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May 17, 2010

Lubbock, TX – May 17, 2010 – XFONE, Inc. (NYSE Amex and TASE: XFN) (“XFONE” or “the Company”) announces results for the three months ended March 31, 2010. As a consequence of the Company’s pending sale of its UK and Israeli Divisions, the results from those subsidiaries are reflected as discontinued operations for all periods presented.

Mr. Guy Nissenson, the Company’s President and CEO, commented, “During the first quarter we made significant progress advancing our high margin, state-of-the-art Fiber-To-The-Premise (FTTP) network with the $63.6 million award of stimulus funds, by ramping our customer base in Levelland and by coming close to finalizing the divestiture of our UK and Israeli businesses. It is important to note that the presentation of the UK and Israeli businesses as discontinued operations, while an important reflection of our near term direction, does not yet show some of the key savings of these divestitures once completed, namely: an improvement in working capital due to the sale of Xfone 018, the continued benefit of cash flow from the U.K. operation as part of the sale agreement, and the elimination of significant additional overhead.

“Despite a slight decline in overall revenues compared to the first quarter of 2009, related primarily to the attrition in residential customers of our legacy non-FTTP business, FTTP revenues showed continued growth, contributing to improved overall gross margins of 47.1% in the first quarter of 2010 compared to gross margins of 44.7% in the first quarter of 2009. In fact, since November 2009, when we began our concentrated marketing effort around our FTTP voice, video and data triple play offering in the Levelland market, we have seen revenues from FTTP grow each month and it now comprises over 17% of our U.S. revenues.”

Financial highlights for the three months ended March 31, 2010:

• Assets, liabilities and results of operations related to our operations in the UK and Israel are classified as discontinued operations. All comparative figures in current and future reports will be classified accordingly.
• Total revenues were $14.6 million, a decrease of 7% compared to $15.7 million for the three months ended March 31, 2009.
• Gross margin increased slightly to 47.1% compared to 44.7% for the three months ended March 31, 2009.
• EBITDAS (earnings before interest, taxes, depreciation, amortization and stock-based compensation) increased 30% to $1.7 million compared to $1.3 million for the three months ended March 31, 2009.
• Operating income was $313,381 compared to $374,363 for the three months ended March 31, 2009. The decrease in operating income was primarily related to stock-based compensation of $395,415 granted during the quarter.
• Cash flow from operating activities was $2.2 million compared to $1.2 million for the three months ended March 31, 2009.
• Net financing expense increased to $1 million, compared to an income of $1.5 million for the three months ended March 31, 2009, primarily attributed to the effect of fluctuations in the exchange rate of the New Israeli Shekel (NIS) on the Company’s Bonds which are stated in NIS.
• The Company reported net loss from continued operations of $0.6 million or $(0.032) per share, assuming 18,613,772 fully diluted shares outstanding at March 31, 2010, compared to net income of $1.9 million, or $0.101 per share, assuming 18,376,075 fully diluted shares outstanding at March 31, 2009.

Mr. Nissenson continued, “With the support of $63.6 million in funds from the Federal broadband stimulus program, within the next four to five months we will begin the next chapter of our FTTP rollout with the development of our PRIDE network in northwestern Texas. To illustrate the significance of this opportunity, our Levelland build out, when completed, is anticipated to add 6,200 passings to our footprint and expected to contribute $2.5-3 million in new EBITDAS (earnings before interest, taxes, depreciation, amortization and stock-based compensation). The PRIDE network projects are expected to add another 30,000 passings, approximately five times the size of Levelland.”

Download this May 17, 2010 Press Release with attached financial statements.