UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-Q




(Mark
      One)





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





For
      the
      quarterly period ended September
      30, 2007





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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.  (Check
      one):


Large Accelerated Filer o
              Accelerated
                  Filer o
              Non-Accelerated
                  Filer x




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


Yes  ̈ No x





As
      of
      November 13, 2007, 15,937,732 shares of common stock, par value $.0001 per
      share, were issued and outstanding.







PagePart
                  I: Financial Information:
 Item
                    1 -Financial Statements (Unaudited):Condensed
                    Consolidated Balance Sheets
                
                2
                    -
                    3Condensed
                    Consolidated Statements of Operations
                
                4Condensed
                    Statements of Changes in Stockholders' Deficiency
                
                5Condensed
                    Consolidated Statements of Cash Flows
                
                6
                    -
                    7Notes
                    to Condensed Consolidated Financial Statements
                
                8
                    -
                    15
 Item
                  2 - Management’s Discussion and Analysis or Plan of
                  Operation
              
              16Item
                  3 - Quantitative and Qualitative Disclosures about Market
                  Risk
              
              47Item
                  4 - Controls and Procedures
              
              48Part
                  II. Other InformationItem
                  6 - Exhibits
              
              49Signatures
              
              50




**IXI
          MOBILE, INC.**
 **(Formerly:
          ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
          ITS SUBSIDIARIES**
 **CONDENSED
            CONSOLIDATED BALANCE SHEETS**
 **U.S.
            dollars in thousands**
 **September
                  30,**
              
              **December
                  31,****2007**
              
              **2006****Unaudited**ASSETSCURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              18,575
              
              $
              2,729Restricted
                  cash
              
              
              180
              
              
              269Trade
                  receivables
              
              
              3,299
              
              
              3,286Other
                  receivables and prepaid expenses
              
              
              1,301
              
              
              682Vendor
                  advance payments
              
              
              6,823
              
              
              3,947Inventories,
                  net (Of which $ 9,139 and $ 9,946 delivered to customers but not
                  yet
                  recognized as revenues as of September 30, 2007 and December 31,
                  2006,
                  respectively)
              
              
              13,989
              
              
              13,473Totalcurrent assets
              
              
              44,167
              
              
              24,386LONG-TERM
                  ASSETS:Severance
                  pay fund
              
              
              849
              
              
              596Long-term
                  prepaid expenses
              
              
              28
              
              
              93Property
                  and equipment, net
              
              
              574
              
              
              429Deferred
                  debt costs
              
              
              1,778
              
              
              1,411Deferred
                  Merger costs
              
              
              -
              
              
              876Other
                  assets, net
              
              
              -
              
              
              62Totallong-term assets
              
              
              3,229
              
              
              3,467Totalassets
              
              $
              47,396
              
              $
              27,853
 
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -2-
 **IXI
          MOBILE, INC.**
 **(Formerly:
          ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
          ITS SUBSIDIARIES**
 **CONDENSED
            CONSOLIDATED BALANCE SHEETS**
 **U.S.
            dollars in thousands, except share and per share data**
 **September
                    30,**
                
                **December
                    31,****2007**
                
                **2006****Unaudited**LIABILITIES
                    AND STOCKHOLDERS' DEFICIENCYCURRENT
                    LIABILITIES:Current
                    maturities of long-term loans and long-term convertible
                    loan
                
                $
                7,879
                
                $
                -Short-term
                    bank credit
                
                
                7,992
                
                
                6,767Trade
                    payables
                
                
                4,608
                
                
                3,159Employees
                    and payroll accruals
                
                
                1,326
                
                
                1,016Deferred
                    revenues
                
                
                11,877
                
                
                13,035Other
                    payables and accrued expenses
                
                
                4,814
                
                
                3,446Liabilities
                    of discontinued operations
                
                
                2,497
                
                
                2,431Totalcurrent liabilities
                
                
                40,993
                
                
                29,854LONG-TERM
                    LIABILITIES:Long-term
                    loans, net of current maturities
                
                
                3,000
                
                
                -Long-term
                    convertible loan
                
                
                -
                
                
                4,160Other
                    long-term liabilities
                
                
                201
                
                
                -Accrued
                    severance pay
                
                
                1,005
                
                
                721Totallong-term liabilities
                
                
                4,206
                
                
                4,881COMMITMENTS
                    AND CONTINGENT LIABILITIESLONG-TERM
                    CONVERTIBLE LOAN
                
                
                17,680
                
                
                15,840STOCKHOLDERS'
                    DEFICIENCY ***):Stock
                    capital -Common
                    stock of $ 0.0001 par value - Authorized: 60,000,000 and 7,570,862 at
                    September 30, 2007 and December 31, 2006, respectively; Issued
                    and
                    outstanding: 15,937,732 and 687,992 shares as of September 30,
                    2007 and
                    December 31, 2006, respectively
                
                
                2
                
                
                *)
                    -Series
                    A Convertible Preferred stock of $ 0.01 par value - Authorized: 0 and
                    90,645 shares at September 30, 2007 and December 31, 2006, respectively;
                    Issued and outstanding: 0 and 77,718 shares at September 30,
                    2007 and
                    December 31, 2006, respectively
                
                
                -
                
                
                *)
                    -Series
                    B Convertible Preferred stock of $ 0.01 par value - Authorized: 0 and
                    247,952 shares at September 30, 2007 and December 31, 2006, respectively;
                    Issued and outstanding: 0 and 67,861 shares at September 30,
                    2007 and
                    December 31, 2006, respectively
                
                
                -
                
                
                *)
                    -Series
                    C Convertible Preferred stock of $ 0.01 par value - Authorized: 0 and
                    479,627 shares at September 30, 2007 and December 31, 2006, respectively;
                    Issued and outstanding: 0 and 222,426 shares at September 30,
                    2007 and
                    December 31, 2006, respectively
                
                
                -
                
                
                *)
                    -Series
                    D Convertible Preferred stock of $ 0.01 par value - Authorized: 0 and
                    5,500,463 shares at September 30, 2007 and December 31, 2006,
                    respectively; Issued and outstanding: 0 and 5,104,902 shares
                    at September
                    30, 2007 and December 31, 2006, respectively
                
                
                -
                
                
                *)
                    -Preferred
                    stock of $0.0001 par value -Authorized: 1,000,000 and 0 shares
                    at
                    September 30, 2007 and December 31,2006, respectively; Issued and
                    outstanding 0 at September 30, 2007 and at December 31,
                    2006
                
                
                -
                
                
                -Additional
                    paid-in capital **)
                
                
                112,526
                
                
                68,715Notes
                    receivable
                
                
                -
                
                
                (110
                )Accumulated
                    deficit
                
                
                (128,011
                )
                
                (91,327
                )Totalstockholders' deficiency
                
                
                (15,483
                )
                
                (22,722
                )Totalliabilities and stockholders' deficiency
                
                $
                47,396
                
                $
                27,853
  *)
              Represents
                  an amount lower than $ 1.
  **)
              Net
                  of deferred stock compensation.
  ***)
              Upon
                  the Merger, the shares of IXI stock were canceled and exchanged
                  into the
                  Company's stock on a ratio of 1:0.15. All share and per share data
                  included in this report has been retroactively adjusted to reflect
                  this
                  exchange.
 All
                  series of IXI stock, including IXI Common stock, IXI series A,
                  B, C, D and
                  D-1 convertible Preferred stock have been retroactively presented
                  on an as
                  if converted basis into equivalent ITAC Common and Preferred
                  stock.
 
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
 
 -3-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **U.S.
        dollars in thousands, except share and per share data**
 
 **Nine
                  months ended**
                **September
                  30,**
              
              **Three
                  months ended**
                **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Unaudited**Revenues
              
              $
              11,058
              
              $
              9,043
              
              $
              4,764
              
              $
              3,575Operating
                  expenses:Cost
                  of revenues
              
              
              11,556
              
              
              10,764
              
              
              4,383
              
              
              4,408Research
                  and development
              
              
              11,824
              
              
              4,278
              
              
              4,687
              
              
              1,491Selling
                  and marketing
              
              
              5,468
              
              
              6,529
              
              
              2,122
              
              
              1,210General
                  and administrative
              
              
              6,233
              
              
              2,229
              
              
              1,630
              
              
              667Totaloperating
                  expenses
              
              
              35,081
              
              
              23,800
              
              
              12,822
              
              
              7,776Operating
                  loss
              
              
              (24,023
              )
              
              (14,757
              )
              
              (8,058
              )
              
              (4,201
              )Financial
                  expenses, net
              
              
              (12,578
              )
              
              (1,767
              )
              
              (368
              )
              
              (1,059
              )Other
                  income
              
              
              -
              
              
              13
              
              
              -
              
              
              -Loss
                  from continuing operations
              
              
              (36,601
              )
              
              (16,511
              )
              
              (8,426
              )
              
              (5,260
              )Income
                  (loss) from discontinued operations
              
              
              (83
              )
              
              461
              
              
              (28
              )
              
              (27
              )Net
                  loss
              
              $
              (36,684
              )
              $
              (16,050
              )
              $
              (8,454
              )
              $
              (5,287
              )Basic
                  and diluted net earnings (loss) per share of Common stock:From
                  continuing operations
              
              $
              (5.26
              )
              $
              (27.46
              )
              $
              (0.53
              )
              $
              (8.59
              )From
                  discontinued operations
              
              
              (0.01
              )
              
              0.67
              
              
              -
              
              
              (0.04
              )Basic
                  and diluted net loss per share
              
              $
              (5.27
              )
              $
              (26.79
              )
              $
              (0.53
              )
              $
              (8.63
              )Weighted
                  average number of shares of Common stock used in computing basic
                  and
                  diluted net earnings (loss) per share of Common stock
              
              
              7,111,875
              
              
              683,845
              
              
              15,937,732
              
              
              686,192
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -4-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **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**
              
              **Additional**
                **paid-in**
              
              **Notes**
              
              **Accumulated****Number**
              
              **Amount**
              
              **Number**
              
              **Amount**
              
              **Number**
              
              **Amount**
              
              **Number**
              
              **Amount**
              
              **Number**
              
              **Amount**
              
              **capital**
              
              **receivable**
              
              **deficit**
              
              **Total**Balance
                  at January 1, 2006
              
              
              682,652
              
              $
              *)
                  -
              
              
              77,718
              
              $
              *)
                  -
              
              
              67,861
              
              $
              *)
                  -
              
              
              222,426
              
              $
              *)
                  -
              
              
              532,815
              
              $
              *)
                  -
              
              $
              **)
                  61,965
              
              $
              (110
              )
              $
              (68,675
              )
              $
              (6,820
              )Exercise
                  of employee stock options
              
              
              5,340
              
              
              *)
                  -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2
              
              
              -
              
              
              -
              
              
              2Issuance
                  of Series D-1 convertible Preferred stock, net
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,798,593
              
              
              *)
                  -
              
              
              6,294
              
              
              -
              
              
              -
              
              
              6,294Issuance
                  of Series D-1 convertible Preferred stock, net in respect of Keep
                  Well
                  Agreement
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,773,494
              
              
              *)
                  -
              
              
              *)
                  -
              
              
              -
              
              
              -
              
              
              -Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              294
              
              
              -
              
              
              -
              
              
              294Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (16,050
              )
              
              (16,050
              )Total
                  comprehensive loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (16,050
              )Balance
                  at September 30, 2006 (unaudited)
              
              
              687,992
              
              $
              *)
                  -
              
              
              77,718
              
              $
              *)
                  -
              
              
              67,861
              
              $
              *)
                  -
              
              
              222,426
              
              $
              *)
                  -
              
              
              5,104,902
              
              $
              *)
                  -
              
              $
              **)
                  68,555
              
              $
              (110
              )
              $
              (84,725
              )
              $
              (16,280
              )Balance
                  at January 1, 2007
              
              
              687,992
              
              $
              *)
                  -
              
              
              77,718
              
              $
              *)
                  -
              
              
              67,861
              
              $
              *)
                  -
              
              
              222,426
              
              $
              *)
                  -
              
              
              5,104,902
              
              $
              *)
                  -
              
              $
              **)
                  68,715
              
              $
              (110
              )
              $
              (91,327
              )
              $
              (22,722
              )Exercise
                  of warrants to Common stock
              
              
              166,262
              
              
              *)
                  -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of stock to Co-Chairman
              
              
              216,000
              
              
              *)
                  -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Conversion
                  of warrants to Preferred stock
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,936
              
              
              -
              
              
              5,384
              
              
              -
              
              
              17
              
              
              -
              
              
              -
              
              
              17Conversion
                  of convertible Preferred stock into Common stock
              
              
              5,483,478
              
              
              1
              
              
              (77,718
              )
              
              *)
                  -
              
              
              (67,861
              )
              
              *)
                  -
              
              
              (227,362
              )
              
              *)
                  -
              
              
              (5,110,286
              )
              
              *)
                  -
              
              
              -
              
              
              -
              
              
              -
              
              
              1Issuance
                  of Common stock in connection with the Merger, net of acquisition
                  costs
              
              
              7,818,000
              
              
              1
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              33,744
              
              
              -
              
              
              -
              
              
              33,745Issuance
                  of stock following the merger
              
              
              1,566,000
              
              
              *)
                  -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              7,927
              
              
              -
              
              
              -
              
              
              7,927Repayment
                  of notes receivable
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              110
              
              
              -
              
              
              110Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,123
              
              
              -
              
              
              -
              
              
              2,123Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (36,684
              )
              
              (36,684
              )Total
                  comprehensive loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (36,684
              )Balance
                  at September 30, 2007 (unaudited)
              
              
              15,937,732
              
              $
              2
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              112,526
              
              $
              -
              
              $
              (128,011
              )
              $
              (15,483
              )
  *)
              Represents
                  an amount lower than $ 1.
  **)
              Net
                  of deferred stock compensation in an amount of $ 782, $ 633,
                  $ 540 and $ 489 as of January 1, 2006, September 30, 2006,
                  January 1, 2007 and September 30, 2007,
                  respectively.
  ***)
              The
                  shares of IXI stock were canceled and exchanged with the Company's
                  stock
                  on a ratio of 1:0.15. All share and per share data included in
                  these
                  financial statements have been retroactively adjusted to reflect
                  this
                  exchange.
 
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -5-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
        dollars in thousands**
 **Nine
                  months ended**
                **September
                  30,****2007**
              
              **2006****Unaudited**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (36,684
              )
              $
              (16,050
              )Net
                  loss (income) from discontinued operations
              
              
              83
              
              
              (461
              )Loss
                  from continuing operations
              
              
              (36,601
              )
              
              (16,511
              )Adjustments
                  to reconcile net loss from continuing operations to net cash used
                  in
                  operating activities from continuing operations:Depreciation
                  and amortization
              
              
              284
              
              
              213Stock-based
                  compensation expense
              
              
              2,123
              
              
              294Merger
                  related expenses, included in the general and administrative and
                  financial
                  expenses and modification of long-term convertible loan
              
              
              10,164
              
              
              -Amortization
                  of discounts attributed to detachable warrant costs and guarantee
                  costs of
                  Keep Well Agreement
              
              
              -
              
              
              3,473Amortization
                  of deferred Merger costs
              
              
              1,411
              
              
              262Increase
                  in trade receivables
              
              
              (13
              )
              
              (4,070
              )Decrease
                  (increase) in other receivables and prepaid expenses
              
              
              (619
              )
              
              116Increase
                  in vendor advance payments
              
              
              (2,876
              )
              
              (4,161
              )Increase
                  in inventories, net
              
              
              (450
              )
              
              (3,976
              )Decrease
                  (increase) in long-term prepaid expenses
              
              
              65
              
              
              (8
              )Increase
                  in trade payables
              
              
              1,209
              
              
              3,603Increase
                  in employees and payroll accruals
              
              
              310
              
              
              106Increase
                  (decrease) in deferred revenues
              
              
              (1,158
              )
              
              7,307Increase
                  (decrease) in other payables and accrued expenses
              
              
              (407
              )
              
              768Increase
                  in other long-term liabilities
              
              
              201
              
              
              -Increase
                  in accrued severance pay, net
              
              
              31
              
              
              19Increase
                  in accrued interest
              
              
              1,715
              
              
              517Net
                  cash used in operating activities from continuing
                  operations
              
              
              (24,611
              )
              
              (12,048
              )Net
                  cash used in operating activities from discontinued
                  operations
              
              
              (17
              )
              
              (752
              )Net
                  cash used in operating activities
              
              
              (24,628
              )
              
              (12,800
              )Cash
                  flows from investing activities:Restricted
                  cash, net
              
              
              89
              
              
              13Purchase
                  of property and equipment
              
              
              (310
              )
              
              (128
              )Net
                  cash used in investing activities
              
              
              (221
              )
              
              (115
              )
  The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -6-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **U.S.
        dollars in thousands**
 
 **Nine
                  months ended**
                **September
                  30,****2007**
              
              **2006****Unaudited**Cash
                  flows from financing activities:Proceeds
                  from issuance of Common stock in the Merger, net of issuance costs
                  (1)
              
              $
              33,373
              
              $
              -Proceeds
                  from issuance of stock, net of issuance expenses
              
              
              -
              
              
              (18
              )Payment
                  of deferred debt and Merger costs
              
              
              (24
              )
              
              (2,495
              )Proceeds
                  from exercise of employee stock options
              
              
              -
              
              
              2Proceeds
                  from exercise of warrants by investors
              
              
              11
              
              
              -Proceeds
                  from short-term bank credit
              
              
              1,225
              
              
              8,053Collection
                  of notes receivable
              
              
              110
              
              
              -Payment
                  of short-term bank credit
              
              
              (5,000
              )
              
              (750
              )Proceeds
                  from short-term loans
              
              
              5,000
              
              
              -Principal
                  payment of long-term loans
              
              
              -
              
              
              (2,578
              )Proceeds
                  from long-term loans
              
              
              6,000
              
              
              -Proceeds
                  from convertible loan
              
              
              -
              
              
              20,000Net
                  cash provided by financing activities from continuing
                  operations
              
              
              40,695
              
              
              22,214Increase
                  in cash and cash equivalents
              
              
              15,846
              
              
              9,299Cash
                  and cash equivalents at the beginning of the period
              
              
              2,729
              
              
              184Cash
                  and cash equivalents at the end of the period
              
              $
              18,575
              
              $
              9,483Supplemental
                  information and disclosure of non-cash investing and financing
                  activities
                  from continuing operations (including other non-cash equity
                  transactions):Issuance
                  of Convertible Preferred stock upon conversion of convertible bridge
                  loan
                  and accrued interest
              
              $
              -
              
              $
              6,312Purchase
                  of property and equipment on credit
              
              $
              57
              
              $
              17Purchase
                  of inventories on credit
              
              $
              66
              
              $
              -Acquisition
                  costs and deferred debt and Merger costs
              
              $
              1,706
              
              $
              157Cash
                  paid during the period for:Interest
              
              $
              814
              
              $
              583(1)Cash
                  consideration from issuance of Common stock in reverse acquisition
                  of
                  ITAC, net of issuance costs:Working
                  capital, excluding cash
              
              $
              183
              
              $
              -Issuance
                  of Common stock in connection with the Merger
              
              
              35,038
              
              
              -Merger
                  costs
              
              
              (1,848
              )
              
              -$
              33,373
              
              $
              -
 
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  -7-
 **IXI
          MOBILE, INC.**
 **(Formerly:
          ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
          ITS SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
            dollars in thousands, except share and per share data**
 **NOTE
                  1:-**
              **GENERAL**
 
 a.
              IXI
                  Mobile, Inc. (formerly Israel Technology Acquisition Corporation)
                  ("the
                  Company") is a Delaware holding company operating through a wholly-owned
                  subsidiary, IXI Mobile (USA), Inc. ("IXI"). Israel Technology Acquisition
                  Corporation was originally formed on February 22, 2005 as a blank
                  check
                  company to effect a merger, capital stock exchange, asset acquisition
                  or
                  other similar business combination with an unidentified operating
                  business
                  that had manufacturing operations or research and development facilities
                  located in Israel. On June 6, 2007, pursuant to an Agreement and
                  Plan of
                  Merger, dated February 28, 2006, as amended, the Company completed
                  the
                  merger with IXI Mobile (USA), Inc. ("Merger"). Prior to the Merger,
                  the
                  Company had no substantial operations as it was a blank check company.
                  Therefore, the financial statements and accompanying notes represent
                  the
                  historical results of IXI Mobile (USA), Inc., unless otherwise
                  stated.
 
 In
        accordance with the guidance applicable to these circumstances, the Merger
        was
        deemed to be a capital transaction in substance. Accordingly, for accounting
        purposes, the Merger was treated as the equivalent of IXI issuing stock for
        the
        net monetary assets of the Company. The net monetary assets of the Company
        were
        stated at their fair value, essentially equivalent to historical costs, with
        no
        goodwill or other intangible assets recorded. The accumulated deficit of
        IXI is
        carried forward after the Merger. The shares of IXI stock were canceled and
        converted into the Company's stock in 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 approximately $33,400,
        net of Merger expenses.
 
 b.
              The
                  Company is engaged in operations, through its subsidiaries IXI,
                  IXI Mobile
                  (R&D) Ltd. ("the Israeli subsidiary" or "IXI R&D"), and IXI Mobile
                  (East Europe) SRL, in the development, production and marketing
                  of mobile
                  messaging devices and related services, targeting the mass consumer
                  market. The Company also provides, through third parties, hosted
                  services
                  including all necessary gateways and backend servers, as well as
                  related
                  launch and support services. The Company's major customers include
                  mainly
                  mobile operators, internet service providers and resellers. In
                  addition,
                  IXI was also engaged in an operating system business for mobile
                  devices
                  which was discontinued during 2005.
 
 c.
              As
                  of September 30, 2007, the Company has five wholly-owned active
                  subsidiaries: IXI Mobile (USA), Inc., IXI Mobile (R&D) Ltd., IXI
                  Mobile (Europe) Limited, IXI Mobile (Asia Pacific) Ltd., IXI Mobile
                  (East
                  Europe) SRL, and three wholly-owned inactive subsidiaries: Neo
                  Mobile
                  Ltd., Neo Mobile Telecom and LLC Neo Mobile, Inc. (together "the
                  Group").
  -8-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**
 **NOTES

          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
          dollars in thousands, except share and per share data**
 **NOTE
                  1:-**
              **GENERAL
                  (Cont.)**
 
 d.
              From
                  inception, the Company has generated recurring losses from operations
                  and
                  negative cash flows from operating activities. As of September
                  30, 2007,
                  the Company has stockholders' deficiency of $15,483. As of December
                  31,
                  2006, the Company had a working capital deficiency and stockholders'
                  deficiency of $ 5,468 and $ 22,722, respectively. The Company plans
                  to
                  continue to finance its operations through long term loans, by
                  raising
                  additional capital and in the longer term, to generate sufficient
                  revenues
                  to finance its operations. There are no assurances, however, that
                  the
                  Company will be successful in obtaining an adequate level of financing
                  needed for current operations and long-term development, or that
                  it will
                  ever reach profitability or will generate sufficient revenues to
                  finance
                  its operations.
 
 These
        conditions raise substantial doubt about the Company's ability to continue
        as a
        going concern. The accompanying financial statements do not include any
        adjustments to reflect the possible future effects on recoverability and
        reclassification of assets or the amounts and classification of liabilities
        that
        may result from the outcome of this uncertainty.
 
 e.
              In
                  April 2007, IXI R&D and a leading U.S. corporation ("the Corporation")
                  signed an amendment ("the 2007 Amendment") to the original agreement
                  between the parties dated October 2005, enabling the Company to
                  provide
                  its customers the services that the Corporation provides for mobile
                  devices.
 
 The
        main
        terms of the 2007 Amendment are as follows: (i) the minimum amount to be
        paid
        has been reduced to $85 per month beginning January 2007 and (ii) the term
        of
        the agreement has been extended until September 30, 2009.
 
 The
        2007
        Amendment is effective as of January 1, 2007 and has been given retrospective
        effect in the accompanying unaudited condensed financial
        statements.
  -9-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
          dollars in thousands, except share and per share
          data**
 **NOTE
                  2:-**
              **SIGNIFICANT
                  ACCOUNTING POLICIES**
 
 a.
              The
                  accompanying unaudited condensed consolidated balance sheet as
                  of
                  September 30, 2007, the unaudited condensed consolidated statements
                  of
                  operations for the three and nine-month periods ended September
                  30, 2007
                  and 2006, the unaudited condensed statement of changes in stockholders'
                  deficiency for the nine-month period ended September 30, 2007,
                  and the
                  unaudited condensed consolidated statements of cash flows for the
                  nine-month periods ended September 30, 2007 and 2006 have been
                  prepared in
                  accordance with U.S. generally accepted accounting principles ("U.S.
                  GAAP") applicable to interim financial information and the rules
                  and
                  regulations promulgated by the Securities and Exchange Commission.
                  Accordingly, such unaudited condensed consolidated financial statements
                  do
                  not include all of the information and footnotes disclosures required
                  in
                  annual audited financial statements. In the opinion of the Company's
                  management, the unaudited condensed consolidated financial statements
                  include all adjustments, consisting of normal recurring adjustments
                  necessary for a fair presentation of such condensed consolidated
                  financial
                  statements. The results of operations for the three and nine months
                  ended
                  September 30, 2007 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, 2006, of the Company and IXI, included in the Definitive Proxy Statement
        of
        the Company (formerly Israeli Technology Acquisition Corporation).
 
 b.
              Adoption
                  of new accounting pronouncement
 
 In
        July 2006, the FASB issued FASB Interpretation 48, "Accounting for
        Uncertainty in Income Taxes" ("FIN 48"). FIN 48 defines the threshold for
        recognizing the benefits of tax return positions in the financial statements
        as
        "more-likely-than-not" to be sustained by the taxing authority. The recently
        issued literature also provides guidance on derecognition, measurement and
        classification of income tax uncertainties, along with any related interest
        and
        penalties. FIN 48 also includes guidance concerning accounting for income
        tax
        uncertainties in interim periods and increases the level of disclosures
        associated with any income tax uncertainties.
 
 Pursuant
        to the provisions of FIN 48, the differences between the amounts recognized
        in
        the statements of financial position prior to the adoption of FIN 48 and
        the
        amounts reported after adoption would be accounted for as a cumulative-effect
        adjustments recorded to the beginning balance of retained earnings. FIN 48
        is
        effective for fiscal years beginning after December 15, 2006.
 
 The
        Company files U.S. federal income tax returns as well as income tax returns
        in
        Israel and in various foreign jurisdictions. The Company may be subject to
        examination by the U.S. Internal Revenue Service ("IRS") for calendar years
        2003
        through 2006. The Israeli subsidiary may be subject to examination by the
        Israel
        tax authorities for calendar years 2003 through 2006.
  -10-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
          dollars in thousands, except share and per share data**
 **NOTE
                  2:-**
              **SIGNIFICANT
                  ACCOUNTING POLICIES
                  (Cont.)**
 
 Effective
        January 1, 2007, the Company adopted the provisions of FIN 48. The adoption
        of FIN 48 had no cumulative effect on tax provisions or on the accumulated
        deficit in the Company's financial statements.
 
 **NOTE
                  3:-**
              **INVENTORIES**
 
 **September
                  30,**
              
              **December
                  31,****2007**
              
              **2006****Unaudited**Raw
                  materials
              
              $
              3,762
              
              $
              993Finished
                  products
              
              
              1,354
              
              
              2,685Finished
                  products at customers *)
              
              
              9,139
              
              
              9,946Write-down
                  provision
              
              
              (266
              )
              
              (151
              )$
              13,989
              
              $
              13,473
 
 *)
              Represent
                  costs of inventory that was delivered to customers but not yet
                  recognized
                  as revenues.
 
 Total
        write-down expenses for the nine months ended September 30, 2007 and for
        the
        year ended December 31, 2006, amounted to approximately $280 and $240,
        respectively.
 
 As
        for a
        commitment to purchase inventories, see Note 4b.
 
 **NOTE
                  4:-**
              **COMMITMENTS
                  AND CONTINGENT LIABILITIES**
 
 a.
              Litigation:
 
 From
        time
        to time, the Company may become involved in legal proceedings and claims,
        which
        arise in the ordinary course of business. The Company considers that the
        ultimate liability with respect to any known action will not materially affect
        the business, financial position, results of operations or cash flows of
        the
        Company.
 
 b.
              Other:
 
 As
        of
        September 30, 2007 and December 31, 2006, the Company had open purchase orders
        with third party suppliers, mainly for development costs of various products
        and
        the manufacturing of Ogo devices, in a total amount of approximately $5,800
        and
        $3,000, respectively.
  -11-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
          dollars in thousands, except share and per share
          data**
  **NOTE
                  5:-**
              **STOCKHOLDERS'
                  DEFICIENCY**
 
 Stock
        option plans:
 
 After
        the
        Merger, the Company has adopted IXI's Option plans. The Company has authorized,
        under the Company's 2000 and 2003 U.S. Stock Incentive Plans and 2000 and
        2003
        Israeli Option Plans, as amended, the grant of options for shares of Common
        stock to directors, employees, officers and consultants. The compensation
        cost
        that has been charged against income for those plans was $2,123 and $294
        for the
        nine months ended September 30, 2007 and 2006, respectively and $473 and
        $95 for
        the three months ended September 30, 2007 and 2006, respectively. The options
        granted generally have a four-year vesting schedule and expire ten years
        subsequent to the date of grant.
  -12-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
          dollars in thousands, except share and per share data**
 **NOTE
                  6:-**
              **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:
 
 The
        following table presents revenues (according to end customer location) for
        the
        nine and three months ended September 30, 2007 and 2006 and long-lived
        assets as of September 30, 2007 and December 31, 2006:
 
 1.
              Revenues:
 
 **Nine
                  months ended**
                **September
                  30,**
              
              **Three
                  months ended**
                **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Unaudited**Europe
                  Middle East and Africa
              
              $
              10,647
              
              $
              8,845
              
              $
              4,647
              
              $
              3,482Asia
                  Pacific
              
              
              -
              
              
              100
              
              
              -
              
              
              -South
                  America
              
              
              411
              
              
              98
              
              
              117
              
              
              93$
              11,058
              
              $
              9,043
              
              $
              4,764
              
              $
              3,575
 
 2.
              Long-lived
                  assets:
 
 **September
                  30,**
              
              **December
                  31,****2007**
              
              **2006****Unaudited**United
                  States
              
              $
              22
              
              $
              30Europe
                  and Middle East
              
              
              550
              
              
              458Asia
                  Pacific
              
              
              2
              
              
              3$
              574
              
              $
              491
  -13-
  **IXI
        MOBILE, INC.**
 **(Formerly:
        ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
          dollars in thousands, except share and per share data**
 **NOTE
                  6:-**
              **SEGMENTS,
                  CUSTOMERS AND GEOGRAPHIC
                  INFORMATION**
 
 c.
              Revenues
                  from major customers:
 
 **Nine
                  months ended**
                **September
                  30,**
              
              **Three
                  months ended**
                **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Unaudited**Customer
                  A
              
              
              8
              %
              
              9
              %
              
              12
              %
              
              5
              %Customer
                  B
              
              
              52
              %
              
              41
              %
              
              45
              %
              
              32
              %Customer
                  C
              
              
              34
              %
              
              48
              %
              
              35
              %
              
              60
              %
  **NOTE
                7:-**
              **SUBSEQUENT
                  EVENTS**
 
 a.
              On
                  October 2, 2007 the Company's Board of Directors approved an option
                  pool
                  of 800,000 options for the retention of directors, employees, officers
                  and
                  consultants.
 
 b.
              In
                  October 2007, the Company has reached an agreement with the Guarantors
                  and
                  with the New Lender of the New Convertible Bridge Loan amending
                  the New
                  Convertible Bridge Loan with respect of the conversion of approximately
                  $20,700 principal amount of the New Convertible Bridge Loan and with
                  respect or the assumption and the conversion of a short
                  term bank credit to an Israeli bank by the
                  Guarantors into shares of the Company's Common stock at a conversion
                  price of $3.60 per share and warrants to purchase shares of Common
                  stock
                  at an exercise price of $4.10, expiring five years from the date
                  of grant.
                  This conversion will result in the issuance of 5,752,222 shares
                  of Common
                  stock and warrants to purchase 3,451,333 shares of Common
                  stock.
 
 The
                  Company may be required to record a non-recurring loss conversion
                  charge
                  upon conversion of the New Convertible Bridge Loan into equity.
                  A portion
                  of the deferred charges related to the converted amounts will be
                  charged
                  to the statement of operation at a proportional rate of the principal
                  amount converted.
 
 Additionally,
                  the Company has received and accepted binding subscriptions for
                  a private
                  placement of $5,123. Upon closing, the Company will issue 1,423,000
                  shares of Common stock at a price of $3.60 per share. The investors
                  will
                  also be issued warrants to purchase an aggregate of 853,800 shares of
                  Common stock at a price of $4.10, expiring five years from the
                  date of
                  grant. Total net proceeds to the Company in the private placement
                  will be
                  $4,867. The Company expects to close the private placement during
                  November
                  2007.
 
 The
                  net proceeds received in this private placement will be recorded
                  as
                  stockholders' equity.
  -14-
 **IXI
          MOBILE, INC.**
 **(Formerly:
          ISRAEL TECHNOLOGY ACQUISITION CORPORATION ("ITAC"))**
 **AND
          ITS SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **U.S.
            dollars in thousands, except share and per share data**
 **NOTE
                      7:-**
                    **SUBSEQUENT
                        EVENTS (cont.)**
 c.
              In
                  November, 2007, the Company entered into an equity line of credit
                  (“ELOC”) arrangement with an investor.  Pursuant to the terms of the
                  ELOC, the Company will have the right (but not an obligation) to
                  issue and
                  sell to the investor from time to time as specified in the related
                  Securities Purchase Agreement (the "SPA"), and the investor will
                  be
                  obligated to purchase from the Company, up to $5,000 in shares
                  of the
                  Company's common stock.
   -15-




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




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




**Overview**




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




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




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




-16-




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




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





During
      2005, we began to focus our marketing efforts to target European customers
      and
      entered into agreements with three major customers: Swisscom Mobile, the leading
      mobile op erator
      in
      Switzerland, e-kolay.net, a leading ISP in Turkey owned by Doğan Yayın Holding
      (DYH), Turkey’s leading media-entertainment conglomerate, and 1&1 Internet
      AG, a leading German Internet service provider. Swisscom and e-kolay.net
      commenced selling t he
      Ogo
      devices and we commenced providing the related hosted services prior to the
      end
      of 2005. 1&1 commenced sales of the Ogo devices and we commenced providing
      the related hosted services in April 2006. In June 2006, we also
      signed an agreement with our first customer in Latin America, Antel, the parent
      company of Ancel, a leading mobile operator in Uruguay. Ancel commenced selling
      the Ogo devices and we commenced providing the related hosted services in
      Uruguay in June 2006. In December 2006, Onetouch, one of the leading mobile
      operators in Ghana issued a purchase order (PO) for purchase of Ogo devices.
      In
      February 2007, Vimpelcom, a Russian mobile operator serving more than 47 million
      subscribers, announced that it intends to launch an Ogo offering aimed at the
      small to medium enterprise. Vimpelcom, through Betalink, a third party
      purchasing arm, issued a purchase order for purchase of Ogo devices, subject
      to
      our standard terms and conditions, which have been delivered. An agreement
      with
      Vimpelcom for the provision of services has not yet been signed. On March 27,
      2007, we and Cleveland Unlimited, Inc. d/b/a “Revol” signed a letter of intent
      which provides that Revol Wireless, based in Independence, Ohio will distribute
      Ogo2.0 products and services as part of Revol’s offering. Revol will be the
      first to launch Ogo 2.0c, IXI’s first CDMA 3G product, with EV-DO technology in
      the United States. On June 20, 2007, Mobilkom Austria AG, a Vodafone partner
      company, the largest cellular operator in Austria and one of the largest
      operators in Central Europe, announced the launch of OgoTM device in
      Austria.  In
      August
      2007, we announced the appointment of In Mobile Solutions Sdn Bhd (IMS) as
      our
      distributor to Malaysia.





-17-




In
      November 2007 IXI received a PO for Ogo2.0 by Vodafone, the largest operator
      in
      Germany, to be shipped in time for the holidays. Ogo will be sold via Debitel,
      the largest mobile retail chain in Germany.




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




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




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




We
      have
      generated recurring losses from operations and negative cash flows from
      operating activities since inception. As of September 30, 2007, we had a
      stockholders’ deficiency of approximately $15.5 million. We currently pay
      our suppliers in advance of the date shipment is made to us, while the standard
      payment terms which we usually extend to our customers require payment within
      30
      days of delivery of the devices. Consequently, we are often forced to finance
      outstanding sales orders for several months. We plan to continue to finance
      our
      operations through raising additional capital, and in the longer term, by
      generating sufficient revenues to finance our operations. There can be no
      assurances, however, that we will be successful in obtaining an adequate level
      of financing needed for current operations and long-term development. These
      conditions raise substantial
      doubt about our ability to continue as a going concern if we are unsuccessful
      in
      obtaining such adequate level of financing.




In
      order
      to satisfy IXI’s working capital requirements prior to the consummation of the
      merger with us, on June 22, 2006, IXI entered into a bridge loan agreement
      with Southpoint Master Fund LP (“Southpoint”) and IXI Mobile (R&D), Ltd.
      (“IXI R&D”), IXI’s wholly owned subsidiary. Pursuant to the terms of the
      bridge loan, Southpoint loaned to IXI R&D $20 million (from which IXI
      paid $1,700,000 in cash compensation to certain private placement agents and
      $700,000 in cash compensation, upon consummation of the merger, to certain
      financial institutions providing advisory services to IXI), with IXI acting
      as
      guarantor. The bridge loan bears interest of 10% per annum. The Bridge Loan
      should be repaid on June 6, 2008. On October 2007, IXI has reached an agreement
      with Southpoint for the amendment of the loan agreement and the conversion
      of
      approximately $15.8 million principal amount of debt into 4,400,000 shares
      of
      the Company's common stock at a conversion price of US$3.60 per share and
      warrants to purchase 2,640,000 shares of common stock at an exercise price
      of
      US$4.10, expiring five years from the date of grant.




-18-


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




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




On
      October 2007, IXI has received and accepted binding subscriptions for a private
      placement of $5,123,000. Upon closing, IXI will issue 1,423,000 shares of
      common stock at a price of US$3.60 per share. The investors will also be issued
      warrants to purchase an aggregate of 853,800 shares of common stock at a
      price of US$4.10, expiring five years from the date of grant. Total net proceeds
      to IXI in the private placement will be $4,867,000. IXI expects to close the
      private placement during November 2007.




**Sources
      of Revenues**




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




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




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




-19-




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




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




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




In
      February 2007, Vimpelcom, a Russian mobile operator serving more than 47 million
      subscribers, announced that it intends to launch an Ogo offering aimed at the
      small to medium enterprise. Vimpelcom, through Betalink, a third party
      purchasing arm, issued a purchase order for purchase of Ogo devices, subject
      to
      our standard terms and conditions, which have been delivered. An agreement
      with
      Vimpelcom for the provision of services has not yet been signed.




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




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




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




In
      November 2007 IXI received a PO for Ogo2.0 by Vodafone, the largest operator
      in
      Germany, to be shipped in time for the holidays. Ogo will be sold via Debitel,
      the largest mobile retail chain in Germany.




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




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




-20-




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




**Q3/05**
            
            **Q4/05**
            
            **Q1/06**
            
            **Q2/06**
            
            **Q3/06**
            
            **Q4/06**
            
            **Q1/07**
            
            **Q2/07**
            
            **Q3/07**UndauditedRevenue
                (in $K)
            
            
            Ogo
            
            
            150
            
            
            590
            
            
            1,642
            
            
            3,437
            
            
            3,309
            
            
            3,355
            
            
            2,632
            
            
            2,511
            
            
            4,037Service
            
            
            -
            
            
            15
            
            
            89
            
            
            175
            
            
            217
            
            
            393
            
            
            465
            
            
            545
            
            
            688Others
            
            
            68
            
            
            138
            
            
            8
            
            
            117
            
            
            50
            
            
            138
            
            
            27
            
            
            114
            
            
            40**Total**
            
            
            **218**
            
            
            **743**
            
            
            **1,739**
            
            
            **3,729**
            
            
            **3,575**
            
            
            **3,886**
            
            
            **3,123**
            
            
            **3,170**
            
            
            **4,764**Deferred
                Revenue (Ogo only) (in $K)*
            
            
            
            
            $
            673
            
            $
            4,175
            
            $
            3,510
            
            $
            6,843
            
            $
            10,954
            
            $
            12,415
            
            $
            11,686
            
            $
            11,691
            
            $
            11,237Ogo
                ASP (in $)
            
            
            
            
            $
            150
            
            $
            168
            
            $
            164
            
            $
            182
            
            $
            166
            
            $
            168
            
            $
            169
            
            $
            170
            
            $
            185Monthly
                Service ASP (in $)
            
            
            
            
            
            -
            
            $
            2.7
            
            $
            2.8
            
            $
            2.2
            
            $
            1.6
            
            $
            2.0
            
            $
            1.9
            
            $
            1.8
            
            $
            2.1Units
                shipped per Q **
            
            
            
            
            
            4,000
            
            
            24,000
            
            
            6,000
            
            
            40,000
            
            
            45,000
            
            
            28,000
            
            
            11,000
            
            
            14,000
            
            
            18,000Units
                shipped (cummulative) **
            
            
            
            
            
            5,000
            
            
            30,000
            
            
            35,000
            
            
            75,000
            
            
            120,000
            
            
            148,000
            
            
            159,000
            
            
            172,000
            
            
            190,000Subscribers
                ** ***
            
            
            
            
            
            -
            
            
            4,500
            
            
            14,500
            
            
            33,000
            
            
            53,000
            
            
            73,000
            
            
            89,000
            
            
            104,000
            
            
            120,000Customers
                - launched
            
            
            
            
            
            1
            
            
            2
            
            
            3
            
            
            4
            
            
            4
            
            
            5
            
            
            5
            
            
            6
            
            
            6




*
                Deferred Revenues of devices as of the last date of the applicable
                quarter;**
                Numbers are rounded***
                The number of subscribers will be reduced from time to time due to
                deactivation of some of our customers’ subscribers and replacement of
                devices. The number of subscribers as of Q307 includes a write down
                of
                approximately 3,400 subscribers, primarily due to billing systems
                adjustments between us and our
                customers.




-21-




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




**Three
                Months Ended**
              **September
                30,**
            
            **Year
                Ended December 31,****2007**
            
            **2006**
            
            **2006**
            
            **2005**
            
            **2004****unaudited**Ogo:AT&T
                Wireless [terminated in 2005]
            
            
            —
            
            
            —
            
            
            —
            
            
            85
            %
            
            60
            %Swisscom
                Mobile
            
            
            45
            %
            
            32
            %
            
            45
            %
            
            8
            %
            
            —e-Kolay
            
            
            12
            %
            
            5
            %
            
            7
            %
            
            2
            %
            
            —1&1
            
            
            35
            %
            
            60
            %
            
            46
            %
            
            —
            
            
            —Others
            
            
            8
            %
            
            3
            %
            
            2
            %
            
            5
            %
            
            40
            %


The
        following presents revenues by geographic breakdown:


**Three
                Months Ended**
              **September
                30,**
            
            
            
            **Year
                Ended**
              **December
                31,****2007**
            
            **2006**
            
            **2006**
            
            **2005**
            
            **2004****unaudited**United
                States
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            6,794
            
            $
            572Europe
                Middle East and Africa
            
            
            4,647
            
            
            3,482
            
            
            12,645
            
            
            825
            
            
            —South
                America
            
            
            117
            
            
            93
            
            
            184
            
            
            —
            
            
            —Asia
                Pacific
            
            
            —
            
            
            —
            
            
            100
            
            
            348
            
            
            300Total
            
            
            4,764
            
            
            3,575
            
            $
            12,929
            
            $
            7,967
            
            $
            872




The
      following presents revenues by geographic breakdown for the years ended
      December 31, 2006, 2005 and 2004:




**Year
                Ended****December
                31,****2006**
            
            **2005**
            
            **2004**United
                States
            
            $
            —
            
            $
            6,794
            
            $
            572Europe
                and Middle East and Africa
            
            
            12,645
            
            
            825
            
            
            —South
                America
            
            
            184
            
            
            —
            
            
            —Asia
                Pacific
            
            
            100
            
            
            348
            
            
            300Total
            
            $
            12,929
            
            $
            7,967
            
            $
            872




**Operating
      Expenses**




***Cost
      of Revenues***




Cost
      of
      revenues relating to the Ogo devices consists primarily of the cost of (i)
      the
      device components that we procure directly from third party suppliers, (ii)
      the
      cost to us of having the device manufactured by Chi Mei, (iii) royalties for
      third party licenses for software included in the Ogo devices, shipping and
      packaging costs, salaries and related personnel expenses for employees engaged
      in the delivery and support of our products, (iv) allocation of fixed overhead
      and facility costs; (v) free devices provided to customers and (vi) an accrual
      for the warranty costs of our products as well as the devices allocated for
      use
      under IXI’s warranty commitments.




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




-22-




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




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




***Research
      and Development Expenses***




Research
      and development expenses consist primarily of salaries and related personnel
      expenses, subcontractor costs related to the design, development and testing
      of
      new products and technologies, product enhancements and an allocation of fixed
      overhead and facilities costs related to research and development activity.
      We
      conduct research and development primarily in our facilities in Israel and
      Romania. All research and development costs are expensed as
      incurred. As of September 30, 2007, our research and development team was
      comprised of 92 employees and consultants in Israel and Romania. We expect
      our
      research and development expenses to increase in the future as we continue
      to
      expand our product offering, features and applications. We received
      royalty-bearing grants from the OCS for funding the development of PMG software
      and the OS. The grants were deducted from research and development expenses.
      Research and development grants are recognized when we satisfy all the
      conditions under the law for being entitled to such grants. We do not have
      any
      current plans to apply for additional research and development grants from
      the
      Government of Israel.




***Selling
      and Marketing Expenses***




Selling
      and marketing expenses consist primarily of salaries, commissions, participation
      in our customers’ marketing efforts and related personnel expenses for those
      engaged in the sale and marketing of our products, travel, as well as related
      trade shows and promotional and public relations expenses and an allocation
      of
      fixed overhead and facilities costs related to marketing and sales activity.
      We
      maintain a direct sales force, as well as utilizing independent distributors
      and
      sales representatives, under various agreements and methods of compensation
      (such as salaries, consultancy fees, bonuses based on sales and commissions
      set
      as a percentage of selling price). As of September 30, 2007, our sales and
      marketing team was comprised of 21 professionals worldwide and is expected
      to
      grow in the future as we expand our sales and marketing activities worldwide.
      We
      expect our selling and marketing expenses to increase in the future due to
      an
      increase in direct expenses related to sales and marketing, including salaries
      to its additional direct sales force, as well as increased bonus payments and
      sales commissions on its revenues. In addition, as our customer base grows,
      we
      will be required to participate in additional marketing efforts.




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




-23-




***General
      and Administrative Expenses***




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




***Financial
      Expenses, Net***




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




**Non-GAAP
      Financial Measures**




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




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




**IXI
        Mobile, Inc.**
 **Reconciliation
          of Non-GAAP Financial Measure**


**Three
                months ended**
            
            **Three
                months ended****September
                30 2007**
            
            **September
                30 2006****($K)**
            
            **($K)****Unaudited****TOTAL
                REVENUES**
            
            
            **4,764**
            
            
            **3,575****GAAP
                Cost of Revenues:**
            
            
            4,383
            
            
            4,408Stock
                based option expense in GAAP Cost of Revenues
            
            
            22
            
            
            1**Non
                GAAP Cost of Revenues (excluding the above)**
            
            
            4,361
            
            
            4,407**Non
                GAAP gross margin**
            
            
            8.46
            %
            
            (23.27
            %)




-24-




**Non
      GAAP Operating Loss reconciliation for the three months ended September 30,
      2007** :




**IXI
        Mobile, Inc.**
 **Reconciliation
          of Non-GAAP Financial Measure**


**Three
                months ended**
            
            **Three
                months ended****September
                30 2007**
            
            **September
                30 2006****($K)**
            
            **($K)****Unaudited****GAAP
                Operating loss**
            
            
            (8,058
            )
            
            (4,201
            )Stock
                based option and share expense in GAAP Operation expenses, including
                merger related expenses
            
            
            473
            
            
            95**Non
                GAAP Operating loss (excluding the above)**
            
            
            (7,585
            )
            
            (4,106
            )




**Non
      GAAP Net Loss reconciliation for the three months ended September 30,
      2007** :




**IXI
        Mobile, Inc.**


**Reconciliation
        of Non-GAAP Financial Measure**




**Three
                months ended**
            
            **Three
                months ended****September
                30 2007**
            
            **September
                30 2006****($K)**
            
            **($K)****Unaudited****GAAP
                Net loss**
            
            
            (8,426
            )
            
            (5,260
            )Stock
                based option and share expense in GAAP Operation expenses, including
                merger related expenses
            
            
            473
            
            
            95Financial
                expenses (income) relating to merger
            
            
            656
            
            
            -**Non
                GAAP Net loss (excluding the above)**
            
            
            (7,297
            )
            
            (5,165
            )




-25-




**Non
      GAAP Cost of Revenues reconciliation for the nine months ended September 30,
      2007** :




**IXI
        Mobile, Inc.**


**Reconciliation
        of Non-GAAP Financial Measure**




**Nine
                months ended**
            
            **Nine
                months ended****September
                30 2007**
            
            **September
                30 2006****($K)**
            
            **($K)****Unaudited****TOTAL
                REVENUES**
            
            
            **11,058**
            
            
            **9,043****GAAP
                Cost of Revenues:**
            
            
            11,556
            
            
            10,764**GAAP
                Gross margin**
            
            
            (4.50
            %)
            
            (19.03
            %)Stock
                based option expense in GAAP Cost of Revenues
            
            
            169
            
            
            4Inventory
                write-down (including vendor advance payments)
            
            
            958
            
            
            217**Non
                GAAP Cost of Revenues (excluding stock-based compensation expense
                and
                Inventory write-downs)**
            
            
            10,429
            
            
            10,543**Non
                GAAP gross margin**
            
            
            5.69
            %
            
            (16.58
            %)




-26-




**Non
      GAAP Operating Loss reconciliation for the nine months ended September 30,
      2007** :




**IXI
        Mobile, Inc.**


**Reconciliation
        of Non-GAAP Financial Measure**


**Nine
                months ended**
            
            **Nine
                months ended****September
                30 2007**
            
            **September
                30 2006****($K)**
            
            **($K)****Unaudited****GAAP
                Operating loss**
            
            
            (24,023
            )
            
            (14,757
            )Stock
                based option and share expense in GAAP Operation expenses, including
                merger related expenses
            
            
            3,468
            
            
            294Inventory
                write-down (including vendor advance payments)
            
            
            958
            
            
            217**Non
                GAAP Operating loss (excluding the above)**
            
            
            (19,597
            )
            
            (14,246
            )




**Non
      GAAP Net Loss reconciliation for the nine months ended September 30,
      2007** :




**IXI
        Mobile, Inc.**


**Reconciliation
        of Non-GAAP Financial Measure**




**Nine
                months ended**
            
            **Nine
                months ended****September
                30 2007**
            
            **September
                30 2006****($K)**
            
            **($K)****Unaudited****GAAP
                Net loss**
            
            
            (36,601
            )
            
            (16,511
            )Stock
                based option and share expense in GAAP Operation expenses, including
                merger related expenses
            
            
            3,468
            
            
            294Inventory
                write-down (including vendor advance payments)
            
            
            958
            
            
            217Financial
                expenses relating to merger
            
            
            10,914
            
            
            0**Non
                GAAP Net loss (excluding the above)**
            
            
            (21,261
            )
            
            (16,000
            )




-27-




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




**1)
      Stock-based compensation expenses.** We have
      excluded stock-based compensation expenses, which consist of expenses for
      stock-based compensation that we began recording under SFAS 123-R in the first
      quarter of fiscal 2006. We excluded these expenses primarily because they are
      non-cash expenses that we do not consider part of ongoing operating results
      when
      assessing the performance of our business.




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




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




-28-




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




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




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




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




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




**Critical
      Accounting Policies**




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




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




-29-




***Revenue
      Recognition***




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




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




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




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




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




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




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




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




**Warranty
      costs**




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




-30-




**Inventories**




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




**Accounting
      for stock-based compensation**




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




We
      apply
      SFAS No. 123(R) and EITF No. 96-18, “Accounting for Equity Instruments that are
      Issued to Other than Employees for Acquiring, or in Conjunction with Selling,
      Goods or Services” (“EITF No. 96-18”), with respect to options granted to
      non-employees. SFAS No. 123(R) requires the use of an option valuation model
      to
      measure the fair value of the warrants at the grant date. This method requires
      that we make an estimate regarding the fair market value of the underlying
      shares. Compensation expense in respect of options granted to non-employees
      amounted to $21 for the three months ended September 30, 2007.




-31-




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




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




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




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




Stock-based
      compensation expense recognized under SFAS 123(R) for employees and consultants
      for the three months ended September 30, 2007 and for the year ended December
      31, 2006 amounted to approximately $473,000 and $430,000, respectively,
      including continuation of expense recognized pursuant to APB 25.




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




**Commitments
      and Contingent Liabilities**




***Litigation
      claims***




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




***OCS***




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




-32-




**Results
      of Operations**




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




***Revenues***




Our
      revenues for the three months ended September 30, 2007 were approximately $4.8
      million, compared to approximately $3.6 million for the three months ended
      September 30, 2006. The revenues for the three months ended September 30, 2007
      included approximately $4.0 million from sale of Ogo devices, approximately
      $690,000 from hosted services and approximately $40,000 from non-recurring
      engineering contracts. The revenues for the three months ended September 30,
      2006 included $3.3 million from sale of Ogo devices, approximately $220,000
      from
      hosted services and approximately $50,000 from non-recurring engineering
      contracts.




***Cost
      of revenues***




Our
      total
      cost of revenues for the three months ended September 30, 2007 was approximately
      $4.4 million, compared to approximately $4.4 million for the three months ended
      September 30, 2006.




·
            In
                the three months ended September 30, 2007, our costs of revenue decreased
                compared to our revenuesprimarily due to our agreement with a major IM supplier, that was
                amended
                in 2007 and was valid as of January 1, 2007, which requires us to
                pay
                certain minimum fees per month materially lower than in 2006. The
                main
                terms of the Amendment are as follows: (i) the minimum amount to
                be paid
                has been reduced to $2.8 million through September 2009 beginning
                January
                2007 as compared to $3.6 million in calendar year 2006 and $7.8 million
                in
                calendar year 2007; and (ii) the term of the agreement has been extended
                until September 30, 2009.




On
      the
      other hand, our costs of revenue continue to be high compared to our revenues
      due to a number of key factors:




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




·
            In
                the three months ended September 30, 2007, we recorded as cost of
                revenue
                all the devices allocated for use under IXI’s warranty commitments, which
                resulted in a cost of revenues of $198,000;
                and




·
            In
                the three months ended September 30, 2007, we recorded a cost of
                revenue
                expense in the amount of $79,000 as a result of providing free devices
                to
                customers.




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




Our
      net
      research and development expenses increased by 215% to approximately $4.7
      million for the three months ended September 30, 2007 from approximately $1.5
      million for the three months ended September 30, 2006. The increase was
      primarily attributable to an increase in the headcount and fixed overhead and
      facility costs in the amount of approximately $620,000, increase in
      subcontractors and other third parties’ expenses in the amount of $600,000 and
      additional expenses of approximately $1.9 million for development of new
      applications and new models of the Ogo device including the development of
      the
      Ogo 2.0, a new generation of Ogo devices for individual and professional users
      based on a new, more advanced, technology platform, the development of the
      Ogo
      Code division multiple access (“CDMA”), a new generation of Ogo devices
      which is based on EV-DO technology and the development of additional Ogo
      products. .




-33-




***Selling
      and Marketing expenses***




Our
      selling and marketing expenses increased by 75% to approximately $2.1 million
      for the three months ended September 30, 2007 from approximately $1.2 million
      for the three months ended September 30, 2006. The increase was primarily
      attributable to an increase in the headcount and fixed overhead costs and
      facility costs in the amount of approximately $370,000 and an increase in
      expenses in the amount of approximately $540,000,
      primarily attributable to increase in marketing contribution expenses of
      approximately $250,000, increase in cost of devices provided as samples to
      customers of approximately $170,000 and increase in subcontractors expenses
      of
      approximately $120,000.




***General
      and administrative expenses***




Our
      general and administrative expenses increased by 146% to approximately $1.6
      million for the three months ended September 30, 2007 from approximately
      $670,000 for the three months ended September 30, 2006. The increase was
      primarily attributable to an increase in the salaries, headcount and fixed
      overhead of approximately $550,000. In addition, we recorded a non cash expense
      in the amount of approximately $310,000 on account of the bonus plans of our
      co-Chairman and Chief Executive Office, as detailed below. Also, an increase
      of
      expenses in the amount of approximately $420,000 which resulted mainly from
      an
      increase in legal and audit costs in the amount of approximately $230,000
      and expenses related to subcontractors and directors of approximately $160,000.





The
      $310,000 expenses related to bonus plans of Gideon Barak, our co-Chairman and
      Amit Haller that were recorded in the three months ended September 30, 2007
      as a
      result of the consummation of the Merger, have the following
      explanation:





1)
      We
      will be required to record non recurring general and administration expenses
      in
      the aggregate amount of approximately $2 million in connection with the issuance
      to Gideon Barak, co-Chairman, of options to purchase 450,000 shares of our
      common stock, at an exercise price of $5.00, which vest upon reaching various
      price per share targets; these expenses will be recorded over a period of
      approximately 42 months from the consummation of the Merger; a total amount
      of
      approximately $140,000 was recorded as an expense as of September 30,
      2007.





2)
      We
      will be required to record non recurring, general and administration expenses
      in
      the aggregate amount of approximately $1.9 million in connection with the
      issuance to Amit Haller, our Chief Executive Officer, of options to purchase
      450,000 shares of our common stock, at an exercise price of $6.06, which vest
      upon reaching various price per share targets; these expenses will be recorded
      over a period of approximately 42 months from the consummation of the Merger;
      a
      total amount of approximately $130,000 was recorded as expense as of September
      30, 2007.





3)
      We may
      be required to record non recurring, general and administration 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 Gideon Barak, co-Chairman and Amit
      Haller, Chief Executive Officer, upon reaching various price per share targets.
      These expenses will be recorded over a period of approximately 42 months from
      the consummation of the Merger; a total amount of approximately $40,000 was
      recorded as expense as of September 30, 2007.




***Financial
      expenses, net***




Our
      financial expenses, net for the three months ended September 30, 2007 decreased
      by approximately 66% and amounted to approximately $370,000 from approximately
      $1.1 million for the three months ended September 30, 2006. This change was
      primarily attributable to finance income that amounted to approximately $880,000
      resulting from amortization of premium using the effective interest method
      as
      the amended bridge loan was recorded in the balance sheet based on its fair
      value which amounted to approximately $26 million at the consummation of the
      Merger, following the valuation of the Bridge Loan accounted for under EITF
      06-6, increase in interest income of approximately $160,000 and exchange rate
      differences income of approximately $130,000, set off by amortization of
      deferred debt costs in connection with issuance of shares at the Merger of
      approximately $660 ,000.




-34-




***Net
      loss***




We
      had a
      net loss from continuing operations of approximately $8.4 million , compared
      with net loss of approximately $5.3 million for the three months ended September
      30, 2007 and 2006, respectively, due to the reasons mentioned
      above.




**Nine
      months ended September 30, 2007 (unaudited) compared to nine months ended
      September 30, 2006 (unaudited)**




***Revenues***




Our
      revenues for the nine months ended September 30, 2007 were approximately $11.1
      million, compared to approximately $9.0 million for the nine months ended
      September 30, 2006. The revenues for the nine months ended September 30, 2007
      included approximately $9.2 million from sale of Ogo devices, approximately
      $1.7
      million from hosted services and approximately $180,000 from non-recurring
      engineering contracts. The revenues for the nine months ended September 30,
      2006
      included $8.4 million from sale of Ogo devices, approximately $480,000 from
      hosted services and approximately $80,000 from non-recurring engineering
      contracts.




***Cost
      of revenues***




Our
      total
      cost of revenues for the nine months ended September 30, 2007 was approximately
      $11.6 million, compared to approximately $10.8 million for the nine months
      ended
      September 30, 2006.




In
      the
      nine months ended September 30, 2007, our costs of revenue decreased compare
      to
      our revenues due to our agreement with a major IM supplier, that was amended
      in
      2007 and was valid as of January 1, 2007, which requires us to pay certain
      minimum fees per month materially lower than in 2006. The main terms of the
      Amendment are as follows: (i) the minimum amount to be paid has been reduced
      to
      $2.8 million through September 2009 beginning January 2007 as compared to $3.6
      million in calendar year 2006 and $7.8 million in calendar year 2007; and (ii)
      the term of the agreement has been extended until September 30,
      2009.




On
      the
      other hand, our costs of revenue continue to be high compared to our revenues
      due to a number of key factors:




·
            During
                the second quarter of 2007, we believed that due to the commercial
                launch
                of Ogo2 during the quarter we will ship less Ogo1.0 than we have
                previously anticipated, therefore we will not realize inventory in
                the
                amount of $156,000 due to a write off of slow moving CT-10 devices;




·
            During
                the second quarter of 2007, we have written off vendor advance payments
                in
                the amount of $680,000. Vendor advance payments are installments
                paid to
                vendors prior to the date the Ogo units are shipped to us or designated
                customers and are required to finance the production of the Ogo devices.
                The advance payments are mainly to enable our vendors to purchase
                raw
                materials with long supply period, are based on the progress of the
                production and are deducted from the total shipment payment which
                is
                accrued upon the delivery of the Ogo
                units;




-35-




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




·
            In
                the three months ended September 30, 2007, we recorded as cost of
                revenue
                all the devices allocated for use under our warranty commitments,
                which
                resulted in a cost of revenues of $198,000; and




·
            In
                the three months ended September 30, 2007, we recorded a cost of
                revenue
                expense in the amount of $79,000 as a result of providing free devices
                to
                customers.




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




Our
      net
      research and development expenses increased by approximately 176% to
      approximately $11.8 million for the nine months ended September 30, 2007 from
      approximately $4.3 million for the nine months ended September 30, 2006. The
      increase was primarily attributable to an increase in the headcount and fixed
      overhead and facility costs in the amount of approximately $1.9 million,
      increase in subcontractors and other third parties’ expenses in the amount of
      approximately $1.4 million, and additional expenses of approximately $4.2
      million for development of new applications and new models of the Ogo device
      including the development of the Ogo 2.0, a new generation of Ogo devices for
      individual and professional users based on a new, more advanced, technology
      platform, the development of the Ogo Code division multiple
      access (“CDMA”), a new generation of Ogo devices which is based on EV-DO
      technology and the development of additional Ogo products




***Selling
      and Marketing expenses***




Our
      selling and marketing expenses decreased by 16% to approximately $5.5 million
      for the nine months ended September 30, 2007 from approximately $6.5 million
      for
      the nine months ended September 30, 2006. The decrease was primarily
      attributable to a decrease of approximately $3.4 million recorded as
      amortization of the above mentioned Keep Well Agreement during the nine months
      ended September 30, 2006, offset by an increase in the headcount and fixed
      overhead costs and facility costs in the amount of approximately $980,000,
      and
      an increase in expenses in the amount of $1.3 million, primarily attributable
      an
      increase in trade shows in the amount of approximately $390,000, an increase
      in
      travel expense in the amount of approximately $200,000, an increase in marketing
      contribution expenses in the amount of approximately $170,000, an increase
      in
      cost of devices provided as samples to customers in the amount of approximately
      $150,000 and an increase in sales commissions in the amount of approximately
      $130,000.




***General
      and administrative expenses***





Our
      general and administrative expenses increased by approximately 180% to
      approximately $6.2 million for the nine months ended September 30, 2007 from
      approximately $2.2 million for the nine months ended September 30, 2006. The
      increase was primarily attributable to an increase of approximately $1.3 million
      on account of the issuance of 216,000 shares of our common stock to Gideon
      Barak, our co-Chairman, upon the consummation of the merger an increase of
      approximately $960,000 related to stock base compensation expenses following
      new
      option grants and an increase in the salaries, headcount and fixed overhead
      of
      approximately $790,000 that comprises primarily of approximately $220,000 one
      time bonus that was granted to the CEO following the consummation of the Merger
      and increase in headcount. In addition, we recorded a non cash expense in the
      amount of approximately $400,000 on account of the bonus plans of our
      co-Chairman and Chief Executive Office as detailed below. Also, increase in
      expenses of approximately $630,000 that were primarily attributable to an
      increase in audit and legal expenses of approximately $360,000 and an increase
      in provision for doubtful debt in the amount of approximately $110,000.




-36-




The
      $400,000 expenses related to bonus plans of Gideon Barak, our co-Chairman and
      Amit Haller that were recorded in the three months ended June 30, 2007 as a
      result of the consummation of the Merger, have the following
      explanation:





1)
      We
      will be required to record non recurring general and administration expenses
      in
      the aggregate amount of approximately $2 million in connection with the issuance
      to Gideon Barak, co-Chairman, of options to purchase 450,000 shares of our
      common stock, at an exercise price of $5.00, which vest upon reaching various
      price per share targets; these expenses will be recorded over a period of
      approximately 42 months from the consummation of the Merger; a total amount
      of
      approximately $179,000 was recorded as an expense during the nine months ended
      September 30, 2007;





2)
      We
      will be required to record non recurring, general and administration expenses
      in
      the aggregate amount of approximately $1.9 million in connection with the
      issuance to Amit Haller, our Chief Executive Officer, of options to purchase
      450,000 shares of our common stock, at an exercise price of $6.06, which vest
      upon reaching various price per share targets; these expenses will be recorded
      over a period of approximately 42 months from the consummation of the Merger;
      a
      total amount of approximately $166,000 was recorded as expense during the nine
      months ended September 30, 2007; and





3)
      We may
      be required to record non recurring, general and administration 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 Gideon Barak, co-Chairman and Amit
      Haller, Chief Executive Officer, upon reaching various price per share targets.
      These expenses will be recorded over a period of approximately 42 months from
      the consummation of the Merger; a total amount of approximately $60,000 was
      recorded as expense during the nine months ended September 30,
      2007.




***Financial
      expenses, net***




Our
      financial expenses, net for the nine months ended September 30, 2007 increased
      by 612% and amounted to approximately $12.6 million from approximately $1.8
      for
      the nine months ended September 30, 2006. This change was primarily attributable
      to interest on bridge loans and credit lines, which increased by approximately
      $2.5 million, and additional financial expenses recorded in connection with
      the
      consummation of the merger, as follows:




1)
      We
      accounted for the modification to the terms of the bridge loan under the
      provisions of EITF 06-6, "Debtor's Accounting For A Modification (or Exchange)
      of Convertible Debt Instruments", as an extinguishment of the bridge loan,
      and
      the issuance of a new loan under the modified terms. As such, we recorded an
      immediate loss of approximately $8.8 million for the extinguishment of the
      original bridge loan as additional financial expenses. This included
      approximately $2.9 million for the extinguishment of the bridge loan (such
      amount includes costs for issuance of 600,000 shares of common stock to
      Southpoint) and approximately $6.0 million detailed below. The amended bridge
      loan was recorded in the balance sheet based on its fair value which amounted
      to
      approximately $26 million. As the fair value of the amended bridge loan is
      greater than its contractual repayment schedule, such premium in the amount
      of
      approximately $5.9 million will be amortized over the contractual term of the
      loan (12 months) using the effective interest method as financial income. As
      of
      September 30, 2007, the Company recorded finance income of approximately $3.4
      million as an effective interest income derived from the valuation of the
      Convertible Bridge Loan.




-37-




2)
      In
      addition, we recorded approximately $2.4 million on account of the grant of
      400,000 shares of common stock to Southpoint in accordance with the terms of
      the
      amendment to the bridge loan, and non recurring, financial expenses of
      approximately $1.2 million due to the full amortization of various deferred
      debt
      costs related to the bridge loan 3) We recorded non recurring, financial
      expenses of approximately $125,000 in connection with the issuance to certain
      financial institutions which provided advisory services to us of warrants to
      purchase 100,000 shares of our common stock at an exercise price of $ 5.00,
      expiring in 2009.




3)
      We
      recorded the following deferred debt costs on our Balance Sheet as of June
      30,
      2007, which will be amortized as financial expenses over a period of 12 months
      from the consummation of the merger:




a)
      Approximately $180,000 on account of the issuance of 30,000 shares of our common
      stock to certain private placement agents who participated in identifying
      potential bridge lenders; an amount of approximately$58,000 was amortized as
      of
      September 30, 2007; and




b)
      Approximately $2.4 million on account of the issuance of 400,000 shares of
      our
      common stock to the Guarantors; an amount of approximately $770,000 was
      amortized as of September 30, 2007.




***Net
      loss***




We
      had a
      net loss from continuing operations of approximately $36.6 million, compared
      with net loss of approximately $16 million for the nine months ended September
      30, 2007 and 2006, respectively, due to the reasons mentioned
      above.




**Liquidity
      and Capital Resources**




As
      of
      September 30, 2007, we had cash and cash equivalents aggregating approximately
      $18.6 million.




***IXI
      Funding***




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




**Working
      Capital Needs**




Since
      our
      founding, we have generated recurring losses from operations and negative cash
      flows from operating activities. As of September 30, 2007, we had a
      stockholders’ deficiency of approximately $15.5 million. We plan to continue to
      finance our operations through raising additional capital, and in the longer
      term, to generate sufficient revenues to finance our operations. There can
      be no
      assurances, however, that we will be successful in obtaining an adequate level
      of financing needed for our operations and long-term development  or,
      that
      we will ever reach profitability and/or generate sufficient revenues to finance
      our operations. Therefore, our auditor expressed substantial doubt regarding
      our
      ability to continue as a going concern due to our working capital deficiency
      as
      of December 31, 2006 and continuing losses. We will need to raise
      additional funds to expand our business and manage our growth. The amount and
      timing of these capital requirements will depend on many factors. At this time,
      the amount of additional capital that we will require in the future is not
      quantifiable and timing thereof is not determinable. If we cannot maintain
      or
      obtain adequate capital to manage our business strategy and expected growth
      targets, our business, results of operations and financial condition may be
      adversely affected.




-38-




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




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




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




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





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




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




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




-39-




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




**Bridge
      loans**




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




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




In
      addition, Landa and the Gemini Funds (the “Guarantors”), both former
      stockholders of IXI who previously guaranteed a credit line and a loan received
      by IXI R&D from Bank Leumi Le’Israel Ltd. (the “Bank”) in the total amount
      of $8 million (the “Guaranty”), have undertaken in a Letter Agreement dated
      June 19, 2006 (the “Letter Agreement”) to extend their Guaranty and to
      maintain the existing bank credit line and loan at $8 million until the
      Repayment Date or Maturity Date (as the case may be). Pursuant to the Letter
      Agreement, each of the Guarantors is entitled to assume all or any part of
      any
      amounts owed by IXI R&D to the Bank under the line of credit or under the
      loan and in any such event any such assuming Guarantor shall be entitled to
      the
      same rights and benefits conferred to the bridge lender by the Bridge Loan
      Agreement. In consideration of the extension of the Guaranty, the Guarantors
      are
      entitled to a fee equal to the difference between the interest paid to Bank
      Leumi Le’Israel Ltd. and the
      amount of interest that IXI would have paid to Bank Leumi Le’Israel Ltd. if
      IXI’s credit facility bore interest at a rate equal to the rate set forth in the
      Bridge Loan Agreement. As of September 30, 2007, we owed an aggregate of $14,266
      to Landa and the Gemini Funds in consideration for their guarantee of this
      credit facility.




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




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




-40-




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




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




In
      October 2007, we have reached an agreement with the Guarantors and with
      Southpoint for the amendment of the bridge loan and for the conversion of
      approximately $ 20,700,000 principal amount of the bridge loan and the
      amount assumed and converted by the Guarantors from an Israeli bank with respect
      to the short-term bank credit into shares of our Common stock at a conversion
      price of $3.60 per share and warrants to purchase shares of Common stock at
      an
      exercise price of $ 4.10, expiring five years from the date of grant. This
      conversion will result in the issuance of 5, 752,222
      shares of Common stock and warrants to purchase 3, 451,333
      shares of Common stock.




We
      may be
      required to record a non-recurring loss conversion charge upon conversion of
      the
      bridge loan into equity. A portion of the deferred charges related to the
      converted amounts will be charged to the statement of operation at a
      proportional rate of the principal amount converted.




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






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




-41-




**Capital
      investments**




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




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




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




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




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




Pursuant
      to and at the closing of the merger agreement, all of the preferred shares
      were
      converted to shares of common stock.




We
      have
      received and accepted binding subscriptions for a private placement of
      $5,123,000. Upon closing, we will issue 1,423,000 shares of common stock at
      a
      price of $ 3.60 per share. The investors will also be issued warrants to
      purchase an aggregate of 853,800 shares of common stock at a price of
      $ 4.10, expiring five years from the date of grant. Total net proceeds to
      us in the private placement will be $ 4,867,000. We expect to close the
      private placement during November 2007.





In
      November 2007, we entered into an equity line of credit arrangement
      (“ELOC”) with Tailor-Made Capital Ltd. (“TMC”), an Israeli company affiliated
      with Meitav Investment House, which is a privately owned asset management and
      investment banking firm based in Israel. Pursuant to the terms of the
      ELOC, we have the right to sell and TMC is obligated to purchase
      from us, from time to time, up to and aggregate of $5,000,000 of shares of
      our common stock at a discount to market of between 5% and 10%, depending on
      the
      market price of the common stock at the time of the sale. The sale of shares
      is
      subject to our having an effective registration statement for their resale
      by TMC. The ELOC is in effect until the earlier of 24 months following the
      effectiveness of the registration statement or November 11, 2010, unless earlier
      terminated by us or TMC by its terms. In connection with the ELOC, we
      issued to TMC 75,000 shares of common stock and a five year warrant for up
      to
      312,500 shares of common stock which vests proportionally to the value of the
      shares purchased by TMC under the equity line of credit agreed to register
      such
      shares and warrant shares.




**Short
      term loans**




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




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




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




-42-




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




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




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




**Long
      term loans**




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




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




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




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




-43-






**Cash
      Flow Analysis**




Our
      continuing operating activities used cash in the amount of approximately
      $24.6 million for the nine months ended September 30, 2007, compared with
      cash used in operating activities of approximately $12.0 million for the nine
      months ended September 30, 2006. This increase use was mainly due to an increase
      in continuing losses of approximately $20.1 million and decrease in deferred
      revenues of approximately $8.4 million, offset mainly by an increase in Merger
      expenses and loan valuation of approximately $10.2 million, increase in trade
      receivables of approximately $4 million and decrease in inventories of
      approximately $3.5 million




Our
      investing activities relating to our continuing operations used cash in the
      amount of $221,000 for the nine months ended September 30, 2007, compared with
      cash used in investing activities of approximately $115,000 for the nine months
      ended September 30, 2006. In each period, cash was primarily used for purchase
      of property and equipment.




Our
      financing activities provided cash in the amount of approximately $40.7 million
      for the nine months ended September 30, 2007. These are due to gross proceeds
      from issuance of common stock in reverse acquisition of ITAC, net of issuance
      costs, of $33.4 million, proceeds from long term loan of approximately $6
      million and proceeds from short-term bank credit in the amount of approximately
      $1.2 million. IXI’s financing activities provided cash in the amount of $22.2
      million the nine months ended September 30, 2006 due to proceeds from
      convertible loan of $20 million, proceeds from short-term bank credit in the
      amount of $8 million which were offset by the principal payment of a long term
      loan in the amount of approximately $2.6 million, payment of deferred debt
      and
      Merger cost in the amount of approximately $2.5 million and by the repayment
      of
      a short term bank loan in the amount of approximately $750,000.




We
      had a
      working capital deficiency of approximately $5.5 million at December 31, 2006
      and $4.0 million at December 31, 2005 and our ratio of current assets to current
      liabilities was 1.08 at September 30, 2007, 0.82 at December 31, 2006 and 0.74
      at December 31, 2005.




**Off-Balance
      Sheet Arrangements**




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




**Corporate
      Tax**




***Domestic***




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




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




-44-




***Net
      operating loss carryforwards***




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




***Foreign***




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




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




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




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




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




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




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




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




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




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




**Percent
                   of**
              **Foreign
                Ownership**
            
            **Rate
                of**
              **Reduced
                Tax**
            
            **Reduced
                Tax Period**
            
            **Tax
                Exemption Period**0-25%
            
            
            25
            %
            
            5
                years
            
            
            2
                years25-49%
            
            
            25
            %
            
            8
                years
            
            
            2
                years49-74%
            
            
            20
            %
            
            8
                years
            
            
            2
                years74-90%
            
            
            15
            %
            
            8
                years
            
            
            2
                years90-100%
            
            
            10
            %
            
            8
                years
            
            
            2
                years




-45-




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




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




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




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




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




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




-46-




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




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




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




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




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




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




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




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




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




***Foreign
      Exchange Risk***




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




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




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




-47-





**ITEM
      4. CONTROLS AND PROCEDURES.**





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





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





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





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




-48-


**PART
      II.**





**OTHER
      INFORMATION**




**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




-49-


**SIGNATURES**





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


**IXI
                MOBILE, INC.**Dated:
                November 13, 2007
            
            /s/
              Amit
              HallerAmit
                Haller
              President
                and Chief Executive Officer




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




-50-