Mail Stop 3561
December 28, 2005
Guy Nissenson
President and Chief Executive Officer
XFone, Inc.
c/o Swiftnet Limited
Britannia House, 960 High Road
London N12 9RY, United Kingdom
Re: XFone, Inc.
Amendment No. 1 to Preliminary Proxy Statement on
Schedule
14A
Filed December 20, 2005
File No. 1-32521
Dear Mr. Nissenson:
We have limited our review of your filing to those issues we
have addressed in our comments. Where indicated, we think you
should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with information so we may better understand
your
disclosure. After reviewing this information, we may raise
additional comments. Feel free to call us at the telephone
numbers
listed at the end of this letter.
General
1. Please update the information in your proxy statement for the
year
ended December 31, 2005. For example, all executive compensation
information required by Item 402 of Regulation S-B must be updated
to
reflect 12/31/05 compensation amounts.
2. We note that you have included additional information regarding
each of the various proposals in appendices to the proxy
statement.
To make the document more understandable to shareholders
(shareholders should not have to flip back and forth to review all
material information relating to a particular transaction), we
strongly suggest that you integrate the information relating to
each
proposal in the discussion of each proposal in the body of the
proxy
statement. Only the underlying agreements should be contained in
the
appendices to the proxy statement.
Proposals III and IV
3. We note your changes in response to prior comment 3. Although
we
note the addition of historical information concerning the two
target
companies, no additional information was added regarding the terms
and background of the transactions. Please expand to include all
applicable disclosure required by Item 14(b)(1)-(10) of Schedule
14A.
For example, currently the discussion of each acquisition does not
include any background description of the genesis of each and the
negotiations involved in the merger agreements. Meaningful
disclosure should be added that provides shareholders with the
necessary information to evaluate each of the transactions.
Proposal V, page 32
4. We note your response to prior comment 4. Your discussion of
the
financial agreement with Mercantile Discount-Provident Funds and
other parties should be expanded. Disclose the material terms of
the
transaction in more detail, including the circumstances in which
and
the reasons why you signed the agreement on November 23, 2005. In
addition, elaborate on the discussion of the possible negative
effects of this agreement on your current unaffiliated common
shareholders, including a quantitative estimate of the dilutive
effects on their shareholding if all warrants are exercised by the
investors.
Statement of Additional Information, page 33
B. Business, page 33
5. We note your transactions with Laurus Master Fund, Ltd. and
Crestview Capital Master, LLC. Please expand to include
reasonably
detailed disclosure of the terms of each of the two agreements and
a
discussion of the possible detrimental effects of the agreements
to
the interests of your unaffiliated common shareholders.
D. Result of Operation, page 41
6. Please expand the Overview sub-section to discuss known
material
trends and uncertainties that will have or are reasonably likely
to
have a material impact on your revenues or income or result in
your
liquidity decreasing or increasing in any material way. For
example,
if relevant, you may discuss the evolving trends in the nature of
your competition, as well as the demands in the residential and
commercial sectors in the geographical markets where you compete,
economic and technological developments in the voice and data
communications services market, any increased costs in
distribution
and in negotiations of rates with carriers for a service provider
like you, and so on. In doing so, provide additional information
about the quality and variability of your earnings and cash flows
so
that investors can ascertain the likelihood of the extent past
performance is indicative of future performance. In addition,
discuss in reasonable detail:
* economic or industry-wide factors relevant to your company, and
* material opportunities, challenges, and risks in short and long
term and the actions you are taking to address them.
Refer to SEC Release No. 33-8350.
7. Where you describe two or more business reasons that
contributed
to a material change in a financial statement line item between
periods, please quantify the extent to which each change
contributed
to the overall change in that line item, if practicable. For
example, when you explain on page 41 the increase of revenues for
the
year ended December 31, 2004 as compared to the year ended
December
31, 2003, you do not quantify in dollar and percentage terms the
increase of revenues derived from the sales of Story Telecom
calling
cards as compared to the revenues generated by eXpetel.
Similarly,
for the same two periods, in the absence of quantification of the
decrease in the research and development expenses and the increase
in
marketing expenses, the relevant disclosure on pages 49-50 is not
meaningful. Provide similar quantified information in your
discussion of changes in aspects of operating results between
other
fiscal periods. See Item 303(b) of Regulation S-B.
8. Where you identify intermediate causes of changes in your
operating results, also describe the reasons underlying those
intermediate causes. For example, on page 45, where you indicate
that the increase in revenues for the nine months ended September
30,
2005 is primarily due to the increase in your telephone and
messaging
services partially offset by the decrease in revenues from mobile
services and calling cards, expand your explanation to describe
why
you experienced the increased and decreased revenues in the
specified
products and services categories, if known. For example, if the
increase of revenues is due to new customers as opposed to
expanded
services or pricing changes, please state so.
G. Liquidity and Capital Resources, page 52
9. We note your response to prior comment 10 but are unable to
locate
added disclosure in your amended proxy statement. Please revise
accordingly or advise where the added disclosure is located.
* * * * *
As appropriate, please amend your filing in response to our
additional comments or tell us in your response letter why further
changes are not necessary. You may wish to provide us with marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
Please contact Pradip Bhaumik, Attorney-Advisor, at (202)
551-
3333, or me at (202) 551-3810 with any other questions.
Sincerely,
Larry Spirgel
Assistant Director
cc: Arthur S. Marcus, Esq.
Gersten Savage LLP
Fax: (212) 980-5192
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Guy Nissenson
XFone, Inc.
December 28, 2005
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