**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 March
      31, 2008





o  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 o




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 Filero
              Accelerated
                  FileroNon-Accelerated
                  Filero(Do
                  not check if a smaller reporting company)
              Smaller
                  reporting Companyx





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
      May 15 2008, 25,204,923 shares of common stock, par value $.0001 per share,
      were issued and outstanding.









**Table
      of Contents**




PagePART
                I FINANCIAL INFORMATION
            2Item
                1: FINANCIAL STATEMENTS
            3Item
                2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS
                OF OPERATIONS.
            17Item
                3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            36Item
                4T: CONTROLS AND PROCEDURES
            36PART
                II OTHER INFORMATION
            37Item
                1: LEGAL PROCEEDINGS
            37Item
                1A: RISK FACTORS
            37Item
                2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
            37Item
                3: DEFAULTS UPON SENIOR SECURITIES
            37Item
                4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            37Item
                5: OTHER INFORMATION
            37Item
                6: EXHIBITS
            37







**PART
      I**




**FINANCIAL
      INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**




2




**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**INTERIM
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**AS
      OF MARCH 31,** **2008**





**U.S.
      DOLLARS IN THOUSANDS**





**UNAUDITED**





**INDEX**





**Page****Condensed
                Consolidated Balance Sheets**
            **4 -
                5****Condensed
                Consolidated Statements of Operations**
            **6****Condensed
                Statements of Changes in Stockholders' Deficiency**
            **7****Condensed
                Consolidated Statements of Cash Flows**
            **8 -
                9****Notes
                to Condensed Consolidated Financial Statements**
            **10 -
                16**





-
      - - - -
      - - - -


3


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**U.S.
      dollars in thousands**





**March 31,**
            
            **December 31,****2008**
            
            **2007****Unaudited**ASSETSCURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            12,621
            
            $
            $17,278Restricted
                cash
            
            
            185
            
            
            183Trade
                receivables, net
            
            
            2,016
            
            
            3,019Other
                receivables and prepaid expenses
            
            
            1,356
            
            
            1,364Vendor
                advance payments
            
            
            3,637
            
            
            4,081Inventories,
                net (of which $6,572 and $7,806 delivered to customers but not yet
                recognized as revenues as of March 31, 2008 and December 31, 2007,
                respectively)
            
            
            13,170
            
            
            14,239Totalcurrent assets
            
            
            32,985
            
            
            40,164LONG-TERM
                ASSETS:Severance
                pay fund
            
            
            1,109
            
            
            917Long-term
                prepaid expenses
            
            
            50
            
            
            39Property
                and equipment, net
            
            
            443
            
            
            487Deferred
                debt costs
            
            
            141
            
            
            348Totallong-term assets
            
            
            1,743
            
            
            1,791Totalassets
            
            $
            34,728
            
            $
            41,955





The
      accompanying notes are an integral part of the condensed consolidated financial
      statements.


4


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**U.S.
      dollars in thousands, except share and per share data**





**March 31,**
            
            **December 31,****2008**
            
            **2007**UnauditedLIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIENCY)CURRENT
                LIABILITIES:Current
                maturities of long-term convertible loan from shareholders
            
            $
            -
            
            $
            4,492Current
                maturities of long-term loans from shareholders
            
            
            -
            
            
            2,000Short-term
                bank credit
            
            
            2,050
            
            
            1,942Trade
                payables
            
            
            3,580
            
            
            2,095Employees
                and payroll accruals
            
            
            1,670
            
            
            1,488Deferred
                revenues
            
            
            8,731
            
            
            10,149Other
                payables and accrued expenses
            
            
            2,892
            
            
            6,401Liabilities
                of discontinued operations
            
            
            2,539
            
            
            2,523Totalcurrent liabilities
            
            
            21,462
            
            
            31,090LONG-TERM
                LIABILITIES:Long-term
                loans from shareholders, net of current maturities
            
            
            4,391
            
            
            2,000Long-term
                convertible loan from shareholders
            
            
            8,055
            
            
            -Other
                long term liabilities
            
            
            54
            
            
            286Accrued
                severance pay
            
            
            1,352
            
            
            1,138Totallong-term liabilities
            
            
            13,852
            
            
            3,424STOCKHOLDERS'
                EQUITY (DEFICIENCY) *** :Stock
                capital -Common
                stock of $ 0.0001 par value: Authorized: 60,000,000 shares at March
                31, 2008 and December 31, 2007; Issued and outstanding: 25,204,923
                and
                20,787,955 shares at March 31, 2008 and December 31, 2007, respectively
            
            
            2
            
            
            2Receipts
                on account of stock ** )
            
            
            -
            
            
            15,840Additional
                paid-in capital *)
            
            
            168,221
            
            
            151,750Accumulated
                deficit
            
            
            (168,809
            )
            
            (160,151
            )Totalstockholders' equity (deficiency)
            
            
            (586
            )
            
            7,441Totalliabilities and stockholders' equity (deficiency)
            
            $
            34,728
            
            $
            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.


5


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**U.S.
      dollars in thousands, except share and per share data**





**Three months ended**
              **March 31,****2008**
            
            **2007****Unaudited**RevenuesProduct
                sales
            
            $
            2,488
            
            $
            2,632Services
            
            
            921
            
            
            491Total
                Revenues
            
            
            3,409
            
            
            3,123Cost
                of revenues:Product
                sales
            
            
            2,484
            
            
            2,556Services
            
            
            647
            
            
            555Total
                Cost of Revenues
            
            
            3,131
            
            
            3,111Gross
                profit
            
            
            278
            
            
            12Operating
                expenses:Research
                and development
            
            
            4,280
            
            
            3,004Selling
                and marketing
            
            
            1,786
            
            
            1,958General
                and administrative
            
            
            1,808
            
            
            847Totaloperating expenses
            
            
            7,874
            
            
            5,809Operating
                loss
            
            
            (7,596
            )
            
            (5,797
            )Financial
                expenses, net
            
            
            (1,046
            )
            
            (897
            )Loss
                from continuing operations
            
            
            (8,642
            )
            
            (6,694
            )Loss
                from discontinued operations
            
            
            (16
            )
            
            (28
            )Net
                loss
            
            $
            (8,658
            )
            $
            (6,722
            )Basic
                and diluted net loss per Common stock:From
                continuing operations
            
            $
            (0.34
            )
            $
            (10.52
            )From
                discontinued operations
            
            $
            (0.00
            )
            $
            (0.04
            )Basic
                and diluted net loss per share
            
            $
            (0.34
            )
            $
            (10.56
            )Weighted
                average number of Common stock used in computing basic and diluted
                net
                loss per Common stock
            
            
            25,191,675
            
            
            687,992





The
      accompanying notes are an integral part of the condensed consolidated financial
      statements.


6


**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
            )Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            78
            
            
            -
            
            
            
            
            
            78Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,722
            )
            
            (6,722
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,722
            )
            
            (6,722
            )Balance
                at March 31, 2007 (unaudited)
            
            
            687,992
            
            
            *
            )
            
            77,718
            
            
            *
            )
            
            67,861
            
            
            *
            )
            
            222,426
            
            
            *
            )
            
            5,104,902
            
            
            *
            )
            
            -
            
            
            **)68,793
            
            
            (110
            )
            
            (98,283
            )
            
            (29,600
            )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
            
            
            
            
            
            -
            
            
            -Exercise
                of employee stock options
            
            
            16,968
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5
            
            
            
            
            
            -
            
            
            5Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            626
            
            
            
            
            
            -
            
            
            626Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            
            
            
            (8,658
            )
            
            (8,658
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (8,658
            )Balance
                at March 31, 2008 (unaudited)
            
            
            25,204,923
            
            $
            2
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            
            
            $
            $
                -
            
            $
            -
            
            $
            **) 168,221
            
            $
            -
            
            $
            (168,809
            )
            $
            (586
            )





*)
            Represents
                an amount lower than $ 1.


**)
            Net
                of deferred stock based compensation in an amount of $ 540, $491,
                $ 340
                and $ 294 as of January 1, 2007, March 31, 2007, January 1, 2008
                and March
                31, 2008, respectively.





The
      accompanying notes are an integral part of the condensed consolidated financial
      statements.


7


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**U.S.
      dollars in thousands**





**Three months ended**
              **March 31,****2008**
            
            **2007****Unaudited**Cash
                flows from operating activities:Net
                loss
            
            $
            (8,658
            )
            $
            (6,722
            )Less
                - net loss of discontinued operations
            
            
            16
            
            
            28Net
                loss of continuing operations
            
            
            (8,642
            )
            
            (6,694
            )Adjustments
                to reconcile net loss of continuing operations to net cash used in
                operating activities of continuing operations:Depreciation
                and amortization
            
            
            68
            
            
            134Stock-based
                compensation expenses
            
            
            626
            
            
            78Amortization
                of deferred debt issuance cost
            
            
            207
            
            
            236Financial
                expenses related to extinguishment of Long-term convertible loan
                from
                shareholders
            
            
            990
            
            
            -Decrease
                in trade receivables
            
            
            1,003
            
            
            2,306Decrease
                (increase) in other receivables, prepaid expenses and vendor advance
                payments
            
            
            452
            
            
            (361
            )Decrease
                in inventories, net
            
            
            1,069
            
            
            1,061Decrease
                (increase) in long-term prepaid expenses
            
            
            (11
            )
            
            50Increase
                (decrease) in trade payables
            
            
            1,483
            
            
            (159
            )Increase
                in employees and payroll accruals
            
            
            182
            
            
            185Decrease
                in deferred revenues
            
            
            (1,418
            )
            
            (641
            )Increase
                (decrease) in other payables and accrued expenses
            
            
            (433
            )
            
            182Increase
                in accrued severance pay, net
            
            
            22
            
            
            13Decrease
                in other long term liabilities
            
            
            (28
            )
            
            -Merger
                related expenses, included in the general and administrative and
                financial
                expenses
            
            
            (332
            )
            
            -Restricted
                cash, net
            
            
            (2
            )
            
            (4
            )Accrued
                interest
            
            
            16
            
            
            500Net
                cash used in operating activities of continuing operations
            
            
            (4,748
            )
            
            (3,114
            )Net
                cash used in operating activities of discontinued
                operations
            
            
            -
            
            
            (12
            )Net
                cash used in operating activities
            
            
            (4,748
            )
            
            (3,126
            )Cash
                flows from investing activities:Purchase
                of property and equipment
            
            
            (22
            )
            
            (47
            )Net
                cash used in investing activities
            
            
            (22
            )
            
            (47
            )





The
      accompanying notes are an integral part of the condensed consolidated financial
      statements.


8


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**U.S.
      dollars in thousands**





**Three months ended**
              **March 31,****2008**
            
            **2007****Unaudited**Cash
                flows from financing activities:Proceeds
                from exercise of employee stock options
            
            
            5
            
            
            -Payment
                of deferred debt and Merger costs
            
            
            -
            
            
            (25
            )Proceeds
                from short-term bank credit
            
            
            108
            
            
            219Proceeds
                from long-term loans
            
            
            -
            
            
            1,000Net
                cash provided by financing activities of continuing
                operations
            
            
            113
            
            
            1,194Decrease
                in cash and cash equivalents
            
            
            (4,657
            )
            
            (1,979
            )Cash
                and cash equivalents at beginning of period
            
            
            17,278
            
            
            2,729Cash
                and cash equivalents at end of period
            
            $
            12,621
            
            $
            750Supplemental
                information and disclosure of non-cash investing and financing
                activities:Purchase
                of property and equipment
            
            $
            2
            
            $
            100Purchase
                of inventory
            
            $
            -
            
            $
            1,375Deferred
                debt and Merger costs
            
            $
            -
            
            $
            $18Issuance
                of shares of Common stock upon conversion of long-term convertible
                loan
            
            $
            15,840
            
            $
            -Capitalization
                of interest to principal
            
            $
            3,296
            
            $
            -Cash
                paid during the period for:Interest
            
            $
            28
            
            $
            165





The
      accompanying notes are an integral part of the condensed consolidated financial
      statements.


9


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**U.S.
      dollars in thousands, except 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 March 31, 2008, the Company has four wholly-owned active subsidiaries:
                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").


10


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**U.S.
      dollars in thousands**





**NOTE
                1:-**
            **GENERAL
                (Cont.)**





c.  From
      inception, the Company has generated recurring losses from operations and
      negative cash flows from operating activities. As of March 31, 2008, and
      December 31, 2007 the Company has a working capital of $ 11,523 and $ 9,074,
      respectively, and stockholders' equity (deficiency) of ($ 586) and $ 7,441,
      respectively. 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. In spite of the fact
      that the Company had a positive working capital as of March 31, 2008, and
      December 31, 2007, 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. 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.




**NOTE
                2:-**
            **SIGNIFICANT
                ACCOUNTING POLICIES**





The
                accompanying unaudited condensed consolidated balance sheet as of
                March
                31, 2008, the unaudited condensed consolidated statements of operations
                for the three month periods ended March 31, 2008 and 2007, the unaudited
                condensed statement of changes in stockholders' deficiency for the
                three
                month period ended March 31, 2008 and 2007, and the unaudited condensed
                consolidated statements of cash flows for the three month periods
                ended
                March 31, 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 three months ended March 31, 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 in Form 10-K.


11


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**U.S.
      dollars in thousands**


**NOTE
                  3:-**
              **INVENTORIES**
 
 **March 31,**
              
              **December 31,****2008**
              
              **2007****Unaudited**Raw
                  materials
              
              $
              3,958
              
              $
              3,882Finished
                  products
              
              
              3,659
              
              
              3,570Finished
                  products at customers *)
              
              
              6,572
              
              
              7,806Write-down
                  provision
              
              
              (1,019
              )
              
              (1,019
              )$
              13,170
              
              $
              14,239


As
      for a
      commitment to purchase inventories, see Note 7a.





*)
            Represent
                costs of inventory that was delivered to customers but not yet recognized
                as revenues.


During
      the periods ended March 31, 2008 and 2007, no expenses were recorded with
      respect to inventory write-down.





**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% 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 6.45%
      as of March 31, 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.


12


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**U.S.
      dollars in thousands**





**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 shareholders 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. 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
      March 31, 2008, the remaining March Loans were recorded 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, Fair Value Measurements ("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, the Company 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.





**NOTE
      6:-**  **CONVERTIBLE
      LOAN**





On
      March
      28, 2008, the Company and one of its existing shareholders 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.


13


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**U.S.
      dollars in thousands**





**NOTE
      6:-**  **CONVERTIBLE
      LOAN (Cont.)**





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 long term convertible loan from shareholders, 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 against the long
      term convertible loan from shareholders in the balance sheet as premium, which
      will be amortized over the contractual term and recognized as financial income.
      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
      March 31, 2008, the remaining New Convertible Loan was recorded at fair value
      in
      the consolidated balance sheets based on Company's management estimation. In
      determining the fair value, management has 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.





**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
      March 31, 2008, the Company had open purchase orders with third party suppliers,
      mainly for purchasing inventory and products development, in a total amount
      of
      approximately $ 4,495.


14


**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**U.S.
      dollars in thousands, except share data**





**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 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 months ended March 31, 2008 and 2007 (ii) long-lived assets, as
      of March 31, 2008 and December 31, 2007, and (iii) revenues from major customers
      (on a percentage basis) for the three months ended March 31, 2008 and 2007:





c.
            Revenues:





**Three months ended**
              **March 31,****2008**
            
            **2007****Unaudited**Europe,
                and Middle East
            
            $
            3,251
            
            $
            2,958Asia
                Pacific
            
            
            124
            
            
            -South
                America
            
            
            34
            
            
            165$
            3,409
            
            $
            3,123


15





**IXI
      MOBILE, INC. AND ITS SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**U.S.
      dollars in thousands**





**NOTE
                9:-**
            **SEGMENTS,
                CUSTOMERS AND GEOGRAPHIC INFORMATION
                (Cont.)**





d.
            Long
                lived assets:





**March 31,**
            
            **December 31,****2008**
            
            **2007****Unaudited**Europe,
                and Middle East
            
            $
            432
            
            $
            468Asia
                Pacific
            
            
            1
            
            
            1United
                States
            
            
            10
            
            
            18$
            443
            
            $
            487





e.  Revenues
      from major customers:





**Three months ended**
              **March 31,****2008**
            
            **2007****Unaudited**Customer
                A
            
            
            16
            %
            
            30
            %Customer
                B
            
            
            51
            %
            
            60
            %Customer
                C
            
            
            14
            %
            
            -Customer
                D
            
            
            12
            %
            
            -





-
      - - - -
      - - - -


16





**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 (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 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 CDMA devices;





·
            our
                ability to maintain our relationships with existing customers and
                develop
                arrangements with new
                customers;


17


·
            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.





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. 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 Code-Division Multiple
      Access, or CDMA, cellular networks.




***History
      of*** ***Continuing
      Losses; Going Concern; Need for Additional Financing***




We
      have
      incurred operating losses since inception, including net losses of approximately
      $8.7 million and $6.7 million for the three months ended March 31, 2008 and
      2007, respectively, and we had an accumulated deficit of approximately $168.8
      million as of March 31, 2008. We also have had and continue to have negative
      cash flows from operating activities. For the three months ended March 31,
      2008
      and 2007 we had negative cash flow from operating activities in the amounts
      of
      $4.7 million and $3.1 million, respectively.




At
      March
      31, 2008, we had cash and cash equivalents available to fund operations of
      approximately $12.6 million and, in addition we have an unused credit line
      from
      Bank Leumi of approximately $500,000 . At May 14, 2008, we had cash and cash
      equivalents available to fund operations of approximately $10.6 million, in
      addition we have an unused credit line from Bank Leumi of approximately
      $460,000. For the first quarter of 2008, our operating expenses (including
      service and manufacturing operations that are a part of cost of goods sold),
      excluding debt service, were approximately $8.5 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.


18


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, 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 March 31, 2008, the principal amount outstanding under
      the loans arrangements was approximately $14 million in the aggregate, including
      an aggregate of approximately $3.3 million of accrued and unpaid interest.
      However, failure to obtain additional financing will result in the need to
      significantly curtail our operations in order to minimize expenses and the
      delay
      or abandonment 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.




***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.


19


***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 operator 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 added two and four customers,
      respectively. During the three months ended March 31, 2008, no new customers
      were added.




**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.




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 in the near
      future. As of March 31, 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
      second quarter of 2005, when we first shipped Ogo devices, through March 31,
      2008, we shipped and recognized revenues from the following sales of Ogo devices
      (excluding AT&T sales):


20


**Q2**
                **2005**
              
              **Q3**
                **2005**
              
              **Q4**
                **2005**
              
              **Q1**
                **2006**
              
              **Q2**
                **2006**
              
              **Q3**
                **2006**
              
              **Q4**
                **2006**
              
              **Q1**
                **2007**
              
              **Q2**
                **2007**
              
              **Q3**
                **2007**
              
              **Q4**
                **2007**
              
              **Q1**
                **2008**(unaudited)Revenue
                  from sale of the Ogo devices (in thousands)
              
              $
              0
              
              $
              150
              
              $
              590
              
              $
              1,642
              
              $
              3,437
              
              $
              3,309
              
              $
              3,355
              
              $
              2,632
              
              $
              2,511
              
              $
              4,037
              
              $
              4,290
              
              $
              2,488Revenue
                  from service (in thousands)
              
              
              —
              
              
              —
              
              
              15
              
              
              89
              
              
              175
              
              
              217
              
              
              393
              
              
              465
              
              
              545
              
              
              688
              
              
              806
              
              
              921Other
                  Revenue (ECR)(1)
              
              
              157
              
              
              68
              
              
              138
              
              
              8
              
              
              117
              
              
              49
              
              
              138
              
              
              26
              
              
              115
              
              
              39
              
              
              86
              
              
              0Total
                  Revenue
              
              
              157
              
              
              218
              
              
              743
              
              
              1,739
              
              
              3,729
              
              
              3,575
              
              
              3,886
              
              
              3,123
              
              
              3,171
              
              
              4,764
              
              
              5,182
              
              
              3,409Deferred
                  Revenue (in thousands) (Ogo only)(2)
              
              $
              150
              
              $
              673
              
              $
              4,175
              
              $
              3,510
              
              $
              6,843
              
              $
              10,954
              
              $
              12,415
              
              $
              11,686
              
              $
              11,691
              
              $
              11,237
              
              $
              9,590
              
              $
              8,131Ogo
                  device AverageSelling
                  Price (“ASP”)
              
              
              —
              
              $
              150
              
              $
              168
              
              $
              164
              
              $
              182
              
              $
              166
              
              $
              168
              
              $
              169
              
              $
              170
              
              $
              185
              
              $
              190
              
              $
              192Monthly
                  Service ASP, persubscriber
              
              
              —
              
              
              0
              
              $
              2.70
              
              $
              2.80
              
              $
              2.20
              
              $
              1.60
              
              $
              2.00
              
              $
              1.90
              
              $
              1.80
              
              $
              2.10
              
              $
              2.30
              
              $
              2.4Units
                  shipped per Quarter(3)
              
              
              1,000
              
              
              4,000
              
              
              24,000
              
              
              6,000
              
              
              40,000
              
              
              45,000
              
              
              28,000
              
              
              11,000
              
              
              14,000
              
              
              18,000
              
              
              12,000
              
              
              6,000Units
                  shipped (cumulative)(3)
              
              
              1,000
              
              
              5,000
              
              
              30,000
              
              
              35,000
              
              
              75,000
              
              
              120,000
              
              
              148,000
              
              
              159,000
              
              
              172,000
              
              
              190,000
              
              
              203,000
              
              
              208,000Subscribers(cumulative)
                  (3)(4)
              
              
              0
              
              
              —
              
              
              4,500
              
              
              14,500
              
              
              33,000
              
              
              53,000
              
              
              73,000
              
              
              89,000
              
              
              104,000
              
              
              120,000
              
              
              138,000
              
              
              150,000Customers – 
                  launched(cumulative)
              
              
              0
              
              
              1
              
              
              2
              
              
              3
              
              
              4
              
              
              4
              
              
              5
              
              
              5
              
              
              6
              
              
              6
              
              
              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.




21


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 March 31, 2008 and 2007 and during each of the years ended
      December 31, 2007, 2006 and 2005:




**Three months ended March 31,****2008**
              **Unaudited**
            
            **2007**
              **Unaudited**Swisscom
                Mobile
            
            
            51
            %
            
            60
            %1&1
            
            
            16
            %
            
            30
            %Vodafone
            
            
            14
            %
            
            —OneTouch
                (1)
            
            
            12
            %
            
            —Others
            
            
            7
            %
            
            10
            %






(1)
            In
                the three months ended March 31, 2008, included revenues from inactive
                devices of approximately $400,000.


**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.


22


The
      following represents revenues by geographic breakdown for the three months
      ended
      March 31, 2008 and 2007 and for each of the years ended December 31, 2007,
      2006
      and 2005:




**Three months ended March 31,****2008**
              **Unaudited**
            
            **2007**
              **Unaudited****(in thousands)**Europe, Middle East and
                Africa
            
            
            3,251
            
            
            2,958South
                America (1)
            
            
            34
            
            
            165Asia
                Pacific
            
            
            124
            
            
            —Total
            
            $
            3,409
            
            $
            3,123





**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





(1) In
      2007,
      primarily includes revenues from inactive devices.




**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
      (see “Discontinued Operations” below), 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 statues 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.


23


**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.




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
      March 31, 2008, our research and development team was comprised of 94
      employees and consultants in Israel and Romania. To the extent we have available
      funds, we expect our research and development expenses to 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 are recognized when
      we
      satisfy all the conditions under the law for being entitled to such grants.
      We
      do not have any current plans to apply for additional research and development
      grants from the Government of Israel.


24


***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 March 31, 2008, our sales and marketing
      team was comprised of 26 professionals worldwide. To the extent we have
      available funds, we expect our selling and marketing expenses to 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, as
      our
      customer base grows, we will be required to participate and invest directly
      in
      additional marketing efforts.




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 a 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 months ended
      March 31, 2008 we have recorded approximately $240,000 of expenses related
      to
      executives’ bonus plans. 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.




***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 months ended March 31, 2008, we recognized non-recurring charges following
      the amendments of the loans and convertible loan. Since 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 March 31, 2008, we will amortize this premium over the contractual term
      of
      the bridge loan and recognize it as financial income.


25


**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 judments 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 e** **nded
      March 31, 2008 (unaudited) compared to three months ended March 31, 2007
      (unaudited)**




***Revenues***




Revenues
      for the three months ended March 31, 2008 increased by 9.2% to approximately
      $3.4 million, compared to approximately $3.1 million for the three months ended
      March 31, 2007. Revenues for the three months ended March 31, 2008 included
      approximately $2.5 million from the sale of Ogo devices of which approximately
      $400,000 was recognized from revenues from inactive devices. We also generated
      approximately $900,000 from hosted services in the three months ended March
      31,
      2008. Revenues for the three months ended March 31, 2007 included approximately
      $2.6 million from the sale of Ogo devices and approximately $500,000 from hosted
      services.




***Cost
      of Revenues***




Our
      total
      cost of revenues for the three months ended March 31, 2008 increased by less
      than 1% to approximately $3.1 million, compared to approximately $3.1 million
      for the three months ended March 31, 2007.




Our
      cost
      of revenue for the three months ended March 31, 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 are fixed costs and
      as
      such, 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.


26


***Research
      and Development Expenses***




Our
      research and development expenses increased by 42.5% to approximately $4.3
      million for the three months ended March 31, 2008 from approximately $3.0
      million for the three months ended March 31, 2007. The increase was primarily
      attributable to an increase in the headcount and fixed overhead and facility
      costs of approximately $900,000. We also incurred additional expenses of
      approximately $300,000 for development of new applications and new models of
      the
      Ogo device including the development of the Ogo Code Division Multiple
      Access (“CDMA”), 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 8.8% to approximately $1.8 million
      for the three months ended March 31, 2008 compared to approximately $2.0 million
      for the three months ended March 31, 2007. The decrease was primarily
      attributable to reduction in sales commissions of approximately $220,000 and
      reduction in marketing contribution, launch expenses and other marketing
      activities of approximately $160,000, offset by an increase in headcount and
      fixed overhead costs and facility costs of approximately $150,000.




***General
      and Administrative Expenses***




Our
      general and administrative expenses increased by approximately 113.5% to
      approximately $1.8 million for the three months ended March 31, 2008 compared
      to
      approximately $800,000 for the three months ended March 31, 2007. The increase
      was primarily attributable to the following: approximately $300,000 related
      to
      stock based compensation expenses following new option grants, including
      non-cash expense on account of the bonus plans of Mr. Barak and Mr. Haller
      as
      detailed below and approximately $240,000 in increased salaries, headcount
      and
      fixed overhead. Our professional services expenses also increased, primarily
      attributable to an increase in audit and legal expenses of approximately
      $360,000 and an increase other general and administrative expenses of
      approximately $70,000.




We
      recorded approximately $240,000 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 was recorded as an expense during
                the three
                months ended March 31, 2008;




·
            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 was recorded as an expense during
                the three
                months ended March 31, 2008; and




·
            We
                may be required to record non-recurring, general and administrative
                expenses of up to approximately $670,000 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 $30,000 was recorded
                as
                income against long-term liabilities during the three months ended
                March
                31, 2008.




***Financial
      Expenses, Net***




Our
      financial expenses, net, for the three months ended March 31, 2008 were
      approximately $1.0 million compared to financial expenses, net of approximately
      $900,000 for the three months ended March 31, 2007. This increase was primarily
      attributable to financial expenses recorded in connection with the amendments
      of
      the loans and other debts as follows:




27


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. For further discussion regarding defined by SFAS No.
          157, Fair
          Value Measurements; or FAS 157 please see "Bridge Loans; Debt Conversion"
          paragraph.




·
            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 $230,000 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 three months ended March 31, 2008, the remaining
                part of the premium in the amount of approximately $330,000 was fully
                amortized.




·
            We
                recorded approximately $85,000 finance income on our bank
                deposits.




***Net
      Loss***




We
      had a
      net loss from continuing operations of approximately $8.7 million for the three
      months ended March 31, 2008, compared to a net loss of approximately $6.7
      million for the three months ended March 31, 2007 as a result of the reasons
      described above.




**Non-GAAP
      Financial Measures**




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.


28




**Non-GAAP
      Cost of Revenues Reconciliation**





**Three months ended March 31,****2008**
            
            **2007****(in thousands)**Total revenues
            
            $
            3,409
            
            $
            3,123GAAP
                cost of revenues:
            
            
            3,131
            
            
            3,111Stock-based
                option expense in GAAP cost of revenues
            
            
            21
            
            
            1Non-GAAP
                cost of revenues (excluding the above)
            
            $
            3,110
            
            $
            3,110Non-GAAP
                gross margin
            
            
            8.78
            %
            
            0.4
            %





**Non-GAAP
      Operating Loss Reconciliation**





**Three months ended March 31,****2008**
            
            **2007****(in thousands)**GAAP operating loss
            
            $
            (7,596
            )
            $
            (5,797
            )Stock-based
                option and share expense in GAAPoperating
                expenses, including Merger related expenses
            
            
            598
            
            
            72Non-GAAP
                operating loss (excluding the above)
            
            $
            (6,998
            )
            $
            (5,725
            )





**Non-GAAP
      Net Loss Reconciliation**





**Three months ended March 31,****2008**
            
            **2007****(in thousands)**GAAP net loss
            
            $
            (8,658
            )
            $
            (6,722
            )Stock
                based option and share expense in GAAP operating expenses, including
                merger related expenses
            
            
            598
            
            
            72Financial
                expenses (income) relating to Merger, conversion of loans and credit
                line
            
            
            865
            
            
            -Non-GAAP
                net loss (excluding the above)
            
            $
            (7,195
            )
            $
            (6,650
            )




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.




·
            *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.




29


·
            *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 $8.7
      million and $6.7 million for the three months ended March 31, 2008 and 2007,
      respectively, and we had an accumulated deficit of approximately $168.8 million
      as of March 31, 2008. 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 three months
      ended March 31, 2008 and 2007 we had negative cash flow from operating
      activities in the amounts of $4.7 million and $3.1 million, respectively. At
      March 31, 2008, we had cash and cash equivalents available to fund operations
      of
      approximately $12.6 million and, in addition we have an unused credit line
      from
      Bank Leumi of approximately $500,000. At May 14, 2008, we had cash and cash
      equivalents available to fund operations of approximately $10.6 million, in
      addition we have an unused credit line from Bank Leumi of approximately
      $460,000. 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 - History of
      Continuing Losses; Going Concern; Need for Additional Financing.”




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 March 31, 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)
            
            $
            986
            
            $
            635
            
            $
            351
            
            $
            0
            
            $
            0Motor
                vehicles leases
            
            $
            1,070
            
            $
            499
            
            $
            571
            
            $
            0
            
            $
            0Purchase
                obligations(2)
            
            $
            4,495
            
            $
            4,495
            
            $
            0
            
            $
            0
            
            $
            0Other
                long-term commitments(3)
            
            $
            3,794
            
            $
            2,909
            
            $
            885
            
            $
            0
            
            $
            0Severance
                pay(4)
            
            $
            1,352
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            1,352Long
                term and Convertible loan(5)
            
            $
            12,436
            
            $
            0
            
            $
            12,436
            
            $
            0
            
            $
            0Total
                contractual obligations
            
            $
            24,133
            
            $
            8,538
            
            $
            14,243
            
            $
            0
            
            $
            1,352_________________





(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 March 31, 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 $4.5
                million.


30





(3)
            Mainly
                due to one agreement with a major IM provider provides for minimum
                amounts committed to be paid by us from January 1, 2008 through
                September 30, 2009 of $1.8 million and another agreement with
                a different major IM provider provides minimum amounts committed to
                be paid by us from January 1, 2008
                of $875,000.(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. $243,000 of this
                amount
                is unfunded.(5)
            Long
                term and Convertible loans were amended on March 28, 2008.




***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 March 31, 2008, we owed an aggregate of $50,371
      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 three months ended March 31, 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.


31


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.




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.


32


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.




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, 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 the
      first
      quarter of 2008.




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
      March 31, 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.


33


As
      of
      March 31, 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.




We
      have
      not yet received any proceeds under the ELOC Arrangement. The ELOC Arrangement
      will remain in effect until the earlier of 24 months following the date that
      the
      registration statement with respect to the shares that may be issued under
      the
      ELOC Arrangement is declared effective 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 March 31, 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.


34


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 $4.7
      million for the three months ended March 31, 2008, compared with cash used
      in
      operating activities of approximately $3.1 million for the three months ended
      March 31, 2007. This increase 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 $22,000 for the three months ended March 31, 2008, compared with
      cash
      used in investing activities of approximately $47,000 for the three months
      ended
      March 31, 2007. In each period, cash was primarily used for the purchase of
      property and equipment.




Our
      financing activities for the three months ended March 31, 2008 provided
      cash in the amount of approximately $110,000, which consisted of proceeds from
      short term bank credit. Our financing activities for the three months ended
      March 31, 2007 provided cash of approximately $1.2 million, which consisted
      of proceeds from March 2007 Loan of $1.0 million and proceeds from short term
      bank loan of approximately $200,000.




**Net
      Operating Loss Carry** **forwards**




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.




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. ****


35


**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 March 31, 2008. Based upon their evaluation, they concluded
      that our disclosure controls and procedures were effective.





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


36


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**




In
      addition to the other information set forth in this Form 10-Q, you should
      carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in
      our Annual Report on Form 10-K for the year ended December 31, 2007, which
      could
      materially affect our business, financial condition or future results. The
      risks
      described in our Annual Report on Form 10-K 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.





**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:





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


37


**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:
                May 15, 2008
            **IXI
                MOBILE, INC.**By:
            /s/
                  Amit HallerAmit
                HallerChief
                Executive OfficerBy:
            /s/
                  Lihi SegalLihi
                SegalExecutive
                Vice President and Chief Financial
                Officer


38