**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**




(Mark
      One)





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





For
      the
      quarterly period ended June
      30, 2008





 ̈  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. Yes x No  ̈




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





Large
                Accelerated Filer o
            Accelerated
                Filer oNon-Accelerated
                Filer o(Do
                not check if a smaller reporting company)
            Smaller
                reporting Company x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  ̈ No x





As
      of
      August 19 2008, 25,287,111 shares of common stock, par value $.0001
      per share, were issued and outstanding.









**Table
      of Contents**




PagePART
                I FINANCIAL INFORMATION
            1Item
                1: FINANCIAL STATEMENTS
            1Item
                2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS
                OF OPERATIONS
            16Item
                3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            39Item
                4T: CONTROLS AND PROCEDURES
            39PART
                II OTHER INFORMATION
            40Item
                1: LEGAL PROCEEDINGS
            40Item
                1A: RISK FACTORS
            40Item
                2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
            40Item
                3: DEFAULTS UPON SENIOR SECURITIES
            40Item
                4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            40Item
                5: OTHER INFORMATION
            40Item
                6: EXHIBITS
            40




i




**PART
      I**




**FINANCIAL
      INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**


**IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
 
 **INTERIM
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **AS
        OF JUNE 30, 2008**
 
 **U.S.
        DOLLARS IN THOUSANDS**
 
 **UNAUDITED**
 
 **INDEX**
 
 **Page****Condensed
                  Consolidated Balance Sheets**
              **2
                  - 3****Condensed
                  Consolidated Statements of Operations**
              **4****Condensed
                  Statements of Changes in Stockholders' Deficiency**
              **5****Condensed
                  Consolidated Statements of Cash Flows**
              **6
                  - 7****Notes
                  to Condensed Consolidated Financial Statements**
              **8
                  - 15**
 **IXI
            MOBILE INC. AND ITS SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED BALANCE SHEETS**
 **U.S.
        dollars in thousands**
 
 **June 30,**
              
              **December 31,****2008**
              
              **2007****Unaudited**ASSETSCURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              8,118
              
              $
              $17,278Restricted
                  cash
              
              
              198
              
              
              183Trade
                  receivables, net
              
              
              2,932
              
              
              3,019Other
                  receivables and prepaid expenses
              
              
              1,691
              
              
              1,364Vendor
                  advance payments, net
              
              
              1,694
              
              
              4,081Inventories,
                  net (of which $ 7,582 and $7,806 delivered to customers but not
                  yet
                  recognized as revenues as of June 30, 2008 and December 31, 2007,
                  respectively)
              
              
              12,927
              
              
              14,239Totalcurrent assets
              
              
              27,560
              
              
              40,164LONG-TERM
                  ASSETS:Severance
                  pay fund
              
              
              1,292
              
              
              917Long-term
                  prepaid expenses
              
              
              48
              
              
              39Property
                  and equipment, net
              
              
              479
              
              
              487Deferred
                  debt costs
              
              
              125
              
              
              348Totallong-term assets
              
              
              1,944
              
              
              1,791Totalassets
              
              $
              29,504
              
              $
              41,955
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -
            2
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **U.S.
        dollars in thousands, except share and per share data**
  **June 30,**
              
              **December 31,****2008**
              
              **2007****Unaudited**LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIENCY)CURRENT
                  LIABILITIES:Current
                  maturities of long-term convertible loan from stockholders
              
              $
              -
              
              $
              4,492Current
                  maturities of long-term loans from stockholders
              
              
              -
              
              
              2,000Short-term
                  bank credit
              
              
              2,446
              
              
              1,942Trade
                  payables
              
              
              7,129
              
              
              2,095Employees
                  and payroll accruals
              
              
              1,750
              
              
              1,488Deferred
                  revenues
              
              
              10,306
              
              
              10,149Other
                  payables and accrued expenses
              
              
              2,236
              
              
              6,401Liabilities
                  of discontinued operations
              
              
              2,555
              
              
              2,523Totalcurrent liabilities
              
              
              26,422
              
              
              31,090LONG-TERM
                  LIABILITIES:Long-term
                  loans from stockholders, net of current maturities
              
              
              4,609
              
              
              2,000Long-term
                  convertible loan from stockholders
              
              
              8,278
              
              
              -Other
                  long term liabilities
              
              
              7
              
              
              286Accrued
                  severance pay
              
              
              1,540
              
              
              1,138Totallong-term liabilities
              
              
              14,434
              
              
              3,424STOCKHOLDERS'
                  EQUITY (DEFICIENCY) *** :Stock
                  capital -Common
                  stock of $ 0.0001 par value: Authorized: 60,000,000 shares at June
                  30, 2008 and December 31, 2007; Issued and outstanding: 25,221,691
                  and
                  20,787,955 shares at June 30, 2008 and December 31, 2007, respectively
              
              
              2
              
              
              2Receipts
                  on account of stock ** )
              
              
              -
              
              
              15,840Additional
                  paid-in capital *)
              
              
              168,842
              
              
              151,750Accumulated
                  deficit
              
              
              (180,196
              )
              
              (160,151
              )Totalstockholders' equity (deficiency)
              
              
              (11,352
              )
              
              7,441Totalliabilities and stockholders' equity (deficiency)
              
              $
              29,504
              
              $
              41,955
  *)
                Net
                    of deferred stock based compensation.**)
                As
                    of December 31, 2007 included 4,400,000 shares of Common stock
                    that the
                    Company was contractually obligated to issue on account of long-term
                    convertible loan from stockholders converted on October 25, 2007,
                    that
                    were issued on February 22, 2008***)
                Upon
                    the Merger, the shares of IXI stock were canceled and exchanged
                    into the
                    Company's shares at a ratio of 1:0.15. All share information
                    included in
                    this report has been retroactively adjusted to reflect this
                    exchange.
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -
            3
            -
  **IXI
        MOBILE INC. 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,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Revenues:Product
                  sales
              
              $
              3,691
              
              $
              5,144
              
              $
              1,203
              
              $
              2,512Services
              
              
              1,939
              
              
              1,150
              
              
              1,018
              
              
              659Total
                  Revenues
              
              
              5,630
              
              
              6,294
              
              
              2,221
              
              
              3,171Cost
                  of Revenues:Product
                  sales
              
              
              7,020
              
              
              5,990
              
              
              4,536
              
              
              3,434Services
              
              
              1,702
              
              
              1,183
              
              
              1,055
              
              
              628Cost
                  of revenues
              
              
              8,722
              
              
              7,173
              
              
              5,591
              
              
              4,062Gross
                  loss
              
              
              (3,092
              )
              
              (879
              )
              
              (3,370
              )
              
              (891
              )Operating
                  expenses:Research
                  and development
              
              
              8,446
              
              
              7,137
              
              
              4,166
              
              
              4,133Selling
                  and marketing
              
              
              3,015
              
              
              3,346
              
              
              1,229
              
              
              1,388General
                  and administrative
              
              
              3,804
              
              
              4,603
              
              
              1,996
              
              
              3,756Total
                  operating expenses
              
              
              15,265
              
              
              15,086
              
              
              7,391
              
              
              9,277Operating
                  loss
              
              
              (18,357
              )
              
              (15,965
              )
              
              (10,761
              )
              
              (10,168
              )Financial
                  expenses, net
              
              
              (1,656
              )
              
              (12,210
              )
              
              (610
              )
              
              (11,313
              )Loss
                  from continuing operations
              
              
              (20,013
              )
              
              (28,175
              )
              
              (11,371
              )
              
              (21,481
              )Loss
                  from discontinued operations
              
              
              (32
              )
              
              (55
              )
              
              (16
              )
              
              (27
              )Net
                  loss
              
              $
              (20,045
              )
              $
              (28,230
              )
              $
              (11,387
              )
              $
              (21,508
              )Basic
                  and diluted net loss per share of Common stock:From
                  continuing operations
              
              $
              (0.80
              )
              $
              (10.77
              )
              $
              (0.45
              )
              $
              (4.64
              )From
                  discontinued operations
              
              
              (0.00
              )
              
              (0.02
              )
              
              (0.00
              )
              
              (0.01
              )Basic
                  and diluted net loss per share
              
              $
              (0.80
              )
              $
              (10.79
              )
              $
              (0.45
              )
              $
              (4.65
              )Weighted
                  average number of shares of Common stock used in computing basic
                  and
                  diluted net loss per share of Common stock
              
              
              25,201,624
              
              
              2,694,311
              
              
              25,211,573
              
              
              4,705,970
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -
            4
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY**
 **U.S.
        dollars in thousands, except share data**
  **Common
                  stock**
              
              **Series
                  A Convertible**
                **Preferred****stock**
              
              **Series
                  B Convertible**
                **Preferred****stock**
              
              **Series
                  C Convertible**
                **Preferred****stock**
              
              **Series
                  D Convertible**
                **Preferred****stock**
              
              **Receipts**
                **on**
              
              **Additional****Number**
              
              **Amount**
              
              **Number**
              
              **Amount**
              
              **Number**
              
              **Amount**
              
              **Number**
              
              **Amount**
              
              **Number**
              
              **Amount**
              
              **Account**
                **of
                  stock**
              
              **Paid-in**
                **capital**
              
              **Notes**
                **receivable**
              
              **Accumulated**
                **deficit**
              
              **Total**Balance
                  at January 1, 2007
              
              
              687,992
              
              $
              
              *)
              
              77,718
              
              $
              
              *)
              
              67,861
              
              $
              
              *)
              
              222,426
              
              $
              
              *)
              
              5,104,902
              
              $
              
              *)
              $
              -
              
              $
              68,715
              **)
              $
              (110
              )
              $
              (91,327
              )
              $
              (22,722
              )Accumulated
                  affect adjustment upon adoption of FASB Interpretation
                  No.48.
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (234
              )
              
              (234
              )Exercise
                  of IXI warrants to Common stock
              
              
              166,262
              
              $
              
              *)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of stock to Co-Chairman
              
              
              216,000
              
              $
              
              *)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,309
              
              
              -
              
              
              -
              
              
              1,309Conversion
                  of warrants to Preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,936
              
              $
              
              *)
              
              5,384
              
              $
              
              *)
              
              -
              
              
              17
              
              
              -
              
              
              -
              
              
              17Conversion
                  of convertible Preferred stock into Common stock
              
              
              5,483,478
              
              
              1
              
              
              (77,718
              )
              $
              
              *)
              
              (67,861)
              )
              $
              
              *)
              
              (227,362
              )
              $
              
              *)
              
              (5,110,286
              )
              $
              
              *)
              
              -
              
              
              0
              
              
              -
              
              
              -
              
              
              1Issuance
                  of Common stock in connection with the Merger, net of acquisition
                  costs
              
              
              7,818,000
              
              
              1
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              32,435
              
              
              
              
              
              
              
              
              32,436Issuance
                  of shares following the merger
              
              
              1,566,000
              
              $
              
              *)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,927
              
              
              
              
              
              -
              
              
              7,927Repayment
                  of notes receivables
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              110
              
              
              -
              
              
              110Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,650
              
              
              -
              
              
              
              
              
              1,650Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (28,230
              )
              
              (28,230
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (28,230
              )
              
              (28,230
              )Balance
                  at June 30, 2007 (unaudited)
              
              
              15,937,732
              
              
              2
              
              
              -
              
              
              
              *)
              
              --
              
              
              
              *)
              
              -
              
              
              
              *)
              
              -
              
              
              
              *)
              
              -
              
              
              112,053
              **)
              
              -
              
              
              (119,791
              )
              
              (7,736
              )Balance
                  at January 1, 2008
              
              
              20,787,955
              
              $
              2
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              15,840
              
              $
              151,750
              
              
              -
              
              $
              (160,151
              )
              $
              7,441Issuance
                  of shares upon conversion of convertible debt
              
              
              4,400,000
              
              $
              
              *)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (15,840)-
              
              
              15,840
              
              
              -
              
              
              -
              
              
              0Exercise
                  of employee stock options
              
              
              33,736
              
              $
              
              *)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              11
              
              
              -
              
              
              -
              
              
              11Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,241
              
              
              -
              
              
              -
              
              
              1,241Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (20,045
              )
              
              (20,045
              )Total
                  comprehensive loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (20,045
              )
              
              (20,045
              )Balance
                  at June 30, 2008 (unaudited)
              
              
              25,221,691
              
              $
              2
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              168,842
              
              $
              -
              
              $
              (180,196
              )
              $
              (11,352
              )
  *)
                Represents
                    an amount lower than $ 1.**)
                Net
                    of deferred stock based compensation in an amount of $ 540, $441,
                    $ 340
                    and $ 121 as of January 1, 2007, June 30, 2007, January 1, 2008
                    and
                    June 30, 2008,
                    respectively.
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -
            5
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
        dollars in thousands**
 
 **Six months ended**
                **June 30,****2008**
              
              **2007****Unaudited**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (20,045
              )
              $
              (28,230
              )Less
                  - net loss of discontinued operations
              
              
              32
              
              
              55Net
                  loss of continuing operations
              
              
              (20,013
              )
              
              (28,175
              )Adjustments
                  to reconcile net loss of continuing operations to net cash used
                  in
                  operating activities of continuing operations:Depreciation
                  and amortization
              
              
              124
              
              
              203Stock-based
                  compensation expenses
              
              
              1,241
              
              
              1,650Financial
                  expenses related to extinguishment of long-term convertible loan
                  from
                  shareholders
              
              
              990
              
              
              -Amortization
                  of expenses related to extinguishment of long-term convertible
                  loan from
                  shareholders
              
              
              (129
              )
              
              -Decrease
                  in trade receivables
              
              
              87
              
              
              617Amortization
                  of deferred debt and Merger costs
              
              
              223
              
              
              1,411Decrease
                  (increase) in other receivables, prepaid expenses and vendor advance
                  payments
              
              
              2,060
              
              
              (2,372
              )Decrease
                  in inventories, net
              
              
              1,312
              
              
              272Decrease
                  (increase) Increase in long-term prepaid expenses
              
              
              (9
              )
              
              54Increase
                  (decrease) in trade payables
              
              
              5,023
              
              
              (939
              )Increase
                  in employees and payroll accruals
              
              
              262
              
              
              253Increase
                  (decrease) in deferred revenues
              
              
              157
              
              
              (750
              )Decrease
                  in other payables and accrued expenses
              
              
              (1,398
              )
              
              (186
              )Increase
                  in accrued severance pay, net
              
              
              27
              
              
              17Increase
                  (decrease) in other long term liabilities
              
              
              (76
              )
              
              20Merger
                  related expenses, included in the general and administrative and
                  financial
                  expenses
              
              
              (332
              )
              
              10,218Accrued
                  interest
              
              
              891
              
              
              1,259Net
                  cash used in operating activities of continuing operations
              
              
              (9,560
              )
              
              (16,448
              )Net
                  cash used in operating activities of discontinued
                  operations
              
              
              -
              
              
              (16
              )Net
                  cash used in operating activities
              
              
              (9,560
              )
              
              (16,464
              )Cash
                  flows from investing activities:Restricted
                  cash,
              
              
              (11
              )
              
              101Purchase
                  of property and equipment
              
              
              (105
              )
              
              (162
              )Net
                  cash used in investing activities
              
              
              (116
              )
              
              (61
              )
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -
            6
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
        dollars in thousands**
 
 **Six months ended**
                **June 30,****2008**
              
              **2007****Unaudited**Cash
                  flows from financing activities:Proceeds
                  from issuance of Common stock in the Merger, net of issuance costs
                  (1)
              
              
              -
              
              
              33,373Payment
                  of deferred debt and Merger costs
              
              
              -
              
              
              (24
              )Proceeds
                  from short-term bank credit
              
              
              505
              
              
              939Collection
                  of notes receivable
              
              
              -
              
              
              110Proceeds
                  from exercise of employee stock options
              
              
              11
              
              
              -Proceeds
                  from short-term loans
              
              
              -
              
              
              5,000Proceeds
                  from long-term loans
              
              
              -
              
              
              6,000Net
                  cash provided by financing activities from continuing
                  operations
              
              
              516
              
              
              45,398Increase
                  (decrease) in cash and cash equivalents
              
              
              (9,160
              )
              
              28,873Cash
                  and cash equivalents at the beginning of the period
              
              
              17,278
              
              
              2,729Cash
                  and cash equivalents at the end of the period
              
              $
              8,118
              
              $
              31,602Supplemental
                  information and disclosure of non-cash investing and financing
                  activities
                  from continuing operations (including other non-cash equity
                  transactions):Issuance
                  of shares of Common stock upon conversion of long term convertible
                  loan
              
              $
              15,840
              
              $
              -Capitalization
                  of interest to principle on stockholder's loans
              
              $
              3,296
              
              $
              -Purchase
                  of property and equipment
              
              $
              11
              
              $
              63Deferred
                  debt and Merger costs
              
              $
              -
              
              $
              1,706Cash
                  paid during the period for:Interest
              
              $
              53
              
              $
              342Taxes
              
              $
              87
              
              $
              53(1)Cash
                  consideration from issuance of Common stock in the Merger, net
                  of issuance
                  costs:Working
                  capital, excluding cash
              
              $
              -
              
              $
              183Issuance
                  of Common stock in connection with the Merger
              
              
              -
              
              
              35,038Merger
                  costs
              
              
              -
              
              
              (1,848
              )$
              -
              
              $
              33,373
 
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -
            7
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
  **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
        dollars in thousands, except share and per share data**
 
 **NOTE
                1:-**
              **GENERAL**
 
 a.
              IXI
                  Mobile, Inc. (formerly Israel Technology Acquisition Corporation
                  ("ITAC"))
                  ("the Company") is a Delaware holding company operating through
                  a
                  wholly-owned subsidiary, IXI Mobile (USA), Inc. ("IXI"). ITAC 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 ("Merger") and IXI merged with ITAC Acquisition Subsidiary
                  Corp., a
                  wholly-owned subsidiary of ITAC. Prior to the Merger, the Company
                  had no
                  substantial operations as it was a blank check company. Therefore,
                  the
                  financial statements and accompanying notes represent the historical
                  results of IXI, unless otherwise stated.
 
 Immediately
        following the Merger, the holders of equity interests of IXI (including holders
        of certain options under IXI's employee stock option plans and holders of
        warrants to purchase IXI's shares of Common stock) owned or had the right
        to
        acquire approximately 7,818,000 shares of ITAC Common stock, of which
        approximately 1,264,291 shares of Common stock became available for issuance
        to
        IXI's senior management and optionees under IXI's employee stock option plans.
        As further consideration, the holders of equity interests of IXI received
        the
        right to acquire up to an additional 10,000,000 shares ("the Contingent Shares")
        of ITAC Common stock based on attaining various performance targets.
 
 Since
        IXI
        is considered in substance the accounting acquirer upon the Merger consummation,
        Merger costs have been deferred in an amount of approximately $880 and were
        fully recognized upon consummation of the Merger. Upon closing, on June 6,
        2007,
        ITAC changed its name to IXI Mobile, Inc.
 
 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 Common stock were canceled
        and converted into the Company's stock at a ratio of 1:0.15. Accordingly,
        for
        accounting purposes, the Merger was treated as the equivalent of
        recapitalization by IXI. All historical share and per share data have been
        retroactively adjusted to give effect to the reverse acquisition of the Company
        and related recapitalization. Total cash received in the Merger with the
        Company
        was $ 33,400, net of Merger expenses.
 
 b.
              As
                  of June 30, 2008, the Company has five wholly-owned active subsidiaries:
                  IXI Mobile (USA) Inc., IXI Mobile R&D Ltd. ("the Israeli subsidiary"
                  or "IXI Israel"), 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"). (See also Note
                  10c).
  -
            8
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
 
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
        dollars in thousands, except share and per share data**
 
 **NOTE
                  1:-**
              **GENERAL
                  (Cont.)**
 
 c.
              Vendor
                  advance payments, net:
 
 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, 2008, the Company’s management believe, that due to refocus of the
        Company’s activities, it will not be able to sell quantities of its prepaid
        products that it had previously anticipated. Accordingly, it believes that
        it
        will not realize $ 621 from the advance payments. Consequently, during the
        six months ended June 30, 2008 and 2007 the Company recorded cost of
        revenues of $621 and $680, respectively, for advance payments to suppliers.
        As
        of June 30, 2008, the remaining vendor advance payments net balance is $1,694.
 
 d.
              From
                  inception, the Company has generated recurring losses from operations
                  and
                  negative cash flows from operating activities. As of June 30, 2008,
                  and
                  December 31, 2007, the Company has a working capital of $ 1,138
                  and $
                  9,074, respectively, and stockholders' equity (deficiency) of ($11,352)
                  and $7,441, respectively. As of June 30, 2008, the Company has
                  cash and
                  cash equivalent balances of approximately $8,100, compared to operating
                  expenses of approximately $7,391 for the three months ended June
                  30, 2008.
                  The Company plans to continue to finance its operations through
                  long term
                  loans, by raising additional capital and in the longer term, to
                  generate
                  sufficient revenues to finance its operations. There are no assurances
                  that the Company will be successful in obtaining an adequate level
                  of
                  financing needed for current operations and long-term development
                  or that
                  the Company will be able to function as a going concern (See also
                  Note
                  10c). 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.
  -
            9
            -
  **IXI
          MOBILE INC. AND ITS SUBSIDIARIES**
 
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
          dollars in thousands**
 **NOTE
                  2:-**
              **SIGNIFICANT
                  ACCOUNTING POLICIES**
 
 The
                  accompanying unaudited condensed consolidated balance sheet as
                  of June 30,
                  2008, the unaudited condensed consolidated statements of operations
                  for
                  the three and six month periods ended June 30, 2008 and 2007, the
                  unaudited condensed statement of changes in stockholders' deficiency
                  for
                  the six month period ended June 30, 2008 and 2007, and the unaudited
                  condensed consolidated statements of cash flows for the six month
                  periods
                  ended June 30, 2008 and 2007 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 six months ended June 30, 2008 are
                  not
                  necessarily indicative of the results to be expected for the entire
                  year.
 
 These
        unaudited condensed financial statements should be read in conjunction with
        the
        audited financial statements and accompanying notes for the year ended December
        31, 2007, included in the Company's Annual Report on Form 10-K .
 
 **NOTE
                  3:-**
              **INVENTORIES**
 
 **June
                  30,**
              
              **December 31,****2008**
              
              **2007****Unaudited**Raw
                  materials
              
              $
              3,273
              
              $
              3,882Finished
                  products
              
              
              4,263
              
              
              3,570Finished
                  products at customers *)
              
              
              7,582
              
              
              7,806Write-down
                  provision
              
              
              (2,191
              )
              
              (1,019
              )$
              12,927
              
              $
              14,239
 As
        for a
        commitment to purchase inventories, see Note 7.
 
 *)
                  Represent
                      costs of inventory that was delivered to customers but not
                      yet recognized
                      as revenues.
 
 During
        the six months periods ended June 30, 2008 and 2007, expenses in total amount
        of
        $1,172 and $280, respectively, were recorded with respect to inventory
        write-downs.
  -
            10
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
 
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
        dollars in thousands**
 
 **NOTE
                  4:-**
              **SHORT-TERM
                  BANK CREDIT**
 
 In
        April
        2006, the Israeli subsidiary received a short-term bank credit from an Israeli
        bank in the amount of $8,000, which bears annual interest at a rate of LIBOR
        +
        3% which under the original terms was to be repaid on December 31,
        2006.
 
 Several
        stockholders, ("the Guarantors") provided a guarantee ("the Guarantee") to
        the
        bank to secure the payment of the short-term bank credit. As a consideration
        for
        the guarantee, the Guarantors were entitled to an amount equal to the difference
        between the basic interest rate (nominal interest of 10% per annum) and the
        interest rate owed under the short-term bank credit (nominal interest of
        4.91%
        as of June 30, 2008).
 
 On
        March
        28, 2008, the Company entered into an amendment of the remaining Guarantee
        with
        the remaining Guarantors of the Company’s Credit Facility. Effective April 1,
        2008, the Guarantors will be entitled to an amount equal to the difference
        between the amended interest rate (nominal interest of 20% per annum, increased
        from 10%) and the interest rate owed under the short-term bank credit. The
        interest owed to the Guarantors will be due on June 5, 2010 ("the Maturity
        Date") instead of on a quarterly basis. Upon a change of control of the Company,
        all outstanding principal, accrued and unpaid interest through the Maturity
        Date
        shall be due and payable in full even if the change of control is consummated
        earlier.
 
 The
        modifications to the terms of the Guarantee did not result in the recording
        of
        any expenses as there was no assumption of the debt.
 
 **NOTE
                5:-**
              **LONG-TERM
                  LOANS**
 
 On
        March
        28, 2008, the Company, entered into an amendment to the agreement of the
        remaining March 2007 Loans with certain of its existing stockholders. Effective
        April 1, 2008, the repayment date is extended to June 5, 2010 instead of
        June 5,
        2008 and June 5, 2009, all unpaid principal and accrued or unpaid interest
        was
        capitalized to be part of the loan principal, which resulted in the principal
        amount of $4,391, and the interest rate was increased from 10% to 20%.
        Additionally the amendments revise the time of payment of any principal and
        interest to the Maturity Date. Upon a change of control of the Company as
        defined in the Loan's Amendments and prior to the Maturity Date, all unpaid
        principal and accrued and unpaid interest through the Maturity Date shall
        be due
        and payable in full even if the change of control occurs earlier.
 
 The
        Company accounted for the amendment to the March 2007 Loans agreement under
        the
        provisions of EITF 96-19 " Debtor's
        Accounting for a Modification or Exchange of Debt Instruments " ("EITF
        96-19"),  as
        an
        extinguishment of the remaining balance of the March 2007 Loans, and the
        issuance of a new loan under the modified terms. As of March 31, 2008, the
        remaining March 2007 Loans, as amended, were recorded in the balance sheet
        based
        on their fair value, which equals the carrying amount of the loans, in the
        amount of $4,391.As of June 30, 2008, total amount of the remaining March
        2007
        Loans, as amended, was $4,609.
  -
            11
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
 
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
        dollars in thousands**
 
 **NOTE
                6:-**
              **CONVERTIBLE
                  LOANS**
 
 On
        March
        28, 2008, the Company and one of its existing stockholders entered into an
        amendment to the New Convertible Bridge Loan Agreement. Effective April 1,
        2008,
        the repayment date is extended to June 5, 2010 instead of June 5, 2008, any
        principal, accrued or unpaid interest was capitalized to be part of the loan
        principal, which resulted in principal amount of $7,064, and the interest
        rate
        is increased from 10% to 20%. Additionally the amendments revise the time
        of
        payment of any principal and interest to the Maturity Date. Upon a change
        of
        control of the Company, as defined in the Convertible Loan amendment and
        prior
        to the Maturity Date, all unpaid principal and accrued and unpaid interest
        through the Maturity Date shall be due and payable in full even if the change
        of
        control is consummated earlier.
 
 The
        amendment to the terms of the New Convertible Bridge Loan was accounted for
        under the provisions of EITF 96-19 and EITF 06-6, "Debtor's Accounting For
        a
        Modification (or Exchange) of Convertible Debt Instruments" ("EITF 06-6"),
        as an
        extinguishment of the New 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 $990 for the extinguishment of the New Convertible
        Bridge
        Loan as additional financial expenses. Additional financial expenses of
        approximately $207 were recognized due to the full amortization of various
        deferred charges related to the loan. The amended New Convertible Bridge
        Loan
        was recorded in the balance sheet based on its fair value which amounted
        to
        approximately $8,055. As of June 30, 2008, total amount of the New Convertible
        Bridge Loan was approximately $8,278.
 
 **NOTE
                  7:-**
              **COMMITMENTS
                  AND CONTINGENT LIABILITIES**
 
 a.
              Litigation:
 
 From
        time
        to time, the Company becomes involved in legal proceedings and claims, in
        the
        ordinary course of business. The Company does not consider the ultimate
        liability with respect to any currently known action likely to materially
        affect
        the business, financial position, results of operations or cash flows of
        the
        Company.
 
 b.
              Other:
 
 As
        of
        June 30, 2008, the Company had open purchase orders with third party suppliers,
        mainly for purchasing inventory and products development, in a total amount
        of
        approximately $2,200.
 
 As
        of
        June 30, 2008, the Company believes that it will incur an obligation of
        approximately $1,100 of slow moving inventory regarding its outstanding
        commitments, therefore, the Company has recorded a respective loss as cost
        of
        revenues for that amount against trade payables.
 
 As
        of
        June 30, 2007, the Company recorded a loss of approximately $500 of obsolete
        inventory regarding one of its open purchase orders.
  -
            12
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
 
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
        dollars in thousands**
 
 **NOTE
                8:-**
              **STOCKHOLDERS'
                  EQUITY (DEFICIENCY)**
 
 On
        February 28, 2008, the Company issued 4,400,000 shares of Common stock in
        total
        amount of $15,840 relating to a contractual obligation to issue on account
        of
        long-term convertible loan converted into equity on October 25, 2007 and
        which
        was included in stockholders' equity as of December 31, 2007 as receipts
        on
        account of stock in the same total amount.
 
 **NOTE
                  9:-**
              **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").
  b.
              Summary
                  information about geographic areas and major
                  customers:
 
 The
        following tables present (i) revenues (according to end customer location)
        for
        the three and six months ended June 30, 2008 and 2007 (ii) long-lived assets,
        as
        of June 30, 2008 and December 31, 2007, and (iii) revenues from major customers
        (on a percentage basis) for the three and six months ended June 30, 2008
        and
        2007:
 
 c.
              Revenues:
 
 **Six months ended**
                **June 30,**
              
              **Three months ended**
                **June 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Unaudited**Europe
                  and the Middle East
              
              $
              5,418
              
              $
              6,000
              
              $
              2,167
              
              $
              3,042Asia
                  Pacific
              
              
              143
              
              
              -
              
              
              19
              
              
              -South
                  America
              
              
              69
              
              
              294
              
              
              35
              
              
              128$
              5,630
              
              $
              6,294
              
              $
              2,221
              
              $
              3,170
  -
            13
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
 
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
        dollars in thousands, except share and per share data**
 
 **NOTE
                  9:-**
              **SEGMENTS,
                  CUSTOMERS AND GEOGRAPHIC INFORMATION
                  (Cont.)**
 
 d.
              Long
                  lived assets:
   **June 30,**
              
              **December 31,****2008**
              
              **2007****Unaudited**Europe,
                  and Middle East
              
              $
              470
              
              $
              468Asia
                  Pacific
              
              
              1
              
              
              1United
                  States
              
              
              8
              
              
              18$
              479
              
              $
              487
 
 e.
              Revenues
                  from major customers:
 
 **Six months ended**
                **June 30,**
              
              **Three months ended**
                **June 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Unaudited**Customer
                  A
              
              
              58
              %
              
              57
              %
              
              69
              %
              
              54
              %Customer
                  B
              
              
              19
              %
              
              32
              %
              
              24
              %
              
              34
              %Customer
                  C
              
              
              9
              %
              
              -
              
              
              2
              %
              
              -
  -
            14
            -
  **IXI
        MOBILE INC. AND ITS SUBSIDIARIES**
 
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
        dollars in thousands, except share and per share data**
 
 **NOTE
                  10:-**
              **SUBSEQUENT
                  EVENTS**
  a.
              On
                  July 2, 2008, the Company's Board of Directors approved and reserved
                  1,690,000 shares for future option grants for the retention of
                  employees and consultants.
 
 In
                  addition, the Company's Board of Directors resolved, subject to
                  employees'
                  consent, to reduce the exercise price of granted options to Israeli
                  and
                  Romanian based employees (not including executive officers) and
                  to change
                  the vesting period of all affected
                  options.
  Accordingly
                  the Board approved to reduce the exercise price of 805,560
                  options from their respective exercise prices to $0.01 per share, and
                  to change the vesting period for all such options so that any vested
                  options became unvested and the vesting period was reset to two
                  years from
                  the date of the employee's consent.
 
 On
                  July 14, 2008, the Board approved an increase in the number of
                  shares of
                  Common Stock available for issuance under the Company’s 2003 Israeli Stock
                  Option Plan (as previously amended) by 350,000 to
                  4,104,291.
 
 b.
              On
                  July 14, 2008, the Board of Directors (the “Board”) of the Company
                  approved Addendum No. 2 (the “Addendum”) to the employment agreement of
                  the Executive Co-Chairman of the Company. The Addendum modifies
                  the
                  Co-Chairman's existing employment agreement, dated January 1, 2006
                  (as
                  amended on February 28, 2006). The Addendum provides that, retroactively
                  to April 1, 2008, the Co-Chairman's salary has been reduced by
                  one-third
                  to $140 annually and, in consideration therefore, he will be granted
                  62,420 shares of the Company’s common stock. The reduction in salary
                  pursuant to the addendum will terminate upon the earlier to occur
                  of (i)
                  March 31, 2009 or (ii) the date of the termination of the Co-Chairman's
                  employment with the Company. As of June 30, 2008, the Company recorded
                  expenses in the total amount of $70 against accrued expenses for
                  the
                  shares grant pursuant to the
                  Addendum.
 
 c.
              On
                  August 12, 2008, the Company's Board of Directors initiated several
                  strategic measures intended to refocus the Company’s activities and to
                  reduce operating costs.  Such cost reduction measures include a
                  reduction of approximately twenty-five percent of its headcount
                  and the
                  closing of its US facilities. In addition, the Company's Board
                  of
                  Directors approved the following
                  actions:
 
 1.
              Termination
                  of employment of the Company's Executive Co-Chairman of the Board
                  of
                  Directors who will continue to serve as director of the Company.
                  Upon the
                  termination of employment of the Co-Chairman, the terms of the
                  Co-chairman's employment agreement with the Company, as amended
                  by
                  addendum No. 1, were restored in accordance with the terms of the
                  Addendum.
 2.
              Termination
                  of employment of the Company’s Chief Executive Officer  that will
                  continue to serve as director of the
                  Company
 3.
              Appointment
                  of the Non-Executive Co-Chairman of the Company to serve as Chief
                  Executive Officer and sole Chairman of the Board of
                  Directors.
  -
            15
            -




**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**





*The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our consolidated condensed
      unaudited financial statements and related notes 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. Our actual results and timing
      of
      selected events may differ materially from those anticipated in these
      forward-looking statements as a result of many factors, including those
      discussed under risk factors in our Annual Report on 10-K and elsewhere in
      this
      Report, including under the caption “Certain Factors that May Affect Future
      Results" below.*




**Certain
      Factors that May Affect Future Results**




From
      time
      to time, information we provide, statements made by our employees or information
      included in our filings with the Securities and Exchange Commission ,
      or the
      SEC, (including this Form 10-Q) contain statements that are not purely historical,
      but are forward looking statements, made under Section 21E of the Securities
      Exchange Act of 1934, as amended, or the Exchange
      Act, which involve risks and uncertainties. In particular, forward looking
      statements made
      herein include projections, plans and objectives for our business, financial
      condition, operating results, future operations, or future economic performance,
      statements relating to the sufficiency of capital to meet working capital
      requirements, our ability to raise additional debt or equity financing and
      our
      ability to continue as a going concern, expectations as to customer orders
      and
      demand for our products and statements relating to, gross margins and pricing
      considerations. These statements are neither promises nor guarantees but involve
      risks and uncertainties, both known and unknown, which could cause our actual
      future results to differ materially from those stated in any forward looking
      statements. Factors that may cause such differences include, but are not limited
      to the following:


·
                our
                    ability to continue as a going
                    concern;
 
 ·
                our
                    ability to raise, and the availability of, additional financing
                    to satisfy
                    our working capital, payment of long-term loans and other
                    requirements;
 
 ·
                our
                    ability to distribute our products on a commercial
                    scale;
 
 ·
                our
                    ability to provide an affordably-priced alternative for mobile
                    e-mail
                    access as well as other value-added
                    services;
 
 ·
                our
                    ability to successfully keep pace with rapid technological changes
                    and new
                    product introductions in our
                    industry;
 
 ·
                competing
                    products that may, now or in the future, be available to customers
                    from
                    established companies and new market entrants that have greater
                    name
                    recognition and financial and other resources than we
                    do;
 
 ·
                our
                    success in developing and marketing new products or services,
                    including
                    but not limited to Code Division Multiple Access (“CDMA")
                    devices;
  -
              16
              -
  ·
                our
                    ability to maintain our relationships with existing customers
                    and develop
                    arrangements with new customers;
 
 ·
                our
                    reliance on a small number of customers, on a single third party
                    manufacturer and on certain suppliers and service
                    providers;
  ·
                our
                    expectations regarding trends in the cell phone, mobile messaging
                    and
                    consumer electronics industries;
 
 ·
                our
                    ability to improve our financial performance by increasing our
                    revenues
                    and gross profit and generating positive cash flow from operating
                    activities, among other matters;
 
 ·
                competitive
                    pressures and general economic
                    conditions;
 
 ·
                future
                    acquisitions and other business combinations, if any, effected
                    by us or
                    our competitors or our customers;
 
 ·
                the
                    effect of our efforts to comply with laws and regulations, including
                    the
                    Sarbanes-Oxley Act of 2002, as amended;
                    and
 
 ·
                our
                    ability to protect our proprietary and confidential information
                    and other
                    intellectual property rights.
 In
            addition to the factors listed above, on August 12, 2008, the Company’s Board of
            Directors approved several strategic initiatives intended to refocus
            the
            Company’s activities and to reduce operating costs. Under this revised strategic
            plan, which includes a reduction of approximately twenty-five
            percent of its headcount and the closing of its U.S. facilities, the
            Company will focus on serving customers in the European and Asian Pacific
            markets. Despite these strategic initiatives, the Company is likely to
            continue
            to have negative cash flows from its operating activities for the foreseeable
            future. In addition, the Company’s failure to add customers in the United States
            and its expectation that it will not be able to do so in the foreseeable
            future
            may result in the Company’s revenues not increasing, or even decreasing
            revenues. At August 15, 2008, the Company had cash and cash equivalents
            of
            approximately $5.7 million, while operating expenses during the three
            months ended June 30, 2008 were $7.4 million. As a result, notwithstanding
            these
            new strategic initiatives, the Company will need to raise additional
            capital in
            the near future in order to continue as a going concern, and there can
            be no
            assurance that it will be successful in doing so or that, even if the
            Company is
            able to raise additional capital, such capital will be sufficient to
            allow the
            Company to continue as a going concern.
  These
        factors, and others, are discussed from time to time in our filings with
        the
        SEC, including
        our Annual Report on Form 10-K filed with the SEC on March 31, 2008 for the
        year
        ended December 31, 2007.
  **Overview**
  We
        develop and sell innovative data-centric wireless mobile devices and services
        for mass market users. We market our solutions to mobile operators, mobile
        virtual network operators, or MVNOs, and internet service providers, or ISPs,
        in
        a number of international markets ,
        principally in Europe and Asia .
        We
        offer an end-to-end mobile solution, which includes devices and hosted services,
        that permits our customers to deliver mobile data and Internet services to
        their
        subscribers.
  Our
        Ogo
        device is a handheld cellular device that is designed to improve the mobile
        user
        experience and increase mobile data usage by offering access to popular
        applications and services, including email, instant messaging , or
        IM,
        short messaging service, or SMS, mobile voice, Web browsing, games, headlines
        and other Web information through Really Simple Syndication technology, or
        RSS,
        at affordable 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 our Ogo devices, present our customers with a complete
        end-to-end solution that limits infrastructure investment and other roll-out
        costs associated with launching Ogo devices and related services. In addition
        to
        revenues from the sale of our Ogo devices, we receive recurring monthly service
        fees from our customers for subscribers that purchase hosting services related
        to our Ogo devices. Currently, our Ogo devices are capable of operating in
        countries where Global System for Mobile Communications, or GSM, cellular
        networks are used.  We
        are in
        the final stages of development of an Ogo device known as the Ogo 2.0c, which
        is
        designed to operate on CDMA, cellular networks.
  **Recent
        Developments**
 On
          August
          12, 2008, the Company’s Board of Directors approved several strategic
          initiatives intended to refocus the Company’s activities and to reduce operating
          costs. Under this revised strategic plan, which includes a reduction of
          approximately twenty-five percent of its headcount and the closing of its
          U.S.
          facilities, the Company will focus on serving customers in the European
          and
          Asian Pacific markets. Despite these strategic initiatives, the Company
          is
          likely to continue to have negative cash flows from its operating activities
          for
          the foreseeable future. In addition, the Company’s failure to add customers in
          the United States and its expectation that it will not be able to do so
          in the
          foreseeable future may result in the Company’s revenues not increasing, or even
          decreasing revenues. At August 15, 2008, the Company had cash and cash
          equivalents of approximately $5.7 million, while operating expenses during
          the three months ended June 30, 2008 were $7.4 million. As a result,
          notwithstanding these new strategic initiatives, the Company will need
          to raise
          additional capital in the near future in order to continue as a going concern,
          and there can be no assurance that it will be successful in doing so or
          that,
          even if the Company is able to raise additional capital, such capital will
          be
          sufficient to allow the Company to continue as a going
          concern.
  -
            17
            -
  In
        connection with the foregoing, the Board appointed Israel Frieder as the
        Company’s Chief Executive Officer and Motti Gil as Chief Financial Officer. Mr.
        Frieder served as Co-Chairman of the Company since June 2007, and was Chairman
        and Chief Executive Officer of ITAC from its inception until June 2007. Mr.
        Gil
        has served as Vice President of Finance of the Company since December
        2007.
 
 ***History
        of Continuing Losses; Going Concern; Need for Additional Financing
        (Unaudited)***
  We
        have
        incurred operating losses since inception, including net losses of approximately
        $20.0 million and $28.2 million for the six months ended June 30, 2008 and
        2007,
        respectively, and approximately
        $11.4 million and $21.5 million for the three months ended June 30, 2008
        and
        2007, respectively. As of June 30, 2008 we
        had an
        accumulated deficit and stockholders' deficiency of approximately $ 180.2
        million and $11.4 million, respectively. We also have had and continue to
        have
        negative cash flows from operating activities. For the six months ended June
        30,
        2008 and 2007, we had
        negative cash flow from operating activities in the amounts of $9.6 million
        and $16.5 million, respectively .
 
 At
        June
        30, 2008, we had cash and cash equivalents available to fund operations of
        approximately $8.1 million and, in addition we have an unused credit line
        from
        Bank Leumi of approximately $90,000. At August 15, 2008, we had cash and
        cash
        equivalents available to fund operations of approximately $5.7
        million .
        In addition
        we have an unused credit line from Bank Leumi of approximately $ 80,000
        For the second
        quarter of 2008, our operating expenses were approximately $7.4 million
        (unaudited). These conditions raise substantial doubt about our ability to
        continue as a going concern without a material increase in revenue and gross
        profit or obtaining additional financing. Our auditors included in their
        report
        with respect to our consolidated financial statements as of December 31,
        2007,
        an explanatory paragraph stating that, because we have incurred recurring
        operating losses and negative cash flows from operating activities, there
        is
        substantial doubt about our ability to continue as a going concern.
 
 As
        described above under “—Recent Developments,” the Company’s Board of Directors
        initiated several strategic measures intended to refocus the Company’s
        activities and to reduce operating costs and to seek additional investment
        to
        meet its working capital needs, although no assurance can be given that such
        measures or efforts will be successful.
 
 If
        our
        revenues and gross profit do not materially increase, we will continue to
        incur
        significant losses and will not become profitable. Further, even if we are
        able
        to raise additional financing for our operational and financing needs, we
        may
        expand our business, which will result in increased expenses related to sales
        and marketing, research and development, cost of revenues and general and
        administrative. We cannot assure you that our revenues will exceed our expenses
        or even grow at the same pace as our expenses or at all. Additionally, we
        may
        encounter unforeseen difficulties and complications that require additional
        unexpected expenditures. Our losses may increase in future periods, and there
        can be no assurance that we will ever achieve positive cash flows from operating
        activities or reach profitability.
  Our
        business is capital intensive. In recent years and to
        date in the current year ,
        our
        losses have been substantial. In order to continue our operations according
        to
        our business plan and to repay our outstanding indebtedness in cash when
        due, we
        will require substantial additional equity or debt financing in both the
        short
        and the long term. On March 28, 2008, we entered into amendments to our
        outstanding loan agreements with Southpoint and Gemini Funds, and the guaranty
        from Gemini Funds of our line of credit from Bank Leumi Le’Israel Ltd, to (1)
        extend the maturity date of all principal payments under the loan arrangements
        from June 2008 and June 2009 to June 5, 2010, (2) increase the interest rate
        from 10% to 20%, effective April 1, 2008, (3) capitalize all interest payments,
        including any accrued and unpaid interest, and (4) amend the prepayment
        provisions upon a change of control to provide that the interest payable
        shall
        be calculated through the maturity date of June 5, 2010 even if the change
        of
        control occurs earlier. As a result, at June
        30,
        2008, the principal amount outstanding under the loans arrangements was
        approximately $14 million in the aggregate and unpaid interest of approximately
        $570,000. Nonetheless, as noted above, we will need to procure additional investments
        to
        meet our working capital needs. If we fail to
        obtain additional financing ,
        we will need
        to further significantly curtail our operations in order to minimize expenses and delay
        or abandon
        of some or all of our plans for development and expansion, which would have
        a
        material adverse effect on our operating results and financial condition
        and
        could harm our ability to grow our business. We cannot provide any assurance
        regarding our ability to raise additional funds in the future or the terms
        under
        which funds would be available. If we are unable to secure additional financing,
        we may be forced to cease our operations.
  We
        may
        raise funds in a number of ways, including through the issuance of debt or
        equity, or through other financing. If we borrow funds, we likely will be
        obligated to make periodic interest or other debt service payments, and the
        terms of this debt may impose burdensome restrictions on our ability to operate
        our business. If we sell or otherwise issue equity securities, our current
        stockholders will suffer significant dilution in their percentage ownership
        of
        common stock. Additionally, the prices at which new investors would be willing
        to purchase our securities may be lower than the current market price for
        our
        common stock, which would result in further dilution to current holders of
        our
        equity securities. We may also be required to grant certain rights, preferences
        or privileges to the parties providing us with additional financing that
        are
        senior to those of existing holders of our common stock and that may result
        in
        holders of our current equity securities receiving little or no recovery
        in the
        event we are required to cease operations and liquidate our assets.
  -
            18
            -
  ***Agreements
        with IM Providers***
  We
        have
        entered into agreements with certain major IM suppliers that allow us to
        provide
        end users of the Ogo device with access to IM and email services for mobile
        devices. These agreements are subject to certain fixed minimum fees and
        additional fees associated with the number of subscribers and the geographic
        distribution of those subscribers.
  ***Termination
        of AT&T Wireless/Cingular Relationship***
  We
        began
        to market the Ogo device and service in the United States in 2004 under a
        development and supply agreement with AT&T Wireless Services, Inc., or
        AT&T. The agreement required AT&T 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 by Cingular Wireless, Inc., or Cingular, the agreement
        was terminated. AT&T had 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.
 
 ***Re-Commencement
        of Marketing Efforts***
  In
        2005,
        we focused our marketing efforts on targeting new customers. In 2005, we
        entered
        into agreements with three significant customers: (i) Swisscom Mobile, the
        leading mobile ope rator
        in
        Switzerland; (ii) 1&1 Internet AG, or 1&1, a leading German ISP, and
        (iii) e-kolay.net, a leading ISP in Turkey owned by Doğan Yayin Holding,
        Turkey’s leading media-entertainment conglomerate. In the years ended December
        31, 2006 and 2007, we adde d
        two and
        four customers, respectively. During the six
        months ended June 30, 2008, no new customers were added.
 
 On
        August
        12, 2008, our Board of Directors approved several strategic initiatives to
        refocus the Company’s activities and to reduce operating costs. Under this plan,
        the Company will focus on serving customers and potential customers in the
        European and Asian Pacific markets. The Company is no longer currently focusing
        on the U.S. market and does not expect to add any U.S. customers in the
        foreseeable future.
  **Sources
        of Revenues**
  We
        currently generate revenues from two main sources: sales of Ogo devices and
        providing the hosted services related to Ogo devices.
  Sales
        of
        Ogo devices are usually 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. In addition to revenues from the
        sale
        of our Ogo devices, we receive recurring monthly service fees from our customers
        for subscribers that have purchased hosting services related to our Ogo device.
        Our monthly service fees are billed to our customers under various billing
        methods ranging from service fees based on subscribers who actually use our
        Ogo
        device during the billing period to service fees based on subscribers who
        have
        access to our hosted services, regardless of actual use.
  Our
        initial revenues from device sales were generated by those units shipped
        by
        AT&T to their end users. Because AT&T had internal capabilities to
        provide the email and IM gateways to its end users, we did not provide any
        hosting services for AT&T customers. Since commencing sales in 2004, we
        shipped a total of $16.5 million of devices to AT&T, of which $6.7 million
        were recognized as revenue in 2005. The remaining shipments to AT&T were
        recognized as part of the one-time gain of approximately $11.7 million in
        2005
        resulting from the termination of the agreement by Cingular.
  During
        2006 and 2007 we entered into customer agreements with additional mobile
        operators and ISPs around the world.
  -
            19
            -
  In
        February 2007, Vimpelcom, a Russian mobile operator serving more than 47
        million
        subscribers, announced that it intended to offer Ogo devices and service
        to
        small to medium business customers. Vimpelcom, through Betalink, a third
        party
        purchasing arm, issued a purchase order for purchase of Ogo devices, subject
        to
        our standard terms and conditions. The Ogo devices were delivered to Betalink
        in
        February, 2007 and we are awaiting receipt of the balance of the outstanding
        purchase price of $340,000 for these devices. Following meetings with Vimpelcom
        in February 2008, we believe that Vimpelcom has not made a final decision
        as to
        the commercial launch of the Ogo solution in Russia. We currently do not
        expect
        that Vimpelcom will commercially launch the Ogo device in Russia. As of June
        30,
        2008, we are considering our options if we are unable to reach agreement
        with
        Vimpelcom for payment for the Ogo devices at Betalink. We have not recognized
        any revenue related to Vimpelcom.
  Because
        we do not yet have sufficient experience with sales of Ogo devices to predict
        the appropriate rate at which our products 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 service to the end user. Where we have
        established sufficient experience, in cases that after one year from delivery
        a
        portion of the delivered devices were not activated, we consider revenue
        recognition relating to the inactive devices when the following criteria
        are
        met: (a) the customer is not deemed a strategic customer, (b) the customer
        has
        not placed additional purchase orders within the past 12 months and our
        management does not anticipate future purchase orders from such customer,
        and
        (c) our management believes that the customer has no bargaining power over
        us
        and therefore it is not in a position to demand return of the inactive devices
        and the customer has no right to return, contractual or implied.
  From
        the first quarter of 2006 through June 30, 2008, we shipped and
        recognized revenues from the following sales of Ogo devices (excluding AT&T
        sales):
 
 **Q1**
                **2006**
              
              **Q2**
                **2006**
              
              **Q3**
                **2006**
              
              **Q4**
                **2006**
              
              **Q1**
                **2007**
              
              **Q2**
                **2007**
              
              **Q3**
                **2007**
              
              **Q4**
                **2007**
              
              **Q1**
                **2008**
              
              **Q2**
                **2008**(unaudited)Revenue
                  from sale of the Ogo devices (in thousands)
              
              $
              1,642
              
              $
              3,437
              
              $
              3,309
              
              $
              3,355
              
              $
              2,632
              
              $
              2,511
              
              $
              4,037
              
              $
              4,290
              
              $
              2,488
              
              
              1,203Revenue
                  from service (in thousands)
              
              
              89
              
              
              175
              
              
              217
              
              
              393
              
              
              465
              
              
              545
              
              
              688
              
              
              806
              
              
              921
              
              
              937Other
                  Revenue (ECR)(1)
              
              
              8
              
              
              117
              
              
              49
              
              
              138
              
              
              26
              
              
              115
              
              
              39
              
              
              86
              
              
              0
              
              
              81Total
                  Revenue
              
              
              1,739
              
              
              3,729
              
              
              3,575
              
              
              3,886
              
              
              3,123
              
              
              3,171
              
              
              4,764
              
              
              5,182
              
              
              3,409
              
              
              2,221Deferred
                  Revenue (in thousands) (Ogo only)(2)
              
              $
              3,510
              
              $
              6,843
              
              $
              10,954
              
              $
              12,415
              
              $
              11,686
              
              $
              11,691
              
              $
              11,237
              
              $
              9,590
              
              $
              8,131
              
              
              9,742Ogo
                  device Average Selling Price (“ASP”)
              
              $
              164
              
              $
              182
              
              $
              166
              
              $
              168
              
              $
              169
              
              $
              170
              
              $
              185
              
              $
              190
              
              $
              192
              
              
              186Monthly
                  Service ASP, per billed subscriber
              
              $
              2.80
              
              $
              2.20
              
              $
              1.60
              
              $
              2.00
              
              $
              1.90
              
              $
              1.80
              
              $
              2.10
              
              $
              2.30
              
              $
              2.4
              
              
              2.7Units
                  shipped per Quarter(3)
              
              
              6,000
              
              
              40,000
              
              
              45,000
              
              
              28,000
              
              
              11,000
              
              
              14,000
              
              
              18,000
              
              
              12,000
              
              
              6,000
              
              
              14,000Units
                  shipped (cumulative)(3)
              
              
              35,000
              
              
              75,000
              
              
              120,000
              
              
              148,000
              
              
              159,000
              
              
              172,000
              
              
              190,000
              
              
              203,000
              
              
              208,000
              
              
              222,000Subscribers
                  (cumulative) (3)(4)
              
              
              14,500
              
              
              33,000
              
              
              53,000
              
              
              73,000
              
              
              89,000
              
              
              104,000
              
              
              120,000
              
              
              138,000
              
              
              150,000
              
              
              151,000Customers – launched
                  (cumulative)
              
              
              3
              
              
              4
              
              
              4
              
              
              5
              
              
              5
              
              
              6
              
              
              6
              
              
              9
              
              
              9
              
              
              9
 (1)
                ECR
                    means engineering change request.
 
 (2)
                Deferred
                    revenues of devices as of the last date of the applicable
                    quarter.
 
 (3)
                Amounts
                    are rounded.
  (4)
                The
                    number of our customers’ subscribers is as of the end of a quarter and is
                    the approximate number of subscribers who were provided access
                    to our
                    hosted services, less deactivation of subscribers reported to
                    us by our
                    customers. Subscriber numbers may be reduced from time to time
                    due to
                    deactivation of subscribers, as duly reported to us by our customers.
                    The
                    number of subscribers may include subscribers who are no longer
                    active but
                    who have not been duly reported to us as deactivated. The number
                    of our
                    customers' subscribers that we bill in a billing period will
                    vary from
                    this number depending on the billing method of the specific hosted
                    service
                    and specific customer. The number of subscriber accounts is a
                    non-financial metric, is intended to highlight the change in
                    our
                    subscriber base and should not be relied upon as an indicator
                    of our
                    financial performance. The number of subscriber accounts does
                    not have any
                    standardized meaning prescribed by US GAAP and may not be comparable
                    to
                    similar metrics presented by other
                    companies.
  -
            20
            -
  To
        date,
        we have derived our revenue from a small number of customers. The following
        customers represented 100% of our revenues from continuing operations during
        the
        three months ended June 30, 2008 and 2007 and during each of the years ended
        December 31, 2007, 2006 and 2005:
 **Three
                    months ended June 30,****2008**
                  **Unaudited**
                
                **2007**
                  **Unaudited**Swisscom
                    Mobile
                
                
                69%
                
                
                54%1&1
                
                
                24%
                
                
                34%Others
                
                
                7%
                
                
                12%
  **Year
                  Ended December 31,****2007**
              
              **2006**
              
              **2005**AT&T
                  Wireless (terminated in 2005)
              
              
              —
              
              
              —
              
              
              85%Swisscom
                  Mobile
              
              
              48%
              
              
              45%
              
              
              8%1&1
              
              
              29%
              
              
              46%
              
              
              —Ancel(1)
              
              
              11%
              
              
              1%
              
              
              —Others(2)
              
              
              12%
              
              
              8%
              
              
              7%
  
 (1)
                In
                    2007, included revenues from inactive devices of $1.1
                    million.
 
 (2)
                In
                    2007, included revenues from inactive devices of $0.5
                    million.
 The
        following represents revenues by geographic breakdown for the three months
        ended
        June 30, 2008 and 2007 and for each of the years ended December 31, 2007,
        2006
        and 2005:
  **Three
                  months ended June 30,****2008**
                **Unaudited**
              
              **2007**
                **Unaudited****(in
                  thousands)**Europe,
                  Middle East and Africa
              
              
              2,167
              
              
              3,042South
                  America
              
              
              35
              
              
              128Asia
                  Pacific
              
              
              19
              
              
              —Total
              
              $
              2,221
              
              $
              3,170
  **Year
                  Ended December 31,****2007**
              
              **2006**
              
              **2005****(in
                  thousands)**United
                  States
              
              $
              —
              
              $
              —
              
              $
              6,794Europe
                  and Middle East
              
              
              14,460
              
              
              12,645
              
              
              825South
                  America (1)
              
              
              1,761
              
              
              184
              
              
              —Asia
                  Pacific
              
              
              19
              
              
              100
              
              
              348Total
              
              $
              16,240
              
              $
              12,929
              
              $
              7,967
  -
            21
            -
 **Discontinuation
          of Operating System Business Unit**
  In
          2003,
          we began development of a proprietary operating system, or OS, which targeted
          manufacturers of affordable mobile phones as well as other mobile devices.
          This
          OS was differentiated by its low memory footprint and low processing power
          requirements, and it also provided a platform that allowed 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
          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 by allowing our management to
          focus
          solely on Ogo-related activity and enabling us to transfer resources and
          funds
          to our Ogo business. During the period covered by the financial statements
          contained in this Quarterly Report, the operating system related activities
          were
          classified as discontinued operations.
  In
          October 2005, as part of the discontinuation of operations of our OS
          business ,
          and due
          to our need to increase our cash resources, we granted to 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. It also provides that Sasken will own any intellectual property
          rights with respect to its development of the software, while IXI will
          retain
          ownership in any intellectual property licensed to Sasken. In consideration
          for
          the license, Sasken paid to us a net license fee in the amount of $1.8
          million.
          In addition, Sasken will pay us a royalty of $0.10 for each product that
          is sold
          by Sasken that contains the OS or any development of it, in whole or in
          part,
          without limit as to term, up to an aggregate amount of $5.0 million. To
          date, we
          have not received any royalty payments from Sasken.
  This
          transaction was effected without the required approval of the Israeli Office
          of
          the Chief Scientist, or OCS, in breach of the terms of the OCS funding.
          We have
          applied to the OCS for retroactive approval of this license. In June 2005,
          an
          amendment to the Law for the Encouragement of Research and Development
          in the
          Industry, 1984, became effective, according to which the OCS has the discretion
          to grant this retroactive approval, but the regulations governing the
          calculation of the amount to be paid to the OCS in this case have not yet
          been
          promulgated. There can be no assurance that the OCS will grant us retroactive
          approval for the license, and we do not know the exact amount that we may
          be
          required to pay to the OCS if the approval is granted. Accordingly, we
          are
          obligated to repay all funds provided by the OCS, including accrued interest
          at
          the LIBOR rate. We have provided an allowance in our financial statements
          in the
          amount of approximately $3.3 million to reflect our estimate of our obligation
          to the OCS. We may also be subject to certain criminal penalties for violation
          of the applicable statutes that
          govern OCS grants and their repayment obligations. If we are required to
          pay to
          the OCS the estimated amounts or amounts that are significantly higher
          than such
          estimates, or if criminal proceedings are initiated against IXI Israel
          or any of
          its officers, our business, financial condition and results of operations
          would
          be adversely affected.
 
 **Operating
          Expenses**
  ***Cost
          of Revenues***
  Cost
          of
          revenues relating to the Ogo devices consists primarily of (i) the cost
          of the
          device components that we procure directly from third party suppliers,
          (ii) the
          cost to us of having the device manufactured by Chi Mei and with respect
          to the
          Ogo 2.0c CDMA device once it is available, by Inventec, (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, (v) the cost of free devices provided to customers,
          (vi)
          warranty expenses and allowance for the warranty of our products, and (vii)
          write-down expenses relating to slow-moving inventory and advance payments
          to
          suppliers.
  We
          currently pay our suppliers before we receive the devices, while the standard
          payment terms that 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
          provide a warranty for our products for various periods ranging from 12
          to 30
          months. We receive a warranty from Chi Mei on the Ogo 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 these warranty 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.
  -
              22
              -


Cost
      of
      revenues relating to our hosted services consists primarily of (i) royalty
      expenses for third party services included in the Ogo devices and write-down
      of
      expenses related to the services, (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, 2008, our research and development team was comprised of 98 employees and
      consultants in Israel and Romania. Following the reduction of headcount on August 13, 2008, total employees and
      consultants in Israel and Romania decreased to 80 employees. To
      the
      extent we have available funds, our research and development expenses might
      increase in the future as we continue to expand our product offering, features
      and applications. Until 2005, we received royalty-bearing grants from the OCS
      for funding the development of PMG® (Personal Mobile Gateway) Technology
      software and the OS. PMG technology allows a mobile phone or other data device
      to enable a variety of companion devices (such as watches, cameras, and MP3
      players) to connect to the Internet and each other wirelessly. The PMG is the
      single connection between the wireless network and a collection of affordable
      and optimized mobile devices, such as watches, cameras and MP3 players. The
      grants were deducted from research and development expenses. Research and
      development grants were recognized when we satisfied 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.





***Selling
      and Marketing Expenses***




Selling
      and marketing expenses consist primarily of salaries, commissions, costs of
      participation in our customers’ marketing efforts, direct marketing costs we
      incur and related personnel expenses for personnel 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 an
      internal direct sales force and also utilize 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, 2008, our sales and marketing
      team
      was comprised of 21 professionals worldwide.  Following
      the reduction of headcount on August 13, 2008, total professionals worldwide
      decreased to 9 professionals. To the extent we have available funds, our selling
      and marketing expenses might increase in the future due to an increase in direct
      expenses related to sales and marketing, increased salary expense if we increase
      headcount in our internal direct sales force, as well as increased bonus
      payments and sales commissions on our revenues to both internal and external
      market personnel. In addition, we
      may be
      required to participate and invest directly in additional marketing
      efforts if we
      are able to grow our customer base .




In
      November 2005, Gemini Funds, Landa Ventures and Concord Venture Funds, each
      then-existing security holders, entered into a Keep Well Agreement with one
      of
      our customers, under which they undertook to indemnify the customer, up to
      a
      maximum liability of $4 million, for damages caused by our failure to meet
      our
      service or supply commitments, provided that our failure was caused by a lack
      of
      sufficient capital. As  consideration
      for this undertaking, in February 2006, we issued these security holders an
      aggregate of 1,773,494 shares of convertible preferred stock at an issue price
      equal to the par value of $0.01 per share. Under US generally accepted
      accounting principles, or GAAP, we recorded the cost associated with this
      guarantee in the amount of $3.76 million 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).
      Because the Keep Well Agreement was terminated in June 2006 upon the closing
      of
      the Bridge Loan (as defined under “- Liquidity and Capital Resources - Bridge
      Loans; Debt Conversion”), the remaining amount of the deferred charge was fully
      amortized in June 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. To the
      extent we have available funds, we expect that our general and administrative
      expenses will continue to increase as we expand our operations and sales to
      additional countries as well as expand our internal controls and reporting
      capabilities and incur additional regulatory compliance expenses relating to
      publicly traded company reporting obligations. During the three and six months
      ended June 30, 2008, we recorded
      approximately $230,000 and
      $ 470,000,
      respectively, of
      expenses related to executives’ bonus plans. Subsequent to June 30,
      2008, the employment of the
      Co-Chairman and the CEO were terminated. During the year ended December 31,
      2007, we recognized non-recurring charges in the amount of $2.2 million relating
      to executive compensation following the consummation of the Merger between
      Israel Technology Acquisition Corporation, or ITAC,
      a
      blank check company, and IXI Mobile, Inc., or the Merger.




-
          23
          -




***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 loans and of
      amortization of discount attributed to detachable warrant costs and
      non-recurring loss conversion charges in connection with short-term loans,
      long-term loans and convertible loans. During the year ended December 31, 2007,
      we recognized non-recurring charges following the consummation of the Merger
      and
      expenses related to partial conversion of the long-term convertible Bridge
      Loan,
      assumption and conversion of guarantee, partial conversion of long-term loan
      and
      incurrence of the equity credit line agreement. During the three and six months
      ended June 30, 2008, we recognized non-recurring charges following the
      amendments of the loans and convertible loan. At March 31, 2008, we recorded
      an
      immediate loss of approximately $1.0 million for the extinguishment of the
      New
      Convertible Bridge Loan as additional financial expenses against the long term
      convertible loan from shareholders in the balance sheet as premium. In the
      three
      months ended June 30, 2008 we amortized approximately $ 130,000 of this
      premium and recognized it as financial income.





**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. A description of our critical
      accounting policies that entail the most significant judgments and estimates
      used in the preparation of our consolidated financial statements is set forth
      in
      our Annual Report of Form 10-K.




**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. We and our subsidiaries, however, are not parties to
      any
      material litigation or legal proceeding and are not aware of any material
      litigation or legal proceeding, pending or threatened, to which we or our
      subsidiaries may become parties.




***OCS***




Our
      management has determined 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 “Discontinuation of Operating System Business
      Unit” above.




**Results
      of Operations**




**Three
      months ended June 30, 2008 (unaudited) compared to three months ended June
      30,
      2007 (unaudited)**




***Revenues***




Revenues
      for the three months ended June 30, 2008 decreased by 30% to approximately
      $2.2
      million, compared to approximately $3.2 million for the three months ended
      June
      30, 2007. Revenues for the three months ended June 30, 2008 included
      approximately $1.2 million from the sale of Ogo devices. We also generated
      approximately $940,000 from hosted services and approximately $80,000 from
      non-recurring engineering contracts in the three months ended June 30, 2008.
      Revenues for the three months ended June 30, 2007 included approximately $2.5
      million from the sale of Ogo devices and approximately $550,000 from hosted
      services and approximately $110,000 from non-recurring engineering
      contracts. Total
      revenues from Ogo devices decreased mainly due to lower activations of Ogo
      devices in the three months ended June 30, 2008 compared to the three months
      ended June 30, 2007, and the increase in revenues from hosted services is mainly
      due to increase in monthly service average selling price.




-
          24
          -




***Cost
      of Revenues***




Our
      total
      cost of revenues for the three months ended June 30, 2008 increased by
      approximately 38% to approximately $5.6 million, compared to approximately
      $4.1
      million for the three months ended June 30, 2007.




Our
      cost
      of revenue for the three months ended June 30, 2008, continued to be high compared to our revenues primarily due to 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, which ,
      as fixed
      costs ,
      had a
      greater weighted impact on the cost of revenues due to the small number of
      units
      sold or with respect to which revenue was recognized.





During
      the three months ended June 30, 2008, IXI
      management determined that due
      to lower
      than projected sales in
      connection with royalty payments, we will be able to use fewer prepaid
      royalties than we previously anticipated. We therefore recorded a prepaid
      royalties write down in the aggregate amount of approximately $ 810,000.





The
      Company's management believes that it will not realize revenues from the Ogo
      CDMA as it has previously anticipated as a result of the inability to conclude
      a
      transaction with a potential US based customer. Consequently, CDMA related
      purchase orders in the amount of approximately $1.1 million and vendor advance
      payments in the amount of approximately $620,000 related to such purchase orders
      were written off. Vendor advance payments are installments paid to vendors
      prior
      to the date the Ogo units are shipped to us or to designated customers and
      are
      required to finance the production of the Ogo devices. The advance payments
      are
      intended to enable our vendors to purchase raw materials with long supply lead
      times, 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.





In
      addition, during the three months ended June 30, 2008 the Company wrote off
      inventory in the amount of approximately $1.1 million due to lower than expected
      sales forecast and approximately $120,000 due to the end of life of Ogo 1.0.





-
          25
          -





***Research
      and Development Expenses***




Our
      research and development expenses increased by 1% to approximately $4.2 million
      for the three months ended June 30, 2008 from approximately $4.1 million for
      the
      three months ended June 30, 2007. The increase was primarily attributable to
      an
      increase in the headcount and fixed overhead and facility costs of approximately
      $440,000 and increases in subcontractors and other third parties' expenses
      of
      approximately $280,000. These
      increases were partially off-set by approximately $680,000 less
      of
      expenses during the three months ended June 30, 2008 than during the three
      months ended June 30, 2007, related to development of new applications and new models of the Ogo device including
      the
      development of the Ogo CDMA devices, a new generation of Ogo devices that is
      based on EV-DO technology, and the development of additional Ogo
      products .




***Selling
      and Marketing Expenses***




Our
      selling and marketing expenses decreased by 11% to approximately $1.2 million
      for the three months ended June 30, 2008 compared to approximately $1.4 million
      for the three months ended June 30, 2007. The decrease was primarily
      attributable to reduction in travel expenses of approximately $ 200,000
      and a decrease in sales
      commissions of approximately $30,000, partially
      offset by an increase in
      subcontractors' expenses of approximately $40,000.




***General
      and Administrative Expenses***




Our
      general and administrative expenses decreased by approximately 47% to
      approximately $2.0 million for the three months ended June 30, 2008 compared
      to
      approximately $3.8 million for the three months ended June 30, 2007. The
      decrease was primarily attributable to the following: decrease
      of approximately $2.1 million related to stock based compensation expenses
      following option grants, including non-cash expense on account of the bonus
      plans of Mr. Barak and Mr. Haller as detailed below in the three months ended
      June 30, 2008 compared to three months ended in June 30, 2007, decrease of
      approximately $100,000 on account of doubtful debts provision , partially offset by increase of approximately $320,000 in increased salaries,
      headcount and fixed overhead . Our
      professional services expenses increased in the
      three months ended June 30, 2008 as compared to the three months ended June
      30,
      2007, primarily attributable to an increase in travel expenses of approximately
      $50,000 and an increase other general and administrative expenses of
      approximately $40,000. Subsequent to June 30, 2008, the employment of the
      Co-Chairman and the CEO were terminated.




In
      the
      three months ended June 30, 2008 and 2007, we recorded approximately $240,000 and
      approximately $100,000, respectively, of
      expenses related to bonus plans for Mr. Barak and Mr. Haller as a result of
      the
      consummation of the Merger, based on the following :




·
            We
                will be required to record general and administrative expenses in
                the
                aggregate amount of approximately $2.0 million in connection with
                the
                issuance to Mr. Barak of the right to receive 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; approximately $140,000 and $40,000were
                recorded as an expense during the three months ended June 30, 2008
                and2007,respectively;




·
            We
                will be required to record general and administrative expenses in
                the
                aggregate amount of approximately $1.9 million in connection with
                the
                issuance to Mr. Haller of the right to receive 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; approximately $130,000 and $40,000wererecorded as an expense during the three months ended June 30, 2008
                and2007,respectively; and




·
            We
                may be required to record non-recurring, general and administrative
                expenses of up to approximately $11,000 in connection with cash bonuses
                in
                the amount of up to $1.4 million that may be paid to each of Mr.
                Barak and
                Mr. Haller 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; approximately $47,000 was recorded as
                income
                against long-term liabilities during the three months ended June
                30, 2008
                and approximately $20,000wasrecorded as an expense against long-term liabilities during the three
                months ended June 30, 2007.




-
          26
          -





***Financial
      Expenses, Net***




Our
      financial expenses, net, for the three months ended June 30, 2008 were
      approximately $610,000 compared to financial expenses, net , of
      approximately $11.3 million for the three months ended June 30, 2007. Financial
      expenses for the three months ended June 30, 2008, were primarily attributable
      to approximately $690,000 on account of interest due on Bridge Loan, March 2007
      Loans and credit line which were offset by approximately $130,000 financial
      income as a result of amortization of the premium we incurred due to the
      extinguishment of the New Convertible Bridge Loan and approximately $40,000
      financial income on our bank deposits.




Our
      financial expenses for the three months ended June 30, 2007 included Merger
      related costs 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 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)
      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 were 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; and




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 $11.4 million for the
      three
      months ended June 30, 2008, compared to a net loss of approximately $21.5
      million for the three months ended June 30, 2007 as a result of the reasons
      described above.





**Results
      of Operations**




**Six
      months ended June 30, 2008 (unaudited) compared to six months ended June 30,
      2007 (unaudited)**




-
          27
          -




***Revenues***




Revenues
      for the six months ended June 30, 2008 decreased by 11% to approximately $5.6
      million, compared to approximately $6.3 million for the six months ended June
      30, 2007. Revenues for the six months ended June 30, 2008 included approximately
      $3.7 million from the sale of Ogo devices. We also generated approximately
      $1.9
      million from hosted services and approximately $90,000 from non-recurring
      engineering contracts in the six months ended June 30, 2008. The revenues for
      the six months ended June 30, 2007 included approximately $5.1 million from
      sale
      of Ogo devices, approximately $1.0 million from hosted services and
      approximately $140,000 from non-recurring engineering contracts. Total
      revenues from Ogo devices decreased mainly due to lower activations of Ogo
      devices in the six months ended June 30, 2008 compared to the six months ended
      June 30, 2007, and the increase in revenues from hosted services is mainly
      due
      to an increase in monthly service average selling price.





***Cost
      of Revenues***




Our
      total
      cost of revenues for the six months ended June 30, 2008 increased by
      approximately 22% to $8.7 million, compared to approximately $7.2 million for
      the six months ended June 30, 2007.




Our
      cost
      of revenue for the six months ended June 30, 2008 continued to be high compared
      to our revenues primarily  due
      to
      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,
      which ,
      as fixed
      costs ,
      had a
      greater weighted impact on the cost of revenues due to the small number of
      units
      sold or with respect to which revenue was recognized .





In
      addition, our cost of
      revenues was higher than revenues in the six months ended June 30, 2008,
      due
      to a number of other key
      factors ,
      including the following :




·
            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
                increased in the six months ended June 30, 2008, compared with the
                six
                months ended June 30, 2007, by comparison to our revenues. As of
                June 30,
                2008, management determined that due to lower sales, we will be able
                to
                use less prepaid royalties than we previously anticipated. We therefore
                recorded a royalties prepaid write down in the amount of approximately
                $810,000.




·
            The
                Company's management believes that it will not realize revenues from
                the
                Ogo CDMA as it has previously anticipated. Consequently, CDMA related
                purchase order in the amount approximately $1.1 million and vendor
                advance
                payments in the amount of $620,000 related to such purchase orders
                were
                written off. Vendor advance payments are installments paid to vendors
                prior to the date the Ogo units are shipped to us or to designated
                customers and are required to finance the production of the Ogo devices.
                The advance payments are intended 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.




·
            In
                addition, during the second quarter the Companywroteoff inventory in the amount of approximately $1.1 million due to
                lower
                than expected sales forecast and approximately $120,000 due to end
                of life
                of Ogo 1.0.




***Research
      and Development Expenses***




Our
      research and development expenses increased by 18% to approximately $8.4 million
      for the six months ended June 30, 2008 from approximately $7.1 million for
      the
      six months ended June 30, 2007. The increase was primarily attributable to
      an
      increase in the headcount and fixed overhead and facility costs of approximately
      $1.3 million and increases in subcontractors and other third parties' expenses
      of approximately $340,000 .
      These
      increases were partially off-set by approximately $360,000 less
      expenses during the six months ended June 30, 2008 than during the six months
      ended June 30, 2007, related to development of new applications and new models of the Ogo device including
      the
      development of the Ogo CDMA.




***Selling
      and Marketing Expenses***




Our
      selling and marketing expenses decreased by 10% to approximately $3.0 million
      for the six months ended June 30, 2008 compared to approximately $3.3 million
      for the six months ended June 30, 2007. The decrease was primarily attributable
      to reduction in sales commission of approximately $250,000,
      advertising of approximately $110,000 and trade shows approximately $80,000. These reductions were
      partially, offset by an increase in headcount and fixed overhead costs and
      facility costs of approximately $160,000, increase in subcontractors' expenses
      of approximately $150,000 and an increase in other marketing expenses of
      $60,000.




-
          28
          -




***General
      and Administrative Expenses***




Our
      general and administrative expenses decreased by approximately 17% to
      approximately $3.8 million for the six months ended June 30, 2008 compared
      to
      approximately $4.6 million for the six months ended June 30, 2007. The decrease
      was primarily attributable to the following: approximately $1.8 million related
      to stock based compensation expenses following option grants, including non-cash
      expense on account of the bonus plans of Mr. Barak and Mr. Haller as detailed
      below in the six months ended June 30, 2008 compared to six months ended in
      June
      30, 2007, offset by increase of approximately $560,000 in increased salaries,
      headcount and fixed overhead in the six months ended June 30, 2008 compared
      to
      six months ended in June 30, 2007.  Our
      professional services expenses also increased , in the
      six months ended June 30, 2008 as compared to the same period in
      2007, primarily attributable to an increase in audit and legal expenses of
      approximately $370,000, and an increase in travel expenses of approximately
      $100,000.





In
      the
      six months ended June 30, 2008 and 2007, we recorded approximately
      $470, 000
      and
      $100,000, respectively, of
      expenses related to bonus plans for Mr. Barak and Mr. Haller as a result of
      the
      consummation of the Merger, based on the following:




·
            We
                will be required to record general and administrative expenses in
                the
                aggregate amount of approximately $2.0 million in connection with
                the
                issuance to Mr. Barak of the right to receive 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; approximately $280,000 and $40,000 were recorded as an expense
                during the six months ended June 30, 2008 and2007,respectively;




·
            We
                will be required to record general and administrative expenses in
                the
                aggregate amount of approximately $1.9 million in connection with
                the
                issuance to Mr. Haller of the right to receive 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; approximately $260,000 and $40,000 were recorded as an expense
                during the six months ended June 30, 2008 and2007,respectively; and




·
            We
                may be required to record non-recurring, general and administrative
                expenses of up to approximately $11,000 in connection with cash bonuses
                in
                the amount of up to $1.4 million that may be paid to each of Mr.
                Barak and
                Mr. Haller 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; approximately $77,000 was recorded as
                income
                against long-term liabilities during the six months ended June 30,
                2008
                and approximately $20,000 was recorded as expense against long term
                liabilities during the six months ended June 30,
                2007.




***Financial
      Expenses, Net***




Our
      financial expenses, net, for the six months ended June 30, 2008 were
      approximately $1.7 million compared to financial expenses, net , of
      approximately $12.2 million for the six months ended June 30, 2007. Our
      financial expenses for the six months ended June 30, 2008 were as
      follows:




·
            We
                accounted for the third modification to the terms of our Bridge Loan
                in
                March 2008 under the provisions of EITF 96-19, "Debtor's Accounting
                for
                Modification or Exchange of Debt Instruments" ("EITF 96-19") and
                EITF
                06-6, "Debtor's Accounting for a Modification (or Exchange) of Convertible
                Debt Instruments", ("EITF 06-6"), 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 $1.0 million for the
                extinguishment of the original Bridge Loan as additional financial
                expenses, against the long term convertible loan from shareholders
                in the
                balance sheet as premium which will be amortized over the contractual
                term
                of the Bridge Loan and recognized as financial income. As of June
                30, 2008
                we amortized $130,000 of this amount. For further discussion regarding
                defined by SFAS No. 157, Fair Value Measurements; or FAS 157 please
                see
                "Bridge Loans; Debt Conversion"
                paragraph.




-
          29
          -




·
            We
                recorded approximately $207,000 on account of the grant of amortization
                of
                various deferred debt costs related to the Bridge Loan and Credit
                Line.




·
            We
                recorded approximately $950,000 on account of interest due on Bridge
                Loan,
                March 2007 Loans and credit line.




·
            We
                accounted for the first modification to the terms of our Bridge Loan
                in
                2006 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 $5.9 million as detailed below. The amended Bridge
                Loan was
                recorded in the balance sheet based at 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 December 31, 2007, the Company
                recorded
                financial income of approximately $5.6 million as effective interest
                income derived from the valuation of the Bridge Loan. Following the
                partial conversion of the Bridge Loan in October 2007, which accounts
                for
                the second modification, the related part of the premium was amortized
                immediately. During the six months ended June 30, 2008, the remaining
                part
                of the premium in the amount of approximately $330,000 was fully
                amortized.




·
            We
                recorded approximately $120,000 finance income on our bank
                deposits.





Our
      financial expenses for the six months ended June 30, 2007,
      which included
      Merger related costs 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)
      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 were 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; and




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.





-
          30
          -





***Net
      Loss***




We
      had a
      net loss from continuing operations of approximately $20.0 million for the
      six
      months ended June 30, 2008, compared to a net loss of approximately $28.2
      million for the six months ended June 30, 2007 as a result of the reasons
      described above.





**Non-GAAP
      Financial Measures (Unaudited)**




We
      present the following non-GAAP financial measures: non-GAAP Cost of Revenues,
      non-GAAP operating loss and non-GAAP net loss. 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 it
      differs 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 may be 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,
      and
      our consolidated financial statements, including the notes thereto, that is
      included in this Annual Report 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 for purposes of 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.


**Non-GAAP
        Cost of Revenues Reconciliation**
 
 **Three months ended June 30,****2008**
              
              **2007****(in thousands)**Total
                  revenues
              
              $
              2,221
              
              $
              3,171GAAP
                  cost of revenues:
              
              
              5,591
              
              
              4,062Stock-based
                  option expense in GAAP cost of revenues
              
              
              20
              
              
              145Inventory
                  write-down (including vendor advance payments and
                  royalties)
              
              
              3,693
              
              
              837Non-GAAP
                  cost of revenues (excluding the above)
              
              $
              1,878
              
              $
              3,080Non-GAAP
                  gross margin
              
              
              15.44
              %
              
              2.82
              %
 
 **Non-GAAP
        Operating Loss Reconciliation** ****
 
 **Three months ended June 30,****2008**
              
              **2007****(in thousands)**GAAP
                  operating loss
              
              $
              (10,761
              )
              $
              (10,168
              )Stock-based
                  option and share expense in GAAP operating expenses, including
                  Merger
                  related expenses
              
              
              567
              
              
              2,881Inventory
                  write-down (including vendor advance payments and
                  royalties)
              
              
              3,693
              
              
              837Non-GAAP
                  operating loss (excluding the above)
              
              $
              (6,501
              )
              $
              (6,450
              )
  -
            31
            -
  **Non-GAAP
        Net Loss Reconciliation** ****
 
 **Three months ended June 30,****2008**
              
              **2007****(in thousands)**GAAP
                  net loss
              
              $
              (11,387
              )
              $
              (21,508
              )Stock
                  based option and share expense in GAAP operating expenses, including
                  merger related expenses
              
              
              567
              
              
              2,881Inventory
                  write-down (including vendor advance payments and royalties)
              
              
              3,693
              
              
              837Financial
                  expenses (income) relating to Merger, conversion and amendments
                  of loans
                  and credit line
              
              
              (113
              )
              
              10,258Non-GAAP
                  net loss (excluding the above)
              
              $
              (7,240
              )
              $
              (7,532
              )
  **Non-GAAP
        Cost of Revenues Reconciliation** ****
 
 **Six months ended June 30,****2008**
              
              **2007****(in thousands)**Total
                  revenues
              
              $
              5,630
              
              $
              6,294GAAP
                  cost of revenues:
              
              
              8,722
              
              
              7,173Stock-based
                  option expense in GAAP cost of revenues
              
              
              41
              
              
              146Inventory
                  write-down (including vendor advance payments and
                  royalties)
              
              
              3,693
              
              
              958Non-GAAP
                  cost of revenues (excluding the above)
              
              $
              4,988
              
              $
              6,069Non-GAAP
                  gross margin
              
              
              11.40
              %
              
              3.57
              %
 
 **Non-GAAP
        Operating Loss Reconciliation** ****
 
 **Six months ended June 30,****2008**
              
              **2007****(in thousands)**GAAP
                  operating loss
              
              $
              (18,357
              )
              $
              (15,965
              )Stock-based
                  option and share expense in GAAP operating expenses, including
                  Merger
                  related expenses
              
              
              1,165
              
              
              2,953Inventory
                  write-down (including vendor advance payments and
                  royalties)
              
              
              3,693
              
              
              958Non-GAAP
                  operating loss (excluding the above)
              
              $
              (13,499
              )
              $
              (12,054
              )
 
 **Non-GAAP
        Net Loss Reconciliation** ****
 
 **Six months ended June 30,****2008**
              
              **2007****(in thousands)**GAAP
                  net loss
              
              $
              (20,045
              )
              $
              (28,230
              )Stock
                  based option and share expense in GAAP operating expenses, including
                  merger related expenses
              
              
              1,165
              
              
              2,953Inventory
                  write-down (including vendor advance payments and royalties)
              
              
              3,693
              
              
              958Financial
                  expenses (income) relating to Merger, conversion and amendment
                  of loans
                  and credit line
              
              
              752
              
              
              10,258Non-GAAP
                  net loss (excluding the above)
              
              $
              (14,435
              )
              $
              (14,061
              )
  -
            32
            -





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




·
            ***Share-based
                compensation expenses***.
                We have excluded share-based compensation expenses, which consist
                of
                expenses for share-based compensation that we began recording under
                SFAS
                No. 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.




·
            ***Inventory********(****vendor
                advance payments and royalty write down****)***.We
                have excluded the inventory (including vendor advance payments and
                royalties, and open commitments of slow-moving inventory) write down.
                Although this may be considered a recurring item, management excludes
                this
                write down when evaluating its cost of revenues since it affects
                the
                ability to compare periods.




·
            ***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 Mr. Barak and Mr. Haller in connection
                with the consummation of the Merger and their specific compensation
                terms
                following the consummation of the Merger primarily because we believe
                that
                excluding these items allows investors to better assess our operating
                loss
                and to compare it to previous periods that did not include these
                expenses.




·
            ***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 primarily because we believe that excluding these non-recurring
                items allows investors to better assess our net loss and to compare
                it to
                previous periods that did not include these
                expenses.




·
            ***Finance
                expenses recorded in connection with the amendments of the loans
                and
                credit line****.*In
                addition to the above mentioned exclusions, we have also excluded
                financial expenses recorded in connection with the amendments of
                the loans
                and credit line primarily because we believe that excluding these
                items
                allows investors to better assess our net loss and to compare it
                to
                previous periods that did not include these
                expenses.




**Liquidity
      and Capital Resources**




***General***




Since
      our
      inception, our operations have been funded through capital investments from
      our
      security holders, loans from venture lenders and banks, OCS grants and cash
      flow
      from operations. We have incurred operating losses since inception, including
      net losses of approximately $68.6 million, $22.7 million and $12.0 million
      in
      2007, 2006 and 2005, respectively, and net losses of approximately $20.0 million
      and $28.2 million for the six months ended June 30, 2008 and 2007, respectively,
      and approximately
      $11.4 million and $21.5 million for the three months ended June 30, 2008 and
      2007, respectively. As
      of
      June 30, 2008 we had an accumulated deficit and stockholders’ deficiency of
      approximately $180.2 million and $11.4 million, respectively. We also have
      had
      and continue to have negative cash flows from operating activities. For the
      years ended December 31, 2007, 2006, and 2005 we had negative cash flow from
      operating activities in the amounts of $34.5 million, $18.0 million and $15.0
      million, respectively and for the six months ended June 30, 2008 and
      2007  we
      had
      negative cash flow from operating activities in the amounts of $9.6
      million , $16.5
      million, respectively.
      At June
      30,
      2008, we had cash and cash equivalents available to fund operations of
      approximately $8.1 million and, in addition we have an unused credit line from
      Bank Leumi of approximately $90,000. At August 15, 2008, we had cash and cash
      equivalents available to fund operations of approximately $5.7 million, in
      addition we have an unused credit line from Bank Leumi of approximately $80,000.
      In order to continue our operations according to our business plan and to repay
      our outstanding indebtedness in cash when due, we will require substantial
      additional equity or debt financing in both the short and the long term. There
      can be no assurance that we will be able to raise additional financing or to
      continue as a going concern. See “- Overview – Recent
      Developments” and “- Overview - History
      of Continuing Losses; Going Concern; Need for Additional Financing.” As noted
      above, on August 12, 2008, the Company’s Board initiated several measures
      intended to refocus the Company’s activities and to reduce operating costs,
      including a reduction of approximately twenty-five percent of its
      headcount.




-
          33
          -




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




In
      addition to our regular operating expenses (such as research and development
      expenses, sales and marketing expenses and general and administrative expenses),
      as of June
      30, 2008, 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)
              
              $
              818
              
              $
              597
              
              $
              221
              
              $
              0
              
              $
              0Motor
                  vehicles leases
              
              $
              1,005
              
              $
              498
              
              $
              506
              
              $
              0
              
              $
              0Purchase
                  obligations(2)
              
              $
              2,215
              
              $
              2,215
              
              $
              0
              
              $
              0
              
              $
              0Other
                  long-term commitments(3)
              
              $
              3,470
              
              $
              2,965
              
              $
              505
              
              $
              0
              
              $
              0Severance
                  pay(4)
              
              $
              1,540
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              1,540Long
                  term and Convertible loan(5)
              
              $
              12,888
              
              $
              0
              
              $
              12,888
              
              $
              0
              
              $
              0Total
                  contractual obligations
              
              $
              21,936
              
              $
              6,275
              
              $
              14,120
              
              $
              0
              
              $
              1,540







(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 June 30, 2008, we had open purchase orders with third party suppliers
                mainly for the manufacturing and product development of the Ogo devices
                for a total of approximately $2.2 million. This amount is net of
                a write
                off of an open PO in the amount of approximately
                $590,000.





(3)
            Primarilydue toanagreement with a major IM providerthat
                pursuant to which we have committed to payminimum amountsfromJuly1,
                2008 through September 30, 2009totaling$1.3 million andtwo
                agreementswithothermajor IM providerspursuant
                to which we have committed to payminimum amountsfromJuly1,
                2008throughDecember
                31, 2009 and November 30, 2009 of $750,000 and$570,000, respectively.(4)
            Severance
                pay relates to accrued severance obligations to our Israeli employees
                as
                required under 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. $248,000 of this
                amount
                is unfunded. Following the termination of approximately 40 employees
                and
                consultants, part of the severance pay will be paid in the following
                months. Additional costs related to the termination of employment
                of the
                Co-Chairman and the CEO will be carried out in the following
                months.(5)
            Long
                term and Convertible loans were amended on March 28,
                2008.




-
          34
          -




***Bridge
      Loans; Debt Conversion***




On
      June
      20, 2006, IXI R&D entered into a Bridge Loan Agreement with Southpoint
      pursuant to which Southpoint loaned to IXI R&D $20.0 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 IXI acting
      as
      guarantor thereto (the “Bridge Loan”). Under the original terms of the Bridge
      Loan Agreement, the Bridge Loan bore interest of 20% per annum and was repayable
      upon the earlier of June 6, 2008 (the “Original Repayment Date”) or the
      acceleration of the Bridge Loan in accordance with the agreement (such
      acceleration being referred to as the “Original Maturity Date”). IXI has
      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, IXI’s and IXI R&D’s
      assets (subject to limited exceptions).




In
      addition, in June 2006 Landa Ventures and the Gemini Funds (the “Guarantors”),
      both security holders of IXI (and now of ours), who previously guaranteed a
      credit line and a loan received by IXI R&D from Bank Leumi Le’Israel Ltd. in
      the total amount of $8.0 million, undertook in a Letter Agreement dated June
      19,
      2006, as amended (the “Letter Agreement”), to extend their guarantee and to
      maintain the existing bank credit line and loan at $8.0 million (the “Credit
      Facility”) until the Original Repayment Date or Original Maturity Date (as the
      case may be) (as amended, the “Guaranty”). 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 Bank Leumi under the line of credit or under the loan and in
      such event any such assuming Guarantor shall be entitled to the same rights
      and
      benefits conferred on Southpoint, as the Bridge Loan 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 and the amount of interest that IXI would have paid to Bank Leumi if
      the
      Credit Facility bore interest at a rate equal to the rate set forth in the
      Bridge Loan Agreement. As of June 30, 2008, we owed an aggregate of
      approximately $146,000 accrued interest to Landa Ventures and the Gemini Funds
      in consideration for their guarantee of the Credit Facility.




In
      December 2006, the parties to the Bridge Loan agreed to amend the Bridge Loan
      Agreement. Pursuant to the amendment, the interest rate of the Bride Loan was
      reduced to 10% per annum through the term of the Bridge Loan and the Original
      Repayment Date was deferred from 60 days following completion of the Merger
      to
      365 days following the completion of the Merger. Furthermore, Southpoint was
      entitled to receive 1,000,000 shares of our common stock (as opposed to 600,000
      shares under the previous terms) and the Guarantors were entitled to receive
      400,000 shares of common stock (as opposed to 240,000 shares of common stock
      under the previous terms).




We
      accounted for the 2006 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
      an
      immediate loss of approximately $8.8 million for the extinguishment of the
      original Bridge Loan as additional financial expenses. Additional financial
      expenses of approximately $ 1.2 million were recognized due to the full
      amortization of various deferred charges related to the Bridge Loan. 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 was
      amortized over the contractual term of the loan using the effective interest
      method as financial income. In the six months ended June 30, 2008, we recorded
      the remaining premium in the amount of $330,000 out of total financial income
      of
      approximately $5.9 million as effective interest income derived from the
      valuation of the Bridge Loan.





In
      connection 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. These 1,400,000 shares of common stock were issued to Southpoint
      and the Guarantors on June 6, 2007, and, based on the terms of the Merger and
      the per share Merger consideration of $6.06 per share, these shares of common
      stock had an aggregate value of $8.5 million on the date of issuance. Southpoint
      also received $150,000 as reimbursement of certain legal fees incurred in
      connection with the Bridge Loan. 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 were 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 were to convert 50% or more
      of its respective debt facility (excluding accrued interest thereon), it would
      be entitled to receive warrants to purchase shares of our common stock at an
      exercise price of $5.00 (subject to adjustment in case of stock dividends and
      stock splits), expiring in June 2009. If 100% of the debt is converted, the
      maximum total number of shares of common stock under the warrants is 1,000,000,
      allocated between Southpoint and the Guarantors according to the proportionate
      amount of their debt facilities. Southpoint and the Guarantors have agreed
      to be
      subject to lock-up arrangements which have been agreed to by the principal
      security holders 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 the Bridge Loan) and are entitled to registration rights on the
      same terms as those security holders.




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          35
          -




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 contingent upon future events, the beneficial conversion
      feature of the debt will be recorded to the extent that the 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.




On
      October 25, 2007, we entered into agreements with Gemini Funds, Landa Ventures
      and Southpoint regarding the conversion of approximately $20.7 million principal
      amount of debt held by these entities, into shares of our common stock at a
      conversion price of $3.60 per share (instead of the $5.50 per share conversion
      price applicable under the terms of the Bridge Loan and the Guarantee) and
      warrants to purchase shares of common stock at an exercise price of $4.10
      (subject to adjustment in case of stock dividends and stock splits), expiring
      five years from the date of grant. This conversion resulted in the issuance
      to
      Gemini Funds, Landa Ventures and Southpoint of an aggregate of 5,752,222 shares
      of common stock and warrants to purchase an aggregate of up to 3,451,333 shares
      of common stock. As a result of the conversion of this debt at a per share
      conversion price of $3.60 (as opposed to the $5.50 per share conversion price
      specified under the terms of the Bridge Loan and the Guarantee), Gemini Funds,
      Landa Ventures and Southpoint received an aggregate of 1,987,131 additional
      shares of our common stock, which also reflected an immediate gain of $0.58
      per
      share, or $3,336,289 in total, when compared to the market price on the date
      of
      conversion of $4.18 per share. The warrants issued as a result of this
      conversion have an estimated aggregate value, based on the Black-Scholes option
      pricing model, of $9,629,220. As part of these conversion transactions, Gemini
      Funds, Landa Ventures and Southpoint agreed that they would no longer be
      eligible to receive the up to 1,000,000 warrants that they would otherwise
      have
      been eligible to receive upon conversion in the case of Southpoint, and upon
      assumption and conversion, in the case of Gemini Funds and Landa Ventures,
      of
      the total debt outstanding under the Bridge Loan and guaranteed under the
      Guarantee.




The
      October 2007 modifications to the terms of the Bridge Loan and the Guarantee
      were accounted for under the provisions of SFAS No. 84, “Induced Conversion of
      Convertible Debt”, or SFAS No. 84, as an inducement to Southpoint, and as such,
      we recorded non-recurring loss upon inducement in the amount of approximately
      $8.5 million of financial expenses against additional paid-in capital. We also
      recorded additional charges in the amount of $1.4 million in financial expenses
      against acceleration of amortization of deferred debt issuance
      costs.




We
      calculated the fair value of the warrants, using the Black-Scholes Option
      Valuation Model. Accordingly, the amount of $9,905,000 attributed to the
      issuance of warrants, was recorded as financial expenses against additional
      paid-in capital.




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 Israel
      also entered into non-convertible loan agreements in March 2007 (the “March 2007
      Loans”) with Southpoint, Gemini Funds and Landa Ventures under which IXI
      received gross proceeds of $6.0 million in two tranches of $3.0 million each.
      The March 2007 Loans bore interest at the rate of 10% per annum. As originally
      agreed, one-half of the March 2007 Loans was due and repayable on June 6, 2008
      and the balance was due and payable on June 6, 2009, in each case together
      with
      any interest accrued and unpaid thereon. Thereafter, in May 2007 IXI borrowed
      an
      additional $5.0 million, which was repaid in full in July and August of 2007.
      See below amendments to March 2007 loans.





On
      November 14, 2007, we entered into an agreement with Landa Ventures regarding
      the conversion of $2.592 million principal amount of debt consisting of the
      $2.0
      million loan made by Landa Ventures to IXI as part of the March 2007 Loans
      and
      the assumption and conversion of $592,000 guaranteed by Landa Ventures under
      the
      Credit Facility, at the conversion price of $3.60 per share and the issuance
      of
      warrants to purchase shares of our common stock at an exercise price of $4.10
      per share (subject to adjustment in case of stock dividends and stock splits),
      expiring five years from the date of grant. This conversion resulted in the
      issuance of an aggregate of 720,000 shares of common stock and warrants to
      purchase an aggregate of up to 432,000 shares of common stock. As a result
      of
      the conversion of this remaining Guarantee at a per share conversion price
      of
      $3.60 (as opposed to the $5.50 per share conversion price specified under the
      terms of the Guarantee, as amended,) Landa received an aggregate of 56,808
      additional shares as a result of the conversion, which also reflected an
      immediate gain of $0.52 per share, or $329,540 in total, when compared to the
      market price on the date of conversion of $4.12 per share. Following this
      transaction, Landa Ventures is no longer a Guarantor.




The
      November 2007 modifications to the terms of the March 2007 Loan were accounted
      for under the provisions of SFAS No. 84, as an inducement to Landa Ventures,
      and
      as such, we recorded non-recurring loss upon inducement in the amount of
      approximately $289,000 of financial expenses against additional paid-in
      capital.




We
      calculated the fair value of the warrants, using the Black-Scholes Option
      Valuation Model. Accordingly, the amount of $913,000, attributed to the issuance
      of warrants, was recorded as financial expenses against additional paid-in
      capital.




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          36
          -




On
      March
      28, 2008, we entered into amendments to Bridge Loan Agreement with Southpoint,
      the March 2007 Loans with Southpoint and Gemini Funds and the Guarantee from
      Gemini Funds of the Credit Facility, in each case to (1) extend the maturity
      date of all principal payments thereunder from June 2008 and June 2009 to June
      5, 2010, (2) increase the interest rate from 10% to 20%, effective April 1,
      2008, (3) capitalize all interest payments, including any accrued and unpaid
      interest, and (4) amend the prepayment provisions upon a change of control
      to
      provide that the interest payable shall be calculated through the maturity
      date
      of June 5, 2010. As a result, at March 31, 2008, the principal amount
      outstanding under the loan arrangements is $14 million in the aggregate,
      including an aggregate of approximately $3.3 million of accrued and unpaid
      interest. The total interest that would be payable upon a change of control
      would be $5.7 million, which is the total interest that will be due on the
      loans
      on the Maturity Date. As a result of the Amendments, as of March 31, 2008 we
      -classified the Bridge Loan, the Guarantee and the March 2007 Loans, including
      accrued and unpaid interest, in the total amount of $11.4 million as long-term
      debt. As of June 30, 2008, the total balance of the above mentioned Bridge
      Loan,
      Guarantee and March 2007 Loans totaled $15.3 million.




The
      March
      2008 amendments to the terms of the March 2007 Loans were accounted for under
      the provisions of EITF 96-19, as the fair value of the loans approximately
      equals the carrying amount of the loans, no finance expenses were
      recorded.




The
      March
      2008 amendment to the terms of the Bridge Loan and to the terms of the March
      2007 Loans were accounted for under the provisions of EITF 96-19 and EITF 06-6.
      We recorded non-recurring loss upon extinguishment in the amount of
      approximately $1.0 million of financial expenses , against the long term
      convertible loan from shareholders in the balance sheet as premium, which will
      be amortized over the contractual term of the Bridge Loan and recognized as
      financial income.





As
      of
      June 30, 2008, we recorded the remaining March Loans at fair value in the
      consolidated balance sheets based on Company’s management estimations. The
      lowest level of inputs used to estimate the fair value of the remaining March
      Loans are considered as Level III inputs as defined by SFAS No. 157. Level
      III
      inputs are defined as unobservable inputs that reflect management’s best
      estimate of what market participants would use in pricing the asset or liability
      at the measurement date.





For
      the
      estimation the fair value of the remaining March Loans, we calculated the
      discounted future cash flow by using a comparable market interest. The
      comparable market interest rate was calculated as 21.62% computed by 20% nominal
      interest and 1.62% risk free interest.





As
      of
      June 30, 2008, we recorded the remaining New Convertible Loan at fair value
      in
      the consolidated balance sheets based on Company's management estimation. In
      determining the fair value, we have considered a number of factors, including
      valuations and appraisals. The lowest level of inputs used to estimate the
      fair
      value of the remaining New Convertible Loan is considered as Level III inputs
      as
      defined by SFAS No. 157. Level III inputs are defined as unobservable inputs
      that reflect management’s best estimate of what market participants would use in
      pricing the asset or liability at the measurement date.





The
      Fair
      Value of the New Convertible Bridge Loan was estimated as an aggregate of its
      two components: (1) the conversion element and (2) the liability element. The
      Fair Value of the conversion element was estimated by applying the Black and
      Scholes Model for option pricing for an amount of 1,846,878 warrants with the
      following assumptions: stock price of $ 3.15, exercise price of $ 5.5, expected
      volatility of 70%, risk-free interest rates of 1.62%, dividend yields of 0%
      and
      an expected life of 2 years and two months.





The
      Fair
      Value of the liability element was estimated by discounting its future cash
      flow
      by the comparative market interest. The comparable market interest rate was
      calculated as 21.62% computed by 20% nominal interest and 1.62% risk free
      interest.




**Equity
      Line of Credit**




On
      November 11, 2007, we entered into an equity line of credit, or ELOC,
      arrangement, with Tailor-Made Capital, Ltd., an Israeli company affiliated
      with
      Meitav Investment House, a privately owned asset management and investment
      banking firm based in Israel. Pursuant to the terms of the ELOC arrangement,
      we
      have the right to sell to Tailor-Made and Tailor-Made is obligated to purchase
      from us, up to an aggregate of $5,000,000 of shares of our common stock at
      a
      discount to their market price determined as follows:




·
            a
                10% discount to the lowest daily volume weighed average price, or
                VWAP, of
                our common stock during ten consecutive trading day period immediately
                prior to the date we notify Tailor-Made that we want to access the
                ELOC,
                if that trading price, defined as the Market Price, is less than
                or equal
                to $6.00 per share; or




·
            a
                7.5% discount to the Market Price (as defined), if the Market Price
                is
                greater than $6.00 and less than $8.00;
                or




·
            a
                5% discount to the Market Price (as defined), if the Market Price
                is
                greater than $8.00.




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          37
          -




We
      have
      not yet received any proceeds under the ELOC Arrangement and are
      not entitled to any proceeds until the registration statement with respect
      to
      the shares that may be issued under the ELOC Arrangement is
      effective .
      The
      ELOC Arrangement will remain in effect until the earlier of 24 months following
      the effective date of the
      registration statement and
      November 10, 2010, unless otherwise terminated by us or Tailor-Made pursuant
      to
      the terms of the ELOC Arrangement. In connection with the ELOC Arrangement,
      we
      issued Tailor-Made 75,000 shares of common stock as a commitment fee and a
      five
      year warrant to purchase up to 312,500 shares of our common stock at an exercise
      price of $4.10 per share (subject to adjustment in case of stock dividends
      and
      stock splits). The amount attributed to the issuance of these shares of common
      stock was $284,000 (net of $9,000 of issuance costs) and was recorded as
      financial expenses during 2007. The warrant issued to Tailor-Made will vest
      proportionally to the value of the shares purchased by Tailor-Made under the
      ELOC Arrangement at the time of purchase. As of June 30, 2008, none of the
      warrants had vested; accordingly, no financial expenses were
      recorded.




***Private
      Placement***




In
      November 2007 we closed a two tranche private placement of our securities to
      certain accredited investors, raising an aggregate of $9.7 million and resulting
      in the issuance of an aggregate of 2,703,000 shares of common stock at a
      purchase price of $3.60 per share and the issuance of warrants to purchase
      an
      aggregate of up to 1,621,800 shares of common stock at an exercise price of
      $4.10 (subject to adjustment in case of stock dividends and stock splits),
      which
      warrants expire five years from the date of grant.





In
      October 2007, we signed an agreement with a financial advisor to assist us
      in
      our investment efforts. Under this agreement, we agreed to pay the advisor
      an
      annual fee and a success fee in the event that the advisor assists us in fund
      raising. The success fee will be a combination of a cash fee and warrants to
      purchase shares of our common stock based on the actual funds raised by us
      with
      the advisor’s assistance. Consequently, as a result of the private placement
      investment, this advisor was entitled to $558,000 cash payment, which was
      deducted from his investment in us and 135,150 warrants to purchase shares
      of
      common stock at a conversion price of $4.10 per share.




The
      net
      proceeds received in this private placement were recorded as stockholders'
      equity. The amount attributed to the issuance of these warrants was $383,000.
      These issuance costs were recorded as additional paid in capital.




**Cash
      Flow Analysis**




Our
      continuing operating activities used cash in the amount of approximately $9.6
      million for the six months ended June 30, 2008, compared with cash used in
      operating activities of approximately $16.5 million for the six months ended
      June 30, 2007. This decrease
      was mainly attributable to our continuing investment in product development,
      our
      sales and marketing efforts related to expanding our business, an increase
      in
      our headcount and fixed overhead and facility costs and to increased general
      working capital needs.




Our
      investing activities relating to our continuing operations used cash in the
      amount of $116,000 for the six months ended June 30, 2008, compared with cash
      used in investing activities of approximately $61,000 for the six months ended
      June 30, 2007. In each period, cash was primarily used for the purchase of
      property and equipment.




Our
      financing activities for the six months ended June 30, 2008 provided cash in
      the
      amount of approximately $ 516,000, which
      consisted mainly
      of
      proceeds from short term bank credit. Our financing activities for the six
      months ended June 30, 2007 provided cash of approximately $45.4 million. 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
      $ 5.0 million,
      and proceeds from short-term bank credit in the amount of approximately $0.9
      million.




**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. Because we currently
      believe that it is more likely than not that we will not realize the deferred
      tax assets resulting from the carry forward in the foreseeable future, we
      reserved the full amount of the value of the benefit of the deferred tax assets.
      The change in valuation allowance as of December 31, 2007 compared to December
      31, 2006 was an increase in the reserve amount of approximately $11.9
      million.




As
      of
      December 31, 2007, the state and the federal tax losses carryforwards of our
      US
      subsidiary were approximately $16.4 million and $19.8 million
      respectively.




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          38
          -




Such
      losses are available to be offset against any future US taxable income of the
      US
      subsidiary and will expire in 2021 and 2027, respectively.




Utilization
      of US 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.




At
      December 31, 2007, IXI R&D had accumulated losses for tax purposes in the
      amount of approximately $84.0 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. ****




**Off-Balance
      Sheet Arrangements**




We
      do not
      currently have any off-balance sheet arrangements, and we have not had any
      off-balance sheet arrangements during the last three years, in each case 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.




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




Market
      risk is the risk of losses resulting from 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 US dollars, in 2005, 2006,
      2007 and 2008, a significant portion of our revenues and portion our expenses
      was denominated in other currencies. Our management believes that the dollar
      is
      the primary currency of the economic environment in which we and our
      subsidiaries operate. Thus, our and our subsidiaries’ functional currency is the
      dollar. Monetary accounts maintained in currencies other than the dollar are
      remeasured into dollars in accordance with SFAS, No. 52, “Foreign Currency
      Translation”. All transaction gains and losses of the remeasured monetary
      balance sheet items are reflected in our statement of operations 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 we intend to begin engaging in hedging transactions 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.





**ITEM
      4T. 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, 2008. Based upon their evaluation, they concluded
      that
      our disclosure controls and procedures were effective.




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          39
          -




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.




**PART
      II**




**OTHER
      INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS.**




Not
      applicable.





**ITEM
      1A. RISK FACTORS**




The
      following information updates, and should be read in conjunction with, the
      information disclosed in Item 1A, “Risk Factors,” of our Annual Report on Form
      10-K for the year ended December 31, 2007. The risks described in our Annual
      Report on Form 10-K and herein are not the only risks that we face. Additional
      risks and uncertainties not currently known to us or that we currently deem
      to
      be immaterial also may materially adversely affect our business, financial
      condition and/or operating results.


**The
        strategic initiatives adopted by the Board in August, 2008, may not be
        successful in allowing the Company to continue as a going
        concern.**
 
 On
        August
        12, 2008, the Company’s Board of Directors approved several strategic
        initiatives intended to refocus the Company’s activities and to reduce operating
        costs. Under this revised strategic plan, which includes a reduction of
        approximately twenty-five percent of its headcount and the closing of
        its U.S. facilities, the Company will focus on serving customers in the European
        and Asian Pacific markets. Despite these strategic initiatives, the Company
        is
        likely to continue to have negative cash flows from its operating activities
        for
        the foreseeable future. In addition, the Company’s failure to add customers in
        the United States and its expectation that it will not be able to do so in
        the
        foreseeable future may result in the Company’s revenues not increasing, or even
        decreasing revenues. At August 15, 2008, the Company had cash and cash
        equivalents of approximately $5.7 million, while its operating
        expenses during the three months ended June 30, 2008 were $7.4 million. As
        a result, notwithstanding these new strategic initiatives, the Company will
        need
        to raise additional capital in the near future in order to continue as a
        going
        concern, and there can be no assurance that it will be successful in doing
        so or
        that, even if the Company is able to raise additional capital, such capital
        will
        be sufficient to allow the Company to continue as a going
        concern.


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




Not
      applicable.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES.**




Not
      applicable.





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




Not
      applicable.





**ITEM
      5. OTHER INFORMATION.**




Not
      applicable.





**ITEM
      6. EXHIBITS.**




(a)
      Exhibits:




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          40
          -




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





-
          41
          -





**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.





Dated:
                August 19, 2008
            **IXI
                MOBILE, INC.**By:
            /s/
                Israel FriederIsrael
                FriederChairman
                of the Board of Directors and Chief Executive OfficerBy:
            /s/
                Motti GilMotti GilVice
                President and Chief Financial
                Officer





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          42
          -