UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-Q


(Mark
      One)





x  Quarterly
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934





For
      the
      quarterly period ended June
      30, 2007





 ̈  Transition
      report under Section 13 or 15(d) of the Exchange Act





For
      the
      transition period from _____________ to _____________





Commission
      File Number 000-51259





IXI
      MOBILE, INC.


(Exact
      Name of Issuer as Specified in Its Charter)





Delaware
            20-2374143(State
                or other Jurisdiction of
              Incorporation
                or Organization)
            (I.R.S.
                Employer
              Identification
                No.)





1301
                Shoreway Road, Suite 380, Belmont, CA 94002(Address
                of Principal Executive Office)





(650)
      551-0600


(Issuer’s
      Telephone Number, Including Area Code)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.           Yesx No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.  (Check
      one): Large Accelerated Filer  ̈
              Accelerated Filer  ̈
              Non-Accelerated Filer x





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





As
      of
      August 20, 2007, 15,937,732 shares of common stock, par value $.0001 per share,
      were issued and outstanding.








PagePart
                  I. Financial InformationItem
                  1 - Financial Statements (Unaudited):Condensed
                  Consolidated Balance Sheets
              2
                  -
                  3Condensed
                  Consolidated Statements of Operations
              4Condensed
                  Statements of Changes in Stockholders' Deficiency
              5Condensed
                  Consolidated Statements of Cash Flows
              6
                  -
                  7Notes
                  to Condensed Consolidated Financial Statements
              8
                  -
                  22


Item
            2
            -
            Management’s
                Discussion and Analysis or Plan of Operation
            23Item
            3
            -
            Quantitative
                and Qualitative Disclosures about Market Risk
            53Item
            4
            -
            Controls
                and Procedures
            54Part
                II. Other InformationItem
            2
            -
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            55Item
            4
            -
            Submission
                of Matters to a Vote of Security Holders
            55Item
            6
            -
            Exhibits
            56Signatures




**IXI
        MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
        SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **U.S.
        dollars in thousands**
  **June
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****Unaudited**ASSETSCURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              31,602
              
              $
              2,729Restricted
                  cash
              
              
              168
              
              
              269Trade
                  receivables
              
              
              2,669
              
              
              3,286Other
                  receivables and prepaid expenses
              
              
              1,187
              
              
              682Vendor
                  advance payments
              
              
              5,986
              
              
              3,947Inventories,
                  net
              
              
              13,201
              
              
              13,473Totalcurrent assets
              
              
              54,813
              
              
              24,386LONG-TERM
                  ASSETS:Severance
                  pay fund
              
              
              726
              
              
              596Long-term
                  prepaid expenses
              
              
              39
              
              
              93Property
                  and equipment, net
              
              
              513
              
              
              429Deferred
                  debt and Merger costs
              
              
              2,434
              
              
              2,287Other
                  assets, net
              
              
              -
              
              
              62Totallong-term assets
              
              
              3,712
              
              
              3,467Totalassets
              
              $
              58,525
              
              $
              27,853
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -
            2
            -
 **IXI
          MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
          SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **U.S.
        dollars in thousands, except share and per share data**
  **June
                  30,**
              
              **December
                  31,****2007**
              
              **2006****Unaudited**LIABILITIES
                  AND STOCKHOLDERS' DEFICIENCYCURRENT
                  LIABILITIES:Current
                  maturities of long-term loans
              
              $
              3,000
              
              $
              -Short-term
                  bank credit
              
              
              7,706
              
              
              6,767Short-term
                  loan
              
              
              5,000
              
              
              -Trade
                  payables
              
              
              2,466
              
              
              3,159Employees
                  and payroll accruals
              
              
              1,269
              
              
              1,016Deferred
                  revenues
              
              
              12,285
              
              
              13,035Other
                  payables and accrued expenses
              
              
              4,519
              
              
              3,446Liabilities
                  of discontinued operations
              
              
              2,470
              
              
              2,431Totalcurrent
                  liabilities
              
              
              38,715
              
              
              29,854LONG-TERM
                  LIABILITIES:Long-term
                  loans, net of current maturities
              
              
              3,000
              
              
              -Long-term
                  convertible loan
              
              
              23,441
              
              
              20,000Other
                  long-term liabilities
              
              
              20
              
              
              -Accrued
                  severance pay
              
              
              868
              
              
              721Totallong-term liabilities
              
              
              27,329
              
              
              20,721STOCKHOLDERS'
                  DEFICIENCY:Stock
                  capital -Common
                  stock at June 30, 2007 and December 31, 2006 of $ 0.0001 par value -
                  Authorized: 60,000,000; Issued and outstanding: 15,937,732 and
                  6,387,467
                  shares as of June 30, 2007 and December 31, 2006, respectively;
              
              
              2
              **
              
              1Additional
                  paid-in capital*
              
              
              112,036
              
              
              68,714Notes
                  receivable
              
              
              -
              
              
              (110
              )Accumulated
                  deficit
              
              
              (119,557
              )
              
              (91,327
              )Totalstockholders' deficiency
              
              
              (7,519
              )
              
              (22,722
              )Totalliabilities and stockholders' deficiency
              
              $
              58,525
              
              $
              27,853
 
 *  Net
        of
        deferred stock compensation.
 **  Upon
          the
          Merger, the shares of IXI stock were canceled and converted into the Company's
          shares in a ratio of 1:0.15. All share information included in this report
          has
          been retroactively adjusted to reflect this conversion. All
          series of IXI shares, including IXI common stock, IXI series A, B, C, D
          and D-1
          convertible preferred stock have been retroactively presented on as if
          converted
          basis into equivalent ITAC common shares.
 The
          accompanying notes are an integral part of the condensed consolidated financial
          statements.
  -
            3
            -
 **IXI
          MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
          SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **U.S.
        dollars in thousands, except share and per share data**
  **Six
                  months ended**
                **June
                  30,**
              
              
              **Three
                  months ended**
                **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Unaudited**Revenues
              
              $
              6,294
              
              $
              5,468
              
              $
              3,171
              
              $
              3,729Operating
                  expenses:Cost
                  of revenues
              
              
              7,173
              
              
              6,356
              
              
              4,062
              
              
              4,096Research
                  and development, net
              
              
              7,137
              
              
              2,787
              
              
              4,133
              
              
              1,357Selling
                  and marketing
              
              
              3,346
              
              
              5,319
              
              
              1,388
              
              
              3,775General
                  and administrative
              
              
              4,603
              
              
              1,562
              
              
              3,756
              
              
              767Totaloperating
                  expenses
              
              
              22,259
              
              
              16,024
              
              
              13,339
              
              
              9,995Operating
                  loss
              
              
              (15,965
              )
              
              (10,556
              )
              
              (10,168
              )
              
              (6,266
              )Financial
                  expenses, net
              
              
              (12,210
              )
              
              (708
              )
              
              (11,313
              )
              
              (525
              )Other
                  income
              
              
              -
              
              
              13
              
              
              -
              
              
              -Loss
                  from continuing operations
              
              
              (28,175
              )
              
              (11,251
              )
              
              (21,481
              )
              
              (6,791
              )Income
                  (loss) from discontinued operations
              
              
              (55
              )
              
              488
              
              
              (27
              )
              
              514Net
                  loss
              
              $
              (28,230
              )
              $
              (10,763
              )
              $
              (21,508
              )
              $
              (6,277
              )Basic
                  and diluted net earnings (loss) per share of Common stock:From
                  continuing operations
              
              $
              (10.77
              )
              $
              (18.56
              )
              $
              (4.64
              )
              $
              (11.03
              )From
                  discontinued operations
              
              
              (0.02
              )
              
              0.71
              
              
              (0.01
              )
              
              0.75Basic
                  net loss per share
              
              $
              (10.79
              )
              $
              (17.85
              )
              $
              (4.65
              )
              $
              (10.28
              )Weighted
                  average number of shares of Common stock used in computing basic
                  and
                  diluted net earnings (loss) per share of Common stock
              
              
              2,694,311
              
              
              682,652
              
              
              4,705,970
              
              
              682,652
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
 
 -
            4
            -
 **IXI
        MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
        SUBSIDIARIES**
  
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY*****
 **U.S.
        dollars in thousands, except share data**
  **Common
                  stock**
              
              
              **Additional**
                **paid-in**
              
              
              **Notes**
              
              
              **Accumulated****Number**
              
              
              **Amount**
              
              
              **capital**
              
              
              **receivable**
              
              
              **deficit**
              
              
              **Total**Balance
                  at January 1, 2006
              
              
              1,810,040
              
              $
              *
              
              $
              61,964**
              
              $
              (110
              )
              $
              (68,675
              )
              $
              (6,820
              )Issuance
                  of IXI Shares, net
              
              
              2,798,593
              
              
              *
              
              
              6,294
              
              
              -
              
              
              -
              
              
              6,294Issuance
                  of IXI Shares, net in respect of Keep Well Agreement
              
              
              1,773,494
              
              
              *
              
              
              *
              
              
              -
              
              
              -
              
              
              -Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              199
              
              
              -
              
              
              -
              
              
              199Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (10,763
              )
              
              (10,763
              )Total
                  comprehensive loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (10,763
              )Balance
                  at June 30, 2006 (unaudited)
              
              
              6,382,128
              
              $
              1
              
              $
              68,457
              
              $
              (110
              )
              $
              (79,438
              )
              $
              (11,090
              )Balance
                  at January 1, 2007
              
              
              6,387,467
              
              $
              1
              
              $
              68,714**
              
              $
              (110
              )
              $
              (91,327
              )
              $
              (22,722
              )Exercise
                  of IXI warrants to Common stock
              
              
              166,265
              
              
              *
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of Common stock in connection with the Merger, net of acquisition
                  costs
              
              
              7,818,000
              
              
              1
              
              
              33,745
              
              
              -
              
              
              -
              
              
              33,746Issuance
                  of shares following the merger
              
              
              1,566,000
              
              
              *
              
              
              7,927
              
              
              -
              
              
              -
              
              
              7,927Repayment
                  of notes receivable
              
              
              -
              
              
              -
              
              
              -
              
              
              110
              
              
              -
              
              
              110Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              1,650
              
              
              -
              
              
              -
              
              
              1,650Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (28,230
              )
              
              (28,230
              )Total
                  comprehensive loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (28,230
              )Balance
                  at June 30, 2007 (unaudited)
              
              
              15,937,732
              
              $
              2
              
              $
              112,036
              
              $
              -
              
              $
              (119,557
              )
              $
              (7,519
              )
  *  Represents
        an amount lower than $1.
 **  Net
        of
        deferred stock compensation in an amount of $782, $540 and $441 as of January
        1,
        2006, December 31, 2006 and June 30, 2007, respectively.
 *** Upon
        the
        Merger, the shares of IXI stock were canceled and converted into the Company's
        shares in a ratio of 1:0.15. All share information included in this report
        has
        been retroactively adjusted to reflect this conversion. All
        series of IXI shares, including IXI common stock, IXI series A, B, C, D and
        D-1
        convertible preferred stock have been retroactively presented on as if converted
        basis into equivalent ITAC common shares.
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.


-
            5
            -
 **IXI
          MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
          SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
        dollars in thousands**
  **Six
                  months ended**
                **June
                  30,****2007**
              
              **2006****Unaudited**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (28,230
              )
              $
              (10,763
              )Net
                  loss (income) from discontinued operations
              
              
              55
              
              
              (488
              )Loss
                  from continuing operations
              
              
              (28,175
              )
              
              (11,251
              )Adjustments
                  to reconcile net loss from continuing operations to net cash used
                  in
                  operating activities from continuing operations:Depreciation
                  and amortization
              
              
              203
              
              
              151Stock-based
                  compensation expense
              
              
              1,650
              
              
              199Merger
                  related expenses, included in the general and administrative
                and
                  financial expenses and loan modification
              
              
              10,218
              
              
              -Amortization
                  of discounts attributed to detachable warrant costs and
                guarantee
                  costs of Keep Well Agreement
              
              
              -
              
              
              3,473Amortization
                  of deferred debt costs
              
              
              1,411
              
              
              -Decrease
                  (increase) in trade receivables
              
              
              617
              
              
              (2,599
              )Decrease
                  (increase) in other receivables and prepaid expenses
              
              
              (333
              )
              
              194Increase
                  in vendor advance payments
              
              
              (2,039
              )
              
              (3,853
              )Decrease
                  (increase) in inventories, net
              
              
              272
              
              
              (879
              )Decrease
                  (increase) in long-term prepaid expenses
              
              
              54
              
              
              (5
              )Increase
                  (decrease) in trade payables
              
              
              (939
              )
              
              2,477Increase
                  in employees and payroll accruals
              
              
              253
              
              
              189Increase
                  (decrease) in deferred revenues
              
              
              (750
              )
              
              3,134Increase
                  (decrease) in other payables and accrued expenses
              
              
              (186
              )
              
              188Increase
                  in other long-term liabilities
              
              
              20
              
              
              -Increase
                  in accrued severance pay, net
              
              
              17
              
              
              4Increase
                  in accrued interest
              
              
              1,259
              
              
              14Net
                  cash used in operating activities from continuing
                  operations
              
              
              (16,448
              )
              
              (8,564
              )Net
                  cash used in operating activities from discontinued
                  operations
              
              
              (16
              )
              
              (532
              )Net
                  cash used in operating activities
              
              
              (16,464
              )
              
              (9,096
              )Cash
                  flows from investing activities:Restricted
                  cash, net
              
              
              101
              
              
              15Purchase
                  of property and equipment
              
              
              (162
              )
              
              (82
              )Net
                  cash used in investing activities
              
              
              (61
              )
              
              (67
              )
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -
            6
            -
 **IXI
          MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
          SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
        dollars in thousands**
  **Six
                  months ended**
                **June
                  30,****2007**
              
              
              **2006****Unaudited**Cash
                  flows from financing activities:Proceeds
                  from issuance of Common stock in the Merger, net of issuance costs
                  (1)
              
              
              33,373
              
              
              -Proceeds
                  from issuance of stock, net of issuance expenses
              
              
              -
              
              
              (18
              )Payment
                  of deferred debt and Merger costs
              
              
              (24
              )
              
              (426
              )Proceeds
                  from short-term bank credit
              
              
              939
              
              
              7,328Repayment
                  of notes receivable
              
              
              110
              
              
              -Payment
                  of short-term bank credit
              
              
              -
              
              
              (750
              )Proceeds
                  from short-term loans
              
              
              5,000
              
              
              -Principal
                  payment of long-term loans
              
              
              -
              
              
              (2,578
              )Proceeds
                  from long-term loans
              
              
              6,000
              
              
              -Proceeds
                  from convertible loan
              
              
              -
              
              
              20,000Net
                  cash provided by financing activities from continuing
                  operations
              
              
              45,398
              
              
              23,556Increase
                  in cash and cash equivalents
              
              
              28,873
              
              
              14,393Cash
                  and cash equivalents at the beginning of the period
              
              
              2,729
              
              
              184Cash
                  and cash equivalents at the end of the period
              
              $
              31,602
              
              $
              14,577Supplemental
                  information and disclosure of non-cash investing and financing
                  activities
                  from continuing operations (including other non-cash equity
                  transactions):Issuance
                  of Convertible Preferred stock upon conversion of convertible bridge
                  loan
                  and accrued interest
              
              $
              -
              
              $
              6,312Purchase
                  of property and equipment on credit
              
              $
              63
              
              $
              13Acquisition
                  costs and deferred debt and Merger costs
              
              $
              1,706
              
              $
              1,894Cash
                  paid during the period for:Interest
              
              $
              342
              
              $
              419(1)Cash
                  consideration from issuance of Common stock in the Merger, net
                  of issuance
                  costs:Working
                  capital, excluding cash
              
              $
              183
              
              $
              -Issuance
                  of Common stock in connection with the Merger, net of acquisition
                  costs
              
              
              33,190
              
              $
              -$
              33,373
              
              $
              -
 
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
 
 -
            7
            -
 **IXI
        MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
        SUBSIDIARIES**
   **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
        dollars in thousands, except share and per share data**
 
 **NOTE
        1:-**  **GENERAL**
 
 a.
              IXI
                  Mobile, Inc. (formerly Israel Technology Acquisition Company) (the
                  "Company") is a Delaware holding company operating through a wholly-owned
                  subsidiary, IXI Mobile (USA), Inc. ("IXI"). Israel Technology
                  Acquisition Corporation was originally formed on February 22, 2005 as
                  a blank check company to effect a merger, capital stock exchange,
                  asset
                  acquisition or other similar business combination with an unidentified
                  operating business that had manufacturing operations or research
                  and
                  development facilities located in Israel. On June 6, 2007, pursuant
                  to an
                  Agreement and Plan of Merger, dated February 28, 2006, as amended,
                  the
                  Company completed the merger with IXI Mobile (USA), Inc. ("Merger").
                  Prior
                  to the Merger, the Company had no substantial operations as it
                  was a blank
                  check company. Therefore, the Financial Statements and accompanied
                  notes
                  represent the historical results of IXI Mobile (USA), Inc., unless
                  otherwise stated.
 In
          accordance with the guidance applicable to these circumstances, the Merger
          was
          deemed to be a capital transaction in substance. Accordingly, for accounting
          purposes, the Merger was treated as the equivalent of IXI issuing stock
          for the
          net monetary assets of the Company. The net monetary assets of the Company
          were
          stated at their fair value, essentially equivalent to historical costs,
          with no
          goodwill or other intangible assets recorded. The accumulated deficit of
          IXI is carried forward after the Merger. The shares of IXI stock were canceled
          and converted into the Company's shares in a ratio of 1:0.15. accordingly,
          for
          accounting purposes, the Merger was treated as the equivalent of IXI issuing
          stock for the net monetary assets of the Company, accompanied by a
          recapitalization. All historical share and per share amounts have been
          retroactively adjusted to give effect to the reverse acquisition of the
          Company
          and related capitalization. Total cash received in the Merger with ITAC
          was
          approximately $33.4 million, net of Merger expenses.
 
 b.
              The
                  Company is engaged in operations, through its subsidiaries IXI,
                  IXI Mobile
                  (R&D) Ltd. (the "Israeli subsidiary" or "IXI R&D"), and IXI Mobile
                  (East Europe) SRL, in the development, production and marketing
                  of mobile
                  messaging devices and related services, targeting the mass consumer
                  market. The Company also provides, through third parties, hosted
                  services
                  including all necessary gateways and backend servers, as well as
                  related
                  launch and support services. The Company's major customers include
                  mainly
                  mobile operators, internet service providers and resellers. In
                  addition,
                  IXI was also engaged in an operating system business for mobile
                  devices
                  which was discontinued during 2005.
 
 c.
              As
                  of June 30, 2007, the Company has five wholly-owned active subsidiaries:
                  IXI Mobile (USA), Inc., IXI Mobile (R&D) Ltd., IXI Mobile (Europe)
                  Limited, IXI Mobile (Asia Pacific) Ltd., IXI Mobile (East Europe)
                  SRL, and
                  three wholly-owned inactive subsidiaries: Neo Mobile Ltd., Neo
                  Mobile
                  Telecom and LLC Neo Mobile, Inc. (together "the Group").
 
 d.
              From
                  inception, the Company has generated recurring losses from operations
                  and
                  negative cash flows from operating activities. As of June 30, 2007,
                  the
                  Company has stockholders' deficiency of $7,519. As of December
                  31, 2006,
                  the Company had a working capital deficiency and stockholders'
                  deficiency
                  of $5,468 and $22,722, respectively. The Company plans to continue
                  to
                  finance its operations through long term loans (see also Notes
                  5 and 6),
                  by raising additional capital and in the longer term, to generate
                  sufficient revenues to finance its operations**.**There
                  are no assurances, however, that the Company will be successful
                  in
                  obtaining an adequate level of financing needed for current operations
                  and
                  long-term development, or that it will ever reach profitability
                  or will
                  generate sufficient revenues to finance its
                  operations.
 
 -
            8
            -
 **IXI
            MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
            SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
          dollars in thousands, except share and per share data**
 **NOTE
        1:-**  **GENERAL
        (Cont.)**
 
 These
                  conditions raise substantial doubt****about
                  the Company’s ability to continue as a going concern. The accompanying
                  financial statements do not include any adjustments to reflect
                  the
                  possible future effects on recoverability and reclassification
                  of assets
                  or the amounts and classification of liabilities that may result
                  from the
                  outcome of this uncertainty.
 
 e.
              In
                  April 2007, IXI R&D and a leading U.S. corporation ("the Corporation")
                  have signed an amendment ("the 2007 Amendment") to the original
                  agreement
                  between the parties dated October 2005, enabling the Company to
                  provide
                  its customers the services that the Corporation provides for mobile
                  devices.
 
 The
        main
        terms of the 2007 Amendment are as follows: (i) the minimum amount to be
        paid
        has been reduced to $85 per month beginning January 2007 and (ii) the term
        of
        the agreement has been extended until September 30, 2009.
 
 The
        2007
        Amendment is effective as of January 1, 2007 and has been given retrospective
        effect in the accompanying unaudited condensed financial
        statements.
 
 f.
              Vendor
                  advance payments:
 
 Vendor
        advance payments are installments paid to vendors prior to the date the Ogo
        units are shipped to the Company or designated customers and are required
        to
        finance the production of the Ogo devices. The advance payments are mainly
        to
        enable the Company's vendors to purchase raw materials with long supply period,
        are based on the progress of the production and are deducted from the total
        shipment payment which is accrued upon the delivery of the Ogo
        units.
 
 As
        of
        June 30, 2007, the Company’s management believe, that due to the commercial
        launch of new products during the quarter it will be able to sell smaller
        quantities of its older products than it has previously anticipated.
        Accordingly, it believes that it will not realize $680 from the advance payments
        and has recorded cost of revenues of $680 for advance payments to
        suppliers.
 
 **NOTE
                  2:-**
              **SIGNIFICANT
                  ACCOUNTING POLICIES**
 a.
              The
                  accompanying unaudited condensed consolidated balance sheet as
                  of
                  June 30, 2007, the unaudited condensed consolidated statements of
                  operations for the three and six month periods ended June 30, 2007
                  and 2006, the unaudited condensed statement of changes in stockholders'
                  deficiency for the six months period ended June 30, 2007, and the
                  unaudited condensed consolidated statements of cash flows for the
                  six
                  months periods ended June 30, 2007 and 2006 have been prepared in
                  accordance with U.S. generally accepted accounting principles ("U.S.
                  GAAP") applicable to interim financial information and the rules
                  and
                  regulations promulgated by the Securities and Exchange Commission.
                  Accordingly, such unaudited condensed consolidated financial statements
                  do
                  not include all of the information and footnotes disclosures required
                  in
                  annual audited financial statements. In the opinion of the Company’s
                  management, the unaudited condensed consolidated financial statements
                  include all adjustments, consisting of normal recurring adjustments
                  necessary for a fair presentation of such condensed consolidated
                  financial
                  statements. The results of operations for the three and six months
                  ended
                  June 30, 2007 are not necessarily indicative of the results to
                  be expected
                  for the entire year.
 
 -
            9
            -
 
 **IXI
              MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
              SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
            dollars in thousands, except share and per share data**
 **NOTE
                  2:-**
              **SIGNIFICANT
                  ACCOUNTING POLICIES
                  (Cont.)**
 
 These
        unaudited condensed financial statements should be read in conjunction with
        the
        audited financial statements and accompanying notes for the year ended December
        31, 2006, of the Company and IXI, included in the Definitive Proxy Statement
        of
        the Company (formerly Israeli Technology Acquisition Corp.).
 
 b.
              Merger
                  and Accounting treatment


In
        accordance with the guidance applicable to these circumstances, the Merger
        was
        deemed to be a capital transaction in substance. Accordingly, for accounting
        purposes, the Merger was treated as the equivalent of IXI issuing stock for
        the
        net monetary assets of the Company. The net monetary assets of the Company
        were
        stated at their fair value, essentially equivalent to historical costs, with
        no
        goodwill or other intangible assets recorded. The accumulated deficit of
        IXI is carried forward after the Merger. The shares of IXI stock were canceled
        and converted into the Company's shares in a ratio of 1:0.15. Accordingly,
        for
        accounting purposes, the Merger was treated as the equivalent of IXI issuing
        stock for the net monetary assets of the Company, accompanied by a
        recapitalization. All historical share and per share amounts have been
        retroactively adjusted to give effect to the reverse acquisition of the Company
        and related capitalization.


c.
              Adoption
                  of new accounting pronouncement
 
 In
        July 2006, the FASB issued FASB Interpretation 48, "Accounting for
        Uncertainty in Income Taxes" ("FIN 48"). FIN 48 defines the threshold for
        recognizing the benefits of tax return positions in the financial statements
        as
        "more-likely-than-not" to be sustained by the taxing authority. The recently
        issued literature also provides guidance on derecognition, measurement and
        classification of income tax uncertainties, along with any related interest
        and
        penalties. FIN 48 also includes guidance concerning accounting for income
        tax
        uncertainties in interim periods and increases the level of disclosures
        associated with any income tax uncertainties.
 
 Pursuant
        to the provisions of FIN 48, the differences between the amounts recognized
        in
        the statements of financial position prior to the adoption of FIN 48 and
        the
        amounts reported after adoption would be accounted for as a cumulative-effect
        adjustments recorded to the beginning balance of retained earnings. FIN 48
        is
        effective for fiscal years beginning after December 15, 2006.
 
 The
        Company files U.S. federal income tax returns as well as income tax returns
        in
        Israel and in various foreign jurisdictions. The Company may be subject to
        examination by the U.S. Internal Revenue Service ("IRS") for calendar years
        2003
        through 2006. The Israeli subsidiary may be subject to examination by the
        Israel
        tax authorities for calendar years 2003 through 2006.
 
 Effective
        January 1, 2007, the Company adopted the provisions of FIN 48. The adoption
        of FIN 48 had no cumulative effect on tax provisions or on the accumulated
        deficit in the Company’s financial statements.
 
 **NOTE
                  3:-**
              **INVENTORIES**
  **June
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****Unaudited**Raw
                  materials
              
              $
              2,823
              
              $
              993Finished
                  products
              
              
              1,307
              
              
              2,685Finished
                  products at customers*
              
              
              9,340
              
              
              9,946Write-down
                  provision
              
              
              (269
              )
              
              (151
              )$
              13,201
              
              $
              13,473
 
 *
        Represent costs of inventory that was delivered to customers but not yet
        recognized as revenues.
 Total
        write-down expenses in the six months ending June 30, 2007 amounted to
        approximately $280.
 As
        for a
        commitment to purchase inventories, see Note7b.
 
 -
            10
            -
 **IXI
            MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
            SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
          dollars in thousands, except share and per share data**
 **NOTE
                  4:-**
              **SHORT-TERM
                  BANK LOAN**
 
 On
        May
        17, 2007 IXI signed a short-term loan agreement with a new lender and with
        its
        existing shareholders (the "Lenders") whereby the Lenders extended a $5,000
        short-term loan with the following terms: (i) annual interest of 15% ;
        (ii)
        maturity date is 60 days from the closing of the Merger; and (iii) 2% including
        VAT cash fee has been paid on the date in which the Merger was
        consummated.
  During
        July and August, 2007, the short-term **** loan
        is
        to be repaid in full (see also Note 13).
 
 **NOTE
        5:-**  **LONG-TERM
        LOANS**
 
 IXI
        and
        IXI R&D entered into new bridge loan agreements in March 2007 ("March 2007
        Loans") with certain existing IXI shareholders and existing lenders of the
        Convertible Bridge Loan under which IXI received a gross amount of $6,000
        in two
        tranches of $3,000 each. The March 2007 Loans bear interest at the rate of
        10%
        per annum. One-half of the March 2007 Loans is to be repaid on June 6, 2008
        and
        the balance of the March 2007 Loans shall be due and payable on June 6, 2009,
        in
        each case together with any interest accrued and unpaid thereon.
 
 **NOTE
        6:-**  **CONVERTIBLE
        LOAN**
  On
        June
        20, 2006, IXI R&D entered into a New Convertible Bridge Loan Agreement ("the
        Convertible Bridge Loan Agreement" or "the Convertible Bridge Loan") with
        a New
        Venture Lender ("the Convertible Loan Lender"). The Convertible Loan Lender
        loaned IXI R&D $20,000 (of which IXI paid costs of $1,700 in cash to certain
        private placement agents and $700 in cash, upon consummation of the Merger, to
        certain financial institutions providing advisory services to IXI) with IXI
        acting as guarantor thereto. The Convertible Bridge Loan bears interest of
        10%
        per annum during the first twelve months from the date of closing, and
        thereafter will go up to 20% per annum.
 
 Pursuant
        to the original terms of the Convertible Bridge Loan Agreement, it will be
        repaid upon the earlier of: (1) sixty business days following the closing
        of the
        Merger ("the Repayment Date"); (2) the acceleration of the Convertible Bridge
        Loan in accordance with the Convertible Bridge Loan Agreement; and (3) twenty
        four months from the date of closing of the Convertible Bridge Loan, unless
        prepaid by IXI R&D (the events in (2) and (3) above being referred to as the
        "Maturity Date"). The first interest payment will be made on June 30, 2007
        and
        thereafter on a quarterly basis.
 
 The
        first
        interest payment is yet to be paid as the parties agreed to allow the
        Convertible Loan Lender, according to the Convertible Bridge Loan Agreement,
        to
        realize, if requested, the option to convert the interest amount into common
        stock shares of the Company.
 
 All
        obligations of the Company and IXI R&D are secured by a first priority
        security interest on the Company's and IXI R&D's assets (subject to limited
        exceptions).
 
 -
            11
            -
 **IXI
            MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
            SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
          dollars in thousands, except share and per share data**
 **NOTE
        6:-**  **CONVERTIBLE
        LOAN (Cont.)**
 
 In
        addition, pursuant to the original terms of the Convertible Bridge Loan,
        upon
        the consummation of the Merger, the Convertible Loan Lender was entitled
        to
        receive 600,000 shares of the Company's Common stock and the several
        stockholders that provided a guarantee ("the Guarantors") were entitled to
        receive 240,000 shares of the Company's Common stock. Also, upon the
        consummation of the Merger, certain private placement agents received 18,000
        shares of the Company's Common stock. In addition, certain financial
        institutions providing advisory services to IXI received 36,000 shares of
        the
        Company's Common stock and warrants to purchase 100,000 shares of the Company's
        Common stock at an exercise price of $5.00, expiring in 2009.
 
 Furthermore,
        if each of the above converts 50% or more of its respective debt facility,
        it
        will be entitled to receive warrants to purchase the Company's Common stock
        at
        an exercise price of $5.00, expiring in 2009. The maximum total number of
        shares
        under the warrants will be 1,000,000, allocated between the Convertible Loan
        Lender and the Guarantors according to the proportionate amount of their
        debt
        facility. The Convertible Loan Lender is subject to lock-up arrangements
        which
        have been agreed to by the principal stockholders of IXI and will be entitled
        to
        registration rights, in respect of the Company's shares on the same terms
        as
        those stockholders. In the Company's S-1 filing dated July 23, 2007, all
        such
        shares have been applied for registration. As of June 30, 2007, the S-1 was
        under revision by the SEC.
 
 IXI
        accounted for the Convertible Bridge Loan under EITF No. 00-27, "Application
        of
        Issue 98-5 to Certain Convertible Instruments" ("EITF No. 00-27") according
        to
        which, upon receiving the Convertible Bridge Loan to IXI, no beneficial
        conversion feature was recorded.
 
 In
        December 2006, the parties to the Convertible Bridge Loan agreed to amend
        the
        Convertible Bridge Loan ("the New Amendment"). Following the New Amendment,
        the
        new interest rate of the Convertible Bridge Loan is a flat interest of 10%
        per
        annum throughout its term. The new repayment date will be June 6, 2008. The
        Convertible Loan Lender has a right to convert its respective debt facilities
        into shares of the Company at any time within this period, at a price of
        $5.50
        per share (as opposed to $6.50 before the New Amendment). Upon consummation
        of
        the Merger, the Convertible Loan Lender received 1,000,000 (as opposed to
        600,000 before the New Amendment) shares of the Company's common stock and
        the
        Guarantors received 400,000 (as opposed to 240,000 before the New Amendment)
        shares of the Company's common stock. All other terms of the Convertible
        Bridge
        Loan remain the same.
 
 The
        modification to the terms of the Convertible Bridge Loan was accounted for
        under
        the provisions of EITF 06-6, "Debtor's Accounting For a Modification (or
        Exchange) of Convertible Debt Instruments", as an extinguishment of the
        Convertible Bridge Loan, and the issuance of a new loan under the modified
        terms, and as such, the Company recorded an immediate loss of approximately
        $8,800 for the extinguishment of the original Convertible Bridge Loan as
        additional financial expenses. Additional financial expenses of approximately
        $
        1,200 were recognized due to the full amortization of various deferred charges
        related to the loan. The amended Convertible Bridge Loan was recorded in
        the
        balance sheet based on its fair value which amounted to approximately $26,000.
        As the fair value of the amended Convertible Bridge Loan is greater than
        its
        contractual repayment schedule, such premium will be amortized over the
        contractual term of the loan using the effective interest method and
        recognized as financial income. As of June 30, 2007, the Company recorded
        finance income of approximately $2,500 as an effective interest income derived
        from the valuation of the Convertible Bridge Loan.
  -
            12
            -
 **IXI
            MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
            SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
          dollars in thousands, except share and per share
          data**
 **NOTE
                  7:-**
              **COMMITMENTS
                  AND CONTINGENT LIABILITIES**
 
 a.
              Litigation:
 
 From
        time
        to time, the Company may become involved in legal proceedings and claims,
        which
        arise in the ordinary course of business. The Company considers that the
        ultimate liability with respect to any known action will not materially affect
        the business, financial position, results of operations or cash flows of
        the
        Company.
 
 b.
              Other:
 
 As
        of
        June 30, 2007 and December 31, 2006, the Company had open purchase orders
        with
        third party suppliers, mainly for development costs of various products and
        the
        manufacturing of Ogo devices, in a total amount of approximately $7,900 (net
        of
        approximately $500 as detailed below) and $3,000, respectively.
 
 As
        of
        June 30, 2007, the Company believes that it will incur an obligation of
        approximately $500 of obsolete inventory regarding one of its open purchase
        orders, therefore, the Company has recorded a respective loss as cost of
        revenues for that amount against trade payables.
 
 **NOTE
                  8:-**
              **STOCKHOLDERS'
                  DEFICIENCY**
 
 a.
              In
                  May 2007, certain stockholders of IXI have provided IXI with an
                  exercise
                  notice warrants for the purchase of 166,265 common stock shares
                  of the
                  Company in consideration of approximately $10. All the information
                  relating to shares and options was amended to present the Company's
                  shares
                  and options following the consummation of the
                  Merger.
 
 Upon
                  the merger, the shares of IXI stock were canceled and converted
                  with the
                  Company's shares in a ratio of 1:0.15. All share and earnings (loss)
                  per
                  share information included in this report have been retroactively
                  adjusted
                  to reflect this conversion.
 
 b. Stock
        option plans:
 
 After
        the
        Merger, the Company has adopted IXI's Option plans. The Company has authorized,
        under the Company's 2000 and 2003 U.S. Stock Incentive Plans and 2000 and
        2003
        Israeli Option Plans, as amended, the grant of options for shares
        of common stock to
        directors, employees, officers and consultants. The compensation cost that
        has
        been charged against income for those plans was $1,643 and $199 for the six
        months ended June 30, 2007 and 2006, respectively and $1,572 and $94 for
        the
        three months ended June 30, 2007 and 2006, respectively. The options granted
        generally have a four-year vesting schedule and expire ten years subsequent
        to
        the date of grant.
 
 The
        Company currently operates two option plans. For U.S. employee and non-employee
        service providers, the 2000 Second Amended and Restated Stock Incentive Plan
        ("the U.S. Plan") and the 2003 Israeli Stock Option Plan, as amended ("the
        Israeli Plan"), for Israeli employee and non-employee service providers (the
        U.S. Plan and the Israeli Plan collectively "the Company's
        Plans").
 
 -
            13
            -
 
 **IXI
              MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
              SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
            dollars in thousands, except share and per share data**
 **NOTE
                  8:-**
              **STOCKHOLDERS'
                  DEFICIENCY (Cont.)**
 
 After
        the
        consummation of the Merger and as of June 30, 2007, the Company has no approved
        pool of options to future grant to its directors, employees, officers and
        consultants.
  The
        Company intends to create a new pool of options for allocation to its directors,
        employees, officers and consultants. The Company applied for a pre-ruling
        from
        the Israeli Tax Authorities in connection with the Merger and the assumption
        of
        IXI's plans by the Company; such pre-ruling is in process and is yet to be
        approved by the Israeli Tax Authorities.
 
 As
        of
        June 30, 2007 and December 31, 2006 ,
        0 and
        918,276 shares of common stock were
        reserved for future grants to directors, employees, officers and consultants,
        respectively.
  **Six
                  months ended**
                **June
                  30, 2007 (unaudited)****Amount**
              
              **Weighted
                  average exercise price**
              
              **Weighted
                  average remaining contractual term (in years)**
              
              **Aggregate
                  intrinsic value**Outstanding
                  at beginning of period
              
              
              766,867
              
              $
              1.07Granted
              
              
              479,188
              
              $
              5.82Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (7,465
              )
              $
              5.39Outstanding
                  at end of period
              
              
              1,238,590
              
              $
              2.88
              
              
              8.67
              
              
              22,752Options
                  exercisable
              
              
              639,401
              
              $
              2.98
              
              
              8.75
              
              
              11,606Vested
                  or expected to be vested as
                of
                  June 30, 2007 (unaudited)
              
              
              1,238,590
              
              $
              2.88
              
              
              8.67
              
              
              22,752
 
 The
        weighted average grant-date fair values of the options granted during the
        six
        month period ended June 30, 2007 and 2006 were $4.06 and $0, respectively,
        and
        during the three months period ended June 30, 2007 and 2006 were $4.06 and
        $0,
        respectively.
 
 The
        aggregate intrinsic value in the table above represents the total intrinsic
        value that would have been received by the option holders had all option
        holders
        exercised their options on June 30, 2007. This amount changes based on the
        fair
        market value of the common stock.
 
 -
            14
            -
 **IXI
            MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
            SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
          dollars in thousands, except share and per share
          data**
 **NOTE
                  8:-**
              **STOCKHOLDERS'
                  DEFICIENCY (Cont.)**
 
 The
        following table shows the total stock-based compensation change related to
        employee stock options included in the condensed consolidation statement
        of
        operations:
  **Six
                  months ended**
                **June
                  30,**
              
              
              **Three
                  months ended**
                **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Unaudited**
              
              
              **Unaudited**Cost
                  of revenues
              
              $
              146
              
              $
              3
              
              $
              145
              
              $
              1Research
                  and development costs
              
              
              259
              
              
              34
              
              
              242
              
              
              17Selling
                  and marketing expenses
              
              
              101
              
              
              15
              
              
              94
              
              
              7General
                  and administrative
                expenses
              
              
              1,106
              
              
              133
              
              
              1,061
              
              
              66Total
                  stock-based compensation
                expense
              
              $
              1,612
              
              $
              185
              
              $
              1,542
              
              $
              91
 
 
 The
        employees' options outstanding as of June 30, 2007, have been separated into
        ranges of exercise price, as follows:
 
 **Options
                  outstanding**
              
              **Options
                  exercisable****Options**
              
              **Weighted**
              
              
              
              
              **Options**
              
              
              **Weighted
                  average****outstanding**
              
              **average**
              
              
              **Weighted**
              
              **exercisable**
              
              
              **exercise****as
                  of**
              
              **remaining**
              
              
              **average**
              
              **as
                  of**
              
              
              **price
                  of****Exercise**
              
              **June
                  30,**
              
              **contractual**
              
              
              **exercise**
              
              **June
                  30,**
              
              
              **options****price**
              
              **2007**
              
              **life
                  (years)**
              
              
              **price**
              
              **2007**
              
              
              **exercisable**$
              0.32
              
              500,153
              
              8.22
              
              $
              0.32
              
              264,130
              
              $
              0.32$
              1.68
              
              275,189
              
              8.32
              
              $
              1.68
              
              128,049
              
              $
              1.68$
              6.06
              
              449,600
              
              9.49
              
              $
              6.06
              
              235,212
              
              $
              6.06$
              7.77
              
              1,010
              
              3.28
              
              $
              7.77
              
              1,010
              
              $
              7.77$
              15.53
              
              12,638
              
              5.93
              
              $
              15.53
              
              11,000
              
              $
              15.531,238,590
              
              
              
              $
              2.88
              
              639,401
              
              $
              2.98
 
 During
        2005, the Company granted certain options with an exercise price lower than
        the
        share market price at the grant date. The grant resulted in the recording
        of
        $798 as deferred stock. An amount of $99 and $99 was recognized as an
        amortization of deferred stock compensation during the six months ended June
        30,
        2007 and 2006, respectively and an amount of $50 and $50 was recognized as
        an
        amortization of deferred stock compensation during the three months ended
        June
        30, 2007 and 2006, respectively.
 
 On
        January 1, 2006, the Company adopted SFAS 123(R) for options granted or modified
        effective January 1, 2006. Stock-based compensation expense recognized under
        SFAS 123(R) for the six months ended June 30, 2007, and the year ended
        December 31, 2006 was $1,441 and $172, respectively.
 
 -
            15
            -
 **IXI
            MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
            SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
          dollars in thousands, except share and per share
          data**
 **NOTE
                  8:-**
              **STOCKHOLDERS'
                  DEFICIENCY (Cont.)**
 
 Options
        granted prior to January 1, 2006 are still accounted for under APB 25 since
        prior to the adoption of SFAS 123(R), the pro forma disclosure of compensation
        attributed to employee options was accounted for under the Minimum Value
        method
        as permitted by SFAS No. 123 for non public entities.
 
 As
        under
        U.S. tax law, a person taxed under U.S. law who is granted an option at an
        exercise price which is less than the fair market value at the date of grant
        may
        be subject to a tax liability upon the vesting of such options for the potential
        gain between the exercise price and the fair market value as well as to a
        20%
        penalty tax. In July 2006, the Company's Board of Directors resolved to offer
        U.S. employees who so requested to change the exercise price of the options
        granted to those employees in November 2005 to equal the fair market value
        as of such date, and to avoid any such tax implications. Such changes in
        the
        exercise price were accounted for as a modification under the provisions
        of SFAS
        123(R). Since the new exercise price is designated to equal the fair market
        value of the Company's share upon the modification, and given the fact that
        all
        other option terms will remain as in the original award, no incremental
        compensation costs under the provisions of SFAS 123(R) was recognized.
 
 c.
              Options
                  issued to non-employees:
 
 A
        summary
        of the Company's stock option activity and related information with respect
        to
        options granted to non-employees for the six month ended June 30, 2007 is
        as
        follows:
 **Six
                    months ended June 30, 2007****Weighted**
                  **average****Amount**
                
                **exercise**
                  **price****Unaudited**Outstanding
                    at beginning ofperiod
                
                
                177,210
                
                $
                0.33Granted
                
                
                12,343
                
                $
                2.09Exercised
                
                
                (166,265
                )
                $
                (0.06
                )Change
                    in status
                
                
                -
                
                $
                -Forfeited
                
                
                -
                
                $
                -Outstanding
                    at end of period
                
                
                23,288
                
                $
                3.25Options
                    exercisable
                
                
                20,396
                
                $
                2.51
 
 The
        weighted average fair values of the options granted during the six month
        periods
        ended June 30, 2007 and 2006 were $5.74 and $1.62, respectively and during
        the
        three month periods ended June 30, 2007 and 2006 were $5.74 and $1.62,
        respectively.
  -
            16
            -
 **IXI
            MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
            SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
          dollars in thousands, except share and per share
          data**
 
 
 **NOTE
                  8:-**
              **STOCKHOLDERS'
                  DEFICIENCY (Cont.)**
 
 The
        following table shows the total stock-based compensation charge related to
        non-employee stock options included in the condensed consolidated statement
        of
        operations.
  **Six
                  months ended**
                **June
                  30,**
              
              **Three
                  months ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Unaudited**
              
              **Unaudited**Research
                  and development
                costs
              
              $
              2
              
              $
              8
              
              $
              1
              
              $
              2Selling
                  and marketing expenses
              
              
              -
              
              
              6
              
              
              -
              
              
              -General
                  and administrative
                expenses
              
              
              29
              
              
              1
              
              
              29
              
              
              1Total
                  stock-based compensation expense
              
              $
              31
              
              $
              15
              
              $
              30
              
              $
              3
 
 
 The
        non-employees' options outstanding as of June 30, 2007, have been separated
        into
        ranges of exercise price, as follows:
 **Options
                    outstanding**
                
                **Options
                    exercisable****Exercise**
                  **Price**
                
                **Options**
                  **outstanding**
                  **as
                    of**
                  **June
                    30,**
                  **2007**
                
                **Weighted**
                  **average**
                  **remaining**
                  **contractual**
                  **life
                    (years)**
                
                
                **Weighted**
                  **average**
                  **exercise**
                  **price**
                
                **Options**
                  **exercisable**
                  **as
                    of**
                  **June
                    30,**
                  **2007**
                
                
                **Weighted
                    average**
                  **exercise**
                  **price
                    of**
                  **options**
                  **exercisable****(unaudited)**$
                0.32
                
                18,343
                
                3.85
                
                $
                0.32
                
                15,955
                
                $
                0.32$
                1.94
                
                1,681
                
                3.05
                
                $
                1.94
                
                1,681
                
                $
                1.94$
                7.77
                
                26
                
                3.17
                
                $
                7.77
                
                26
                
                $
                7.77$
                15.53
                
                3,238
                
                7.31
                
                $
                15.53
                
                2,734
                
                $
                15.5323,288
                
                
                
                $
                3.25
                
                20,396
                
                $
                2.51
  The
        fair
        value for these options was estimated at the grant date and at each subsequent
        vesting date using the Black-Scholes option-pricing model with the following
        weighted-average assumptions: expected volatility of 75%-90%, risk-free interest
        rates of 1.5% - 5.34%, dividend yields of 0% and an expected life equal to
        the
        options' contractual life.
 
 Compensation
        expense in respect of options granted to non-employees amounted to $37 and
        $15
        for the six months ended June 30, 2007 and 2006, respectively and $30 and
        $2 for
        the three months ended June 30, 2007 and 2006, respectively.
 
 -
            17
            -
 **IXI
            MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
            SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
          dollars in thousands, except share and per share
          data**
 **NOTE
                  8:-**
              **STOCKHOLDERS'
                  DEFICIENCY (Cont.)**
 
 d.  Outstanding
        warrants
 
 The
        Company has outstanding warrants that may be exercised in the future, which
        would increase the number of shares eligible for future resale in the public
        market and result in dilution to the Company's stockholders. Total outstanding
        redeemable warrants to purchase an aggregate of 12,736,000 are comprised
        of
        12,636,000 warrants originally issued in the IPO of the Company and 100,000
        shares that were issued to financial institutions upon the IPO and were assumed
        by the Company upon the Merger. All warrants are exercisable following the
        consummation of the merger. The warrants exercise price is $5.00, and they
        expire in 2009.
 
 **NOTE
                  9:-**
              **MERGER
                  RELATED EXPENSES**
 
 In
        accordance with the consummation of the Merger the Company recorded the detailed
        below amounts:
 a.
                Finance
                    expenses of approximately $2,400 for the issuance of additional
                    400,000
                    shares of common stock to the Convertible Loan Lender against
                    common stock
                    and Additional Paid-in Capital.
 
 b.
                Deferred
                    debt costs of approximately $2,400 for the issuance of 400,000
                    shares of
                    common stock to the Guarantors against Additional Paid-in Capital,
                    of
                    which approximately $160 were recognized as financial expenses
                    as of June
                    30, 2007.
 
 c.
                Finance
                    expenses of approximately $8,800 for extinguishment of the original
                    Convertible Bridge Loan, that include issuance of 600,000 shares
                    of common
                    stock, under EITF 06-6 against Additional Paid in Capital. This
                    amount was
                    offset in the period from the Merger until June 30, 2007 by finance
                    income
                    of approximately $2,500.
 
 d.
                Finance
                    expenses of approximately $1,200 due to the full amortization
                    of various
                    deferred charges related to the
                    Merger.
 
 e.
                General
                    and administrative expenses of approximately $1,300 for issuance
                    of shares
                    of common stock to the Co-Chairman of the Board ("Co-Chairman")
                    against
                    Additional Paid-in Capital.
 
 f.
                General
                    and administrative expenses of approximately $830 for issuance
                    of fully
                    vested options to the Chief Executive Officer (“CEO”) against Additional
                    Paid-in Capital.
 
 g.
                Approximately
                    $125 finance expenses and deferred debt costs of approximately
                    $180 of
                    which approximately $12 were recorded as financial expenses as
                    of June 30,
                    2007, for issuance of shares of common stock and warrants for
                    various
                    financial institutions against common stock and Additional Paid-in
                    Capital.
 
 -
            18
            -
 
 **IXI
              MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
              SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
            dollars in thousands, except share and per share data**
 **NOTE
                  9:-**
              **MERGER
                  RELATED EXPENSES (Cont.)**
 
 h.
              In
                  addition, upon consummation of the Merger the employment agreement
                  between
                  IXI and the Co-Chairman and between IXI and the CEO, came into
                  effect. The
                  agreements include various bonuses, in options and in cash, that
                  may be
                  granted and paid subject to the achievement of certain market conditions
                  and performance conditions, as well as other terms related to their
                  employment and its termination;
  In
        accordance thereof, the Company recorded the detailed below amounts as expenses
        in General and Administrative expenses:
 1)
                General
                    and Administration expenses in the aggregate amount of approximately
                    $2,000 may be recorded in connection with the issuance to the
                    Co-Chairman,
                    of options to purchase 450,000 shares of the Company’s common stock, at an
                    exercise price of $5.00, which vest upon reaching various price
                    per share
                    targets; these expenses will be recorded over a period of approximately
                    42
                    months from the consummation of the Merger; an amount of $38
                    was recorded
                    as an expense as of June 30, 2007;
 
 2)
                General
                    and Administration expenses in the aggregate amount of approximately
                    $1,900 may be recorded in connection with the issuance to the
                    CEO of
                    options to purchase 450,000 shares of the Company’s common stock, at an
                    exercise price of $6.06, which vest upon reaching various price
                    per share
                    targets; these expenses will be recorded over a period of approximately
                    42
                    months from the consummation of the Merger; an amount of $36
                    was recorded
                    as expense as of June 30, 2007;
 
 3)
                General
                    and Administration expenses of up to approximately $1,000 in
                    connection
                    with cash bonuses in the amount of up to $1,400 that may be paid
                    to each
                    of the co-Chairman and the CEO upon reaching various price per
                    share
                    targets. These expenses will be recorded over a period of approximately
                    42
                    months from the consummation of the Merger; an amount of $20
                    was recorded
                    as expense as of June 30,
                    2007;
 
 -
            19
            -
 
 **IXI
              MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
              SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
            dollars in thousands, except share and per share data**
 **NOTE
                  10:-**
              **NET
                  LOSS PER SHARE**
 
 a.
              Basic
                  net loss per share of common stock is computed based on the weighted
                  average number of shares of common stock outstanding during each
                  period.
                  Diluted net loss per share of common stock is computed based on
                  the
                  weighted average number of shares of common stock outstanding during
                  each
                  period, plus dilutive potential share of common stock considered
                  outstanding during the period, in accordance with SFAS No. 128,
                  "Earnings per Share". The shares of IXI stock were canceled and
                  converted
                  with the Company's shares in a ratio of 1:0.15. All share and earnings
                  (loss) per share information included in this report have been
                  retroactively adjusted to reflect this
                  conversion.
 
 b.
              The
                  calculation of basic and diluted net loss per share for the six
                  months
                  period ended June 30, 2007 and 2006 and for the three months period
                  ended
                  June 30, 2007 and 2006 was as follows:
  **Six
                  months ended**
                **June
                  30,**
              
              **Three
                  months ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Numerator:
              
              **Unaudited**
              
              **Unaudited**Numerator
                  for basic and diluted net income (loss) per share from continuing
                  operations
              
              $
              (29,078
              )
              $
              (12,671
              )
              $
              (21,841
              )
              $
              (7,532
              )Numerator
                  for basic and diluted net income (loss) per share from discontinued
                  operations
              
              $
              (55
              )
              $
              488
              
              $
              (27
              )
              $
              514Denominator:Weighted-average
                  number of shares of Common Stock
              
              
              2,694,311
              
              
              682,652
              
              
              4,705,970
              
              
              682,652Denominator
                  for basic net income (loss) per share
              
              
              2,694,311
              
              
              682,652
              
              
              4,705,970
              
              
              682,652Basic
                  and diluted net earnings (loss) per common stock:From
                  continuing operations
              
              $
              (10.77
              )
              $
              (18.56
              )
              $
              (4.64
              )
              $
              (11.03
              )From
                  discontinued operations
              
              $
              (0.02
              )
              $
              0.71
              
              $
              (0.01
              )
              $
              0.75Basic
                  and diluted net loss per share
              
              $
              (10.79
              )
              $
              (17.85
              )
              $
              (4.65
              )
              $
              (10.28
              )
 
 
 **NOTE
                  11:-**
              **SEGMENTS,
                  CUSTOMERS AND GEOGRAPHIC
                  INFORMATION**
 
 a.  General:
 
 The
        Company's reportable operating segments have been determined in accordance
        with
        the Company's internal management reporting structure, which is organized
        based
        on operating activities. The accounting policies of the operating segments
        are
        the same as those described in the summary of significant accounting policies.
 
 The
        Group, subsequent to the discontinuation of the operating systems business
        operates in one reportable operating segment and follows the requirements
        of
        SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
        Information" ("SFAS No. 131").
 
 -
            20
            -
 
 **IXI
              MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
              SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
            dollars in thousands, except share and per share
            data**
 **NOTE
                  11:-**
              **SEGMENTS,
                  CUSTOMERS AND GEOGRAPHIC INFORMATION****(cont)**
 
 b.  Summary
        information about geographic areas:
 
 The
        following table presents revenues (according to end customer location) for
        the
        six months ended June 30, 2007 and 2006 and long-lived assets as of June
        30, 2007 and December 31, 2006:
 
 1.  Revenues:
  **Six
                  months ended**
                **June
                  30,**
              
              **Three
                  months ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Unaudited**Europe
                  and the Middle East
              
              $
              6,000
              
              $
              5,363
              
              $
              3,042
              
              $
              3,624Asia
                  Pacific
              
              
              -
              
              
              100
              
              
              -
              
              
              100South
                  America
              
              
              294
              
              
              5
              
              
              128
              
              
              5$
              6,294
              
              $
              5,468
              
              $
              3,170
              
              $
              3,729
 
 2.  Long-lived
        assets:
 
 **June
                    30,****2007**
              
              **December
                    31,****2006****Unaudited**United
                  States
              
              $
              18
              
              $
              30Europe
                  and Middle East
              
              
              493
              
              
              458Asia
                  Pacific
              
              
              2
              
              
              3$
              513
              
              $
              491
 
 -
            21
            -
 **IXI
            MOBILE, INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY) AND ITS
            SUBSIDIARIES**
 **NOTE
          TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
          dollars in thousands, except share and per share
          data**
 **NOTE
                  11:-**
              **SEGMENTS,
                  CUSTOMERS AND GEOGRAPHIC INFORMATION
                  (Cont.)**
 
 c.  Revenues
        from major customers:
  **Six
                  months ended**
                **June
                  30,**
              
              **Three
                  months ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Unaudited**Customer
                  A
              
              
              -
              
              
              2
              %
              
              -
              
              
              3
              %Customer
                  B
              
              
              5
              %
              
              11
              %
              
              5
              %
              
              8
              %Customer
                  C
              
              
              57
              %
              
              47
              %
              
              54
              %
              
              30
              %Customer
                  D
              
              
              32
              %
              
              40
              %
              
              34
              %
              
              59
              %Customer
                  E
              
              
              5
              %
              
              -
              
              
              4
              %
              
              -Customer
                  F
              
              
              1
              %
              
              -
              
              
              3
              %
              
              -
 
 **NOTE
                  12:-**
              **FINANCE
                  EXPENSES**
 
 Financial
        income (expenses), net:
  **Six
                  months ended**
                **June
                  30,**
              
              **Three
                  months ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Unaudited**Financial
                  income:Interest
                  on bank deposits
              
              $
              130
              
              $
              17
              
              $
              109
              
              $
              16Exchange
                  rate differences, net
              
              
              103
              
              
              -
              
              
              31
              
              
              -233
              
              
              17
              
              
              140
              
              
              16Financial
                  expenses:Interest
                  on short-term and long-term loans
              
              
              (701
              )
              
              (224
              )
              
              (461
              )
              
              (178
              )Interest
                  on convertible loan
              
              
              (1,171
              )
              
              (367
              )
              
              (435
              )
              
              (236
              )Exchange
                  rate differences, net
              
              
              -
              
              
              (23
              )
              
              -
              
              
              (27
              )Merger
                  related expenses and loan modification
              
              
              (10,320
              )
              
              -
              
              
              (10,320
              )
              
              -Other
              
              
              (251
              )
              
              (111
              )
              
              (237
              )
              
              (101
              )(12,443
              )
              
              (725
              )
              
              (11,453
              )
              
              (537
              )$
              (12,210
              )
              $
              (708
              )
              $
              (11,313
              )
              $
              (525
              )
 
 
 **NOTE
        13:-**  **SUBSEQUENT
        EVENTS**
 
 During
        July and August 2007, the short-tem loan in the amount of approximately $5,000
        has been repaid in full (see also Note 4).
 - **-
        - - - - - - - - - - - - - - - - - -**
 
 -
            22
            -




**ITEM
      2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**




*The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our consolidated unaudited
      financial statements and the related notes to those statements included
      elsewhere in this Form 10-Q. In addition to historical consolidated financial
      information, the following discussion and analysis contains forward-looking
      statements that involve risks, uncertainties and assumptions. The combined
      company’s actual results and timing of selected events may differ materially
      from those anticipated in these forward-looking statements.*




**Overview**




We
      are a
      holding company operating through our wholly owned subsidiary, IXI Mobile (USA),
      Inc. (“IXI”). **** We
      were
      originally formed on February 22, 2005 as a blank check company to effect a
      merger, capital stock exchange, asset acquisition or other similar business
      combination with an unidentified operating business that had manufacturing
      operations or research and development facilities located in Israel. On June
      6,
      2007, pursuant to an Agreement and Plan of Merger, dated February 28, 2006,
      as
      amended, we completed our merger with IXI. All substantive information dating
      prior to the consummation of the merger (June 6, 2007) is attributed to IXI
      and
      describing IXI historical results unless otherwise stated.




We
      provide solutions that bring innovative, data-centric mobile devices and hosted
      services to the mass market. We offer an end-to-end mobile solution, including
      devices and hosted services, to mobile operators, mobile virtual network
      operators (MVNOs), and Internet service providers (ISPs) in a number of
      international markets. IXI’s OgoTM devices are designed to improve the mobile
      user experience and increase mobile data usage by offering access to popular
      applications and services, including e-mail, IM, SMS, headlines and other web
      information through Really Simple Syndication technology (RSS), mobile voice,
      Web browsing and games at relatively low end-user prices. Our hosted services
      (such as email and IM gateways) allow our customers to efficiently deliver
      applications that require intermediation between the server and the device.
      These hosted services in combination with the Ogo devices present potential
      customers with a complete end-to-end solution which limits the amount of
      infrastructure investment and other roll-out costs.




Starting
      in 2003, we began development of a proprietary operating system (OS) which
      targeted manufacturers of affordable mobile phones as well as other mobile
      devices. This OS was differentiated by a low memory footprint and low processing
      power requirements, while also providing a platform to allow a mobile device
      manufacturer to rapidly customize and introduce new models to the market. The
      OS
      was developed through a separate business unit, which focused on licensing
      of
      the OS to mobile device manufacturers. In July 2005, our management
      determined that the high cost of adapting the OS to a variety of mobile
      platforms and offering the extensive support required by each customer would
      require the continued investment of a significant amount of capital and other
      resources. Consequently, we decided to discontinue the OS business unit, which
      resulted in significantly reduced operating costs in the short-term allowing
      the
      management to focus solely on the Ogo activity by transferring resources and
      funds to the continuing Ogo business. During the period covered by the financial
      statements contained in this Form 10-Q, the operating system related activities
      were classified as discontinued operations. Certain components of the OS are
      currently included in the Ogo device. Such components and the related activities
      and costs have not been classified and are included in the consolidated
      financial statements contained in this Form 10-Q as continuing operations.
      We
      will continue to develop additional software applications to meet the specific
      needs of the Ogo devices as they evolve.




-
          23 -




We
      commenced marketing the Ogo in the United States in 2004 under a development
      and
      supply agreement with AT&T Wireless Services, Inc. The agreement required
      AT&T Wireless to purchase $32.4 million of devices, $16.5 million
      of which were delivered by the end of 2004. Unlike our current arrangements
      with
      our existing customers, the agreement did not require us to provide any hosting
      or related services. In April 2005, following the acquisition of AT&T
      Wireless by Cingular Wireless, Inc., or Cingular, we agreed with Cingular to
      cancel this agreement. The cancellation followed several weeks of discussions
      focused on the impact of the Cingular acquisition of AT&T and the nature of
      the relationship between the companies thereafter. Pursuant to the termination
      agreement with Cingular, we received a one-time cash payment of approximately
      $3.85 million, the return of all Ogo device inventory held by Cingular for
      no cost (valued by us at approximately $5.7 million after allowance for
      rework and adaptation costs), the transfer of all intellectual property rights
      directly relating to Ogo, including the URLs www.ogo.com, www.ogosphere.com,
      www.ogosphere.net and the associated intellectual property valued by us at
      approximately $150,000. In determining the fair values, management has
      considered a number of factors, including valuations and appraisals. We also
      recorded one-time income of $2.0 million which was previously recorded as
      deferred revenues upon termination of the agreement with AT&T Wireless. As a
      result of
      this
      termination agreement, we recorded a one-time gain of $11.7 million in
      2005. However, Cingular represented 85% of our revenues in 2005, and its loss
      as
      a customer had a material adverse impact on our sales and results of operations.
      During the year ended December 31, 2006, and through June 30, 2007, no revenues
      were generated from Cingular. As a consequence of Cingular’s termination of Ogo
      related services, we are no longer required to provide helpdesk support to
      Ogo
      customers in the United States.




Since
      we
      do not provide any services to the Cingular subscribers who used the Ogo and
      receive no revenue from their use of Cingular’s services, we do not believe that
      Cingular’s discontinuation of service or support for the Ogo, if any, will have
      a material impact on our business, financial condition or results of
      operation.




During
      2005, we began to focus our marketing efforts to target European customers
      and
      entered into agreements with three major customers: Swisscom Mobile, the leading
      mobile opera tor
      in
      Switzerland, e-kolay.net, a leading ISP in Turkey owned by Doðan Yayýn Holding
      (DYH), Turkey’s leading media-entertainment conglomerate ,
      and
      1&1 Internet AG, a leading German Internet service provider. Swisscom and
      e-kolay.net commenced selling the Ogo devices and we commenced providing the
      related hosted services prior to the end of 2005. 1&1 commenced sales of the
      Ogo devices and we commenced providing the related hosted services in the end
      of
      April 2006. In June 2006, we also signed an agreement with our first
      customer in Latin America, Antel, the parent company of Ancel, a leading mobile
      operator in Uruguay. Ancel commenced selling the Ogo devices and we commenced
      providing the related hosted services in Uruguay at the end of June 2006.
      In December 2006, Onetouch, one of the leading mobile operators in Ghana issued
      a purchase order (PO) for purchase of Ogo devices. In February 2007, Vimpelcom,
      a Russian mobile operator serving more than 47 million subscribers, announced
      that it intends to launch an Ogo offering aimed at the small to medium
      enterprise. Vimpelcom, through Betalink, a third party purchasing arm, issued
      a
      purchase order for purchase of Ogo devices, subject to our standard terms and
      conditions. An agreement with Vimpelcom for the provision of services is in
      final stages of completion. On March 27, 2007, we and Cleveland Unlimited,
      Inc.
      d/b/a “Revol” signed a letter of intent which provides that Revol Wireless,
      based in Independence, Ohio will distribute Ogo2.0 products and services as
      part
      of Revol’s offering. Revol will be the first to launch Ogo 2.0c, IXI’s first
      CDMA 3G product, with EV-DO technology in the United States. On June 20, 2007,
      Mobilkom Austria AG, a Vodafone partner company, the largest cellular operator
      in Austria and one of the largest operators in Central Europe, announced the
      launch of OgoTM device in Austria.  In
      August
      2007, we announced the appointment of In Mobile Solutions Sdn Bhd (IMS) as
      our
      distributor to Malaysia.




In
      October 2005, we entered into an agreement with a major IM provider,
      enabling us for a period of two years to provide end-users of the Ogo device
      with access to IM and email services for mobile devices. We are required to
      pay
      a certain percentage of the monthly revenues derived from each user of the
      IM
      services, depending on the geographic region in which the IM service is
      provided. The agreement also requires us to make minimum payments in the amount
      of approximately $2.81 million through September 2009 (when the agreement
      expires).




-
          24 -




In
      November 2006, we entered into an agreement with a second major IM provider,
      ICQ, Inc., enabling us for a period of two years to provide end-users of the
      Ogo
      device with access to IM services for mobile devices. The agreement requires
      us
      to make certain minimum payments varying according to geographical deployment.
      The minimum payment to be made throughout the duration of the agreement is
      $360,000. However this amount may increase depending on the number of
      deployments with customers as well as the geographical regions in which
      deployment occurs.




In
      October 2005, as part of the discontinuation of operations of our OS
      business, and due to our requirement to increase our cash resources, we granted
      Sasken Communication Technologies Ltd., or Sasken, a company based in India,
      a
      non-exclusive license for the use, development and sale of the OS that was
      developed by us. The license enables Sasken to continue the development of
      the
      OS and to market it to its customers and provides that Sasken will own any
      intellectual property rights resulting from the continuation of the development
      of the software, and we will retain ownership in any intellectual property
      licensed to Sasken. In consideration for the license, Sasken paid to us a
      license fee in the amount of $1.8 million, net. In addition, Sasken will
      pay us royalties for each product that is sold by Sasken that contains the
      OS or
      any development of it, in whole or in part, up to an aggregate amount of
      $5 million. This transaction was effected without the required approval of
      the OCS, in breach of the terms of the OCS funding. We have applied to the
      OCS
      for retroactive approval of this license. Under a recent amendment to the Law
      for the Encouragement of Research and Development in the Industry, 1984, the
      OCS
      has the discretion to grant this approval, but the regulations governing
      calculation of the amount to be paid to the OCS in this case have not yet been
      promulgated. We cannot be sure that the OCS will grant us retroactive approval
      for the license, or the exact amount which may be required to pay to the OCS
      if
      the approval is granted. We believe that we may be required to repay the entire
      amount of grant and have provided an allowance in our financial statements
      in
      the amount of approximately $3.2 million to reflect our estimate of our
      obligation to the OCS.




We
      have
      generated recurring losses from operations and negative cash flows from
      operating activities since inception. As of June 30, 2007, we had a
      stockholders’ deficiency of approximately $7.5 million. We currently pay
      our suppliers in advance of the date shipment is made to us, while the standard
      payment terms which we usually extend to our customers require payment within
      30
      days of delivery of the devices. Consequently, we are often forced to finance
      outstanding sales orders for several months. We plan to continue to finance
      our
      operations through raising additional capital, and in the longer term, by
      generating sufficient revenues to finance our operations. There can be no
      assurances, however, that we will be successful in obtaining an adequate level
      of financing needed for current operations and long-term development. These
      conditions raise substantial
      doubt about our ability to continue as a going concern if we are unsuccessful
      in
      obtaining such adequate level of financing. The Bridge Loan should be repaid
      on
      June 6, 2008.




In
      order
      to satisfy IXI’s working capital requirements prior to the consummation of the
      merger with us, on June 22, 2006, IXI entered into a bridge loan agreement
      with Southpoint Master Fund LP (“Southpoint”) and IXI Mobile (R&D), Ltd.
      (“IXI R&D”), IXI’s wholly owned subsidiary. Pursuant to the terms of the
      bridge loan, Southpoint loaned to IXI R&D $20 million (from which IXI
      paid $1,700,000 in cash compensation to certain private placement agents and
      $700,000 in cash compensation, upon consummation of the merger, to certain
      financial institutions providing advisory services to IXI), with IXI acting
      as
      guarantor. The bridge loan bears interest of 10% per annum.




Due
      to
      the prolonged merger process and in order to satisfy our working capital
      requirements prior to receipt of the merger consideration, IXI and IXI R&D
      entered into new bridge loan agreements (“March 2007 Loans”) with certain IXI
      shareholders and lenders of the Convertible Bridge Loan under which IXI received
      gross of $6,000,000 in two tranches of $3,000,000 each. The March 2007 Loans
      bear interest at the rate of 10% per annum. One-half of the March 2007 Loans
      is
      to be repaid on June 6, 2008 and the balance of the March 2007 Loans shall
      be
      due and payable on June 6, 2009, in each case together with any interest accrued
      and unpaid thereon.




-
          25 -






Thereafter,
      IXI borrowed an additional $5 million, which has been repaid in
      full.




**Sources
      of Revenues**




We
      currently generate revenues from two main sources: sales of the Ogo devices
      and
      providing hosted services related to the Ogo devices.




Currently,
      sales of the Ogo devices are recognized as revenue upon activation of the
      service for the Ogo device by the end user. The services include a variety
      of
      hosted services provided by us to our customers (such as email and push email
      gateway, IM gateways and attachments transcoding) and generate monthly recurring
      revenues per active device. To date, we have derived the substantial majority
      of
      our revenues from sales of the Ogo devices. We expect that, as the installed
      base of devices grows, the recurring monthly revenues related to the hosted
      services will account for a larger portion of our revenues.




Our
      initial revenues from device sales were generated by those units shipped by
      AT&T Wireless Inc. to their end users. Since AT&T Wireless had internal
      capabilities to provide the email and IM gateways to its end users, we did
      not
      provide any hosting services for AT&T Wireless customers. Since commencing
      sales in 2004, we shipped a total of $16.5 million of devices to AT&T
      Wireless, of which $6.7 million were recognized as revenue in the 2005 year
      end financial statements. The remaining shipments to AT&T Wireless were
      recognized as part of the one-time gain of $11.7 million in 2005 resulting
      from the termination of the agreement by Cingular.




At
      the
      end of the third quarter of 2005, we commenced commercial sales in Europe.
      Both
      e-kolay.net and Swisscom Mobile began commercial sales to end users in November,
      2005. On December 15, 2005, we entered into a cooperation agreement with
      1&1 Internet AG, pursuant to which 1&1 Internet AG committed to purchase
      $18 million of devices through the first quarter of 2007. 1&1 commenced
      sales to end users at the end of April 2006 and as of June 30, 2007,
      1&1 had purchased approximately $14.7 million of devices from us, in
      accordance with the agreement. Due to the late deliveries to 1&1 caused by
      the delay of our June 2006 bridge financing, 1&1 had not completed its
      purchasing obligation by the end of the first quarter of 2007. Following the
      commercial launch of Ogo 2.0, 1&1 and we are currently discussing the
      updated purchase date and product blend to be supplied to 1&1.




In
      May
      2006, we entered into an agreement with Antel, the parent company of Ancel,
      the
      leading mobile operator in Uruguay for the sale to Antel of Ogo devices for
      resale by Ancel to end users in Uruguay. Ancel commenced selling the Ogo devices
      and we commenced providing the related hosted services in Uruguay at the end
      of
      June 2006.




In
      December 2006, Onetouch, one of the leading mobile operators in Ghana issued
      a
      purchase order for purchase of Ogo devices. We did not enter into a specific
      agreement with Onetouch, and the purchase order is governed by our standard
      terms and conditions. Consequently, Ogo devices and related services are now
      available in Ghana.




In
      February 2007, Vimpelcom, a Russian mobile operator serving more than 47 million
      subscribers, announced that it intends to launch an Ogo offering aimed at the
      small to medium enterprise. Vimpelcom, through Betalink, a third party
      purchasing arm, issued a purchase order for purchase of Ogo devices, subject
      to
      our standard terms and conditions. An agreement with Vimpelcom for the provision
      of services is in final stages of completion. The agreement with Betalink has
      been finalized and executed and the Ogo devices under purchase order have been
      supplied.




-
          26 -




In
      March,
      2007, we and Cleveland Unlimited, Inc. d/b/a “Revol” signed a letter of intent
      which provides that Revol Wireless, based in Independence, Ohio will distribute
      Ogo2.0 products and services as part of Revol’s offering. Revol will be the
      first to launch Ogo 2.0c, IXI’s first CDMA 3G product, with EV-DO technology in
      the United States. This launch is expected to occur this fall. The letter of
      intent between the parties, outlines the general commercial understandings
      and
      sets the timeframe for the signing of a definitive agreement to be not later
      than May 31, 2007. However, this agreement has not yet been finalized. The
      distribution arrangements will be subject to FCC type approval of the device
      and
      other terms to be finally agreed by the parties.




In
      June,
      2007, Mobilkom Austria AG, a Vodafone partner company, the largest cellular
      operator in Austria and one of the largest operators in Central Europe,
      announced the launch of OgoTM device in Austria. Mobilkom has over 3.5 million
      subscribers in Austria and over 10 million subscribers in Europe.




In
      August
      2007, we announced the appointment of In Mobile Solutions Sdn Bhd (IMS) as
      our
      distributor to Malaysia.




Since
      we
      do not yet have sufficient experience with sales of the Ogo devices in Europe
      in
      order to predict the appropriate rate of product which will be actually sold
      by
      our customers to end users, we currently recognize revenues arising from the
      sale of the devices only upon activation of the service to the end user.




In
      previous years, we derived revenues from licensing our PMG software pursuant
      to
      several licensing agreements for the development and manufacture of PMG-based
      devices with companies such as Samsung Electronics Co. Ltd., Seiko Instruments
      Inc., SK Telecom Co. Ltd. and Sanyo North America Corporation. Our software
      business model consisted of upfront license fees, maintenance fees and royalty
      payments upon the sale of devices which incorporated the PMG software. Future
      revenues from PMG software are expected to be de minimis since no manufacturers
      are currently incorporating the PMG software into their devices, and IXI is
      not
      currently actively engaged in the selling and marketing of the PMG software.
      Our
      management does not see the PMG activity as a separate segment as it shares
      all
      its resources with the Ogo activity.




From
      2005
      through June 30, 2007, we shipped and recognized revenues from the following
      sales of Ogo devices (excluding AT&T Wireless sales):




-
          27 -




**Q2
                  2005**
              
              **Q3
                  2005**
              
              **Q4
                  2005**
              
              **Q1
                  2006**
              
              **Q2
                  2006**
              
              **Q3
                  2006**
              
              **Q4
                  2006**
              
              **Q1 2007**
              
              **Q2
                  2007**In
                  US$**Revenue
                  from****sale
                  of the Ogo****devices**
              
              -
              
              150,000
              
              589,920
              
              1,641,820
              
              3,436,883
              
              3,308,681
              
              3,354,609
              
              2,632,323
              
              2,511,441**Deferred****Revenue***
              
              150,000
              
              673,232
              
              4,174,903
              
              3,510,484
              
              6,843,129
              
              10,954,060
              
              12,414,634
              
              11,685,980
              
              11,691,426**Ogo
                  Average****Selling
                  Price****(“ASP”)**
              
              -
              
              150
              
              168
              
              164
              
              182
              
              166
              
              168
              
              169
              
              170**Monthly
                  Service****ASP,
                  per****subscriber**
              
              -
              
              -
              
              2.7
              
              2.8
              
              2.2
              
              1.6
              
              2.0
              
              1.9
              
              1.8In
                  Units**Units
                  shipped**
              
              1,000
              
              4,000
              
              24,250
              
              5,750
              
              39,692
              
              44,806
              
              28,196
              
              10,700
              
              13,791**Units
                  shipped****(cumulative)**
              
              1,000
              
              5,000
              
              29,250
              
              35,000
              
              74,692
              
              119,498
              
              147,694
              
              158,394
              
              172,185**Subscribers****(cumulative)****
              
              -
              
              -
              
              4,505
              
              14,540
              
              33,377
              
              53,263
              
              73,196
              
              88,754
              
              103,562**Customers
                  -****launched****(cumulative)**
              
              -
              
              1
              
              2
              
              3
              
              4
              
              4
              
              5
              
              5
              
              6




*
      Deferred Revenues of devices as of the last date of the applicable
      quarter;


**
      The
      number of subscribers will be reduced from time to time due to deactivation
      of
      some of our customers’ subscribers and replacement of devices.




To
      date,
      we have derived our revenues from a small number of customers. The revenues
      from
      major customers are outlined in the table below:




**Three
                Months Ended**
              **June
                30,**
            
            **Year
                Ended December 31,****2007**
            
            **2006**
            
            **2006**
            
            **2005**
            
            **2004**Ogo:AT&T
                Wireless [terminated in 2005]
            
            
            —
            
            
            —
            
            
            —
            
            
            85
            %
            
            60
            %Swisscom
                Mobile
            
            
            54
            %
            
            30
            %
            
            45
            %
            
            8
            %
            
            —e-Kolay
            
            
            5
            %
            
            8
            %
            
            7
            %
            
            2
            %
            
            —1&1
            
            
            34
            %
            
            59
            %
            
            46
            %
            
            —
            
            
            —Others
            
            
            7
            %
            
            3
            %
            
            2
            %
            
            5
            %
            
            —The
                following presents revenues by geographic breakdown:
            
            **Three
                Months Ended**
              **June
                30,**
            
            
            **Year
                Ended**
              **December
                31,****2007**
            
            
            **2006**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**United
                States
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            6,794
            
            $
            572Europe
                and Middle East
            
            
            3,042
            
            
            3,624
            
            
            12,645
            
            
            825
            
            
            —South
                America
            
            
            128
            
            
            5
            
            
            184
            
            
            —
            
            
            —Asia
                Pacific
            
            
            —
            
            
            100
            
            
            100
            
            
            348
            
            
            300Total
            
            $
            3,170
            
            $
            3,729
            
            $
            12,929
            
            $
            7,967
            
            $
            872




-
          28 -




**Operating
      Expenses**




***Cost
      of Revenues***




Cost
      of
      revenues relating to the Ogo devices consists primarily of the cost of (i)
      the
      device components that we procure directly from third party suppliers, (ii)
      the
      cost to us of having the device manufactured by Chi Mei, (iii) royalties for
      third party licenses for software included in the Ogo devices, shipping and
      packaging costs, salaries and related personnel expenses for employees engaged
      in the delivery and support of our products, (iv) allocation of fixed overhead
      and facility costs and (v) an allowance for the warranty of our products. As
      of
      June 30, 2007, the Company’s management believe, that due to the commercial
      launch of Ogo2.0 during the quarter it will be able to sell smaller quantities
      of its older products than it has previously anticipated, therefore it has
      recorded an inventory write down provision of $269,000 and it believes that
      it
      will not realize $ 680,000 from the advance payments and has recorded cost
      of revenues of $680,000 for advance payments to suppliers.




We
      provide a warranty for our products for various periods ranging from 12 to
      30
      months. We also receive a warranty from Chi Mei on the devices for a period
      of
      12 months from delivery to us or our customer, as applicable. We provide an
      accrual to cover the costs of such commitments when we have received an
      indication from our customers that such warranty costs are probable to be
      incurred. Chi Mei’s warranty to us is recorded as income when reimbursement is
      received or Chi Mei assumes responsibility. The warranty costs are included
      in
      the cost of revenues.




Cost
      of
      revenues relating to our hosted services consists primarily of (i) royalty
      expenses for third party services included in the Ogo devices, (ii) salaries
      and
      related personnel expenses for employees engaged in the support of the hosted
      services and (iii) an allocation of fixed overhead and facility costs, based
      on
      the number of employees engaged in the support of the hosted
      services.




We
      have
      entered into agreements with various third party contractors who provide us
      with
      hosted services. These agreements typically include a monthly fee per use,
      with
      certain minimums per month. Until we are able to significantly expand the Ogo
      device subscriber base, our cost of revenues from these services on a per unit
      basis is expected to be relatively high.




***Research
      and Development Expenses***




Research
      and development expenses consist primarily of salaries and related personnel
      expenses, subcontractor costs related to the design, development and testing
      of
      new products and technologies, product enhancements and an allocation of fixed
      overhead and facilities costs related to research and development activity.
      We
      conduct research and development primarily in our facilities in Israel and
      Romania. All research and development costs are expensed as
      incurred. As of June 30, 2007, our research and development team was comprised
      of 82 employees and consultants in Israel and Romania. We expect our research
      and development expenses to increase in the future as we continue to expand
      our
      product offering, features and applications. We received royalty-bearing grants
      from the OCS for funding the development of PMG software and the OS. The grants
      were deducted from research and development expenses. Research and development
      grants are recognized when we satisfy all the conditions under the law for
      being
      entitled to such grants. We do not have any current plans to apply for
      additional research and development grants from the Government of
      Israel.




-
          29 -




***Selling
      and Marketing Expenses***




Selling
      and marketing expenses consist primarily of salaries, commissions, participation
      in our customers’ marketing efforts and related personnel expenses for those
      engaged in the sale and marketing of our products, travel, as well as related
      trade shows and promotional and public relations expenses and an allocation
      of
      fixed overhead and facilities costs related to marketing and sales activity.
      We
      maintain a direct sales force, as well as utilizing independent distributors
      and
      sales representatives, under various agreements and methods of compensation
      (such as salaries, consultancy fees, bonuses based on sales and commissions
      set
      as a percentage of selling price). As of June 30, 2007, our sales and marketing
      team was comprised of 24 professionals worldwide and is expected to grow in
      the
      future as we expand our sales and marketing activities worldwide. We expect
      our
      selling and marketing expenses to increase in the future due to an increase
      in
      direct expenses related to sales and marketing, including salaries to its
      additional direct sales force, as well as increased bonus payments and sales
      commissions on its revenues. In addition, as our customer base grows, we will
      be
      required to participate in additional marketing efforts.




Furthermore,
      in November 2005, certain of our stockholders, as well as Landa Ventures,
      Ltd. (“Landa”) and certain investment funds controlled by the Gemini Israel
      Funds (the “Gemini Funds”), entered into a Keep Well Agreement with one of our
      customers, under which they undertook to compensate the customer, up to a
      maximum liability of $4 million, for damages caused by our failure to meet
      our service or supply commitments, provided such failure was due to a lack
      of
      capital. As a consideration for such undertaking, in February 2006, IXI
      issued to such stockholders 11,478,379 shares of convertible preferred stock
      equivalent to 1,773,494 common shares of the Company post merger at an issue
      price equal to the par value of $0.01 per share. Under GAAP, the cost associated
      with this guarantee in the amount of $3.76 million is required to be
      recorded as a deferred charge against additional paid in capital, and the
      deferred charge was amortized to sales and marketing expenses over the expected
      guarantee period of 20 months ($188,000 per month). Since the Keep Well
      Agreement was terminated in connection with the $20 million bridge financing,
      the full amount of the cost associated with this guarantee was recognized as
      of
      December 31, 2006.




***General
      and Administrative Expenses***




General
      and administrative expenses consist primarily of salaries and related personnel
      expenses for executive, accounting, finance, legal, human resources,
      administrative and network and information systems personnel, facilities
      maintenance, professional fees and other general corporate expenses. We will
      need to expand our general and administrative expenses as we expand our
      operations and sales to additional countries as well as additional regulatory
      compliance expenses relating to publicly traded company reporting obligations.
      In the three and six months ended June 30, 2007, the Company recognized non
      recurring charges following the consummation of the merger.




***Financial
      Expenses, Net***




Financial
      expenses, net of interest received on bank deposits and exchange rate
      differences resulting in a gain, when applicable, consist primarily of interest
      paid on short term and long term loans and on convertible bridge loans and
      of
      amortization of discount attributed to detachable warrant costs in connection
      with short-term loans, long-term loans and convertible loans. In the three
      and
      six months ended June 30, 2007, the Company recognized non recurring charges
      following the consummation of the merger.




-
          30 -




**Non-GAAP
      Financial Measures**




We
      present the following non-GAAP financial measures: non-GAAP Cost of Revenues;
      non-GAAP operating income and non-GAAP net income;




**Non
      GAAP Cost of Revenues reconciliation for the three months ended June 30,
      2007** :




**IXI
                Mobile, Inc.****Reconciliation
                of Non-GAAP Financial Measure****Three
                months ended**
            
            **Three
                months ended****June
                30 2007**
            
            **June
                30 2006****($K)**
            
            **($K)****TOTAL
                REVENUES**
            
            **3,171**
            
            **3,729****GAAP
                Cost of Revenues:**
            
            4,062
            
            4,096**GAAP
                Gross margin**
            
            -28.14
            %
            -9.84
            %Stock
                based option expense in GAAP Cost of Revenues
            
            145
            
            1Inventory
                write-down (including vendor advance payments write-off)
            
            837
            
            83**Non
                GAAP Cost of Revenues (excluding the above)**
            
            3,080
            
            4,012**Non
                GAAP gross margin**
            
            2.82
            %
            -7.57
            %




-
          31 -


**Non
        GAAP Operating Loss reconciliation for the three months ended June 30,
        2007** :
 
 **IXI
                  Mobile, Inc.****Reconciliation
                  of Non-GAAP Financial
                  Measure**
 **Three
                    months ended**
                
                **Three
                    months ended****June
                    30 2007**
                
                **June
                    30 2006****($K)**
                
                **($K)****GAAP
                    Operating loss**
                
                
                (10,168
                )
                
                (6,266
                )Stock
                    based option and share expense in GAAP Operation expenses, including
                    merger related expenses
                
                
                2,881
                
                
                95Inventory
                    write-down (including vendor advance payments write off)
                
                
                837
                
                
                83**Non
                    GAAP Operating loss (excluding the above)**
                
                
                (6,450
                )
                
                (6,088
                )
  **Non
        GAAP Net Loss reconciliation for the three months ended June 30,
        2007** :
 
 **IXI
                  Mobile, Inc.****Reconciliation
                  of Non-GAAP Financial
                  Measure**
 **Three
                    months ended**
                
                **Three
                    months ended****June
                    30 2007**
                
                **June
                    30 2006****($K)**
                
                **($K)****GAAP
                    Net loss**
                
                
                (21,508
                )
                
                (6,277
                )Stock
                    based option and share expense in GAAP Operation expenses, including
                    merger related expenses
                
                
                2,881
                
                
                95Inventory
                    write-down (including vendor advance payments write off)
                
                
                837
                
                
                83Financial
                    expenses relating to merger
                
                
                10,258
                
                
                0**Non
                    GAAP Net loss (excluding the above)**
                
                
                (7,532
                )
                
                (6,099
                )


-
          32 -




**Non
      GAAP Cost of Revenues reconciliation for the six months ended June 30,
      2007** :




**IXI
                Mobile, Inc.****Reconciliation
                of Non-GAAP Financial Measure****Six
                months ended**
            
            **Six
                months ended****June
                30 2007**
            
            **June
                30 2006****($K)**
            
            **($K)****TOTAL
                REVENUES**
            
            **6,294**
            
            **5,468****GAAP
                Cost of Revenues:**
            
            7,173
            
            6,356**GAAP
                Gross margin**
            
            -13.97
            %
            -16.24
            %Stock
                based option expense in GAAP Cost of Revenues
            
            146
            
            2Inventory
                write-down (including vendor advance payments write-off)
            
            958
            
            215**Non
                GAAP Cost of Revenues (excluding stock-based compensation expense
                and
                Inventory write-downs)**
            
            6,069
            
            6,139**Non
                GAAP gross margin**
            
            3.57
            %
            -12.27
            %


**Non
        GAAP Operating Loss reconciliation for the six months ended June 30,
        2007** :
  **IXI
                  Mobile, Inc.****Reconciliation
                  of Non-GAAP Financial
                  Measure**


**Six
                  months ended**
              
              **Six
                  months ended****June
                  30 2007**
              
              **June
                  30 2006****($K)**
              
              **($K)****GAAP
                  Operating loss**
              
              
              (15,965
              )
              
              (10,556
              )Stock
                  based option and share expense in GAAP Operation expenses, including
                  merger related expenses
              
              
              2,953
              
              
              193Inventory
                  write-down (including vendor advance payments write-off)
              
              
              958
              
              
              215**Non
                  GAAP Operating loss (excluding the above)**
              
              
              (12,054
              )
              
              (10,148
              )




-
          33 -


**Non
        GAAP Net Loss reconciliation for the six months ended June 30,
        2007** :
 
 **IXI
                  Mobile, Inc.****Reconciliation
                  of Non-GAAP Financial
                  Measure**
 **Six
                    months ended**
                
                **Six
                    months ended****June
                    30 2007**
                
                **June
                    30 2006****($K)**
                
                **($K)****GAAP
                    Net loss**
                
                
                (28,230
                )
                
                (10,763
                )Stock
                    based option and share expense in GAAP Operation expenses, including
                    merger related expenses
                
                
                2,953
                
                
                193Inventory
                    write-down (including vendor advance payments write off)
                
                
                958
                
                
                215Financial
                    expenses relating to merger
                
                
                10,258
                
                
                0**Non
                    GAAP Net loss (excluding the above)**
                
                
                (14,061
                )
                
                (10,355
                )


We
      excluded the following items in the development of the non-GAAP financial
      measures presented:




**1)
      Stock-based compensation expenses.**




We
      have
      excluded stock-based compensation expenses, which consist of expenses for
      stock-based compensation that we began recording under SFAS 123-R in the first
      quarter of fiscal 2006. We excluded these expenses primarily because they are
      non-cash expenses that we do not consider part of ongoing operating results
      when
      assessing the performance of our business.




**2)
      Inventory write-down and** **Vendor
      advance payments write off.**




We
      have
      excluded inventory write-down and vendor advance payments write off. Although
      these may be considered a recurring item under Item 10(e) of Regulation S-K,
      management evaluates its Cost of Revenues excluding this item in order to better
      understand the trends in its Cost of Revenues. Management thinks it is useful
      for investors in assessing the Cost of Revenues as compared to revenues, which
      is important for understanding the performance of our business.




**3)
      General and administrative expenses recorded in connection with the issuance
      of
      stock, stock options and cash bonuses to our senior
      management.**




We
      have
      excluded expenses recorded in connection with the issuance of stock, stock
      options and cash bonuses to Gideon Barak, co-Chairman and Amit Haller, President
      and Chief Executive Officer in connection with the consummation of the Merger
      and their specific compensation terms following the consummation of the merger.
      We excluded these expenses from our non-GAAP operating loss primarily because
      we
      believe that excluding these items allows investors to better assess our
      operating loss and to compare it to previous periods which did not include
      these
      expenses.




-
          34 -




**4)
      Finance expenses recorded in connection with the consummation of the merger**




In
      addition to the above mentioned exclusions, we have also excluded financial
      expenses recorded in connection with the consummation of the merger. We exclude
      these expenses from our non-GAAP loss primarily because we believe that
      excluding these items allows investors to better assess our net loss and to
      compare it to previous periods which did not include these expenses.




Our
      non-GAAP presentation and information should not be considered as a substitute
      for, or as superior to, our financial information prepared in accordance with
      GAAP. The non-GAAP presentation does not reflect a comprehensive system of
      accounting, and they differ from similar financial information prepared in
      accordance with GAAP and from financial information not prepared in accordance
      with GAAP with the same or similar names that are used by other companies.
      We
      strongly urge investors and potential investors in our securities to review
      the
      reconciliation of our non-GAAP financial information to the comparable GAAP
      financial information that are included in this filing, and our consolidated
      financial statements, including the notes thereto, and the other financial
      information contained in our periodic filings with the SEC and not to rely
      on
      any single financial measure to evaluate our business. The principal limitation
      of our non-GAAP presentation is that it excludes significant expenses that
      are
      required by GAAP to be recorded. In addition, the non-GAAP presentation is
      subject to inherent limitations because it reflects the exercise of judgments
      by
      management about which charges are excluded from the non-GAAP presentation.
      To
      mitigate this limitation, we present our non-GAAP presentation in addition
      to
      our GAAP results, and recommend that investors do not give undue weight to
      the
      non-GAAP presentation.




**Critical
      Accounting Policies**




Our
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States. The preparation of our
      financial statements require management to make estimates and assumptions that
      affect the reported amounts of revenue and expenses, assets and liabilities
      and
      disclosure of contingent assets and liabilities, based upon information
      available at the time that they are made, historical experience and various
      other factors that are believed to be reasonable under the circumstances. These
      estimates are evaluated by us on an on-going basis. Actual results may differ
      from these estimates under different conditions. Our
      significant accounting policies are more fully described in note 2 to our
      consolidated financial statements included in Item 1 of this Quarterly Report
      and in IXI financial statements included in our proxy statement.




We
      believe that the application of the following critical accounting policies
      entails the most significant judgments and estimates used in the preparation
      of
      our consolidated financial statements.




***Revenue
      Recognition***




Our
      current sales arrangements with customers for sale of the Ogo devices include
      a
      number of elements or multiple deliverables that may represent individual units
      of accounting. These deliverables typically consist of the device (including
      software embedded in the device) and a variety of hosted services.




For
      these
      arrangements, we implement the guidance in EITF No. 00-21 “Revenue Arrangements
      with Multiple Deliverables”. The principles and guidance outlined in EITF No.
      00-21 provide a framework to (a) determine whether an arrangement involving
      multiple deliverables contains more than one unit of accounting, and (b)
      determine how the arrangement consideration should be measured and allocated
      to
      the separate units of accounting in the arrangement. Each of these deliverables
      in the arrangement represents individual units of accounting if the product
      has
      (i) value to the customer on a stand-alone basis; (ii) vendor-specific objective
      and reliable evidence of fair value exists for the undelivered elements and
      (iii) the arrangement does not include a general right of return.




Typically,
      our products and service are considered separate units of accounting when we
      (i)
      enter into a contract with a customer for the supply of Ogo devices and (ii)
      provide hosted services. Currently, we have yet to establish a substantial
      vendor specific objective evidence of fair value for our devices sold and
      therefore, we use the residual method to allocate the arrangement consideration.
      Under the residual method, we first estimate the fair value of the undelivered
      elements (the hosted services) based on the price that we charge for those
      services when sold separately. After the fair value of the hosted services
      is
      established, the residual value is allocated to the delivered element (the
      Ogo
      device).




-
          35 -




We
      recognize revenue from sales of the Ogo devices when persuasive evidence of
      an
      arrangement exists, delivery has occurred, the price is fixed or determinable
      and collectibility is reasonably assured. We do not grant a right of return
      to
      our customers. The software embedded in the Ogo device was developed by us
      and
      incorporated into the hardware manufactured by Chi Mei. Almost all of our
      engineers are software engineers and the intellectual property developed by
      us
      is mostly software related. As the software embedded in the Ogo devices is
      not
      deemed to be incidental, we recognize revenues in accordance with the American
      Institute of Certified Public Accountants Statement of Position No. 97-2,
“Software Revenue Recognition” (“SOP No. 97-2”).




Assuming
      all the abovementioned criteria for revenue recognition have been met, we
      recognize revenue for our device sales when the end user has activated the
      service for the Ogo device and recognizes revenue for hosted services on a
      monthly basis when the services are rendered. Recognition of revenues from
      Ogo
      devices upon the activation of the device and related service by the end user,
      as opposed to recognizing revenues upon delivery to our customers, is due to
      the
      fact that we do not have sufficient experience with sales of the Ogo device
      in
      order to predict the appropriate volume of Ogo devices actually sold by our
      customer to end users. In the future, if there is sufficient experience, we
      may
      be able to recognize revenues based on delivery to our customers, assuming
      all
      other revenue recognition criteria are met.




We
      are
      committed to participating in the marketing and advertising efforts of a number
      of our customers through reimbursement of direct expenses actually paid by
      such
      customers, up to limited, pre-defined amounts. Such participation costs are
      recorded as selling and marketing expenses or as a deduction of revenues, as
      appropriate. Marketing participation is characterized as a reduction of revenue
      unless both of the following conditions are met:




·
            we
                receive, or will receive, an identifiable marketing activity in exchange
                for the consideration; and




·
            we
                can reasonably estimate the fair value of the marketing
                activity.




**Warranty
      costs**




We
      make
      provisions for warranty costs at the time such costs are deemed to be incurred.
      We incur an accrual to cover the costs of our warranty commitments when we
      have
      received indication from our customers that such warranty costs are probable
      to
      be incurred. Chi Mei’s warranty to us is recorded as income when reimbursement
      is received or when Chi Mei assumes responsibility. The warranty costs are
      included in the cost of revenues.




**Inventories**




Inventories
      are stated at the lower of cost or market value. Cost of raw materials and
      finished products is determined by the “first-in, first-out” method. We
      periodically evaluate our quantities on hand relative to historical costs and
      current market value and projected sales volume. Based on these evaluations,
      inventory write-offs and write-down provisions are provided to cover risks
      arising from slow moving items, technological obsolescence, excess inventories,
      discontinued products and market prices lower than cost. If the future market
      conditions are less favorable than our projections, additional inventory
      write-downs may be required and would be reflected in cost of sales in the
      period the revision is made.




-
          36 -




**Accounting
      for stock-based compensation**




Until
      December 31, 2005, we accounted for all employee stock-based compensation in
      accordance with Accounting Principles Board Opinion No. 25, “Accounting for
      Stock Issued to Employees,” or APB 25, and in accordance with FASB
      Interpretation No. 44, we applied the provisions of FAS 123 under the minimum
      value for disclosure purposes. Pursuant to these accounting pronouncements,
      we
      recorded compensation for stock options granted to employees over the vesting
      period of the options based on the difference, if any, between the exercise
      price of the options and the fair value of the underlying shares at that date
      of
      grant. Deferred compensation was amortized to compensation expense over the
      vesting period of the options and was included as salary as part of the cost
      of
      revenues, research and development costs, sales and marketing expenses and
      general and administrative expenses. This method requires that we make an
      estimate regarding the fair market value of our underlying shares. In making
      this estimate, we have used historical data, available third party valuations
      and management judgment. In November 2005, we issued to employees options to
      purchase shares of common stock under our Employee Stock Option Plans, at an
      exercise price determined by our board of directors as the fair market value
      of
      the underlying common stock. For our audited year end reports, we retained
      an
      independent third party valuation firm to determine the fair market value of
      common stock on various dates including November 2005, and their determination
      was that the fair market value of the common stock was higher than that
      determined by the board of directors. As a result, we recorded compensation
      expenses in the amount of approximately $800,000 out of which approximately
      $16,000 was recognized as an amortization of deferred stock compensation during
      2005, approximately $242,000 was recognized in the year ended December 31,
      2006
      and approximately $50 was recognized in the three months ended June 30, 2007.
      In
      addition, under US tax law, a person taxed under US law who is granted an option
      at an exercise price which is less than the fair market value at the date of
      grant, may be subject to a tax liability upon the vesting of such options for
      the potential gain between the exercise price and the fair market value as
      well
      as to a 20% penalty tax. In July 2006, IXI’s board of directors resolved to
      offer US employees who so requested to change the exercise price of the options
      granted to those employees in November 2005 to equal the fair market value
      as of
      such date, in order to avoid any such tax consequences. Such changes in the
      exercise price were accounted as a modification under the provisions of SFAS
      123(R). Since the new exercise price equals the fair market value of the shares
      upon the modification, and given the fact that all other option terms will
      remain as in the original award, no incremental compensation costs under the
      provisions of SFAS 123(R) were recognized.




We
      apply
      SFAS No. 123(R) and EITF No. 96-18, “Accounting for Equity Instruments that are
      Issued to Other than Employees for Acquiring, or in Conjunction with Selling,
      Goods or Services” (“EITF No. 96-18”), with respect to options granted to
      non-employees. SFAS No. 123(R) requires the use of an option valuation model
      to
      measure the fair value of the warrants at the grant date. This method requires
      that we make an estimate regarding the fair market value of the underlying
      shares. Compensation expense in respect of options granted to non-employees
      amounted to $30 for the three months ended June 30, 2007.




In
      December 2004, the FASB issued Statement 123R, or SFAS 123(R). SFAS 123R is
      a
      revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation”,
      which supersedes APB 25 and its authoritative interpretations.




SFAS
      123(R) establishes standards for the accounting for transactions in which an
      entity exchanges its equity instruments for goods or services, focuses primarily
      on accounting for transactions in which an entity obtains employee and directors
      services in share-based payment transactions, and does not change the accounting
      guidance for share-based payment transactions with parties other than
      employees.




SFAS
      123(R) eliminates the option of using APB 25’s intrinsic value method of
      accounting that was provided in SFAS 123 as originally issued and requires
      issuers to measure the cost of employee services received in exchange for
      an
      award of equity instruments based on the grant-date fair value of the award.
      The
      fair-value-based method in SFAS 123(R) is similar to the fair-value-based method
      in SFAS 123 in most respects. The costs associated with the awards will be
      recognized over the period during which an employee is required to provide
      service in exchange for the award which is usually the vesting period. We
      adopted SFAS No. 123(R) using the prospective-transition method as required
      for
      nonpublic entities that uses the Minimum-Value method to account for their
      pro
      forma share-based payment disclosure under SFAS No. 123(R). As such, we will
      continue to apply APB 25 in future periods to equity awards outstanding at
      the
      date SFAS No. 123(R) adoption. All awards granted, modified, or settled after
      the date of adoption should be accounted for using the measurement, recognition,
      and attribution provisions of SFAS No. 123(R).




-
          37 -




The
      new
      standard became effective for us beginning on January 1, 2006. The adoption
      of
      SFAS No. 123(R) did not have a material effect on our financial position or
      results of operations.




Stock-based
      compensation expense recognized under SFAS 123(R) for employees and consultants
      for the three months ended June 30, 2007 and for the year ended December 31,
      2006 amounted to approximately $1,600,000 and $430,000, respectively, including
      continuation of expense recognized pursuant to APB 25.




In
      March
      2005, the SEC released SEC Staff Accounting Bulletin No. 107, “Stock-Based
      Payment” (“SAB No. 107”). SAB No. 107 provides the SEC staff’s position
      regarding the application of FAS 123(R) and contains interpretive guidance
      related to the interaction between Statement No. 123(R) and certain SEC rules
      and regulations, and also provides the SEC staff’s views regarding the valuation
      of stock-based payment arrangements for public companies. SAB No. 107 highlights
      the importance of disclosures made relating to the accounting for stock-based
      payment transactions.




**Commitments
      and Contingent Liabilities**




***Litigation
      claims***




Liabilities
      related to legal proceedings, demands and claims are recorded when it is
      probable that a liability has been incurred and the associated amount can be
      reasonably estimated. Based on the opinion of our legal counsel, our management
      believes that we had provided an adequate accrual to cover the costs to resolve
      any outstanding legal proceedings, demands and claims.




***OCS***




Our
      management has assessed that due to our breach of the Law for the Encouragement
      of Research and Development in the Industry, 1984, we may be required to repay
      all funds granted by the OCS, including accrued interest at the LIBOR rate.
      If
      we are required to pay to the OCS amounts which are significantly higher than
      estimated by our management, our business, financial condition and results
      of
      operations may be adversely affected. For further discussion of this issue,
      see
“ *Overview* ”
      above.




**Results
      of Operations**




**Three
      months ended June 30, 2007 (unaudited) compared to three months ended June
      30,
      2006 (unaudited)**




***Revenues***




Our
      revenues for the three months ended June 30, 2007 were approximately $3.2
      million, compared to approximately $3.7 million for the three months ended
      June
      30, 2006. The revenues for the three months ended June 30, 2007 included
      approximately $2.5 million from sale of Ogo devices to Swisscom, 1&1 Ancel
      and e-Kolay, approximately $550,000 from hosted services and approximately
      $110,000 from non-recurring engineering contracts. The revenues for the three
      months ended June 30, 2006 included $3.4 million from sale of Ogo devices to
      Swisscom and e-Kolay and approximately $180,000 from hosted
      services.




***Cost
      of revenues***




Our
      total
      cost of revenues for the three months ended June 30, 2007 was approximately
      $4
      million, compared to approximately $4 million for the three months ended June
      30, 2006.




Our
      cost
      of revenues was higher than revenues in the three months ended June 30, 2007
      due
      to a number of key factors:




-
          38 -




·
            As
                of June 30, 2007, the Company’s management believe, that due to the
                commercial launch of Ogo2 during the quarter it will be able to sell
                smaller quantities of its older products than it has previously
                anticipated, therefore it will not realize inventory in the amount
                of
                $156,000;




·
            Due
                to the Company's management belief mentioned in the previous bullet,
                the
                Company has written off vendor advance payments in the amount of
                $680,000.
                Vendor advance payments are installments paid to vendors prior to
                the date
                the Ogo units are shipped to us or designated customers and are required
                to finance the production of the Ogo devices. The advance payments
                are
                mainly to enable our vendors to purchase raw materials with long
                supply
                period, are based on the progress of the production and are deducted
                from
                the total shipment payment which is accrued upon the delivery of
                the Ogo
                units.




·
            Cost
                of revenues for the Ogo-related hosted services consists primarily
                of
                payments to our subcontractors who provide hosted services and to
                instant
                messaging service providers. Our cost of revenues related to the
                services
                decreased in the three months ended June 30, 2007, compared with
                the three
                months ended June 30, 2006, by comparison to our revenues, due to
                our
                agreement with a major IM supplier, that was amended in 2007 and
                was valid
                as of January 1, 2007, which requires us to pay certain minimum fees
                per
                month materially lower than in 2006. The main terms of the Amendment
                are
                as follows: (i) the minimum amount to be paid has been reduced to
                $2.8
                million through September 2009 beginning January 2007 as compared
                to $3.6
                million in calendar year 2006 and $7.8 million in calendar year 2007;
                and
                (ii) the term of the agreement has been extended until September
                30, 2009.




·
            Salaries
                and related personnel expenses for employees engaged in the delivery
                and
                support of our products and employees engaged in the support of the
                hosted
                services, as well as the allocation of fixed overhead and facility
                costs,
                are fixed costs and as such, had an adverse impact on the cost of
                revenues
                due to the small number of units sold or with respect to which revenue
                was
                recognized.




***Research
      and development expenses, net***




Our
      net
      research and development expenses increased by 200% to approximately $4.1
      million for the three months ended June 30, 2007 from approximately $1.4 million
      for the three months ended June 30, 2006. The increase was primarily
      attributable to an increase in the headcount and fixed overhead and facility
      costs in the amount of approximately $500,000, an increase of stock based
      compensation in the amount of approximately $225,000, increase in expenses
      in
      the amount of $390,000, primarily attributable to an increase in subcontractors
      expenses and additional expenses of approximately $1.7 million for development
      of new applications and new models of the Ogo device including: the development
      of the Ogo 2.0, a new generation of Ogo devices for individual and professional
      users based on a new, more advanced, technology platform, the development of
      the
      Ogo Code division multiple access (“CDMA”), a new generation of Ogo devices
      which is based on EV-DO technology and the development of additional Ogo
      products. In contrast, during the three months ended June 30, 2006, IXI
      developed the Ogo 1.0 model CT-17 device.




***Selling
      and Marketing expenses***




Our
      selling and marketing expenses decreased by 63% to approximately $1.4 million
      for the three months ended June 30, 2007 from approximately $3.8 million for
      the
      three months ended June 30, 2006. The decrease was primarily attributable to
      a
      decrease of approximately $2.8 million recorded as amortization of the above
      mentioned Keep Well Agreement during the three months ended June 30, 2006,
      offset by an increase in the headcount and fixed overhead costs and facility
      costs in the amount of approximately $250,000, an increase of stock based
      compensation in the amount of approximately $87,000, and an increase in travel
      expenses in the amount of approximately $140,000 .




-
          39 -




***General
      and administrative expenses***




Our
      general and administrative expenses increased by 390% to approximately $3.8
      million for the three months ended June 30, 2007 from approximately $770,000
      for
      the three months ended June 30, 2006. The increase was primarily attributable
      to
      an increase of approximately $1.3 million on account of the issuance of 216,000
      shares of our common stock to Gideon Barak, our co-Chairman, upon the
      consummation of the merger, an increase of approximately $1.0 million in stock
      based compensation expenses following new option grants, an increase in the
      salaries, headcount and fixed overhead of approximately $480,000, that comprises
      of approximately $220,000 for a one time bonus that was granted to Amit Haller,
      our Chief Executive Officer following the consummation of the merger and $94,000
      expenses related to bonus plans of Gideon Barak, our co-Chairman and Amit Haller
      and an increase of costs in the amount of approximately $250,000 which resulted
      mainly from a provision for doubtful debt in the amount of approximately
      $110,000 and increase in legal and audit costs in the amount of approximately
      $140,000 .





The
      $94,000expenses related to bonus plans of Gideon Barak, our co-Chairman and
      Amit
      Haller that were recorded in the three months ended June 30, 2007 as a result
      of
      the consummation of the merger, have the following explanation:





1)
      We may
      be required to record General and Administration non recurring expenses in
      the
      aggregate amount of approximately $2 million in connection with the issuance
      to
      Gideon Barak, co-Chairman, of options to purchase 450,000 shares of our common
      stock, at an exercise price of $5.00, which vest upon reaching various price
      per
      share targets; these expenses will be recorded over a period of approximately
      42
      months from the consummation of the merger; an amount of $38,000 was recorded
      as
      an expense as of June 30, 2007;





2)
      We may
      be required to record General and Administration non recurring expenses in
      the
      aggregate amount of approximately $1.9 million in connection with the issuance
      to Amit Haller, Chief Executive Officer, of options to purchase 450,000 shares
      of our common stock, at an exercise price of $6.06, which vest upon reaching
      various price per share targets; these expenses will be recorded over a period
      of approximately 42 months from the consummation of the merger; an amount of
      $36,000 was recorded as expense as of June 30, 2007;





3)
      We
      will be required to record General and Administration non recurring expenses
      of
      up to approximately $1 million in connection with cash bonuses in the amount
      of
      up to $1.4 million that may be paid to each of Gideon Barak, co-Chairman, and
      Amit Haller, Chief Executive Officer, upon reaching various price per share
      targets. These expenses will be recorded over a period of approximately 42
      months from the consummation of the merger; an amount of $20,000 was recorded
      as
      expense as of June 30, 2007.




***Financial
      expenses, net***




Our
      financial expenses, net for the three months ended June 30, 2007 increased
      by
      2,070% and amounted to approximately $11.3 million from approximately $520,000
      for the three months ended June 30, 2006. This change was primarily attributable
      to interest on bridge loans and credit lines, which increased by approximately
      $1.8 million, and additional financial expenses recorded in connection with
      the
      consummation of the merger, as follows:




-
          40 -




1)
      We
      accounted for the modification to the terms of the bridge loan under the
      provisions of EITF 06-6, "Debtor's Accounting For A Modification (or Exchange)
      of Convertible Debt Instruments", as an extinguishment of the bridge loan,
      and
      the issuance of a new loan under the modified terms. As such, we recorded an
      immediate loss of approximately $8.8 million for the extinguishment of the
      original bridge loan as additional financial expenses. This included
      approximately $2.9 million for the extinguishment of the bridge loan (such
      amount includes costs for issuance of 600,000 shares of common stock to
      Southpoint) and approximately $6.0 million as detailed below. The amended bridge
      loan was recorded in the balance sheet based on its fair value which amounted
      to
      approximately $26 million. As the fair value of the amended bridge loan is
      greater than its contractual repayment schedule, such premium in the amount
      of
      approximately $5.9 million will be amortized over the contractual term of the
      loan (12 months) using the effective interest method as financial income. As
      of
      June 30, 2007, the Company recorded finance income of approximately $2.5 million
      as an effective interest income derived from the valuation of the
      loan.




2)
      In
      addition, we recorded approximately $2.4 million on account of the grant of
      400,000 shares of common stock to Southpoint in accordance with the terms of
      the
      amendment to the bridge loan, and non recurring, financial expenses of
      approximately $1.2 million due to the full amortization of various deferred
      debt
      costs related to the bridge loan.




3)
      We
      recorded non recurring, financial expenses of approximately $125,000 in
      connection with the issuance to certain financial institutions which provided
      advisory services to us of warrants to purchase 100,000 shares of our common
      stock at an exercise price of $ 5.00, expiring in 2009.




4)
      We
      recorded the following deferred debt costs on our Balance Sheet as of June
      30,
      2007, which will be amortized as financial expenses over a period of 12 months
      from the consummation of the merger:




a)
      Approximately $180,000 on account of the issuance of 30,000 shares of our common
      stock to certain private placement agents who participated in identifying
      potential bridge lenders; an amount of $12,000 was amortized as of June 30,
      2007;




b)
      Approximately $2.4 million on account of the issuance of 400,000 shares of
      our
      common stock to the Guarantors; an amount of $160,000 was amortized as of June
      30, 2007;




***Net
      loss***




We
      had a
      net loss from continuing operations of approximately $21.5 million, compared
      with net loss of approximately $6.3 million for the three months ended June
      30,
      2007 and 2006, respectively, due to the reasons mentioned above.




**Six
      months ended June 30, 2007 (unaudited) compared to six months ended June 30,
      2006 (unaudited)**




***Revenues***




Our
      revenues for the six months ended June 30, 2007 were approximately $6.3 million,
      compared to approximately $5.5 million for the six months ended June 30, 2006.
      The revenues for the six months ended June 30, 2007 included approximately
      $5.2
      million from sale of Ogo devices to Swisscom, 1&1 Ancel and e-Kolay,
      approximately $1.0 million from hosted services and approximately $140,000
      from
      non-recurring engineering contracts. The revenues for the six months ended
      June
      30, 2006 included $5.1 million from sale of Ogo devices to Swisscom and e-Kolay,
      approximately $260,000 from hosted services and approximately $100,000 revenues
      which we received from SK Teletech Co. Ltd. in 2005, but were recognized only
      in
      the second quarter of 2006 once maintenance fees under the agreement were
      received.




***Cost
      of revenues***




Our
      total
      cost of revenues for the six months ended June 30, 2007 was approximately $7.2
      million, compared to approximately $6.4 million for the six months ended June
      30, 2006.




-
          41 -




Our
      cost
      of revenues was higher than revenues in the six months ended June 30, 2007,
      due
      to a number of key factors:




·
            As
                of June 30, 2007, the Company’s management believes that due to the
                commercial launch of Ogo2 during the second quarter it will be able
                to
                sell smaller quantities of its older products than it has previously
                anticipated, therefore it will not realize inventory in the amount
                of
                $156,000. In addition, during the first quarter the Company has written
                off inventory in the amount of $121,000 due to swap devices that
                could no
                longer be utilized.




·
            Due
                to the Company's management belief mentioned in the previous bullet,
                the
                Company has written off vendor advance payments in the amount of
                $680,000.
                Vendor advance payments are installments paid to vendors prior to
                the date
                the Ogo units are shipped to us or designated customers and are required
                to finance the production of the Ogo devices. The advance payments
                are
                mainly to enable our vendors to purchase raw materials with long
                supply
                period, are based on the progress of the production and are deducted
                from
                the total shipment payment which is accrued upon the delivery of
                the Ogo
                units.




·
            Cost
                of revenues for the Ogo-related hosted services consists primarily
                of
                payments to our subcontractors who provide hosted services and to
                instant
                messaging service providers. Our cost of revenues related to the
                services
                decreased in the six months ended June 30, 2007, compared with the
                six
                months ended June 30, 2006, by comparison to our revenues, due to
                our
                agreement with a major IM supplier, that was amended in 2007 and
                was valid
                as of January 1, 2007, which requires us to pay certain minimum fees
                per
                month materially lower than in 2006. The main terms of the Amendment
                are
                as follows: (i) the minimum amount to be paid has been reduced to
                $2.8
                million through September 2009 beginning January 2007 as compared
                to $3.6
                million in calendar year 2006 and $7.8 million in calendar year 2007;
                and
                (ii) the term of the agreement has been extended until September
                30,
                2009.




·
            Salaries
                and related personnel expenses for employees engaged in the delivery
                and
                support of our products and employees engaged in the support of the
                hosted
                services, as well as the allocation of fixed overhead and facility
                costs,
                are fixed costs and as such, had an adverse impact on the cost of
                revenues
                due to the small number of units sold or with respect to which revenue
                was
                recognized.




***Research
      and development expenses, net***




Our
      net
      research and development expenses increased by approximately 160% to
      approximately $7.1 million for the six months ended June 30, 2007 from
      approximately $2.8 million for the six months ended June 30, 2006. The increase
      was primarily attributable to an increase in the headcount and fixed overhead
      and facility costs in the amount of approximately $1.0 million, an increase
      of
      stock based compensation in the amount of approximately $220,000, an increase
      in
      expenses in the amount of $820,000, primarily attributable to an increase in
      subcontractors expenses in the amount of $650,000 and legal expenses related
      to
      patents in the amount of approximately $150,000 and additional expenses of
      approximately $2.2 million for development of new applications and new models
      of
      the Ogo device including: the development of the Ogo 2.0, a new generation
      of
      Ogo devices for individual and professional users based on a new, more advanced,
      technology platform, the development of the Ogo Code division multiple
      access (“CDMA”), a new generation of Ogo devices which is based on EV-DO
      technology and the development of additional Ogo products. In contrast, during
      the six months ended June 30, 2006 IXI developed the Ogo 1.0 model CT-17 device.




-
          42 -




***Selling
      and Marketing expenses***




Our
      selling and marketing expenses decreased by 37% to approximately $3.3 million
      for the six months ended June 30, 2007 from approximately $5.3 million for
      the
      six months ended June 30, 2006. The decrease was primarily attributable to
      a
      decrease of approximately $3.4 million recorded as amortization of the above
      mentioned Keep Well Agreement during the six months ended June 30, 2006, offset
      by an increase in the headcount and fixed overhead costs and facility costs
      in
      the amount of approximately $500,000, an increase of stock based compensation
      in
      the amount of approximately $80,000, an increase in trade shows in the amount
      of
      $290,000, an increase in sales commissions in the amount of $250,000 and an
      increase in expenses in the amount of $340,000 primarily attributable to
      increase in travel expense in the amount of approximately $200,000 and in costs
      of sales representatives in the amount of approximately $140,000.




***General
      and administrative expenses***




Our
      general and administrative expenses increased by 195% to approximately $4.6
      million for the six months ended June 30, 2007 from approximately $1.6 million
      for the six months ended June 30, 2006. The increase was primarily attributable
      to an increase of approximately $1.3 million on account of the issuance of
      216,000 shares of our common stock to Gideon Barak, our co-Chairman, upon the
      consummation of the merger, an increase of approximately $1.0 million in stock
      based compensation expenses following new option grants, an increase in the
      salaries, headcount and fixed overhead of approximately $560,000 that comprises
      primarily of approximately $220,000 one time bonus that was granted to the
      CEO
      following the consummation of the merger and increase in headcount;. Also,
      an
      increase in other expenses was recorded as a provision for doubtful debt in
      the
      amount of approximately $110,000.





The
      $94,000 expenses related to bonus plans of Gideon Barak, our co-Chairman and
      Amit Haller that were recorded in the three months ended June 30, 2007 as a
      result of the consummation of the merger, have the following explanation:





1)
      We may
      be required to record non recurring General and Administration expenses in
      the
      aggregate amount of approximately $2.0 million in connection with the issuance
      to Gideon Barak, co-Chairman, of options to purchase 450,000 shares of our
      common stock, at an exercise price of $5.00, which vest upon reaching various
      price per share targets; these expenses will be recorded over a period of
      approximately 42 months from the consummation of the merger; an amount of
      $38,000 was recorded as an expense as of June 30, 2007;





2)
      We may
      be required to record non recurring, General and Administration expenses in
      the
      aggregate amount of approximately $1.9 million in connection with the issuance
      to Amit Haller, our Chief Executive Officer, of options to purchase 450,000
      shares of our common stock, at an exercise price of $6.06, which vest upon
      reaching various price per share targets; these expenses will be recorded over
      a
      period of approximately 42 months from the consummation of the merger; an amount
      of $36,000 was recorded as expense as of June 30, 2007;





3)
      We
      will be required to record non recurring, General and Administration expenses
      of
      up to approximately $1 million in connection with cash bonuses in the amount
      of
      up to $1.4 million that may be paid to each of Gideon Barak, co-Chairman and
      Amit Haller, Chief Executive Officer, upon reaching various price per share
      targets. These expenses will be recorded over a period of approximately 42
      months from the consummation of the merger; an amount of $20 was recorded as
      expense as of June 30, 2007.





-
          43 -




***Financial
      expenses, net***




Our
      financial expenses, net for the six months ended June 30, 2007 increased by
      1,630% and amounted to approximately $12.2 million from approximately $700,000
      for the six months ended June 30, 2006. This change was primarily attributable
      to interest on bridge loans and credit lines, which increased by approximately
      $2.5 million, and additional financial expenses recorded in connection with
      the
      consummation of the merger, as follows:




1)
      We
      accounted for the modification to the terms of the bridge loan under the
      provisions of EITF 06-6, "Debtor's Accounting For A Modification (or Exchange)
      of Convertible Debt Instruments", as an extinguishment of the bridge loan,
      and
      the issuance of a new loan under the modified terms. As such, we recorded an
      immediate loss of approximately $8.8 million for the extinguishment of the
      original bridge loan as additional financial expenses. This included
      approximately $2.9 million for the extinguishment of the bridge loan (such
      amount includes costs for issuance of 600,000 shares of common stock to
      Southpoint) and approximately $6.0 million detailed below. The amended bridge
      loan was recorded in the balance sheet based on its fair value which amounted
      to
      approximately $26 million. As the fair value of the amended bridge loan is
      greater than its contractual repayment schedule, such premium in the amount
      of
      approximately $5.9 million will be amortized over the contractual term of the
      loan (12 months) using the effective interest method as financial income. As
      of
      June 30, 2007, the Company recorded finance income of approximately $2.5 million
      as an effective interest income derived from the valuation of the Convertible
      Bridge Loan.




2)
      In
      addition, we recorded approximately $2.4 million on account of the grant of
      400,000 shares of common stock to Southpoint in accordance with the terms of
      the
      amendment to the bridge loan, and non recurring, financial expenses of
      approximately $1.2 million due to the full amortization of various deferred
      debt
      costs related to the bridge loan.




3)
      We
      recorded non recurring, financial expenses of approximately $125,000 in
      connection with the issuance to certain financial institutions which provided
      advisory services to us of warrants to purchase 100,000 shares of our common
      stock at an exercise price of $ 5.00, expiring in 2009.




4)
      We
      recorded the following deferred debt costs on our Balance Sheet as of June
      30,
      2007, which will be amortized as financial expenses over a period of 12 months
      from the consummation of the merger:




a)
      Approximately $180,000 on account of the issuance of 30,000 shares of our common
      stock to certain private placement agents who participated in identifying
      potential bridge lenders; an amount of $12,000 was amortized as of June 30,
      2007;




b)
      Approximately $2.4 million on account of the issuance of 400,000 shares of
      our
      common stock to the Guarantors; an amount of $160,000 was amortized as of June
      30, 2007.




***Net
      loss***




We
      had a
      net loss from continuing operations of approximately $28.2 million, compared
      with net loss of approximately $10.8 million for the six months ended June
      30,
      2007 and 2006, respectively, due to the reasons mentioned above.




**Liquidity
      and Capital Resources**




As
      of
      June 30, 2007, we had cash and cash equivalents aggregating approximately $31.6
      million.




-
          44 -




***IXI
      Funding***




Since
      our
      inception, our operations have been funded through capital investments from
      our
      stockholders, loans from venture lenders and banks, OCS grants and cash flow
      from operations.




**Working
      Capital Needs**




Since
      our
      founding, we have generated recurring losses from operations and negative cash
      flows from operating activities. As of June 30, 2007, we had a stockholders’
deficiency of approximately $7.5 million. We plan to continue to finance
      our operations through raising additional capital, and in the longer term,
      to
      generate sufficient revenues to finance our operations. There can be no
      assurances, however, that we will be successful in obtaining an adequate level
      of financing needed for our operations and long-term development or, that we
      will ever reach profitability and/or generate sufficient revenues to finance
      our
      operations. Therefore, our auditor expressed substantial doubt regarding our
      ability to continue as a going concern due to our working capital deficiency
      as
      of December 31, 2006 and continuing losses. We will need to raise
      additional funds to expand our business and manage our growth. The amount and
      timing of these capital requirements will depend on many factors. At this time,
      the amount of additional capital that we will require in the future is not
      quantifiable and timing thereof is not determinable. If we cannot maintain
      or
      obtain adequate capital to manage our business strategy and expected growth
      targets, our business, results of operations and financial condition may be
      adversely affected.




The
      main
      drivers for our working capital needs are the following:




Fulfillment
      of expanding Ogo sales orders. Our current payment terms with most of our
      suppliers are such that we need to pay a significant portion of the
      manufacturing costs relating to the Ogo devices prior to their delivery. The
      standard payment terms which we usually extend to our customers require payment
      within 30 days of delivery of the devices. Consequently, we are often forced
      to
      finance outstanding sales orders for several months. As our sales grow,
      significant cash will be required to finance its purchases of Ogo devices from
      its suppliers.




Currently,
      we do not independently generate sufficient cash to meet our day to day
      operations needs and commitments. In addition to our regular operating needs
      (such as our research and development expenses, sales and marketing expenses
      and
      general and administrative expenses), as of December 31, 2006, we had the
      following contractual obligations and commercial commitments:




**Contractual
              Obligations**
            
            
            **Total**
            
            
            **Less
                than**
              **1
                Year**
            
            
            **1-3
                Years**
            
            
            **3-5
                Years**
            
            
            **More
                than**
              **5
                Years****(in
                thousands)**Operating
                leases(1)
            
            $
            1,329
            
            $
            556
            
            $
            773
            
            $
            0
            
            $
            0Motor
                vehicles leases
            
            $
            468
            
            $
            299
            
            $
            169
            
            $
            0
            
            $
            0Purchase
                obligations(2)
            
            $
            3,000
            
            $
            3,000
            
            $
            0
            
            $
            0
            
            $
            0Other
                long-term commitment(3)
            
            $
            9,027
            
            $
            8,393
            
            $
            634
            
            $
            0
            
            $
            0Severance
                pay(4)
            
            $
            721Bridge
                Loan
            
            $
            21,067
            
            $
            0
            
            $
            21,067
            
            $
            0
            
            $
            0Total
                contractual Obligations
            
            $
            35,612
            
            $
            12,248
            
            $
            22,643
            
            $
            0
            
            $
            0




——————




-
          45 -


(1)  The
      operating leases are for the premises that we lease for our operations, research
      and development, sales and marketing and headquarters.




(2)  As
      of
      December 31, 2006, we had open purchase orders with third party suppliers mainly
      for the manufacturing of the Ogo devices for the total amount of
      approximately $3 million.




(3)  The
      agreement with a major IM provider provides for minimum amounts committed to
      be
      paid by us by September 2009 of $2.8 million. The other agreements with our
      third-party provider of hosted services and another major IM supplier provides
      for an aggregate minimum amounts commitment to be paid by us for the years
      2007,
      2008 and 2009 in the amount of $413,000, $604,000 and $30,000,
      respectively.




(4)  Severance
      pay relates to accrued severance obligations to our Israeli employees as
      required under the Israeli labor law. These obligations are payable only upon
      termination, retirement or death of the respective employee and there is no
      obligation if the employee voluntarily resigns. Of this amount only $125,000
      is
      unfunded.




**Bridge
      loans**




In
      order
      to satisfy IXI’s working capital requirements prior to the completion of the
      merger, on June 20, 2006, IXI entered into a bridge loan agreement, as
      amended, with Southpoint and IXI R&D, IXI’s wholly-owned subsidiary.
      Pursuant to the terms of the bridge loan, Southpoint loaned to IXI R&D
      $20 million (from which we paid $1.7 million in cash compensation to
      certain private placement agents and $700,000 in cash compensation, upon
      consummation of the merger, to certain financial institutions providing advisory
      services to us), with us acting as guarantor thereto. The bridge loan bears
      interest of 10% per annum.




The
      bridge loan will be repaid upon the earlier of: (1) June 6, 2008 (the “Repayment
      Date”); (2) the acceleration of the bridge loan in accordance with the agreement
      event (2) above being referred to as the “Maturity Date”). We have
      unconditionally guaranteed all of the obligations of IXI R&D under the
      financing documents, and all obligations of IXI and IXI R&D are secured by a
      perfected first priority security interest on our and IXI R&D’s assets
      (subject to limited exceptions).




In
      addition, Landa and the Gemini Funds (the “Guarantors”), both former
      stockholders of IXI who previously guaranteed a credit line and a loan received
      by IXI R&D from Bank Leumi Le’Israel Ltd. (the “Bank”) in the total amount
      of $8 million (the “Guaranty”), have undertaken in a Letter Agreement dated
      June 19, 2006 (the “Letter Agreement”) to extend their Guaranty and to
      maintain the existing bank credit line and loan at $8 million until the
      Repayment Date or Maturity Date (as the case may be). Pursuant to the Letter
      Agreement, each of the Guarantors is entitled to assume all or any part of
      any
      amounts owed by IXI R&D to the Bank under the line of credit or under the
      loan and in any such event any such assuming Guarantor shall be entitled to
      the
      same rights and benefits conferred to the bridge lender by the Bridge Loan
      Agreement. In consideration of the extension of the Guaranty, the Guarantors
      are
      entitled to a fee equal to the difference between the interest paid to Bank
      Leumi Le’Israel Ltd. and the
      amount of interest that IXI would have paid to Bank Leumi Le’Israel Ltd. if
      IXI’s credit facility bore interest at a rate equal to the rate set forth in the
      Bridge Loan Agreement. As of June 30, 2007, we owed an aggregate of $150,000
      to
      Landa and the Gemini Funds in consideration for their guarantee of this credit
      facility.




With
      the
      consummation of the merger, Southpoint received 1,000,000 shares of our common
      stock and the Guarantors received 400,000 shares of our common stock. We also
      issued an additional 30,000 shares of common stock to certain private placement
      agents who participated in identifying potential bridge lenders, together with
      cash compensation in the amount of $1.7 million. In addition, each of
      Southpoint and the Guarantors will be entitled to convert all or part of its
      respective debt facility (including accrued interest thereon), into shares
      of
      our common stock until June 6, 2008, at a price of $5.50 per share. Furthermore,
      if each of the above convert 50% or more of its respective debt facility
      (excluding accrued interest thereon), it will be entitled to receive warrants
      to
      purchase common stock at an exercise price of $5.00, expiring in 2009. The
      maximum total number of shares under the warrants will be 1,000,000, allocated
      between Southpoint and the Guarantors according to the proportionate amount
      of
      their debt facility. We have assumed the foregoing obligations in conjunction
      with and as part of the merger. Southpoint and the Guarantors have agreed to
      be
      subject to lock-up arrangements which have been agreed to by the former
      principal stockholders of IXI (excluding warrants to purchase shares of our
      common stock that may be issued to the private placement agents in connection
      with the conversion of Southpoint’s debt facility) and will be entitled to
      registration rights on the same terms as those stockholders.




-
          46 -




We
      accounted for the warrants that may be issued under EITF 00-27 “Application of
      Issue No. 98-5 to Certain Convertible Instruments”. Since the conversion of the
      convertible debt is a contingent upon future events, the beneficial conversion
      feature of the debt will be recorded to the extent that triggering event occurs
      and the contingency is resolved, based on the original fair value of our shares
      on the date of issuance of the convertible debt. In addition, since the issuance
      of the warrants is dependent upon the conversion of the debt, the relative
      fair
      value of the warrants will be recorded upon conversion of the debt, based on
      the
      original fair value of our warrants on the date of issuance of the convertible
      debt.




In
      December 2006, the parties to the bridge loan agreed to amend the loan.
      According to the amendment, the interest rate of the loan is a flat interest
      of
      10% per annum throughout the term of the loan (as opposed to 20% as of the
      second year of the loan). Furthermore, the lender is entitled to receive
      1,000,000 shares of our common stock (as opposed to 600,000 shares under the
      previous terms) and the guarantors are entitled to receive 400,000 shares of
      common stock (as opposed to 240,000 shares under the previous terms). All other
      terms of the loan remain the same.




We
      accounted for the modification to the terms of the bridge loan under the
      provisions of EITF 06-6, “Debtor’s Accounting For A Modification (or Exchange)
      of Convertible Debt Instruments”, as an extinguishment of the bridge loan, and
      the issuance of a new loan under the modified terms, and as such, we recorded
      a
      significant immediate loss as additional financial expenses, as detailed in
      the
      comparison of operating results for the three months ended June 30, 2007
      (unaudited) compared to three months ended June 30, 2006 (unaudited)
      above. ****




Due
      to
      the prolonged merger process and in order to satisfy IXI’s working capital
      requirements prior to consummation of the merger, IXI and IXI R&D entered
      into the March 2007 Loans with certain IXI shareholders and lenders of the
      Convertible Bridge Loan under which IXI received gross of $6 million in two
      tranches of $3 million each. The March 2007 Loans bear interest at the rate
      of
      10% per annum. One-half of the March 2007 Loans is to be repaid on June 6,
      2008
      and the balance of the March 2007 Loans shall be due and payable on June 6,
      2009, in each case together with any interest accrued and unpaid thereon.
      Thereafter, IXI borrowed an additional $5 million, which has been repaid in
      full.




**Capital
      investments**




To
      date,
      IXI has raised over $60 million in investments from it stockholders. In the
      last three years, the major financing rounds were the following:




In
      January and February 2003, IXI issued additional series C convertible
      preferred stock in consideration of $9 million.




In
      August 2004, IXI issued series D convertible preferred stock in
      consideration of $12 million ($3.5 million of which was represented by
      the conversion of convertible loans which were made in the financing round
      in
      May and July 2004).




In
      January and February 2005, IXI issued additional series D convertible
      preferred stock in consideration of $10 million.




In
      January and February 2006, IXI issued series D-1 convertible preferred
      stock in consideration of the conversion of a convertible loan made to IXI
      in
      July 2005 in the amount of $6.3 million, including interest on the
      converted loan.




-
          47 -




Pursuant
      to and at the closing of the merger agreement, all of the preferred shares
      were
      converted to shares of common stock. Since the merger and as of June 30, 2007,
      we have not received any further capital investment.




**Short
      term loans**




In
      December 2004, IXI received a short-term loan from an Israeli bank in the
      amount of $1.3 million, which bore interest at an annual interest rate of
      5.4% and was repaid in one installment on January 3, 2005. This short-term
      loan was guaranteed by certain IXI stockholders.




In
      October 2005, IXI R&D received a short-term bank credit from an Israeli
      bank in the amount of $750,000 which bears annual interest at a rate of LIBOR
      +
      3%. In January, 2006, the short-term bank credit was fully repaid by IXI
      R&D.




In
      March 2006, IXI received a short-term loan from an Israeli bank, guaranteed
      by the Guarantors, in the amount of $4 million, which bears annual interest
      at a rate of 9% and is to be repaid in full in a single installment on
      June 29, 2006. In April, 2006, the Guarantors guaranteed a credit line from
      the same Israeli bank in the amount of up to $4 million. The Guarantors
      have undertaken in the Letter Agreement to extend their guaranty and to maintain
      the existing bank credit line and loan at $8 million until the Repayment
      Date or Maturity Date (as the case may be). On December 31, 2006, the Company
      received an extension of the term of the $8 million short-term bank credit,
      to
      be repaid on May 15, 2007. For further discussion see the section
“ *Liquidity
      and Capital Resources - Bridge Loans* .”




On
      June 8, 2006, IXI R&D received a short-term loan from an Israeli bank
      in the amount of $2 million which bore annual interest at a rate of LIBOR +
      4% and was repaid in full in a single installment on June 20,
      2006.




On
      May
      17, 2007 IXI signed a short term loan agreement with a new lender and with
      its
      existing shareholders (the "Lenders") whereby the Lenders extended a $ 5 million
      short term loan with the following terms: (i) annual interest of 15% (ii)
      maturity date is 60 days from the closing of the Merger (iii) 2% including
      VAT
      cash fee has been paid on the date in which the Merger was
      consummated.




During
      July and August, 2007 the short term loan was repaid in full.




**Long
      term loans**




In
      August 2003, IXI and certain affiliates of Western Technology Investments,
      a venture lender which was also a stockholder of IXI, signed a loan and security
      agreement in the amount of up to $4.5 million which was fully drawn by IXI
      in January 2004. The loan bore interest at an annual rate equal to the U.S.
      dollar prime rate plus 9.2% on $2.0 million of the loan and the prime rate
      plus 9.4% on the remaining $2.5 million and is to be repaid in 30 monthly
      installments (the last installment was scheduled to be paid in July 2006).
      During the years ended December 31, 2006, 2005 and 2004 principal amounts
      of $1.0 million, $1.8 million, $1.3 million respectively were
      repaid by IXI.




In
      October 2004, IXI signed a second loan and security agreement with certain
      affiliates of Western Technology Investments in the amount of up to
      $5.0 million, of which approximately $3.0 million was drawn in
      November 2004. The loan bore interest at the annual rate of 12.1% (which
      was indexed to the base prime rate of 4.75%) and is to be repaid in 30 monthly
      installments. During the years ended December 31, 2006, 2005 and 2004
      principal amounts of $1.6 million, $1.1 million and $86,000
      respectively were repaid by IXI.




The
      total
      outstanding amount of both loans was repaid upon consummation of the bridge
      loan
      with Southpoint and the floating charge on the assets of IXI R&D was
      replaced with a floating charge in favor of Southpoint.




-
          48 -




Due
      to
      the prolonged Merger process and in order to satisfy IXI's working capital
      requirements prior to receipt of the Merger consideration, IXI and IXI R&D
      entered into new bridge loan agreements (“March 2007 Loans”) with certain IXI
      shareholders and lenders of the Convertible Bridge Loan under which IXI received
      gross of $6,000,000 in two tranches of $3,000,000 each. The March 2007 Loans
      bear interest at the rate of 10% per annum. One-half of the March 2007 Loans
      is
      to be repaid on June 6, 2008 and the balance of the March 2007 Loans shall
      be
      due and payable on June 6, 2009, in each case together with any interest accrued
      and unpaid thereon .




**Cash
      Flow Analysis**




Our
      continuing operating activities used cash in the amount of approximately
      $16.5 million for the six months ended June 30, 2007, compared with cash
      used in operating activities of approximately $8.5 million for the six months
      ended June 30, 2006. This increase use was mainly due to an increase in
      continuing losses of approximately $17.0 million, offset mainly by an increase
      in merger expenses and loan valuation of approximately $10.2
      million.




Our
      investing activities relating to our continuing operations used cash in the
      amount of $61,000 for the six months ended June 30, 2007, compared with cash
      used in investing activities of approximately $67,000 for the six months ended
      June 30, 2006. In each period, cash was primarily used for purchase of property
      and equipment.




Our
      financing activities provided cash in the amount of approximately $45.4 million
      for the six months ended June 30, 2007. These are due to proceeds from issuance
      of common stock in reverse acquisition of ITAC, net of issuance costs, of $33.4
      million and proceeds from convertible loan of approximately $6.0 million,
      proceeds from short term loan of approximately $5 million, and proceeds from
      short-term bank credit in the amount of approximately $0.9 million. IXI’s
      financing activities provided cash in the amount of $23.6 million the six months
      ended June 30, 2006 due to proceeds from convertible loan of $20 million and
      proceeds from short-term bank credit in the amount of $7.3 million which were
      offset by the repayment of a short term bank loan in the amount of approximately
      $750,000 and a long-term bank loan in the amount of approximately $2.6
      million.




We
      had a
      working capital deficiency of approximately $5.5 million at December 31, 2006
      and $4.0 million at December 31, 2005 and our ratio of current assets to current
      liabilities was 1.42 at June 30, 2007, 0.82 at December 31, 2006 and 0.74 at
      December 31, 2005.




**Off-Balance
      Sheet Arrangements**




There
      are
      currently no off-balance sheet arrangements, nor any during the last three
      years, that have or are reasonably likely to have a current or future effect
      on
      our financial condition, changes in financial condition, revenues or expenses,
      results of operations, liquidity, capital expenditures or capital resources
      that
      is material to us.




-
49
          -




**Corporate
      Tax**




***Domestic***




At
      December 31, 2006, we had U.S. federal net operating losses carryforwards
      of approximately $18 million that can be carried forward and offset against
      taxable income, subject to ordinary corporate tax in the United States, and
      expiring from 2021 through 2026.




Utilization
      of U.S. net operating losses may be subject to substantial annual limitations
      due to the “change in ownership” provisions of the Internal Revenue Code of 1986
      and similar state provisions. The annual limitation may result in the expiration
      of net operating losses before utilization. A full valuation allowance was
      provided to reduce the benefit of net operating losses, since it is more likely
      than not that such tax benefits will not be utilized in the foreseeable
      future.




-
          50 -




***Net
      operating loss carryforwards***




We
      have
      accumulated operating losses that can be carried forward and offset against
      taxable income, and which result in deferred tax assets. We currently believe
      that it is more likely than not that the deferred tax regarding the carryforward
      of losses will not be realized in the foreseeable future, and provides a
      valuation allowance to reduce the benefit of the deferred tax assets. The change
      in valuation allowance as of December 31, 2006 compared to
      December 31, 2005 was an increase in the amount of approximately
      $906,000.




***Foreign***




At
      December 31, 2006, IXI R&D had accumulated losses for tax purposes in
      the amount of approximately $52 million, which may be carried forward and offset
      against taxable income in the future for an indefinite period.




We
      expect
      that during the period in which these tax losses related to IXI R&D are
      utilized, our income would be substantially tax exempt. Accordingly, no deferred
      income taxes in respect of such losses have been included in our financial
      statements.




***General
      corporate tax structure in Israel***




On
      July 25, 2005, the Knesset (Israeli Parliament) approved the Law of the
      Amendment of the Income Tax Ordinance (No. 147), 2005, which prescribes, among
      others, a gradual decrease in the corporate tax rate in Israel to the following
      tax rates: in 2006 - 31%, in 2007 - 29%, in 2008 - 27%, in 2009 - 26% and in
      2010 and thereafter - 25%.




As
      discussed below, however, the rate is effectively reduced for income derived
      from an Approved Enterprise.




***Law
      for the Encouragement of Capital Investments, 1959***




IXI’s
      facilities in Israel have been granted Approved Enterprise status under the
      Law
      for the Encouragement of Capital Investments, 1959, commonly referred to as
      the
      Investment Law. The Investment Law provides that capital investments in a
      production facility (or other eligible assets) may be designated as an Approved
      Enterprise. Until recently, the designation required advance approval from
      the
      Investment Center of the Israel Ministry of Industry, Trade and Labor (the
      Investment Center). Each certificate of approval for an Approved Enterprise
      relates to a specific investment program, delineated both by the financial
      scope
      of the investment and by the physical characteristics of the facility or the
      asset.




A
      company
      that owns an Approved Enterprise is eligible for governmental grants, but may
      elect to receive an alternative package comprised of tax benefits (Alternative
      Track). Under the Alternative Track, a company’s undistributed income derived
      from an Approved Enterprise is exempt from corporate tax for a period of two
      years. The exemption begins in the first year that the company realizes taxable
      income from the Approved Enterprise.




After
      expiration of the initial tax exemption period, the company is eligible for
      a
      reduced corporate tax rate of 10% to 25% for the following five to eight years,
      depending on the extent of foreign investment in the company (as shown in the
      table below). The benefits period is limited to 12 years from year of operation
      of the investment under the approved plan or 14 years from the date of the
      approval, whichever is earlier. A company in which more than 25% of the
      stockholders are non-residents of Israel, defined in the Investment Law as
      a
      Foreign Investors Company, may be eligible for benefits for an extended period
      of up to ten years.




The
      tax
      benefits derived from any certificate of approval relate only to taxable income
      attributable to the specific Approved Enterprise. To the extent we have more
      than one approval or only a portion of our capital investments are approved,
      our
      effective tax rate will be the result of a weighted combination of the
      applicable rates.




-
          51 -


Percent
                    of
                  Foreign
                    Ownership
              Rate
                    of
                  Reduced Tax
              Reduced
                  Tax Period
              Tax
                  Exemption Period
  **0-25%**
              **25****%**
              **5
                  years**
              **2
                  years****25-49%**
              **25****%**
              **8
                  years**
              **2
                  years****49-74%**
              **20****%**
              **8
                  years**
              **2
                  years****74-90%**
              **15****%**
              **8
                  years**
              **2
                  years****90-100%**
              **10%**
              **8
                  years**
              **2
                  years**




Our
      percentage of foreign ownership will be examined by the Tax Authorities only
      after we used all our loss carryforwards and following the two years tax
      exemption period.




If
      a
      company distributes dividends from tax-exempt Approved Enterprise income, the
      company will be taxed on the otherwise exempt income at the same reduced
      corporate tax rate that applies to it after the initial exemption period.
      Distribution of dividends derived from Approved Enterprise income that was
      taxed
      at reduced rates, but not tax exempt, does not result in additional tax
      consequences to the company. A stockholder who receives dividends derived from
      Approved Enterprise income is generally taxed at a rate of 15%, which is
      withheld and paid by the company paying the dividend, if the dividend is
      distributed during the benefits period or within the following 12 years (the
      limitation of 12 years does not apply to a Foreign Investors
      Company).




Currently,
      IXI R&D has one Approved Enterprise programs under the alternative track of
      the Investment Law. We have derived, and expect to continue to derive, a
      substantial portion of our operating income from our Approved Enterprise
      facilities. We may therefore eligible for a tax exemption for a period of two
      years on undistributed Approved Enterprise income, and an additional subsequent
      period of five to eight years of reduced corporate tax rates ranging between
      10%
      and 25%, depending on the level of foreign ownership of our shares. We intend
      to
      continue to apply for Approved Enterprise programs, but we cannot assure you
      that we will do so or that we will be successful. If dividends are distributed
      out of tax exempt profits, we will become liable for tax at the rate applicable
      to its profits from the Approved Enterprise in the year in which the income
      was
      earned, had it not chosen the alternative track of benefits (currently between
      10%-25%).




The
      benefits available to an Approved Enterprise are conditioned upon terms
      stipulated in the Investment Law and the related regulations (which include
      making specified investments in property and equipment, and financing a
      percentage of these investments with share capital), and the criteria set forth
      in the applicable certificate of approval. If IXI does not fulfill these
      conditions in whole or in part, the benefits can be cancelled and it may be
      required to refund the amount of the benefits, linked to the Israeli consumer
      price index plus interest.




We
      got an
      approval from the Investment Center of the Israeli Ministry of Industry, Trade
      and Labor to change the business program of our Approved Enterprise and expand
      the product definition initially approved by the Investment Center.




On
      April 1, 2005, an amendment to the Investment Law came into effect, which
      revised the criteria for investments qualified to receive tax benefits. An
      eligible investment program under the amendment will qualify for benefits as
      a
      Privileged Enterprise (rather than the previous terminology of Approved
      Enterprise). Among other things, the amendment provides tax benefits to both
      local and foreign investors and simplifies the approval process. The
      amendment does not apply to investment programs approved prior to
      December 31, 2004. The new tax regime will apply to new investment programs
      only. Therefore, IXI R&D’s existing Approved Enterprise will generally not
      be subject to the provisions of the Amendment.




-
          52 -




We
      applied for a pre ruling application from the Tax Authorities, and are expected
      to be a ‘Privileged Enterprise’ according to the Amendment of New
      Law.




As
      a
      result of the Amendment, tax-exempt income generated under the provisions of
      the
      new law, will subject us to taxes upon dividends or liquidation, and we may
      be
      required to record deferred tax liability with respect to such tax-exempt
      income. As of June 30, 2007, we did not generate income under the provision
      of
      the Amendment.




***Special
      provisions relating to taxation under inflationary
      conditions***




The
      Income Tax (Inflationary Adjustments) Law, 1985, was designed to neutralize
      the
      erosion of capital investments in business and to prevent tax benefits resulting
      from deduction of inflationary expenses. This law applies a supplementary set
      of
      inflationary adjustments to the normal taxable profits computed under regular
      historical cost principles. Under the Inflationary Adjustments Law, results
      for
      tax purposes are measured in real terms, in accordance with changes in the
      Israeli consumer price index. IXI R&D is taxed under this law.




***Taxation
      of non-Israeli stockholders on receipt of dividends***




Under
      Israeli tax law, a distribution of dividends from income attributable to an
      Approved Enterprise will be subject to tax in Israel at the rate of 15%, which
      is withheld and paid by the company paying the dividend, if the dividend is
      distributed during the benefits period or within the following 12 years. Any
      distribution of dividends from income that is not attributable to an Approved
      Enterprise will be subject to tax in Israel at the rate of 25%.




Under
      the
      United States-Israel tax treaty, the maximum ta x
      on
      dividends paid to a holder of the ordinary shares who is a United States
      resident is 25%. Dividends received by a United States company that holds at
      least 10% of IXI’s voting rights will be subject to withholding tax at the rate
      of 12.5%, provided certain other conditions in the tax treaty are met (or at
      the
      tax rate of 15% in respect of dividends paid from income attributable to IXI’s
      Approved Enterprises).




**ITEM
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




Market
      risk is the risk of losses related to changes in market prices and foreign
      exchange rates, that may adversely impact our consolidated financial position,
      results of operations or cash flows.




***Foreign
      Exchange Risk***




Although
      we report our consolidated financial statements in U.S. dollars, in 2005 and
      2006 a portion of IXI’s revenues and expenses was denominated in other
      currencies.




Monetary
      accounts maintained in currencies other than the dollar are remeasured into
      dollars in accordance with Statement of Financial Accounting Standards (“SFAS”)
      No. 52, “Foreign Currency Translation”. All transaction gains
      and
      losses of the remeasured monetary balance sheet items are reflected in the
      statement of income as financial income or expenses, as
      appropriate.




Consequently,
      fluctuations in the rates of exchange between the dollar and non-dollar
      currencies will affect our results of operations. An increase in the value
      of a
      particular currency relative to the dollar will increase the dollar reporting
      value for transactions, and a decrease in the value of that currency relative
      to
      the dollar will decrease the dollar reporting value for those transactions.
      This
      effect on the dollar reporting value for transactions is generally only
      partially offset by the impact that currency fluctuations may have on costs.
      We
      currently do not engage in currency hedging transactions to offset the risks
      associated with variations in currency exchange rates but intends to do this
      in
      the near future. Due to the instability of the foreign currency markets,
      significant foreign currency fluctuations and other foreign exchange risks
      may
      have a material adverse effect on our business, financial condition and results
      of operations.





-
          53 -




**ITEM
      4. CONTROLS AND PROCEDURES.**




Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in company reports filed or
      submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is
      recorded, processed, summarized and reported, within the time periods specified
      in the Securities and Exchange Commission’s rules and forms. Disclosure controls
      and procedures include, without limitation, controls and procedures designed
      to
      ensure that information required to be disclosed in company reports filed or
      submitted under the Exchange Act is accumulated and communicated to management,
      including our chief executive officer and treasurer, as appropriate to allow
      timely decisions regarding required disclosure.





As
      required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief
      executive officer and chief financial officer carried out an evaluation of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures as of June 30, 2007. Based upon their evaluation, they concluded
      that
      our disclosure controls and procedures were effective.





Our
      internal control over financial reporting is a process designed by, or under
      the
      supervision of, our chief executive officer and chief financial officer and
      effected by our board of directors, management and other personnel, to provide
      reasonable assurance regarding the reliability of our financial reporting and
      the preparation of our financial statements for external purposes in accordance
      with generally accepted accounting principles. Internal control over financial
      reporting includes policies and procedures that pertain to the maintenance
      of
      records that in reasonable detail accurately and fairly reflect the transactions
      and dispositions of our assets; provide reasonable assurance that transactions
      are recorded as necessary to permit preparation of our financial statements
      in
      accordance with generally accepted accounting principles, and that our receipts
      and expenditures are being made only in accordance with the authorization of
      our
      board of directors and management; and provide reasonable assurance regarding
      prevention or timely detection of unauthorized acquisition, use or disposition
      of our assets that could have a material effect on our financial
      statements.





During
      the most recently completed fiscal quarter, there has been no change in our
      internal control over financial reporting that has materially affected, or
      is
      reasonably likely to materially affect, our internal control over financial
      reporting.


-
          54 -


**PART
      II.**





**OTHER
      INFORMATION**







**ITEM
      2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





On
      June
      6, 2007, we consummated our merger with IXI. Upon the closing of the merger,
      the
      former IXI stockholders were issued an aggregate of 6,553,709 shares of our
      common stock. Additionally, 1,264,291 shares of our common stock were reserved
      for issuance upon exercise of outstanding employee options and warrants.
      Additionally, the former holders of IXI equity interests will receive, or have
      the right to acquire, a pro rata portion of up to an additional 9,000,000 shares
      of our common stock (“contingent shares”), contingent upon the combined company
      meeting specified targets. These shares were issued into escrow at the closing.
      We also issued an aggregate of 1,566,000 shares of common stock and warrants
      to
      purchase an aggregate of 100,000 shares of our common stock (which warrants
      are
      identical to our public warrants) to various third parties in accordance with
      prior contractual commitments. We relied on the exemption from registration
      under Section 4(2) of the Securities Act of 1933 for the shares issued in the
      merger.





**ITEM
      4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





We
      held a
      special meeting of stockholders on June 5, 2007, at which our stockholders
      considered a proposal to approve the merger with IXI and several other related
      proposals.





On
      whether to adopt the Agreement and Plan of Merger, dated February 28, 2006,
      as
      amended, among ourselves, ITAC Acquisition Subsidiary Corp. and IXI Mobile,
      Inc., 6,407,302 shares were voted for the proposal, 2,745 were voted against,
      1,220 abstained and 1,406,733 were not voted.





On
      whether to approve an amendment to the Amended and Restated Certificate of
      Incorporation of the Company to change the Company’s name, 6,407,302 shares were
      voted for the proposal, 2,745 were voted against, 1,220 abstained and 1,406,733
      were not voted.





On
      whether to approve an amendment to the Amended and Restated Certificate of
      Incorporation of the Company to increase the number of authorized shares of
      the
      Company’s common stock, 6,407,302 shares were voted for the proposal, 2,745 were
      voted against, 1,220 abstained and 1,406,733 were not voted.





On
      whether to approve an amendment to the Company’s Amended and Restated
      Certificate of Incorporation to remove Article Sixth from the Amended and
      Restated Certificate of Incorporation from and after the closing of the merger
      and to renumber the subsequent articles accordingly, 6,356,432 shares were
      voted
      for the proposal, 2,745 were voted against, 52,090 abstained and 1,406,733
      were
      not voted.




In
      an
      election of directors, Gideon Barak, Israel Frieder, Amit Haller, Yossi Sela,
      Shlomo Shalev, Victor Halpert and Matthew Hills, received the number of votes
      set forth below:




- 55 -





Voted
                  For
              Authority
                  WithheldGideon
                  Barak
              6,407,302
              3,965Israel
                  Frieder
              6,407,302
              3,965Amit
                  Haller
              6,407,302
              3,965Yossi
                  Sela
              6,407,302
              3,965Shlomo
                  Shalev
              6,410,047
              1,220Victor
                  Halpert*
              6,290,047
              121,220Matthew
                  Hills
              6,410,047
              1,220




*
      Mr.
      Halpert subsequently resigned and was replaced by Shmuel M. Gitlin. For more
      information, see our Current Report on Form 8-K, filed with the Commission
      on
      June 26, 2007.




**ITEM
      6: EXHIBITS**





(a)  Exhibits:





31.1
      -
      Section 302 Certification by CEO





31.2
      -
      Section 302 Certification by CFO





32.1
      -
      Section 906 Certification by CEO





32.2
      -
      Section 906 Certification by CFO




- 56 -




**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


**IXI
              MOBILE, INC.**Date: August
              20, 2007
            By:
            /s/ Amit
              HallerAmit
                Haller
              President
                and Chief Executive Officer




By:
            /s/ Lihi
              SegalLihi
                Segal
              Vice
                President and Chief Financial
                Officer