local services throughout Texas via      its resale agreement with AT&T. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Retail Long Distance      Services: NTS offers a full range of long distance services to its      customers, including competitively priced switched long distance      (including intrastate, interstate, and international), toll-free service,      dedicated T-1 long distance and calling cards.  The vast      majority of its customers are concentrated in West      Texas.  Approximately 10% of long distance customers are in      Arizona, New Mexico, Oklahoma, Kansas, and  Colorado. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Internet Data Services:      NTS began offering broadband service in 1999.  Download speeds      range from 500 Kilobits to 100 Megabits per second, depending on the end      user’s distance from an NTS collocation or the type of facilities used to      deliver the service.  NTS launched dial-up service in      1985.  NTS provides broadband and dial-up Internet service in      all of its Texas markets.  NTS also offers Web hosting and wide      area networking solutions for business  applications. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | Fiber-Based Services (“Fiber to      the Premise” or “FTTP”): As an integrated telecom provider, NTS is      capable of providing quality triple play (voice, digital video & data)      on one bill at competitive prices to its FTTP customers.  NTS      offers a full selection of video services, including basic cable, video on      demand, HDTV and DVR.  NTS is a member of the National Cable      Television Cooperative and as a member obtains favorable programming rates      from most major networks.  NTS provides FTTP service in Lubbock      and Wolfforth, Texas. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Customer Premise Equipment      (“CPE”): NTS resells a variety of CPE and CPE related services to      its customers.  Primarily, these sales involve NTS acting as an      authorized dealer for Toshiba phone systems. These systems are sold to      customers either on a stand-alone basis, or in conjunction with the      purchase of local, long distance, and/or data services from the      company. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Private Line Services:      NTS offers aggregation and resale of leased fiber transport network from      AT&T and other fiber network operators.  This service is      mostly provided for carrier customers that need direct network      connectivity, as well as enterprises that require dedicated branch office      connections.  Services are generally offered under 1-year      contracts for a fixed amount per month.  NTS provides private      line service nationwide. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Wholesale Switched Termination      Services: NTS sells its wholesale-switched minutes to local telecom      companies who do not have the volume to warrant attractive pricing from      AT&T and other large carriers.  NTS provides multi-regional      switched termination, switched toll free origination and wholesale      Internet access services to various carrier customers.  Services      are generally offered for a fixed amount per minute.  NTS      provides wholesale switched termination services to customers via network      connections in NTS POPs and switchsites. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Our      Internet based customer service (found at www.ntscom.com) includes full      details on all our retail products andservices. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|

----

| · | Local Telephone Service:      Using our own network in concentrated local areas throughout Mississippi      and Louisiana and utilizing the underlying network of BellSouth      Telecommunications, Inc. (the new ATT), outside of our local areas, we      provide local dial tone and calling features, such as hunting, call      forwarding and call waiting to both business and residential customers      throughout Louisiana and Mississippi, including T-1 and PRI local      telephone services to businesscustomers. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Long Distance Service:      We use our own network where available and QWEST, a nationwide long      distance carrier, as our underlying long distance network provider. In      conjunction with Local Telephone Services, we provide Long Distance      Services to our residential and business customers. We provide two      different categories of long distance services - Switched Services to both      residential and small business customers, which include 1+ Outbound      Service, Toll Free Inbound Service and Calling Card Service. For larger      business customers we also provide Dedicated Services such as T-1 and PRI      Services. Our long distance services are only available to customers who      use our local telephone services. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Internet/Data Service:      We provide high-speed broadband Internet access to residential and      business customers utilizing our own integrated digital data network and      utilizing the broadband gateway network of the new ATT. Our DSL service      provides up to 3 Mbps of streaming speed combined with Dynamic IP      addresses, as well as multiple mailboxes and Web space. Our DSL services      also include spam filter, instant messaging, pop-up blocking, web mail      access, and parental controls. We also provide dial-up Internet access      service for quick and dependable connection to the web. Our Internet/Data      services are stand-alone products or are bundled with our voice services      for residential and businesscustomers. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Customer Service:      Customer Service is paramount at Xfone USA and is one of our major      differentiating characteristics, thus tantamount to being one of our      product offerings. Customers have been conditioned to accept poor customer      service from the larger monopoly companies because they have never had any      real choice in service providers, especially in the residential market.      Our attentive customer service department is an additional “product      offering” which sells - as well as retains - customers. The full scope of      communications service entails network service, customer service, and      repair service. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Customer Premise Equipment      (“CPE”): Xfone USA also resells a variety of CPE and CPE related      services to its customers.  Primarily, these sales involve      acting with NTS Communications as an authorized dealer for Toshiba phone      systems. These systems are sold to customers either on a stand-alone      basis, or in conjunction with the purchase of local, long distance, and/or      data services from the company. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Carrier Pre Select      (CPS): CPS is a telephony service which enables customers to      benefit from our low call usage charges, without having to make any      changes to their existing telephone lines or numbers. The service allows      customers to route all their outgoing calls over our network. This gives      them access to competitive call rates and a wide range of services.      Customers using CPS only pay line rental to their service operator, while      we bill them for all call charges. CPS is available nationally provided      the customer is connected to a BT local  exchange. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Indirect Access: This is      a telephony service which enables customers to benefit from our low call      usage charges, without having to make any changes to their existing      telephone lines or numbers. The service allows customers to route a      specific outgoing call over our network by using the prefix code      “1689.” |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Calling Cards: This      service is available to all our subscribers. The Calling Card works by      using an access number and a PIN code, and offers a convenient and easy      way to make calls virtually anywhere in the UK, as well as from 27 other      destinations worldwide. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | Email2Fax: Allows users      to send fax messages directly from their email or web      software. |
|--------|---------------------------------------------------------------------------------------------------|

| · | Cyber-Number: Allows      users to receive fax messages directly to their email software via a      personal number. |
|--------|----------------------------------------------------------------------------------------------------------------------|

| · | Email/Fax Broadcast:      This service allows the user to send multiple personalized faxes and      emails to thousands of users inminutes. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

| · | Our      Internet based customer service and on-line registration (found at      www.swiftnet.co.uk) includes full details on all our products and      services. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Carrier Pre Select      (CPS): CPS is a telephony service which enables customers to      benefit from our low call usage charges, without having to make any      changes to their existing telephone lines or numbers. The service allows      customers to route all their outgoing calls over our network. This gives      them access to competitive call rates and a wide range of services.      Customers using CPS only pay line rental to their service operator, while      we bill them for all call charges. CPS is available nationally provided      the customer is connected to a BT local  exchange. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Indirect Access: This is      a telephony service which enables customers to benefit from our low call      usage charges, without having to make any changes to their existing      telephone lines or numbers. The service allows customers to route a      specific outgoing call over our network by using the prefix code      “1664.” |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Internet/Data Service:      We provide high-speed Internet access to residential customers utilizing      the digital data network of Griffin Internet. Our ADSL service provides up      to 8 Mbps of streaming speed combined with Static IP addresses, as well as      multiple mailboxes. Our Internet/Data services are bundled with our voice      services for residential and businesscustomers. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Conference Service: We      provide web-managed low cost teleconferencing services through our      partnership with Auracall Limited. Up to 10 people can call in to a      conference circuit and be joined together by dialing the same PIN. There      is no need to reserve a conference call in advance and each caller pays      for their own call. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Our      Internet based customer service and billing interface (found at      www.equitalk.co.uk) includes on-line registration, full account control,      and payment and billing functions and information    retrieval. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Prepaid Calling Cards:      Story Telecom initiates, markets and distributes Prepaid Calling Cards      that are served by our switch and systems. Story Telecom supplies the      Prepaid Calling Cards to retail stores through its network of dealers. The      Calling Card enables the holder to call anywhere in the world by dialing      either a toll free number or a local access number from any telephone that      routes the holder’s call to our Interactive Voice Response System that      automatically asks for the holder’s private PIN code, validates the code      dialed by the customer, and tells the credit balance of the card. The      holder is then instructed to dial to his or her desired destination, at      which time our Interactive Voice Response System tells the holder how long      he or she can speak according to the balance on the card and what the cost      per minute is. The holder of the card can use the card repeatedly until      the balance is zero. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | Story Direct and Story      Mobile: These services allow any individual with either a BT line      or a mobile phone to make international calls at a lower cost and without      prepayment for setting up an account with another carrier. These services      can be accessed by any business or residential user through Story Telecom      website, found at www.storytelecom.com. When customers need to make an      international or national call they can dial the appropriate designed      number for that country and save on calling rates over the current BT      published rates or their network operator’s rates by gaining access to our      switch and providing savings on a per minute  basis. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Text & Talk: This      service allows any individual with a mobile phone to make international      calls at a lower cost by purchasing calling credit via a Premium Rate      Text. When customers need to make an international or national call they      can dial an access number followed by their destination      number. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Our      Internet based customer service (found at www.storytelecom.co.uk) includes      full details on all our products andservices. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

| · | Free      Time:  This service allows any individual with a BT line      to make international calls at a lower cost and without prepayment for      setting up an account with another carrier. The Auracall service can be      accessed by any business or residential user through our website at      www.auracall.com. When customers need to make an international or national      call they can dial the appropriate designed number for that country and      save on calling rates over the current BT published rates by gaining      access to our switch and providing savings on a per minute      basis. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | T-Talk:  This      service allows any individual with a mobile phone to make international      calls at a lower cost by purchasing calling credit via a Premium Rate      Text. When customers need to make an international or national call they      can dial an access number followed by their destination      number. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Our      Internet based customer service (found at www.auracall.co.uk) includes      full details on all our products andservices. |
|--------|------------------------------------------------------------------------------------------------------------------------------------|

| · | International Telephony      Services: We provide international telephony services with the      prefix code of “018”. We provide these services both to our subscribers      and to occasional customers. The service is offered to both residential      and business customers. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | VoB Related Telephony      Services: We provide to Israeli subscribers VoB related telephony      services with the prefix code of “078-818”.  The service is      offered to both residential and business customers in the framework of an      experimental deployment of Local Telephone Services utilizing Voice over      Cellular (VoC) technology. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | XFONECARD: We provide an      international toll free calling card service, available in approximately      30  countries around theglobe. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | SIMPLE: The SIMPLE is a      pre programmed, rechargeable, mobile SIM card which can be used with any      unlocked GSM (Global System for Mobiles) mobile phone virtually anywhere      in the world. SIMPLE allows us to deliver call savings, by diverting the      customer dialing command away from the local mobile operator that the      phone is connected to, and instead it sends the call to one of the mobile      operators with whom we hold a special agreement. We offer for sale or rent      two types of SIM Cards which may be used in over 120 countries around the      globe - "SIMPLE World" and "SIMPLE Europe". We have also offered a      special SIM Card for use in the U.S.A - "SIMPLE USA", which will be      replaced by a new product during2010. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | International Telephony      Access: We provide international telephony access to the Israeli      telephone network by selling incoming call minutes to various      international operators across theglobe. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Internet Services: We      provide Internet access services which include various surfing speeds via      any kind of available infrastructure (ADSL, Cable,  etc.). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Our      Internet based customer service and on-line registration (found at      www.018.co.il) includes full details on all our products and      services. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | We      use employed, direct sales executives to sell to medium to large size      business customers; these sales executives have quota attainment      requirements and receive a monthly salary, allowance and are paid      commissions; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | We      actively recruit independent contractor agents and resellers who purchase      telephone traffic directly from us at a discount, and who then resell this      telephone traffic to their customers at a mark-up according to their own      price lists; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | We      utilize agents that sell our services directly to customers at our      established prices; these agents receive a commission of approximately      5%-12% of the total sale amount less any bad  debts; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | We      use third party direct sales organizations (telesales and door-to-door) to      register new customers; |
|--------|-----------------------------------------------------------------------------------------------------------------|

| · | We      cooperate with major companies and worker’s  councils; |
|--------|----------------------------------------------------------------------|

| · | We      have retail and wholesale sales offices; employees at these sales offices      receive annual salaries andcommissions; |
|--------|--------------------------------------------------------------------------------------------------------------------------------|

| · | We      use direct marketing, including by newspaper, radio and television      advertisements; |
|--------|-------------------------------------------------------------------------------------------------|

| · | We      attend telecommunications trade shows to promote our services;      and |
|--------|---------------------------------------------------------------------------------|

| · | We      utilize the Internet as an additional distribution channel for our      services. |
|--------|-------------------------------------------------------------------------------------------|

----

| · | Partner Division - Our      Partner Division operates as a separate profit center by attempting to      recruit new resellers and agents to market our products and services and      to provide support and guidance to resellers and  agents. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Customer Service Division      - In the United Kingdom and the United States we operate a live      customer service center that operates 24 hours a day, 7 days a week. In      Israel our customer service center operates 6 days a  week. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Operations Division -      Our Operations Division provides the following operational functions to      our business: (a) 24 hour/7 day a week technical support;      (b) inter-company network; (c) hardware and software      installations; and (d) operating switch and other      platforms. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Administration Division      - Our Administration Division provides the billing, collection,      credit control, and customer support aspects of our    business. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Research and Development      Division - The function of our Research and Development Division is      to develop and improve our billing system, switch and telephony platforms,      websites and special projects. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Marketing Division - Our      Marketing Division is responsible for our marketing and selling campaigns      that target potential and existing retail  customers. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | AT&T      Inc. - 45.5% |
|--------|----------------------------|

| · | British      Telecommunications - 1.68% |
|--------|-----------------------------------------|

| · | Bezeq      The Israel Telecommunication Corp -  1.40  % |
|--------|-------------------------------------------------------------------|

| · | Residential - in the      U.S. - pre-subscribed customers, including for local, long distance,      internet and cable television services; outside of the U.S. -      pre-subscribed customers and customers who must dial a special code to      access our switch or acquire a box that dials    automatically. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Commercial - we serve      small to complex business customers around the  world. |
|--------|-----------------------------------------------------------------------------------|

| · | Governmental agencies -      Including the United Nations World Economic Forum, certain embassies and      the Bank of Israel. We also provide cities, counties, schools and      universities in Texas with a host of services, including local, long      distance, internet and private lineservices. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | Resellers - We provide      resellers with our telephone and messaging services for a wholesale      price.  We also provide long haul switched termination to a      variety of companies throughout the United States who resell our      services. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Telecommunications companies      - We provide our services through telecommunication companies (such      as British Telecom and Bezeq The Israel Telecommunication Corp) which      collect the fees relating to such services and forward them to      us. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Mobile Users - including      customers who can access our switch utilizing our access number and      thereafter are able to make low-cost international calls; customers who      purchase, via a reversed billed SMS, pre-paid credit for international      calls and those using our international roaming SIM  cards. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| · | Naked      ADSL: A proposal was made to separate between the telephony services      and internet access in the "Last Mile". Said proposal, which was      partially adopted, could be beneficial to Xfone 018, as it would provide      Xfone 018 with the opportunity to penetrate the market with its internet      access services. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Unbundling:      A proposal has been made to force the existing infrastructure providers to      enable other providers to use their infrastructure in fair prices to      encourage competition. If adopted, this could affect Xfone 018’s business      by allowing it to offer a wider range of services at attractive prices. As      of the date of this Annual Report the MOCSIL has not adopted this      proposal. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | MVNO: A      proposal has been made to open the Israeli market to new virtual players      in the mobile arena.  The MOCSIL has recently opened the market to      Mobile Virtual Network Operators (MVNO). This could affect Xfone 018’s      business by allowing it to penetrate a new market, which constitutes more      than 50% of the Israeli communicationmarket. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | International      Calls: A proposal has been made to enable mobile operators to supply      international calls based on agreed access charge from the international      carriers. If adopted, this could negatively affect Xfone 018’s business by      enlarging the number of its competitors. The MOCSIL has yet to issue      licenses to mobile operators. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | WIMAX: A      proposal has been made to issue WIMAX frequencies in order to establish      new access networks in Israel.  If adopted, this could be beneficial      to Xfone 018’s business by allowing it to penetrate and gain a new market      share by direct access. As of the date of this Annual Report the MOCSIL      has not adopted this proposal. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

RIS

----

OLV

| · | Our      corporate offices, Network Control Center, Customer Care, and      Internet help desk are located at 5307 W. Loop 289, Lubbock, TX, measuring      45,072 sq. ft. on three floors with annual triple net base rent of      $518,328.  The lease expires July 31, 2013 and contains three      (3) options for five (5) year renewal terms. We believe the building has      sufficient space for its operations. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | Local      sales offices located at 801 S. Fillmore, Suite 130, Amarillo, TX,      measuring 3,958 sq. ft. with annual rent of $45,516.  The lease      expires on 11/20/2010 and has no renewal option.                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | Point      of Presence (“POP”) site and fiber node located at 201 E Main, Ste. 104,      El Paso Texas, measuring 950 sq. ft. (including 850 linear feet of      conduit) with annual rent of $54,070.  The lease expires      03/30/2015 and contains no option to renew.                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | Local      sales office located at 450E 10 Desta Drive Midland, TX, measuring      2,981 sq. ft. with annual rent of $27,574. The lease expires      02/29/2011 and contains one (1) option for a two (2) year renewal      term.                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | POP,      switch site and fiber node located at 500 Chestnut, Suite 936, Abilene,      TX, measuring 4,763 sq. ft. (including roof space for one (1) GPS antenna)      with annual rent of $49,896.  The lease expires 12/31/2013 and      contains two (2) options for three (3) year renewal  terms.                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | Local      sales office located at 400 Pine Street, Suite 980, Abilene, TX measuring      2,205 sq. ft. with annual rent of $52,920 through August 2010 and $28,872      from September 2010 through August 2011. The lease will expire August      2011, with an option to renew for one (1) additional  year.                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | POP      located at 201 Robert S. Kerr, Suite 1070, Oklahoma City, OK, measuring      4,092 sq. ft. with annual rent of $16,926.  The lease expires      04/30/2011.                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | Equipment      room located at 8212 Ithaca, Room W-12, Lubbock, TX, of approximately 16      sq. ft. of wall space with annual rent of $480. The lease is on a      month-to-month term.                                                                                                                                                                                                                                                 |

----

|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·                                            | Local      sales and technician offices located at 4214 Kell, Suite 104 Wichita      Falls, TX, measuring 2,400 sq. ft. with annual rent of $39,600. The      lease expires in August 2011 and has options to renew for two      (2) additional 36 month terms.                                                                                                                               |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | POP      site located at United Center, 1049 N. 3rd, Abilene, TX, measuring      approximately 300 sq. ft. with annual rent of $6,600.  The lease      is on a month-to-month term.                                                                                                                                                                                                           |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | POP,      switch site, and fiber node located at Petroleum Building, 203 W. 8th      Street Suite 102, Amarillo, TX, measuring 3,056 sq. ft. with annual rent      of $36,672.  The lease is on a month-to-month    term.                                                                                                                                                                     |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | POP,      switch site, and fiber node located at 710 Lamar Street, Suite 10-25,      Wichita Falls, TX, measuring approximately 890 sq. ft. plus 200 sq. ft. to      house a gas generator at 714 Travis, 6th Floor, Wichita Falls.        Annual rent for both spaces totals $11,377.  The lease expires      04/30/2010 and has two (2) options for three (3) year renewal      terms. |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | POP      and switch site located at 4316 Bryan, Dallas, TX, measuring 3,816 sq. ft.      with annual rent of $198,860.  The lease expires on 10/31/2012      and has two (2) options for renewal terms of three (3)    years.                                                                                                                                                                      |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| Real      Property Leased through Xfone USA  |
| ·                                            | Local      sales and operations center located at 2506 Lakeland Drive, Flowood,      Mississippi 39232, measuring 4,753 sq. ft. The lease will expire      on September 30, 2011 with no option to renew. The monthly base rent is      $5,941.                                                                                                                                                    |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | Upper      level customer support, field technicians and the company’s web design      division located at 211 E. Thomas Street in downtown Hammond, Louisiana.      We recently executed a new 3-year lease. The lease expires on November 20,      2010. The monthly lease payments are $5,000 including      utilities.                                                                             |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | Equipment      storage located at Suite 1015 at 650 Poydras Office Building. The      lease expires on May 15, 2011. The monthly lease payments are      $16,750.                                                                                                                                                                                                                                       |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | Sales      office located at 3636 S. I-10 Service Road, Suite 214, Metairie,      Louisiana. The premises measures 2,022 square feet. The lease will expire      September 30, 2011, with one option to renew for an additional three-year      term. The monthly base rent is $2,907.                                                                                                                       |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | Baton      Rouge Sales Office and sales support is located at 3636 South Sherwood      Forest Boulevard, measuring 2,100 sq. ft. The lease for the premises was      executed in June 2007 for a 3-year term beginning July 1, 2007, and is due      to expire in June 2010. The yearly lease payments are    $28,644.                                                                                       |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | Housing      of communication equipment is located at 408 West Thomas Street, Hammond,      Louisiana, measuring 2,500 sq. ft.  The term of the lease is August      1, 2008 through July 31, 2013, and the payments are $4,400 per      month.                                                                                                                                                         |
|                                              |                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·                                            | We      lease a fiber riser at 1515 Poydras in New Orleans, LA for $1,000 per      month. The term of the lease ismonth-to-month.                                                                                                                                                                                                                                                                            |

| · | We      hold 21 collocations facilities in Texas through NTS, and 8 collocations      facilities in Mississippi and 6 collocations facilities in Louisiana      through Xfone USA. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | Perpetual      Construction and Utility Easement from Benny Judah for facility hut at      10508 Topeka, Lubbock, Texas, 79424.                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                       |
| · | Perpetual      Construction and Utility Easement from CDC-Lubbock, LLC, for a manhole at      10th & T in      Lubbock, Texas.                                         |
|   |                                                                                                                                                                       |
| · | Perpetual      Facilities Easement from Stellar Land Company, Ltd., for a facilities      cabinet in the Vintage Township Addition to the City of Lubbock,      Texas.     |
|   |                                                                                                                                                                       |
| · | Perpetual      Underground Utility Easement from Stellar Land Company, Ltd., for      underground facilities in the Vintage Township Addition to the City of      Lubbock. |
|   |                                                                                                                                                                       |
| · | Right      of Way Use Permit: City of Midland, Texas, Right of Way Use Permit for S.      Marienfeld Street and W. MissouriAvenue.                                         |

----

GAL 

----

REMOVED AND 

MMON

| Period              |   | Low    |   |   | High   |   |
|---------------------|--------|--------|--------|--------|--------|--------|
| 2008                |   |   |   |   |   |   |
| 2009                |   |   |   |   |   |   |   |   |
| Fourth      Quarter |   | $      | 0.66   |   |   | $      | 0.99 |   |
| Third      Quarter  |   | $      | 0.79   |   |   | $      | 1.08 |   |
| Second      Quarter |   | $      | 0.50   |   |   | $      | 1.12 |   |
| First      Quarter  |   | $      | 0.47   |   |   | $      | 0.81 |   |
|                |   |   |   |   |   |   |   |   |

|            2008 |   |   |   |   |   |   |   |   |
|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Fourth      Quarter                                               |   | $      | 0.57   |   |   | $      | 2.70   |   |
| Third      Quarter                                                     |   | $      | 2.60   |   |   | $      | 3.09   |   |
| Second      Quarter                                                    |   | $      | 2.90   |   |   | $      | 3.90   |   |
| First      Quarter                                                     |   | $      | 2.82   |   |   | $      | 3.60   |   |

----

| Plan      category                                       |   | Number      of Securities to be Issued upon Exercise of Outstanding Options, Warrants      and Rights |       | Weighted      Average Exercise Price of Outstanding Options, Warrants and      Rights |   |   | Number      of Securities Remaining Available for Future Issuance under the      Plan |   |
|----------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------|--------|
|                                                     |   | (a)                                                                                                   |       | (b)                                                                                   |   |   | (c)                                                                                   |   |
| Compensation      plans approved by security holders(1)  |   |                                                                                                  | 12,407,151 |                                                                                  |   |   | 3.46                                                                                  |   |   |   | 7,123,595 |   |
| Compensation      plans not approved by security holders |   |                                                                                                  | -          |                                                                                  |   |   | -                                                                                     |   |   |   | - |   |
| Total                                                    |   |                                                                                                  | 12,407,151 |                                                                                  |   |   | 3.46                                                                                  |   |   |   | 7,123,595 |   |

----

----

NANC

----

----

----

----

| · | $35,414,715      was paid in cash; and |
|--------|----------------------------------------|

| · | 2,366,892      shares of our Common Stock were issued to certain NTS Sellers who elected      to reinvest all or a portion of their allocable sale price in our Common      Stock, pursuant to the terms of the NTS Purchase Agreement. Our Board of      Directors determined, in accordance with the NTS Purchase Agreement, the      number of shares of our Common Stock to be delivered to each participating      NTS Seller by dividing the portion of such NTS Seller’s allocable sale      price that the NTS Seller elected to receive in shares of our Common Stock      by 93% of the average closing price of our Common Stock on the American      Stock Exchange for the ten consecutive trading days preceding the trading      day immediately prior to the Closing Date (i.e., $2.74). The aggregate      sales price reinvested by all such NTS Sellers was    $6,485,284. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                            |   | Year      EndedDecember      31, |   |
|---------------------------------|--------|----------------------------------|--------|
|                            |   | 2009                             |   |   | 2008 |   |
| Revenues                        |   |                             | 100.0  | % |   |   | 100.0 | % |
| Cost      of Revenues           |   |                             | 53.0   | % |   |   | 52.2 | % |
| Non-recurring      loss         |   |                             | 0.6    | % |   |   | - |   |
| Gross      Profit               |   |                             | 46.4   | % |   |   | 47.8 | % |
| Operating      Expenses:        |   |                             |   |   |   |   |   |   |
| Research      and Development   |   |                             | 0.1    | % |   |   | 0.1 | % |
| Marketing      and Selling      |   |                             | 12.3   | % |   |   | 13.8 | % |
| General      and Administrative |   |                             | 29.7   | % |   |   | 28.5 | % |
| Non-      recurring loss        |   |                             | 25.2   | % |   |   | 0.2 | % |
| Total      Operating Expenses   |   |                             | 67.3   | % |   |   | 42.5 | % |
| Income      (loss) before Taxes |   |                             | (26.3) | % |   |   | 1.8 | % |
| Net      Income (loss)          |   |                             | (26.1) | % |   |   | 2.5 | % |

----

----

----

|                                                                |   |                        |       |                      |   |           |   |           |       |                       |   |      |   |   |      |   |
|---------------------------------------------------------------------|--------|-----------------------------|------------|---------------------------|--------|----------------|--------|----------------|------------|----------------------------|--------|-----------|--------|--------|-----------|--------|
|                                                                |   | Payments      Due by Period |       |
| Contractual      Obligations                                        |   | Total                       |       | Less      than1      Year |   | 1-3      Years |   | 4-5      Years |       | More      than5      Years |   |
|                                                                |   |                        |       |                      |   |           |   |           |       |                       |   |      |   |   |      |   |
| Domestic      credit facility                                       |   | $                           | 3,497,261  |                      | $      | 3,497,261      |   |           | -          |                       |   | -         |   | $      | -         |   |
| Foreign      Credit line                                            |   |                        | 1,089,840  |                      |   | 1,089,840      |   |           | -          |                       |   | -         |   |   | -         |   |
| Domestic      Note Payable                                          |   |                        | 2,086,431  |                      |   | 2,086,431      |   |           | -          |                       |   | -         |   |   | -         |   |
| Foreign      bank loan                                              |   |                        | 120,758    |                      |   | 101,061        |   |           | 19,697     |                       |   | -         |   |   | -         |   |
| Minority      Partner Loan                                          |   |                        | 272,671    |                      |   | -              |   |           | 272,671    |                       |   | -         |   |   | -         |   |
| Notes      payable form related parties                             |   |                        | 1,934,000  |                      |   | 1,934,000      |   |           | -          |                       |   | -         |   |   | -         |   |
| Other      notes payable                                            |   |                        | 443,014    |                      |   | 377,756        |   |           | 56,316     |                       |   | 8,942     |   |   | -         |   |
| Notes      Payable from the United States Department of Agriculture |   |                        | 5,574,100  |                      |   | 263,068        |   |           | 606,910    |                       |   | 606,910   |   |   | 4,097,212 |   |
| Bonds                                                               |   |                        | 21,724,660 |                      |   | 3,620,777      |   |           | 7,241,553  |                       |   | 7,241,553 |   |   | 3,620,777 |   |
| Capital      leases                                                 |   |                        | 523,981    |                      |   | 267,191        |   |           | 256,790    |                       |   | -         |   |   | -         |   |
| Operating      leases                                               |   |                        | 7,701,486  |                      |   | 2,509,459      |   |           | 4,090,560  |                       |   | 1,101,467 |   |   | -         |   |
|                                                                |   |                        |       |                      |   |           |   |           |       |                       |   |      |   |   |      |   |
| Total      contractual cash obligations                             |   | $                           | 44,968,202 |                      | $      | 15,746,844     |   | $              | 12,544,497 |                       | $      | 8,958,872 |   | $      | 7,717,989 |   |

----

|   | 1.       Security interest in: (i) 51% of each of the Class A shares and Class B      shares of the Swiftnet; (ii) 51% of the issued share capital of Equitalk;      (iii) 100% of the issued share capital of Auracall; (iv) 100% of the      issued share capital of Story Telecom; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. Debentures      over the entire assets of the Swiftnet and each UK    Subsidiary. |
|--------|-------------------------------------------------------------------------------------------|

|   | 3.      Security interest in any proceeds of a sale of the Company's interest in      the capital stock of Xfone 018, Ltd., in an amount equal to the amount of      the Loan. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |  (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 the Company’s 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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

VE 

----

TS

| Xfone,      Inc. and Subsidiaries      |
|----------------------------------------|
| CONSOLIDATED      FINANCIAL STATEMENTS |
| As      of December 31, 2009           |
| CONTENTS                               |

| Reports      of Independent Registered Public Accounting Firms                                |   |
|-----------------------------------------------------------------------------------------------|--------|
|                                                                                          |   |
| Consolidated      Balance Sheets                                                              |   |
|                                                                                          |   |
| Consolidated      Statements of Operations                                                    |   |
|                                                                                          |   |
| Consolidated      Statements of Changes in Shareholders' Equity and Comprehensive      Income |   |
|                                                                                          |   |
| Consolidated      Statements of Cash Flows                                                    |   |
|                                                                                          |   |
| Notes      to Consolidated Financial Statements                                               |   |

----

----

----

|   |   |
|--------|--------|

|                                                                             | Yarel      + Partners      C.P.A      (Isr.) /s/      Yarel + Partners |
|----------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|
| Tel-Aviv,      IsraelMarch      31, 2009 except for Note 19 dated April 29, 2009 | An      Independent Member of BKRInternational                                                            |

----

| Xfone,      Inc. and Subsidiaries           |   |
|---------------------------------------------|--------|
| CONSOLIDATED      BALANCE SHEETS            |   |
|                                        |   |
|                                        |   | December      31, |   |
|                                        |   | 2009 |   |   | 2008 |   |
|                                        |   |   |   |   |   |   |
| CURRENT      ASSETS:                        |   |   |   |   |   |   |
|                                        |   |   |   |   |   |   |
| Cash                                        |   | $ | 2,819,393 |   |   | $ | 3,078,474 |   |
| Accounts      receivable, net               |   |   | 5,671,362 |   |   |   | 7,834,003 |   |
| Prepaid      expenses and other receivables |   |   | 4,175,791 |   |   |   | 4,291,637 |   |
| Deferred      taxes                         |   |   | 727,426 |   |   |   | 2,795,473 |   |
|  Inventory                             |   |   | 199,392 |   |   |   |  302,547 |   |
|                                        |   |   |   |   |   |   |   |   |
| Total      current assets                   |   |   | 13,593,364 |   |   |   | 18,302,134 |   |
|                                        |   |   |   |   |   |   |   |   |
| BONDS      ISSUANCE COSTS, NET              |   |   | 1,725,705 |   |   |   | 1,696,278 |   |
|                                        |   |   |   |   |   |   |   |   |
| OTHER      LONG-TERM ASSETS                 |   |   | 956,093 |   |   |   | 474,408 |   |
|                                        |   |   |   |   |   |   |   |   |
| FIXED      ASSETS, NET                      |   |   | 54,244,335 |   |   |   | 50,020,597 |   |
|                                        |   |   |   |   |   |   |   |   |
| OTHER      ASSETS, NET                      |   |   | 2,313,985 |   |   |   | 3,051,839 |   |
|                                        |   |   |   |   |   |   |   |   |
| GOODWILL                                    |   |   | 5,641,800 |   |   |   | 27,413,481 |   |
|                                        |   |   |   |   |   |   |   |   |
| Total      assets                           |   | $ | 78,475,282 |   |   | $ | 100,958,737 |   |
|                                        |   |   |   |   |   |   |   |   |

----

| Xfone,      Inc. and Subsidiaries |
|-----------------------------------|
| CONSOLIDATED      BALANCE SHEETS  |

|                                                                | December      31, |   |
|---------------------------------------------------------------------|-------------------|--------|
|                                                                | 2009              |   |   | 2008 |   |
|                                                                |              |   |   |   |   |
|  CURRENT      LIABILITIES:                                     |              |   |   |   |   |
| Short-term      bank credit and current maturities of notes payable |              | $      | 7,415,417 |   |   | $ | 5,295,014 |   |
| Short-term      notes from related parties                          |              |   | 1,934,000 |   |   |   | - |   |
| Trade      payables                                                 |              |   | 9,829,438 |   |   |   | 9,689,330 |   |
| Other      liabilities and accrued expenses                         |              |   | 5,898,372 |   |   |   | 7,674,870 |   |
| Current      maturities of obligations under capital leases         |              |   | 267,191 |   |   |   | 288,688 |   |
| Current      maturities of bonds                                    |              |   | 3,637,146 |   |   |   | 3,492,127 |   |
|                                                                |              |   |   |   |   |   |   |   |
| Total      current liabilities                                      |              |   | 28,981,564 |   |   |   | 26,440,029 |   |
|                                                                |              |   |   |   |   |   |   |   |
| DEFERRED      TAXES, NET                                            |              |   | 3,927,119 |   |   |   | 6,216,910 |   |
|                                                                |              |   |   |   |   |   |   |   |
| NOTES      PAYABLE FROM THE UNITED STATES DEPARTMENT OF AGRICULTURE |              |   | 5,311,032 |   |   |   | 1,404,971 |   |
|                                                                |              |   |   |   |   |   |   |   |
| NOTES      PAYABLE, NET OF CURRENT MATURITIES                       |              |   | 357,626 |   |   |   | 2,708,122 |   |
|                                                                |              |   |   |   |   |   |   |   |
| BONDS      PAYABLES, NET OF CURRENT MATURITIES                      |              |   | 17,510,812 |   |   |   | 20,062,127 |   |
|                                                                |              |   |   |   |   |   |   |   |
| OBLIGATIONS      UNDER CAPITAL LEASES, NET OF CURRENT MATURITIES    |              |   | 256,790 |   |   |   | 307,596 |   |
|                                                                |              |   |   |   |   |   |   |   |
| OTHER      LONG-TERM LIABILITIES                                    |              |   | 293,953 |   |   |   | 537,252 |   |
|                                                                |              |   |   |   |   |   |   |   |
| SEVERANCE      PAY                                                  |              |   | 153,693 |   |   |   | 122,362 |   |
|                                                                |              |   |   |   |   |   |   |   |
| Total      liabilities                                              |              |   | 56,792,589 |   |   |   | 57,799,369 |   |
|                                                                |              |   |   |   |   |   |   |   |
| COMMITMENTS      AND CONTINGENT LIABILITIES                         |              |   |   |   |   |   |   |   |
|                                                                |              |   |   |   |   |   |   |   |

| SHAREHOLDERS'      EQUITY:                                                                                                                                               |   |   |               |    |   |   |         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------|---------|--------|--------|--------------|--------|
| Common      stock of $0.001 par value: 75,000,000 shares authorized at December 31,      2009; 18,376,075 issued and outstanding at December 31, 2009 and      2008 |   |   | 18,376   |    |   |   | 18,376  |   |
| Additional      paid-in capital                                                                                                                                          |   |   | 43,362,217         |    |   |   | 42,772,998   |   |
| Foreign      currency translation adjustment                                                                                                                             |   |   | (2,860,983         | )  |   |   | (2,953,651   | )      |
| Retained      earnings (deficit)                                                                                                                                         |   |   | (19,072,582        | )  |   |   | 3,106,850    |   |
|                                                                                                                                                                     |   |   |               |    |   |   |         |   |
| Total      shareholders' equity                                                                                                                                          |   |   | 21,447,028         |    |   |   | 42,944,573   |   |
|                                                                                                                                                                     |   |   |               |    |   |   |         |   |
| Non      – Controlling interest                                                                                                                                    |   |   | 235,665            |    |   |   | 214,795      |   |
|                                                                                                                                                                     |   |   |               |    |   |   |         |   |
| Total      Equity                                                                                                                                                        |   |   | 21,682,693         |    |   |   | 43,159,368   |   |
|                                                                                                                                                                     |   |   |               |    |   |   |         |   |
| Total      liabilities and shareholders' equity                                                                                                                          |   | $      | 78,475,282         |    |   | $      | 100,958,737  |   |
|                                                                                                                                                                     |   |   |               |    |   |   |         |   |

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

----

| Xfone,      Inc. and Subsidiaries          |
|--------------------------------------------|
|                                       |   |   |   |   |   |   |   |
| CONSOLIDATED      STATEMENTS OF OPERATIONS |

|                                                                            |   | Years      Ended  |        |
|---------------------------------------------------------------------------------|--------|-------------------|-------------|
|                                                                            |   | December      31, |        |
|                                                                            |   | 2009              |        |   | 2008 |   |
|                                                                            |   |              |        |   |   |   |
|                                                                            |   |              |        |   |   |   |
| Revenues                                                                        |   | $                 | 85,029,883  |   |   | $ | 90,338,980 |   |
| Cost      of revenues                                                           |   |              | 45,067,148  |   |   |   | 47,132,313 |   |
| Non      – recurring loss from distribution of calling cards in    Israel |   |              | 506,176     |   |   |   | - |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Gross      profit                                                               |   |              | 39,456,559  |   |   |   | 43,206,667 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Operating      expenses:                                                        |   |              |        |   |   |   |   |   |
| Research      and development                                                   |   |              | 53,754      |   |   |   | 60,094 |   |
| Marketing      and selling                                                      |   |              | 10,465,908  |   |   |   | 12,422,391 |   |
| General      and administrative                                                 |   |              | 25,238,174  |   |   |   | 25,720,376 |   |
| Non-      recurring loss                                                        |   |              | 21,441,485  |   |   |   | 189,610 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Total      operating expenses                                                   |   |              | 57,199,321  |   |   |   | 38,392,471 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Operating      profit (loss)                                                    |   |              | (17,742,762 | )  |   |   | 4,814,196 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Financing      expenses, net                                                    |   |              | (4,110,043  | )  |   |   | (2,862,132 | ) |
| Other      expenses                                                             |   |              | (475,531    | ) |   |   | (296,721 | ) |
|                                                                            |   |              |        |   |   |   |   |   |
| Income      (loss) before taxes                                                 |   |              | (22,328,336 | )  |   |   | 1,655,343 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Tax      benefit                                                                |   |              | 169,774     |   |   |   | 613,879 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Net      income (loss)                                                          |   |              | (22,158,562 | ) |   |   | 2,269,222 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Less:      Net (income) attributed to non-controlling interest                  |   |              | (20,870     | )  |   |   | (221,985 | ) |
|                                                                            |   |              |        |   |   |   |   |   |
| Net      income (loss) attributed to shareholders                               |   | $                 | (22,179,432 | )  |   | $ | 2,047,237 |   |
|                                                                            |   |              |        |   |   |   |   |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Basic      net income (loss) per share                                          |   | $                 | (1.207      | )  |   | $ | 0.116 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Diluted      net income (loss) per share                                        |   | $                 | (1.207      | )  |   | $ | 0.116 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Weighted      average number of shares used for computing:                      |   |              |        |   |   |
| Basic      income (loss) per share                                              |   |              | 18,376,075  |   |   |   | 17,624,249 |   |
|                                                                            |   |              |        |   |   |   |   |   |
| Diluted      income (loss) per share                                            |   |              | 18,376,075  |   |   |   | 17,624,249 |   |

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

----

| Xfone,      Inc. and Subsidiaries                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                 |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| STATEMENTS      OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOMEFor      the years ended December 31, 2008 and 2009  |

|                                                                 |   | Number of Ordinary Shares |       |   | Common      Stock |    |    | Additional      Paid-in Capital |   | Accumulated      Other Comprehensive Income |             | Retained Earnings      (Deficit) | Non      – Controlling Interest |        |    | Total      Equity |        |
|----------------------------------------------------------------------|--------|---------------------------|------------|--------|-------------------|---------|---------|---------------------------------|--------|---------------------------------------------|------------------|----------------------------------|---------------------------------------|-------------|---------|-------------------|-------------|
|                                                                 |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   |   |   |   |
| Balance      at January 1, 2008                                      |   |                      | 13,467,928 |   |              |  $ | 13,468  |                            |   |  $                                     | 26,      199,830 |                             |  $                               | (1,564,814) |    | $                 | 1,059,613   |   |   | (7,190 | )  | $ | 25,700,907 |   |   |
| Issuance      of stock options                                       |   |                      |  -    |   |              |    |  - |                            |   |                                        | 1,      412,507  |                             |                                  |  -     |    |              | -           |   |   |  - |   |   | 1,412,507 |   |   |
| Equity-based      compensation expenses resulting from ASC 718-10-35 |   |                      |  -    |   |              |    |  - |                            |   |                                        | 655,165          |                             |                                  |  -     |    |              | -           |   |   |  - |   |   | 655,165 |   |   |
| Stock      issued during the period, net of                          |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   |   |   |   |
|   of        issuance expenses :                  |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   |   |   |   |
| For      cash                                                        |   |                      | 2,600,000  |   |              |    | 2,600   |                            |   |                                        | 8,029,901        |                             |                                  |  -     |    |              | -           |   |   |  - |   |   | 8,032,501 |   |   |
| For      acquisitions                                                |   |                      | 2,366,892  |   |              |    | 2,367   |                            |   |                                        | 6,461,169        |                             |                                  |  -     |    |              | -           |   |   |  - |   |   | 6,463,536 |   |   |
| Exercise      of options                                             |   |                      | 4,105      |   |              |    | 4       |                            |   |                                        | 14,363           |                             |                                  |  -     |    |              | -           |   |   |  - |   |   | 14,367 |   |   |
| Shares      cancelled                                                |   |                      | (62,850)   |   |              |    | (63)    |                            |   |                                        | 63               |                             |                                  |  -     |    |              | -           |   |   |  - |   |   | - |   |   |
|                                                                 |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   |   |   |   |
| Currency      translation                                            |   |                      |  -    |   |              |    |  - |                            |   |                                        |  -          |                             |                                  | (1,388,837  | )  |              | -           |   |   |  - |   |   | (1,388,837 | )  |   |
| Net      income                                                      |   |                      |  -    |   |              |    |  - |                            |   |                                        |  -          |                             |                                  |  -     |    |              | 2,047,237   |   |   | 221,985 |   |   | 2,269,222 |   |   |
| Total      comprehensive income                                      |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   | 880,385 |   |   |
|                                                                 |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2008                                    |   |                      | 18,376,075 |   |              | $       | 18,376  |                            |   | $                                           | 42,772,998       |                             | $                                     | (2,953,651  | )  | $                 | 3,106,850   |   | $ | 214,795 |   | $ | 43,159,368 |   |   |
|                                                                 |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   |   |   |   |
| Balance      at January 1, 2009                                      |   |                      | 18,376,075 |   |              | $       | 18,376  |                            |   | $                                           | 42,772,998       |                             | $                                     | (2,953,651) |    | $                 | 3,106,850   |   |   | 214,795 |   | $ | 43,159,368 |   |   |
| Equity-based      compensation expenses resulting from ASC 718-10-35 |   |                      | -          |   |              |    | -       |                            |   |                                        | 589,219          |                             |                                  | -           |    |              | -           |   |   | - |   |   | 589,219 |   |   |
|                                                                 |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   |   |   |   |
| Currency      translation                                            |   |                      | -          |   |              |    | -       |                            |   |                                        |             |                             |                                  | 92,668      |    |              | -           |   |   | - |   |   | 92,668 |   |   |
| Net      income (loss)                                               |   |                      | -          |   |              |    | -       |                            |   |                                        | -                |                             |                                  | -           |    |              | (22,179,432 | ) |   | 20,870 |   |   | (22,158,562 | ) |   |
| Total      comprehensive income (loss)                               |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   | (22,065,894 | ) |   |
|                                                                 |   |                      |       |   |              |    |    |                            |   |                                        |             |                             |                                  |        |    |              |        |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2009                                    |   |                      | 18,376,075 |   |              | $       | 18,376  |                            |   | $                                           | 43,362,217       |                             | $                                     | (2,860,983) |    | $                 | (19,072,582 | )  | $ | 235,665 |   | $ | 21,682,693 |   |   |

| Equity-based      compensation expenses resulting from SFAS123(R) |
|-------------------------------------------------------------------|

----

| Xfone,      Inc. and Subsidiaries                                                                                          |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                       |   |   |   |   |   |   |
| STATEMENTS      OF CASH FLOWS                                                                                              |   |
|                                                                                                                       |   |   |   |   |   |   |
|                                                                                                                       |   | Years      Ended |   |
|                                                                                                                       |   | December      31, |   |
|                                                                                                                       |   | 2009 |   |   | 2008 |   |
| Cash      flow from operating activities:                                                                                  |   |   |   |   |   |   |
| Net      income (loss)                                                                                                     |   | $ | (22,158,562 | ) |   | $ | 2,269,222 |   |
| Adjustments      required to reconcile net income to net cash provided by operating      activities:                       |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                                                         |   |   | 4,335,820 |   |   |   | 3,979,915 |   |
| Compensation  in      connection with the issuance of warrants and options issued for      professional services |   |   | 589,219 |   |   |   | 655,165 |   |
| Impairment      of goodwill                                                                                                |   |   | 21,147,745 |   |   |   | - |   |
| Accrued      interest and exchange rate on bonds                                                                           |   |   | 1,203,995 |   |   |   | (2,843,410 | ) |
| Gain      on the disposal of fixed assets                                                                             |   |   | (9,314 | ) |   |   | - |   |
| Decrease      in account receivables                                                                                       |   |   | 2,839,440 |   |   |   | 530,744 |   |
| Increase      (decrease) in bad debt provision                                                                             |   |   | (535,148 | ) |   |   | 241,277 |   |
| Decrease      in inventories                                                                                               |   |   | 103,155 |   |   |   | 58,833 |   |
| Decrease      (increase) in long-term receivables                                                                          |   |   | (480,207 | ) |   |   | 54,091 |   |
| Decrease      (increase) in bonds issuance expenses, net                                                                   |   |   | (29,427 | ) |   |   | 330,924 |   |
| Decrease      in prepaid expenses and other receivables                                                                    |   |   | 229,040 |   |   |   | 1,015,215 |   |
| Decrease      in long-term liabilities                                                                                     |   |   | (237,427 | ) |   |   | - |   |
| Increase      in trade payables                                                                                            |   |   | 5,447 |   |   |   | 2,420,775 |   |
| Decrease in      accrual for non-recurring loss                                                                       |   |   | - |   |   |   | (3,689,394 | ) |
| Decrease      in other liabilities and accrued expenses                                                                    |   |   | (1,273,267 | ) |   |   | (1,159,826 | ) |
| Increase      (decrease) in severance pay                                                                                  |   |   | 29,445 |   |   |   | (27,973 | ) |
| Decrease      in deferred taxes                                                                                            |   |   | (232,036 | ) |   |   | (435,302 | )  |
|                                                                                                                       |   |   |   |   |   |   |   |   |
| Net      cash provided by operating activities                                                                             |   |   | 5,527,918 |   |   |   | 3,400,256 |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |
| Cash      flow from investing activities:                                                                                  |   |   |   |   |   |   |   |   |
| Proceeds      from short-term deposit                                                                                      |   |   | - |   |   |   | 27,467,049 |   |
| Purchase      of equipment                                                                                                 |   |   | (4,227,722 | ) |   |   | (6,623,338 | ) |
| Purchase      of equipment for the project under the United States Department of      Agriculture                          |   |   | (3,321,325 | ) |   |   | (1,823,058 | ) |
| Non      recurring acquisition expenses                                                                                    |   |   | - |   |   |   | (189,610 | ) |
| Change      in long- term receivables                                                                                      |   |   | - |   |   |   | 493,752 |   |
| Proceeds      from disposal of fixed assets                                                                                |   |   | 9,728 |   |   |   | -  |   |
| Acquisition      of minority interest in Story Telecom, Inc.                                                               |   |   | - |   |   |   | (690,207 | ) |
| Acquisition      of NTS Communications, Inc. including acquisition costs                                                   |   |   | - |   |   |   | (38,640,829 | ) |
|                                                                                                                       |   |   |   |   |   |   |   |   |
|  Net cash investing      activities                                                                                   |   |   | (7,539,319 | ) |   |   | (20,006,241 | ) |

----

| Xfone,      Inc. and Subsidiaries                                                            |              |
|----------------------------------------------------------------------------------------------|-------------------|
|                                                                                         |              |   |   |   |
| STATEMENTS      OF CASH FLOWS                                                                |              |
|                                                                                         |              |   |   |   |
|                                                                                         | Years      Ended  |   |
|                                                                                         | December      31, |   |
|                                                                                         | 2009              |   | 2008 |   |
|                                                                                         |              |   |   |   |
| Cash      flow from financing activities:                                                    |              |   |   |   |   |   |
| Repayment      of long-term loans from banks and others                                      |              |   | (1,714,333 | ) |   |   | (2,044,053 | ) |
| Increase      (decrease) in capital lease obligation, net                                    |              |   | (265,782 | ) |   |   | 203,490 |   |
| Increase      (decrease) in short-term bank credit, net                                      |              |   | 2,605,691 |   |   |   | 4,069,338 |   |
| Proceeds      from long-term loans from banks                                                |              |   | 566,878 |   |   |   | 3,143,525 |   |
| Proceeds      from long-term loan from the United States Department of      Agriculture      |              |   | 4,138,986 |   |   |   | - |   |
| Repayment      of principal and interest on bonds                                            |              |   | (3,610,291 | ) |   |   | (3,318,309 | ) |
| Repayment      of convertible notes                                                          |              |   | - |   |   |   | (914,942 | ) |
| Proceeds      from exercise of options                                                       |              |   | - |   |   |   | 14,368 |   |
| Proceeds      from issuance of shares and detachable warrants, net of issuance      expenses |              |   | - |   |   |   | 14,496,038 |   |
| Net      cash provided by (used in) financing activities                                     |              |   | 1,721,149 |   |   |   | 15,649,455 |   |
|                                                                                         |              |   |   |   |   |   |   |   |
| Effect      of exchange rate changes on cash and cash equivalents                       |              |   | 31,171 |   |   |   | (1,800,604 | ) |
| Net      (decrease) in cash and cash equivalents                                             |              |   | (259,081 | ) |   |   | (2,757,134 | ) |
|                                                                                         |              |   |   |   |   |   |   |   |
| Cash      and cash equivalents at the beginning of year                                      |              |   | 3,078,474 |   |   |   | 5,835,608 |   |
| Cash      and cash equivalents at the end of year                                            |              | $ | 2,819,393 |   |   | $ | 3,078,474 |   |
|                                                                                         |              |   |   |   |   |   |   |   |

| Supplemental      disclosure of cash flows activities:                                            |   |   |      |   |
|---------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|
|                                                                                              |   |   |      |   |   |   |
| Cash      paid for:                                                                               |   |   |      |   |   |   |
|                                                                                              |   |   |      |   |   |   |
| Interest                                                                                          |   | $      | 2,509,983 |   |   | $ | 3,065,042 |   |
|                                                                                              |   |   |      |   |   |   |   |   |
| Taxes                                                                                             |   | $      | 456,681   |   |   | $ | 2,262 |   |
|                                                                                              |   |   |      |   |   |   |   |   |
| Non-cash      transactions:                                                                       |   |   |      |   |   |   |
|                                                                                              |   |   |      |   |   |   |
| Acquisition      of assets and liabilities of Cybergate, Inc.                                     |   | $      | -         |   |   | $ | 500,000 |   |
|                                                                                              |   |   |      |   |   |   |   |   |
|  Purchase      of fixed assets via capital lease                                             |   | $      | 191,813   |   |   | $ | - |   |
|                                                                                              |   |   |      |   |   |   |   |   |
| Capitalization      of finance expenses related with acquisition costs of NTS      Communications |   | $      | -         |   |   | $ | 955,016 |   |
|                                                                                              |   |   |      |   |   |   |   |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | A. | Xfone,      Inc. ("Xfone" or "the Company") was incorporated in Nevada, U.S.A. in      September 2000 and is a holding and managing company providing voice,      video and data telecommunications services, including: local, long      distance and international telephony services; video; prepaid and postpaid      calling cards; cellular services; Internet services; messaging services      (Email/Fax Broadcast, Email2Fax and Cyber-Number); and reselling      opportunities, with operations in the United States, United Kingdom and      Israel. Xfone serves customersworldwide. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | 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.                                                                                                                                           |
|   | ● | Swiftnet      Limited ("Swiftnet") - wholly owned U.K. subsidiary.                                                                                                                                                                                                                                                                           |
|   | ● | Equitalk.co.uk      Limited ("Equitalk") - wholly owned U.K. subsidiary.                                                                                                                                                                                                                                                                     |
|   | ● | Auracall      Limited ("Auracall") - wholly owned U.K. subsidiary.                                                                                                                                                                                                                                                                           |
|   | ● | Story      Telecom, Inc. and its wholly owned U.K. subsidiary, Story Telecom Limited      (collectively, "Story Telecom") - wholly owned U.S.      subsidiary.                                                                                                                                                                               |
|   | ● | Xfone      018 Ltd. ("Xfone 018") - majority owned Israeli subsidiary in which Xfone      holds a 69% ownership share.                                                                                                                                                                                                                       |

|   | 1. A      release of the Company from the repayment of Iddo Keinan's Loan (see      also note 8). |
|--------|-------------------------------------------------------------------------------------------------------------|

|   | 2. A      release of the Company from its obligation to Bank Leumi (UK) Plc. for of      £150,000 ($241,373), 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.  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |
|--------------------------------------------------------------------------------|
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |

|   | B. | On      February 26, 2008 (the “Closing Date”), the Company completed its      acquisition of NTS Communications, Inc. ("NTS") pursuant to that      certain Stock Purchase Agreement (the “Purchase Agreement”) entered into      on August 22, 2007 with NTS, and the equity owners of NTS as sellers (the      “NTS Shareholders”), as amended on February 14, 2008 and February 26,      2008.  Upon      closing of the acquisition, NTS and its six wholly owned subsidiaries, NTS      Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona,      Inc., Communications Brokers, Inc., NTS Telephone Company, LLC, and NTS      Management Company, LLC became the Company's wholly owned      subsidiaries. The      purchase price for the acquisition was approximately $42,000,000      (excluding acquisition related costs), plus (or less) (i) the difference      between NTS’ estimated working capital and the working capital target for      NTS as set forth in the Purchase Agreement, and (ii) the difference      between amounts allocated by NTS for its fiber optic network build-out      project anticipated in Texas and any indebtedness incurred by NTS in      connection with this project, each of which was subject to the Company’s      advance written approval.  After applying this formula, the      final aggregate purchase price was calculated as $41,900,000, and was paid      by the Company as follows: $35,414,715 was paid in cash; and 2,366,892      shares of the Company’s common stock, were issued to certain NTS      Shareholders who elected to reinvest all or a portion of their allocable      sale price in the Company’s Common Stock, pursuant to the terms of the      Purchase Agreement. The Company’s Board of Directors determined, in      accordance with the Purchase Agreement, the number of shares of the      Company’s Common Stock to be delivered to each participating NTS      Shareholder by dividing the portion of such NTS Shareholder’s allocable      sale price that the NTS Shareholder elected to receive in shares of the      Company’s Common Stock by 93% of the average closing price of the      Company’s Common Stock on the NYSE Amex LLC (formerly, the American Stock      Exchange and the NYSE Altermext US, LLC) for the ten consecutive trading      days preceding the trading day immediately prior to the Closing Date      (i.e., $2.74). The aggregate sales price reinvested by all such NTS      Shareholders was $6,485,284. On      December 28, 2009, we and the NTS Sellers entered into a certain General      Release and Settlement Agreement in order to resolve all issues related to      the calculation and determination of the final purchase price of the NTS      Purchase Agreement, including all issues which have been the subject of a      proposed arbitration between the parties (hereinafter referred to as the      “Disputed Issues”) by compromise and settlement.  As consideration      for this settlement, the Company agreed to pay to the NTS Sellers a total      of $310,000. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |
|--------------------------------------------------------------------------------|
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |

| NTS      Communications, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|
| Current      assets, excluding cash acquired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $      | 5,913,441  |   |
| Fixed      assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 39,631,997 |   |
| Total      assets acquired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 45,545,438 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |       |   |
| Current      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 8,076,113  |   |
| Long-term      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 9,317,151  |   |
| Total      liabilities assumed                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 17,393,264 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |       |   |
| Net      assets acquired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $      | 28,152,174 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |       |   |
| Acquired      net assets (100%)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $      | 28,152,174 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |       |   |
| Purchase      price:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |       |   |
| Cash      paid, net(*) (**)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $      | 34,182,988 |   |
| Fair      market value of stock and options issued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 1,412,507  |   |
| Acquisition      costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | 4,081,154  |   |
| Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | 39,676,649 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |       |   |
| Customer      relationship                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 2,344,000  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |       |   |
| License                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 250,000    |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |       |   |
| Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $      | 8,930,475  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |       |   |
| (*) Includes      $6,485,284 that was received for the issuance of 2,366,892 shares of      the Company's common stock. (**)      On December 28, 2009, the Company and the NTS Shareholders entered into a      Settlement Agreement in order to resolve all issues related to the      calculation and determination of the final purchase price of NTS. As      consideration of the settlement the Company paid in January 2010 to NTS      shareholders a total of $310,000.  The Company reserved for the      full amount of the aforesaid disputed issues and as a result of the      settlement it had reversed the excess portion of the reserve over the      settled amount. As a result, the purchase price of NTS was reduced by the      excess portion of the reserve at the amount of  $677,680. |

|                       |   | Year      ended December 31, 2008 |        |
|----------------------------|--------|-----------------------------------|-------------|
| Net      revenues          |   | $                                 | 100,432,212 |   |
|                       |   |                              |        |   |
| Net      profit            |   | $                                 | 3,480,546   |   |
|                       |   |                              |        |   |
| Net      profit per share: |   |                              |        |   |
| Basic      and diluted     |   | $                                 | 0.19        |   |
|                       |   |                              |        |   |
| Net      profit per share: |   |                              |        |   |
| Basic      and diluted     |   |                              | 18,397,781  |   |

|   | C. | On      November 26, 2008, Xfone USA, Inc., entered into a Sale and Purchase      Agreement (the “Agreement”) with Cybergate, Inc. (“Cybergate”), pursuant      to which Xfone USA purchased all of Cybergate’s operations. Cybergate      is a provider of Internet services including Internet access, web and      server hosting, data services and e-mail. The purchase price was an amount      equal to 50% of collected receivables derived from Cybergate's operations      up to $500,000, which is to be paid to Cybergate in monthly installments      equal to 50% of the prior month’s collected receivables derived from      Cybergate's operations as the same shall be billed on a regular basis by      Xfone USA.  The Agreement and the closing of the sale and      purchase have an effective date of November 1, 2008.  The      acquisition was not significant from an accounting      perspective. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D.      Liquidity | As      of December 31, 2009, the Company reported a working capital deficit of      $15,388,200 compared to a deficit of $8,137,895 on December 31, 2008. In      order to overcome the deficit in the Company's working capital, the      Company's management took the following actions: (i) On January 29, 2010,      the Company entered into an agreement with Mr. Keinan and AMIT K LTD, a      company registered in England & Wales which is wholly owned and      controlled by Mr. Keinan to divestiture its UK operations for a value of      approximately $4,500,000 in total proceeds and future savings. Upon the      approval of the transaction to divestiture the UK operations by the      Company's shareholder, The Company will be immediately relieved from      short-term notes of approximately $1,700,000; (ii) On March 2, 2010, the      Company signed a non-binding memorandum of understanding (the “MoU”) for      the sale of its holdings in Xfone 018 to Marathon Telecom. The MoU      provides for an all cash transaction; (iii) On March 23, 2010, the Company      entered into a securities purchase agreement with Burlingame Equity      Investors, LP for the issuance of its common shares, a senior promissory      note and warrants to purchase its common stock, for an aggregate      consideration of $6,000,000; (iv) On March 23, 2010, the Company entered      into a securities purchase agreement with certain investors affiliated      with Gagnon Securities LLC, for the issuance of its common stock for an      aggregate consideration of $575,000; and (v) as of December 31, 2009 the      Company's current liabilities includes short-term credit line and notes      payable of approximately $5,600,000 with the Company's commercial bank.      The Company's management is negotiating the renewal of the notes and the      credit line with the bank and it believes that upon resolution of the      negotiation the Company will repay most of the amount after December 31,      2010. |
|--------|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | A. | Principles      of Consolidation and Basis of Financial Statement    Presentation |
|--------|----|-----------------------------------------------------------------------------------|

|   | B. | Foreign      Currency Translation |
|--------|----|-----------------------------------|

|   | C. | Subsequent      events |
|--------|----|------------------------|

|   | D. | Cash      and cash equivalents |
|--------|----|--------------------------------|

|   | E. | Restricted cash |
|--------|----|----------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | F. | Accounts Receivable |
|--------|----|---------------------|

|   | G. | Inventories |
|--------|----|-------------|

|   | H. | Fixed      Assets |
|--------|----|-------------------|

|                                |   | Useful      Life      |   |
|-------------------------------------|--------|-----------------------|--------|
| Communication      equipment        |   | 3-15      years       |   |
| Fiber      network                  |   | 30      years         |   |
| Construction      equipment         |   | 5      years          |   |
| Equipment      held under lease     |   | 4-15  years |   |
| Office      furniture and equipment |   | 5-15      years       |   |
| Development      costs              |   | 3      years          |   |
| Computer      equipment             |   | 5-7      years        |   |
| Motor      vehicles                 |   | 4-5      years        |   |
| Building      and plant             |   | 4-30      years       |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | I. | Other      Intangible Assets |
|--------|----|------------------------------|

| ·   | License      to provide communication services in Israel and are amortized over the 20      year term of the license; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

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

|   | J. | Long-Lived      Assets |
|--------|----|------------------------|

|   | K. | Revenue      Recognition |
|--------|----|--------------------------|

|   | L. | Use      of Estimates |
|--------|----|-----------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | M. | Earnings      Per Share |
|--------|----|-------------------------|

|   | N. | Income      Taxes |
|--------|----|-------------------|

|   | O. | Fair Value Measurements |
|--------|----|-------------------------|

| Level      1 – | Quoted      prices in active markets for identical assets or    liabilities                                 |
|----------------------|-------------------------------------------------------------------------------------------------------------|
| Level      2 – | Observable      inputs other than quoted prices in active markets for identical assets and      liabilities |
| Level      3 – | No      observable pricing inputs in themarket                                                              |

----

| Xfone, Inc. and Subsidiaries                                         |   |
|----------------------------------------------------------------------|--------|
|                                                                 |   |    |   |   |   |   |   |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2009 and 2008 |   |

|   | P. | Stock-Based Compensation |
|--------|----|--------------------------|

|   | Q. | Derivative instruments |
|--------|----|------------------------|

|   | R. | Goodwill and Indefinite-Lived Purchased Intangible  Assets |
|--------|----|------------------------------------------------------------|

----

| Xfone, Inc. and Subsidiaries                                         |   |
|----------------------------------------------------------------------|--------|
|                                                                 |   |    |   |   |   |   |   |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2009 and 2008 |   |

|   | S. | Reclassification |
|--------|----|------------------|

|   | T. | Recent      Accounting Pronouncements |
|--------|----|---------------------------------------|

| 1.   | On      January 1, 2009, the Company adopted authoritative guidance issued by the      Financial Accounting Standards Board Accounting Standards ("FASB") on      business combinations. The guidance retains the fundamental requirements      that the acquisition method of accounting (previously referred to as the      purchase method of accounting) be used for all business combinations, but      requires a number of changes, including changes in the way assets and      liabilities are recognized and measured as a result of business      combinations. It also requires the capitalization of in-process research      and development at fair value and requires the expensing of      acquisition-related costs as incurred. The Company has not completed any      business combinations since January 1, 2009.  Accordingly,      adoption of the new guidance has not impacted the Company’s financial      statements. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | In      March 2008, the FASB issued new accounting guidance which requires      enhanced disclosures about (a) how and why an entity uses derivative      instruments, (b) how derivative instruments and related hedged items are      accounted for, and (c) how derivative instruments and related hedged items      affect an entity’s financial position, financial performance, and cash      flows. This guidance is effective for financial statements issued for      fiscal years and interim periods beginning after November 15, 2008;      earlier adoption is encouraged. The adoption of this guidance did not have      a material impact on the Company’s consolidated financial position,      results of operations, or cashflows. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | In      December 2007 the FASB issued new accounting guidance which establishes      accounting and reporting standards for the non-controlling interest in a      subsidiary and for the deconsolidation of a subsidiary. It clarifies that      a non-controlling interest in a subsidiary is an ownership interest in the      consolidated entity that should be reported as equity in the consolidated      financial statements. This guidance changes the way the consolidated      income statement is presented. It requires consolidated net income to be      reported at amounts that include the amounts attributable to both the      parent and the non-controlling interest. It also requires disclosure, on      the face of the consolidated statement of income, of the amounts of      consolidated net income attributable to the parent and to the      non-controlling interest. This guidance establishes disclosure      requirements in the consolidated financial statements, which will enable      users to clearly distinguish between the interests of the parent’s owners      and the interests of the non-controlling owners of a subsidiary. The      guidance is effective for fiscal years, and interim periods within those      fiscal years, beginning on or after December 15, 2008; earlier adoption is      prohibited. The adoption of this guidance did not have a material impact      on the Company's consolidated financial position, results of operations or      cash flows. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | On      July 1, 2009, the Company adopted the authoritative guidance on fair      value measurement for nonfinancial assets and liabilities, except for      items that are recognized or disclosed at fair value in the financial      statements on a recurring basis (at least annually). Adoption of the new      guidance did not have an impact on the Company's consolidated financial      statements. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

| 5.   | In      April 2009, the FASB issued additional guidance for estimating fair value      when the volume and level of activity for the asset or liability have      significantly decreased. The guidance also includes identifying      circumstances that indicate a transaction is not orderly for fair value      measurements. The Company adopted the new guidance as of the period ending      June 30, 2009. The adoption of the newly issued guidance did not have a      material impact on the Company's consolidated financial position, results      of operations or cash flows. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6.   | On      July 1, 2009, the Financial Accounting Standards Board Accounting      Standards CodificationTM (“Codification” or “ASC”) became the single source      of authoritative GAAP (other than rules and interpretive releases of the      U.S. Securities and Exchange Commission). The Codification is topically      based with topics organized by ASC number and updated with Accounting      Standards Updates (“ASUs”). ASUs will replace accounting guidance that      historically was issued as FASB Statements (“SFAS”), FASB Interpretations      (“FIN”), FASB Staff Positions (“FSP”), Emerging Issue Task Force (“EITF”)      Issues or other types of accounting standards. The Codification became the      single authoritative source for U.S. GAAP, replacing the mix of accounting      standards that have evolved over the last fifty plus years. While not      intended to change U.S. GAAP, the Codification significantly changes the      way in which accounting literature is organized. The Codification became      effective September 30, 2009 for the Company and disclosures within this      Annual Report on Form 10-K have been updated to reflect the      change. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                   |   | December      31, |      |
|------------------------|--------|-------------------|-----------|
|                   |   | 2009              |      |   | 2008 |   |
| Unbilled      revenues |   | $                 | 1,339,575 |   |   | $  | 1,211,445 |   |
| Prepaid      expenses  |   |              | 988,366   |   |   |   | 1,411,368 |   |
| Tax      authorities   |   |              | 821,329   |   |   |   | 736,702 |   |
| Other      receivables |   |              | 1,026,521 |   |   |   | 932,122 |   |
|                   |   | $                 | 4,175,791 |   |   | $ | 4,291,637 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                                |   |              |        |   |   |   |
|-------------------------------------|--------|-------------------|-------------|--------|--------|--------|
|                                |   | December      31, |        |
|                                |   | 2009              |        |   | 2008   |   |
| Cost                                |   |              |        |   |   |   |
| Communication      equipment        |   | $                 | 71,203,212  |   |   | $      | 68,614,751 |   |
| Fiber      network                  |   |              | 38,825,568  |   |   |   | 31,579,191 |   |
| Office      furniture and equipment |   |              | 2,218,599   |   |   |   | 2,184,224 |   |
| Development      costs              |   |              | 1,964,022   |   |   |   | 4,765,127 |   |
| Computer      equipment             |   |              | 10,617,454  |   |   |   | 10,208,181 |   |
| Construction      equipment         |   |              | 583,253     |   |   |   | 519,865 |   |
| Motor      vehicles                 |   |              | 1,032,412   |   |   |   | 955,384 |   |
| Building      and plant             |   |              | 10,633,453  |   |   |   | 10,288,699 |   |
|                                |   |              | 137,077,973 |   |   |   | 129,115,422 |   |
|                                |   |              |        |   |   |   |   |   |
| Accumulated      Depreciation       |   |              |        |   |   |   |   |   |
| Communication      equipment        |   |              | 58,550,447  |   |   |   | 56,902,873 |   |
| Fiber      network                  |   |              | 8,632,614   |   |   |   | 7,861,254 |   |
| Office      furniture and equipment |   |              | 1,855,937   |   |   |   | 1,756,484 |   |
| Development      costs              |   |              | 442,752     |   |   |   | 327,004 |   |
| Computer      equipment             |   |              | 8,792,258   |   |   |   | 8,163,705 |   |
| Construction      equipment         |   |              | 375,469     |   |   |   | 303,303 |   |
| Motor      vehicles                 |   |              | 782,951     |   |   |   | 726,338 |   |
| Building      and Plant        |   |              | 3,401,210   |   |   |   | 3,053,864 |   |
|                                |   |              | 82,833,638  |   |   |   | 79,094,825 |   |
|                                |   |              |        |   |   |   |   |   |
|                                |   | $                 | 54,244,335  |   |   | $      | 50,020,597 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                          |   | CustomerRelationships |      |   | TradeName |   |   | License |   |   | Total   |   |
|-------------------------------|--------|-----------------------|-----------|--------|-----------|--------|--------|---------|--------|--------|---------|--------|
| December 31,      2009   |   |                  |      |   |      |   |   |    |   |   |    |   |   |   |   |   |
| Cost                          |   | $                     | 3,338,543 |   |      | $      | 73,478 |    |   | $      | 621,654 |   |   | $ | 4,033,675 |   |
| Accumulated      amortization |   |                  | 1,576,456 |   |      |   | 38,002 |    |   |   | 105,232 |   |   |   | 1,719,690 |   |
|                          |   |                  |      |   |      |   |   |    |   |   |    |   |
| Net                           |   | $                     | 1,762,087 |   |      | $      | 35,476 |    |   | $      | 516,422 |   |   | $ | 2,313,985 |   |
|                          |   |                  |      |   |      |   |   |    |   |   |    |   |
| December 31,      2008   |   |                  |      |   |      |   |   |    |   |   |    |   |   |   |   |   |
| Cost                          |   | $                     | 3,326,448 |   |      | $      | 73,478 |    |   | $      | 619,015 |   |   | $ | 4,018,941 |   |
| Accumulated      amortization |   |                  | 855,776   |   |      |   | 27,573 |    |   |   | 83,753  |   |   |   | 967,102 |   |
|                          |   |                  |      |   |      |   |   |    |   |   |    |   |
| Net                           |   | $                     | 2,470,672 |   |      | $      | 45,905 |    |   | $      | 535,262 |   |   | $ | 3,051,839 |   |
|                          |   |                  |      |   |      |   |   |    |   |   |    |   |

|                      |   | 2010   |    |   | 2011   |   |    | 2012   |   |   | 2013    |   |   | 2014   |    |
|---------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|
| Amortization      expense |   | $      | 644,301 |   |   | $      | 618,384 |   |   | $      | 263,934 |   |   | $      | 176,262 |   |   | $ | 99,614 |   |
|                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |

|                                             |   | US     |        |    | UK     |   |      | Total  |   |
|--------------------------------------------------|--------|--------|-------------|---------|--------|--------|-----------|--------|--------|
| Balance      as of December 31, 2007        |   | $      | 12,217,270  |    |   | $      | 4,654,818 |   |   | $ | 16,872,088 |   |
| Acquisition      of Story Telecom, Inc.          |   |   | -           |    |   |   | 690,207   |   |   |   | 690,207 |   |
| Acquisition      of NTS Communications, Inc.     |   |   | 9,608,155   |    |   |   | -         |   |   |   | 9,608,155 |   |
| Foreign      currency translation adjustment     |   |   | -           |    |   |   | 243,031   |   |   |   | 243,031 |   |
|                                             |   |   |        |    |   |   |      |   |   |
| Balance      as of December 31, 2008        |   |   | 21,285,425  |    |   |   | 5,588,056 |   |   |   | 27,413,481 |   |
| Adjustment      resulting a settlement agreement |   |   | (677,680    | )  |   |   |      |   |   |   | (677,680 | )  |
| Foreign      currency translation adjustment     |   |   | -           |    |   |   | 53,744    |   |   |   |   |   |
| Goodwill      impairment                         |   |   | (21,147,745 | )  |   |   | -         |   |   |   | (21,147,745 | )  |
|                                             |   |   |        |    |   |   |      |   |   |
| Balance      as of December 31, 2009        |   | $      | -           |    |   | $      | 5,641,800 |   |   | $ | 5,641,800 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                                |   | Fair      value as of measurement date |   |   | Quoted      prices in active markets foridentical      assets |   |   | Significant      other observable inputs |   |   | Significant      unobservable inputs |   |   | Impairment      charge |   |
|-------------------------------------|--------|----------------------------------------|--------|--------|---------------------------------------------------------------|--------|--------|------------------------------------------|--------|--------|--------------------------------------|--------|--------|------------------------|--------|
|                                |   |                                   |   |   | (Level      1)                                                |   |   | (Level      2)                           |   |   | (Level      3)                       |   |   |                   |   |
| Goodwill      related to US segment |   | $                                      | -      |   |                                                          | $      | N/A    |                                     |   | $      | N/A                                  |   |   | $                      | -      |   |   | $ | 21,147,745 |   |

|                         |   | December      31, |      |
|------------------------------|--------|-------------------|-----------|
|                         |   | 2009              |      |   | 2008 |   |
| Corporate      taxes         |   | $                 | 106,490   |   |   | $ | 322,321 |   |
| Government      authorities  |   |              | 687,546   |   |   |   | 2,094,946 |   |
| Payroll      and other taxes |   |              | 810,403   |   |   |   | 951,296 |   |
| Accrued      expense         |   |              | 3,154,282 |   |   |   | 2,999,896 |   |
| Deferred      revenues       |   |              | 1,039,905 |   |   |   | 1,156,589 |   |
| Others                       |   |              | 99,746    |   |   |   | 149,822 |   |
|                         |   | $                 | 5,898,372 |   |   | $ | 7,674,870 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                               |   | December      31, |      |
|------------------------------------|--------|-------------------|-----------|
|                               |   | 2009              |      |   | 2008 |   |
|                               |   |              |      |   |   |   |   |   |
| Loan      from various lenders (1) |   |  $           | 541,707   |   |   |  $ | - |   |
| Loan      from related party (2)   |   |              | 1,392,293 |   |   |   | - |   |
|                               |   |              |      |   |   |   |   |   |
|                               |   |  $           | 1,934,000 |   |   |  $ | - |   |

| 1. | On      December 1, 2009, the Company issued a series of promissory notes to      various lenders who are either affiliates of the Company or people related      to certain affiliates and/or business partners of the      Company.  The notes bear interest of 10% and mature between      three months and one year from issuance.  Certain of the notes      are prepayable and contain no prepayment penalties.  The      proceeds of the notes were utilized to repay obligations under the      Company’s Series A Bonds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2. | On      December 10, 2009, the Company entered into a loan agreement with Iddo      Keinan, for an amount of $1,471,108 (equivalent to £860,045). The loan was      advanced as bridge funding of the payment of amounts due by the Company on      its Series A Bonds. The loan is to be repaid no later than May 30, 2010.      The loan bears interest of 1.3% per month charged on the total amount of      the Lender’s loan. In      consideration for the Loan, the following was granted as security in favor      of the lender:1.       Security interest in: (i) 51% of each of the Class A shares and Class B      shares of the Swiftnet; (ii) 51% of the issued share capital of Equitalk;      (iii) 100% of the issued share capital of Auracall; (iv) 100% of the      issued share capital of Story Telecom;2. Debentures      over the entire assets of the Swiftnet and each UKSubsidiary.3.      Security interest in any proceeds of a sale of the Company's interest in      the capital stock of Xfone 018, Ltd., in an amount equal to the amount of      the Loan. The      Lender is son of Mr. Keinan, the Company’s Chairman of the Board and major      shareholder. The Lender has been employed by the Borrower since      1998. |

|                                                                        |   | December      31, |      |
|-----------------------------------------------------------------------------|--------|-------------------|-----------|
|                                                                        |   | 2009              |      |   | 2008 |   |
|                                                                        |   |              |      |   |   |   |   |   |
| Loan      Notes Payable form the United States Department of    Agriculture |   |  $           | 5,574,100 |   |   |  $ | 1,404,971 |   |
|                                                                        |   |              |      |   |   |   |   |   |
| Less      current portion (see note 10)                                     |   |              | 263,068   |   |   |   | - |   |
|                                                                        |   |              |      |   |   |   |   |   |
| Long-term      portion                                                      |   |        $     | 5,311,032 |   |   |  $ | 1,404,971 |   |

| Year                     |   |   |      |
|--------------------------|--------|--------|-----------|
| 2010                     |   | $      | 263,068   |   |
| 2011                     |   |   | 303,455   |   |
| 2012                     |   |   | 303,455   |   |
| 2013                     |   |   | 303,455   |   |
| 2014                     |   |   | 303,455   |   |
| 2015      and thereafter |   |   | 4,097,212 |   |
|                     |   | $      | 5,574,100 |   |

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   |                      |   | December      31, |   |
|--------|---------------------------|--------|-------------------|--------|
|   | Annual      Interest Rate |   | 2009              |   |   | 2008 |   |

|                                                                                                      |           |   |   |      |   |   |   |      |   |
|-----------------------------------------------------------------------------------------------------------|----------------|--------|--------|-----------|--------|--------|--------|-----------|--------|
| Credit      line form a commercial bank                                                                   | WSJ      Prime |   | $      | 3,497,261 |   |   | $      | 3,850,000 |   |
| Credit      line from Bank Hapoalim B.M.                                                             | 3.55%          |   |   | 848,467   |   |   |   | -         |   |
| Credit      line from Bank Leumi (UK) Plc.                                                                | 1.51%          |   |   | 241,373   |   |   |   | 219,337   |   |
| Current      maturity of notes payable from the united States Department of Agriculture      (see note 9) | 3.74%          |   |   | 263,068   |   |   |   | -         |   |

| Bank      loan (1)                     | WSJ      Prime                           |   |    | 2,086,431 |   |   |    | 2,502,642 |   |
|----------------------------------------|------------------------------------------|--------|---------|-----------|--------|--------|---------|-----------|--------|
| Bank      loans payable over 3-5 years | Prime      + 1.0%                        |   |    | 120,758   |   |   |    | 363,553   |   |
| Minority      Partner Loan (2)    | Israeli      Consumer Price Index + 4.0% |   |    | 272,671   |   |   |    | 512,333   |   |
| Other      notes payable               | 3.45%      - 10%                         |   |    | 443,014   |   |   |    | 555,271   |   |
|                                   |                                     |   |    | 7,773,043 |   |   |    | 8,003,136 |   |
|                                   |                                     |   |    |      |   |   |    |      |   |
| Less      current portion              |                                     |   |    | 7,415,417 |   |   |    | 5,295,014 |   |
|                                   |                                     |   |    |      |   |   |    |      |   |
| Long-term      portion                 |                                     |   |  $ | 357,626   |   |   |  $ | 2,708,122 |   |

| 1. | Loan      from commercial bank which are repaid on a monthly basis until full      repayment in September 2010. The loans bear interest at a rate equivalent      to Wall Street Journal Prime. The loan is secured by fixed assets. The      Wall Street Journal Prime rate at December 31, 2009 was 3.25% per      annum.                                                                                                                                                                                                                                                                                                      |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2. | According      to an agreement between the Company, Xfone 018 Ltd. and the Company’s 26%      minority interest partner in Xfone 018 (the “Minority Partner”), the      Minority Partner provided in the fourth quarter of 2004, a      shareholder loan of approximately $400,000 to Xfone 018 (the “Minority      Partner Loan”). The Minority Partner Loan was established for four years,      unless otherwise agreed between the parties, with annual interest of 4%      and adjusted monthly for changes to the Israeli Consumer Price Index. The      CPI at December 31, 2009 was 110.6. |

| Year   |   |   |      |
|--------|--------|--------|-----------|
| 2010   |   | $      | 7,415,417 |   |
| 2011   |   |   | 338,400   |   |
| 2012   |   |   | 10,284    |   |
| 2013   |   |   | 8,942     |   |
|   |   | $      | 7,773,043 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | A. | Issuance      of Bonds |
|--------|----|------------------------|

| Bonds      Series A                           |   | $      | 24,588,726 |   |
|----------------------------------------------------|--------|--------|------------|--------|
| Stock      Purchase Warrants  (1)   |   |   | 973,306    |   |
| Total                                              |   | $      | 25,562,032 |   |

| (1)   | Presented      as part of Additional Paid-inCapital. |
|-----------------|------------------------------------------------------|

|   | B. | Aggregate      maturities are as follows: |
|--------|----|-------------------------------------------|

| 2009                     |   | $      | 3,502,163  |   |
|--------------------------|--------|--------|------------|--------|
| 2010                     |   |   | 3,502,163  |   |
| 2011                     |   |   | 3,502,163  |   |
| 2012                     |   |   | 3,502,163  |   |
| 2013                     |   |   | 3,502,163  |   |
| 2014      and thereafter |   |   | 3,502,163  |   |
|                     |   |   | 21,012,975 |   |
| Accrued      interest    |   |   | 134,983    |   |
|                     |   |   |       |   |
|                     |   | $      | 21,147,958 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

| 2010                                                                                |   | $       | 267,191 |   |
|-------------------------------------------------------------------------------------|--------|---------|---------|--------|
| 2011                                                                                |   |    | 197,278 |   |
| 2012                                                                                |   |    | 59,512  |   |
|                                                                                |   |    |    |   |
| Total                                                                               |   | $       | 523,981 |   |
|                                                                                |   |    |    |   |
| Total      minimum lease payments                                                   |   | $  | 612,135 |   |
| Less:      amount representing interest at rates from 8.9%  to      16.1% |   |    | (88,154 | )      |
|                                                                                |   |    |    |   |
|  Present      value of net minimum lease payment                               |   | $  | 523,981 |   |

|                         |   | December      31, |    |
|------------------------------|--------|-------------------|---------|
|                         |   | 2009              |    |   | 2008 |   |
|                         |   |              |    |   |   |   |
| Communication      equipment |   |  $           | 471,863 |   |   |  $ | 492,721 |   |
| Construction      equipment  |   |              | 52,118  |   |   |   | 83,150 |   |
| Motor      Vehicles          |   |              | -       |   |   |   | 20,413 |   |
|                         |   |  $           | 523,981 |   |   |  $ | 596,284 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|               |   | December      31, |        |
|--------------------|--------|-------------------|-------------|
|               |   | 2009              |        |   | 2008 |   |
| United      States |   | $                 | (23,397,574 | )  |   | $ | (328,504 | )  |
| International      |   |              | 1,069,238   |   |   |   | 1,983,849 |   |
|               |   |              |        |   |   |   |   |   |
| Total              |   | $                 | (22,328,336 | )  |   | $ | 1,655,345 |   |

|               |   | December      31, |     |
|--------------------|--------|-------------------|----------|
|               |   | 2009              |     |   | 2008 |   |
| Current:           |   |              |     |   |   |   |   |   |
| Federal            |   | $                 | -        |   |   | $ | 151,009 |   |
| State              |   |              | 219,025  |   |   |   | 83,455 |   |
| International      |   |              | 110,104  |   |   |   | 584,139 |   |
| Deferred:          |   |              |     |   |   |   |   |   |
| Federal            |   |              | (343,002 | ) |   |   | (1,706,839 | ) |
| State              |   |              | -        |   |   |   | - |   |
| International      |   |              | (155,901 | ) |   |   | 274,357 |   |
|               |   |              |     |   |   |   |   |   |
| Total      benefit |   | $                 | (169,774 | ) |   | $ | (613,879 | ) |

|                                              |   |              |      |   |   |   |
|---------------------------------------------------|--------|-------------------|-----------|--------|--------|--------|
|                                              |   | December      31, |      |
| Deferred      Tax Liabilities:                    |   | 2009              |      |   | 2008   |   |
| Accelerated      tax depreciation of fixed assets |   | $                 | 7,954,705 |   |   | $      | 8,362,920 |   |
|                                              |   |              |      |   |   |   |   |   |
| Deferred      Tax Assets:                         |   |              |      |   |   |   |   |   |
| Carry      forward losses                         |   |              | 4,027,586 |   |   |   | 3,604,417 |   |
| Allowance      for bad debts                      |   |              | 288,912   |   |   |   | 779,222 |   |
| Accrued      vacation and severance pay           |   |              | 438,514   |   |   |   | 557,844 |   |
|                                              |   |              |      |   |   |   |   |   |
|                                              |   |              |      |   |   |   |   |   |
| Net      deferred taxes liabilities               |   | $                 | 3,199,693 |   |   | $      | 3,421,437 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                                                         |   | December      31 , |
|--------------------------------------------------------------|--------|--------------------|
|                                                         |   | 2009               |   |
| Income      tax expense (benefit) computed at statutory rate |   | $                  | (7,591,637 | ) |
|                                                         |   |               |   |   |
| Goodwill      impairment                                     |   |               | 7,190,233 |   |
| Foreign      earning at other than US rates                  |   |               | (268,675 | ) |
| State      income taxes, net of Federal benefit              |   |               | 218,352 |   |
| Other                                                        |   |               | 281,953 |   |
| Benefit      for income taxes                                |   | $                  | (169,774 | ) |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

| 1. | The      Company leases its facilities in the USA, UK, and Israel under      operating lease agreement, which will expire in 2009 and thereafter. The      minimum lease payments under non-cancelable operating leases are as      follows: |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Year      ended December 31, |   |   |
|------------------------------|--------|--------|
|                         |   |   |   |
| 2010                         |   | $      | 2,509,459 |   |
| 2011                         |   |   | 2,312,417 |   |
| 2012                         |   |   | 1,778,143 |   |
| 2013                         |   |   | 826,002 |   |
| 2014                         |   |   | 275,465 |   |
|                         |   | $      | 7,701,486 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   |  The      Company has been granted license from the Ministry of Communication for      the provision of international telecommunication services in Israel for 20      years until July 2024. At the end of each of the license period, the      Minister of Communications may extend the period of the license for one or      more successive periods of ten years. According      to the license terms, the Company is obligated to pay royalties to the      State of Israel at the rate of 1.5% of the royalty-bearing income in 2009      and 1% from 2010 and thereafter. The Company's 26% minority interest      partner in the Company’s Israeli subsidiary provided the State of Israel      with a bank guarantee of NIS 10 million to ensure compliance with the      provisions of the license. The      Company paid $50,083 and $97,228 as royalties during 2009 and 2008,      respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 1.   | Xfone      018 Ltd. has received credit facilities from Bank Hapoalim B.M. in Israel      in order to finance its activities. As of December 31, 2009, the credit      facilities include a revolving credit line of 500,000 NIS ($132,450), a      short-term credit line of 2,250,000 NIS ($596,026), and long-term credit      line of 1,290,000 NIS ($341,722). In addition, the bank made available to      Xfone 018 a long-term facility of 3,150,000 NIS ($834,437) to procure      equipment. In 2008, the credit facilities were secured with: (a) a      floating charge on Xfone 018 assets,      securities, banknotes, unissued capital stock, reputation, and any      property and right including profits thereof Xfone 018 has or may have at      any time and in any manner; (b) a fixed charge on its telecommunication      equipment (including switches) and insurance rights thereof; (c)      subordination of a Term Note of $800,000. This Term Note was executed in      July 2004 by Xfone 018 in favor of the Company; (d) assignment of rights      by way of pledge on the Partner Communications Company Ltd. contract, the      Cellcom Israel Ltd. contract, the Pelephone Communications Ltd. contract,      and the credit companies contracts with Xfone 018; (e) personal collateral      by Abraham Keinan and Guy Nissenson, which includes a pledge on 1,000,000      shares of common stock of the Company owned by Mr. Keinan, and an      undertaking to provide Bank Hapoalim with an additional financial      guarantee of up to $500,000 under certain circumstances. The Company      agreed to indemnify Abraham Keinan and/or Guy Nissenson on account of any      damage and/or loss and/or expense (including legal expenses) that they may      incur in connection with the stock pledge and/or any other obligation made      by them to Bank Hapoalim in connection with the collateral; (f) The      Company and Swiftnet Limited issued a Letter of Guarantee, unlimited in      amount, in favor of the bank, guaranteeing all debt and indebtedness of      Xfone 018 towards the bank; (g) subordination of the Minority Partner Loan      (as defined below). On      March 16, 2009, Xfone 018 assigned to the bank, by way of pledge, its      rights pursuant to the agreement with the credit company Poalim Express      Ltd. On March 17, 2009, Xfone 018 received the bank's approval for an      increase in its short-term credit line to a total facility of 5,250,000      NIS ($1,390,728). Xfone 018 undertook to comply, as of March 31, 2009,      with certain covenants concerning its capital and the annual ratio between      its total liabilities and EBITDA. On      March 26, 2009 the Company received the bank's confirmation according to      which the following guarantees are waived: (a) subordination of a Term      Note of $800,000 (appears above as "(c)"); (b) a pledge on 1,000,000      shares of common stock of the Company owned by Mr. Keinan, and an      undertaking to provide Bank Hapoalim with an additional financial      guarantee of up to $500,000 under certain circumstances (appears above as      "(e)"); and (c) subordination of the Minority Partner Loan (appears above      as "(g)"). As      of December 31, 2009, Xfone 018 has a balance due of      3,200,000 NIS ($848,467) under the foregoing credit facility and a      balance of 225,080 NIS ($59,624) under the foregoing long-term      facility. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

| 2.   | According      to an agreement between the Company, Xfone 018 Ltd. and the 26% minority      interest partner in Xfone 018 (the “Minority Partner”), in 2004 the      Minority Partner provided in 2004 a bank guarantee of 10,000,000 NIS      ($2,649,006) to the Ministry of Communications of the State of Israel      which replaced an existing bank guarantee given by the Company in      connection with Xfone 018’s license to provide international telecom      services in Israel. As part of the agreement, the Company agreed to      indemnify the Minority Partner for any damage caused to him due to the      forfeiture of the bank guarantee with the Ministry of Communications on      account of any act and/or omission of Xfone 018, provided that the said      act or omission is performed against the opinion of the Minority Partner      or without his knowledge. On March 26, 2009, a payment of NIS 380,162      ($89,958) was made to the Minority Partner as consideration for interest      expense imposed on the Minority Partner in connection with providing      the bank guarantee.According      to the above-mentioned agreement with the Minority Partner, during the      fourth quarter of 2004, the Minority Partner provided in the fourth      quarter of 2004, a shareholder loan of approximately $400,000 to Xfone 018      (the “Minority Partner Loan”). The Minority Partner Loan was established      for four years, unless otherwise agreed between the parties, with annual      interest of 4% and linkage to the Israeli consumer price index. On March      26, 2009, a repayment, by way of off set, of      NIS 995,433 ($235,550) was made to the Minority Partner in      connection with the Minority Partner Loan. As of December 31, 2009, the      balance of the Minority Partner Loan is 1,029,332 NIS      ($272,671). |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.   | On      November 5, 2007, Bank Hapoalim B.M. in Israel provided a bank guarantee      of 322,500 NIS ($78,486) to the Ministry of Communications of the State of      Israel in connection with a November 7, 2007 license to commence an      experimental deployment of Local Telephone Services utilizing Voice over      Broadband (VoB) technology, which was granted to Xfone 018. In connection      with the bank guarantee, Xfone 018 executed an indemnification agreement      in favor of Bank Hapoalim. The bank guarantee expired on February 28,      2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.   | On      May 12, 2009, Bank Hapoalim B.M. in Israel provided a bank guarantee of      202,000 NIS ($49,160) to the Ministry of Communications of the State of      Israel in connection with Xfone 018’s application for a license to      commence an experimental deployment of Local Telephone Services utilizing      Voice over Cellular (VOC) technology. The bank guarantee will expire on      November 14, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 5.   | On      December 11, 2008, the Company signed a Letter of Guarantee (the      “Guarantee”), pursuant to which the Company agreed to guarantee the      obligations of Xfone 018 under a certain contract dated March 13, 2008      (the “Contract”), entered into by and between Xfone 018 and Tikshoov      Digital Ltd. (“Tikshoov”) and a certain Agreement dated December 11 2008,      entered into by and between Xfone 018 and Tikshoov (the      “Agreement”).  Pursuant to the Contract, Xfone 018 provides      telephone services to Tikshoov for participants in a television call-in      game show. Xfone 018 collects the telephone service fees from the      participants and delivers the fees to Tikshoov, after deducting applicable      monthly fees and costs.  Pursuant to the Guarantee, if for any      reason Xfone 018 fails to comply with its obligations under the Contract      and pursuant to the Agreement in whole or in part, the Company will pay to      Tikshoov directly any amounts due and outstanding.  The Company      has agreed to make any payments pursuant to the Guarantee within three (3)      business days upon Tikshoov's first demand, without deducting any amounts      that the Company may claim from Tikshoov and free of any taxes or      withholdings.  The Guarantee terminates and becomes null and      void upon the full satisfaction of Xfone 018's obligations.As      of December 31, 2009, Xfone 018 owed an amount of NIS 358,698 ($94,894) to      Tikshoov. The amount was paid in full on February 1,  2010.                                                                                                                                                                                                                                                             |
| 6.   | NTS      Communications, Inc. ("NTS"), has a $2,000,000 revolving line of credit      with a commercial bank.  The facility is secured by an      assignment of all NTS's trade accounts receivable.  The credit line      bears interest at a rate equivalent to Wall Street Journal Prime. The      credit line matures on April 27, 2010 and negotiations for its      renewal have not been completed as of the report date. At      December 31, 2009, the total amount advanced was $1,542,690. 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      matures May 25, 2010, bears interest at Wall Street Journal      Prime rate and is payable in monthly installments of    $61,212.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 7.   | The      Company also has 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 bears interest at a rate      equivalent to Wall Street Journal Prime. The loan is secured by fixed      assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | A. | The      holders of common stock are entitled to one vote for each share held of      record on all matters submitted to a vote of the stockholders. The common      stock has no pre-emptive or conversion rights or other subscription      rights. There are no sinking fund provisions applicable to the common      stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | B. | On      February 26, 2008, the Company completed the issuance of 800,000 Units (as      defined below) to XFN-RLSI Investments, LLC, an entity affiliated with      Richard L. Scott Investments, LLC, a U.S. institutional investor, and      500,000 Units to certain investors affiliated with or who are customers of      Gagnon Securities LLC, pursuant to Subscription Agreements entered into      with each of the investors on December 13, 2007.  Each “Unit”      consists of two shares of the Company’s Common Stock and one warrant to      purchase one share of Common Stock, exercisable for a period of five years      from the date of issuance at an exercise price of $3.10 per      share.  The Units were sold at a price of $6.20 per Unit, for an      aggregate purchase price of $8,060,000. Costs of the issuance were $27,499      for net proceeds of $8,032,501.                                                                                                                                                                                                                                                                                                                                                             |
|   | C. | In      connection with the closing of the acquisition of NTS Communications, Inc.      on February 26, 2008, the Company issued 2,366,892 shares of the      Company’s Common Stock to certain former NTS Shareholders who elected to      reinvest all or a portion of their allocable sale price in the Company’s      Common Stock, pursuant to the terms of the NTS Purchase      Agreement.  The Company’s Board of Directors determined, in      accordance with the Purchase Agreement, the number of shares of the      Company’s Common Stock to be delivered to each participating NTS      Shareholder by dividing the portion of such NTS Shareholder’s allocable      sale price that the NTS Shareholder elected to receive in shares of the      Company’s Common Stock by 93% of the average closing price of the      Company’s Common Stock on the NYSE Amex (formerly, the American Stock      Exchange and the NYSE Alternext US LLC) for the ten consecutive trading      days preceding the trading day immediately prior to the Closing Date      (i.e., $2.74).  The aggregate sales price reinvested by all such      former NTS Shareholders was $6,463,536, net of issuance expenses of      $21,748. |
|   | D. | On      March 25, 2008, the Company issued the holders of the Bonds 956,020      (non-tradable) warrants, each exercisable at an exercise price of $3.50      with a term of 4 years, commencing on September 2, 2008. The total value      of the warrants, based on Black-Scholes option-pricing-model is $973,306      and is expensed ratably over the repayment schedule of the bonds (see note      11).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | E. | On      December 16, 2008 the Company's stockholders approved and authorized the      issuance of an aggregate of 321,452 warrants to purchase shares of the      Company’s common stock to Wade Spooner, former President and Chief      Executive Officer of Xfone USA, Inc., pursuant to the terms of a certain      Separation Agreement and Release dated August 15, 2008 between Mr.      Spooner, Xfone USA, Inc. and the Company, as well as the issuance of the      aggregate 321,452 shares of the Company’s common stock upon exercise of      such common stock purchase warrants. The warrants were issued on April 30,      2009 after receiving approval from the Tel Aviv Stock Exchange.  The      total value of the warrants, based on Black-Scholes option-pricing-model      is $11,627.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | F. | On      December 16, 2008 the Company's stockholders approved and authorized      the issuance of an aggregate of 160,727 warrants to purchase shares of the      Company’s common stock to Ted Parsons, former Executive Vice President and      Chief Marketing Officer of Xfone USA, Inc., pursuant to the terms of a      certain Separation Agreement and Release dated August 15, 2008 between Mr.      Parsons, Xfone USA, Inc. and the Company, as well as the issuance of the      aggregate 160,727 shares of the Company’s common stock upon exercise of      such common stock purchase warrants. The warrants were issued on April 30,      2009 after receiving approval from the Tel Aviv Stock Exchange. The total      value of the warrants, based on Black-Scholes option-pricing-model is      $5,813.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                                                                |   | Number      of warrants |       |    | Weighted      average exercise price |   |
|---------------------------------------------------------------------|--------|-------------------------|------------|---------|--------------------------------------|--------|
|                                                                |   |                    |       |    |                                 |   |   |   |
|                                                                |   |                    |       |    |                                 |   |   |   |
| Warrants outstanding      at December 31, 2007                 |   |                    | 6,104,159  |    |                                 | $      | 3.72 |   |
| Granted                                                             |   |                    | 1,438,199  |    |                                 | $      | 3.50 |   |
| Cancelled                                                           |   |                    | (44,470    | )       |                                 | $      | 3.31 |   |
|                                                                |   |                    |       |    |                                 |   |   |   |
| Warrants outstanding      at December 31, 2008                 |   |                    | 7,497,888  |    |                                 | $      | 3.68 |   |
| Granted                                                             |   |                    | -          |    |                                 | $      | - |   |
| Cancelled                                                           |   |                    | (1,136,737 | )       |                                 | $      | 5.50 |   |
| Warrants outstanding      and exercisable at December 31, 2009 |   |                    | (6,361,151 | )  |                                 | $      | 3.36 |   |

|                 | Warrants      vested and exercisable |
|----------------------|--------------------------------------|
| Range      price ($) | Number      of warrants              | Weighted      average remaining contractual life (years) | Weighted      average exercise price |
| $2.86-$3.15          | 2,414,365                            | 2.16 | $3.06 |
| $3.25-$3.80          | 3,538,064                            | 1.94 | $3.47 |
| $4.00-$6.80          | 408,722                              | 0.75 | $5.29 |

|                         | Year      ended December 31, |
|------------------------------|------------------------------|
|                         | 2008                         |
|                         |                         |
| Volatility                   |                         | 44.4 | % |   |
| Risk-free      interest rate |                         | 3.1 | % |   |
| Dividend      yield          |                         | 0 | % |   |
| Forfeiture      rate         |                         | 20 | % |   |
| Expected      life (years)   |                         | 6.0 |   |   |
|                         |                         |   |   |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | A. | On      August 26, 2007, the Company entered into a contractual obligation to      grant the than General Manager of Xfone 018 the following number of      options to purchase shares of the Company’s common stock under the 2007      plan, (the “Plan”):(1) Within      30 days of adoption of the Plan, the Company will grant options to      purchase 300,000 shares of Common Stock, at an exercise price of $3.50 per      share, of which (i) options to purchase 75,000 shares will vest on August      26, 2008,; and (ii) options to purchase 18,750 shares will be vest at the      end of every 3 month period thereafter.(2) At      the end of each calendar year between 2008 and 2011, and upon the      achievement by Xfone 018 100% of its Targets for each such year, the      General Manager of Xfone 018 will be granted options to purchase 25,000      shares of the Company’s Common Stock under the Plan, for an exercise price      of $3.50 per share, which will be exercisable 30 days after the Company      publishes its annual financial statements for such year. The      employment of said General Manager of Xfone 018 was terminated on June 30,      2009. Upon his termination, the contractual obligation to issue the      foregoing options expired. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                        |   | Number      of options |       | Weighted      average exercise price |   | Aggregate      Intrinsic value |
|-------------------------------------------------------------|--------|------------------------|------------|--------------------------------------|--------|--------------------------------|
|                                                        |   |                   |       |                                 |   |                           |   |   |
| Options      outstanding at December 31, 2007               |   |                   | 5,715,000  |                                 | $      | 3.65                           |   |  - |
| Granted                                                     |   |                   | 1,851,000  |                                 | $      | 3.75                           |   |   |
| Exercised                                                   |   |                   | (4,105     | )                                    | $      | 3.50                           |   |   |
| Cancelled                                                   |   |                   | (1,195,895 | )                                    | $      | 4.34                           |   |   |
|                                                        |   |                   |       |                                 |   |                           |   |   |
| Options      outstanding at December 31, 2008               |   |                   | 6,366,000  |                                 | $      | 3.55                           |   | -  |
| Granted                                                     |   |                   | -          |                                 |   | -                              |   |   |
| Exercised                                                   |   |                   | -          |                                 |   | -                              |   |   |
| Cancelled      (a)                                          |   |                   | (320,000   | )                                    | $      | 3.50                           |   |   |
| Options      outstanding at December 31, 2009               |   |                   | 6,046,000  |                                 | $      | 3.55                           |   | -  |
|                                                        |   |                   |       |                                 |   |                           |   |   |
| Options      vested and exercisable as of December 31, 2008 |   |                   | 4,810,313  |                                 | $      | 3.35                           |   |   |
|                                                        |   |                   |       |                                 |   |                           |   |   |
| Options      vested and exercisable as of December 31, 2009 |   |                   | 4,838,750  |                                 | $      | 3.34                           |   |   |
|                                                        |   |                   |       |                                 |   |                           |   |   |
| Weighted      average fair value of options granted in 2008 |   |                   |       |                                 | $      | 1.24                           |   |   |
|                                                        |   |                   |       |                                 |   |                           |   |   |
| Weighted      average fair value of options granted in 2009 |   |                   |       |                                 |   | N/A                            |   |   |

| (a)   | Include      options under contractual obligation as specified in note 13.2      (A) |
|-----------------|--------------------------------------------------------------------------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                       | Options      vested and exercisable |
|----------------------------|-------------------------------------|
| Range      price ($)       | Number      of options              | Weighted      average remaining contractual life (years) | Weighted      average exercise price |
| $2.794                     | 1,050,000                           | 3.16 | $2.79 |
| $3.146      – $3.500 | 3,788,750                           | 1.31 | $3.50 |

|                       | Options      expected to vest |
|----------------------------|-------------------------------|
| Range      price ($)       | Number      of options        | Weighted      average remaining contractual life (years) | Weighted      average exercise price |
| $3.146      – $3.500 | 405,250                       | 6.04 | $3.20 |
| $4.62      – $5.00   | 801,000                       | 5.16 | $5.00 |

|                                                       |   | Year      Ended December 31 , 2009 |        |
|------------------------------------------------------------|--------|------------------------------------|-------------|
|                                                       |   | Weighted      Average              |        |
|                                                       |   | Net      income (loss)             |        |  Shares |   | Per      shareamounts |   |
|                                                       |   |                               |        |   |   |   |   |   |   |
| Basic      EPS:                                            |   |                               |        |   |   |   |   |   |   |
| Net      income (loss) attributable to common shareholders |   | $                                  | (22,179,432 | )  | 18,376,075 |   | $ | (1.207 | )  |
| Effect      of dilutive securities:                        |   |                               |        |   |   |   |   |   |   |
| Options      and warrants (*)                         |   |                               | -           |   | - |   |   | - |   |
| Diluted      EPS:                                          |   |                               |        |   |   |   |   |   |   |
| Net      income (loss) attributable to common shareholders |   | $                                  | (22,179,432 | )  | 18,376,075 |   | $ | (1.207 | )  |

|                                                       |   | Year      Ended December 31 , 2008 |      |
|------------------------------------------------------------|--------|------------------------------------|-----------|
|                                                       |   | Weighted      Average              |      |
|                                                       |   | Net      income                    |      |  Shares |   | Per      shareamounts |   |
|                                                       |   |                               |      |   |   |   |   |   |   |
| Basic      EPS:                                            |   |                               |      |   |   |   |   |   |   |
| Net      income (loss) attributable to common shareholders |   | $                                  | 2,047,237 |   | 17,624,249 |   | $ | 0.116 |   |
| Effect      of dilutive securities:                        |   |                               |      |   |   |   |   |   |   |
| Options      and warrants (*)                         |   |                               | -         |   | - |   |   | - |   |
| Diluted      EPS:                                          |   |                               |      |   |   |   |   |   |   |
| Net      income (loss) attributable to common shareholders |   | $                                  | 2,047,237 |   | 17,624,249 |   | $ | 0.116 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                                      |   | Years      ended        |    |
|-------------------------------------------|--------|-------------------------|---------|
|                                      |   | December       31, |    |
|                                      |   | 2009                    |    |   | 2008 |   |
|                                      |   |                    |    |   |   |   |
| Abraham      Keinan                       |   |                    |    |   |   |   |   |   |
|                                      |   |                    |    |   |   |   |   |   |
| Fees                                      |   | $                  | 301,204 |   |   | $ | 263,181 |   |
| Accrued      expenses                     |   |                    | 79,388  |   |   |   | 46,696 |   |
|                                      |   |                    |    |   |   |   |   |   |
| Guy      Nissenson                        |   |                    |    |   |   |   |   |   |
|                                      |   |                    |    |   |   |   |   |   |
|  Fees                                |   |                    | 301,204 |   |   |   | 250,334 |   |
| Accrued      expenses                     |   |                    | 78,971  |   |   |   | 46,696 |   |
|                                      |   |                    |    |   |   |   |   |   |
| Dionysos      Investments (1999) Limited: |   |                    |    |   |   |   |   |   |
| Fees                                      |   |                    | 150,602 |   |   |   | 151,016 |   |
| Accrued      Expenses                     |   |                    | 18,951  |   |   |   | 25,956 |   |

|   | A. | Certain      Telecommunication operators act as collection channels for the Company. In      2009 and 2008, the Company had two major collection channels, one in the      U.K. and one in Israel. Collections through these channels accounted to      approximately 3.05% and 2.62% of the Company’s total revenues in 2009,      respectively, and 4.4% and 4.9% of the Company’s total revenues in 2008,      respectively. With respect to collection of monies for the Company, these      Telecommunication operators are not deemed to be customers of the      Company.   |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Approximately,      45.50%, 1.68% and 1.40% of the Company's purchases are from three      suppliers for the year ended December 31, 2009, and 45%, 4.2% and 2% are      from three suppliers for the year ended December 31,  2009. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                                                     |   | Years      Ended  |        |
|----------------------------------------------------------|--------|-------------------|-------------|
|                                                     |   | December      31, |        |
|                                                     |   | 2009              |        |   | 2008 |   |
| Revenues:                                                |   |              |        |   |   |   |
| United      States                                       |   | $                 | 61,410,029  |   |   | $ | 62,716,819 |   |
| United      Kingdom                                      |   |              | 15,323,807  |   |   |   | 18,393,886 |   |
| Israel                                                   |   |              | 8,296,047   |   |   |   | 9,228,275 |   |
|                                                     |   |              |        |   |   |   |   |   |
| Total      revenues                                      |   |              | 85,029,883  |   |   |   | 90,338,980 |   |
|                                                     |   |              |        |   |   |   |   |   |
| Cost      of revenues                                    |   |              |        |   |   |   |   |   |
| United      States                                       |   |              | 33,417,403  |   |   |   | 35,457,045 |   |
| United      Kingdom                                      |   |              | 7,226,018   |   |   |   | 7,745,190 |   |
| Israel                                                   |   |              | 4,929,903   |   |   |   | 3,930,078 |   |
|                                                     |   |              |        |   |   |   |   |   |
| Total      cost of revenues                              |   |              | 45,573,324  |   |   |   | 47,132,313 |   |
|                                                     |   |              |        |   |   |   |   |   |
| Gross      Profit:                                       |   |              |        |   |   |   |   |   |
| United      States                                       |   |              | 27,992,626  |   |   |   | 27,259,774 |   |
| United      Kingdom                                      |   |              | 8,097,789   |   |   |   | 10,648,696 |   |
| Israel                                                   |   |              | 3,366,144   |   |   |   | 5,298,197 |   |
|                                                     |   |              |        |   |   |   |   |   |
|                                                     |   |              | 39,456,559  |   |   |   | 43,206,667 |   |
|                                                     |   |              |        |   |   |   |   |   |
| Operating      expenses:                                 |   |              |        |   |   |   |   |   |
| United      States                                       |   |              | 23,735,391  |   |   |   | 23,603,645 |   |
| United      Kingdom                                      |   |              | 6,861,579   |   |   |   | 8,447,281 |   |
| Israel                                                   |   |              | 2,972,560   |   |   |   | 3,919,840 |   |
|                                                     |   |              |        |   |   |   |   |   |
|                                                     |   |              | 33,569,530  |   |   |   | 35,970,766 |   |
|                                                     |   |              |        |   |   |   |   |   |
| Operating      profit:                                   |   |              |        |   |   |   |   |   |
| United      States                                       |   |              | 4,257,235   |   |   |   | 3,656,129 |   |
| United      Kingdom                                      |   |              | 1,236,210   |   |   |   | 2,201,415 |   |
| Israel                                                   |   |              | 393,584     |   |   |   | 1,378,357 |   |
|                                                     |   |              |        |   |   |   |   |   |
|                                                     |   |              | 5,887,029   |   |   |   | 7,235,901 |   |
|                                                     |   |              |        |   |   |   |   |   |
| Non-      recurring loss (including goodwill impairment) |   |              | 21,441,485  |   |   |   | 189,610 |   |
|                                                     |   |              |        |   |   |   |   |   |
| Corporate      expenses                                  |   |              | 2,188,306   |   |   |   | 2,232,095 |   |
|                                                     |   |              |        |   |   |   |   |   |
| Operating      Income (Loss)                             |   | $                 | (17,742,762 | )  |   | $ | 4,814,196 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|                             |   | Years      Ended  |      |
|----------------------------------|--------|-------------------|-----------|
|                             |   | December      31, |      |
|                             |   | 2009              |      |   | 2008 |   |
| Depreciation      expenses:      |   |              |      |   |   |   |
| United      Kingdom              |   | $                 | 297,668   |   |   | $ | 282,026 |   |
| United      States               |   |              | 3,016,740 |   |   |   | 2,771,016 |   |
| Israel                           |   |              | 294,576   |   |   |   | 266,683 |   |
|                             |   |              |      |   |   |   |   |   |
| Total      depreciation expenses |   |  $           | 3,608,984 |   |   |  $ | 3,319,725 |   |

|                         |   | Years      Ended  |      |
|------------------------------|--------|-------------------|-----------|
|                         |   | December      31, |      |
|                         |   | 2009              |      |   | 2008 |   |
| Interest      expenses:      |   |              |      |   |   |   |
| United      Kingdom          |   | $                 | 83,270    |   |   | $ | 47,722 |   |
| United      States           |   |              | 4,095,604 |   |   |   | 2,892,051 |   |
| Israel                       |   |              | 236,648   |   |   |   | 311,041 |   |
|                         |   |              |      |   |   |   |   |   |
| Total      interest expenses |   |  $           | 4,415,522 |   |   |  $ | 3,250,814 |   |

|                         |   | December      31, |       |
|------------------------------|--------|-------------------|------------|
|                         |   | 2009              |       |   | 2008 |   |
| Fixed      assets, net:      |   |              |       |   |   |   |
| United      Kingdom          |   | $                 | 960,068    |   |   | $ | 929,464 |   |
| United      States           |   |              | 51,546,695 |   |   |   | 47,322,257 |   |
| Israel                       |   |              | 1,737,572  |   |   |   | 1,768,876 |   |
|                         |   |              |       |   |   |   |   |   |
| Total      fixed assets, net |   |  $           | 54,244,335 |   |   |  $ | 50,020,597 |   |

|                              |   | Years      Ended  |      |
|-----------------------------------|--------|-------------------|-----------|
|                              |   | December      31, |      |
|                              |   | 2009              |      |   | 2008 |   |
| Fixed      assets additions:      |   |              |      |   |   |   |
| United      Kingdom               |   | $                 | 61,265    |   |   | $ | 269,427 |   |
| United      States                |   |              | 7,241,178 |   |   |   | 7,700,392 |   |
| Israel                            |   |              | 246,604   |   |   |   | 476,577 |   |
|                              |   |              |      |   |   |   |   |   |
| Total      fixed assets additions |   |  $           | 7,549,047 |   |   |  $ | 8,446,396 |   |

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | 1. | NTS Communications, Inc. vs. Global Crossing      Telecommunications, Inc. |
|--------|----|----------------------------------------------------------------------------|

|   | 2. | Omer Fleisig vs. Israel 10 - Shidury Haruts      Hahadash Ltd. and Xfone 018Ltd. |
|--------|----|----------------------------------------------------------------------------------|

|   | 3. | Teresa Leffler vs. Xfone  USA |
|--------|----|-------------------------------|

----

| Xfone,      Inc. and Subsidiaries                                              |   |
|--------------------------------------------------------------------------------|--------|
|                                                                           |   |    |   |   |   |   |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER      31, 2009 and 2008 |   |

|   | 5. | Eliezer Tzur et al. vs. 012 Telecom Ltd. Et      al. |
|--------|----|------------------------------------------------------|

|   | 1. | Securities Purchase Agreement with      Burlingame |
|--------|----|----------------------------------------------------|

|   | (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 Xfone’s Series A Bonds issued in Israel on December 13,      2007. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) 2,173,913      shares of the Company’s 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 the Company’s 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. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Subscription Agreement with      Gagnon |
|--------|----|-----------------------------------------|

|   | 3. | Issuances Subsequent to Fiscal      2009 |
|--------|----|------------------------------------------|

| ·   | Guy      Nissenson, our President, Chief Executive Officer and director was granted      options to purchase 1,500,000 shares of our common stock, fully vested,      exercisable at $1.10 per share and expiring five years from the date of      grant. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Niv      Krikov, our Chief Financial Officer, was granted options to purchase      400,000 shares of our common stock, exercisable at $1.10 per share and      expiring seven years from the grant date. The options will vest as to 25%      of the underlying shares 12 months from the date of grant.  The      remaining 75% of the options shall vest in equal quarterly installments      after 15 months from the date of grant. In the event of a change of      control of the Company, any unvested and outstanding portion of the      options shall immediately and fullyvest. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | An      aggregate of 1,372,500 options to purchase shares of our common stock were      granted to other employees of the Company and its subsidiaries. Each such      option is exercisable at $1.10 per share and expires seven years from the      date of grant.  Of these options, 85,000 options are fully      vested on the date of grant, and the remaining 1,287,500 options will vest      as to 25% of the underlying shares 12 months 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. Additionally, 125,000 of the      options will immediately and fully vest in the event of a change in      control of the Company. On March 22, 2010, 69,500 of these options were      exercised. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | RUS  funding to Fiscal      2009 |
|--------|----|---------------------------------------|

|   | 5. | Agreement Subsequent to Fiscal      2009 |
|--------|----|------------------------------------------|

|   | 6. | Memorandum      of Understanding Subsequent to Fiscal2009 |
|--------|----|-----------------------------------------------------------|

----

EN

PR

----

OTHERINFORMATION

----

OFFICERS, AND 

| Name      of Director                                     |   | Director      Since:   |   | Will      next stand for re-election at the Annual Meeting of Stockholders      in: |
|-----------------------------------------------------------|--------|------------------------|--------|-------------------------------------------------------------------------------------|
| Abraham Keinan, Chairman of the      Board                |   | Inception              |   | 2011                                                                                |
| Guy Nissenson, President and Chief Executive      Officer |   | Inception              |   | 2011                                                                                |
| Shemer      Shimon Schwarz                                |   | December      19, 2002 |   | 2011                                                                                |
| Eyal      Josef Harish                                    |   | December      19, 2002 |   | 2010                                                                                |
| Aviu      Ben-Horrin                                      |   | November      23, 2004 |   | 2010                                                                                |
| Itzhak      Almog                                         |   | May      18, 2006      |   | 2010                                                                                |
| Israel      Singer                                        |   | December      28, 2006 |   | 2010                                                                                |
| Arie      Rosenfeld                                       |   | January      16, 2009  |   | 2010                                                                                |

----

| Name                    |   | Age |   | Director      / Officer                                                                                                                                                                       |
|-------------------------|--------|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Abraham      Keinan     |   | 60  |   | Chairman      of the Board of Directors, since our inception.                                                                                                                                 |
| Guy      Nissenson      |   | 35  |   | Director,      President and Chief Executive Officer since our  inception.                                                                                                                    |
| Shemer      S. Schwartz |   | 35  |   | Director,      since December 19, 2002, and is an independent director and a member of      our Audit Committee and our Compensation Committee.                                               |
| Eyal      J. Harish     |   | 57  |   | Director,      since December 19, 2002, and is an independent director since January 21,      2009, and Chairman of our Compensation Committee and a member of our      Nominating Committee. |
| Itzhak      Almog       |   | 71  |   | Director,      since May 18, 2006, and is an independent director and Chairman of our      Audit Committee and our Nominating Committee.                                                      |
| Aviu      Ben-Horrin    |   | 61  |   | Director,      since November 23, 2004, and is an independentdirector.                                                                                                                        |
| Israel      Singer      |   | 61  |   | Director,      since December 28, 2006, and is an independent director and a member of      our Audit Committee.                                                                              |
| Arie      Rosenfeld     |   | 66  |   | Director,      since January 16, 2009, and is an independent director.                                                                                                                        |
| Niv      Krikov         |   | 39  |   | Principal      Accounting Officer since May 9, 2007 and Treasurer and Chief Financial      Officer since August 13, 2007.                                                                     |

----

----

----

----

----

COMPE

| Name      and Principal Position                                                             |   | Year   |   | Salary($) |   |   | Bonus($) |   |   | Stock      Awards($) |   |   | Option      Awards($) |   | Non-Equity      Incentive Plan Compensation($) |   |   | Non-qualified      Deferred Compensation Earnings($) |   | All      Other Compensation (8)($) |   | Total($) |
|----------------------------------------------------------------------------------------------|--------|--------|--------|-----------|--------|--------|----------|--------|--------|----------------------|--------|--------|-----------------------|--------|------------------------------------------------|--------|--------|------------------------------------------------------|--------|------------------------------------|--------|----------|
| Abraham      Keinan,Chairman      of the Board                                               |   | 2009   |   | 75,300    | (1)    |   | -        |   |   | -                    |   |   | -                     |   | 301,204                                        | (2)    |   | -                                                    |   | 20,865                             | (3)    | 397,369  |
|                                                                                         |   | 2008   |   | 89,082    | (1)    |   | -        |   |   | -                    |   |   | -                     |   | 293,912                                        | (2)    |   | -                                                    |   | 15,965                             | (3)    | 398,959  |
|                                                                                         |   |   |   |      |   |   |     |   |   |                 |   |   |                  |   |                                           |   |   |                                                 |   |                               |   |     |   |   |   |   |
| Guy      Nissenson,President,      CEO, and Director                                         |   | 2009   |   | 75,300    | (4)    |   |     | -      |   |                 |   | -      |                  |   |                                           | -      |   | 301,204                                              | (5)    |                               |   | -        |   | 37,305 | (6) | 413,809 |
|                                                                                         |   | 2008   |   | 89,082    | (4)    |   |     | -      |   |                 |   | -      |                  |   |                                           | -      |   | 290,048                                              | (5)    |                               |   | -        |   | 6,982 | (6) | 386,112 |
|                                                                                         |   |   |   |      |   |   |     |   |   |                 |   |   |                  |   |                                           |   |   |                                                 |   |                               |   |     |   |   |   |   |
| Niv Krikov,Treasurer,      CFO and Principal    Accounting  Officer  (7) |   | 2009   |   | 195,507   |   |   |     | -      |   |                 |   | -      |                  |   |                                           | -      |   | -                                                    |   |                               |   | -        |   | - |   | 195,507 |
|                                                                                         |   | 2008   |   | 110,421   |   |   |     | 28,617 |   |                 |   | -      |                  |   |                                           | -      |   | -                                                    |   |                               |   | -        |   | - |   | 139,038 |

|   | (1) | Salary      paid to Mr. Keinan by our U.K. based wholly owned subsidiary, Swiftnet      Limited, in connection with his employment as Chairman of the Board. Mr.      Keinan has been the Chairman of the Board of Directors of Swiftnet since      its inception in 1990. The amounts shown in the table above for 2008 and      2009 were paid in British Pound Sterling (£48,000) and have been      translated into U.S. dollars using the average rate of exchange of the      U.S. dollar during 2008 and 2009, respectively. The average rate of      exchange of the £ during 2008 and 2009 £1 = $1.856 and £1 = $1.568,      respectively. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Pursuant      to Board of Directors’ resolution dated December 25, 2006, on March 28,      2007, we entered into a consulting agreement with Mr. Keinan, effective as      of January 1, 2007 (the “Keinan Consulting Agreement”). The Keinan      Consulting Agreement provides that Mr. Keinan shall render to us advisory,      consulting and other services in relation to the business and operations      of the Company (excluding our business and operations in the United      Kingdom). In consideration of the performance of the Services pursuant to      the Keinan Consulting Agreement, we agreed to pay Mr. Keinan a monthly fee      of £10,000 ($16,307) which was increased by the Board of Directors      following the recommendation of the Audit Committee and the Compensation      Committee in accordance with the terms described below to £16,000      ($25,100) effective as of June 1, 2008. Mr. Keinan invoices us at the end      of each calendar month, and we make the monthly payments upon receipt of      such invoices.  The amount shown reflects the      eligibility of Mr. Keinan pursuant to the Keinan Consulting      Agreement. As of December 31, 2009 there is $79,388 outstanding balance      which was paid during March 2010. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | The      amounts shown for 2008 and 2009 reflect payments for a leased car for Mr.      Keinan’s use in 2008 and2009.  |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Salary      paid to Mr. Nissenson by our U.K. based wholly owned subsidiary, Swiftnet,      in connection with his employment as Director of Business Development. Mr.      Nissenson joined Swiftnet in October 1999 and became a member of its Board      of Directors in May 2000. Mr. Nissenson had been the Managing Director of      Swiftnet from October 2003 until July 2006.. The amount shown in the table      above for 2008 and 2009 were paid in British Pound Sterling (£48,000) and      has been translated into U.S. dollars using the average rate of exchange      of the U.S. dollar during 2008 and 2009, respectively. The average rate of      exchange of the £ during 2008 and 2009 was £1 = $1.856 and £1 = $1.568,      respectively.  |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (5) | Pursuant      to a Board of Directors’ resolution dated December 25, 2006, on March 28,      2007, we entered into a consulting agreement with Mr. Nissenson, effective      as of January 1, 2007 (the “Nissenson Consulting Agreement”). The      Nissenson Consulting Agreement provides that Mr. Nissenson shall render to      us advisory, consulting and other services in relation to the business and      operations of the Company (excluding our business and operations in the      United Kingdom). In consideration of the performance of the Services      pursuant to the Nissenson Consulting Agreement, we agreed to pay Mr.      Nissenson a monthly fee of £10,000 ($16,307) which was increased by the      Board of Directors following the recommendation of the Audit Committee and      the Compensation Committee in accordance with the terms described below to      £16,000 ($26,091) effective as of June 1, 2008. Mr. Nissenson invoices us      at the end of each calendar month, and we make the monthly payments      immediately upon receipt of such invoices.  The amount shown      reflects the eligibility of Mr. Nissenson pursuant to the Nissenson      Consulting Agreement. As of December 31, 2009 there is $78,971 outstanding      balance which was paid during January  2010.  |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | The      amounts shown in the table above reflect airfare expenses incurred by us      for the travels of Mr. Nissenson’s wife during 2009 and    2008. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7) | Mr.      Niv Krikov has been our Vice President Finance since March 13, 2007, and      our Principal Accounting Officer since May 9, 2007. On August 13, 2007, in      accordance with a resolution of the Board of Directors of the Company,      elected Mr. Krikov as our Treasurer and Chief Financial Officer. Following      his election, Mr. Krikov no longer serves as Vice President Finance, but      continues to serve as our Principal Accounting Officer. Effective as of      August 15, 2009, Mr. Krikov is also serving as Executive Vice President of      NTS Communications.  |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                |   | Option      Awards                                                           |      |   Stock      Awards |                                                                           |
|---------------------|--------|------------------------------------------------------------------------------|-----------|--------------------------|--------------------------------------------------------------------------------|
| Name                |   | Number      of Securities Underlying Unexercised Options(#)      Exercisable |      |                     | Number      of Securities Underlying Unexercised Options(#)      Unexercisable |   |   | Equity      Incentive Plan Awards: Number of Securities Underlying Unexercised      Unearned Options(#) |   |   | Option      Exercise Price($) |   |   | Option      Expiration Date |   |   | Number      of Shares or Units of Stock that Have Not Vested(#) |   |   | Market      Value of Shares or Units of Stock that Have Not Vested($) |   |   | Equity      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights      that Have Not Vested(#) |   |   | Equity      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or      Other Rights that Have Not Vested($) |   |   |   |
| Abraham      Keinan |   |                                                                         | 1,500,000 | (1)                      |                                                                           |   | – |   |   |   | – |   |   |   | 3.50 |   |   | Nov.      24, 2010 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   |
| Guy      Nissenson  |   |                                                                         | 1,500,000 | (1)                      |                                                                           |   | – |   |   |   | – |   |   |   | 3.50 |   |   | Nov.      24, 2010 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   |
| Niv      Krikov     |   |                                                                         | –   |                     |                                                                           |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   |

|   | (1) | These      options were granted on November 24, 2004, vested in full on November 24,      2005, and will expire on November 24,2010. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  Employment      Year during which such termination occurs: |   | Ms.      Baldwin |    |   | Mr.      Hoover |   |    | Mr.      Worthington |   |
|------------------------------------------------------------------|--------|------------------|---------|--------|-----------------|--------|---------|----------------------|--------|
| Year      1                                                      |   | $                | 773,000 |   |            | $      | 487,680 |                 |   | $ | 487,680 |   |
| Year      2                                                      |   | $                | 618,400 |   |            | $      | 390,144 |                 |   | $ | 390,144 |   |
| Year      3                                                      |   | $                | 463,800 |   |            | $      | 292,608 |                 |   | $ | 292,608 |   |
| Year      4                                                      |   | $                | 309,200 |   |            | $      | 195,072 |                 |   | $ | 195,072 |   |
| Year      5                                                      |   | $                | 154,600 |   |            | $      | 97,536  |                 |   | $ | 97,536 |   |

----

----

| a.   | If      the EBITDA target is missed by x%, then the EBITDA Generation Bonus      payable will be £24,000 x (1-x%).                           |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| b.   | If      the EBITDA target is missed by more than 25%, then no bonus is      payable.                                                              |   |
| c.   | If      the EBITDA target is exceeded, then Mr. Burton will be paid 5% of the      additional EBITDA generated, up to a maximum of  £50,000. |

----

----

----

----

| Name                        |   | Fees      Earned or Paid in Cash (1)($) |   |   | Stock      Awards($) |   |   | Options      Awards($) |   |   | Non-Equity      Incentive Plan Compensation($) |   |   | Nonqualified      Deferred Compensation Earnings($) |   |   | All      Other Compensation($) |   |   | Total($) |   |
|-----------------------------|--------|-----------------------------------------|--------|--------|----------------------|--------|--------|------------------------|--------|--------|------------------------------------------------|--------|--------|-----------------------------------------------------|--------|--------|--------------------------------|--------|--------|----------|--------|
| Abraham      Keinan(2)      |   |                                    | -      |   |                 |   | -      |                   |   |   | -                                              |   |   |                                                | -      |   |                           |   | -      |     |   |   | - |   |   |   | - |   |   |
| Guy      Nissenson(2)       |   |                                    | -      |   |                 |   | -      |                   |   |   | -                                              |   |   |                                                | -      |   |                           |   | -      |     |   |   | - |   |   |   | - |   |   |
| Eyal      J. Harish(3)      |   |                                    | 2,700  |   |                 |   | -      |                   |   |   | -                                              |   |   |                                                | -      |   |                           |   | -      |     |   |   | - |   |   |   | 2,700 |   |   |
| Shemer      S. Schwartz (4) |   |                                    | 2,300  |   |                 |   | -      |                   |   |   | -                                              |   |   |                                                | -      |   |                           |   | -      |     |   |   | - |   |   |   | 2,300 |   |   |
| Itzhak      Almog(5)        |   |                                    | 2,300  |   |                 |   | -      |                   |   |   | -                                              |   |   |                                                | -      |   |                           |   | -      |     |   |   | - |   |   |   | 2,300 |   |   |
| Aviu      Ben-Horrin(6)     |   |                                    | 1,900  |   |                 |   | -      |                   |   |   | -                                              |   |   |                                                | -      |   |                           |   | -      |     |   |   | - |   |   |   | 1,900 |   |   |
| Israel      Singer(7)       |   |                                    | 2,300  |   |                 |   | -      |                   |   |   | -                                              |   |   |                                                | -      |   |                           |   | -      |     |   |   | - |   |   |   | 2,300 |   |   |
| Morris      Mansour(8)      |   |                                    | 950    |   |                 |   | -      |                   |   |   | -                                              |   |   |                                                | -      |   |                           |   | -      |     |   |   | - |   |   |   | 950 |   |   |
| Arie      Rosenfeld(9)      |   |                                    | 2,300  |   |                 |   | -      |                   |   |   | -                                              |   |   |                                                | -      |   |                           |   | -      |     |   |   | - |   |   |   | 2,300 |   |   |

|   | (1) | These      amounts will be paid in April 2010. |
|--------|-----|------------------------------------------------|

|   | (2) | We      do not compensate directors who also serve as executive officers for their      services on the Board. Accordingly, Mr. Keinan and Mr. Nissenson did not      receive any compensation for their service on our Board during fiscal      2009. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | As      of December 31, 2009, Mr. Harish held 75,000 options, fully exercisable at      an exercise price of $3.50 and with expiration date of November 24,      2010. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | As      of December 31, 2009, Mr. Schwartz held 75,000 options, fully exercisable      at an exercise price of $3.50 and with expiration date of November 24,      2010. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | As      of December 31, 2009, Mr. Almog held 25,000 options, fully exercisable at      an exercise price of $3.50 and with expiration date of October 30,      2012. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | As      of December 31, 2009, Mr. Ben-Horrin held 25,000 options, fully      exercisable at an exercise price of $3.50 and with expiration date of      November 24, 2010. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7) | As      of December 31, 2009, Mr. Singer held 20,000 options, fully exercisable at      an exercise price of $3.50, and will expire on June 5,    2013. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (8) | Mr.      Morris Mansour is a former director who resigned effective as of June 5,      2009. Mr. Mansour held 20,000 options, which expired on September 6,      2009. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (9) | As      of December 31, 2009, Mr. Rosenfeld did not hold any    options. |
|--------|-----|--------------------------------------------------------------------------|

----

CERT

| Title      of Class | Name,      Title & Address of Beneficial Owner                                                                                             |   | Amount      of Beneficial Ownership |      | Nature      of Ownership |            | Percent      of Class |   |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------------------------|-----------------|-----------------------|--------|
| Common              | Abraham      Keinan(1)(3)Chairman      of the Board4      Wycombe GardensLondon      NW11 8ALUnited      Kingdom                          |   |                                | 4,808,000 |                     | Direct          |                  |   | 24.11 | % |
| Common              | Guy      Nissenson(2)(3)President,      Chief Executive Officer, and Director,3A      Finchley ParkLondon      N12 9JSUnited      Kingdom |   |                                | 4,315,000 |                     | Direct/Indirect |                  |   | 21.63 | % |
| Common              | Eyal J.      Harish(4)Director18      Bloch St.Tel      Aviv, Israel                                                                           |   |                                | 75,000    |                     | Direct          |                  |   | 0.40 | % |

| Common | Shemer S.      Schwartz(5)Director5      Israel Galili St.Kefar      Saba, Israel |   |   | 83,900 |   | Direct |   |   | 0.45 | % |
|--------|-----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|------|---|
| Common | Aviu      Ben-Horrin(6)Director40      Jabotinski St.Kefar      Sava, Israel      |   |   | 75,000 |   | Direct |   |   | 0.41 | % |
| Common | Itzhak      Almog(7)Director7/A      Moledet St.Hod      Hasharon, Israel         |   |   | 25,000 |   | Direct |   |   | 0.14 | % |
| Common | Israel      Singer(8)Director63      Ben Eliezer St.Ramat      Gan, Israel        |   |   | 20,000 |   | Direct |   |   | 0.11 | % |

----

| Common | Arie      RosenfeldDirector9,      Clos de Wagram1180      Brussels, Belgium                                                                           |   |   | 0         |   | N/A             |   |   | --    |   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|-----------------|--------|--------|-------|--------|
| Common | Niv      Krikov(9)Treasurer,      Chief Financial Officer and Principal Accounting Officer7908      Vicksburg Ave.Lubbock,      TX 79424               |   |   | 0         |   | Direct          |   |   | --    |   |
| Common | Directors      and Executive Officers as a group (9 persons)                                                                                           |   |   | 9,401,900 |   | Direct          |   |   | 40.59 | %      |
| Common | Scott      Richard L(10)1400      Gulf Shore Boulevard, North - Suite 148, Naples, FL 34102                                                            |   |   | 3,443,121 |   | Indirect        |   |   | 17.89 | %      |
| Common | Gagnon      Securities LLC(11)(12)1370      Ave. of the Americas, Suite 2400New      York, NY 10019                                               |   |   | 773,454   |   | Indirect        |   |   | 4.18  | %      |
| Common | Neil      Gagnon(11)(12)1370      Ave. of the Americas, Suite 2400New      York, NY 10019                                                         |   |   | 3,012,697 |   | Direct/Indirect |   |   | 15.96 | %      |
| Common | Mr.      Blair E. Sanford and Burlingame Asset Management, LLC(13)1      Market Street,Spear      Street Tower, Suite 3750San      Francisco, CA 94105 |   |   | 1,058,384 |   | Indirect        |   |   | 5.71  | %      |

| (1)   | Until      June 23, 2004, Abraham Keinan indirectly held 1,302,331 shares of our      Common Stock through Vision Consultants Limited, a Nassau, Bahamas      incorporated company that is 100% owned by Mr. Keinan. On June 23, 2004,      the shares held by Vision Consultants Limited were transferred to Mr.      Keinan as an individual. In addition, certain stockholders provided Mr.      Keinan and Mr. Nissenson with irrevocable proxies representing a total of      4.11% of our Common Stock. On November 24, 2004, our Board of Directors      issued 1,500,000 options to Mr. Keinan on the following terms: Option      exercise price - $3.5, vesting date - 12 month from the date of grant,      expiration date - 5 years from the vesting date. Mr. Keinan’s 4,808,000      shares of Common Stock include 1,500,000 shares issuable upon the exercise      of options, exercisable within 60 days from the date of this Annual      Report. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Guy      Nissenson, our President, Chief Executive Officer, and Director, holds      111,500 shares of our Common Stock and has indirect beneficial ownership      of 1,203,500 shares of our Common Stock and direct beneficial ownership of      3,000,000 shares issuable upon the exercise of options, exercisable within      60 days from the date of this Annual Report. In addition, certain      stockholders provided Mr. Nissenson and Mr. Keinan with irrevocable      proxies representing a total of 4.11% of our Common Stock. To the extent      that we issue any shares to Abraham Keinan, Campbeltown Business Ltd. has      the right to purchase or acquire such number of our shares on the same      terms and conditions so that the relative percentage ownership of Abraham      Keinan and Campbeltown Business Ltd. remains the same. On November 24,      2004, our Board of Directors issued 1,500,000 options to Mr. Nissenson on      the following terms: Option exercise price - $3.5, vesting date - 12 month      from the date of grant, expiration date - 5 years from the vesting      date. On      February 15, 2010, our Board of Directors issued 1,500,000 options to Mr.      Nissenson on the following terms: Option exercise price - $1.1, vesting      date - on the date of grant, expiration date - 5 years from the grant      date. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Our      Chairman of the Board, Abraham Keinan, and our President, Chief Executive      Officer, and Director, Guy Nissenson, exercise significant control over      stockholder matters through a September 28, 2004 Voting Agreement between      Mr. Keinan, Mr. Nissenson and Campbeltown Business Ltd., an entity owned      and controlled by Mr. Nissenson and his family. This agreement is for a      term of 10 years and provides that: (a) Messrs Keinan and Nissenson      and Campbeltown Business, Ltd. agree to vote any shares of our Common      Stock controlled by them only in such manner as previously agreed by all      these parties; and (b) in the event of any disagreement regarding the      manner of voting, a party to the agreement will not vote any shares,      unless all the parties have settled the  disagreement. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Dr.      Eyal J. Harish is the former brother-in-law of Abraham Keinan, our      Chairman of the Board. Dr. Harish holds 75,000 shares issuable upon the      exercise of options, exercisable within 60 days from the date of this      Annual Report. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (5)   | Mr.      Shemer S. Schwartz holds 8,900 shares of our Common Stock and 75,000      shares issuable upon the exercise of options, exercisable within 60 days      from the date of this AnnualReport. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | Mr.      Aviu Ben-Horrin holds 50,000 shares of our Common Stock and 25,000 shares      issuable upon the exercise of options, exercisable within 60 days from the      date of this Annual Report. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7)   | Mr.      Itzhak Almog holds 25,000 shares issuable upon the exercise of options,      exercisable within 60 days from the date of this Annual      Report. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8)   | Mr.      Israel Singer holds 20,000 shares issuable upon the exercise of      options, exercisable within 60 days from the date of this Annual      Report. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9)   | On      February 15, 2010, our Board of Directors issued 400,000 options to Mr.      Krikov on the following terms: Option exercise price - $1.1. The options      will vest as to 25% of the underlying shares 12 months from the date of      grant.  The remaining 75% of the options shall vest in equal      quarterly installments after 15 months from the date of grant. In the      event of a change of control of the Company, any unvested and outstanding      portion of the options shall immediately and fully vest. Mr. Krikov’s      options will expire on February 15,2017. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (10)   | Mr.      Richard L Scott, the controlling member of XFN RLSI Investments, LLC,      located at 1400 Gulf Shore Boulevard, North - Suite 148, Naples, FL 34102      (“RLSI”), may be deemed to beneficially own 2,643,121 shares of Common      Stock owned by RLSI.   According to a Schedule 13D/A filed      with the Commission on September 8, 2008, Mr. Scott may also be deemed to      beneficially own a warrant owned by RLSI to purchase an additional 800,000      shares of Common Stock, for aggregate beneficial ownership of 3,443,121      shares. The table reflects beneficial ownership of all shares and the      warrant. |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (11)   | Gagnon      Securities LLC, a registered investment adviser, in its role as investment      manager to several customer accounts, foundations, partnerships, trusts,      and private investment funds (collectively, the “Funds”) to which it      furnishes investment advice, may be deemed to beneficially own 695,407      shares of Common Stock which are owed by the Funds, which includes 72,132      shares issuable upon exercise of warrants. Gagnon Securities LLC shares      investment and/or voting power with Mr. Gagnon, the managing member and      the principal owner of Gagnon Securities LLC, over certain of the 695,407      shares owned by the Funds, and shares investment discretion and/or voting      power over the remaining shares with persons other than Mr. Gagnon. Gagnon      Securities LLC has expressly disclaimed beneficial ownership of all      securities held in the Funds' accounts. No single client's interest as      reported in the customer accounts at Gagnon Securities LLC exceeds 5% of      our outstanding Common Stock. The table does not      reflect 500,000 shares of our Common Stock purchased on March 23, 2010 in      a private placement transaction by and between us and certain investors      affiliated with Gagnon Securities LLC, further described in Section XII of      Item 13 of this Annual Report. |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (12)   | Mr.      Gagnon has sole voting power with respect to 1,372,946 shares of our      Common Stock (which includes 250,500 shares issuable upon exercise of      warrants), shares voting power with respect to 1,160,972 shares of Common      Stock (which includes 167,368 shares issuable upon exercise of warrants),      has sole dispositive power with respect to 1,372,946 shares of Common      Stock (which includes 250,500 shares issuable upon exercise of warrants),      and shares dispositive power with respect to 1,211,883shares of Common      Stock (which includes 183,368 shares issuable upon exercise of      warrants).  Mr. Gagnon has expressly disclaimed beneficial      ownership of all securities held in the Funds' accounts. No single      client's interest as reported in the customer accounts at Gagnon      Securities LLC exceeds 5% of our outstanding Common Stock. The table does      not reflect 500,000 shares of our Common Stock purchased on March 23, 2010      in a private placement transaction by and between us and certain investors      affiliated with Gagnon Securities LLC, further described in Section XII of      Item 13 of this Annual Report. |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (13)   | According      to Schedule 13D/A filed with the Commission on February 16. 2010,      Burlingame Asset Management, LLC (“BAM”) is the general partner of each of      Burlingame Equity Investors, LP and Burlingame Equity Investors II, LP,      and the investment manager of Burlingame Equity Investors (Offshore) Ltd.      (collectively, the “Funds”). Mr. Sanford is the managing member of BAM.      Mr. Sanford and BAM may each be      deemed to beneficially own 1,058,384 shares of Common Stock (which      includes 74,034 shares issuable upon exercise of warrants) which are owed      by the Funds. The table does not reflect 2,173,913 shares of our Common      Stock and a warrant to purchase 950,000 shares of our Common Stock      purchased on March 23, 2010 in a private placement transaction by and      between us and Burlingame Equity Investors, LP, further described in      Section XI of Item 13 of this AnnualReport. |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

RELATEDTRANSACTIONS

----

----

----

----

----

----

|   | · | Abraham      Keinan confirmed that all his businesses, activities and initiatives in      the field of telecommunications are conducted through Swiftnet, and would      continue for at least 18 months after the conclusion of this      transaction. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Campbeltown      Business declared that it is not involved in any business that competes      with Swiftnet and would not be involved in such business at least for 18      months after this transaction isconcluded. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Campbeltown      Business would invest $100,000 in Swiftnet, in exchange for 20% of the      total issued shares of Swiftnet; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | · | Campbeltown      Business would also receive 5% of our issued and outstanding shares      following our acquisition of Swiftnet. In June 2000, Campbeltown Business      invested the $100,000 in Swiftnet. We acquired Swiftnet and Campbeltown      received 720,336 shares of our Common Stock for its 20% interest in      Swiftnet |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Swiftnet      and Abraham Keinan would guarantee that Campbeltown Business’ 20% interest      in the outstanding shares of Swiftnet would be exchanged for at least 10%      of our outstanding shares and that Campbeltown Business would have in      total at least 15% of our total issued shares after our acquisition      occurred. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Campbeltown      Business would have the right to nominate 33% of the members of our board      of directors and Swiftnet’s board of directors. When Campbeltown Business      ownership in our Common Stock was less than 7%, Campbeltown Business would      have the right to nominate only 20% of our board members but always at      least one member. In the case that Campbeltown Business ownership in our      Common Stock was less than 2%, this right would  expire. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Campbeltown      Business would have the right to nominate a vice president in Swiftnet.      Mr. Guy Nissenson was nominated as of the time of the June 19, 2000      agreement. If for any reason Guy Nissenson will leave his position,      Campbeltown Business and Abraham Keinan will agree on another nominee. The      Vice President will be employed with suitable  conditions. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Campbeltown      Business will have the right to participate under the same terms and      conditions in any investment or transaction that involve equity rights in      Swiftnet or us conducted by Abraham Keinan at the relative ownership      portion. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Keinan      and Campbeltown Business have signed a right of first refusal agreement      for the sale of their shares. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|

|   | · | Until      we conduct a public offering or are traded on a stock market, we are not      permitted to issue any additional shares or equity rights without a      written agreement from Campbeltown Business. This right expires when      Campbeltown no longer owns any equity interest or shares in our company or      our subsidiary, Swiftnet. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

----

----

AC COUNTING FEES

|                        |   |       |    |   |   |   |    |   |
|-----------------------------|--------|------------|---------|--------|--------|--------|---------|--------|
|                        |   | FiscalYear |    |
|                        |   | 2009       |    |   | 2008   |   |
|                        |
| Audit Fees    (1)           |   | $          | 196,905 |   |   | $      | 165,000 |   |
| Audit-Related Fees      (2) |   |       | 3,750   |   |   |   | 24,000  |   |
| Tax Fees    (3)             |   |       | 16,640  |   |   |   | 17,800  |   |
| All Other    (4)            |   |       | 7,555   |   |   |   | 1,000   |   |
| Total                       |   | $          | 224,850 |   |   | $      | 207,800 |   |

----

T 

| 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)                                                                                                                                                                                                                                                                               |
| 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 InternationalLtd.(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)                                                                                                                                                                                                                                                                                                   |
| 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 IlanShoshani.(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)      |
| 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)                                                    |
| 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)                                                                                                                                               |
| 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)                                                                                              |
| 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)                                                                                                          |
| 23.1   |   | Consent of Baker Tilly Virchow Krause, LLP dated March      30, 2010                                                                                               |
| 23.2   |   | Consent of Stark Winter Schenkein & Co.,      LLP dated March 29, 2010                                                                                    |
| 23.3   |   | Consent of Yarel & Partners C.P.A. (Isr.) dated March      25, 2010                                                                                            |
| 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.                                                                         |

|   |  (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.                                                |

----

|    |  (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 Form8-K.    |

----

|                                | XFONE,      INC. |                                                                   |
|-------------------------------------|------------------|------------------------------------------------------------------------|
|                                |             |                                                                   |   |
| Date:      March 30,      2010 | By:              | /s/ Guy      Nissenson                                            |   |
|                                |             | Guy      NissensonPresident,      Chief Executive Officer and Director |   |
|                                |             |                                                                   |   |
|                                |             |                                                                   |   |

| Signature               | Title                                                                                                  | Date                     |
|-------------------------|--------------------------------------------------------------------------------------------------------|--------------------------|
|                    |                                                                                                   |                     |
| /s/      Abraham Keinan | Chairman      of the Board                                                                             | March 30,      2010 |
| Abraham      Keinan     |                                                                                                   |                     |
|                    |                                                                                                   |                     |
| /s/      Guy Nissenson  | President,      Chief Executive Officer, and Director                                                  | March 30,      2010 |
| Guy      Nissenson      |                                                                                                   |                     |
|                    |                                                                                                   |                     |
| /s/      Itzhak Almog   | Director      and Chairman of the Audit Committee and the Nominating      Committee                    | March 30,      2010 |
| Itzhak      Almog       |                                                                                                   |                     |
|                    |                                                                                                   |                     |
| /s/      Eyal J. Harish | Director      and Chairman of the Compensation Committee and a member of the Nominating      Committee | March 30,      2010 |
| Eyal      J. Harish     |                                                                                                   |                     |
|                    |                                                                                                   |                     |
| /s/      Israel Singer  | Director      and member of the Audit Committee                                                        | March 30,      2010 |
| Israel      Singer      |                                                                                                   |                     |
|                    |                                                                                                   |                     |
| /s/      Niv Krikov     | Treasurer,      Chief Financial Officer, and Principal Accounting Officer                              | March 30,      2010 |
| Niv      Krikov         |                                                                                                   |                     |

----

| 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)                                                                                                                                                                                                                                                                               |
| 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 InternationalLtd.(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)                                                                                                                                                                                                                                                                                                   |
| 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)      |   |
| 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)                                                    |   |
| 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)                                                                                                                                               |   |
| 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)                                                                                               |   |
| 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)                                                                                                          |   |
| 23.1   |   | Consent of Baker Tilly Virchow Krause, LLP dated March      30, 2010                                                                                               |   |
| 23.2   |   | Consent of Stark Winter Schenkein & Co.,      LLP dated March 29, 2010                                                                                    |   |
| 23.3   |   | Consent of Yarel & Partners C.P.A. (Isr.) dated March      25, 2010                                                                                            |   |
| 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.                                                                         |   |

|   |  (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.                                                |

----

|    |  (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 Form8-K.    |

----