**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-K** **(Mark
          One)**




**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the fiscal year ended December 31, 2007**


or




** ̈**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




Commission
      File Number 0001319644







**IXI
      MOBILE, INC.**


**(Exact
      name of registrant 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,
                California 94002**
            
            **(650)
                551-0600**(Address,
                Including Zip Code, of
              Principal
                Executive Offices)
            
            (Registrant’s
                Telephone Number,
              Including
                Area Code)





**Securities
      registered pursuant to Section 12(b) of the Act:**


None





**Securities
      registered pursuant to Section 12(g) of the Act:**


Title
                Of Each ClassCommon
                Stock, $0.0001 par valueCommon
                Stock Purchase Warrants





Indicate
      by check mark if the registration is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  Yes o No
x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes oNo
x




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 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 if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§ 229.405) is not contained herein, and will not be contained,
      to the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-K or any
      amendment to this Form 10-K. x





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




Large
                  accelerated filer o
              Accelerated
                  filer oNon-accelerated
                  filer o
              Smaller
                  Reporting Company x(Do
                  not check if Smaller reporting company)




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




Aggregate
      market value of the voting and non-voting common equity held by non-affiliates
      of the registrant as of June 29, 2007, based on the closing price of the common
      stock as registered on the Over the Counter Bulletin Board on such date, was
      approximately $57.3 million.




On
      March
      18, 2008, 25,187,954 shares of the Registrant’s common stock, $0.0001 par value,
      were outstanding.




(1)
      Excludes 5,215,259 shares held by directors, officers and ten percent or greater
      shareholders on June 29, 2007. Exclusion of such shares should not be construed
      to indicate that any such person possess the power, direct or indirect, to
      cause
      the direction of the management or policies of the registrant.





**FORM
      10-K**




**TABLE
      OF CONTENTS**


Additional
                  Information
              iiForward-Looking
                  Statements
              iiPART
                  I
              1Item
                  1. Business
              1Item
                  1A. Risk Factors
              13Item
                  1B. Unresolved Staff Comments
              31Item
                  2. Properties
              31Item
                  3. Legal Proceedings
              31Item
                  4. Submission of Matters to a Vote of Security Holders
              31PART
                  II
              32Item
                  5. Market for Registrant’s Common Equity, Related Stockholder Matters and
                  Issuer Purchases of Equity Securities
              32Item
                  6. Selected Financial Data
              34Item
                  7. Management’s Discussion and Analysis of Financial Condition and Results
                  of Operations
              36Item
                  7A. Quantitative and Qualitative Disclosures About Market
                  Risk
              59Item
                  8. Financial Statements and Supplementary Data
              59Item
                  9. Changes in and Disagreements With Accountants on Accounting
                  and
                  Financial Disclosure
              60Item
                  9A(T). Controls and Procedures
              60Item
                  9B. Other Information
              60PART
                  III
              61Item
                  10. Directors, Executive Officers and Corporate Governance
              61Item
                  11. Executive Compensation
              65Item
                  12. Security Ownership of Certain Beneficial Owners and Management
                  and
                  Related Stockholder Matters
              76Item
                  13. Certain Relationships and Related Transactions, and Director
                  Independence
              78Item
                  14. Principal Accounting Fees and Services
              79PART
                  IV
              80Item
                  15. Exhibits and Financial Statement Schedules
              80SIGNATURES
              85







**Additional
      Information**




*In
      this annual report, the terms the “Company,” “we,” “our” and “us” refer to IXI
      Mobile, Inc. and its subsidiaries and the term “IXI” refers to our wholly owned
      subsidiary, IXI Mobile (USA), Inc.*




This
      Annual Report includes references to certain of our trademarks and registered
      trademarks. Products or service names of other companies mentioned in this
      Annual Report may be trademarks or registered trademarks of their respective
      owners.




**Forward-Looking
      Statements**




This
      Annual Report includes forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933, as amended (the “Securities Act”), and
      Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”). All statements included or incorporated by reference into this Annual
      Report, other than statements that are purely historical in nature, are
      forward-looking statements. We have based these forward-looking statements
      on
      our current expectations and projections about future events. Our actual results
      could differ materially from those discussed in, or implied by, these
      forward-looking statements. Words such as “believe,” “anticipate,” “expect,”
“intend,” “plan,” “estimate,” “project,” “will,” “may” and other similar
      expressions are intended to identify forward-looking statements, although not
      all forward-looking statements contain these words. In addition, any statements
      that refer to expectations, projections or other characterizations of future
      events or circumstances are forward-looking statements. Forward-looking
      statements include, but are not necessarily limited to, those relating to:




·
            our
                ability to raise, and the availability of, additional financing to
                satisfy
                our working capital, payment of long-term loans and other
                requirements;


·
            the
                inclusion in the report of our auditors with respect to our consolidated
                financial statements at December 31, 2007 and for the three year
                period then ended, an explanatory paragraph stating that, because
                we have
                incurred recurring operating losses and negative cash flows from
                operating
                activities, there is substantial doubt about our ability to continue
                as a
                going concern; see also note 1e to our consolidated financial
                statements;


·
            our
                ability to provide an affordably-priced alternative for mobile email
                access as well as other value-added
                services;


·
            competing
                products that may, now or in the future, be available to
                consumers;


·
            our
                plans to develop and market new products or services, including but
                not
                limited to CDMA devices;


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


·
            the
                number or nature of potential customers for our
                products;


·
            our
                expectations regarding trends in the cell phone, mobile messaging
                and
                consumer electronics industries;


·
            our
                ability to improve our financial
                performance;


·
            other
                competitive pressures and general economic
                conditions;


·
            future
                acquisitions and other business combinations, if any, effected by
                us or
                our competitors;


·
            the
                impact of our efforts to comply with laws and regulations, including
                the
                Sarbanes-Oxley Act of 2002, as amended;
                and


·
            our
                ability to protect our proprietary and confidential information and
                other
                intellectual property rights.





Factors
      that could cause actual results or conditions to differ from those anticipated
      by these and other forward-looking statements include those more fully described
      under the caption “Risk Factors” in Item 1A below and elsewhere in this Annual
      Report. Except as required by law, we do not assume any obligation to update
      or
      revise these forward-looking statements to reflect new events or circumstances.
      You should assume that the information appearing in this Annual Report is
      accurate only as of the date on the front cover of this document. Our business,
      financial condition, results of operations and prospects may have changed since
      that date.


ii


**PART
      I**




**Item
      1.**  **Business**




**Overview**




We
      develop and sell innovative data-centric wireless mobile devices and services
      for mass market users. We market our solutions to mobile operators, mobile
      virtual network operators, or MVNOs, and internet service providers, or ISPs,
      in
      a number of international markets. We offer an end-to-end mobile solution,
      which
      includes devices and hosted services, that permits our customers to deliver
      mobile data and Internet services to their subscribers. Our Ogo devices are
      designed to improve the mobile user experience and increase mobile data usage
      by
      offering access to popular applications and services, including email, instant
      messaging or IM, short messaging service, or SMS, mobile voice, Web browsing,
      games, headlines and other Web information through Really Simple Syndication
      technology, or RSS, at affordable end-user prices. Our hosted services (such
      as
      email and IM gateways) allow our customers to efficiently deliver applications
      that require intermediation between the server and the device. These hosted
      services, in combination with our Ogo devices, present our customers with a
      complete end-to-end solution that limits infrastructure investment and other
      roll-out costs associated with launching Ogo devices and related services.
      In
      addition to revenues from the sale of our Ogo devices, we receive recurring
      monthly service fees from our customers for subscriber that purchase our Ogo
      devices. Currently, our Ogo devices are capable of operating in countries where
      Global System for Mobile Communications, or GSM, cellular networks are used.
      We
      are in the final stages of development of our Ogo 2.0c device, which is designed
      to operate on Code-Division Multiple Access, or CDMA, cellular networks.




**Industry
      Overview**




The
      worldwide mobile communications industry was estimated to exceed 3.3 billion
      subscribers at the end of 2007, approximately half of the world’s population
      (according to Portio Research). The market for mobile data services is growing,
      fueled by consumer adoption, mobile operator competition, advances in mobile
      device technologies and the convergence of the traditional Internet and mobile
      communications industries. As a result of these trends, mobile devices are
      no
      longer used solely for voice applications, but are increasingly becoming an
      important platform for multiple forms of communication, access to information,
      consumption of media and content creation. We believe that there is increasing
      demand from mobile operators, MVNOs and ISPs for differentiated data centric
      devices and applications designed for the mass market. In particular, we believe
      that mobile operators, MVNOs and ISPs seek to provide mobile wireless
      counterparts to applications that have attracted substantial user communities
      in
      the PC-based wired Internet environment.




Email
      and
      IM are highly popular PC applications. The number of e-mail users worldwide
      is
      expected to grow from 1.2 billion in 2007 to 1.6 billion in 2011, at an average
      annual growth rate of 7 percent over the next four years, according to a third
      quarter 2007 market update from Radicati Group. According to Strategy Analytics,
      of the one billion registered IM accounts in 2006, 300 million people claimed
      to
      be regular IM users on PCs. Strategy Analytics estimates they generate more
      than
      12 billion instant messages per day. Presently, these applications, although
      popular on the PC, have had limited mobile penetration. To date, mobile email
      has largely been focused on the corporate market rather than the mobile mass
      market. The mobile email leader, Research in Motion, Limited, which primarily
      targets corporate users, estimated that it would have 14 million subscribers
      as
      of March 1, 2008. In order to penetrate the underserved mass market, including
      traditional consumers, professional consumers and small-to-medium enterprises,
      mobile operators, MVNOs and ISPs are beginning to roll out mobile IM and email
      as part of their mobile data service offerings globally.




There
      are
      currently two predominate cellular network technologies. GSM is the largest
      deployed technology and covers Europe, most of the Asian market and some
      carriers in the United States and in the Americas. CDMA technology is the
      dominate technology in the United States and Korea and has some deployment
      in
      China and the Americas. In 2007, Deutsche Bank estimated that 745 million GSM
      handsets compared to 208 million CDMA handsets were sold worldwide.




***Mobile
      Operators***




Historically,
      mobile operators have relied on subscriber growth and a limited set of
      applications as key revenue drivers. As subscriber growth rates slow in many
      markets, popular application growth abates and prices fall, mobile operators
      are
      increasingly looking to new sources of mobile data revenue. To facilitate data
      revenue growth, mobile operators have invested heavily in the rollout of
      high-speed data-enabled wireless networks, via technologies such as GPRS, EDGE,
      UMTS, HSDPA, CDMA 2000 and CDMA 1X. These high bandwidth cellular networks
      are
      capable of supporting data transfer rates of up to 2.4 megabits per second.
      Mobile operators are now looking to utilize these high-speed data networks
      for
      revenue growth.


1


***MVNOs***




MVNOs
      are
      mobile operators that do not own their own spectrum and generally do not have
      their own network infrastructure. Instead, MVNOs have business arrangements
      with
      traditional mobile operators to buy cellular bandwidth, which they can then
      provide to their own customers. Unlike simple resellers, MVNOs are typically
      well-known, well-positioned companies with significant marketing influence.
      Some
      examples are Virgin Mobile, Helio, SpeakOut Wireless and Quest Wireless. We
      believe that these well-branded companies are attempting to capitalize on the
      popularity of mobile communications by leveraging their brand recognition and
      utilizing excess available network capacity. Consequently, MVNOs compete on
      the
      basis of offering differentiated and branded value-added services to attract
      customers.




***ISPs***




We
      believe that ISPs are also looking to mobile communications as a vehicle for
      revenue growth as a result of Internet access becoming commoditized and ISPs
      facing pricing pressure. ISPs have a history of providing Internet access,
      and
      in some cases content as well, to the mass market. Also, ISPs, which are already
      email providers, are a logical candidate to offer mobile email and other
      messaging applications such as IM, SMS and RSS. We believe that ISPs’ experience
      with Internet access, content delivery and messaging applications for the wired
      desktop environment positions them as viable mobile data providers.




***Industry
      Challenges***




We
      believe that the marketing of advanced data services on cellular networks is
      a
      complex process that requires attractive applications, appropriate and
      affordable mobile devices, and a reliable service offering. We believe that
      wireless carriers and ISPs face the following challenges:




·
            Increasing
                the usage of fee-based data services by offering applications previously
                available only to PC-based Internet users, often free of charge,
                such as
                email and IM;




·
            Introducing
                new mobile devices that are user-friendly and ergonomically suited
                to
                extensive text input. These devices should have features such as
                a full
                keyboard, a large horizontal screen, and additional functions in
                order to
                facilitate a robust mobile messaging experience, including the ability
                to
                send messages of larger volume and with low latency (or time
                delay);




·
            Introducing
                attractive mobile devices that are affordable for mass market consumption.
                High-end smartphone devices, which integrate the broadest array of
                functionalities, are typically too expensive for the consumer mass
                market
                and require significant price subsidization by wireless carriers,
                which
                they must recoup by imposing high monthly service fees. Although
                we expect
                smartphones generally to constitute a growing but still small proportion
                of total devices shipped globally in the medium term, we believe
                that
                wireless carriers and ISPs are also seeking affordable mobile device
                alternatives that can appeal to a broader market;
                and




·
            Lowering
                subscriber acquisition costs and simplifying the process of incorporating
                advanced data services on their
                platforms.




**The
      Ogo Solution**




The
      combination of our Ogo devices and hosted services provides mobile operators,
      MVNOs and ISPs with an end-to-end solution that enables them to rapidly deploy
      Ogo devices and services to the mass market with limited infrastructure
      investment and other roll-out costs. Our Ogo devices deliver popular messaging
      applications, such as IM, email, news, and text messaging on devices
      specifically designed to facilitate the typing of text messages, increase data
      usage and enhance the mobile experience. These products can be tailored to
      meet
      specific carrier requirements as well as provide a platform for additional
      services and increased average revenue per user, or ARPU, a key business metric.
      We also provide hosted services including all necessary gateways and backend
      servers, as well as related launch and support services. Our end-to-end Ogo
      solution provides our customers, even those with limited mobile communications
      experience, a mechanism to deliver mobile messaging to their installed base
      as
      well as to attract new customers. We believe that the ease with which potential
      customers can offer Ogo service to consumers will be a key driver of our future
      growth.


2


Our
      end-to-end Ogo solutions benefit both consumers and service
      providers:




·
            *Consumers*benefit from access to innovative, affordable mobile devices and
                applications, such as email, IM, SMS, Web browsing, voice and news;
                and




·
            *Mobile
                Operators, MVNOs and ISPs*benefit from increased data usage, greater customization, and improved
                customer satisfaction, which should result in an increase in
                ARPU.




Our
      customers sell Ogo devices at retail prices ranging from $0 (fully subsidized
      by
      the service provider) to $150, with a monthly service fee of approximately
      $7.50 - $25, offering a compelling alternative to higher-priced
      offerings.




**Strategy**




Our
      goal
      is to become a leading provider of end-to-end mobile solutions to mobile
      operators, MNVOs and ISPs. We believe our solution will enable the growth of
      mobile data services for the mobile mass market, including traditional
      consumers, professional consumers and small to medium enterprises. Our strategy
      includes the following elements:




·
            *Pursue
                new customers and expand our distribution worldwide*.
                We intend to increase the number of subscribers using Ogo devices
                by
                adding new mobile operator, MVNO and ISP customers worldwide. We
                believe
                that we are positioned to add new customers because we offer a highly
                scalable end-to-end solution. Our solution supports mobile operators
                in
                the deployment and operation of revenue enhancing devices and services,
                based on applications such as email, IM, SMS, RSS, Web browsing and
                mobile
                voice.




·
            *Focus
                on emerging MVNOs and ISPs worldwide.*We anticipate significant growth in the number of global providers
                of
                branded consumer goods and services that will seek to create mobile
                application and service offerings for their existing customers and
                user
                communities via an MVNO. We also believe that a significant number
                of ISPs
                will seek to expand their revenues by providing mobile services and
                leveraging their desktop email and Internet access leadership position
                as
                well as their customer base. We plan to establish ourselves as an
                enabler
                of these MVNO and ISP offerings by offering end-to-end mobile data
                solutions that allow them to rapidly launch Ogo devices and related
                services while limiting infrastructure investment and other deployment
                costs.




·
            *Deploy
                CDMA Capability.*The
                Ogo 2.0c, which is being designed to operate on a CDMA cellular network,
                will provide greater opportunities for us in the US market and other
                markets where CDMA is the predominate technology*.*




·
            *Target
                the mobile data needs of professional consumers and small to medium
                enterprises.*We
                believe these potential markets are currently underserved by existing
                mobile messaging solutions. We believe our Ogo devices provide an
                affordably-priced alternative for mobile email access as well as
                other
                value-added services.




·
            *Develop
                new applications and features.*We
                intend to include new popular PC-based applications in our Ogo devices
                and
                to continue to enhance our currently offered applications with new
                features to keep pace with wired Internet and mobile voice and data
                trends. We also expect to introduce additional productivity enhancement
                and entertainment features for Ogo devices in future
                releases.




**Products
      and Services**




We
      develop and sell data-centric wireless devices and services aimed at
      accelerating mobile data usage for mass market users. We market our solutions
      to
      mobile operators, MVNOs and ISPs worldwide. These customers in turn sell to
      end
      users.


3


***Ogo
      Devices***




The
      Ogo
      devices offer specific advantages to potential customers:




·
            *Affordable
                price:*We
                focus on cost optimization by designing our Ogo devices to deliver
                only
                the most popular mobile messaging applications. The resulting lower
                cost
                allows our customers to price the Ogo devices attractively, particularly
                to younger consumers, who often require subsidized
                pricing.




·
            *Customizable
                “look and feel”:*We
                can provide our high volume customers with the ability to customize
                elements of the device design, influence the user interface and determine
                the set of applications that best address their market’s needs. End users
                are able to further customize their devices by purchasing a range
                of self
                adhesive covers in various
                patterns.




·
            *Simple
                activation and user data synchronization:*Upon purchase, end users activate the device by following an on-screen
                activation “wizard” that facilitates the input of usernames and passwords
                for existing email and IM accounts that the user wishes to access
                from the
                Ogo device. Ogo device activation can be done on the device itself
                or via
                an in-store or post-sale activation process by the device provider.
                Once
                the user logs in to a given IM account via the Ogo device, the user’s IM
                contact lists associated with each online account are synchronized
                in
                real-time.




·
            *Ongoing
                Provisioning:*The
                Ogo device’s software is upgradeable over-the-air, or OTA, allowing our
                customers to update any device’s software in order to launch new
                applications, upgrade existing functionality or repair software remotely
                via the cellular network.




Ogo
      devices can be tailored to meet customer requirements. The Ogo device’s
      graphical user interface, or GUI, can be customized to address branding and
      other customer experience requirements. For IM and email, Ogo devices can fully
      inter-operate **** with
      leading Internet portals, as well as operator communities.




Ogo
      devices offer the following key features:




·
            A
                “clamshell” design that unfolds to display a large, color screen and
                keypad




·
            A
                full QWERTY (or QWERTZ) keypad, an 8-way navigation joystick pad
                for
                familiar and easy navigation and scroll
                wheel




·
            Compact
                size (4.6” × 2.7” × 0.8” when closed, 5.2
                oz.)




·
            Special
                “hot keys” for simple navigation, such as dedicated email and IM
                buttons




·
            One
                button that displays all active messages and chats on one screen
                (the
                “Ogo” button)




·
            Ability
                to customize and assign unique sounds and visual animations to different
                contacts




·
            IM
                compatible with major providers




·
            Push
                email enabling an instant notification for incoming
                email




·
            Email
                on most leading providers and access to email from POP3 and IMAP4
                (currently the most pervasive email protocols) accounts as well as
                AOL
                Mail®, MSN Hotmail® and Yahoo!
                Mail®




·
            Attachment
                viewer for various popular file
                formats




·
            A
                consolidated inbox, allowing users to either view all email and text
                messages in one mailbox or to sort by
                account




·
            Ability
                to receive RSS feeds for popular news channels and
                communities


4


·
            Ability
                to send a single message in multiple formats (e.g., email and
                SMS)




·
            Bluetooth
                and speakerphone capabilities for voice
                communications




·
            Web
                browsing in both WAP and HTML
                formats




·
            Contacts
                and calendar applications




·
            Multimedia
                features




Our
      products also feature our proprietary PMG® (Personal Mobile Gateway) Technology.
      PMG technology allows a mobile phone or other data device to enable a variety
      of
      companion devices (such as watches, cameras, and MP3 players) to connect to
      the
      Internet and each other wirelessly. The PMG is the single connection between
      the
      wireless network and a collection of affordable and optimized mobile
      devices.




The
      PMG
      platform enables mobile device manufacturers to expand the functionality of
      their products by linking them to additional mobile electronic devices. PMG
      technology enables wireless communications by means of the Bluetooth protocol
      between the core mobile device (personal mobile gateway) and other peripheral
      electronic devices such as a wireless earpiece, a digital camera, a mobile
      game
      console or a digital wristwatch. This allows the user to expand the capability
      of the core mobile device on a gradual basis by adding electronic devices
      optimized to deliver their primary application. These peripheral devices also
      share resources with the core device without replicating some costly overhead
      functions such as memory and processing, providing a cheaper and more flexible
      alternative to smartphones. PMG technology enables wireless carriers and ISPs
      to
      create additional income sources from the data transmission and the sale of
      additional wireless electronic devices that can be used in conjunction with
      existing cellular devices.




***Hosted
      Services***




As
      part
      of our end-to-end solution, we provide a complete backend solution which
      incorporates all of the hosting services required to support the Ogo devices.
      We
      also provide support services that enable mobile operators, MVNOs and ISPs,
      even
      those with limited mobile data application delivery experience, to bring Ogo
      devices and service to market quickly and easily with limited infrastructure
      investment. Our end-to-end solution also allows our customers to focus their
      efforts and budget on marketing and promotion of the Ogo devices and
      applications without the need to spend significant resources on costly
      deployment related activities.




We
          offer
          the following services as part of our complete
          solution:




·
            Instant
                messaging gateway




·
            Email
                gateway




·
            Push
                email




·
            Over-the-air
                version upgrades




·
            Over-the-air
                provisioning of new applications and software
                repairs




·
            Attachment
                reformatting




·
            Portal-certified
                instant messaging and email
                services




·
            Software
                applications that better address the needs of professional consumers,
                including interface with Microsoft® Exchange Server (which provides email,
                calendar and contacts)




·
            We
                provide our hosted Internet services through a small number of third
                party
                service providers




5


**Research
      and Development**




Current
      research and development projects include:




·
            A
                new generation of Ogo devices, known as the Ogo 2.0c, based on the
                CDMA
                air interface.




·
            Optimizing
                communication with hosted servers and
                gateways.




·
            OgoClip,
                which is a replaceable component, such as a Bluetooth headset, nestled
                in
                Ogo’s hinge. While in place, OgoClip is charging. When removed, it can
                communicate with Ogo wirelessly.




As
      of
      December 31, 2007, our research and development team consisted of 85 full time
      employees (52 located in Israel and 33 located in Romania) who carry out all
      engineering efforts and develop new intellectual property. We established our
      research and development operations in Israel in September 2000. We believe
      that
      companies with Israel-based research and development operations benefit from
      access to a sizeable skilled workforce in the high technology industry, which
      has been supported by government initiatives since the late 1980s. Thus, we
      believe that as we scale our operations, employees with relevant skill sets
      will
      be available. We also utilize additional research and development resources
      in
      lower cost areas such as our establishment of a research and development
      subsidiary in Romania.




We
      believe that the core strengths of our research and development team include
      expertise in mobile messaging software and complex mobile network systems,
      as
      well as power and processing in constrained systems such as mobile devices.
      This
      expertise encompasses hardware and software integration, hardware and industrial
      design, as well as quality assurance and testing.




**Sales
      and Marketing**




We
      target
      the sale of the Ogo end-to-end solution directly to mobile operators, MVNOs
      and
      ISPs through our direct sales force as well as independent distributors. Our
      customers then market to their consumers and are primarily responsible for
      generating sales of the Ogo devices. Our customers employ a variety of marketing
      programs in different mediums to sell Ogo devices to consumers. Our current
      mobile operator customers have generally focused their Ogo marketing programs
      on
      young adults and teens.




As
      of
      December 31, 2007, our sales and marketing force consisted of 21
      professionals worldwide, who also provide training and channel marketing support
      to our customers in order to maximize the effectiveness of their respective
      sales and distribution channels. We selectively participate in varying
      capacities in marketing and advertising efforts of a number of our
      customers.




Our
      Ogo
      devices and services are currently available in Austria, Germany, Ghana,
      Luxembourg, Switzerland, Taiwan, Turkey and Uruguay, and we expect to introduce
      Ogo devices and services in additional countries, including the United States
      after development of the Ogo 2.0c designed to operate on CDMA cellular
      networks.




**Customers**




We
      sell
      Ogo devices and service directly to mobile operators and ISPs. We currently
      have
      two ISP customers and seven mobile operator customers. For the year ended
      December 31, 2007, Swisscom Mobile (Switzerland), 1&1 internet AG (Germany)
      and Ancel (Uruguay) accounted for 48%, 29% and 11%, respectively, of our
      revenues. For the year ended December 31, 2006, Swisscom and 1&1 accounted
      for 45% and 46%, respectively, of our revenues. During the year ended December
      31, 2005, AT&T accounted for 85% of our revenues (see “- International
      Operations” below). During those periods, no other customer accounted for 10% or
      more of our revenues.




**International
      Operations**




In
      the
      years ended December 31, 2007 and 2006, substantially all of our revenues were
      derived from sales outside the United States. In the year ended December 31,
      2005 approximately 15% of our revenues came from sales outside the United
      States. We had commenced marketing Ogo devices in the United States in 2004
      under a development and supply agreement with AT&T Wireless Services, Inc.
      In April 2005, following the acquisition of AT&T Wireless by Cingular
      Wireless, Inc., we and Cingular agreed to cancel this agreement. Since the
      termination of our agreement with AT& T Wireless/Cingular, substantially all
      of our sales occur outside the United States.


6


See
      Note
      15 to consolidated financial statements included in this Annual Report for
      a
      summary of our operations within various geographic areas.




**Competition**




The
      mobile data services market is highly competitive and subject to rapid change.
      We believe that the principal criteria that our customers use in selecting
      solutions include potential for increased ARPU, perception of mobile device
      sales potential, user satisfaction, availability of an integrated technology
      platform, technology architecture, range of applications, ease of
      implementation, scalability, customer support, and third-party developer
      support.




There
      are
      a number of companies developing and marketing mobile devices for the transfer
      of digital information. Most of our competitors have greater name recognition,
      larger customer bases and significantly greater financial, technical, marketing,
      public relations, sales, distribution and other resources. Accurate measures
      of
      market share are difficult because each of the devices on the market offers
      a
      different collection of functions. However, we believe our share of this market
      is, at present, negligible.




The
      dominant products in the market are the BlackBerry, marketed by Research In
      Motion, Limited, or RIM, the Treo line of smartphones marketed by Palm, Inc.,
      or
      Palm, as well as smartphones marketed by a broad array of other manufacturers,
      and the Sidekick/Hiptop marketed by Danger, Inc., or Danger (which announced
      on
      February 11, 2008 that it had agreed to be acquired by Microsoft Inc.). To
      date,
      a number of other mobile operators have launched email and IM applications
      linked to services provided by several major Internet portals. However, these
      services are generally accessible through traditional handsets with designs
      not
      optimized for text input, such as a standard cell phone keypad and
      screen.




In
      contrast to devices produced by companies such as Research in Motion, Palm
      and
      Danger, all of which compete with us in the QWERTY keyboard-based wireless
      device category, Ogo devices are specifically designed to offer a relatively
      low-cost solution for the delivery of mobile messaging applications, including
      access to the major email and IM services.




The
      table
      below provides a comparison of the principal features of the various classes
      of
      products (information about non-IXI products is based on publicly available
      information):




**Type
                of Device**
            
            **Examples**
            
            **Target**
              **Audience**
            
            **Included**
              **Applications**
            
            **Range
                of**
              **Purchase**
              **Prices**
              **to
                End User**
              **(After
                Rebates**
              **and
                Subsidies)**
            
            **Range
                of**
              **Monthly**
              **Payments
                for**
              **Provided**
              **Services**
            
            **Scope
                of**
              **Solution
                for**
              **Consumer**
              **Market**
            
            **Scope
                of**
              **Solution
                for**
              **Professional**
              **Market**Email
                and IM devices
            
            Ogo
            
            Youth
                and small and medium sized businesses
            
            Email,
                basic cell phone, basic instant messaging, RSS, SMS, Web
                Browsing
            
            $0 – 150
            
            $7.50 – 25
            
            End-to-End
                solution
            
            End-to-End
                solution for consumer, small to medium sized businesses and professional
                usersEmail
                devices
            
            Blackberry
                8700 Blackberry 8800 Blackberry Curve Blackberry Pearl
            
            Large
                enterprises and professional users, government users,
                consumers
            
            State-of-the-art
                email (fully synchronized) and basic cell phone
            
            $149 – 299
              
              $99 – 199
            
            $30 – 50
              
              $30 – 40
            
            Partial
                solution, limited IM support
            
            End-to-End
                solution including installation of service at the enterprise with
                highest
                level of security


7





**Type
                of Device**
            
            **Examples**
            
            **Target**
              **Audience**
            
            **Included**
              **Applications**
            
            **Range
                of**
              **Purchase**
              **Prices**
              **to
                End User**
              **(After
                Rebates**
              **and
                Subsidies)**
            
            **Range
                of**
              **Monthly**
              **Payments
                for**
              **Provided**
              **Services**
            
            **Scope
                of**
              **Solution
                for**
              **Consumer**
              **Market**
            
            **Scope
                of**
              **Solution
                for**
              **Professional**
              **Market**Smartphones
            
            Treo
                700wx
              Treo
                755p
            
            Large
                enterprises and professional users
            
            State-of-the-art
                email (fully synchronized), smartphone, Internet surfing, open operating
                system
            
            $200 – 350
            
            $35 – 50
            
            Partial
                solution, limited IM support
            
            Limited
                solution requiring involvement of external suppliersEmail
                and IM devices
            
            Sidekick
                LX
              Sidekick
                Slide
            
            Youth
            
            Email,
                basic cell phone, Internet surfing, basic instant
                messaging
            
            $200 – 300
            
            $30
            
            Consumer
                youth focused product, IM support
            
            Partial
                solution




We
      believe that by focusing on a market segment that is distinct from the market
      segments targeted by our major competitors, we can create differentiation that
      allows us to compete successfully with our competitors’ products.




***Technology***




Our
      technology consists of the IXI network operations center, or NOC, which is
      managed by our data center operations, and our software for the Ogo device.
      Our
      technology platform enables the optimized delivery of enhanced mobile data
      services. The IXI technology platform, which consists of our hosted services
      and
      software for mobile devices, optimizes the delivery of enhanced mobile data
      services such as IM, email and personal information manager, or PIM, by
      compressing content, managing network and device communications, adapting
      content to the target device, pushing content to the Ogo device, and
      facilitating the delivery of software upgrades and provisioning additional
      features.




Our
      NOC
      hosts the modular and scalable hosted platform that connects Ogo mobile devices
      to the Internet, converting content and protocols as needed. Our NOC runs on
      multiple operator-grade service components. The NOC uses proprietary software
      to
      manage each connected Ogo device and to route data traffic among various
      application proxies and the database. Additional technology load balances the
      data traffic, providing scalability across multiple collections of application
      proxies. Our NOC is architected to easily add capacity for subscriber base
      growth through the addition of individual service elements such as proxy
      servers, application processing servers or database nodes.




The
      Ogo
      software is a mobile device platform that makes efficient use of processing,
      memory and power to help reduce mobile device complexity and cost. Our
      multi-layer software is comprised of applications, an operating system, HW
      device drivers and libraries that support each of these layers. All applications
      for Ogo mobile devices are written in the C/C++ programming language to make
      them easy to develop and easy to port. Our software for the Ogo device enables
      multitasking among various programs at the application layer and interoperates
      with our NOC hosted services, allowing the Ogo platform to provide superb
      execution performance with reduced processing power and memory usage. Our
      software libraries simplify application development and facilitate a consistent
      user interface across applications developed for the Ogo platform.




**Manufacturing**




We
      outsource all components that are readily available from third-party suppliers
      and seek to work with third party manufacturers and suppliers who have strong
      reputations for quality and dependability.




Chi
      Mei,
      part of the FoxConn group and one of the top five manufacturers in Taiwan,
      is
      the manufacturer of our Ogo GSM devices. Actual production of the Ogo device
      is
      at Chi Mei’s facility in China. Chi Mei is known as the designer and
      manufacturer of the first Motorola mobile Windows-based phone (MPX-2XX series)
      and as a technology leader in Taiwan. We believe that Chi Mei has the requisite
      logistical, procurement and manufacturing abilities to enable us to quickly
      adjust to changes in customer demands for Ogo devices and services.




8


Currently,
      Chi Mei is our sole source supplier for the Ogo GSM device. We do not have
      a
      supply contract with Chi Mei nor any minimum order requirement, and Chi Mei
      is
      not committed to produce a specified minimum quantity of the Ogo device.
      Currently, the volume of Ogo GSM devices demanded by our customers is
      insufficient to justify the development of alternative manufacturers. We may
      develop relationships with other manufacturers as customer demand for the Ogo
      devices increases. Because Ogo devices currently incorporate a modem that is
      proprietary to Chi Mei, the use of any alternative manufacturer would require
      a
      redesign of the Ogo GSM devices to incorporate a different modem.




Currently,
      we also purchase a number of Ogo components, such as the display screens and
      various chip sets, from third party suppliers. The remaining components are
      sourced by Chi Mei. We make advance payments to our manufacturers prior to
      the
      date the Ogo units are shipped to us (for customers or for inventory purposes)
      or our designated customers in order to finance the production of the Ogo
      devices and to ensure the availability of components with long lead times for
      supply. The timing of the advance payments are based on different lead times
      of
      the relevant components and the progress of the production, and are deducted
      from the total shipment payment that is accrued upon the delivery of the Ogo
      units.




We
      are
      currently in the final stages of development of the Ogo 2.0c, which is designed
      to operate on CDMA cellular networks. When commercially available, we expect
      the
      Ogo 2.0c will be manufactured by Inventec Appliances Corp. or Inventec. Inventec
      is a leading electronics manufacturer based in Taiwan. We are working with
      Inventec on development of the Ogo 2.0c but currently do not have a
      manufacturing agreement with Inventec.




**Intellectual
      Property**




Our
      success depends, in large part, on our proprietary technology, processes, trade
      secrets and other proprietary information, and upon our ability to protect
      this
      information from unauthorized disclosure or use. We rely on a combination of
      patent, copyright, trade secret and trademark laws, confidentiality agreements,
      contractual provisions and other similar measure common in high technology
      companies to protect our proprietary information.




Our
      patent portfolio includes conceptual patents and detailed implementation patents
      for both software and hardware, as well as business practices oriented patents.
      To date, we have filed 102 patent applications in the United States, European
      Union, Japan, Korea and Israel covering 50 inventions, and we intend to continue
      filing patents to protect our unique intellectual property emerging from the
      development of our products. To date, we have received 13 patents, all in the
      United States, each of which relate to our PMG technology. Two additional patent
      applications were approved in the United States and an additional patent is
      expected to be issued soon.




We
      believe that the know-how, technical expertise and innovative abilities of
      our
      personnel as well as the proprietary methods that we developed in the design
      and
      development of our products are of significant importance. Our standard
      employment contracts and contracts with subcontractors contain clauses aimed
      at
      protecting our copyrights, trade marks, patents and trade secrets and also
      include provisions for the assignment to us of any intellectual property rights
      developed by individuals or organizations during the course of any relationship
      with us.




We
      have
      registered trademarks on the names “IXI,” “IXI MOBILE” and “PMG” and on the
      stylized “IXI” and “IXI MOBILE” logos, as well as trademark registrations for
“OGO” and the stylized “OGO” logo. The applications for registration of the
“OGO” trademark in Europe and in the United States have been met with opposition
      in both jurisdictions. In the United States an agreement was reached with the
      opposing party, thus removing the obstacle for the registration if the mark.
      In
      Europe we have a registered trademark for the stylized “OGO” logo, but there can
      be no assurance that we will be successful in obtaining the trademark
      registration “OGO”.




We
      believe that the measures taken to protect our intellectual property are
      appropriate and commercially reasonable within the industry in which we operate.




**Employees**




As
      of
      December 31, 2007, IXI employed 138 employees and 21 consultants, consisting
      of
      52 employees and 10 consultants engaged in research and development in our
      Israeli facility, and 33 employees and 7 consultants engaged in research and
      development in our Romanian facility. The sales and customer support department,
      including product marketing, employed 24 employees and 8 consultants, with
      the
      remainder filling general and administrative, information technology, operations
      and internal support functions.


9


**Government
      Grants and Assistance Programs**




***Israeli
      Approved Enterprise Status***




The
      Israel Law for the Encouragement of Capital Investments, 1959, or the Investment
      Law, provides that capital investment in a production facility (or other
      eligible assets) may, upon application to and approval by the Investment Center
      of the Israeli Ministry of Industry, Trade and Labor, or the Investment Center,
      be designated as an Approved Enterprise.




Each
      certificate of approval for an Approved Enterprise relates to a specific
      investment program, delineated both by the financial scope of the investment
      and
      its physical characteristics.




An
      approved enterprise is entitled to certain benefits, including Israeli
      government cash grants or tax benefits. An Approved Enterprise may elect to
      forego any entitlement to the grants otherwise available under the Investment
      Law and, in lieu of the foregoing, participate in an alternative benefits
      program, under which the undistributed income from the Approved Enterprise
      is
      fully exempt from corporate tax for a defined period of time.




The
      Investment Center granted to our Israeli facility the status of an Approved
      Enterprise in May 2002. In July 2003, IXI Mobile (R&D) Ltd., our wholly
      owned Israeli subsidiary, or IXI Israel, received approval from the Investment
      Center to change the business program of our Approved Enterprise and expand
      the
      product definition that was initially approved. We have elected to participate
      in the alternative benefits program. The period of tax exemption will be two
      years commencing with the year in which our Israeli subsidiary first generates
      taxable income from the relevant Approved Enterprise. The subsidiary will be
      entitled to a reduced tax rate of 10% - 25% for an additional five to
      eight years, depending on the level of foreign ownership of our shares. The
      period of benefits may in no event, however, exceed the lesser of (a) 12 years
      from completion of the investment of commencement of production or (b) 14 years
      from the year of receipt of Approved Enterprise status.




IXI
      Israel has filed an application with the Investment Center to approve production
      of the Ogo products outside Israel, change the business program of its “Approved
      Enterprise” and expand the product definition initially approved by the
      Investment Center, as well as to change the number of IXI Israel's employees
      as
      reported to the Investment Center. There can be no assurance that the Investment
      Center will approve the requested changes to the “Approved Enterprise” program.
      If IXI Israel's request is not approved, in whole or in part, IXI Israel may
      not
      be entitled to all of the tax benefits described above.




If
      dividends are distributed out of tax exempt profits, as above, IXI Israel will
      be subject to corporate tax in the year the dividend is distributed in respect
      of the gross amount distributed 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 dividend recipient is subject to withholding tax at
      the source of reduced tax rate of 15%. As of December 31, 2007, IXI Israel
      has
      not created a maximum deferred tax liability due to its accumulated losses
      and
      the accumulated deficit does not include tax exempt profits earned by an
“Approved Enterprise”.




On
      April
      1, 2005, the Israeli Parliament passed an amendment to the Investment Law,
      in
      which it 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. As a result
      of
      the amendment, tax-exempt income generated under the provisions of the new
      law
      will subject us to taxes upon distribution or liquidation and we may be required
      to record deferred tax liability with respect to such tax-exempt income. The
      amendment does not apply to investment programs approved prior to December
      31,
      2004. The new tax regime will apply to new investment programs (“Privileged
      Enterprise”) only and our qualification as an Approved Enterprise will generally
      not be subject to the provisions of the Amendment.




**Israeli
      Office of the Chief Scientist**




Our
      research and development efforts have been financed, in part, through grants
      from the Israeli Office of the Chief Scientist, or OCS. As of December 31,
      2007,
      we had received approximately $2.8 million (including $1.9 million relating
      to
      discontinued activities) of these grants. We are required to repay the entire
      amount of these grants to the OCS plus applicable interest at the LIBOR rate
      through payments of royalties amounting to 3% of revenues for the first three
      years from the date of the first repayment and between 4% and 5% of revenues
      beginning the fourth year from the date of the first repayment until the entire
      amount is repaid, including interest. In recent years, the government of Israel
      has accelerated the rate of repayment of OCS grants and may further accelerate
      them in the future. In addition, if we fail to repay the royalties to the OCS,
      we may be required to refund any grants previously received together with
      interest and penalties.


10


Technology
      developed with OCS funding is subject to transfer restrictions and any transfer
      of such technology or manufacturing rights generally requires the approval
      of an
      OCS committee. These approvals, if granted, may be subject to the following
      conditions:




·
            the
                transfer of technology that was developed, in whole or in part, using
                OCS
                funding, may require a payment to the OCS of a portion of the
                consideration that we receive for the transfer of the technology;
                or




·
            the
                transfer of manufacturing rights outside of Israel may be conditioned
                upon
                either (1) payment of increased aggregate royalties, ranging from
                120% to
                300% of the amount of the grant plus interest (depending upon the
                percentage of foreign manufacture) and an increase of the rate of
                the
                royalties due each year; or (2) a transfer of different manufacturing
                rights into Israel for another product of similar or more advanced
                technology.




These
      restrictions may impair our ability to sell our technology assets or to
      outsource manufacturing outside of Israel, and the restrictions continue to
      apply even after we have repaid the full amount of royalties payable for the
      grants.




In
      October 2005, as part of the discontinuation of operations of our operating
      system, or OS, business (see “Discontinued Operations” below), and due to our
      need to increase our cash resources, we granted to Sasken Communication
      Technologies Ltd., or Sasken, a company based in India, a non-exclusive license
      for the use, development and sale of the OS that was developed by us. The
      license enables Sasken to continue the development of the OS and to market
      it to
      its customers. It also provides that Sasken will own any intellectual property
      rights with respect to its development of the software, while IXI will retain
      ownership in any intellectual property licensed to Sasken. In consideration
      for
      the license, Sasken paid to us a net license fee in the amount of $1.8 million.
      In addition, Sasken will pay us a royalty of $0.10 for each product that is
      sold
      by Sasken that contains the OS or any development of it, in whole or in part,
      without limit as to term, up to an aggregate amount of $5.0 million. To date,
      we
      have not received any royalty payments from Sasken.




The
      Sasken 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. In June 2005, an amendment to the Law
      for
      the Encouragement of Research and Development in the Industry, 1984, became
      effective, according to which the OCS has the discretion to grant this
      retroactive approval, but the regulations governing the calculation of the
      amount to be paid to the OCS in this case have not yet been promulgated. There
      can be no assurance that the OCS will grant us retroactive approval for the
      license, and we do not know the exact amount that we may be required to pay
      to
      the OCS if the approval is granted. Accordingly, we are obligated to repay
      all
      funds provided by the OCS, including accrued interest at the LIBOR rate. We
      have
      provided an allowance in our financial statements in the amount of approximately
      $3.3 million to reflect our estimate of our obligation to the OCS. We may also
      be subject to certain criminal penalties for violation of the applicable statues
      that govern OCS grants and their repayment obligations. If we are required
      to
      pay to the OCS the estimated amounts or amounts that are significantly higher
      than such estimates, or if criminal proceedings are initiated against IXI Israel
      or any of its officers, our business, financial condition and results of
      operations would be adversely affected.




**Discontinued
      Operations**




From
      2003
      to July 2005, we developed a proprietary OS, which targeted manufacturers of
      affordable mobile phones as well as other mobile devices. This OS was
      differentiated by its extremely low memory footprint and low processing power
      requirements, and its ability to provide a platform that would 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 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, our management decided to discontinue the OS business
      unit, which resulted in significantly reduced operating costs in the short-term
      and allowed our management to focus solely on Ogo device and service related
      activity by transferring available resources and funds to the continuing Ogo
      device and service business.


11


Certain
      components of the OS are currently included in the Ogo device. We will continue
      to develop additional software applications to meet the specific needs of the
      Ogo devices as they evolve. These continuing development capabilities and
      activities enable IXI to rapidly customize Ogo devices to meet the needs of
      its
      customers while providing a cost effective solution due to the OS’s low memory
      foot print and low processing power requirements.




In
      October 2005, as part of the discontinuing of operations of IXI’s OS business,
      and due to our need to increase our cash resources, we granted Sasken, a
      non-exclusive license for the use, development and sale of the OS developed
      by
      IXI. The license enables Sasken to continue the development of the OS and to
      market it to its customers. It also provides that Sasken will own any
      intellectual property rights with respect to its development of the software,
      while IXI will retain ownership of any intellectual property licensed to Sasken.
      In consideration for the license, Sasken paid to us a net license fee in the
      amount of $1.8 million. In addition, Sasken will pay us a royalty of $0.10
      for
      each product unit 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 $5.0 million. To date,
      we have not received any royalty payments from Sasken. See also “- Government
      Grants and Assistance Programs - Israeli Office of the Chief Scientist” above.




In
      order
      to facilitate the agreement with Sasken, in September 2005, IXI Israel entered
      into agreements with certain former employees of the OS business unit for a
      period of six months, in order for those former employees to enter into
      agreements with Sasken to provide support services. A portion of the proceeds
      of
      the net license fee was placed in escrow for the purpose of hiring those former
      employees to act on behalf of Sasken. As of December 31, 2007, the escrowed
      funds had been fully paid to these former employees, and we have no further
      obligations to them.




As
      result
      of this discontinuation of operations, we have one reportable operating segment
      and prepare our financial statements under Statements of Financial Accounting
      Standards No. 131, “Disclosures about Segments of an Enterprise and Related
      Information.”




**Company
      Background**




Our
      principal business address is 1301 Shoreway Road, Suite 380, Belmont, California
      94002, where our executive offices are located. 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. IXI was organized as a corporation under the laws of the State of
      Delaware on July 5, 2000 under the name Ovdat, Inc. On June 6, 2007, pursuant
      to
      an Agreement and Plan of Merger, dated February 28, 2006, as amended, we
      completed our Merger with IXI (the “Merger”). All substantive information dating
      prior to the consummation of the Merger on June 6, 2007 is attributed to IXI
      and
      describes IXI’s historical results and operations.




**Available
      Information**




Our
      corporate website is www.iximobile.com. We make available on our website, free
      of charge, our Securities and Exchange Commission (“SEC”) filings, including our
      Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
      on
      Form 8-K and any amendments to these reports, as soon as reasonably practicable
      after we electronically file these documents with, or furnish them to, the
      Commission. The information on our website is not incorporated by reference
      into
      this Annual Report on Form 10-K.




Our
      website also includes printable versions of our Code of Ethics and the charters
      for each of the Audit, Compensation and Nominating Committees of our Board
      of
      Directors. Each of these documents is also available in print to any stockholder
      who requests a copy by addressing a request to:




IXI
      Mobile, Inc.


1301
      Shoreway Road


Suite
      380


Belmont,
      California 94002


Attn:
      Mr.
      Gadi Meroz, Executive Vice President and General Counsel


12


**Item
      1A. Risk Factors**




*Our
      operations and financial results are subject to various risks and uncertainties
      that could materially affect our business, financial conditions, results of
      operations and the trading price of our common stock. You should carefully
      consider the following risk factors as well as those in other documents we
      file
      with the SEC. The risks and uncertainties described below are not the only
      ones
      we face. Additional risks and uncertainties not presently known to us or that
      we
      currently deem immaterial may also impair our business operations.*




**Risks
      Related to Our Business**




***We
      have a history of losses, which we expect to continue at least in the near
      term,
      which raises substantial doubt about our ability to continue as a going
      concer*** **n.**




We
      have
      incurred operating losses since inception, including net losses of approximately
      $68.6 million, $22.7 million and $12 million in 2007, 2006 and 2005,
      respectively, and we had an accumulated deficit of approximately $160.2 million
      as of December 31, 2007. We also have had and continue to have negative cash
      flows from operating activities. For the years ended December 31, 2007, 2006,
      and 2005 we had negative cash flow from operating activities in the amounts
      of
      $34.5 million, $18.0 million and $15.0 million, respectively.




At
      December 31, 2007, we had cash and cash equivalents available to fund operations
      of approximately $17.3 million. At March 28, 2008, we had cash and cash
      equivalents available to fund operations of approximately $13.1 million
      (unaudited). For the fourth quarter of 2007, our operating expenses (including
      service and manufacturing operations that are a part of cost of goods
      sold), excluding debt service, were approximately $9.0 million (unaudited).
      These conditions raise substantial doubt about our ability to continue as a
      going concern without an increase in revenue and gross profit or obtaining
      additional financing. Our auditors have included in their report with respect
      to
      our consolidated financial statements as of December 31, 2007 and for the three
      year period then ended, an explanatory paragraph stating that, because we have
      incurred recurring operating losses and negative cash flows from operating
      activities, there is substantial doubt about our ability to continue as a going
      concern.





If
      our
      revenues and gross profit do not increase, we will continue to incur significant
      losses and will not become profitable. Further, even if we are able to raise
      additional financing for our operational and financing needs, we also intend
      to
      expand our business, which will result in increased expenses related to sales
      and marketing, research and development, cost of revenues and general and
      administrative. We cannot assure you that our revenues will grow at the same
      pace as our expenses or at all. Additionally, we may encounter unforeseen
      difficulties and complications that require additional unexpected expenditures.
      Our losses may increase in future periods, and there can be no assurance that
      we
      will ever achieve positive cash flows from operating activities or reach
      profitability.




***We
      may not be able to obtain sufficient funding to meet our future operating and
      financing needs and any financing we are able to obtain may be on terms that
      disadvantage current holders of our outstanding securities.***




Our
      business is capital intensive. In recent years, our losses have been
      substantial. In order to continue our operations according to our business
      plan
      and, if required by our lenders, to repay our outstanding indebtedness in cash
      when due, we will require substantial additional equity or debt financing in
      both the short and the long term. On March 28, 2008, we entered into amendments
      to our outstanding loan agreements with Southpoint Master Fund L.P., or
      Southpoint, and Gemini Israel Funds, or Gemini Funds, as well as of the guaranty
      from Gemini Funds of our line of credit from Bank Leumi Le’Israel Ltd, to (1)
      extend the maturity date of all principal payments under the loan arrangements
      from June 2008 and June 2009 to June 5, 2010, (2) increase the interest rate
      from 10% to 20%, effective April 1, 2008, (3) capitalize all interest payments,
      including any accrued and unpaid interest, and (4) amend the prepayment
      provisions upon a change of control to provide that the interest payable shall
      be calculated through the maturity date of June 5, 2010. As a result, at March
      31, 2008, the principal amount outstanding under the loan arrangements is $14
      million in the aggregate, including an aggregate of approximately $3.3 million
      of accrued and unpaid interest. However, failure to obtain additional financing
      will result in the need to significantly curtail our operations in order to
      minimize expenses and the delay or abandonment of some or all of our plans
      for
      development and expansion, which would have a material adverse effect on our
      operating results and financial condition and could harm our ability to grow
      our
      business. We cannot provide any assurance regarding our ability to raise
      additional funds in the future or the terms under which funds would be
      available. If we are unable to secure additional financing, we may be forced
      to
      cease our operations.


13


We
      may
      raise funds in a number of ways, including through the issuance of debt or
      equity, or through other financing. If we borrow funds, we likely will be
      obligated to make periodic interest or other debt service payments, and the
      terms of this debt may impose burdensome restrictions on our ability to operate
      our business. If we sell equity securities, our current stockholders will suffer
      significant dilution in their percentage ownership of common stock.
      Additionally, the prices at which new investors would be willing to purchase
      our
      securities may be lower than the current market price for our common stock,
      which would result in further dilution to current holders of our equity
      securities. We may also be required to grant certain rights, preferences or
      privileges to the parties providing us with additional financing that are senior
      to those of existing holders of our common stock and that may result in holders
      of our current equity securities receiving little or no recovery in the event
      we
      are required to cease operations and liquidate our assets.




***We
      have a limited operating history in an emerging market segment and limited
      experience in distributing our products on a commercial scale, which may
      adversely affect our operating results and financial
      condition.***




The
      mobile messaging market is a relatively new segment of the wireless
      communications industry. We introduced the Ogo product in September 2004. Prior
      to that time, our main focus was on the development of a proprietary software
      technology platform, and we did not focus on commercializing consumer products.
      We have been marketing the Ogo product for a limited time and have had limited
      success to date. We do not have significant experience in selling or marketing
      our products at the level that will be necessary for them to become a commercial
      success, and we do not have any significant brand recognition due to the new
      and
      unproven nature of the Ogo brand. In addition to our lack of marketing, selling
      experience and brand recognition, we also lack experience in providing customer
      support on the consumer level, responding rapidly and effectively to changes
      in
      the market place or new consumer demands, and managing the logistics involved
      in
      the mass marketing of a consumer product. Should we fail to manage these
      activities effectively, we may lose, or fail to gain, market share, which would
      adversely affect our business prospects, operating results and financial
      condition.




***We
      face intense competition and our results of operations will be adversely
      affected if we fail to compete successfully.***




The
      mobile messaging marketing segment of the wireless communications industry
      is
      dynamic, evolving and highly competitive. Certain products compete directly
      with
      our Ogo devices and service, such as Danger’s Sidekick. Other products compete
      by providing alternative solutions for wireless messaging through e-mail, IM,
      SMS, multimedia messaging services, or MMS, and other formats, through a wide
      variety of devices manufactured and marketed by some of the largest companies
      in
      the consumer electronics and telecommunications industries. Those companies
      and
      products include RIM’s BlackBerry products, Palm’s Treo products, and smart
      phones manufactured by most of the main manufacturers of cellular phone devices
      and service. We expect that additional competition will develop, both from
      existing players in the wireless data communications industry and from new
      entrants as demand for wireless access products and services expands and as
      the
      market for these products and services becomes more established. Most of our
      competitors have greater name recognition, larger customer bases and
      significantly greater financial, technical, marketing, public relations, sales,
      distribution and other resources. Additionally, our competitors may have the
      advantage of:




·
            significantly
                greater revenues and financial
                resources;




·
            stronger
                brand and consumer recognition regionally or
                worldwide;




·
            the
                capacity to leverage their marketing expenditures across a broader
                portfolio of mobile and non-mobile
                products;




·
            access
                to core technology and intellectual property, including more extensive
                patent portfolios;




·
            quicker
                pace of innovation;




·
            stronger
                mobile operator relationships;




·
            greater
                resources to make acquisitions;




·
            lower
                labor and development costs; and


·
              broader
                  global distribution and presence.


14




We
      cannot
      assure you that our products will develop mass appeal or achieve market
      acceptance or that we will be able to compete effectively with these companies.
      If we are unable to compete effectively, our sales may not increase and could
      decline, our margins would decline and we would lose market share, any of which
      would materially harm our business, operating results and financial condition.
      Competition may also cause us to reduce prices due to competing solutions that
      are provided at little or no cost as part of a bundled offering or competitors
      offering deep discounts on hosted services in an effort to recapture or gain
      market share or to sell other hosted services. In addition, rates charged by
      our
      mobile operator customers for hosted services could decline significantly,
      resulting in pricing pressures that negatively impact our operating results.
      Competition could also cause our sales cycle to lengthen as potential new
      customers take more time to evaluate competing technologies or delay their
      purchasing decisions in order to determine which technologies are most
      appealing.




***We
      may not be successful in keeping pace with the rapid technological changes
      and
      new product introductions that characterize our
      industry.***




The
      wireless data communications industry is an emerging industry that is
      characterized by rapid technological change and frequent new product
      introductions. Accordingly, our future success depends upon our ability to
      improve our current products and develop and introduce new products offering
      enhanced performance and functionality at competitive prices. Our inability,
      for
      technological or other reasons, to accurately forecast market trends, or to
      enhance, develop and introduce products in a timely manner in response to
      changing market conditions and trends or customer requirements, may have a
      material adverse effect on our results of operations or may result in our
      products becoming obsolete. Our ability to compete successfully will depend
      in
      large measure on our ability to maintain a technically competent research and
      development staff, to adapt to technological changes and advances in the
      industry, and to provide for the continued compatibility of our products with
      evolving industry standards and protocols and competitive network operating
      environments.




Our
      competitors, including potential new market entrants, may implement new
      technologies earlier and may deliver new products and solutions before we do.
      In
      addition, our competitors may provide products and solutions that are more
      advanced or of better quality than ours and may make such products and solutions
      available at more attractive prices, which could significantly harm our
      business, operating results and financial condition. Further, to the extent
      that
      we introduce new, more technologically advanced products, sales of our older
      products will likely decline and we may be required to reduce prices or write
      off inventory of our older products.




***Mergers,
      consolidation or other strategic transactions in the communications industry
      could weaken our competitive position, reduce the number of our mobile operator
      customers and adversely affect our business.***




The
      communications industry continues to experience consolidation and an increased
      formation of alliances among communications service providers and between
      communications service providers and other entities. Should one of our
      significant mobile operator customers consolidate or enter into an alliance
      with
      another entity, this could have a negative material impact on our business.
      Such
      a consolidation and alliance may cause us to lose a mobile operator customer
      or
      require us to reduce prices as a result of enhanced customer leverage. We may
      not be able to offset the effects of any price reductions. We also may not
      be
      able to expand our base of mobile operator customers to offset any revenue
      declines if we lose a mobile operator customer or if our transaction volumes
      decline. In addition, if two or more of our competitors or mobile operator
      customers were to merge or partner, the change in the competitive landscape
      could adversely affect our ability to compete effectively. Our competitors
      may
      also establish or strengthen cooperative relationships with their mobile
      operator customers, sales channel partners or other parties with whom we have
      strategic relationships, thereby limiting our ability to promote our devices
      as
      hosted services. Any of these events could reduce revenue and adversely affect
      our operating results.




***Our
      success is strongly tied to the popularity of our Ogo hosted services and
      devices with subscribers and is subject to risks associated with unpredictable
      and continually changing consumer tastes. If our Ogo mobile devices do not
      achieve market acceptance by consumers, sales of our mobile devices and our
      revenues will decline.***




Even
      if
      our Ogo hosted services and devices are successfully introduced and initially
      adopted, a subsequent shift in the requirements of our customers, market
      dynamics or the preferences of consumers could cause a decline in their
      popularity. For example, to date, our customers have marketed Ogo devices
      primarily to young adults and teenagers. We believe that the current popularity
      of instant messaging has contributed to the sales of Ogo mobile devices among
      that demographic. The tastes of these consumers are unpredictable and subject
      to
      rapid change, based in part on changing trends within the popular culture.
      In
      addition, these consumers are strongly influenced by the pricing structure
      and
      branding success of our mobile operator and ISP customers, over which we have
      no
      control. As the tastes and preferences of consumers change, we cannot assure
      you
      that our Ogo devices will continue to be popular with these consumers or whether
      our customers will be able to structure product offerings that successfully
      market them to other demographic groups. If we and our customers are not able to
      market Ogo devices and our hosted services to these and other consumers, our
      revenues would decline and our business, operating results and financial
      condition would be harmed.


15


***Our
      lengthy sales cycle makes it difficult for us to predict when we will generate
      revenues from new mobile operator customers.***




We
      have a
      lengthy and complex sales process. The integration and testing of our Ogo
      devices and hosted services with our prospective customers requires a
      substantial amount of time before launch by our customer. Our sales cycles
      are
      typically longer and more problematic in new markets. Because of this lengthy
      cycle, we may experience delays from the time we begin the sales process and
      incur increased costs and expenses to obtain a new customer and integrate our
      hosted services until the time we generate revenues from such customer. These
      delays may make it difficult to predict when we will generate revenues from
      new
      customers.




***Our
      financial results could vary significantly from quarter to quarter and are
      difficult to predict.*** ****




Our
      revenues and operating results could vary significantly from quarter to quarter
      because of a variety of factors, many of which are outside of our control.
      As a
      result, comparing our operating results on a period-to-period basis may not
      be
      meaningful. In addition, because of our limited history of sales of our Ogo
      devices, we may not be able to predict our future revenues or results of
      operations. Any significant variations in our results of operations as a result
      of these accounting policies could adversely impact the price of our common
      stock.




We
      base
      our current and future expense levels on our internal operating plans and sales
      forecasts, and our operating costs are to a large extent fixed. As a result,
      we
      may not be able to reduce our costs sufficiently to compensate for an unexpected
      shortfall in revenues, and even a small shortfall in revenues could
      disproportionately and adversely affect our financial results for a particular
      quarter. We may also incur significant or unanticipated expenses if we need
      to
      acquire licenses to third party technology and/or develop new hosted services
      based on new and emerging technologies. These engineering development efforts
      may take longer than anticipated, which could delay or prevent the commercial
      introduction of new or enhanced Ogo devices or hosted services, which would
      have
      an adverse impact on our business and operating results.




In
      addition to the other risk factors discussed herein, factors that may contribute
      to the limited visibility and variability of our quarterly results include:




·
            the
                number of and timing of release of new Ogo
                devices;




·
            uncertain
                and limited visibility into the volume of Ogo device orders by our
                customers;




·
            our
                lengthy and complex sales process;




·
            the
                efforts of our customers in marketing Ogo devices, including service
                plans
                and promotions, sales channels supported, sales compensation, device
                subsidies, device positioning and direct marketing
                programs;




·
            the
                rate of subscriber turnover from Ogo devices to competitive
                products;




·
            the
                renegotiation or expiration of existing customer
                agreements;




·
            the
                impact of outages of our hosted services, or of our customers’ network
                services;




·
            changes
                in pricing policies by us, our competitors or our
                customers;




16


·
            changes
                in the mix of hosted services that we provide or our customers provide,
                which have varying gross margins;




·
            fluctuations
                in the size and rate of growth of overall consumer demand for mobile
                devices and related content;




·
            our
                success in entering new geographic
                markets;




·
            future
                changes in accounting rules governing recognition of
                revenue;




·
            the
                seasonality of our industry; and




·
            general
                economic and political conditions in the countries where we operate
                or Ogo
                devices are used.




As
      a
      result of these and other factors, our operating results may vary and not meet
      expectations. If we fail to meet market expectations, the trading price of
      our
      common stock would decrease.




***Our
      results may vary significantly from period to period due to the timing of the
      release of new Ogo device models or new hosted services, as well as the
      seasonality of the mobile device market.***




We
      may
      experience spikes in new subscriber activations and hosted services revenues
      as
      a result of the release of new Ogo device models or new hosted services. In
      addition, during the holiday shopping season, mobile device sales typically
      increase, driving new subscriber activations. If we fail to introduce new Ogo
      devices and new hosted services, for any reason, and particularly during key
      selling periods, our sales will suffer disproportionately. Our ability to meet
      development schedules is affected by a number of factors, including the creative
      processes involved and the coordination of large and sometimes geographically
      dispersed development teams required by the increasing complexity of our hosted
      services. Any failure to meet anticipated development or release schedules
      would
      likely result in a delay of revenues or possibly a significant shortfall in
      our
      revenues and cause our operating results to be materially different than
      anticipated.




***We
      may not be successful in managing rapid growth of our
      business.***




Our
      business plan and our anticipated increased product sales will require us to
      improve our financial and management controls, reporting systems and procedures.
      In addition, we will need to hire, train and manage additional employees and
      increase production capacity. If we are unable to hire the skilled employees
      we
      need or increase our production capacity in a timely manner, we may be unable
      to
      fulfill the orders for our products or meet the goals of our business plans.
      There can be no assurance that we will be able to effectively manage such
      growth.




***We
      are dependent on a small number of customers. The loss of any significant
      customer could harm*** **our financial performance.**




We
      currently sell our Ogo products to a limited number of mobile operators and
      ISPs. We are dependent upon these customers for nearly all of our sales, both
      in
      terms of numbers of units sold and the aggregate dollar values of our sales.
      For
      the year ended December 31, 2007, Swisscom Mobile, the leading mobile operator
      in Switzerland, accounted for approximately 48% of our continuing revenues,
      1&1 internet AG, one of the largest European ISPs, accounted for
      approximately 29% of our continuing revenues and Ancel, a leading mobile
      operator in Uruguay, accounted for approximately 11% of our continuing revenues
      (which are attributed primarily to inactive devices; see Item 7, “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Sources of Revenues”). We anticipate that we will continue to rely on a small
      number of customers during 2008. If any significant customer discontinues its
      relationship with us for any reason, or reduces or postpones current or expected
      purchase commitments for our products, our business prospects, operating results
      and financial condition may be materially adversely affected.




***We
      are dependent on a single third party manufacturer and on certain suppliers
      and
      service providers. Any interruption in our relationships with these parties
      may
      adversely affect our business.***




Our
      Ogo
      devices are currently manufactured for us by a single manufacturer, Chi Mei
      Communication Systems, Inc. of Taiwan, or Chi Mei, which produces the Ogo
      devices in its facilities in China. We do not have a supply contract with Chi
      Mei and Chi Mei is not committed to produce a specified minimum quantity of
      Ogo
      devices. Moreover, the Ogo incorporates a modem that is proprietary to Chi
      Mei.
      It is possible that Chi Mei would be unable or unwilling to fulfill our orders
      for Ogo devices or unable or unwilling to fill our orders for their proprietary
      modem. If this were to happen, we would incur delays of several months while
      preparing to work with another manufacturer, and due to our reliance on Chi
      Mei’s proprietary GSM modem, we would need to redesign the Ogo device to
      incorporate a different modem. We cannot assure you that an alternative
      manufacturer would be able to produce the Ogo devices at the rate and with
      the
      quality that we require. In this event, we may be unable to meet the demand
      for
      Ogo devices and may suffer a material adverse impact on our reputation, business
      and financial results.




17


We
      currently license from third parties certain software used in the manufacture
      and operation of our products. Any of these suppliers may discontinue or
      restrict licensing software to us. If a supplier discontinued or restricted
      the
      supply of a component or licensing software, our business may be harmed by
      the
      resulting product manufacturing and delivery delays.




We
      provide hosted Internet services that include gateways and servers hosted in
      various datacenters. These services are critical for the efficient delivery
      of
      certain Ogo applications, including email and instant messaging, as well as
      value added functions such as over-the-air delivery of new software applications
      and updates. These hosted Internet services are outsourced to a small number
      of
      third party service providers. Should any of these service providers encounter
      financial difficulties, technical problems or other adversities, we may be
      required to establish hosting relationships with additional service providers,
      negotiate with other service providers with whom we have an existing
      relationship or begin providing such services on our own. Any of these
      alternatives may require a lengthy period of transition, which would cause
      us to
      incur considerable expense and may result in our service being unavailable
      or
      unreliable for a period of time, which would have a significant adverse effect
      on our business.




***Enhancing
      our product offerings may require us to obtain licenses from third parties
      that
      may not be available on commercially favorable terms, or at
      all.***




In
      the
      future, it may be necessary or desirable to obtain third party technology
      licenses relating to one or more of our products or relating to current or
      future technologies to enhance our product offerings. For example, we may not
      be
      able to upgrade our hosted services to support certain advanced features and
      functionality, such as mobile video services or Wi−Fi, without obtaining
      technology licenses from third parties. Obtaining these licenses may be costly
      and may delay the introduction of such features and functionality. We may not
      be
      able to obtain licensing rights to the needed technology or components on
      commercially reasonable terms, if at all. The inability to enhance our product
      offerings, offer advanced features or functionality, or a delay in our ability
      to upgrade our hosted services, may adversely affect consumer demand for our
      products and hosted services and, consequently, harm our business.




***We
      are dependent on certain key personnel.***




We
      are
      highly dependent on the key members of our executive management team and
      technical staff, including, in particular, Gideon Barak, our co-chairman of
      the
      board, and Amit Haller, our chief executive officer. Mr. Barak and Mr. Haller
      have unique experience and expertise in the fields required to develop our
      products. We do not currently carry “key man” insurance with respect to any of
      our employees. We depend on our management’s and technical staff’s experience
      and deep familiarity with our technology to execute our business strategy.
      Accordingly, the retention of key members of our executive management team
      and
      technical staff is particularly important to our future success. The departure
      or other loss of any such member of our executive management team or technical
      staff may harm our ability to effectively market our products.




Our
      success depends in large part on our ability to attract, retain and motivate
      qualified, highly skilled scientific and technical personnel. Competition for
      certain employees, particularly development engineers, is intense. We may be
      unable to attract and retain sufficient numbers of highly-skilled employees,
      which would have a significant adverse effect on our business, financial
      condition and results of operations.




***Network
      disruptions may affect the performance of our services and harm our
      reputation.***




Our
      service is provided through a combination of the wireless networks of mobile
      operators and our network operations center. Our operations rely to a
      significant degree on the efficient and uninterrupted operation of complex
      technology systems and networks, which are in some cases integrated with those
      of third parties. Our hosted technology systems are potentially vulnerable
      to
      damage or interruption from a variety of sources including fire, earthquake,
      power loss, telecommunications or computer systems failure, human error,
      terrorist acts, war or other events. Although we pursue various measures to
      manage the risks related to network disruptions, there can be no assurances
      that
      these measures will be adequate or that the redundancies built into our systems
      and network operations will work as planned in the event of a disaster. In
      addition, as our subscriber base grows, additional strain will be placed on
      the
      technology systems and networks, which may increase the risk of a network
      disruption. Any outage in a network or system, or other unanticipated problem
      that leads to an interruption or disruption of our service may have a material
      adverse effect on our operations, sales and operating results. In addition,
      poor
      performance in or disruptions of the services that we deliver to our customers
      may harm our reputation, delay market acceptance of our services and subject
      us
      to liabilities.




18


***We
      may be subject to claims arising from product
      defects.***




Our
      products are highly complex and sophisticated and, from time to time, may
      contain design defects that are difficult to detect and correct. There can
      be no
      assurance that our products will be free of design defects after commencement
      of
      commercial shipments or, if discovered, that we will be able to correct such
      defects in a timely manner or at all. The occurrence of errors and failures
      in
      our products may result in loss of or delay in market acceptance of our
      products, and correcting such errors and failures in our products may require
      us
      to expend significant amounts of capital. Our products are integrated into
      our
      customers’ networks and equipment. In the event that any errors or failures in
      our products cause damage to our customers’ networks and equipment, the sale and
      support of our products may subject us to the risk of product liability or
      warranty claims based on such damage. In addition, the failure of our products
      to perform to customer expectations may give rise to warranty claims. The
      consequences of such errors, failures and claims may have a material adverse
      effect on our business, results of operations and financial
      condition.




***Our
      business relies on third party network infrastructure developers and software
      platform vendors. Consequently, we are exposed to the risk that these developers
      will be unable to develop or maintain their network infrastructure or market
      position.***




We
      rely
      on wireless network infrastructure developers for access to emerging wireless
      data protocols. In addition, our business is dependent on the development,
      deployment and maintenance by third parties, primarily mobile operators, of
      their wireless infrastructure and on the sales of their products and services,
      which incorporate our products. For example, if a mobile operator’s network
      breaks down, the Ogo devices, as well as any other cell phone on that network,
      will not function. Market acceptance of our products may also depend on support
      from third party software developers and the marketing efforts of value-added
      resellers, ISPs and computer manufacturers and distributors. The loss of, or
      inability to maintain, any of these relationships, or the failure of such third
      parties to execute or effectively manage their own business plans, may result
      in
      delays or reductions in product shipments, which may have a material adverse
      effect on our business, operating results and financial condition.




Additionally,
      market acceptance of Ogo devices and hosted services will depend in part on
      the
      quality of the wireless networks utilized by our customers and the ability
      of
      our customers to effectively manage their subscribers’ expectations. Wireless
      communications have experienced a variety of outages and other delays as a
      result of infrastructure and equipment failures, and could face outages and
      delays in the future. These outages and delays could reduce the level of
      wireless communications usage as well as our ability to provide our mobile
      data
      services successfully. In addition, changes by a mobile operator to network
      infrastructure may interfere with the delivery of our mobile data services
      and
      may cause subscribers to lose functionality in Ogo devices that they have
      already purchased. Any of this could harm our business, operating results and
      financial condition.




***The
      sale of our products is dependent upon the continued use and expansion of the
      Internet.***




Since
      browser-based email and web browsing are key features of our products, increased
      sales of our products and services will depend upon the expansion of the
      Internet as a leading platform for communication and commerce. Internet usage
      may be inhibited for a number of reasons. The Internet infrastructure may not
      be
      able to support the demands placed on it by continued growth and may lose its
      viability due to delays in the development or adoption of new equipment,
      standards and protocols required to handle increased levels of Internet
      activity, security, reliability, cost, ease-of-use, accessibility and quality
      of
      service. In addition, consumer concerns about the transmission of confidential
      information over the Internet have been a significant barrier to electronic
      communications and commerce. Any well-publicized compromise of security may
      further deter people from using the Internet to transmit confidential
      information or conduct commercial transactions. Additionally, it is possible
      that federal, state, provincial, local or foreign governments may adopt laws
      or
      regulations limiting the use of the Internet, or the use of information
      collected from communications or transactions over the Internet, or may seek
      to
      tax Internet commerce, any of which may significantly reduce the use of the
      Internet. If the Internet does not continue to become a widespread
      communications medium and commercial marketplace, the demand for our products
      and services may be materially adversely affected.




19


***Government
      regulation of wireless spectrum and radio frequencies may provide opportunities
      for competitors or limit industry growth.***




The
      allocation of radio frequencies around the world is regulated by government
      bodies and there is limited spectrum available for use in the delivery of
      wireless services. If there is insufficient spectrum allocated to the delivery
      of wireless communications services, our growth and financial performance may
      be
      adversely impacted. In addition, deregulation of spectrum may allow new wireless
      technologies to become viable, which may compete with our products and
      services.




***To
      the extent that Ogo devices have wireless technology, we are subject to
      regulation, certification and perceived health risks that may affect our
      business.***




Our
      products must be approved by the Federal Communications Commission, or FCC,
      before they can be used in commercial quantities in the United States. The
      FCC
      requires that access devices meet various standards, including safety standards
      with respect to human exposure to electromagnetic radiation and basic signal
      leakage. Due to our global presence, we must also satisfy regulatory
      requirements in Europe, Israel and other jurisdictions. Although our products
      and solutions are designed to meet relevant safety standards and recommendations
      globally, any perceived risk of adverse health effects of wireless communication
      devices in general may reduce our sales and have a material adverse affect
      on
      our business.




In
      addition to regulatory approvals, product manufacturers must obtain
      certification from the networks upon which their products operate. Failure
      to
      obtain the required regulatory approvals or network certifications for any
      new
      products on a timely basis may have a material adverse effect on our business,
      operating results and financial condition.




***The
      occurrence or perception of a breach to our security measures or an
      inappropriate disclosure of confidential or personal information may harm our
      business.***




Our
      service involves the transmission of proprietary and confidential information
      for customers and provides us with access to confidential or personal
      information and data. We have implemented security measures to protect this
      information, but if these measures are breached or if there is an inappropriate
      disclosure of confidential or personal information or data, we may be exposed
      to
      litigation, possible liability and statutory sanctions. Even if we are not
      held
      liable, a security breach or inappropriate disclosure of confidential or
      personal information and/or data may harm our reputation, and even the
      perception of security vulnerabilities in our products may lead some customers
      to purchase competitive products or services. In addition, we may be required
      to
      invest additional resources to protect ourselves against damages caused by
      these
      actual or perceived disruptions or security breaches in the future which would
      increase our operation costs and increase our capital requirement to operate
      our
      business.




***We
      depend on our mobile operator and ISP customers to increase our subscriber
      base.***




We
      are
      dependent on our ability to establish and develop new relationships and to
      build
      on existing relationships with mobile operator and ISP customers, which we
      rely
      on to deliver current and future products and services. There can be no
      assurance that we will be successful in maintaining or advancing our
      relationships with mobile operator and ISPs. If any significant customer
      discontinues its relationship with us for any reason, or reduces or postpones
      current or expected purchase commitments for products and services, our business
      prospects, operating results and financial condition may be materially adversely
      affected.




There
      can
      be no assurance that the mobile operator and ISPs will act in a manner that
      will
      promote the success of our products. The following factors are important to
      the
      success of our products and the growth of our subscriber base but are largely
      within the control of mobile operator and ISPs:




20


·
            the
                quality and coverage area of voice and data services offered by our
                customers;




·
            the
                degree to which our customers actively promote our
                products;




·
            the
                pricing and terms of voice and data plans that our customers will
                offer
                for use with our products;




·
            the
                extent to which our customers offer and promote competitive products
                and
                services;




·
            the
                pricing of devices and services of our
                competitors;




·
            the
                number of new subscriber activations, as well as retention of existing
                subscribers;




·
            our
                customers’ interest in testing our products on their
                networks;




·
            network
                performance and required investments in
                upgrades;




·
            future
                investments in evolving network technologies, such as 3G network
                capability, support for new software technologies and support for
                third
                party devices; and




·
            the
                continued support and distribution of our products and services despite
                the possibility that claims of patent infringement involving our
                products
                may be filed against us, our customers and
                licensees.




***Our
      contracts with our IM suppliers require us to pay certain minimum amounts
      irrespective of the level of our sales.***




We
      are
      party to contracts with major IM providers that allow us to provide users of
      Ogo
      devices with access to the software and infrastructure of the messaging service.
      These contracts with the IM providers require us to pay certain amounts per
      subscriber, in return for which we are able to furnish the software and have
      access to the infrastructure that makes it possible for Ogo users to use the
      instant messaging services. The contracts require us to pay certain minimum
      amounts each month or year, with a minimum payment amount that assumes we have
      a
      certain number of subscribers without regard to the actual number of subscribers
      that we have. It is possible that we will not acquire new subscribers at a
      rate
      that matches the minimum subscriber payment, in which case we would be required
      to pay the IM provider the minimum payment, resulting in a payment per
      subscriber that is significantly greater than the payment per subscriber that
      we
      have projected. This may have a material adverse effect on our financial
      condition.




***We
      are exposed to currency risk from our operations in various
      countries.***




A
      substantial portion of our revenues are now, and may continue to be, realized
      in
      Euros. The majority of our operating and manufacturing expenses are paid in
      U.S.
      Dollars and New Israeli Shekels. Fluctuations in the exchange rate between
      the
      Euro, the US Dollar and the New Israeli Shekel may have a material effect on
      our
      results of operations. In particular, we may be adversely affected by a
      significant weakening of the Euro against the US Dollar and the New Israeli
      Shekel. To date, we have not engaged in any hedging transactions but may engage
      in such transactions in the future to reduce our exposure to currency
      fluctuations.




***Our
      substantial operations and sales in international markets subject us to added
      business, political, regulatory, operational, financial and economic risks
      that
      could increase our costs and hinder our growth.***




In
      the
      year ended December 31, 2007, substantially all of our operations and our
      revenues were derived from sales outside the United States. Because of our
      foreign sales and operating activities, we are exposed to a number of risks
      that
      would not be relevant if our sales were largely within the United States, such
      as:




·
            the
                complexities and expense of administering a business outside the
                United
                States;




·
            complications
                in compliance with, and unexpected changes in, regulatory
                requirements;




·
            foreign
                laws, including data privacy laws, as well as international import
                and
                export legislation;




21


·
            trading
                and investment policies;




·
            consumer
                protection laws that impose additional obligations on us or restrict
                our
                ability to provide limited warranty
                protection;




·
            corruption,
                requests for improper payments or other actions that may violate
                US
                foreign corrupt practices acts, uncertain legal enforcement and physical
                security;




·
            foreign
                currency fluctuations;




·
            exchange
                or pricing controls;




·
            tariffs
                and other trade barriers;




·
            difficulties
                in collecting accounts receivable;




·
            potential
                adverse tax consequences;




·
            uncertainties
                of laws and enforcement relating to the protection of intellectual
                property;




·
            unauthorized
                copying of software;




·
            political,
                economic and social instability;




·
            difficulty
                in managing a geographically dispersed workforce in compliance with
                diverse local laws and customs; and




·
            other
                country-specific factors.




In
      addition, developing hosted services that are compatible with other languages
      or
      cultures can be expensive. As a result, our ongoing international expansion
      efforts may be more costly than we expect. Further, expansion into developing
      countries subjects us to the effects of regional instability, civil unrest
      and
      hostilities, and could adversely affect us by disrupting communications and
      making travel more difficult. As we continue to operate internationally and
      expand our business internationally, our success will depend, in large part,
      on
      our ability to anticipate and effectively manage these and other risks
      associated with our international operations. However, any of these factors
      could adversely affect our international operations and, consequently, our
      operating results.




***Our
      worldwide operations subject us to income and other taxes in many jurisdictions,
      and we must exercise significant judgment in order to estimate our worldwide
      financial provision for income taxes. There can be no assurances that our
      historical provisions and accruals for income and other taxes will be
      adequate.***




We
      are
      subject to income and other taxes in and numerous foreign jurisdictions.
      Significant judgment is required in determining our worldwide liability for
      income and other taxes. In the ordinary course of our business, there are many
      transactions and calculations where the ultimate tax determination is uncertain.
      Although we believe that our tax estimates are reasonable, there can be no
      assurances that the final determination of any tax audits will not be materially
      different from that which is reflected in historical income and other tax
      provisions and accruals. Should additional taxes be assessed as a result of
      an
      audit, litigation or changes in tax laws, there could be a material adverse
      effect on our current and future results and financial condition. Our future
      effective tax rate will depend on the relative profitability of our domestic
      and
      foreign operations, the statutory tax rates and taxation laws of the related
      tax
      jurisdictions, the tax treaties between the countries in which we operate,
      and
      the timing of the release, if any, of the valuation allowance.




***Reduced
      spending by our customers due to the uncertainty of economic and geopolitical
      conditions may negatively affect our business and results of
      operations.***




Economic
      and geopolitical uncertainties may directly affect the marketing and
      distribution of our Ogo devices and hosted services by our customers. As current
      and future conditions in the domestic and global economies remain uncertain,
      it
      is difficult to estimate the level of economic growth, which may cause existing
      or potential customers to reduce capital spending on technology products.
      Accordingly, the future direction of the overall domestic and global economies
      will have an impact on our overall performance. Economic conditions in the
      United States, Europe and elsewhere affecting the wireless industry in which
      we
      compete, are beyond our control. If these economic conditions worsen or fail
      to
      improve, we may experience reduced demand for and pricing pressure on our hosted
      services, which could harm our operating results. In addition, acts of terrorism
      and the outbreak of hostilities and armed conflicts between countries have
      created uncertainties that may affect the global economy and could have a
      material adverse effect on our business, operating results and financial
      condition.




22


***We
      may be unable to utilize loss carry forwards in the
      future.***




We
      have
      accumulated operating losses that can be carried forward and offset against
      taxable income, and which result in deferred tax assets. Because we currently
      believe that it is more likely than not that we will not realize the deferred
      tax assets resulting from the carry forward in the foreseeable future, we
      reserved the full amount of the value of the benefit of the deferred tax assets.
      The change in valuation allowance as of December 31, 2007 compared to December
      31, 2006 was an increase in the reserve amount of approximately
      $11.9 million. As of December 31, 2007, the state and the federal tax
      losses carryforwards of our US subsidiary were approximately $16.4 million
      and
      $19.8 million, respectively. Such losses are available to be offset against
      any
      future US taxable income of the US subsidiary and will expire in 2021 and 2027,
      respectively. Utilization of US net operating losses may be subject to
      substantial annual limitations due to the "change in ownership" provisions
      of
      the Internal Revenue Code of 1986 and similar state provisions. The annual
      limitation may result in the expiration of net operating losses before
      utilization.




**Risks
      Related to Intellectual Property**




***We
      may be unable to protect our intellectual property from unauthorized use or
      infringement by others.***




Our
      success and ability to compete depend in large part upon our ability to protect
      our proprietary technology. We rely on a combination of patent, copyright,
      trademark and trade secret laws, and on confidentiality and invention assignment
      agreements, in order to protect our intellectual property rights.




Monitoring
      unauthorized use of our intellectual property is difficult and costly. The
      steps
      we have taken to protect our proprietary rights may not be adequate to prevent
      misappropriation of our intellectual property. Further, we may not be able
      to
      detect unauthorized use of, or take appropriate steps to enforce, our
      intellectual property rights. Any failure by us to meaningfully protect our
      intellectual property could result in competitors offering products that
      incorporate our most technologically advanced features, which could seriously
      reduce demand for Ogo devices and services.




We
      have
      also developed technical knowledge that, although not patented, is considered
      to
      be significant in enabling us to compete. However, the proprietary nature of
      such knowledge may be difficult to protect. We typically enter into agreements
      with our employees and consultants who are involved in our research and
      development activities or who have access to any of our confidential information
      to prohibit these individuals from disclosing any confidential information
      or
      trade secrets. There can be no assurance that these agreements will provide
      meaningful protection of our proprietary information in the event of
      unauthorized use or disclosure of this information or in the event that a
      previous employer of any of our employees or consultants makes a competing
      claim
      to our proprietary information or technology. Furthermore, in the absence of
      patent protection, we may be exposed to competitors who independently develop
      equivalent technology or gain access to our knowledge. Any of these factors
      could have a material adverse effect on our operations, financial condition
      and
      results of operations.




The
      applications for registration of the “Ogo” trademark in Europe and in the United
      States for our products have been met with opposition in both jurisdictions.
      In
      the United States an agreement was reached with the opposing party, thus
      removing the obstacle for the registration of the mark. In Europe we have a
      registered trademark for the stylized “OGO” logo, but there can be no assurance
      that we will be successful in obtaining the trademark registration “OGO”. If we
      are unable to obtain trademark registrations in the relevant jurisdictions,
      we
      may be unable to prevent others from using the mark or similar marks to market
      similar or competitive products, which may adversely affect our ability to
      attain consumer recognition of our brand, expose us to claims from our customers
      and harm our business results.




23


***The
      use of our technology may give rise to claims by third parties of infringement
      of their intellectual property rights.***




Our
      commercial success depends upon us not infringing the intellectual property
      rights owned by others. The industry in which we compete has many participants
      that own, or claim to own, intellectual property, including participants who
      have been issued patents, may have filed patent applications or may obtain
      additional patents and proprietary rights for technologies similar to those
      used
      by us in our products. Some of these patents may grant very broad protection
      to
      the owners of the patents. We cannot determine with certainty whether any
      existing third-party patents or the issuance of any new third-party patents
      would require us to alter our technologies, obtain licenses or cease certain
      activities.




We
      have
      received, and may receive in the future, assertions and claims from third
      parties that our products infringe on their patents or other intellectual
      property rights. We may be subject to these claims either directly or through
      indemnities against these claims that we provide to certain of our customers.
      Litigation will likely be necessary to determine the scope, enforceability
      and
      validity of third-party proprietary rights or to establish our proprietary
      rights. Some of our competitors have, or are affiliated with companies having,
      substantially greater resources than us, and these competitors may be able
      to
      sustain the costs of complex intellectual property infringement litigation
      to a
      greater degree and for longer periods of time than we can. Those intellectual
      property infringement claims, regardless of their merit, may:




·
            adversely
                affect our relationships with our
                customers;




·
            be
                time-consuming to evaluate and
                defend;




·
            result
                in costly litigation;




·
            divert
                management’s attention and
                resources;




·
            cause
                product shipment delays or
                stoppages;




·
            subject
                us to significant liabilities;




·
            require
                us to enter into royalty or licensing agreements;
                and




·
            require
                us to discontinue certain activities or to stop selling our products
                and
                services in certain markets.




In
      addition to being liable for potentially substantial damages relating to a
      patent or other intellectual property infringement action against us or, in
      certain circumstances, our customers with respect to our products and services,
      that is not resolved in our favor, we may be prohibited from developing or
      commercializing certain technologies and products unless we obtain a license
      from the holder of the patent or other intellectual property rights. There
      can
      be no assurance that we will be able to obtain any such license on commercially
      reasonable terms, or at all. If we do not obtain such a license, our business,
      operating results and financial condition may be materially adversely affected
      and we may be required to restructure our business operations by discontinuing
      operations in certain markets and focusing on continuing operations in
      others.




***We
      may not be able to obtain patents or other intellectual property protections
      necessary to secure our proprietary technology.***




Our
      commercial success depends upon our ability to develop new or improved
      technologies and products, and to successfully obtain patent or other
      proprietary or statutory protection for these technologies and products in
      the
      United States and other countries. We seek to patent concepts, components,
      protocols and other inventions that are considered to have commercial value
      or
      that will likely yield a technological advantage. We currently own rights to
      a
      variety of patented and patent pending technologies relating to wireless
      communication in the United States and overseas. We continue to devote
      significant resources to protecting our proprietary technology. However, we
      may
      not be able to develop technology that is patentable, patents may not be issued
      in connection with our pending applications and our existing patents may not
      be
      sufficient to protect our technology. Furthermore, any patents issued may be
      challenged, invalidated or circumvented and may not provide adequate protection
      or a competitive advantage.




24


A
      number
      of our competitors and other third parties have been issued patents, and they
      may have filed patent applications or may obtain additional patents and
      proprietary rights for technologies similar to those that we have made or may
      make in the future. In addition, the disclosure in our patent applications,
      particularly in respect of the utility of our claimed inventions, may not be
      sufficient to meet the statutory requirements for patentability in all cases.
      As
      a result, there can be no assurances that our patent applications will result
      in
      enforceable patents.




The
      process of seeking patent protection can be long and expensive, and there can
      be
      no assurance that our existing or future patent applications will result in
      patents being issued, or that our existing patents, or any patents which may
      be
      issued as a result of our existing or future applications, will provide
      meaningful protection or a commercial advantage to us. Any issued patents may
      be
      challenged, invalidated or legally circumvented by third parties. We cannot
      be
      certain that our patents will be upheld as valid or proven enforceable. Our
      patents may also fail to prevent the development of competitive products. For
      example, competitors may develop, manufacture and sell products that directly
      compete with our products, which may decrease our sales and diminish our ability
      to compete. In addition, competitors may purchase one of our systems and attempt
      to replicate some or all of the competitive advantages we derive from our
      development efforts, design around our protected technology, or develop their
      own competitive technologies that fall outside of our intellectual property
      rights. Further, some countries in which we intend to market Ogo products do
      not
      effectively protect our intellectual property rights against theft or
      infringement by local companies. If our intellectual property is not adequately
      protected against competitors’ products and methods, our competitive position
      and our business may be adversely affected.




In
      addition to patents, we rely on, among other things, copyrights, trademarks,
      trade secrets, confidentiality procedures and contractual provisions to protect
      our proprietary rights. While we enter into confidentiality and non-disclosure
      agreements with our employees, consultants, contract manufacturers, customers,
      potential customers and others in an attempt to limit access to and distribution
      of proprietary and confidential information, it is possible that:




·
            some
                or all of our confidentiality agreements will not be
                honored;




·
            third
                parties will independently develop equivalent technology or misappropriate
                our technology and/or designs;




·
            disputes
                will arise with our strategic partners, customers or others concerning
                the
                ownership of intellectual property;




·
            unauthorized
                disclosure of source code or our know-how or trade secrets will occur;
                or




·
            contractual
                provisions designed to protect us may not be enforced in foreign
                jurisdictions.




There
      can
      be no assurance that we will be successful in protecting our proprietary
      rights.




**Risks
      Relating to Operations in Israel**




***Security,
      political and economic instability in Israel may impede our ability to operate
      and harm our financial results.***




Our
      research and development facilities, the majority of our executive officers
      and
      directors and a significant operational and administrative office are located
      in
      Israel. Accordingly, security, political and economic conditions in Israel
      may
      directly affect our business. Over the past several decades, a number of armed
      conflicts have occurred between Israel and its Arab neighbors. Any hostilities
      involving Israel or the interruption or curtailment of trade between Israel
      and
      its present trading partners may affect adversely our operations. Since
      September 2000, there has been a marked increase in violence, civil unrest
      and
      hostility, including armed clashes between the State of Israel and the
      Palestinian Authority and other groups in the West Bank and Gaza Strip, and
      acts
      of terror have been committed inside Israel and against Israeli targets in
      the
      West Bank and Gaza. The execution of Israel’s plan of unilateral disengagement
      from the Gaza Strip and some parts of the West Bank, Hamas gaining majority
      of
      the Palestinian Parliament in the elections held in the Palestinian Authority,
      the 2007 Hamas armed overtaking of the Gaza Strip and the recent increase in
      rockets launched from the Gaza Strip into Israel may affect the security of
      Israel, the stability of the region and foreign relations. In July 2006, major
      hostilities broke out between Israel and both Palestinian factions in Gaza
      and
      extremist groups in Lebanon, leading to an escalation of the conflict in the
      area. Increased hostilities, future armed conflicts, political developments
      in
      other states in the region, or continued or increased terrorist activity may
      make it more difficult for us to conduct our operations in Israel, which would
      likely increase our costs and adversely affect our financial results. For
      example, many of our male employees in Israel are obligated to perform annual
      military reserve duty, which typically ends between 44 and 46 years of age
      and
      in some cases up to 54 years of age, so any major escalation of hostilities
      in
      the region may result in a portion of our employees being required to perform
      military duty for an extended period of time.




25


***It
      may be difficult for you to enforce a U.S. judgment against us, our executive
      officers and our directors, to assert U.S. securities laws claims in Israel
      or
      to serve process on our executive officers and
      directors.***




The
      majority of our executive officers and directors are located outside the United
      States, and a majority of our assets and the assets of these persons are located
      outside the United States. Therefore, a judgment obtained against us or any
      of
      them in the United States, including one based on the civil liability provisions
      of the U.S. federal securities laws, may not be collectible in the United States
      and may not be enforced by an Israeli court. Further, if a foreign judgment
      is
      enforced by an Israeli court, it generally will be payable in Israeli currency.
      It also may be difficult for you to assert U.S. securities law claims in
      original actions instituted in Israel.




***The
      Israeli “Approved Enterprise” tax benefits for which we qualify requires us to
      meet specific conditions. If we fail to meet these conditions or if the programs
      are modified or terminated, these tax benefits may be terminated or reduced,
      which would increase our taxes and lower our net
      income.***




To
      maintain our qualification as an “Approved Enterprise” under Israeli tax law, we
      must continue to meet conditions set forth in Israeli law and regulations.
      Some
      of these conditions require us to make specified investments in property and
      equipment and to finance a percentage of our investments with share capital.
      If
      we fail to comply with these conditions in the future, the benefits we receive
      may be cancelled or reduced and we may be required to pay increased taxes or
      refund the amount of the tax benefits received, plus interest and amount
      calculated to release the Israeli Consumer Price Index. The Israeli government
      may terminate the Approved Enterprise Program or modify the conditions for
      qualification at any time. On April 1, 2005, the Israeli Parliament passed
      an
      amendment in which it revised the criteria for investments qualified to receive
      tax benefits. As a result of the amendment, certain tax-exempt income will
      be
      subject to taxes upon distribution or liquidation, and we may be required to
      record a deferred tax liability with respect to such tax-exempt income. As
      of
      December 31, 2007, we did not generate any income that qualifies for treatment
      under the amendment. The new tax regime will apply to new investment programs
      only and will not affect our qualification as an Approved
      Enterprise.




We
      received 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 to expand the product definition initially approved by the
      Investment Center. We may submit, from time to time, additional requests for
      expansion of our Approved Enterprise programs or for new programs to be
      designated as Approved Enterprises. These requests might not be approved. The
      termination or reduction of these tax benefits, or our inability to secure
      approvals for expanded or new programs, may increase our taxes, thereby reducing
      our profits or increasing our losses. Additionally, as we increase our
      activities outside of Israel, our increased activities will not be eligible
      for
      inclusion in the Israeli tax benefit programs. To date, we have not recorded
      any
      taxable income in Israel. Accordingly, we have received no tax benefits to
      date
      under the Approved Enterprise tax program, although these benefits may become
      meaningful if and when we realize taxable income.




IXI
      Israel has filed an application with the Investment Center to approve production
      of the Ogo products outside Israel, change the business program of its “Approved
      Enterprise” and expand the product definition initially approved by the
      Investment Center, as well as to change the number of IXI Israel's employees
      as
      reported to the Investment Center. There can be no assurance that the Investment
      Center will approve the requested changes to the “Approved Enterprise” program.
      If IXI Israel's request is not approved, in whole or in part, IXI Israel may
      not
      be entitled to all of the tax benefits described above.




If
      dividends are distributed out of tax exempt profits, as above, IXI Israel will
      be subject to corporate tax in the year the dividend is distributed in respect
      of the gross amount distributed 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 dividend recipient is subject to withholding tax at
      the source of reduced tax rate of 15%. As of December 31, 2007, IXI Israel
      has
      not created a maximum deferred tax liability due to its accumulated losses
      and
      the accumulated deficit does not include tax exempt profits earned by an
“Approved Enterprise”.




26


***We
      have received government grants for research and development expenditures that
      require us to satisfy specified conditions and restrict our ability to
      manufacture products and transfer technologies outside of Israel. In 2005,
      we
      transferred certain technology outside of Israel, and as a result, we might
      be
      required to refund grants previously received together with interest and
      penalties and may be subject to criminal charges.***




Our
      research and development efforts have been financed, in part, through grants
      from the Israeli Office of the Chief Scientist, or OCS. As of December 31,
      2007,
      we had received approximately $2.8 million (including $1.9 million relating
      to
      discontinued activities) of these grants. We are required to repay the entire
      amount of these grants to the OCS plus applicable interest at the London Inter
      Bank Offer Rate, or LIBOR, rate through payments of royalties amounting to
      3% of
      revenues for the first three years from the date of the first repayment and
      between 4% and 5% of revenues beginning the fourth year from the date of the
      first repayment until the entire amount is repaid, including interest. In recent
      years, the government of Israel has accelerated the rate of repayment of OCS
      grants and may further accelerate them in the future. In addition, if we fail
      to
      repay the royalties to the OCS, we may be required to refund any grants
      previously received together with interest and penalties.




Technology
      developed with OCS funding is subject to transfer restrictions and any transfer
      of such technology or manufacturing rights generally requires the approval
      of an
      OCS committee. Such approvals, if granted, may be subject to the following
      conditions:




·
            the
                transfer of technology that was developed, in whole or in part, using
                OCS
                funding, may require a payment to the OCS of a portion of the
                consideration that we receive for such technology;
                or




·
            the
                transfer of manufacturing rights outside of Israel may be conditioned
                upon
                either (1) payment of increased aggregate royalties, ranging from
                120% to
                300% of the amount of the grant plus interest (depending upon the
                percentage of foreign manufacture) and an increase of the rate of
                the
                royalties due each year; or (2) a transfer of different manufacturing
                rights into Israel for another product of similar or more advanced
                technology.




These
      restrictions may impair our ability to sell our technology assets or to
      outsource manufacturing outside of Israel, and the restrictions continue to
      apply even after we have repaid the full amount of royalties payable for the
      grants.




In
      October 2005, as part of the discontinuation of operations of our operating
      system, or OS, business, and due to our need to increase our cash resources,
      we
      granted to Sasken a non-exclusive license for the use, development and sale
      of
      the OS. The license enables Sasken to continue the development of the OS and
      to
      market it to our customers. It also provides that Sasken will own any
      intellectual property rights with respect to our development of the software.
      In
      consideration for the license, Sasken paid to us a net license fee in the amount
      of $1.8 million. In addition, Sasken will pay us a royalty of $0.10 for each
      product that is sold by Sasken that contains the OS or any development of it,
      in
      whole or in part, without limit as to term, up to an aggregate amount of $5.0
      million. 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 retroactive approval, but the regulations governing
      the calculation of the amount to be paid to the OCS in this case have not yet
      been promulgated. There can be no assurance that the OCS will grant us
      retroactive approval for the license, and we do not know the exact amount that
      we may be required to pay to the OCS if the approval is granted. Accordingly,
      we
      are obligated to repay all funds provided by the OCS, including accrued interest
      at the LIBOR rate. We have provided an allowance in our financial statements
      in
      the amount of approximately $3.3 million to reflect our estimate of our
      obligation to the OCS. We may also be subject to certain criminal penalties
      for
      violation of the applicable statues that govern OCS grants and their repayment
      obligations. If we are required to pay to the OCS the estimated amounts or
      amounts that are significantly higher than such estimates, or if criminal
      proceedings are initiated against IXI Israel or any of its officers, our
      business, financial condition and results of operations would be adversely
      affected.




27


**Risks
      Related to Our Securities**




***We
      are not listed on a national securities exchange. Thus, it may be difficult*** **for
      our security holders to sell their securities.**




Our
      units, common stock and warrants are currently traded in the over-the-counter
      market and quoted on the OTC Bulletin Board, or OTCBB. Since our securities
      are
      not listed or traded on a national securities exchange, it may be difficult
      for
      our security holders to sell their securities.




The
      liquidity of our common stock is limited in terms of the number of shares that
      can be bought and sold at a given price, and may also be adversely affected
      by
      delays in the timing of transactions and reduction in security analysts’ and the
      media’s coverage of us, if at all.




In
      the
      absence of an active public trading market, an investor may be unable to
      liquidate his investment in our common stock. The relatively small trading
      volume of our common stock may have a greater impact on the trading price of
      our
      common stock than would be the case if our public float were larger. These
      factors may result in lower prices for our common stock than might otherwise
      be
      obtained and may also result in a larger spread between the bid and ask prices
      for our common stock. We cannot predict the prices at which our common stock
      will trade in the future.




In
      addition, without a large float, our common stock is less liquid than the stock
      of companies with broader public ownership and, as a result, the volatility
      of
      trading prices of our common stock may increase and price movement may outpace
      the ability to deliver accurate quote information. Due to lower trading volumes
      in shares of our common stock, there may be a lower likelihood that a proposed
      trade will be executed, and current prices may differ significantly from the
      price quoted by the OTCBB at the time of the proposed order entry.




***We
      have never declared or paid dividends on our capital stock and we do not
      anticipate paying dividends in the foreseeable
      future.***




We
      have
      never declared or paid cash dividends on our capital stock. We currently intend
      to retain all available funds and any future earnings to support the operation
      of and to finance the growth and development of our business. Any future
      determination to declare cash dividends will be made at the discretion of our
      board of directors, subject to compliance with applicable laws and covenants
      under current or future credit facilities, which may restrict or limit our
      ability to pay dividends, and will depend on our financial condition, operating
      results, capital requirements, general business conditions and other factors
      that our board of directors may deem relevant. We do not anticipate paying
      any
      cash dividends on our common stock in the foreseeable future. As a result,
      a
      return on your investment will only occur if our stock price
      appreciates.




***We
      may issue shares of our capital stock or debt securities in the future, which
      would reduce the equity interest of our security holders and may cause a change
      in control of our ownership.***




Our
      amended and restated certificate of incorporation authorizes the issuance of
      up
      to 60,000,000 shares of common stock and 1,000,000 shares of preferred stock.
      The issuance of additional shares of our common stock or any number of shares
      of
      our preferred stock:




·
            may
                significantly reduce the equity interest of our
                investors;




·
            may
                subordinate the rights of holders of common stock if we issue preferred
                stock with rights senior to those afforded to our common
                stock;




·
            may
                cause a change in control if a substantial number of our shares of
                common
                stock are issued, which may affect, among other things, our ability
                to use
                our net operating loss carry forwards, if any, and may result in
                the
                resignation or removal of our present officers and directors;
                and




·
            may
                adversely affect prevailing market prices for our common
                stock.




Similarly,
      an issuance of debt securities may:




28


·
            default
                and foreclosure on our assets if our operating revenues are insufficient
                to repay our debt obligations;




·
            acceleration
                of our obligations to repay the indebtedness even if we make all
                principal
                and interest payments when due if we breach certain covenants that
                require
                the maintenance of certain financial ratios or reserves without a
                waiver
                or renegotiation of that covenant;




·
            our
                immediate payment of all principal and accrued interest, if any,
                if the
                debt security is payable on demand;
                and




·
            our
                inability to obtain necessary additional financing if the debt security
                contains covenants restricting our ability to obtain such financing
                while
                the debt security is outstanding.




***We
      currently have a substantial number of shares of common stock subject to
      issuance associated with outstanding options and warrants that may be exercised,
      outstanding principal and interest on convertible debt that may be converted
      and
      our Equity Line of Credit arrangement. The issuance of shares as a result of
      the
      exercise of warrants, conversion of debt or sales of shares under our ELOC
      arrangement would substantially increase the number of shares outstanding and
      result in dilution to our security holders. This might substantially decrease
      the market price of the common stock.***




We
      have a
      substantial number of shares of our common stock that may be issued in the
      future. This includes outstanding redeemable warrants to purchase an aggregate
      of 12,636,000 shares of common stock, issued in our initial public offering,
      which are currently exercisable. In connection with various financing
      transactions, we also assumed options and warrants to purchase an aggregate
      of
      up to 8,106,743 shares of our common stock, including under employee stock
      option plans. Although we cannot determine at this time which of these options
      and warrants will ultimately be exercised, it is reasonable to assume that
      such
      options and warrants will be exercised only if the exercise price is below
      the
      market price of our common stock. In addition, we have convertible debt
      outstanding that the holders may convert into an aggregate of 2,439,177 shares
      of our common stock, and our ELOC arrangement allows us to sell up to 2,000,000
      shares of our common stock at varying discounts to the market price. We also
      are
      obligated to issue shares of common stock to certain existing stockholders
      if we
      achieve certain business milestones. The outstanding arrangements include the
      following:




·
            In
                connection with the provision of advisory services to us, certain
                financial institutions received warrants to purchase up to 100,000
                shares
                of our common stock at an exercise price of $5.00 per share (subject
                to
                adjustment in case of stock dividends and stock splits), expiring
                in July
                2009.




·
            In
                connection with agreements we entered into with Southpoint, Gemini
                Funds
                and Landa Ventures Ltd., or Landa Ventures, in October and November
                2007
                (which included amendments to certain existing agreements), we issued
                warrants to purchase an aggregate of 3,883,333 shares of our common
                stock,
                at an exercise price of $4.10 per share (subject to adjustment in
                case of
                stock dividends and stock splits), expiring in
                2012.




·
            Southpoint
                is entitled to convert principal and interest of debt we owe into
                an
                aggregate of up 1,844,766 shares of our common
                stock.




·
            Gemini
                is entitled to convert principal and interest of debt we owe into
                an
                aggregate of up to 594,411 shares of our common
                stock.




·
            In
                connection with our equity line of credit, or ELOC, arrangement,
                we issued
                Tailor-Made warrants to purchase an aggregate of 312,500 shares of
                our
                common stock at an exercise price of $4.10 per share (subject to
                adjustment in case of stock dividends and stock splits), expiring
                in
                2012.




·
            Under
                our ELOC arrangement, we can sell up to 2,000,000 shares to Tailor-Made
                at
                varying discounts to the market price of common
                stock.




·
            In
                connection with the private placement we completed in November 2007,
                we
                issued to investors in the private placement warrants to purchase
                an
                aggregate of 1,621,800 shares of our common stock at an exercise
                price of
                $4.10 per share (subject to adjustment in case of stock dividends
                and
                stock splits), expiring in 2012 and to Meitav Underwriting Ltd.,
                as
                financial advisor, warrants to purchase an aggregate of 135,150 shares
                of
                our common stock at an exercise price of $3.60, per share expiring
                in
                2012.




29


To
      the
      extent that these warrants are exercised, the debt is converted or shares are
      sold under our ELOC arrangement, additional shares of our common stock, which
      will result in dilution to our security holders. The issuance of these
      additional securities may have an adverse effect on the market price of our
      securities.




***Our
      securities have a limited trading history, and we expect that the price of
      our
      securities will fluctuate substantially.***




Our
      units
      commenced public trading on July 14, 2005 and our common stock and warrants
      commenced separate public trading on September 12, 2005. Prior to this time,
      there was no public market for shares of our common stock. An active public
      trading market may not develop or, if developed, may not be sustained. The
      market prices for securities of mobile communication providers and technology
      companies historically have been highly volatile, and the market has, from
      time
      to time, experienced significant price and volume fluctuations that are
      unrelated to the operating performance of particular companies. A number of
      factors may affect the market price of our securities, including, but not
      limited to:




·
            product
                liability claims or other
                litigation;




·
            the
                announcement of new products or product enhancements by us or our
                competitors;




·
            quarterly
                variations in our or our competitors’ results of
                operations;




·
            changes
                in earnings estimates or comments by securities
                analysts;




·
            developments
                in our industry;




·
            developments
                in patent or other proprietary
                rights;




·
            general
                market conditions; and




·
            future
                sales of common stock by existing security
                holders.




***If
      we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley
      Act, or our internal control over financial reporting is not effective, the
      reliability of our financial statements may be questioned and our share price
      may suffer.***




Section
      404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires annual
      management assessments of the effectiveness of our internal control over
      financial reporting. Management assessed the effectiveness of our internal
      control over financial reporting as of December 31, 2007. In making this
      assessment, management used the criteria set forth by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO) in Internal
      Control-Integrated Framework. Based on its assessment and those criteria,
      management believes that we maintained effective internal control over financial
      reporting as of December 31, 2007. This Annual Report does not include an
      attestation report of our registered public accounting firm regarding internal
      control over financial reporting as they will first be required to provide
      its
      attestation report in connection with our Annual Report on Form 10-K for the
      year ending December 31, 2008. Management’s report was not subject to
      attestation by our registered public accounting firm pursuant to temporary
      rules
      of the SEC that permit us to provide only management’s report in this Annual
      Report. There can be no assurance that our registered public accounting firm
      would agree with management’s assessment regarding our internal control over
      financial reporting as of December 31, 2007 or in respect of any other date
      or
      period.




If
      we
      fail to maintain the adequacy of our internal controls, we may not be able
      to
      conclude on an ongoing basis that we have effective internal control over
      financial reporting in accordance with Section 404. Failure to achieve and
      maintain an effective internal control system may give rise to misstatements
      in
      our financial statements and cause us to fail to meet our reporting obligations
      which may cause investors to lose confidence in our reported financial
      information and cause an adverse impact on the value of our stock.




30


***Because
      our common stock may be a “penny stock,” it may be more difficult for investors
      to sell shares of our common stock, and the market price of our common stock
      may
      be adversely affected.***




Our
      common stock may be a “penny stock” if, among other things, the stock price is
      below $5.00 per share, the stock is not listed on a national securities exchange
      or the stock has not met certain net tangible asset or average revenue
      requirements. Broker-dealers who sell penny stocks must provide purchasers
      of
      these stocks with a standardized risk-disclosure document prepared by the
      Securities and Exchange Commission. A broker must obtain the purchaser’s written
      agreement to the purchase and must also give the purchaser bid and offer
      quotations and information regarding broker and salesperson compensation and
      a
      written determination that the penny stock is a suitable investment for the
      purchaser. Broker-dealers must also provide to customers that hold penny stocks
      in their accounts a monthly statement containing price and market information
      relating to the penny stock. If a penny stock is sold to an investor in
      violation of the penny stock rules, the investor may be able to cancel its
      purchase and obtain a full refund of money paid.




If
      applicable, the penny stock rules may make it difficult for investors to sell
      their shares of our common stock. Because of the ruled and restrictions
      applicable to a penny stock, there is less trading in penny stocks and the
      market price of our common stock may be adversely affected in the event that
      these rules and restrictions apply to us. Also, many brokers choose not to
      participate in penny stock transactions. Accordingly, investors may not always
      be able to resell their shares of our common stock publicly at times and prices
      that they feel are appropriate.




**Item
      1B. Unresolved Staff Comments**




Not
      Applicable.




**Item
      2. Properties**




We
      maintain our principal offices in approximately 3,750 square feet of space
      in
      Belmont, California. In addition, we maintain research and development
      facilities and administrative offices comprising approximately 20,500 square
      feet in Ra’anana, Israel and research and development facilities comprising
      approximately 5,380 square feet in Romania. All of our facilities are in good
      condition and we believe that these facilities are adequate to satisfy our
      requirements for the foreseeable future.




**Item
      3. Legal Proceedings**




From
      time
      to time, we may be subject to legal proceedings and claims in the ordinary
      course of business. We are not currently a party to any
      material litigation.




**Item
      4. Submission of Matters to a Vote of Security Holders**




Not
      Applicable.




31


**PART
      II**




**Item
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities**




We
      consummated our initial public offering on July 19, 2005. We sold 6,318,000
      units, which included 318,000 units subject to the over-allotment option. Each
      unit consisted of one share of our common stock and two redeemable common stock
      purchase warrants, each to purchase one share of our common stock. Our common
      stock, warrants and units are quoted on the OTCBB under the symbols “IXMO,”
“IXMOW” and “IXMOU,” respectively. Our units commenced public trading on July
      14, 2005 and our common stock and warrants commenced separate public trading
      on
      September 12, 2005. The following table sets forth the range of high and low
      closing bid prices for the units, common stock and warrants for the periods
      indicated. The over-the-counter market quotations reflect inter-dealer prices,
      without retail mark-up, mark-down or commission and may not necessarily reflect
      actual transactions.




**Units**
            
            **Common
                Stock**
            
            **Warrants****High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low**2007:Fourth
                Quarter
            
            $
            6.05
            
            $
            4.40
            
            $
            4.50
            
            $
            1.13
            
            $
            0.78
            
            $
            0.58Third
                Quarter
            
            
            7.51
            
            
            4.00
            
            
            5.55
            
            
            2.90
            
            
            1.02
            
            
            0.43Second
                Quarter
            
            
            8.60
            
            
            6.43
            
            
            6.10
            
            
            5.25
            
            
            1.95
            
            
            0.44First
                Quarter
            
            
            6.93
            
            
            6.07
            
            
            5.54
            
            
            5.28
            
            
            0.68
            
            
            0.352006:Fourth
                Quarter
            
            
            6.50
            
            
            5.70
            
            
            5.54
            
            
            5.20
            
            
            0.56
            
            
            0.24Third
                Quarter
            
            
            6.31
            
            
            5.77
            
            
            5.28
            
            
            5.09
            
            
            0.56
            
            
            0.32Second
                Quarter
            
            
            6.93
            
            
            6.17
            
            
            5.45
            
            
            5.21
            
            
            0.82
            
            
            0.48First
                Quarter
            
            
            7.33
            
            
            5.86
            
            
            5.53
            
            
            5.03
            
            
            0.94
            
            
            0.43




**Holders**




As
      of
      March 18, 2008, there was one holder of record of our units, 115 holders of
      record of our common stock and three holders of record of our warrants.




**Dividends**




We
      have
      never declared a cash dividend. We intend to retain any earnings to fund future
      growth and the operation of our business and, therefore, we do not anticipate
      paying any cash dividend in the foreseeable future. In addition, our bridge
      financing and credit arrangements limit our ability to declare cash dividends.




**Equity
      Compensation Plan Information**




The
      following table provides information as of December 31, 2007 with respect to
      the
      shares of our common stock that may be issued under our existing equity
      compensation plan.




**Plan
                Category**
            
            **Number of Securities**
              **to be Issued**
              **Upon Exercise of**
              **Outstanding Options**
            
            **Weighted Average**
              **Exercise Price of**
              **Outstanding Options**
            
            **Number of Securities Remaining**
              **Available for Future Issuance**
              **Under Equity Compensation Plans**
              **(Excluding Securities Reflected in**
              **Column A)**Equity
                Compensation Plans Approved by Shareholders
            
            
            2,065,175
            
            
            3.45
            
            
            631Equity
                Compensation Plans Not Approved by Shareholders
            
            
            –
            
            
            –
            
            
            –Total
            
            
            2,065,175
            
            
            3.45
            
            
            631




32




**Stock
      Performance Graph**




Our
      common stock began trading separately from our warrants on September 12, 2005.
      The following graph compares the cumulative total stockholder return for our
      common stock from September 2005 to December 31, 2007. The annual changes for
      the period shown in the graph are based on the assumption that $100 had been
      invested in our common stock and in each index on September 12, 2005 and August
      31, 2005, respectively, as required by SEC rules. We have never paid dividends.
      The total cumulative dollar returns shown on the graph represent the value
      that
      such investments would have had on December 31, 2007. Data for the Dow Jones
      Wilshire MicroCap and DJ Wilshire Telecommunications Equipment has been provided
      by Research Data Group, Inc.









**IXI**
              **Mobile,**
              **Inc.**
            
            **Dow**
              **Jones**
              **Wilshire**
              **MicroCap**
            
            **DJ
                Wilshire**
              **Telecommunications**
              **Equipment**Aug.
                31 / Sept. 12, 2005
            
            
            100.00
            
            
            100.00
            
            
            100.00September
                30, 2005
            
            
            103.13
            
            
            100.69
            
            
            104.27December
                2005
            
            
            104.79
            
            
            101.32
            
            
            102.41March
                2006
            
            
            110.63
            
            
            115.39
            
            
            122.04June
                2006
            
            
            110.42
            
            
            107.99
            
            
            105.90September
                2006
            
            
            109.38
            
            
            106.18
            
            
            113.81December
                2006
            
            
            115.42
            
            
            116.39
            
            
            118.62March
                2007
            
            
            112.29
            
            
            118.25
            
            
            118.25June
                2007
            
            
            111.25
            
            
            122.13
            
            
            127.47September
                2007
            
            
            93.13
            
            
            116.28
            
            
            138.10December
                2007
            
            
            84.38
            
            
            106.47
            
            
            121.97


33




**Item
      6. Selected Financial Data**




Our
      selected consolidated statement of operations data for the years ended December
      31, 2007, 2006 and 2005 and consolidated balance sheet data as of December
      31,
      2007, 2006 and 2005 have been derived from our audited consolidated financial
      statements included under Item 8 of this Annual Report. Our selected
      consolidated statement of operations data for the years ended December 31,
      2004
      and 2003 and consolidated balance sheet data as of December 31, 2004 and 2003,
      and the consolidated statements of operations data for each of the two years
      in
      the period ended December 31, 2007 have been derived from our audited
      consolidated financial statements not included in this Annual Report. The
      selected financial data set forth below is only a summary and should be read
      in
      conjunction with our historical consolidated financial statements, the related
      notes and “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” included elsewhere in this Annual Report. The historical
      results included below and elsewhere in this Annual Report may not be indicative
      of our future performance. Because the Merger of the Company and IXI on June
      6,
      2007 is deemed to be a capital transaction, and for accounting purposes, the
      Merger has been treated as the equivalent of IXI issuing stock for the net
      monetary assets of the Company, IXI’s selected financial information is provided
      for all periods.




**Year
                  ended December 31,****2007**
              
              **2006**
              
              **2005**
              
              **2004**
              
              **2003****(in
                  thousands, except share and per share data)****Statement
                  of operations data:**Revenues
              
              $
              16,240
              
              $
              12,929
              
              $
              7,967
              
              $
              872
              
              $
              300Total
                  operating expenses
              
              
              50,913
              
              
              34,099
              
              
              18,672
              
              
              13,991
              
              
              7,003Gain
                  from terminating agreement with Cingular Wireless Inc.
              
              
              —
              
              
              —
              
              
              11,695
              
              
              —
              
              
              —Operating
                  income (loss)
              
              
              (34,673
              )
              
              (21,170
              )
              
              990
              
              
              (13,119
              )
              
              (6,703
              )Financial
                  expenses, net
              
              
              (33,808
              )
              
              (2,530
              )
              
              (1,334
              )
              
              (1,014
              )
              
              (135
              )Loss
                  from continuing operations
              
              
              (68,481
              )
              
              (23,687
              )
              
              (344
              )
              
              (14,133
              )
              
              (6,838
              )Income
                  (loss) from discontinued operations
              
              
              (109
              )
              
              1,035
              
              
              (11,630
              )
              
              (10,788
              )
              
              (6,697
              )**Net
                  loss**
              
              $
              (68,590
              )
              $
              (22,652
              )
              $
              (11,974
              )
              $
              (24,921
              )
              $
              (13,535
              )Basic
                  and diluted net loss per share:From
                  continuing operations
              
              $
              (6.42
              )
              $
              (38.55
              )
              $
              (6.65
              )
              $
              (115.40
              )
              $
              (57.02
              )From
                  discontinued operations
              
              $
              (0.01
              )
              $
              1.51
              
              $
              (39.47
              )
              $
              (86.70
              )
              $
              (55.85
              )Basic
                  and diluted net loss per share
              
              $
              (6.43
              )
              $
              (37.04
              )
              $
              (46.12
              )
              $
              (202.10
              )
              $
              (112.87
              )Weighted
                  average number of shares of common stock
              
              
              10,812,986
              
              
              684,890
              
              
              294,626
              
              
              124,423
              
              
              119,947


**Year
                    ended December 31,****2007**
                
                **2006**
                
                **2005**
                
                **2004**
                
                **2003****(in
                    thousands)****Balance
                    Sheet Data:**Total
                    current assets
                
                $
                40,164
                
                $
                24,386
                
                $
                11,387
                
                $
                21,454
                
                $
                7,041Total
                    long-term assets
                
                
                1,791
                
                
                3,467
                
                
                4,318
                
                
                939
                
                
                1,488Total
                    assets
                
                
                41,955
                
                
                27,853
                
                
                15,705
                
                
                22,393
                
                
                8,529Total
                    current liabilities
                
                
                31,090
                
                
                29,854
                
                
                15,424
                
                
                29,077
                
                
                4,301Total
                    long-term liabilities and convertible loan
                
                
                3,424
                
                
                4,881
                
                
                789
                
                
                2,736
                
                
                1,184Convertible
                    loan
                
                
                —
                
                
                15,840
                
                
                6,312
                
                
                —
                
                
                —Total
                    security holders’ (deficiency) equity
                
                
                7,441
                
                
                (22,722
                )
                
                (6,820
                )
                
                (9,420
                )
                
                3,044Total
                    liabilities and security holders’ (deficiency) equity
                
                $
                41,955
                
                $
                27,853
                
                $
                15,705
                
                $
                22,393
                
                $
                8,529
 34




***Quarterly
      Financial Data***


**Q4**
                **2007**
              
              **Q3**
                **2007**
              
              **Q2**
                **2007**
              
              **Q1**
                **2007**
              
              **Q4**
                **2006**
              
              **Q3**
                **2006**
              
              **Q2**
                **2006**
              
              **Q1**
                **2006****(unaudited)
                  (in thousands)**Revenues
              
              $
              5,182
              
              $
              4,764
              
              $
              3,171
              
              $
              3,123
              
              $
              3,886
              
              $
              3,575
              
              $
              3,729
              
              $
              1,739Cost
                  of revenues
              
              
              7,008
              
              
              4,383
              
              
              4,062
              
              
              3,111
              
              
              5,472
              
              
              4,408
              
              
              4,096
              
              
              2,260Research
                  and development, net
              
              
              4,066
              
              
              4,687
              
              
              4,133
              
              
              3,004
              
              
              2,619
              
              
              1,491
              
              
              1,357
              
              
              1,430Selling
                  and marketing
              
              
              3,262
              
              
              2,122
              
              
              1,388
              
              
              1,958
              
              
              1,399
              
              
              1,210
              
              
              3,775
              
              
              1,544General
                  and administrative
              
              
              1,496
              
              
              1,630
              
              
              3,756
              
              
              847
              
              
              809
              
              
              667
              
              
              767
              
              
              795Total
                  operating expenses
              
              
              15,832
              
              
              12,822
              
              
              13,339
              
              
              8,920
              
              
              10,299
              
              
              7,776
              
              
              9,995
              
              
              6,029Operating
                  (loss)
              
              
              (10,650
              )
              
              (8,058
              )
              
              (10,168
              )
              
              (5,797
              )
              
              (6,413
              )
              
              (4,201
              )
              
              (6,266
              )
              
              (4,290
              )Financial
                  expenses, net
              
              
              (21,230
              )
              
              (368
              )
              
              (11,313
              )
              
              (897
              )
              
              (763
              )
              
              (1,059
              )
              
              (525
              )
              
              (183
              )Other
                  income
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              (0
              )
              
              0
              
              
              0
              
              
              13Loss
                  from continuing operations
              
              
              (31,880
              )
              
              (8,426
              )
              
              (21,481
              )
              
              (6,694
              )
              
              (7,176
              )
              
              (5,260
              )
              
              (6,791
              )
              
              (4,460
              )Loss
                  from discontinued operations
              
              
              (26
              )
              
              (28
              )
              
              (27
              )
              
              (28
              )
              
              574
              
              
              (27
              )
              
              514
              
              
              (26
              )**Net
                  loss**
              
              $
              (31,906
              )
              $
              (8,454
              )
              $
              (21,508
              )
              $
              (6,722
              )
              $
              (6,602
              )
              $
              (5,287
              )
              $
              (6,277
              )
              $
              (4,486
              )




35


**Item
      7. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




*The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with “Selected Financial Data” and our
      consolidated financial statements and related notes included elsewhere in this
      Annual Report. In addition to historical consolidated financial information,
      the
      following discussion and analysis contains forward-looking statements that
      involve risks, uncertainties and assumptions. Our actual results and timing
      of
      selected events may differ materially from those anticipated in these
      forward-looking statements as a result of many factors, including those
      discussed under Item 1A, “Risk Factors,” and elsewhere in this Annual
      Report.*




**Overview**




We
      develop and sell innovative data-centric wireless mobile devices and services
      for mass market users. We market our solutions to mobile operators, mobile
      virtual network operators, or MVNOs, and internet service providers, or ISPs,
      in
      a number of international markets. We offer an end-to-end mobile solution,
      which
      includes devices and hosted services, that permits our customers to deliver
      mobile data and Internet services to their subscribers. Our Ogo devices are
      designed to improve the mobile user experience and increase mobile data usage
      by
      offering access to popular applications and services, including email, instant
      messaging or IM, short messaging service, or SMS, mobile voice, Web browsing,
      games, headlines and other Web information through Really Simple Syndication
      technology, or RSS, at affordable end-user prices. Our hosted services (such
      as
      email and IM gateways) allow our customers to efficiently deliver applications
      that require intermediation between the server and the device. These hosted
      services, in combination with our Ogo devices, present our customers with a
      complete end-to-end solution that limits infrastructure investment and other
      roll-out costs associated with launching Ogo devices and related services.
      In
      addition to revenues from the sale of our Ogo devices, we receive recurring
      monthly service fees from our customers for subscriber that purchase our Ogo
      devices. Currently, our Ogo devices are capable of operating in countries where
      Global System for Mobile Communications, or GSM, cellular networks are used.
      We
      are in the final stages of development of an Ogo device knows as the Ogo 2.0c,
      which is designed to operate on Code-Division Multiple Access, or CDMA, cellular
      networks.




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




We
      have
      incurred operating losses since inception, including net losses of approximately
      $68.6 million, $22.7 million and $12 million in 2007, 2006 and 2005,
      respectively, and we had an accumulated deficit of approximately $160.2 million
      as of December 31, 2007. We also have had and continue to have negative cash
      flows from operating activities. For the years ended December 31, 2007, 2006,
      and 2005 we had negative cash flow from operating activities in the amounts
      of
      $34.5 million, $18.0 million and $15.0 million, respectively.




At
      December 31, 2007, we had cash and cash equivalents available to fund operations
      of approximately $17.3 million. At March 28, 2008, we had cash and cash
      equivalents available to fund operations of approximately $13.1 million
      (unaudited). For the fourth quarter of 2007, our operating expenses (including
      service and manufacturing operations that are a part of cost of goods sold),
      excluding debt service, were approximately $9.0 million (unaudited). These
      conditions raise substantial doubt about our ability to continue as a going
      concern without an increase in revenue and gross profit or obtaining additional
      financing. Our auditors have included in their report with respect to our
      consolidated financial statements as of December 31, 2007 and for the three
      year
      period then ended, an explanatory paragraph stating that, because we have
      incurred recurring operating losses and negative cash flows from operating
      activities, there is substantial doubt about our ability to continue as a going
      concern.




If
      our
      revenues and gross profit do not increase, we will continue to incur significant
      losses and will not become profitable. Further, even if we are able to raise
      additional financing for our operational and financing needs, we also intend
      to
      expand our business, which will result in increased expenses related to sales
      and marketing, research and development, cost of revenues and general and
      administrative. We cannot assure you that our revenues will grow at the same
      pace as our expenses or at all. Additionally, we may encounter unforeseen
      difficulties and complications that require additional unexpected expenditures.
      Our losses may increase in future periods, and there can be no assurance that
      we
      will ever achieve positive cash flows from operating activities or reach
      profitability.




Our
      business is capital intensive. In recent years, our losses have been
      substantial. In order to continue our operations according to our business
      plan
      and, if required by our lenders, to repay our outstanding indebtedness in cash
      when due, we will require substantial additional equity or debt financing in
      both the short and the long term. On March 28, 2008, we entered into amendments
      to our outstanding loan agreements with Southpoint and Gemini Funds, as well
      as
      of the guaranty from Gemini Funds of our line of credit from Bank Leumi
      Le’Israel Ltd, to (1) extend the maturity date of all principal payments under
      the loan arrangements from June 2008 and June 2009 to June 5, 2010, (2) increase
      the interest rate from 10% to 20%, effective April 1, 2008, (3) capitalize
      all
      interest payments, including any accrued and unpaid interest, and (4) amend
      the
      prepayment provisions upon a change of control to provide that the interest
      payable shall be calculated through the maturity date of June 5, 2010. As a
      result, at March 31, 2008, the principal amount outstanding under the loan
      arrangements will be $14 million in the aggregate, including an aggregate of
      approximately $3.3 million of accrued and unpaid interest. However, failure
      to
      obtain additional financing will result in the need to significantly curtail
      our
      operations in order to minimize expenses and the delay or abandonment of some
      or
      all of our plans for development and expansion, which would have a material
      adverse effect on our operating results and financial condition and could harm
      our ability to grow our business. We cannot provide any assurance regarding
      our
      ability to raise additional funds in the future or the terms under which funds
      would be available. If we are unable to secure additional financing, we may
      be
      forced to cease our operations.




36


We
      may
      raise funds in a number of ways, including through the issuance of debt or
      equity, or through other financing. If we borrow funds, we likely will be
      obligated to make periodic interest or other debt service payments, and the
      terms of this debt may impose burdensome restrictions on our ability to operate
      our business. If we sell equity securities, our current stockholders will suffer
      significant dilution in their percentage ownership of common stock.
      Additionally, the prices at which new investors would be willing to purchase
      our
      securities may be lower than the current market price for our common stock,
      which would result in further dilution to current holders of our equity
      securities. We may also be required to grant certain rights, preferences or
      privileges to the parties providing us with additional financing that are senior
      to those of existing holders of our common stock and that may result in holders
      of our current equity securities receiving little or no recovery in the event
      we
      are required to cease operations and liquidate our assets.




***Agreements
      with IM Providers***




We
      have
      entered into agreements with certain major IM suppliers that allow us to provide
      end users of the Ogo device with access to IM and email services for mobile
      devices. These agreements are subject to certain fixed minimum fees and
      additional fees associated with the number of subscribers and the geographic
      distribution of those subscribers.




***Termination
      of AT&T Wireless/Cingular Relationship***




We
      began
      to market the Ogo device and service in the United States in 2004 under a
      development and supply agreement with AT&T Wireless Services, Inc., or
      AT&T. The agreement required AT&T to purchase $32.4 million of devices,
      $16.5 million of which were delivered by the end of 2004. Unlike our current
      arrangements with our existing customers, the agreement did not require us
      to
      provide any hosting or related services. In April 2005, following the
      acquisition of AT&T by Cingular Wireless, Inc., or Cingular, the agreement
      was terminated. AT&T had represented 85% of our revenues in 2005, and its
      loss as a customer had a material adverse impact on our sales and results of
      operations.




***Re-Commencement
      of Marketing Efforts***




In
      2005,
      we focused our marketing efforts on targeting new customers. In 2005, we entered
      into agreements with three significant customers: (i) Swisscom Mobile, the
      leading mobile operator in Switzerland; (ii) 1&1 Internet AG, a leading
      German ISP, and (iii) e-kolay.net, a leading ISP in Turkey owned by
      D oğan
      Yayin Holding, Turkey’s leading media-entertainment conglomerate. In 2006
      and 2007, we added two and four customers, respectively.




**Sources
      of Revenues**




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




Sales
      of
      the Ogo devices are usually recognized as revenue upon activation of the service
      for the Ogo device by the end user The services include a variety of hosted
      services provided by us to our customers, such as email and push email gateway,
      IM gateways and attachments transcoding. In addition to revenues from the sale
      of our Ogo devices, we receive recurring monthly service fees from our customers
      for subscribers that have purchased our Ogo device. Our monthly service fees
      are
      billed to our customers under various billing methods ranging from service
      fees
      based on subscribers who actually use our Ogo device during the billing period
      to service fees based on subscribers who have access to our hosted services,
      regardless of actual use.




37


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




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 Ogo devices through the first quarter of 2007 of which 1&1 had
      purchased approximately $14.7 million of devices from us in accordance with
      the
      agreement. In 2008, we amended the agreement with 1&1 to change the blend of
      Ogo devices to be supplied to 1&1 in view of the commercial availability of
      the Ogo 2.0. Under the amendment, 1&1 is obligated to purchase Ogo 2.0
      devices in the aggregate amount of approximately $4.65 million through December
      2008 in lieu of the previous obligation to purchase an additional $3.3 million
      of Ogo 1.0 devices.




During
      2006 and 2007 we entered into customer agreements with additional mobile
      operators and ISPs around the world.




In
      February 2007, Vimpelcom, a Russian mobile operator serving more than 47 million
      subscribers, announced that it intended to offer Ogo devices and service to
      small to medium business customers. Vimpelcom, through Betalink, a third party
      purchasing arm, issued a purchase order for purchase of Ogo devices, subject
      to
      our standard terms and conditions. The Ogo devices were delivered to Betalink
      in
      February, 2007 and we are awaiting receipt of the balance of the outstanding
      purchase price of $340,000 for these devices. Following meetings with Vimpelcom
      in February 2008, we believe that Vimpelcom has not made a final decision as
      to
      the commercial launch of the Ogo solution in Russia. Due to the lengthy
      Vimpelcom decision-making process, we believe that Vimpelcom will not
      commercially launch the Ogo device in Russia in the near future. We are
      considering our options if we are unable to reach agreement with Vimpelcom
      for
      payment for the Ogo devices at Betalink. We have not recognized any revenue
      related to Vimpelcom.




Because
      we do not yet have sufficient experience with sales of Ogo devices to predict
      the appropriate rate of products that will be actually sold by our customers
      to
      end users, we currently recognize revenues arising from the sale of the devices
      only upon activation of service to the end user. Where we have established
      sufficient experience, in cases that after one year from delivery a portion
      of
      the delivered devices were not activated, we consider revenue recognition
      relating to the inactive devices when the following criteria are met: (a) the
      customer is not deemed a strategic customer, (b) the customer has not placed
      additional purchase orders within the past 12 months and our management does
      not
      anticipate future purchase orders from such customer, and (c) our management
      believes that the customer has no bargaining power over us and therefore it
      is
      not in a position to demand return of the inactive devices and the customer
      has
      no right to return, contractual or implied.




From
      the
      second quarter of 2005, when we first shipped Ogo devices, through December
      31,
      2007, we shipped and recognized revenues from the following sales of Ogo devices
      (excluding AT&T sales):




38





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





(1)
            ECR
                means engineering change request.


(2)
            Deferred
                revenues of devices as of the last date of the applicable
                quarter.


(3)
            Amounts
                are rounded.


(4)
            The
                number of our customers’ subscribers is as of the end of a quarter and is
                the approximate number of subscribers who were provided access to
                our
                hosted services, less deactivation of subscribers reported to us
                by our
                customers. Subscriber numbers may be reduced from time to time due
                to
                deactivation of subscribers, as duly reported to us by our customers.
                The
                number of subscribers may include subscribers who are no longer active
                but
                who have not been duly reported to us as deactivated. The number
                of our
                customers' subscribers that we bill in a billing period will vary
                from
                this number depending on the billing method of the specific hosted
                service
                and specific customer. The number of subscriber accounts is a
                non-financial metric, is intended to highlight the change in our
                subscriber base and should not be relied upon as an indicator of
                our
                financial performance. The number of subscriber accounts does not
                have any
                standardized meaning prescribed by US GAAP and may not be comparable
                to
                similar metrics presented by other companies.




To
      date,
      we have derived our revenue from a small number of customers. The following
      customers represented 100% of our revenues from continuing operations during
      the
      three years ended December 31, 2007:




**Year
                  Ended December 31,****2007**
              
              **2006**
              
              **2005**AT&T
                  Wireless (terminated in 2005)
              
              
              —
              
              
              —
              
              
              85
              %Swisscom
                  Mobile
              
              
              48
              %
              
              45
              %
              
              8
              %1&1
              
              
              29
              %
              
              46
              %
              
              —Ancel(1)
              
              
              11
              %
              
              1
              %
              
              —Others(2)(3)
              
              
              12
              %
              
              8
              %
              
              7
              %





(1)
            In
                2007, includes revenues from inactive devices of $1.1 million.


(2)
            In
                2007, includes revenues from inactive devices of $0.5
                million.




The
      following presents revenues by geographic breakdown for the years ended December
      31, 2007, 2006 and 2005:


39




**Year
                  Ended December 31,****2007**
              
              **2006**
              
              **2005****(in
                  thousands)**United
                  States
              
              $
              —
              
              $
              —
              
              $
              6,794Europe
                  and Middle East
              
              
              14,460
              
              
              12,465
              
              
              825South
                  America (1)
              
              
              1,761
              
              
              184
              
              
              —Asia
                  Pacific
              
              
              19
              
              
              100
              
              
              348Total
              
              $
              16,240
              
              $
              12,929
              
              $
              7,967





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




**Discontinuation
      of Operating System Business Unit**




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




In
      October 2005, as part of the discontinuation of operations of our operating
      system, or OS, business (see “Discontinued Operations” below), and due to our
      need to increase our cash resources, we granted to Sasken Communication
      Technologies Ltd., or Sasken, a company based in India, a non-exclusive license
      for the use, development and sale of the OS that was developed by us. The
      license enables Sasken to continue the development of the OS and to market
      it to
      its customers. It also provides that Sasken will own any intellectual property
      rights with respect to its development of the software, while IXI will retain
      ownership in any intellectual property licensed to Sasken. In consideration
      for
      the license, Sasken paid to us a net license fee in the amount of $1.8 million.
      In addition, Sasken will pay us a royalty of $0.10 for each product that is
      sold
      by Sasken that contains the OS or any development of it, in whole or in part,
      without limit as to term, up to an aggregate amount of $5.0 million. To date,
      we
      have not received any royalty payments from Sasken.




This
      transaction was effected without the required approval of the OCS, in breach
      of
      the terms of the OCS funding. We have applied to the OCS for retroactive
      approval of this license. In June 2005, an amendment to the Law for the
      Encouragement of Research and Development in the Industry, 1984, became
      effective, according to which the OCS has the discretion to grant this
      retroactive approval, but the regulations governing the calculation of the
      amount to be paid to the OCS in this case have not yet been promulgated. There
      can be no assurance that the OCS will grant us retroactive approval for the
      license, and we do not know the exact amount that we may be required to pay
      to
      the OCS if the approval is granted. Accordingly, we are obligated to repay
      all
      funds provided by the OCS, including accrued interest at the LIBOR rate. We
      have
      provided an allowance in our financial statements in the amount of approximately
      $3.3 million to reflect our estimate of our obligation to the OCS. We may also
      be subject to certain criminal penalties for violation of the applicable statues
      that govern OCS grants and their repayment obligations. If we are required
      to
      pay to the OCS the estimated amounts or amounts that are significantly higher
      than such estimates, or if criminal proceedings are initiated against IXI Israel
      or any of its officers, our business, financial condition and results of
      operations would be adversely affected.




40


**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 and when the Ogo 2.0c
      CDMA device is available, by Inventec, (iii) royalties for third party licenses
      for software included in the Ogo devices, shipping and packaging costs, salaries
      and related personnel expenses for employees engaged in the delivery and support
      of our products, (iv) allocation of fixed overhead and facility costs, (v)
      free
      devices provided to customers, (vi) warranty expenses and allowance for the
      warranty of our products, and (vii) write-down expenses relating to slow-moving
      inventory and advance payments to suppliers.




During
      2007, our management determined that, due to technological obsolescence and
      the
      commercial launch of Ogo 2.0 during the quarter ended June 30, 2007, we will
      be
      able to sell smaller quantities of our older products that we previously
      anticipated. We therefore recorded an inventory write-down provision of $1.0
      million in 2007. We also believe that we will not realize certain advance
      payments to suppliers, and have recorded a write-down expenses in cost of
      revenues of $1.9 million associated with advance payments to suppliers.




We
      currently pay our suppliers before we receive the devices, while the standard
      payment terms that we usually extend to our customers require payment within
      30
      days of delivery of the devices. Consequently, we are often forced to finance
      outstanding sales orders for several months.




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




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




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




***Research
      and Development Expenses***




Research
      and development expenses consist primarily of salaries and related personnel
      expenses, subcontractor costs related to the design, development and testing
      of
      new products and technologies, product enhancements and an allocation of fixed
      overhead and facilities costs related to research and development activity.
      We
      conduct research and development primarily in our facilities in Israel and
      Romania. All research and development costs are expensed as incurred. As of
      December 31, 2007, our research and development team was comprised of 85
      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. Until 2005, 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, costs of
      participation in our customers’ marketing efforts, direct marketing costs we
      incur and related personnel expenses for personnel engaged in the sale and
      marketing of our products, travel, as well as related trade shows and
      promotional and public relations expenses and an allocation of fixed overhead
      and facilities costs related to marketing and sales activity. We maintain an
      internal direct sales force and also utilize independent distributors and sales
      representatives, under various agreements and methods of compensation (such
      as
      salaries, consultancy fees, bonuses based on sales and commissions set as a
      percentage of selling price). As of December 31, 2007, our sales and
      marketing team was comprised of 21 professionals worldwide. We expect both
      our
      direct internal and external sales and marketing forces to grow in the future
      as
      we expand our sales and marketing activities worldwide. We also expect our
      selling and marketing expenses to increase in the future due to an increase
      in
      direct expenses related to sales and marketing, increased salary expense
      associated with increased headcount in our internal direct sales force, as
      well
      as increased bonus payments and sales commissions on our revenues to both
      internal and external market personnel. In addition, as our customer base grows,
      we will be required to participate and invest directly in additional marketing
      efforts.




41


In
      November 2005, Gemini Funds, Landa Ventures and Concord Venture Funds, each
      then-existing security holders, entered into a Keep Well Agreement with one
      of
      our customers, under which they undertook to indemnify the customer, up to
      a
      maximum liability of $4 million, for damages caused by our failure to meet
      our
      service or supply commitments, provided that our failure was caused by a lack
      of
      sufficient capital. As a consideration for this undertaking, in February 2006,
      we issued these security holders an aggregate of 1,773,494 shares of convertible
      preferred stock at an issue price equal to the par value of $0.01 per share.
      Under US generally accepted accounting principles, or GAAP, we recorded the
      cost
      associated with this guarantee in the amount of $3.76 million as a deferred
      charge against additional paid-in capital, and the deferred charge was amortized
      to sales and marketing expenses over the expected guarantee period of 20 months
      ($188,000 per month). Because the Keep Well Agreement was terminated in June
      2007 upon the closing of the Bridge Loan (as defined under “– Liquidity and
      Capital Resources – Bridge Loans; Debt Conversion”), the remaining amount of the
      deferred charge was fully amortized in June 2006.




***General
      and Administrative Expenses***




General
      and administrative expenses consist primarily of salaries and related personnel
      expenses for executive, accounting, finance, legal, human resources,
      administrative and network and information systems personnel, facilities
      maintenance, professional fees and other general corporate expenses. We expect
      that our general and administrative expenses will continue to increase as we
      expand our operations and sales to additional countries as well as expand our
      internal controls and reporting capabilities and incur additional regulatory
      compliance expenses relating to publicly traded company reporting obligations.
      During the year ended December 31, 2007, we recognized non-recurring
      charges following the consummation of the Merger. See “– Results of
      Operations – Year Ended December 31, 2007 Compared to Year Ended
      December 31, 2006”.




***Financial
      Expenses, Net***




Financial
      expenses, net of interest received on bank deposits and exchange rate
      differences resulting in a gain, when applicable, consist primarily of interest
      paid on short term and long-term loans and on convertible loans and of
      amortization of discount attributed to detachable warrant costs and
      non-recurring loss conversion charges in connection with short-term loans,
      long-term loans and convertible loans. During the year ended December 31,
      2007, we recognized non-recurring charges following the consummation of the
      Merger and expenses related to partial conversion of the long-term convertible
      Bridge Loan, assumption and conversion of guarantee, partial conversion of
      long-term loan and incurrence of the equity credit line agreement. See “Results
      of Operations - Year Ended December 31, 2007 Compared to Year Ended
      December 31, 2006”.




**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 elsewhere in this Annual Report.




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.




42


***Revenue
      Recognition***




Our
      current sales arrangements with customers for sale of 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 Ogo device) and a variety of hosted
      services.




For
      these
      arrangements, we implement the guidance in Emerging Issues Task Force (“EITF”)
      No. 00-21, “Revenue Arrangements with Multiple Deliverables,” or EITF No. 00-21.
      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 (i) the product has 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 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 it charges 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 Ogo devices when persuasive evidence of an
      arrangement exists, delivery has occurred, the price is fixed or determinable
      and collectability is reasonably assured. We do not grant a right of return
      to
      our customers. The software embedded in our Ogo GSM devices 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 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, or 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 recognize revenue for hosted services on a
      monthly basis when the services are rendered. We usually recognize 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, due
      to
      the fact that we do not have sufficient experience with sales of Ogo devices
      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.




Where
      we
      have established sufficient experience, in cases that after one year from
      delivery a portion of the delivered devices were not activated, we consider
      revenue recognition relating to the inactive devices when the following criteria
      are met: (a) the customer is not deemed a strategic customer, (b) the customer
      has not placed additional purchase orders within the past 12 months and our
      management does not anticipate future purchase orders from such customer, and
      (c) our management believes that the customer has no bargaining power over
      us
      and therefore it is not in a position to demand return of the inactive devices
      and the customer has no right to return, contractual or implied.




In
      addition to revenues from the sale of our Ogo devices, we receive recurring
      monthly service fees from our customers for subscribers that have purchased
      our
      Ogo device. Our monthly service fees are billed to our customers under various
      billing methods ranging from service fees based on subscribers who actually
      use
      our Ogo device during the billing period to service fees based on subscribers
      who have access to our hosted services, regardless of actual use.




We
      are
      contractually committed to participate, in varying capacities and levels, in
      marketing and advertising efforts of a number of our customers through
      reimbursement of direct expenses actually paid by these customers, up to
      limited, pre-defined amounts. These participation costs are recorded as selling
      and marketing expenses or as a deduction of revenues, as appropriate. Marketing
      participation is accounted for under the terms of EITF 01-9, "Accounting for
      Consideration Given by a Service Provider to Manufacturers or Resellers of
      Equipment Necessary for an End-Customer to Receive Service from the Service
      Provider," and is characterized as a reduction of revenue unless both of the
      following conditions are met:




43


·
            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
      reserve 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 these warranty costs are probable
      to
      be incurred. Chi Mei’s warranty to us is recorded as income when reimbursement
      is received or when Chi Mei assumes responsibility. The warranty costs are
      included in the cost of revenues.




***Inventories***




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




As
      of
      December 31, 2007 we recorded a provision in the amount of $1.0 million for
      inventory write down related to our Ogo 1.0 that we may not sell based on our
      forecasts.




***Vendor
      advance payments***




Vendor
      advance payments are installments paid to vendors prior to the date the Ogo
      units are shipped to us (for customers or for inventory purposes) or designated
      customers and are required to finance the production of the Ogo devices. The
      timing of the advance payments are based on different lead times of the relevant
      components and the progress of the production and are deducted from the total
      shipment payment that is accrued upon the delivery of the Ogo units.




We
      have
      no formal agreement with respect to the advances and their terms. Since we
      have
      long-term relationships and accumulated experience with these vendors and since
      each purchase order and advance payment is done after coordination of both
      ours
      and the vendors’ operation and finance departments, our management believes that
      there is a low risk of loss with respect to these advances.




As
      of
      December 31, 2007 we recorded a provision in the amount of $1.9 million for
      vendor advance payments related to our Ogo 1.0 that we may not sell based on
      our
      forecasts.




***Accounting
      for Share-based Compensation***




Until
      December 31, 2005, we accounted for all employee share-based compensation in
      accordance with Accounting Principles Board Opinion No. 25, “Accounting for
      Stock Issued to Employees,” or APB 25, and in accordance with Financial
      Accounting Standards Board (“FASB”) Interpretation No. 44, we applied the
      provisions of Statement of Financial Accounting Standard (“SFAS”) 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 using the accelerated method 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 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 for US and Israeli
      employees 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 $199,000 was recognized
      in
      the year ended December 31, 2007. In addition, under US tax law, a person taxed
      under US law who is granted an option at an exercise price that 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, our
      board of directors resolved to offer US employees the opportunity to request
      a
      change of the exercise price of the options granted to those employees in
      November 2005 to equal the fair market value as of that date, in order to avoid
      these adverse tax consequences. These changes in the exercise price were
      accounted as a modification under the provisions of SFAS
      No. 123(R).
      Because 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.




44


We
      apply
      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”, or
      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 $80,000, $40,000,
      $20,000 and for the years ended December 31, 2007, 2006 and 2005,
      respectively.




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




SFAS
      No.
      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 director
      services in share-based payment transactions, and does not change the accounting
      guidance for share-based payment transactions with parties other than
      employees.




SFAS
      No.
      123(R) eliminates the option of using APB 25’s intrinsic value method of
      accounting that was provided in SFAS No. 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 No. 123(R) is similar to the fair-value-based
      method in SFAS No. 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 use 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).




SFAS
      No.
      123(R) was 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.




Share-based
      compensation expense recognized under SFAS No. 123(R) for employees for the
      years ended December 31, 2007 and 2006 amounted to approximately $ 2,956,000
      and
      $414,000, respectively, including continuation of expense recognized pursuant
      to
      APB 25.




In
      March
      2005, the SEC released SEC Staff Accounting Bulletin (“SAB”) No. 107,
“Stock-Based Payment”, or SAB No. 107. SAB No. 107 provides the SEC staff’s
      position regarding the application of SFAS No. 123(R) and contains interpretive
      guidance related to the interaction between SFAS 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.




45


In
      December 2007, the SEC issued SAB No. 110, which amends the SEC’s views
      discussed in SAB No. 107 regarding the use of the simplified method in
      developing an estimate of expected life of share options in accordance with
      SFAS
      No. 123(R). SAB No. 110 is effective for us beginning in the first quarter
      of
      fiscal year 2008. SAB 110 extends the use of the simplified method for “plain
      vanilla” awards in certain situations. The SEC staff does not expect the
      simplified method to be used when sufficient information regarding exercise
      behavior, such as historical exercise data or exercise information from external
      sources, becomes available. We will continue to use the simplified method for
      our “plain vanilla” awards since we do not yet have sufficient information
      regarding exercise behavior. As a result, we do not expect the adoption of
      SAB
      No. 110 will have a significant impact on our consolidated financial
      statements.




***Accounting
      for Income Taxes***




In
      July
      2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
      in
      Income Taxes, an Interpretation of FASB Statement No. 109," or FIN 48. FIN
      48
      clarifies the accounting for income taxes by prescribing the minimum recognition
      threshold a tax position is required to meet before being recognized in the
      financial statements. FIN 48 utilizes a two-step approach for evaluating tax
      positions. Recognition (step one) occurs when an enterprise concludes that
      a tax
      position, based solely on its technical merits, is more-likely-than-not to
      be
      sustained upon examination. Measurement (step two) is only addressed if step
      one
      has been satisfied (i.e., the position is more-likely-than-not to be sustained).
      Under step two, the tax benefit is measured as the largest amount of benefit,
      determined on a cumulative probability basis that is more-likely-than-not to
      be
      realized upon ultimate settlement.




FIN
      48
      applies to all tax positions related to income taxes subject to the FASB’s
      Statement No. 109, "Accounting for Income Taxes." This includes tax positions
      considered to be "routine" as well as those with a high degree of uncertainty.




FIN
      48
      has expanded disclosure requirements, which include a tabular roll forward
      of
      the beginning and ending aggregate unrecognized tax benefits as well as specific
      detail related to tax uncertainties for which it is reasonably possible the
      amount of unrecognized tax benefit will significantly increase or decrease
      within twelve months. These disclosures are required at each annual reporting
      period unless a significant change occurs in an interim period.




FIN
      48 is
      effective for fiscal years beginning after December 15, 2006. The cumulative
      effect of applying FIN 48 is reported as an adjustment to the opening balance
      of
      retained earnings. The adoption of FIN 48 resulted in an increase of the tax
      provision in the amount of $234,000, which was an adjustment to the opening
      balance of the accumulated deficit.




**Commitments
      and Contingent Liabilities**




***Litigation
      Claims***




Liabilities
      related to legal proceedings, demands and claims are recorded when it is
      probable that a liability has been incurred and the associated amount can be
      reasonably estimated. We and our subsidiaries, however, are not parties to
      any
      material litigation or legal proceeding and are not aware of any material
      litigation or legal proceeding, pending or threatened, to which we or our
      subsidiaries may become parties.




***OCS***




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




46


**Results
      of Operations**




**Year
      Ended December 31, 2007 Compared to Year Ended December 31,
      2006**




***Revenues***




Revenues
      for the year ended December 31, 2007 increased by 25.6% to approximately $16.2
      million, compared to approximately $12.9 million for the year ended December
      31,
      2006. Revenues for 2007 included approximately $13.5 million from the sale
      of
      Ogo devices of which approximately $1.6 million was recognized from revenues
      from inactive devices. We also generated approximately $2.5 million from hosted
      services and approximately $270,000 from non-recurring engineering contracts
      in
      2007. Revenues for 2006 included approximately $11.7 million from the sale
      of
      Ogo devices, approximately $874,000 from hosted services and approximately
      $210,000 from non-recurring engineering contracts.




***Cost
      of Revenues***




Our
      total
      cost of revenues for the year ended December 31, 2007 increased by 14.3% to
      approximately $18.6 million, compared to approximately $16.2 million for the
      year ended December 31, 2006.




In
      2007,
      our costs of revenue decreased from 126% to 114% as a percentage of our revenues
      primarily due to an amendment in 2007 to our agreement with a major IM supplier
      that lowered our minimum fee payments per month. The amendment, which was
      effective as of January 1, 2007, (i) reduced the minimum amount to be paid
      to
      $2.8 million through September 2009, compared to $3.6 million in calendar year
      2006 and $7.9 million in calendar year 2007, and extended the term of the
      agreement to September 30, 2009.




Our
      cost
      of revenue for 2007 continued to be high compared to our revenues due to the
      following key factors in 2007:




·
            We
                determined that due to the commercial launch of Ogo2.0 during the
                second
                quarter we will be able to sell smaller quantities of Ogo1.0 than
                we had
                previously anticipated; therefore, we will not realize certain inventory
                and, as a result, we recorded write-down expenses of approximately
                $1.0
                million.




·
            We
                wrote down vendor advance payments in the amount of $1.9 million
                related
                to manufacturing of the Ogo1.0.




·
            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 a greater weighted impact on the
                cost of
                revenues due to the small number of units sold or with respect to
                which
                revenue was recognized.




·
            We
                recorded as cost of revenue all the devices allocated for use under
                our
                warranty commitments, which resulted in a cost of revenues of
                approximately $960,000.




·
            As
                of December 31, 2007, we determined that there would be fewer users
                for
                certain IM services than previously forecasted in certain geographical
                areas; therefore, we wrote off an advance payment in the amount of
                approximately $600,000.




***Research
      and Development Expenses, Net***




Our
      research and development expenses, net increased by 130.4% to approximately
      $15.9 million for the year ended December 31, 2007 from approximately $6.9
      million for the year ended December 31, 2006. The increase was primarily
      attributable to an increase in the headcount and fixed overhead and facility
      costs of approximately $3.3 million and increases in subcontractors and other
      third parties’ expenses of approximately $2.0 million. We also incurred
      additional expenses of approximately $4.1 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
      that is based on EV-DO technology, and the development of additional Ogo
      products.




47


***Selling
      and Marketing Expenses***




Our
      selling and marketing expenses increased by 10.1% to approximately $8.7 million
      for the year ended December 31, 2007 compared to approximately $7.9 million
      for
      the year ended December 31, 2006. The increase was primarily attributable to
      an
      increase in expenses as follows: headcount and fixed overhead costs and facility
      costs – approximately $1.3 million, trade shows costs – approximately
      $260,000, travel expense – approximately $220,000, marketing contribution
      expenses – approximately $681,000, launch expenses and other marketing
      activities – approximately $420,000, expenses to subcontractors –
approximately $190,000, sample devices – approximately $270,000 and sales
      commissions – approximately $200,000. These increases were partially offset
      by a decrease of approximately $3.4 million recorded as amortization of the
      Keep
      Well Agreement.




***General
      and Administrative Expenses***




Our
      general and administrative expenses increased by approximately 154.7% to
      approximately $7.7 million for the year ended December 31, 2007 compared to
      approximately $3.0 million for the year ended December 31, 2006. The
      increase was primarily attributable to the following: 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, approximately
      $1.6
      million related to stock base compensation expenses following new option grants
      and approximately $1.2 million in increased salaries, headcount and fixed
      overhead of which approximately $220,000 was for a one time bonus that was
      granted to Amit Haller, our chief executive officer, or CEO, following the
      consummation of the Merger and the balance was primarily an increase in
      headcount. In addition, we recorded a non-cash expense of approximately $700,000
      on account of the bonus plans of Mr. Barak and Mr. Haller as detailed below.
      Our
      professional services expenses also increased, primarily attributable to an
      increase in audit and legal expenses of approximately $270,000 and an increase
      in provision for doubtful debt in the amount of approximately $190,000.




We
      recorded $700,000 of expenses related to bonus plans for Mr. Barak and Mr.
      Haller as a result of the consummation of the Merger, based on the
      following:




·
            We
                will be required to record general and administrative expenses in
                the
                aggregate amount of approximately $2.0 million in connection with
                the
                issuance to Mr. Barak of the right to receive options to purchase
                450,000
                shares of our common stock, at an exercise price of $5.00, which
                vest upon
                reaching various price per share targets; these expenses will be
                recorded
                over a period of approximately 42 months from the consummation of
                the
                Merger; approximately $320,000 was recorded as an expense during
                2007;




·
            We
                will be required to record general and administrative expenses in
                the
                aggregate amount of approximately $1.9 million in connection with
                the
                issuance to Mr. Haller of the right to receive options to purchase
                450,000
                shares of our common stock, at an exercise price of $5.00, which
                vest upon
                reaching various price per share targets; these expenses will be
                recorded
                over a period of approximately 42 months from the consummation of
                the
                Merger; approximately $300,000 was recorded as expense during 2007;
                and




·
            We
                may be required to record non-recurring, general and administrative
                expenses of up to approximately $670,000 in connection with cash
                bonuses
                in the amount of up to $1.4 million that may be paid to each of Mr.
                Barak
                and Mr. Haller upon reaching various price per share targets. These
                expenses will be recorded over a period of approximately 42 months
                from
                the consummation of the Merger; approximately $80,000 was recorded
                as
                expense against long-term liabilities during
                2007.




***Financial
      Expenses, Net***




Our
      financial expenses, net, for the year ended December 31, 2007 were approximately
      $33.8 million compared to financial expenses, net of approximately $2.5 million
      for the year ended December 31, 2006. This increase was primarily attributable
      to interest on loans and credit lines, which increased by approximately $1.27
      million and additional financial expenses recorded in connection with the
      consummation of the Merger and conversion, of loans and other debts, as follows:




·
            We
                accounted for the modification to the terms of our Bridge Loan in
                2006
                under the provisions of EITF 06-6, "Debtor's Accounting For A Modification
                (or Exchange) of Convertible Debt Instruments", as an extinguishment
                of
                the Bridge Loan, and the issuance of a new loan under the modified
                terms.
                As such, we recorded an immediate loss of approximately $8.8 million
                for
                the extinguishment of the original Bridge Loan as additional financial
                expenses. This included approximately $2.9 million for the extinguishment
                of the Bridge Loan (such amount includes costs for issuance of 600,000
                shares of common stock to Southpoint) and approximately $5.9 million
                as
                detailed below. The amended Bridge Loan was recorded in the balance
                sheet
                based at its fair value, which amounted to approximately $26 million.
                As
                the fair value of the amended Bridge Loan is greater than its contractual
                repayment schedule, such premium in the amount of approximately $5.9
                million will be amortized over the contractual term of the loan (12
                months) using the effective interest method as financial income.
                As of
                December 31, 2007, the Company recorded financial income of approximately
                $5.6 million as effective interest income derived from the valuation
                of
                the Bridge Loan. Following the partial conversion of the Bridge Loan
                detailed below, the related part of the premium was amortized
                immediately.




48


·
            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 $2.3 million due to the full amortization of various
                deferred debt costs related to the Bridge
                Loan.




·
            We
                recorded non recurring, financial expenses of approximately $125,000
                in
                connection with the issuance to certain financial institutions that
                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.




·
            Modifications
                to the terms of the Bridge Loan were accounted for under the provisions
                of
                SFAS No. 84, “Induced Conversion of Convertible Debt,” or SFAS No. 84, as
                an inducement to Southpoint, and as such we recorded a non-recurring
                loss
                upon inducement in the amount of approximately $6.4 million. In addition,
                we recorded approximately $7.4 million on account of warrants issued
                to
                Southpoint for the partial conversion of its Bridge Loan.




·
            Modifications
                to the terms of the Guarantee (as defined under “– Liquidity and Capital
                Resources – Bridge Loans; Debt Conversion”) were accounted for under the
                provisions of SFAS No. 84 as an inducement to the Guarantors (as
                defined
                under “– Liquidity and Capital Resources – Bridge Loans; Debt
                Conversion”), and as such, we recorded a non-recurring loss upon
                inducement in the amount of approximately $2.2 million. In addition,
                we
                recorded approximately $2.6 million on account of warrants issued
                to the
                Guarantors for the partial conversion of their Guarantee.




·
            Under
                the provisions of SFAS No. 84, we accounted for the conversion of
                $2
                million of the March 2007 Loans (as defined under “– Liquidity and Capital
                Resources – Bridge Loans; Debt Conversion”), whose terms were amended
                to a convertible loan and immediately converted, by recording
                non-recurring financial expenses relating to the inducement for the
                partial conversion of the March 2007 Loan of approximately $289,000.
                In
                addition, we recorded approximately $913,000 on account of warrants
                issued
                to the lenders for the partial conversion of the March 2007 Loans.




·
            In
                connection with the ELOC arrangement, we recorded financial expenses
                in
                the amount of approximately $293,000 on account of 75,000 shares
                issued to
                the equity line providers.




***Net
      Loss***




We
      had a
      net loss from continuing operations of approximately $68.6 million for the
      year
      ended December 31, 2007, compared to a net loss of approximately $23.7
      million for the year ended December 31, 2006 as a result of the reasons
      described above.




**Year
      Ended December 31, 2006 Compared to Year Ended December 31,
      2005**




***Revenues***




Revenues
      for the year ended December 31, 2006 were approximately $12.9 million, compared
      to approximately $8 million for the year ended December 31, 2005. Revenues
      for
      the year ended December 31, 2006 included approximately $11.7 million from
      the
      sale of Ogo devices, approximately $874,000 from hosted services, approximately
      $213,000 from non-recurring engineering contracts and approximately $100,000
      that IXI received as a development license fee for our PMG technology in 2005,
      but which were recognized only in the second quarter of 2006 once maintenance
      fees under the agreement were received. Revenues for 2005 included approximately
      $7.4 million from the sale of Ogo devices; $370,000 from PMG licenses; $160,000
      from AT&T Wireless for customer and product support and $15,000 from hosted
      services.




49


***Cost
      of Revenues***




Our
      total
      cost of revenues for the year ended December 31, 2006 was approximately $16.2
      million, compared to approximately $9.6 million for the year ended December
      31,
      2005.




Our
      cost
      of revenues exceeded revenues for the year ended December 31, 2006, due to
      a
      number of key factors:




·
            Cost
                of revenues for the Ogo-related hosted services consists primarily
                of
                payments to subcontractors who provide hosted services and to instant
                messaging service providers. During 2006, our cost of revenues associated
                with hosted services and IM services as a percentage of revenues
                was high
                due to our agreement with a major IM supplier that required IXI to
                pay
                certain minimum fees per month, which fees were scheduled to increase
                over
                time. Until we acquire new subscribers at a rate that matches the
                rate of
                increase in the minimum subscriber payments to the major IM supplier,
                IXI’s costs per subscriber will continue to exceed revenues. As noted
                above under “ – Year Ended December 31, 2007 Compared to Year Ended
                December 31, 2006,” this agreement was amended in 2007 to decrease total
                minimum monthly fees effective January 1, 2007;
                and




·
            Due
                to the small number of Ogo devices sold or with respect to which
                revenue
                was recognized we had a relatively high cost of revenues resulting
                from
                our high fixed costs, comprised of salaries and related personnel
                expenses
                for employees engaged in the delivery and support of our products
                and
                employees engaged in the support of hosted services, as well as the
                allocation of fixed overhead and facility
                costs.




***Other
      Income — Gain from Termination Agreement with Cingular Wireless,
      Inc.***




We
      recorded a one-time gain of approximately $11.7 million in the year ended
      December 31, 2005 as compensation by Cingular Wireless, Inc. for the termination
      of IXI’s agreement with AT&T Wireless.




***Research
      and Development Expenses, Net***




Our
      net
      research and development expenses increased by 61% to approximately $6.9 million
      for the year ended December 31, 2006 from approximately $4.3 million for the
      year ended December 31, 2005. The increase was primarily attributable to an
      increase in headcount and fixed overhead and facility costs in the amount of
      approximately $852,000, and additional expenses of approximately $1.4 million
      for development of a variety 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
                and a modified hardware design;




·
            the
                development of additional applications for an Ogo1.0 device;
                and




·
            the
                development of a new model of the Ogo 2.0
                device.




In
      comparison, during the 2005, we focused the majority of our research and
      development efforts primarily on the development of the voice application for
      Ogo devices.




***Selling
      and Marketing Expenses***




Our
      selling and marketing expenses increased by 139% to approximately $7.9 million
      for year ended December 31, 2006 from approximately $3.3 million for the year
      ended December 31, 2005. The increase was primarily attributable to
      approximately $3.0 million recorded as amortization of the Keep Well Agreement.
      Selling and marketing expenses increased in the amount of approximately $1.4
      million due to expansion of our sales and marketing activities to support the
      promotion of the Ogo device and increased joint marketing efforts with our
      customers in the amount of approximately $230,000.




50


***General
      and Administrative Expenses***




Our
      general and administrative expenses increased by 110% to approximately $3
      million for the year ended December 31, 2006, from approximately $1.4 million
      for year ended December 31, 2005. The increase was primarily attributable to
      an
      increase in headcount, fixed overhead and facility costs in the amount of
      approximately $722,000. Total stock-based compensation expense recognized for
      2006 was approximately $302,000 compared to $32,000 in 2005. This increase
      in
      stock-based compensation expense resulted primarily from options originally
      granted to non-employees in November 2005 who became employees in 2006 for
      which
      expenses in accordance with SFAS No. 123(R) amounted to $172,000. In addition,
      professional fees for legal and audit services increased by approximately
      $320,000.




***Financial
      Expenses, Net***




Our
      financial expenses, net, for the year ended December 31, 2006 were approximately
      $2.5 million compared to financial expenses, net of approximately $1.3 million
      for the year ended December 31, 2005. This increase was primarily attributable
      to interest on bridge loans, which increased by approximately $1.5 million
      and
      financial expenses related to a purchase order factoring agreement of
      approximately $150,000 compared to $0 in 2005. This increase was partially
      offset by a reduction in our interest expense of approximately $250,000 under
      other loans and credit lines and reduced currency exchange rate expenses of
      approximately $180,000.




***Net
      Loss***




We
      had a
      net loss from continuing operations of approximately $23.7 million, for the
      year
      ended December 31, 2006, compared to a net loss of approximately $344,000
      for the year ended December 31, 2005 as a result of the reasons described
      above.




**Non-GAAP
      Financial Measures**




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





**Non-GAAP
      Cost of Revenues Reconciliation**





**Year
                ended December 31,****2007**
            
            **2006****(in
                thousands)**Total
                revenues
            
            $
            16,240
            
            $
            12,929GAAP
                cost of revenues:
            
            
            18,564
            
            
            16,236Stock-based
                option expense in GAAP cost of revenues
            
            
            204
            
            
            7Inventory
                write down (including vendor advance payments and
                royalties)
            
            
            3,289
            
            
            790Non-GAAP
                cost of revenues (excluding the above)
            
            $
            15,071
            
            $
            15,439Non-GAAP
                gross margin
            
            
            7.2
            %
            
            (19.4
            %)




51


**Non-GAAP
      Operating Loss Reconciliation**





**Year
                ended December 31,****2007**
            
            **2006****(in
                thousands)**GAAP
                operating loss
            
            $
            (34,673
            )
            $
            (21,170
            )Stock-based
                option and share expense in GAAP operating expenses, including Merger
                related expenses
            
            
            4,347
            
            
            454Inventory
                write down (including vendor advance payments and
                royalties)
            
            
            3,289
            
            
            790Non-GAAP
                operating loss (excluding the above)
            
            $
            (27,037
            )
            $
            (19,926
            )





**Non-GAAP
      Net Loss Reconciliation**





**Year
                ended December 31,****2007**
            
            **2006****(in
                thousands)**GAAP
                net loss
            
            $
            (68,590
            )
            $
            (22,652
            )Stock
                based option and share expense in GAAP operating expenses, including
                merger related expenses
            
            
            4,347
            
            
            454Inventory
                write down (including vendor advance payments and
                royalties)
            
            
            3,289
            
            
            790Financial
                expenses (income) relating to Merger, conversion of loans and credit
                line
            
            
            31,219
            
            
            0Non-GAAP
                net loss (excluding the above)
            
            $
            (29,735
            )
            $
            (21,408
            )




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




·
            *Share-based
                compensation expenses*.
                We have excluded share-based compensation expenses, which consist
                of
                expenses for share-based compensation that we began recording under
                SFAS
                No. 123(R) in the first quarter of fiscal 2006. We excluded these
                expenses
                primarily because they are non-cash expenses that we do not consider
                part
                of ongoing operating results when assessing the performance of our
                business.




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




·
            *General
                and administrative expenses recorded in connection with the issuance
                of
                stock, stock options and cash bonuses to our senior
                management*.We
                have excluded expenses recorded in connection with the issuance of
                stock,
                stock options and cash bonuses to Mr. Barak and Mr. Haller in connection
                with the consummation of the Merger and their specific compensation
                terms
                following the consummation of the Merger primarily because we believe
                that
                excluding these items allows investors to better assess our operating
                loss
                and to compare it to previous periods that did not include these
                expenses.




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




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




52


**Liquidity
      and Capital Resources**




**General**




Since
      our
      inception, our operations have been funded through capital investments from
      our
      security holders, loans from venture lenders and banks, OCS grants and cash
      flow
      from operations. We have incurred operating losses since inception, including
      net losses of approximately $68.6 million, $22.7 million and $12.0 million
      in 2007, 2006 and 2005, respectively, and we had an accumulated deficit of
      approximately $160.2 million as of December 31, 2007. We also have had and
      continue to have negative cash flows from operating activities. For the years
      ended December 31, 2007, 2006, and 2005 we had negative cash flow from operating
      activities in the amounts of $34.5 million, $18.0 million and $15.0 million,
      respectively. At December 31, 2007, we had cash and cash equivalents available
      to fund operations of approximately $17.3 million.




In
      order
      to continue our operations according to our business plan and, if required
      by
      our lenders, to repay our outstanding indebtedness in cash when due, we will
      require substantial additional equity or debt financing in both the short and
      the long term. There can be no assurance that we will be able to raise
      additional financing or to continue as a going concern. See “– Overview –
History of Continuing Losses; Going Concern; Need for Additional
      Financing.”




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




In
      addition to our regular operating expenses (such as research and development
      expenses, sales and marketing expenses and general and administrative expenses),
      as of December 31, 2007, 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)
            
            $
            1,163
            
            $
            687
            
            $
            476
            
            $
            0
            
            $
            0Motor
                vehicles leases
            
            $
            827
            
            $
            397
            
            $
            430
            
            $
            0
            
            $
            0Purchase
                obligations(2)
            
            $
            5,241
            
            $
            5,241
            
            $
            0
            
            $
            0
            
            $
            0Other
                long-term commitments(3)
            
            $
            4,247
            
            $
            2,982
            
            $
            1,265
            
            $
            0
            
            $
            0Severance
                pay(4)
            
            $
            1,138
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            1,138Bridge
                loan(5)
            
            $
            4,492
            
            $
            4,492
            
            $
            0
            
            $
            0
            
            $
            0Total
                contractual obligations
            
            $
            15,773
            
            $
            12,964
            
            $
            1,671
            
            $
            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, 2007, we had open purchase orders with third party
                suppliers mainly for the manufacturing and product development of
                the Ogo
                devices for a total of approximately $5.2 million.(3)
            The
                agreement with a major IM provider provides for minimum amounts committed
                to be paid by us from January 1, 2008 through September 30, 2009 of
                $1.8 million.(4)
            Severance
                pay relates to accrued severance obligations to our Israeli employees
                as
                required under Israeli labor law. These obligations are payable only
                upon
                termination, retirement or death of the respective employee and there
                is
                no obligation if the employee voluntarily resigns. $221,000 of this
                amount
                is unfunded.(5)
            During
                October 2007, the Bridge Loan was partially converted.




53


***Bridge
      Loans; Debt Conversion***




On
      June
      20, 2006, IXI R&D entered into a Bridge Loan Agreement with Southpoint
      pursuant to which Southpoint loaned to IXI R&D $20.0 million (from which we
      paid $1.7 million in cash compensation to certain private placement agents
      and
      $700,000 in cash compensation, upon consummation of the Merger, to certain
      financial institutions providing advisory services to us), with IXI acting
      as
      guarantor thereto (the “Bridge Loan”). Under the original terms of the Bridge
      Loan Agreement, the Bridge Loan bore interest of 20% per annum and was repayable
      upon the earlier of June 6, 2008 (the “Original Repayment Date”) or the
      acceleration of the Bridge Loan in accordance with the agreement (such
      acceleration being referred to as the “Original Maturity Date”). We and IXI 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, IXI’s and IXI R&D’s
      assets (subject to limited exceptions).




In
      addition, in June 2006 Landa Ventures and the Gemini Funds (the “Guarantors”),
      both security holders of IXI (and now of ours), who previously guaranteed a
      credit line and a loan received by IXI R&D from Bank Leumi Le’Israel Ltd. in
      the total amount of $8.0 million, undertook in a Letter Agreement dated June
      19,
      2006, as amended (the “Letter Agreement”), to extend their guarantee and to
      maintain the existing bank credit line and loan at $8.0 million (the “Credit
      Facility”) until the Original Repayment Date or Original Maturity Date (as the
      case may be) (as amended, the “Guaranty”). Pursuant to the Letter Agreement,
      each of the Guarantors is entitled to assume all or any part of any amounts
      owed
      by IXI R&D to Bank Leumi under the line of credit or under the loan and in
      such event any such assuming Guarantor shall be entitled to the same rights
      and
      benefits conferred on Southpoint, as the Bridge Loan lender, by the Bridge
      Loan
      Agreement. In consideration of the extension of the Guaranty, the Guarantors
      are
      entitled to a fee equal to the difference between the interest paid to Bank
      Leumi and the amount of interest that IXI would have paid to Bank Leumi if
      the
      Credit Facility bore interest at a rate equal to the rate set forth in the
      Bridge Loan Agreement. As of December 31, 2007, we owed an aggregate of $27,889
      accrued interest to Landa Ventures and the Gemini Funds in consideration for
      their guarantee of the Credit Facility.




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




We
      accounted for the 2006 modification to the terms of the Bridge Loan under the
      provisions of EITF 06-6, “Debtor’s Accounting For A Modification (or Exchange)
      of Convertible Debt Instruments”, as an extinguishment of the Bridge Loan, and
      the issuance of a new loan under the modified terms, and as such, we recorded
      an
      immediate loss of approximately $8,800,000 for the extinguishment of the
      original Bridge Loan as additional financial expenses. Additional financial
      expenses of approximately $ 1,200,000 were recognized due to the full
      amortization of various deferred charges related to the Bridge Loan. The amended
      Bridge Loan was recorded in the balance sheet based on its fair value, which
      amounted to approximately $26,000,000. As the fair value of the amended Bridge
      Loan is greater than its contractual repayment schedule, such premium was
      amortized over the contractual term of the loan using the effective interest
      method as financial income. As of December 31, 2007, we recorded financial
      income of approximately $3,700,000 as effective interest income derived from
      the
      valuation of the Bridge Loan.




In
      connection with the consummation of the Merger, Southpoint received 1,000,000
      shares of our common stock and the Guarantors received 400,000 shares of our
      common stock. These 1,400,000 shares of common stock were issued to Southpoint
      and the Guarantors on June 6, 2007, and, based on the terms of the Merger and
      the per share Merger consideration of $6.06 per share, these shares of common
      stock had an aggregate value of $8,484,000 on the date of issuance. Southpoint
      also received $150,000 as reimbursement of certain legal fees incurred in
      connection with the Bridge Loan. We also issued an additional 30,000 shares
      of
      common stock to certain private placement agents who participated in identifying
      potential bridge lenders, together with cash compensation in the amount of
      $1.7
      million. In addition, each of Southpoint and the Guarantors were entitled to
      convert all or part of its respective debt facility (including accrued interest
      thereon), into shares of our common stock until June 6, 2008, at a price of
      $5.50 per share. Furthermore, if each of the above were to convert 50% or more
      of its respective debt facility (excluding accrued interest thereon), it would
      be entitled to receive warrants to purchase shares of our common stock at an
      exercise price of $5.00 (subject to adjustment in case of stock dividends and
      stock splits), expiring in June 2009. If 100% of the debt is converted, the
      maximum total number of shares of common stock under the warrants is 1,000,000,
      allocated between Southpoint and the Guarantors according to the proportionate
      amount of their debt facilities. Southpoint and the Guarantors have agreed
      to be
      subject to lock-up arrangements which have been agreed to by the principal
      security holders of IXI (excluding warrants to purchase shares of our common
      stock that may be issued to the private placement agents in connection with
      the
      conversion of the Bridge Loan) and are entitled to registration rights on the
      same terms as those security holders.




54


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




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




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




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




Due
      to
      the prolonged Merger process and in order to satisfy IXI’s working capital
      requirements prior to receipt of the Merger consideration, IXI and IXI Israel
      also entered into non-convertible loan agreements in March 2007 (the “March 2007
      Loans”) with Southpoint, Gemini Funds and Landa Ventures under which IXI
      received gross proceeds of $6 million in two tranches of $3 million each. The
      March 2007 Loans bore interest at the rate of 10% per annum. As originally
      agreed, one-half of the March 2007 Loans was due and repayable on June 6, 2008
      and the balance was due and payable on June 6, 2009, in each case together
      with
      any interest accrued and unpaid thereon. Thereafter, in May 2007 IXI borrowed
      an
      additional $5 million, which was repaid in full in July and August of
      2007.




On
      November 14, 2007, we entered into an agreement with Landa Ventures regarding
      the conversion of $2.592 million principal amount of debt consisting of the
      $2
      million loan made by Landa Ventures to IXI as part of the March 2007 Loans
      and
      the assumption and conversion of $592,000 guaranteed by Landa Ventures under
      the
      Credit Facility, at the conversion price of $3.60 per share and the issuance
      of
      warrants to purchase shares of our common stock at an exercise price of $4.10
      per share (subject to adjustment in case of stock dividends and stock splits),
      expiring five years from the date of grant. This conversion resulted in the
      issuance of an aggregate of 720,000 shares of common stock and warrants to
      purchase an aggregate of up to 432,000 shares of common stock. As a result
      of
      the conversion of this remaining Guarantee at a per share conversion price
      of
      $3.60 (as opposed to the $5.50 per share conversion price specified under the
      terms of the Guarantee, as amended,) Landa received an aggregate of 56,808
      additional shares as a result of the conversion, which also reflected an
      immediate gain of $0.52 per share, or $329,540 in total, when compared to the
      market price on the date of conversion of $4.12 per share. Following this
      transaction, Landa Ventures is no longer a Guarantor.




55


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




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




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




***Equity
      Line of Credit***




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




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




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




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




We
      have
      not yet received any proceeds under the ELOC Arrangement. The ELOC Arrangement
      will remain in effect until the earlier of 24 months following the date that
      the
      registration statement with respect to the shares that may be issued under
      the
      ELOC Arrangement is declared effective and November 10, 2010, unless otherwise
      terminated by us or Tailor-Made pursuant to the terms of the ELOC Arrangement.
      In connection with the ELOC Arrangement, we issued Tailor-Made 75,000 shares
      of
      common stock as a commitment fee and a five year warrant to purchase up to
      312,500 shares of our common stock at an exercise price of $4.10 per share
      (subject to adjustment in case of stock dividends and stock splits). The amount
      attributed to the issuance of these shares of common stock was $284,000 (net
      of
      $9,000 of issuance costs) and was recorded as financial expenses during 2007.
      The warrant issued to Tailor-Made will vest proportionally to the value of
      the
      shares purchased by Tailor-Made under the ELOC Arrangement at the time of
      purchase. As of December 31, 2007, none of the warrants had vested; accordingly,
      no financial expenses were recorded.




***Private
      Placement***




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




56




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




The
      net
      proceeds received in this private placement were recorded as stockholders'
      equity. The amount attributed to the issuance of these warrants was $383,000.
      These issuance costs were recorded as additional paid in capital pursuant to
      the
      provisions of EITF No. 96-18, so that the net effect of the warrants was
      zero.




***Other
      Capital Investments***




Since
      inception until prior to consummation of the Merger, IXI had raised over $60
      million in investments from its security holders. Following the Merger, to
      date
      we have raised an aggregate of $67.3 million (including cash made available
      as a
      result of the consummation of the Merger) in investments from our security
      holders. Since January 1, 2005, the additional major financing rounds were
      the following:




·
            In
                January and February 2005, IXI issued shares of series D convertible
                preferred stock in consideration of $10.0
                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 the Merger agreement at the closing of the Merger, all of IXI’s shares of
      stock were converted to shares of our common stock.




***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 Gemini and Landa Ventures.




In
      October 2005, IXI R&D received a short term bank credit from an Israeli bank
      in the amount of $750,000 which bore annual interest at a rate of LIBOR + 3%.
      In
      January 2006, the short term bank credit was repaid in full 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 $4.0 million, which bore annual interest at a
      rate
      of 9% and was 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 $4.0 million. The Guarantors undertook in the Letter
      Agreement to extend their guaranty and to maintain the existing bank credit
      line
      and loan at $8.0 million. On December 31, 2006, the Company received an
      extension of the term of the $8.0 million short-term bank credit, to be repaid
      on May 15, 2007. For further discussion see “– Bridge Loans; Debt
      Conversion.”




On
      June
      8, 2006, IXI R&D received a short term loan from an Israeli bank in the
      amount of $2.0 million, which bore annual interest at a rate of LIBOR + 4%
      and
      was repaid in full in a single installment on June 20, 2006.




In
      May
      2007 IXI signed a short term loan agreement with a new lender and with its
      existing security holders (the “Lenders”) whereby the Lenders extended a $5
      million short term loan with the following terms: (i) annual interest of 15%,
      (ii) maturity date of 60 days from the closing of the Merger, and (iii) 2%
      including VAT cash fee payable on the date in which the Merger was consummated.
      During July and August 2007, the short term loan was repaid in
      full.




57


***Other
      Long-term Loans***




In
      August
      2003, IXI and certain affiliates of Western Technology Investments, a venture
      lender that was also a security holder 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 US 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 was required to be repaid in 30 monthly
      installments (the last installment was scheduled to be paid in July 2006).
      During the years ended December 31, 2007, 2006 and 2005, principal amounts
      of
      $0, $1.0 million and $1.8 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, 2007, 2006 and 2005 principal amounts of $0, $0 and
      $1.6 million, respectively, were repaid by IXI.




The
      total
      outstanding amount of both loans were repaid upon entering into 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.




**Cash
      Flow Analysis**




Our
      continuing operating activities used cash in the amount of approximately $34.5
      million for the year ended December 31, 2007, compared with cash used in
      operating activities of approximately $17.3 million for the year ended
      December 31, 2006. This increase was mainly attributable to our continuing
      investment in product development, our sales and marketing efforts related
      to
      expanding our business, an increase in our headcount and fixed overhead and
      facility costs and to increased general working capital needs.




Our
      investing activities relating to our continuing operations used cash in the
      amount of $212,000 for the year ended December 31, 2007, compared with cash
      used
      in investing activities of approximately $343,000 for the year ended December
      31, 2006. In each period, cash was primarily used for the purchase of property
      and equipment.




Our
      financing activities for the year ended December 31, 2007 provided cash in
      the amount of approximately $49.3 million, which consisted of: proceeds from
      the
      issuance of common stock in connection with the Merger, net of issuance costs,
      of $33.4 million; proceeds from the March 2007 Loans of approximately $6.0
      million; proceeds from the issuance of common stock in connection with a private
      placement, net of issuance costs, of approximately $9.2 million, and proceeds
      from short-term bank credit of approximately $634,000. Our financing activities
      for the year ended December 31, 2006 provided cash of approximately $20.9
      million, which consisted of proceeds from the Bridge Loan of $20 million and
      proceeds from the Bank Leumi Credit Facility of approximately $6.8 million,
      which were offset by the principal payment of a long-term loan of approximately
      $2.6 million, payment of deferred debt and Merger costs of approximately $2.5
      million, and by the repayment of a short term bank loan of approximately
      $750,000.




Our
      continuing operating activities used cash in the amount of approximately $17.3
      million for the year ended December 31, 2006, compared with cash used in
      operating activities of approximately $6.5 million for the year ended December
      31, 2005. This increase was mainly attributable to our continuing investment
      in
      product development, our sales and marketing efforts related to expanding our
      business, an increase in our headcount and fixed overhead and facility costs
      and
      to increased general working capital needs.





Our
      investing activities relating to continuing operations used cash of
      approximately $343,000 in the year ended December 31, 2006, compared with
      approximately $224,000 in the year ended December 31, 2005. In each period,
      cash
      was primarily used for purchase of property and equipment.




Our
      financing activities provided cash of approximately $20.9 million in the year
      ended December 31, 2006 as described above. Financing activities provided cash
      of approximately $12.9 million in the year ended December 31, 2005 due to
      proceeds from the issuance of equity securities (net of issuance expenses)
      of
      approximately $10.2 million, proceeds from short term bank loans of $750,000
      and
      proceeds from convertible loans of approximately $6.1 million, which were offset
      by the repayment of a short term bank loan of approximately $1.3 million and
      repayment of long-term bank loan of approximately $2.9 million.




58


**Net
      Operating Loss Carryforwards**




We
      have
      accumulated operating losses that can be carried forward and offset against
      taxable income, and which result in deferred tax assets. Because we currently
      believe that it is more likely than not that we will not realize the deferred
      tax assets resulting from the carry forward in the foreseeable future, we
      reserved the full amount of the value of the benefit of the deferred tax assets.
      The change in valuation allowance as of December 31, 2007 compared to December
      31, 2006 was an increase in the reserve amount of approximately $11.9
      million.




As
      of
      December 31, 2007, the state and the federal tax losses carryforwards of our
      US
      subsidiary were approximately $16.4 million and $19.8 million respectively.
      Such
      losses are available to be offset against any future US taxable income of the
      US
      subsidiary and will expire in 2021 and 2027, respectively.




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




At
      December 31, 2007, IXI R&D had accumulated losses for tax purposes in the
      amount of approximately $84.0 million, which may be carried forward and offset
      against taxable income in the future for an indefinite period.




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




**Off-Balance
      Sheet Arrangements**




We
      do not
      currently have any off-balance sheet arrangements, and we have not had any
      off-balance sheet arrangements during the last three years, in each case that
      have or are reasonably likely to have a current or future effect on our
      financial condition, changes in financial condition, revenues or expenses,
      results of operations, liquidity, capital expenditures or capital resources
      that
      is material to us.




**Item
      7A. Quantitative and Qualitative Disclosures About Market
      Risk**




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




***Foreign
      Exchange Risk***




Although
      we report our consolidated financial statements in US dollars, in 2005, 2006
      and
      2007, a significant portion of our revenues and portion our expenses was
      denominated in other currencies. Our management believes that the dollar is
      the
      primary currency of the economic environment in which we and our subsidiaries
      operate. Thus, our and our subsidiaries’ functional currency is the dollar.
      Monetary accounts maintained in currencies other than the dollar are remeasured
      into dollars in accordance with SFAS, No. 52, “Foreign Currency Translation”.
      All transaction gains and losses of the remeasured monetary balance sheet items
      are reflected in our statement of operations as financial income or expenses,
      as
      appropriate. Consequently, fluctuations in the rates of exchange between the
      dollar and non-dollar currencies will affect our results of operations. An
      increase in the value of a particular currency relative to the dollar will
      increase the dollar reporting value for transactions, and a decrease in the
      value of that currency relative to the dollar will decrease the dollar reporting
      value for those transactions. This effect on the dollar reporting value for
      transactions is generally only partially offset by the impact that currency
      fluctuations may have on costs. We currently do not engage in currency hedging
      transactions to offset the risks associated with variations in currency exchange
      rates but we intend to begin engaging in hedging transactions in the near
      future. Due to the instability of the foreign currency markets, significant
      foreign currency fluctuations and other foreign exchange risks may have a
      material adverse effect on our business, financial condition and results of
      operations.


**Item
      8. Financial Statements and Supplementary Data**




Our
      consolidated financial statements, together with the report of the independent
      registered public accounting firm, appear beginning at page F-1 of this Annual
      Report on Form 10-K.




59




**Item
      9. Changes in and Disagreements With Accountants on Accounting and Financial
      Disclosure**




None.




**Item
      9A(T). Controls and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**




We
      maintain disclosure controls and procedures or controls and other procedures
      that are designed to ensure that the information required to be disclosed by
      us
      in the reports that we file or submit under the Securities Exchange Act of
      1934,
      or Exchange Act, is recorded, processed, summarized and reported, within the
      time periods specified in the rules and forms of the Securities and Exchange
      Commission. Disclosure controls and procedures include, without limitation,
      controls and procedures designed to ensure that information required to be
      disclosed in the reports that a company files or submits under the Exchange
      Act
      is accumulated and communicated to our management, including our chief executive
      officer and chief financial officer, as appropriate to allow timely decisions
      regarding required disclosure.




We
      carried out an evaluation, under the supervision and with the participation
      of
      our chief executive and chief financial officers, of the effectiveness of the
      design and operation of our disclosure controls and procedures (as defined
      in
      Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of December 31, 2007.
      Based on this evaluation, our chief executive officer and our chief financial
      officer concluded that as of December 31, 2007, our disclosure controls and
      procedures were effective at providing reasonable assurance that the information
      required to be disclosed by us in reports filed under the Exchange Act is (i)
      recorded, processed, summarized and reported within the time periods specified
      in the SEC’s rules and forms; and (ii) accumulated and communicated to our
      management, including our chief executive officer and chief financial officer,
      as appropriate, to allow timely decisions regarding disclosure.




**Internal
      Controls over Financial Reporting**




Management
      of the company is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Securities Exchange Act of 1934. The Company’s internal control over
      financial reporting is designed to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with generally accepted accounting
      principles. The company’s internal control over financial reporting includes
      those policies and procedures that:




·
            Pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect the transactions and dispositions of the assets of
                the
                company;


·
            Provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that receipts and expenditures of the
                company
                are being made only in accordance with authorizations of management
                and
                directors of the company; and


·
            Provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of the company’s assets that
                could have a material effect on the financial
                statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




Management
      assessed the effectiveness of our internal control over financial reporting
      as
      of December 31, 2007. In making this assessment, management used the criteria
      set forth by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO) in Internal Control-Integrated Framework. Based on its
      assessment and those criteria, management believes that we maintained effective
      internal control over financial reporting as of December 31, 2007.




This
      Annual Report does not include an attestation report of our registered public
      accounting firm regarding our internal control over financial reporting.
      Management’s report was not subject to attestation by our registered public
      accounting firm pursuant to temporary rules of the SEC that permit us to provide
      only management’s report in this Annual Report.


**Item
      9B. Other Information**




None




60


**PART
      III**




**Item
      10. Directors, Executive Officers and Corporate Governance**




Our
      board
      of directors and executive officers are as follows:




**Name**
            
            **Age**
            
            **Position
                with the Company**Gideon
                Barak
            
            51
            
            Executive
                Co-Chairman of the BoardIsrael
                Frieder
            
            58
            
            Non-Executive
                Co-Chairman of the BoardAmit
                Haller
            
            38
            
            Chief
                Executive Officer and DirectorAmnon
                Shachar
            
            56
            
            PresidentLihi
                Segal
            
            36
            
            Executive
                Vice President and Chief Financial OfficerGadi
                Meroz
            
            39
            
            Executive
                Vice President and General CounselYossi
                Sela
            
            55
            
            DirectorShlomo
                Shalev
            
            46
            
            DirectorShmuel
                M. Gitlin
            
            55
            
            DirectorMatthew
                Hills
            
            48
            
            Director




**Information
      about Directors and Executive Officers**




**Gideon
      Barak** has
      served as the co-chairman of our board since June 2007 and as Executive
      Co-Chairman since February 2008. Mr. Barak is a co-founder of IXI and served
      as
      the chairman of IXI’s board from IXI’s inception in 2000 through the completion
      of the Merger. Mr. Barak has over 25 years of experience in the communications
      industry. From 1990 to 1992, Mr. Barak was chief financial officer of DSP Group
      Inc., an American-Israeli company specializing in proprietary digital signal
      processing for consumer and telecommunications applications. Additionally,
      Mr.
      Barak was a co-founder and served as the chief executive officer of DSP
      Communications, Inc., a spin-off of DSP Group, Inc., which was later acquired
      by
      Intel Corporation in 1999. He was the founder and chairman of Envara, Inc.
      and
      Butterfly VLSI, Ltd., which were acquired by Intel and Texas Instruments, in
      2004 and 1999, respectively. Mr. Barak was also a venture partner with Benchmark
      Capital in Israel during 2006. Mr. Barak has been a director of additional
      semiconductor and communications companies, and is currently a director of
      Gamestream Ltd. and Advasense Inc. (founder and Chairman). Mr. Barak is the
      spouse of Lihi Segal, IXI’s chief financial officer. Mr. Barak received a B.A.
      and M.B.A. from Tel Aviv University.




***Israel
      Frieder*** has
      served as our Non-Executive Co-Chairman since February 2008 and served as a
      co-chairman of our board from June 2007 until February 2008. Mr. Frieder served
      as the Company’s chairman of the board and chief executive officer from the
      Company’s inception until the completion of the Merger in June 2007. Since
      January 2005, Mr. Frieder has provided management consulting services to
      Teledata Networks NV, a Netherlands provider of wireline access products and
      next generation network solutions for telecom operators and service providers.
      From May 2001 to December 2004, Mr. Frieder served as the president and chief
      executive officer of Kardan Communications Ltd., an Israeli private investment
      company active in various fields including telecommunications and information
      technology. From 1999 to May 2001, Mr. Frieder served as corporate vice
      president of business development and strategic planning for ECI Telecom Ltd.,
      an Israeli Nasdaq-listed provider of network and access solutions for digital
      telecommunications networks, and from 1996 to 1998 he served as president of
      ECI
      Telecom Inc./DNI (USA), a wholly owned subsidiary of ECI Telecom Ltd. From
      1987
      to 1996, Mr. Frieder served as president of Tadiran Telecommunications Ltd.
      Network Systems, a company that provides telecommunications solutions for
      operators and which was acquired by ECI Telecom. Mr. Frieder has served as
      a
      member of the board of directors of RiT Technologies Ltd., an Israeli
      Nasdaq-listed company that provides solutions for improved control, utilization
      and maintenance of computer networks, since January 2002. He has also served
      as
      a member of the board of directors of a number of private companies, including
      RRSat Ltd., an Israeli provider of end-to-end transmission and production
      services to the global satellite broadcasting industry, and Cellvine Ltd.,
      an
      Israeli developer and marketer of cellular coverage and capacity solutions
      for
      the wireless telecommunications industry, and served as a member of the
      investment committee of Aviv Venture Capital, an Israeli venture capital firm.
      Mr. Frieder is a former winner of the Israel Defense Prize and the Israel Kaplan
      Prize. Mr. Frieder received a B.Sc. (Electrical Engineering) from the Technion
      Israel Institute of Technology in Haifa, Israel and an M.B.A. (with distinction)
      from the Hebrew University of Jerusalem in Israel.




61


***Amit
      Haller*** has
      served as our chief executive officer and as a director since December 2007,
      and
      formerly served as our chief executive officer and president from the completion
      of the Merger in June 2007 until December 2007. Mr. Haller is a co-founder
      of
      IXI and served as its president and chief executive officer and a member of
      its
      board of directors from its inception in 2000 until the completion of the
      Merger. Mr. Haller has 17 years of experience in wireless technology and
      business development. Prior to founding IXI, Mr. Haller worked for one year
      at
      Texas Instruments, Inc., where he directed the Short Distance Wireless
      (Bluetooth) business unit. Until 1999, Mr. Haller served as chief executive
      officer of Butterfly VLSI Ltd., where he created the Short Distance Wireless
      (SDW) vision and developed the first complete SDW chipset (RF, Baseband and
      Software). Butterfly was acquired by Texas Instruments in 1999. Prior to joining
      Butterfly VLSI Ltd., Mr. Haller worked for four years in the Israel Defense
      Forces’ Research and Development Unit.




***Amnon
      Shachar*** has
      served as our President since December 2007. Prior to joining our Company,
      from
      June 2005 to November 2007, Mr. Shachar served as Corporate Vice President,
      Global Resources of ECI Telecom. Mr. Shachar previously served as Senior Vice
      President and General Manager of Polycom Israel Ltd. from January 2000 to June
      2005, and Vice President of a Scitex joint venture from 1998 to January 2000,
      which followed twenty-three years of service with the Israel Defense Forces,
      or
      IDF, where he attained the rank of Colonel. His military career included the
      position of Deputy Chief of the IDF’s leading technology unit. Mr. Shachar
      received a bachelor’s degree in electrical engineering from the Technion, and an
      executive M.B.A. from Tel Aviv University.




***Lihi
      Segal*** has
      served as our executive vice president and chief financial officer since the
      completion of the Merger in June 2007. She also served as IXI’s vice president
      and chief financial officer from September 2005 through the completion of the
      Merger. Ms. Segal served as chief financial officer of RFWaves Ltd., a
      short-distance wireless semiconductor company, from 2002 to 2005. From 1999
      to
      2002, Ms. Segal served as vice president, corporate development and general
      counsel of several companies, including IXI, Envara and RFWaves. From 1997
      to
      1999, Ms. Segal was an attorney with Danziger, Klagsbald, Rosen & Co.,
      Attorneys at Law, a law firm specializing in commercial and corporate law.
      Ms.
      Segal received an LLB from the Buchman Faculty of Law, Tel-Aviv University,
      and
      an MBA from the Joint Executive MBA Program at Recanati, Tel Aviv University
      and
      Kellogg, Northwestern University. Ms. Segal is the spouse of Mr. Barak, the
      executive co-chairman of our board.




***Gadi
      Meroz*** has
      served as our vice president, corporate development and general counsel since
      June 2007. Mr. Meroz has been with IXI in various legal and financial positions
      since July 2001, most recently as executive vice president and general counsel
      since October 2005. Prior to joining IXI, Mr. Meroz was an attorney at
      Volovelsky, Dinstein, Sneh & Co., a law firm specializing in commercial and
      corporate law where Mr. Meroz focused on business and venture funding,
      representing public and private companies as well as venture investors. Mr.
      Meroz holds an LLB from the University of Leicester, United Kingdom School
      of
      Law, and holds an LL.M degree magna cum laude from Tel Aviv University in
      collaboration with Boalt Hall School of Law, University of California, Berkeley.
      In addition, Mr. Meroz holds an MBA degree from the University of Leicester,
      United Kingdom. Mr. Meroz is admitted to the Israeli Bar and is a member of
      the
      Law Society of England & Wales.




***Yossi
      Sela*** has
      served as a member of our board of directors since the completion of the Merger
      in June 2007. Mr. Sela served as a member of IXI’s board of directors from 2000
      until the completion of the Merger. Since 1998, Mr. Sela has been the managing
      partner of Gemini Israel Funds, Ltd., a venture capital fund that invests
      primarily in seed and early stage Israeli technology companies. In this
      capacity, Mr. Sela sits on the board of a number of Gemini Israel Funds
      portfolio companies, including Adimos Inc., Allot Communications, Ltd., and
      Saifun Semiconductors Ltd. Mr. Sela holds a B.Sc. in Electrical Engineering
      from
      the Technion —Israel Institute of Technology and an MBA from Tel Aviv
      University.




***Shlomo
      Shalev*** has
      served as a member of our board of directors since June 2007. Mr. Shalev has
      served as senior vice president of Ampal-American Israel Corporation (NASDAQ:
      AMPL), a holding company invested in various public and private companies in
      the
      technology and real estate fields, since 1997. Prior to joining Ampal, from
      1994
      to 1997, Mr. Shalev served as Consul-Economic Affairs, United States Northwest
      Region for the State of Israel. Mr. Shalev holds a BA in economics from Ben
      Gurion University and an MBA from the University of San Francisco.




***Shmuel
      M. Gitlin*** has
      served as a member of our board of directors since June 2007. Since March 2006,
      Mr. Gitlin has served as the chief financial officer of Rampal Cellular
      Stockmarket Ltd., an international trader of cellular phones and digital
      cameras. From 1996 to February 2006, Mr. Gitlin served as vice president of
      finance of ECI Telecom Ltd., a Nasdaq Global Market listed multinational company
      that develops, manufactures and sells telecommunication systems. Mr. Gitlin
      also
      served as Controller of ECI Telecom from 1984 to 1996. Mr. Gitlin received
      a BA
      from the Bar Ilan University in Israel. Mr. Gitlin is a Certified Public
      Accountant in Israel.




62


***Matthew
      Hills*** has
      served as a member of our board of directors since June 2007. He has been with
      LLM Capital Partners since July 2007. From June 2005 to July 2006 he was a
      managing director of Quarry Hill Partners, a private equity firm providing
      growth capital to small and middle-market companies. From September 2005 to
      June
      2006, he was a consultant to and managing director of Signature Capital, a
      special situations investor. From March 1996 to September 2005, he was the
      senior partner and co-founder of BG Affiliates, a private equity firm. He
      currently serves on the board of directors of K-Bro Linen Income Fund,
      Surebridge, and hedge funds managed by Basso Capital Management. He received
      a
      BA from Brandeis University and an MBA from Harvard Business
      School.




**Corporate
      Governance**




Our
      board
      of directors currently consists of seven directors. All directors are elected
      annually. Each director serves from the date of his or her election until the
      end of his term and until his or her successor is elected and qualified.




***Board
      of Directors and Stockholder Meetings***




From
      the
      consummation of the Merger on June 6, 2007 through December 31, 2007, the board
      of directors held 14 meetings and took action by unanimous written consent
      three
      times. During this time, all directors attended at least 75% of the aggregate
      of
      the total number of meetings of the board of directors and of the committees
      of
      which they were members. As a general matter, the board expects all directors
      to
      attend our annual meetings of stockholders.




***Audit
      Committee***




Mr.
      Shalev, Mr. Hill and Mr. Gitlin currently serve on the Audit Committee. Mr.
      Shalev is the chairman of our Audit Committee. The board of directors has
      determined that each member of the Audit Committee is independent within the
      meaning of the SEC’s director independence standards for Audit Committee members
      as determined by the Exchange Act. We require that all Audit Committee members
      possess the required level of financial literacy and that at least one member
      of
      the Audit Committee meets the current standard of financial expert as required
      under the rules of the SEC. The Board of Directors has determined that each
      of
      our Audit Committee members qualifies as an “audit committee financial expert”
under the rules of the SEC.




From
      the
      consummation of the Merger on June 6, 2007 through December 31, 2007, the Audit
      Committee held three meetings and took action by unanimous written consent
      two
      times. The Audit Committee operates under a written charter adopted by the
      Board
      of Directors.




Pursuant
      to its charter, the Audit Committee is directly responsible for the appointment,
      compensation, retention and oversight of our independent auditors. In addition,
      the Audit Committee is responsible for approving the audit and non-audit
      services performed by the independent auditors, consulting with the independent
      auditors about the scope of the audit and reviewing with them the results of
      their examination and reviewing our financial control procedures and personnel.
      The Audit Committee also has established procedures for (a) the receipt,
      retention and treatment of complaints received by us regarding accounting,
      internal accounting controls or auditing matters, and (b) the confidential,
      anonymous submission by our employees of concerns regarding questionable
      accounting or auditing matters.




***Compensation
      Committee***




Mr.
      Sela
      and Mr. Shalev currently serve on the Compensation Committee. Mr. Sela is the
      chairman of our Compensation Committee. The board of directors has determined
      that each member of the Compensation Committee is independent within the meaning
      of the SEC’s independence standards. The Compensation Committee’s
      responsibilities include assisting the board in determining the compensation
      for
      our executive officers, including our chief executive officer, administering
      certain aspects of our stock option plans, and assisting the board in other
      matters as appropriate. The Compensation Committee held one meeting and took
      action by unanimous written consent once during 2007. The Compensation Committee
      operates under a written charter adopted by the Board of Directors in June
      2007.




63


***Nominating
      Committee***




Mr.
      Sela
      and Mr. Shalev currently serve on Nominating Committee. Mr. Sela is the chairman
      of our Compensation Committee. The board of directors has determined that each
      member of the Compensation Committee is independent within the meaning of the
      SEC’s independence standards. The Nominating Committee is responsible for the
      evaluation and recommendation to the board of directors of candidates for
      election to the board of directors. The Nominating Committee may employ a
      variety of methods for identifying and evaluating nominees for director, and
      will consider candidates recommended by stockholders, when the nominations
      are
      brought to the board’s attention by stockholders. The Nominating Committee did
      not hold any meeting during the fiscal year ended December 31, 2007. The
      Nominating Committee operates under a written charter adopted by the Board
      of
      Directors.




***Independence
      of Members of the Board of Directors***




The
      board
      of directors has determined that each of the Company’s non-employee directors,
      Messrs. Sela, Shalev, Gitlin and Hills, is independent within the meaning of
      the
      Director independence standards of the SEC, including Rule 10A-3(b)(1) under
      the
      Exchange Act. Furthermore, the Board of Directors has determined that each
      member of each of the committees of the Board of Directors is independent within
      the meaning of the Director independence standards of the SEC, and that each
      member of the Audit Committee meets the heightened director independence
      standards for audit committee members of the SEC.




***Code
      of Ethics***




We
      adopted the Code of Ethics as our “code of ethics” as defined by the regulations
      promulgated under the Securities Act and the Exchange Act, which applies to
      all
      of the Company’s employees, officers and directors, including our principal
      executive officer, principal financial officer and principal accounting officer,
      or persons performing similar functions. Violations of our Code of Ethics must
      be reported to the Audit Committee or to either of the co-chairmen of the board
      of directors. Our Code of Ethics is posted on our website (www.iximobile.com).
      We will promptly disclose any substantive changes in or waivers, along with
      the
      reasons for the waivers, of the Code of Ethics by posting such information
      on
      our website.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Exchange Act requires our directors, officers and persons owning
      more than 10% of a registered class of our securities to file reports of
      ownership and changes of ownership with the SEC. Such persons are required
      by
      regulations of the SEC to furnish us with copies of all such filings. Based
      on
      our review of the filings received by us with respect to the fiscal year ended
      December 31, 2007, or representations from certain reporting persons that no
      other reports were required, we believe that all applicable filing requirements
      were complied with during the fiscal year ended December 31, 2007.




64




**Item
      11. Executive Compensation**




**Compensation
      Discussion and Analysis**




Our
      executive officers are primarily compensated in accordance with their employment
      agreements, all of which, other than for Mr. Shachar, were originally entered
      into by IXI Israel prior to consummation of the Merger. This Compensation
      Discussion and Analysis addresses principally future changes to executive
      compensation that we may approve either in accordance with such employment
      agreements or if we were to enter into new employment arrangements with such
      executive officers or future executive officers.




Throughout
      this Annual Report, the individuals who served as chief executive officer
      (“CEO”) and chief financial officer of IXI prior to the Merger on June 6, 2007
      and thereafter as our CEO and chief financial officer, as well as the other
      individuals included in the Summary Compensation Table below, are referred
      to as
      the “named executive officers.”




***Overview
      and Philosophy***




In
      order
      to create an executive compensation program that will adequately reward our
      executives for their role in creating value for our security holders, we seek
      to
      provide total compensation packages that are competitive in terms of potential
      value to our executives, and that are tailored to our unique characteristics
      and
      needs within the mobile communications industry. We intend to be competitive
      with other similarly situated companies in our industry with which we are
      competing for executive talent. The compensation decisions regarding our
      executives are based on our need to attract individuals with the skills
      necessary for us to achieve our business plan, to reward those individuals
      fairly over time, and to retain those individuals who continue to perform at
      or
      above our expectations.




Our
      executive compensation has two primary components — base salary and
      stock-based awards. Our compensation committee will consider each of the
      components in determining the compensation package for each executive officer.
      Although our compensation committee will review total compensation, we do not
      believe that significant compensation derived from one component of compensation
      should negate or reduce compensation from other components. The determination
      of
      the appropriate level for each compensation component will be based in part,
      but
      not exclusively, on our view of internal equity and consistency, individual
      performance and other information deemed relevant and timely. We have not
      adopted any formal or informal policies or guidelines for allocating
      compensation between long-term and currently paid out compensation, between
      cash
      and non-cash compensation, or among different forms of
      compensation.




***Compensation
      Committee***




In
      connection with our Merger with IXI in June 2007, we established a Compensation
      Committee. The purpose of the compensation committee is to review and approve
      compensation paid to our officers and to administer our equity compensation
      plans, including making and modifying awards under such plans. In addition
      to
      the guidance provided by our Compensation Committee, we may utilize the services
      of third parties from time to time in connection with the hiring of and
      compensation awarded to executive officers. This may include subscriptions
      to
      executive compensation surveys and other databases.




Our
      compensation committee will be charged with performing an annual review of
      our
      executive officers’ cash compensation and equity holdings to determine whether
      the compensation provides adequate incentives and motivation to executive
      officers, and whether executive officers are adequately compensated relative
      to
      comparable officers in similar companies.




***Benchmarking
      of Cash and Equity Compensation***




We
      believe it is important when determining compensation packages to be informed
      of
      the current practices of similarly situated publicly held companies in the
      mobile communications industry so as to ensure that we are offering competitive
      compensation packages that will enable us to attract qualified candidates and
      retain our executive talent. We expect that the compensation committee will
      stay
      apprised of the cash and equity compensation practices of publicly held
      companies in the mobile communications industry through the review of such
      companies’ public reports and through other resources. We expect that any
      companies chosen for inclusion in any benchmarking group would have business
      characteristics comparable to our company, including revenues, financial growth
      metrics, stage of development, employee headcount and market capitalization.
      While benchmarking may not always be appropriate as a stand-alone tool for
      setting compensation due to the aspects of our business and objectives that
      may
      be unique to our company, we generally believe that gathering this information
      will be an important part of our compensation-related decision-making
      process.




65




***Compensation
      Components***




*Base
      Salary* .  We
      anticipate setting our executive base salaries based on job responsibilities
      and
      individual experience and also at levels comparable with those of executives
      in
      similar positions and with similar responsibilities at comparable companies.
      We
      will seek to maintain base salary amounts at or near the industry norms while
      avoiding paying amounts in excess of what we believe is necessary to motivate
      executives to meet corporate goals. It is anticipated base salaries will
      generally be reviewed annually, subject to the terms of employment agreements,
      and that the compensation committee and board will seek to adjust base salary
      amounts to realign such salaries with industry norms after taking into account
      individual responsibilities, performance and experience.




*Equity
      Awards* .  We
      also will use stock options and other stock-based awards to reward long-term
      performance. We believe that providing a meaningful portion of our executives’
total compensation package in stock options and other stock-based awards will
      align the incentives of our executives with the interests of our security
      holders and with our long-term success. The compensation committee and board
      will develop their equity award determinations based on their judgments as
      to
      whether the complete compensation packages provided to our executives, including
      prior equity awards, are sufficient to retain, motivate and adequately award
      the
      executives.




*Other
      Compensation* .  We
      have established and maintain various employee benefit plans, including medical,
      dental, life insurance and (for our US-based employees) 401(k) plans. These
      plans are available to all salaried employees and will not discriminate in
      favor
      of executive officers. We may extend other perquisites to our executives that
      are not available to our employees generally.




***Compensation
      Prior to the Merger in June 2007***




None
      of
      the executive officers of the Company prior to the Merger received any cash
      or
      non-cash compensation for services rendered to us during 2007.




**Compensation
      Committee Report**




The
      Compensation Committee of the Board of Directors has reviewed and discussed
      the
      Compensation Discussion and Analysis set
      forth above with our management. Based on this review and discussion, the
      Compensation Committee has recommended to the Board of Directors that the
      Compensation Discussion and Analysis be included in this Annual Report on Form
      10-K for the fiscal year ended December 31, 2007, and in our annual proxy
      statement on Schedule 14A.




Respectfully
      submitted on March 30, 2008, by the members of the Compensation Committee
      of the Board of Directors.




Yossi
      Sela


Shlomo
      Shalev




The
      report of the Compensation Committee shall not be deemed to be “ soliciting
      material,” shall not be deemed filed with the SEC, and shall not be deemed
      incorporated by reference into any other filing by us under the Securities
      Act
      of 1933 or the Securities Exchange Act of 1934.




**Employment
      Agreements**




***Israel
      Frieder***




Until
      January 30, 2008, IXI R&D was party to a management services agreement
      with A.A. Pearl Investments Ltd. (“A.A. Pearl”). This agreement provided that
      A.A. Pearl would make Israel Frieder’s services as co-chairman of the board
      available to us commencing on June 6, 2007 and expiring on June 6, 2009. The
      agreement automatically renewed for additional terms of one year, unless
      terminated by either party by at least 90 days’ notice prior to a scheduled
      expiration date. Pursuant to a termination agreement, effective January 30,
      2008, by and among IXI R&D, Mr. Frieder and A.A. Pearl, the management
      services agreement was terminated. As a result, Mr. Frieder will assume the
      title of Non-Executive Co-Chairman of the Board of Directors of
      IXI.




66


The
      termination agreement provides that for the twelve months ended January 30,
      2009, we shall pay an aggregate monthly fee of $17,500 per month plus applicable
      value added tax or an aggregate of $210,000 plus applicable value added tax,
      which fee is the same as the monthly management fee payable under the management
      services agreement.




A.A.
      Pearl is also entitled to reimbursement for all necessary and actual expenses
      incurred or paid by it or Mr. Frieder in the performance of Mr. Frieder’s
      duties. All other benefits and compensation payable under the management
      services agreement have been terminated. At A.A. Pearl’s option, we will provide
      A.A. Pearl with an automobile for Mr. Frieder’s use and pay the expenses
      associated therewith subject to an agreed decrease the monthly payments due
      A.A.
      Pearl. So long as A.A. Pearl is provided with an automobile for Mr. Frieder’s
      use, A.A. Pearl will not be entitled to reimbursement of daily travel expenses
      or similar costs. Mr. Frieder will also be entitled to participate in bonus
      arrangements and equity compensation grants from time to time based on the
      determination of our board or compensation committee.




The
      termination agreement contains provisions, identical to those in the management
      services agreement, relating to the protection of the confidentiality of
      proprietary information, assignment of inventions and restrictions on the
      ability of A.A. Pearl and Mr. Frieder to compete and solicit employees and
      customers for six months following expiration or termination of the
      agreement.




***Gideon
      Barak***




Pursuant
      to Mr. Barak’s employment agreement, as amended, he serves as our executive
      co-chairman of the board, as well as chairman of IXI and IXI R&D
      (collectively, the “Group”) commencing as of the consummation of the Merger on
      June 6, 2007 and continuing until the agreement may be terminated by either
      party on 90 days’ prior notice to the other party. The agreement will also
      terminate upon a termination for cause by IXI or if terminated by Mr. Barak
      for
      justifiable reason (as such terms are defined in the agreement).




Mr.
      Barak’s agreement provides for an annual salary of $210,000, which includes all
      expenses related to the Managers’ Insurance, advanced study fund, vacation days,
      sick leave, recreation pay, car deduction and its attributed income, payments
      made by IXI R&D as required by the Israeli social security system and any
      mandatory deductions under applicable law. He is also entitled to reimbursement
      for all necessary and actual business expenses incurred or paid by him in the
      performance of his duties in accordance with our policies, as amended from
      time
      to time.




On
      June
      6, 2007, immediately prior to the Merger, Mr. Barak was granted shares of IXI’s
      common stock, which shares immediately converted into 216,000 shares of our
      common stock in connection with the Merger. Additionally, Mr. Barak was granted
      the right to receive options to purchase up to 750,000 shares of our common
      stock, exercisable at $5.00 per share. The options will vest based on the Group
      attaining the following targets:




·
            If
                the Group’s net income equals or exceeds $15,000,000 for the calendar year
                ending December 31, 2007, options will vest to purchase up to 150,000
                shares of common stock in proportion to the amount by which the Group’s
                net income exceeds $15,000,000, up to a maximum of $25,000,000 (the
“2007
                Net Income Additional Options”), and to the extent that options to
                purchase less than 150,000 shares of common stock vest, the options
                representing the difference between the options vested and options
                to
                purchase up to 150,000 shares of common stock will expire ten years
                after
                the options are granted. The Group’s net income for 2007 was less than
                $15,000,000; therefore, the option to purchase 150,000 shares of
                common
                stock has already expired.




·
            If
                the Group’s net income equals or exceeds $20,000,000 for the calendar year
                ending December 31, 2008, options will vest to purchase up to 150,000
                shares of common stock in proportion to the amount by which the Group’s
                net income exceeds $20,000,000 up to a maximum of $45,000,000 (the
“2008
                Net Income Additional Options”), and to the extent that options to
                purchase less than 150,000 shares of common stock vest, the options
                representing the difference between the options vested and options
                to
                purchase up to 150,000 shares of common stock will
                expire.




67


·
            If
                our common stock trades, for any 20 trading days out of any 30 consecutive
                trading days at any time during the period commencing on June 6,
                2007 and
                ending on June 5, 2011, at an amount equal to or
                exceeding:




·
            $8.50
                per share (“First Share Price Trigger”), options to purchase 150,000
                shares of common stock will vest (the “First Share Price Additional
                Options”);




·
            $9.50
                per share (“Second Share Price Trigger”), options to purchase 150,000
                shares of common stock will vest (the “Second Share Price Additional
                Options”); and




·
            $12.00
                per share (“Third Share Price Trigger”), options to purchase 150,000
                shares of common stock will vest (the “Third Share Price Additional
                Options”).




If
      we
      engage in a change of control transaction (as defined in the agreement) after
      June 6, 2007 and prior to June 5, 2011, in which the consideration paid to
      holders of our common stock exceeds $11.00 per share, then the 2007 Net Income
      Additional Options, the 2008 Net Income Additional Options, the First Share
      Price Additional Options and the Second Share Price Additional Options will
      vest, to the extent that such options have not already vested.




In
      addition, if the consideration paid to holders of our common stock in a change
      of control transaction equals or exceeds $12.00 per share, then the Third Share
      Price Additional Options will vest, to the extent that such options have not
      already vested.




In
      addition, Mr. Barak is entitled to an “Annual Bonus” and “Target Bonuses.” The
      Annual Bonus entitles Mr. Barak, commencing with the 2006 calendar year, to
      a
      payment equal to 2% of that portion of the annual consolidated net profit of
      the
      Group that exceeds the amount of consolidated net income of the Group for the
      immediately preceding calendar year.




The
      Target Bonuses entitle Mr. Barak to the following payments:




·
            A
                cash bonus (the “Share Price Bonus”) of $200,000 upon the achievement of
                the First Share Price Trigger prior to June 5,
                2011.




·
            If
                Mr. Barak becomes entitled to the Share Price Bonus, he will be eligible
                to receive additional cash bonuses of up to $800,000 (“Second Bonus”) in
                the following circumstances: (i) if we receive funds of not less
                than
                $45,000,000 upon the exercise of our warrants outstanding on February
                28,
                2006, he will be entitled to the full amount of $800,000; (ii) if
                our
                board of directors calls for the cashless exercise of the lower of
                (a) all
                outstanding warrants or (b) at least 69% of the number of warrants
                issued
                in our initial public offering, Mr. Barak shall be entitled to the
                full
                amount of $800,000; and (iii) if we receive proceeds from the exercise
                of
                the warrants of less than $45,000,000, then Mr. Barak shall be entitled
                to
                a bonus in the amount that bears the same proportion to $800,000
                as the
                amount of such proceeds received by us bears to $45,000,000. In no
                event
                shall the bonuses payable to Mr. Barak that are described in this
                paragraph exceed $800,000.




·
            Mr.
                Barak shall also be entitled to cash bonuses of $200,000 each for
                the
                achievement of each of the following: (i) the Second Share Price
                Trigger;
                and (ii) the Third Share Price Trigger, in each case prior June 5,
                2011.




·
            If
                the Group’s net income for calendar year 2007 exceeds $15,000,000, Mr.
                Barak shall be entitled to a cash bonus equal to $200,000 multiplied
                by
                the lesser of (a) one or (b) a fraction of which the numerator is
                the
                excess of the Group’s net income for such year over $15,000,000 and the
                denominator is $10,000,000.




·
            If
                the Group’s net income for calendar year 2008 exceeds $20,000,000, Mr.
                Barak shall be entitled to a cash bonus equal to $200,000 multiplied
                by
                the lesser of (a) one or (b) a fraction of which the numerator is
                the
                excess of the Group’s net income for such year over $20,000,000 and the
                denominator is $25,000,000.




68


If
      Mr.
      Barak’s employment agreement is terminated by us for any reason other than
      termination for cause or is terminated by him for justifiable
      reason:




·
            he
                will be entitled to receive his salary and benefits (including Target
                Bonuses and Annual Bonuses) for the twelve-month period following
                such
                termination (the “Severance
                Period”);




·
            all
                additional options that are not vested will vest upon occurrence
                of the
                triggering events even if such triggering events occur after
                termination;




·
            all
                options held by him to purchase shares of our common stock will become
                vested; and the exercise period of such options and all additional
                options
                shall be extended to the full term of such options, which shall be
                deemed
                to be 10 years if the plan governing any such option does not contain
                a
                provision in such regard or earlier upon a “change of control” event (as
                defined in the stock option plan);




·
            if
                the Severance Period ends prior to the completion of any calendar
                year or
                prior to the publication of the financial statements of the Group
                for a
                given calendar year, he will be entitled to a proportionate share
                of all
                Target Bonuses and Annual Bonuses;
                and




·
            if
                the First Share Price Trigger is achieved following the effective
                date of
                termination but before the fourth anniversary of the closing of the
                Merger, he shall be entitled to receive the Share Price Bonus and
                the
                Second Bonus, subject to fulfillment of the pre-conditions described
                above.




If
      Mr.
      Barak is terminated for cause or if Mr. Barak terminates his employment for
      a
      reason other than a justifiable reason, he shall be entitled only to the salary
      and benefits and the Annual Bonuses, Target Bonuses, Share Price Bonus, Second
      Bonus and Additional Options (subject to vesting events and conditions
      precedent) that would have been due to him in the three-month period following
      giving of the notice of termination. Options that vest prior to the expiration
      of such three-month period shall be exercisable no later than six months
      following such date or earlier upon a “change of control” event (as defined in
      the relevant stock option plan).




Mr.
      Barak’s employment agreement also contains provisions relating to the protection
      of the confidentiality of proprietary information, assignment of inventions
      and
      restrictions on his ability to compete and solicit employees and customers
      until
      six months following termination of his employment. Also, he may replace his
      employment agreement with a management service agreement at no additional cost
      to the Group.




***Amit
      Haller***




Pursuant
      to Mr. Haller’s employment agreement, as amended, he serves as the chief
      executive officer of the Company and IXI. The agreement may be terminated by
      either party on 90 days’ prior notice to the other party. The agreement may also
      be terminated by either party for “just cause” (as defined in the
      agreement).




The
      agreement provides for an annual salary of $250,000, payable in equal monthly
      installments. Mr. Haller is eligible to participate in all of our benefit plans.
      He is also entitled to reimbursement for all normal, usual and necessary
      expenses incurred or paid by him in the performance of his duties.




Upon
      the
      closing of the Merger, Mr. Haller was paid a one-time lump-sum bonus in the
      gross amount of $220,000.




On
      June
      6, 2007, immediately prior to the Merger, Mr. Haller was granted 216,000 fully
      vested options with the exercise price of $6.06. Mr. Haller was granted the
      right to receive options to purchase up to 750,000 shares of our common stock,
      with the exercise price of $6.06. The options will vest in the same amounts
      and
      on the same terms as the options issued to Mr. Barak as described
      above.




Mr.
      Haller will also be entitled to an Annual Bonus and Target Bonuses including
      the
      Share Price Bonus and Second Bonus on the same terms and conditions as Mr.
      Barak, as described above.




If
      Mr.
      Haller’s employment agreement is terminated by us other than for just cause or
      is terminated by Mr. Haller for just cause (each as defined in the agreement),
      he will be entitled to the same severance benefits as are described above with
      respect to a termination of Mr. Barak’s employment other than a termination for
      cause or a termination by Mr. Barak for justifiable reason. Similarly, if Mr.
      Haller’s employment is terminated for just cause or by Mr. Haller other than for
      just cause, Mr. Haller will be entitled to the same severance benefits as are
      described above with respect to a termination for cause of Mr. Barak’s
      employment or a termination by Mr. Barak other than for justifiable
      reason.




69


Mr.
      Haller’s employment agreement also contains provisions relating to the
      protection of the confidentiality of proprietary information, assignment of
      inventions and restrictions on his ability to compete with us for six months
      following termination of his employment and on his ability to solicit employees
      and customers until one year following termination of his
      employment.




***Amnon
      Shachar***




Effective
      December 2, 2007, Amnon Shachar was appointed President of our Company. The
      employment agreement entitles Mr. Shachar to an annual base salary of $187,500
      per year (based on the $/NIS exchange rate at December 31, 2007). The agreement
      is terminable by either party upon 180 days prior notice **.** The
      agreement also provides that Mr. Shachar has been granted the right to receive
      options to purchase 100,000 shares of our common stock at the stock price in
      effect on the date of grant, when such options are approved by our board of
      directors. As of the date of this Annual Report, such options have not yet
      been
      granted. Mr. Shachar’s employment agreement also provides that in the event of a
      change of control of IXI, if his employment is terminated by IXI or the
      surviving entity in the case of a merger (other than termination for cause),
      all
      unvested stock options granted to him shall immediately vest upon
      termination. **** The
      agreement also contains provisions relating to the protection of the
      confidentiality of proprietary information, assignment of inventions and
      restrictions on his ability to compete with us and solicit employees and
      customers for 18 months following termination of his employment.




***Lihi
      Segal***




Ms.
      Segal
      is employed by us pursuant to an employment agreement with IXI R&D entered
      in September 2005. The agreement may be terminated by either party on 90 days’
prior notice to the other party. The agreement may also be terminated
      immediately by IXI R&D for “justifiable cause” (as defined in the
      agreement). The agreement provides for an annual salary of $160,000 (based
      on
      the $/NIS exchange rate at December 31, 2007), payable in equal monthly
      installments, which includes additional compensation for overtime hours and
      reimbursement for travel expenses. Ms. Segal is eligible to participate in
      all
      of our benefit plans. Ms. Segal’s employment agreement also provides that in the
      event of a change of control of IXI, if her employment is terminated by IXI
      or
      the surviving entity in the case of a Merger (other than termination for cause),
      all unvested stock options granted to her shall immediately vest upon
      termination. The agreement also contains provisions relating to the protection
      of the confidentiality of proprietary information, assignment of inventions
      and
      restrictions on her ability to compete with us and solicit employees and
      customers for 18 months following termination of her employment.




***Gadi
      Meroz***




Mr.
      Meroz
      is employed by us pursuant to an amended and restated employment agreement
      with
      IXI R&D, dated June 5, 2007, as further amended on January 30, 2008.
      The agreement may be terminated by either party on 90 days’ prior notice to the
      other party. The agreement may also be terminated immediately by IXI R&D for
“justifiable cause” (as defined in the agreement). Mr. Meroz’s annual salary is
      currently $140,000 (based on the $/NIS exchange rate at December 31, 2007),
      payable in equal monthly installments which includes additional compensation
      for
      overtime hours and reimbursement for travel expenses. Mr. Meroz is eligible
      to
      participate in all of our benefit plans. Mr. Meroz’s employment agreement also
      provides that in the event of a change of control of IXI, if his employment
      is
      terminated by IXI or the surviving entity in the case of a Merger (other than
      termination for cause), all unvested stock options granted to him shall
      immediately vest upon termination. The agreement also contains provisions
      relating to the protection of the confidentiality of proprietary information,
      assignment of inventions and restrictions on his ability to compete with us
      and
      solicit employees and customers for 18 months following termination of his
      employment.




70


**Summary
      Compensation Table**




The
      following table sets forth a summary for the fiscal years ended December 31,
      2007, 2006 and 2005, respectively, of the cash and non-cash compensation
      awarded, paid or accrued by us to our named executive officers. The named
      executive officers are employees of our subsidiary, IXI Mobile (R&D) Ltd. As
      a result of the Merger, all of the directors and officers at the time resigned
      and appointed our current directors and officers in their stead. All currency
      amounts are expressed in U.S. dollars; compensation paid in NIS is calculated
      based on the average exchange rate in 2007.




**Name
                  and Title**
              
              **Year**
              
              **Salary($)**
              
              **Bonus($)**
              
              **Stock**
                **Awards($)**
              
              **Option**
                **Awards($)**
              
              **Change
                  in**
                **Pension
                  Value**
                **and**
                **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings($)**
              
              **All
                  Other Compensation ($)****(1)**
              
              **Total**
                **($)**Amit
                  Haller
              
              
              2007
              
              $
              249,000
              
              $
              220,000
              
              
              -
              
              $
              1,192,000
              
              
              -
              
              $
              19,
                  000
              
              $
              1,680,000CEO
              
              
              2006
              
              
              180,000
              
              
              -
              
              
              -
              
              
              61,000
              
              
              -
              
              
              14,000
              
              
              255,000(Principal
                Executive Officer)
              
              
              2005
              
              
              150,000
              
              
              -
              
              
              -
              
              
              11,000
              
              
              -
              
              
              12,000
              
              
              173,000Lihi
                  Segal(2)
              
              
              2007
              
              $
              89,000
              
              $
              24,000
              
              
              -
              
              $
              71,000
              
              $
              6,000
              
              $
              14,000
              
              $
              204,000Vice
                  President, CFO
              
              
              2006
              
              
              115,000
              
              
              -
              
              
              -
              
              
              15,000
              
              
              6,000
              
              
              18,000
              
              
              154,000(Principal
                Financial Officer)
              
              
              2005
              
              
              29,000
              
              
              -
              
              
              -
              
              
              -
              
              
              2,000
              
              
              8,000
              
              
              39,000Gideon
                  Barak
              
              
              2007
              
              $
              175,000
              
              
              -
              
              $
              1,309,000
              
              $
              411,000
              
              $
              5,000
              
              $
              34,000
              (3)
              $
              1,934,000Co-Chairman
              
              
              2006
              
              
              183,000
              
              
              -
              
              
              -
              
              
              94,000
              
              
              4,000
              
              
              31,000
              
              
              312,0002005
              
              
              192,000
              
              
              -
              
              
              -
              
              
              77,000
              
              
              -
              
              
              26,000
              
              
              295,000Israel
                  Frieder(4)
              
              
              2007
              
              $
              121,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              121,000Co-Chairman
              
              
              2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Amnon
                  Shachar(5)
              
              
              2007
              
              $
              14,000
              
              
              -
              
              
              -
              
              
              -
              
              $
              1,000
              
              $
              2,000
              
              $
              17,000President
              
              
              2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Gadi
                  Meroz
              
              
              2007
              
              $
              104,000
              
              
              -
              
              
              -
              
              $
              43,000
              
              $
              5,000
              
              $
              31,000
              (6)
              $
              183,000VP
                  Corporate Development,
              
              
              2006
              
              
              100,000
              
              
              -
              
              
              -
              
              
              10,000
              
              
              5,000
              
              
              31,000
              
              
              146,000General
                Counsel
              
              
              2005
              
              
              87,000
              
              
              -
              
              
              -
              
              
              1,000
              
              
              5,000
              
              
              25,000
              
              
              118,000





(1)
            Includes
                car leasing, payment for severance fund and mobile telephone
                expenses.


(2)
            Salary
                paid for nine months and four months in 2007 and 2005,
                respectively. (3)
            Consists
              of $16,000 for car leasing costs, $14,000 for payment of severance
              and an
              education fund, and $4,000 for mobile telephone
              expenses.


(4)
            Israel
                Frieder became co-chairman of the board on June 6,
                2007.


(5)
            Salary
                paid from December 2, 2007 when Mr. Shachar became employed by IXI
                as
                President.


(6)
            Consists
                of $10,000 for car leasing costs, and $21,000 for payment of severance
                and
                an education fund.




71


**Grants
      of Plan-Based Awards**




The
      following table sets forth information with respect to the named executive
      officers concerning equity awards assumed by us in connection with the Merger
      or
      otherwise granted by us during the year ended December 31, 2007. None of our
      executive officers prior to the Merger received any equity awards during the
      year ended December 31, 2007. For more information regarding the equity awards
      to Mr. Barak and Mr. Haller, please see “Employment Agreements.”




**Estimated
                  Future Payments**
                **Under**
                **Non-Equity**
                **Incentive
                  Plan**
                **Awards**
              
              
              
              **Estimated
                  Future**
                **Payouts**
                **Under**
                **Equity
                  Incentive**
                **Plan**
                **Awards****Name**
              
              **Grant Date**
              
              **Target**
                **($)**
              
              **Maximum**
                **($)**
              
              **Target**
                **($)**
              
              **Maximum**
                **($)**
              
              **Exercise**
                **or
                  Base**
                **Price
                  of**
                **Option**
                **Awards**
                **($/Sh)**
              
              **Grant**
                **Date Fair**
                **Value of**
                **Stock and**
                **Option**
                **Awards**Amit
                  Haller
              
              6/5/07
              
              (1)
              
              
              200,000(2)
              
              
              200,000(3)
              
              
              200,000(4)
              
              
              800,0006/5/07(6)
              
              (5)
              
              
              200,0006/5/07(6)
              
              
              
              
              
              
              (7)
              
              
              1,575,000
              
              
              6.06
              
              
              4.166/5/07(9)
              
              
              
              
              
              
              (5)
              
              
              53,000
              
              
              6.06
              
              
              0.3511/17/05(8)
              
              
              
              
              
              
              
              
              
              
              
              122,000
              
              
              1.68
              
              
              1.17Lihi
                  Segal
              
              10/9/07(8)
              
              
              
              
              
              
              
              
              
              
              
              77,000
              
              
              4.25
              
              
              2.946/5/07(8)
              
              
              
              
              
              
              
              
              
              
              
              26,000
              
              
              6.06
              
              
              4.0911/28/05(8)
              
              
              
              
              
              
              
              
              
              
              
              21,000
              
              
              0.32
              
              
              1.42Gideon
                  Barak
              
              6/5/07
              
              (1)
              
              
              200,000(2)
              
              
              200,000(3)
              
              200,000(4)
              
              
              800,0006/5/07
              
              (5)
              
              
              200,0006/5/07(6)
              
              
              
              
              
              
              
              (7)
              
              
              1,700,000
              
              
              5
              
              
              4.496/5/07(9)
              
              
              
              
              
              
              
              (5)
              
              
              62,000
              
              
              5
              
              
              0.3511/17/05(8)
              
              
              
              
              
              
              
              
              
              
              
              68,000
              
              
              0.32
              
              
              1.42Gadi
                  Meroz
              
              12/1/05(8)
              
              
              
              
              
              
              
              
              
              
              
              13,000
              
              
              0.32
              
              
              1.426/5/07(8)
              
              
              
              
              
              
              
              
              
              
              
              16,000
              
              
              6.06
              
              
              4.0910/9/07(8)
              
              
              
              
              
              
              
              
              
              
              
              51,000
              
              
              4.25
              
              
              2.94


(1)
            Market
                value of $8.50 per share for 20 trading days within four years from
                6/6/07.


(2)
            Market
                value of $9.50 per share for 20 trading days within four years from
                6/6/07.


(3)
            Market
                value of $12.00 per share for 20 trading days within four years from
                6/6/07.


(4)
            Market
                value of $8.50 per share for 20 trading days within four years from
                6/6/07
                and exercise of warrants under different
                conditions.


(5)
            $25.0
                million to $40.0 million in net profit in
                2008.


(6)
            A
                right to receive 150,000 options upon reaching the market value of
                $8.50,
                $9.50 and $12.00 per share.


(7)
            Market
                value of $8.50, $9.50, $12.00 per share for 20 trading days within
                four
                years from 6/6/07.


(8)
            Options
                granted under employee stock option plans. The amounts are based
                on stock
                base compensation expenses.


(9)
            A
                right to receive 150,000 options upon reaching $25.0 million-$40.0
                million
                net profit in 2008.




72


**Outstanding
      Equity Awards at Fiscal Year-End**




The
      following table summarizes stock option awards held by our named executive
      officers at December 31, 2007.




**Option Awards****Name**
              
              **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options (#)**
                **Exercisable**
              
              **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options (#)**
                **Unexercisable**
              
              **Equity Incentive Plan**
                **Awards: Number of**
                **Securities Underlying**
                **Unexercised Unearned**
                **Options (#)**
              
              **Option**
                  **Exercise****Price ($)**
              
              **Option Expiration Date**Amit Haller
              
              
              99,000
              
              
              91,000
              
              
              
              
              $
              1.68
              
              
              11/15/2015216,000
              
              
              
              
              
              
              
              $
              6.06
              
              
              6/02/2017450,000
              (1)
              $
              6.06
              
              
              10
                  years after the date the options will become exercisable150,000
              
              $
              6.06
              
              
              10
                  years after the date the options will become exercisableLihi
                  Segal
              
              
              20,000
              
              
              16,000
              
              
              
              
              $
              0.32
              
              
              9/18/20156,000
              
              
              12,000
              
              
              
              
              $
              6.06
              
              
              7/29/201630,000
              
              
              
              
              $
              4.25
              
              
              10/09/2017Gideon
                  Barak
              
              
              99,000
              
              
              91,000
              
              
              
              
              $
              0.32
              
              
              11/15/2015450,000
              (1)
              $
              5.00
              
              
              10
                  years after the date the options will become exercisable150,000
              
              $
              5.00
              
              
              10
                  years after the date the options will become exercisableGadi
                  Meroz
              
              
              40
              
              
              
              
              
              
              
              $
              15.53
              
              
              3/29/201265
              
              
              
              
              
              
              
              $
              15.53
              
              
              7/22/2011125
              
              
              125
              
              
              
              
              $
              15.53
              
              
              2/26/2013245
              
              
              15
              
              
              
              
              $
              15.53
              
              
              2/27/20144,000
              
              
              7,000
              
              
              
              
              $
              6.06
              
              
              7/29/201614,000
              
              
              10,000
              
              
              
              
              $
              0.32
              
              
              7/30/201520,000
              
              
              
              
              $
              4.25
              
              
              10/6/2017





(1)
            Contains
                three tranches of 150,000 options each, which will be earned upon
                reaching
                the market value of $8.50, $9.50 and $12.00 per share,
                respectively.




73




**Option
      Exercises and Stock Vested**




The
      following table provides information about vested stock awards to our Named
      Executive Officers during the year ended December 31, 2007 (no options were
      exercised in 2007):




**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number
                of Shares Acquired on Exercise (#)**
            
            **Value
                Realized on Exercise ($)**
            
            **Number
                of Shares Acquired on Vesting (#)**
            
            **Value
                Realized on Vesting ($)**Amit
                HallerLihi
                SegalGideon
                Barak
            
            
            
            
            
            
            
            
            216,000
            
            $
            1,308,960Israel
                FriederAmnon
                ShacharGadi
                Meroz




**Pension
      Benefits**




We
      do not
      maintain any defined pension or benefit plans for our employees.  For our
      Israeli executive officers and directors, as well as our other Israeli
      employees, we contribute
      to certain funds maintained by the Israeli government amounts equaling a total
      of approximately 15% of their gross salaries for certain pension and other
      savings plans.  We also maintain a 401K plan for our US
      employees.




**Potential
      Payments Upon Termination or Change-in-Control**




The
      following table sets forth the potential payments on the terms described above
      under the employment agreements upon termination (i) by us without cause, just
      cause or justifiable cause, as applicable, (ii) by the executive officer for
      good reason or justifiable cause or (iii) upon a change of control:




**Name**
            
            **Cash**
              **Severance**
            
            **Vesting of**
              **Options**
            
            **Health
                and Welfare****payments(1)**
            
            **Total**Amit
                Haller(2)
            
            $
            250,000
            
            $
            120,000
            
            
            
            
            
            370,000Lihi
                Segal
            
            
            
            
            $
            124,000
            
            $
            29,000
            
            $
            153,000Gideon
                Barak(3)
            
            $
            210,000
            
            $
            70,000
            
            $
            17,000
            
            $
            297,000Israel
                Frieder
            
            $
            210,000
            
            
            
            
            
            
            
            
            210,000Amnon
                Shachar
            
            
            
            
            
            
            
            $
            1,000
            
            $
            1,000Gadi
                Meroz
            
            
            
            
            $
            80,000
            
            $
            67,000
            
            $
            147,000





(1)
            The
                amount must be provided by Israeli severance law. The calculation
                is based
                on the last monthly salary of the Israeli employee multiplied by
                number of
                employment years.


(2)
            For
                additional information regarding arrangements upon termination please
                see
                “Employment Agreements - Amit
                Haller.”


(3)
            For
                additional information regarding arrangements upon termination please
                see
                “Employment Agreements - Gideon
                Barak.”




74


**Director
      Compensation**




On
      October 2, 2007 the compensation committee of the board of directors adopted
      a
      compensation program for non-employee directors. The program provides that
      each
      non-employee director will receive an annual fee of $12,000 and a fee of $1,000
      for each “substantive” board or committee meeting in which such director
      participates, as determined by the director serving as chair with respect to
      each meeting. In addition, on that date each non-employee director received
      a
      10-year option to purchase up to 10,000 shares of our common stock, vesting
      in
      24 equal monthly installments commencing on the date of grant, with an exercise
      price equal to the fair market value of the common stock on the date of grant.




The
      follow table summarizes
      the compensation earned by our non-employee directors during the year ended December
      31, 2007:




**Name**
            
            **Fees
                Earned or Paid****in****Cash
                ($)**
            
            **Option
                Awards ($)**
            
            **Total ($)**Yossi
                Sela
            
            $
            21,000
            
            $
            6,000
            
            $
            27,000Shlomo
                Shalev
            
            $
            21,000
            
            $
            6,000
            
            $
            27,000Shmuel
                M. Gitlin
            
            $
            21,000
            
            $
            6,000
            
            $
            27,000Matthew
                Hills
            
            $
            21,000
            
            $
            6,000
            
            $
            27,000





**Compensation
      Committee Interlocks and Insider Participation**




During
      2007, Mr. Sela and Mr. Shalev served as members of the Compensation Committee.
      No member of our compensation committee or any of our executive officers or
      any
      of its subsidiaries has a relationship that would constitute an interlocking
      relationship with executive officers or directors of another entity. No
      compensation committee member is an officer or employee of the Company, or
      any
      of its subsidiaries, or was formerly an officer of the Company. None of our
      executive officers have served as members of a compensation committee or a
      board
      of directors of any other entity that has an executive officer serving on the
      compensation committee of our board of directors or as a member of our board
      of
      directors.


75


**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**


The following table
        sets forth certain information regarding the beneficial ownership of our
        common
        stock as of March 31, 2008 by:
  ·
              each
                  person known to be the beneficial owner of more than 5% of our
                  outstanding
                  shares of common stock;
  ·
              each
                  of our current executive officers and directors;
                  and
  ·
              all
                  of our executive officers and directors as a
                  group.
  Beneficial
        ownership and percentage ownership are determined in accordance with the
        rules
        of the SEC. In computing the number of shares beneficially owned by a person
        and
        the percentage ownership of that person, shares of common stock underlying
        options and warrants or issuable upon conversion of debt that are
        exercisable or convertible, as applicable, within 60 days of March 31, 2008
        are deemed outstanding for the purpose of computing the percentage ownership
        of
        the person holding such options, warrants or convertible debt, but are not
        treated as outstanding for computing the percentage ownership of any other
        person. To our knowledge, except as indicated in the footnotes to the following
        table and subject to community property laws where applicable, the persons
        named
        in this table have sole voting and investment power with respect to all shares
        of our common stock shown as beneficially owned by them.
  This
        table is based on 25,204,923 shares of our common stock outstanding as March
        30,
        2008.
  Unless
        otherwise noted below, the address of each person listed on the table is
        c/o IXI
        Mobile, Inc., 1301 Shoreway Road, Suite 380, Belmont, CA 94002 .
  **Beneficial
        Ownership**
 **Beneficial
                    Ownership**
                  **of
                    Our Common Stock****Name
                    and Address of Beneficial Owner**
                
                **Number
                    of**
                  **Shares**
                
                **Percent
                    of**
                  **Class****5%
                    Stockholders**Gemini
                    Funds(1)
                
                
                4,382,504
                (2)
                
                
                16.8
                %Landa
                    Ventures(4)
                
                
                3,847,268
                (5)
                
                
                14.8
                %Benjamin
                    Landa(3)
                
                
                3,847,268
                (5)
                
                
                14.8
                %Southpoint
                    Funds(6)
                
                
                9,367,443
                (7)
                
                
                32.1
                %**Directors
                    and Named Executive Officers**Gideon
                    Barak(8)
                
                
                387,032
                (9)
                
                
                1.5
                %Israel
                    Frieder
                
                
                735,000
                (10)
                
                
                2.9
                %Shmuel
                    M. Gitlin(11)
                
                
                3,333
                (19)
                
                
                *Amit
                    Haller
                
                
                393,759
                (12)
                
                
                1.5
                %Matthew
                    Hills(13)
                
                
                8,333
                (21)
                
                
                *Gadi
                    Meroz(8)
                
                
                26,970
                (14)
                
                
                *Amnon
                    Schacher
                
                
                -
                
                
                
                *Lihi
                    Segal(8)
                
                
                30,588
                (15)
                
                
                *Yossi
                    Sela(1)
                
                
                4,385,837
                (17)
                
                
                17.2
                %Shlomo
                    Shalev(16)
                
                
                3,333
                (20)
                
                
                *All
                    directors and executive officers as a group (ten
                    individuals)
                
                
                5,974,186
                (18)
                
                
                23.0
                %
  
 *
              Less
                  than 1%(1)
              Collectively
                  represents shares held directly by Gemini Israel Funds Ltd. (“Gemini
                  Israel Funds”), Gemini Partners Investors L.P. (“Gemini Partners”), Gemini
                  Israel III Limited Partnership (“Gemini LP”), Gemini Israel III Overflow
                  Fund Limited Partnership (“Gemini Overflow”), Gemini Capital Associate III
                  Limited Partnership (“Gemini Associate”) and Gemini Israel III Parallel
                  Fund Limited Partnership (“Gemini Parallel” and together with Gemini
                  Israel Funds, Gemini Partners, Gemini LP, Gemini Overflow and Gemini
                  Overflow, the “Gemini Entities”). Gemini Israel Funds is the general
                  partner and/or controlling partner of each of the other Gemini
                  Entities.
                  The Gemini Entities have shared voting and dispositive control
                  over the
                  shares reported. The business address of each of the Gemini Entities
                  is Gemini Israel Funds, 9 Hamenofim Street, Herzliya Pituach 46725
                  Israel.
                  Yossi Sela, a director of IXI, is the managing partner of the Gemini
                  Israel Funds, and may be deemed to be the beneficial owner of the
                  shares
                  beneficially owned by the Gemini Entities. Mr. Sela disclaims beneficial
                  ownership of the shares beneficially owned by the Gemini Entities,
                  except
                  to the extent of his pecuniary interest
                  therein.


76


(2)
              Includes
                  416,667 shares of common stock issuable upon exercise of warrants
                  exercisable within 60 days of March 31, 2008. Also includes 477,942
                  shares
                  of our common stock that may be issued to the Gemini Funds upon
                  conversion
                  of principal and accrued interest of debt held by, or upon assumption
                  and
                  conversion of debt or guaranteed by, the Gemini Entities. Does
                  not include
                  2,600,614 of shares issuable to the Gemini Funds upon the
                  Company achieving certain business related milestones.(3)
              Consists
                  of 3,847,268 shares held by Landa Ventures. Benjamin Landa controls
                  Landa
                  Ventures and may be deemed to share voting and investment power
                  with
                  respect to all shares held by that entity.(4)
              The
                  business address of Landa Ventures is 7 Menachem Begin Street,
                  Ramat Gan,
                  Israel 52521. Landa Ventures is controlled by Benjamin
                  Landa.(5)
              Includes
                  826,667 shares of common stock issuable upon exercise of warrants
                  exercisable within 60 days of March 31, 2008. Does not include
                  1,529,623
                  of shares issuable to Landa Ventures upon the Company achieving
                  certain business related milestones.(6)
              Consist
                  of Southpoint Capital Advisors LLC (“Southpoint CA LLC”), Southpoint GP,
                  LLC (“Southpoint GP LLC”), Southpoint Capital Advisors LP, (“Southpoint
                  Advisors”), Southpoint GP, LP, (“Southpoint GP”), Robert W. Butts and John
                  S. Clark, II. Southpoint CA LLC is the general partner of Southpoint
                  Advisors. Southpoint GP LLC is the general partner of Southpoint
                  GP.
                  Southpoint GP is the general partner of Southpoint Fund LP (the
“Fund”),
                  Southpoint Qualified Fund LP (the “Qualified Fund”), and Southpoint Master
                  Fund, LP (the “Master Fund”). Southpoint Offshore Fund, Ltd. (the
                  “Offshore Fund”), is also a general partner of the Master Fund. The
                  business address of each of these entities is c/o Southpoint Capital
                  Advisors LP, 623 Fifth Avenue, Suite 2503, New York, NY 10022.
                  Southpoint
                  CA LLC, Southpoint GP LLC, Southpoint GP, Southpoint Advisors,
                  Robert W.
                  Butts and John S. Clark II have the sole power to vote and dispose
                  of the
                  shares reported, and each may be deemed to beneficially own the
                  shares reported.(7)
              Includes
                  2,640,000 shares of common stock issuable upon exercise of warrants
                  exercisable within 60 days of March 31, 2008. Also includes 1,327,443
                  shares of our common stock that may be issued to Southpoint upon
                  conversion of principal and accrued interest on such debt held
                  by
                  Southpoint.(8)
              The
                  business address of this person is IXI Mobile (R&D) Ltd., P.O. Box
                  2543, 17 Hatidhar St., Ra’anana, 43665, Israel.(9)
              Includes
                  120,405 shares of common stock issuable upon exercise of options
                  exercisable within 60 days of March 31, 2008. Does not include****69,954
                  shares of common stock issuable upon exercise of options not currently
                  exercisable and that will not become exercisable within 60 days
                  of March
                  31, 2008. Does not include 750,000 options subject to vesting upon
                  the
                  Company achieving certain business related milestones.
 (10)
                Includes
                    285,000 shares of common stock issuable upon exercise of warrants
                    exercisable within 60 days of March 31, 2008.
 (11)
                  The
                      business address of Mr. Gitlin is 9 Harav Nissim, Ra’anana,
                      Israel.(12)
                  Includes
                      336,017 shares of common stock issuable upon exercise of options
                      exercisable within 60 days of March 31, 2008. Does not include****69,729
                      shares of common stock issuable upon exercise of options not
                      currently
                      exercisable and that will not become exercisable within 60
                      days of March
                      31, 2008.(13)
                  The
                      business address of this person is 25 Hobart Road, Newton Centre,
                      Massachusetts 02459.(14)
                  Consists
                      solely of 26,970 shares of common stock issuable upon exercise
                      of
                      currently exercisable options. Does not include 28,721 shares
                      of common
                      stock issuable upon exercise of options not currently exercisable
                      and that
                      will not become exercisable within 60 days of March 31,
                      2008.(15)
                  Includes
                      29,542 shares of common stock issuable upon exercise of options
                      exercisable within 60 days of March 31, 2008. Does not include
                      54,381
                      shares of common stock issuable upon exercise of options not
                      currently
                      exercisable and that will not become exercisable within 60
                      days of March
                      31, 2008.(16)
                  The
                      business address of this person is 8 Mohaliver Street, Rehovot,
                      Israel.(17)
                  Includes
                      (i) 3,333 shares of common stock issuable upon exercise of
                      options
                      exercisable within 60 days of March 31, 2008 owned directly
                      by Mr. Sela in
                      his personal capacity and (ii) 4,366,379 shares of common stock,
                      described
                      above in footnote 2, beneficially owned by the Gemini Entities.
                      Does not
                      include 6,667 shares of common stock issuable upon exercise
                      of options
                      issued directly to Mr. Sela in his personal capacity which
                      are not
                      currently exercisable and that will not become exercisable
                      within 60 days
                      of March 31, 2008. Mr. Sela has shared voting and dispositive
                      power over
                      the shares held by the Gemini Entities. Mr. Sela disclaims
                      beneficial
                      ownership of shares beneficially owned by the Gemini Entities except
                      to the extent of his pecuniary interest therein.(18)
                  Includes
                      811,267 shares of common stock issuable upon exercise of options
                      exercisable within 60 days of March 31, 2008. Does not include
                      249,453
                      shares of common stock issuable upon exercise of options not
                      currently
                      exercisable and that will not become exercisable within 60
                      days of March
                      31, 2008.(19)
                  Consists
                      solely of 3,333 shares of common stock issuable upon exercise of
                      options exercisable within 60 days of March 31, 2008. Does not
                      include 6,667 shares of common stock issuable upon exercise
                      of options not
                      currently exercisable and that will not become exercisable
                      within 60 days
                      of March 31, 2008.(20)
                  Includes
                      3,333 shares of common stock issuable upon exercise of
                      options exercisable within 60 days of March 31, 2008. Does not
                      include 6,667 shares of common stock issuable upon exercise
                      of options not
                      currently exercisable and that will not become exercisable
                      within 60 days
                      of March 31, 2008.(21)
                  Includes
                      3,333 shares of common stock issuable upon exercise of options
                      exercisable
                      within 60 days of March 31, 2008. Does not include 6,667 shares
                      of common
                      stock issuable upon exercise of options not currently exercisable
                      and that
                      will not become exercisable within 60 days of March 31,
                      2008.





**Equity
      Compensation Plan Information**




See
      Part
      II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters
      and Issuer Purchases of Equity Securities — Equity Plan Compensation
      Information.”




77


**Item
      13. Certain Relationships and Related Transactions, and Director
      Independence**




**Founder
      Shares**




Prior
      to
      our initial public offering, we issued an aggregate of 750,000 shares of common
      stock to the individuals set forth below at a purchase price of approximately
      $0.033 per share. Subsequent to the issuance, our board of directors authorized
      a stock dividend of one share of common stock for each outstanding share of
      common stock, effectively lowering the purchase price to $0.0167 per share.
      The
      following share numbers have been adjusted to reflect this stock
      dividend:




**Name**
            
            **Number of
                Shares**
            
            **Relationship
                to Us**Israel
                Frieder
            
            
            450,000
            
            
            
            Non-Executive
                Co-Chairman of the BoardGlen
                Shear
            
            
            450,000
            
            
            
            Former
                Chief Financial Officer, Secretary and DirectorDael
                Schnider
            
            
            450,000
            
            
            
            Former
                Executive Vice President and DirectorVictor
                Halpert
            
            
            150,000
            
            
            
            Former
                Director




These
      shares are being held in escrow with Continental Stock Transfer & Trust
      Company, as escrow agent, until July 2008 pursuant to an escrow agreement.
      These
      shares will not be transferable except to their spouses, children or trusts
      established for their benefit and will be released prior to July 2008 only
      if we
      liquidate or upon a subsequent transaction resulting in our security holders
      having the right to exchange their shares for cash or other
      securities.




Pursuant
      to a registration rights agreement dated July 19, 2005, the holders of these
      shares are entitled to make up to two demands that we register these shares.
      The
      holders of the majority of these shares can elect to exercise these registration
      rights at any time commencing three months prior to the date on which these
      shares of common stock are released from escrow. In addition, these security
      holders have certain “piggy-back” registration rights on registration statements
      filed subsequent to the date on which these shares of common stock are released
      from escrow. We will bear the expenses incurred in connection with the filing
      of
      any such registration statements.




**Loans
      and Guarantees by IXI Security Holders**




See
      Item
      7, “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations – Liquidity and Capital Resources” for descriptions of loans by
      security holders to us, IXI and/or IXI Israel as well as guarantees of certain
      indebtedness by security holders.




**Debts
      of Employees to IXI**




Prior
      to
      our Merger with IXI, Mr. Haller had executed a note to IXI in the sum of
      $110,392. The note was dated July 15, 2003 and bore interest at the rate of
      2.75% per annum. Mr. Haller repaid this note in June 2007.




**Future
      Transactions**




All
      ongoing and future transactions between us and any of our officers and directors
      or their respective affiliates will be on terms believed by us to be no less
      favorable than are available from unaffiliated third parties and will require
      prior approval in each instance by a majority of the members of our board who
      do
      not have an interest in the transaction.




**Director
      Independence**




See
      Part
      III, Item 10, “Directors, Executive Officers and Corporate Governance —
Independence of Members of the Board of Directors.”




78


**Item
      14. Principal Accounting Fees and Services**




Kost
      Forer Gabbay & Kasierer, a member of Ernst & Young Global, or Kost, has
      been our independent registered accounting firm since our incorporation. The
      Audit Committee expects to retain Kost as our independent registered accounting
      firm for the fiscal year ending December 31, 2008.





The
      Audit
      Committee pre-approves and reviews the audit and non-audit services performed
      by
      Kost as well as the fees charged by Kost for such services. In its pre-approval
      and review of non-audit service fees, the Audit Committee considers, among
      other
      factors, the possible effect of the performance of such services on the
      auditors’ independence. To avoid potential conflicts of interest in maintaining
      auditor independence, the law prohibits a publicly traded company from obtaining
      certain non-audit services from its independent registered public accounting
      firm. In 2007 and 2006, we did not obtain any of these prohibited services
      from
      Kost. For additional information concerning the Audit Committee and its
      activities with Kost, see “Corporate Governance” and “Report of the Audit
      Committee.”




***Fees
      Paid to Kost Forer Gabbay & Kasierer***




The
      following table shows the aggregate fees for professional serviced rendered
      by
      Kost for the fiscal years ended December 31, 2007 and 2006. All figures are
      net
      of Value Added Tax and other similar taxes assessed by non-U.S. jurisdictions
      on
      the amount billed by Kost. All of the services described in the following fee
      table were approved in conformity with the Audit Committee’s pre-approval
      process.




Year
                ended December 31,2007
            
            2006(in
                thousands)Audit
                Fees
            
            $
            248
            
            $
            220Audit-Related
                Fees
            
            
            41
            
            
            2Tax
                Fees
            
            
            21
            
            
            20All
                Other Fees
            
            
            176
            
            
            25Total
            
            $
            486
            
            $
            267





*Audit
      Fees*




Audit
      Fees consist of fees for the audit of our annual financial statements included
      in our Form 10-K and review of the interim financial statements included in
      our
      Form 10-Q quarterly reports. This category also includes advice on accounting
      matters that arose during, or as a result of, the audit or the review of interim
      financial statements.





*Audit-Related
      Fees*




Audit-Related
      Fees consist of fees for the assurance and related services provided by Kost
      that are reasonably related to the performance of the audit or review of our
      financial statements and are not reported above under audit fees. The services
      for the fees disclosed under this category include Sarbanes-Oxley Act related
      expenses and review of registration statements.





*Tax
      Fees*




Tax
      Fees
      consist of fees for tax services, including tax compliance, tax advice, tax
      planning and tax preparation.




*All
      Other Fees*




This
      category consists of expenses related to our Merger.




79


**PART
      IV**




**Item
      15. Exhibits, Financial Statement Schedules**




(a)
      The
      following documents are filed as part of this Report:




(1)
            Financial
                Statements: See Index to Consolidated Financial Statements on page
                F-1.




(2)
            Financial
                Statement Schedules: None




(3)
            Exhibits:
                The exhibits listed in the accompanying Index are filed or incorporated
                by
                reference as part of this Form
                10-K.




The
      following exhibits are filed herewith or incorporated by reference
      herein:


**Exhibit**
              
              **Description**2.01
              
              Agreement
                  and Plan of Merger, dated as of February 28, 2006 by and among
                  Israel
                  Technology Acquisition Corp., IXI Mobile, Inc. and ITAC Acquisition
                  Subsidiary Corp. (incorporated by reference to Exhibit 2.01 of
                  Form S-4/A
                  filed with the SEC on November 13, 2006)3.01
              
              Amended
                  and Restated Certificate of Incorporation of Israel Technology
                  Acquisition
                  Corp. (incorporated by reference to Exhibit 3.01.01 to Form S-4
                  filed with
                  the SEC on July 28, 2006)3.02
              
              Amended
                  and Restated Bylaws of the Corporation, effective as of October
                  31, 2007
                  (incorporated by reference to Exhibit 3.01 to Form 8-K filed with
                  the SEC
                  on October 31, 2007)4.01
              
              Specimen
                  Unit Certificate (incorporated by reference to Exhibit 4.01 to
                  Form 8-K
                  filed with the SEC on June 12, 2007)4.02
              
              Specimen
                  Common Stock Certificate (incorporated by reference to Exhibit
                  4.02 to
                  Form 8-K filed with the SEC on June 12, 2007)4.03
              
              Specimen
                  Warrant Certificate (incorporated by reference to Exhibit 4.03
                  to Form 8-K
                  filed with the SEC on June 12, 2007)4.04
              
              Form
                  of Warrant Agreement between Continental Stock Transfer & Trust
                  Company and the Registrant (incorporated by reference to Exhibit
                  4.05 to
                  Form S-1 filed with the SEC on March 15, 2005)4.05
              
              Warrant
                  Clarification Agreement, dated September 14, 2006, between the
                  Registrant
                  and Continental Stock Transfer & Trust Company (incorporated by
                  reference to Exhibit 4.01 to Form 8-K filed with the SEC on September
                  15,
                  2006)4.06
              
              Amendment
                  to Unit Purchase Options, dated September 14, 2006, between the
                  Registrant
                  and the holders of Unit Purchase Options (incorporated by reference
                  herein
                  to Exhibit 4.2 to Form 8-K filed with the SEC on September 15,
                  2006)4.07
              
              Form
                  of Unit Purchase Option issued to EarlyBirdCapital, Inc. and its
                  designees
                  (incorporated by reference to Exhibit 4.04 to Form S-4/A filed
                  with the
                  SEC on November 13, 2006)4.08
              
              Warrant
                  Clarification Agreement, dated November 13, 2006, between Continental
                  Stock Transfer and Trust Company and Israel Technology Acquisition
                  Corp.
                  (incorporated by reference to Exhibit 4.06 to Form S-4/A filed
                  with the
                  SEC on November 13, 2006)4.09
              
              Form
                  of Subscription Agreement (incorporated by reference to Exhibit
                  4.01 to
                  Form 8-K filed with the SEC on October 29, 2007)4.10
              
              Form
                  of Warrant issued in debt conversion and private placement (incorporated
                  by reference to Exhibit 4.02 to Form 8-K filed with the SEC on
                  October 29,
                  2007)4.11
              
              Form
                  of Warrant issued to Tailor-Made Capital Ltd. (incorporated by
                  reference
                  to Exhibit 4.04 to Form 8-K filed with the SEC on November 15,
                  2007)4.12
              
              2000
                  Stock Incentive Plan (incorporated by reference to Exhibit 4.01
                  to Form
                  S-8 filed with the SEC on November 21, 2007)4.13
              
              2000
                  Israeli Employee Stock Option Plan (incorporated by reference to
                  Exhibit
                  4.02 to Form S-8 filed with the SEC on November 21, 2007)4.14
              
              2000
                  Second Amended and Restated Stock Incentive Plan (incorporated
                  by
                  reference to Exhibit 4.03 to Form S-8 filed with the SEC on November
                  21,
                  2007)4.15
              
              2003
                  Israeli Stock Option Plan (incorporated by reference to Exhibit
                  4.04 to
                  Form S-8 filed with the SEC on November 21, 2007)
  80
 
 **Exhibit**
              
              **Description**4.16
              
              2007
                  Stock Plan (incorporated by reference to Exhibit 4.05 to Form S-8
                  filed
                  with the SEC on November 21, 2007)10.01
              
              Letter
                  Agreement among the Registrant, EarlyBirdCapital, Inc. and Israel
                  Frieder
                  (incorporated by reference to Exhibit 10.01 to Form S-1 filed with
                  the SEC
                  on March 15, 2005)10.02
              
              Letter
                  Agreement among the Registrant, EarlyBirdCapital, Inc. and the
                  Glen Shear
                  (incorporated by reference to Exhibit 10.02 to Form S-1 filed with
                  the SEC
                  on March 15, 2005)10.03
              
              Letter
                  Agreement among the Registrant, EarlyBirdCapital, Inc. and Dael
                  Schnider
                  (incorporated by reference to Exhibit 10.03 to Form S-1 filed with
                  the SEC
                  on March 15, 2005)10.04
              
              Letter
                  Agreement among the Registrant, EarlyBirdCapital, Inc. and Victor
                  Halpert
                  (incorporated by reference to Exhibit 10.04 to Form S-1 filed with
                  the SEC
                  on March 15, 2005)10.05
              
              Form
                  of Investment Management Trust Agreement between Continental Stock
                  Transfer & Trust Company and the Registrant (incorporated by reference
                  to Exhibit 10.05 to Form S-1 filed with the SEC on March 15, 2005)10.06
              
              Form
                  of Stock Escrow Agreement between the Registrant, Continental Stock
                  Transfer & Trust Company and the Initial Stockholders (incorporated by
                  reference to Exhibit 10.06 to Form S-1 filed with the SEC on March
                  15,
                  2005)10.07
              
              Form
                  of Letter Agreement between A.F. Services Ltd. and Registrant regarding
                  administrative support (incorporated by reference to Exhibit 10.07
                  to Form
                  S-1 filed with the SEC on March 15, 2005)10.08
              
              Form
                  of Promissory Note, dated February 28, 2005, issued to each of
                  Israel
                  Frieder, Glen Shear, Dael Schnider and Victor Halpert (incorporated
                  by
                  reference to Exhibit 10.08 to Form S-1 filed with the SEC on March
                  15,
                  2005)10.09
              
              Form
                  of Registration Rights Agreement among the Registrant and the Initial
                  Stockholders (incorporated by reference to Exhibit 10.09 to Form
                  S-1 filed
                  with the SEC on March 15, 2005)10.10
              
              Form
                  of Warrant Purchase Agreements among each of Israel Frieder, Glen
                  Shear,
                  Dael Schnider and Victor Halpert and EarlyBirdCapital, Inc. (incorporated
                  by reference to Exhibit 10.10 to Form S-1 filed with the SEC on
                  March 15,
                  2005)10.11
              
              Merger
                  Agreement dated February 28, 2006, among Israel Technology Acquisition
                  Corp, IXI Mobile, Inc. and ITAC Acquisition Subsidiary Corp. (incorporated
                  by reference to Exhibit 10.01 to Form 8-K filed with the SEC on
                  March 1,
                  2006)10.12
              
              Form
                  of Stockholder Lock-Up Agreement to be executed by certain stockholders
                  of
                  IXI Mobile, Inc. (incorporated by reference to Exhibit 10.02 to
                  Form 8-K
                  filed with the SEC on March 1, 2006)10.13
              
              Form
                  of Executive Lock-Up Agreement to be executed by certain executive
                  officers of IXI Mobile, Inc. (incorporated by reference to Exhibit
                  10.03
                  to Form 8-K filed with the SEC on March 1, 2006)10.14
              
              Form
                  of Registration Rights Agreement to be executed by ITAC and certain
                  stockholders of IXI (incorporated by reference to Exhibit 10.04
                  to Form
                  8-K filed with the SEC on March 1, 2006)10.15
              
              Personal
                  Employment Agreement effective January 1, 2006, between IXI Mobile
                  (R&D) Ltd. and Gideon Barak (incorporated by reference to Exhibit
                  10.05 to Form 8-K filed with the SEC on March 1, 2006)10.16
              
              Addendum
                  to Employment Agreement between IXI Mobile (R&D) Ltd. and Gideon Barak
                  dated February 28, 2006 (incorporated by reference to Exhibit 10.06
                  to
                  Form 8-K filed with the SEC on March 1, 2006)10.17
              
              Employment
                  Agreement effective March 1, 2001, between IXI Mobile, Inc. and
                  Amit
                  Haller, together with addenda thereto effective June 1, 2001 and
                  January
                  1, 2006 (incorporated by reference to Exhibit 10.07 to Form 8-K
                  filed with
                  the SEC on March 1, 2006)10.18
              
              Addendum
                  to Employment Agreement between IXI Mobile, Inc. and Amit Haller
                  dated
                  February 28, 2006 (incorporated by reference to Exhibit 10.08 to
                  Form 8-K
                  filed with the SEC on March 1, 2006)10.19
              
              Amendment
                  dated April 4, 2006, between the Registrant and Continental Stock
                  Transfer
                  & Trust Company (incorporated by reference to Exhibit 10.01 to Form
                  8-K filed with the SEC on April 4, 2006)10.20
              
              Loan
                  Agreement dated June 19, 2006, by and among IXI Mobile (R&D) Ltd., IXI
                  Mobile, Inc. and Southpoint Master Fund LP (incorporated by reference
                  to
                  Exhibit 10.01 to Form 8-K/A filed with the SEC on July 25,
                  2006)10.21
              
              Certification,
                  executed June 20, 2006 and effective June 19, 2006, by Israel Technology
                  Acquisition Corp. to Southpoint Master Fund LP (incorporated by
                  reference
                  to Exhibit 10.02 to Form 8-K filed with the SEC on June 26, 2006)
  81
 
 **Exhibit**
              
              **Description**10.22
              
              Certification,
                  executed June 20, 2006 and effective June 19, 2006 by Israel Technology
                  Acquisition Corp. to Gemini Israel Funds, Landa Ventures Ltd. and
                  the
                  investors named therein (incorporated by reference to Exhibit 10.03
                  to
                  Form 8-K filed with the SEC on June 26, 2006)10.23
              
              Letter
                  Agreement, executed June 20, 2006 and effective June 19, 2006 by
                  and among
                  IXI Mobile, Inc, IXI Mobile (R&D) Ltd. Gemini Israel Funds and Landa
                  Ventures (incorporated by reference to Exhibit 10.04 to Form 8-K
                  filed
                  with the SEC on June 26, 2006)10.24
              
              First
                  Amendment to the Loan Agreement, dated as of June 26, 2006, by
                  and among
                  IXI Mobile (R&D) Ltd., IXI Mobile, Inc. and Southpoint Master Fund LP
                  (incorporated by reference to Exhibit 10.05 to Form 8-K filed with
                  the SEC
                  on June 26, 2006)10.25
              
              Amendment
                  to Addendum to Employment Agreement, dated July 23, 2006, between
                  IXI
                  Mobile, Inc. and Amit Haller (incorporated by reference to Exhibit
                  10.17
                  to Form S-4 filed with the SEC on July 28, 2006)10.26
              
              Escrow
                  Agreement, dated July 20, 2006, between Israel Technology Acquisition
                  Corp, Continental Stock Transfer & Trust Company and IXI Shareholder
                  Representative (incorporated by reference to Exhibit 10.19 to Form
                  S-4
                  filed with the SEC on July 28, 2006)10.27
              
              Management
                  Services Agreement, dated April 11, 2006, between Israel Technology
                  Acquisition Corp. and A.A. Pearl Investments Ltd. (incorporated
                  by
                  reference to Exhibit 10.20 to Form S-4 filed with the SEC on July
                  28,
                  2006)10.28
              
              Advisory
                  Agreement, dated November 15, 2005, between IXI Mobile, Inc. and
                  Andre
                  Dahan (incorporated by reference to Exhibit 10.21 to Form S-4 filed
                  with
                  the SEC on July 28, 2006)10.29
              
              Finder
                  Agreement, dated November 6, 2005, between ITAC and Itzhak Wulkan
                  Ventures
                  Ltd. (incorporated by reference to Exhibit 10.22 to Form S-4 filed
                  with
                  the SEC on July 28, 2006)10.30
              
              Letter
                  Agreement, dated July 26, 2006, between Israel Technology Acquisition
                  Corp., IXI Mobile, Inc., EarlyBirdCapital, Inc. and Maxim Group
                  LLC
                  (incorporated by reference to Exhibit 10.27 to Form S-4/A filed
                  with the
                  SEC on September 29, 2006)10.31
              
              Second
                  Amendment to Loan Agreement dated December 5, 2006, by and among
                  IXI
                  Mobile (R&D) Ltd., IXI Mobile, Inc. and Southpoint Master Fund LP
                  (incorporated by reference to Exhibit 10.01 to Form 8-K filed with
                  the SEC
                  on December 11, 2006)10.32
              
              Certification
                  dated December 7, 2006, by Israel Technology Acquisition Corp.
                  to
                  Southpoint Master Fund LP (incorporated by reference to Exhibit
                  10.02 to
                  Form 8-K filed with the SEC on December 11, 2006)10.33
              
              First
                  Amendment to Agreement and Plan of Merger, dated as of December
                  8, 2006,
                  by and among Israel Technology Acquisition Corp., ITAC Acquisition
                  Subsidiary Corp. and IXI Mobile, Inc. (incorporated by reference
                  to
                  Exhibit 10.01 to Form 8-K/A filed with the SEC on December 12,
                  2006)10.34
              
              First
                  Amendment to Letter Agreement, executed December 21, 2006, by and
                  among
                  IXI Mobile, Inc, IXI Mobile (R&D) Ltd. Gemini Israel Funds and Landa
                  Ventures (incorporated by reference to Exhibit 10.01 to Form 8-K
                  filed
                  with the SEC on December 26, 2006)10.35
              
              Certification
                  dated December 21, 2006, by Israel Technology Acquisition Corp.
                  to Gemini
                  Israel Funds and Landa Ventures (incorporated by reference to Exhibit
                  10.02 to Form 8-K filed with the SEC on December 26, 2006)10.36
              
              Second
                  Amendment to Agreement and Plan of Merger, dated as of December
                  8, 2006,
                  by and among Israel Technology Acquisition Corp., ITAC Acquisition
                  Subsidiary Corp. and IXI Mobile, Inc. (incorporated by reference
                  to
                  Exhibit 10.01 to Form 8-K/A filed with the SEC on January 5, 2007)10.37
              
              Personal
                  Employment Agreement, dated September 20, 2005, by and between
                  IXI Mobile
                  (R&D) Ltd. and Lihi Segal (incorporated by reference to Exhibit 10.11
                  to Form 8-K filed with the SEC on June 12, 2007)10.38
              
              Form
                  of Amended and Restated Personal Employment Agreement by and between
                  IXI
                  Mobile (R&D) Ltd. and Gadi Meroz (incorporated by reference to Exhibit
                  10.12 to Form 8-K filed with the SEC on June 12, 2007)10.39**
              
              Cooperation
                  Agreement (incorporated by reference to Exhibit 10.15 to Form 8-K/A
                  filed
                  with the SEC on July 30, 2007)10.40**
              
              Frame
                  Agreement (incorporated by reference to Exhibit 10.16 to Form 8-K/A
                  filed
                  with the SEC on July 30, 2007)10.41**
              
              Commercial
                  Agreement (incorporated by reference to Exhibit 10.17 to Form 8-K/A
                  filed
                  with the SEC on July 30, 2007)
  82
 
 **Exhibit**
              
              **Description**10.42**
              
              Amendment
                  No. 1 to Cooperation Agreement (incorporated by reference to Exhibit
                  10.18
                  to Form 8-K/A filed with the SEC on July 30, 2007)10.43**
              
              Amendment
                  No. 2 to Cooperation Agreement (incorporated by reference to Exhibit
                  10.19
                  to Form 8-K/A filed with the SEC on July 30, 2007)10.44
                  **
              
              Addendum
                  No. 3 to Cooperation Agreement (incorporated by reference to Exhibit
                  10.20
                  to Form 8-K/A filed with the SEC on July 30, 2007)10.45**
              
              Amendment
                  No. 4 to Cooperation Agreement (incorporated by reference to Exhibit
                  10.21
                  to Form 8-K/A filed with the SEC on July 30, 2007)10.46**
              
              Amendment
                  No. 6 to Coopration Agreement (incorporated by reference to Exhibit
                  10.22
                  to Form 8-K/A filed with the SEC on July 30, 2007)10.47**
              
              Letter
                  of Intent (incorporated by reference to Exhibit 10.23 to Form 8-K/A
                  filed
                  with the SEC on July 30, 2007)10.48**
              
              Mobile
                  Services Reseller Agreement (incorporated by reference to Exhibit
                  10.24 to
                  Form 8-K/A filed with the SEC on July 30, 2007)10.49**
              
              First
                  Amendment to Mobile Services Reseller Agreement (incorporated by
                  reference
                  to Exhibit 10.25 to Form 8-K/A filed with the SEC on July 30, 2007)10.50**
              
              Mobile
                  Developer Program Agreement (incorporated by reference to Exhibit
                  10.26 to
                  Form 8-K/A filed with the SEC on July 30, 2007)10.51**
              
              Service
                  Level Agreement (incorporated by reference to Exhibit 10.27 to
                  Form 8-K/A
                  filed with the SEC on July 30, 2007)10.52**
              
              Software
                  License Agreement (incorporated by reference to Exhibit 10.28 to
                  Form
                  8-K/A filed with the SEC on July 30, 2007)10.53
                  **
              
              Gateway
                  ASP Reseller License Agreement (incorporated by reference to Exhibit
                  10.29
                  to Form 8-K/A filed with the SEC on July 30, 2007)10.54**
              
              Hosted
                  Services Agreement (incorporated by reference to Exhibit 10.30
                  to Form
                  8-K/A filed with the SEC on July 30, 2007)10.55
              
              Letter
                  Agreement for Conversion of Debt for Gemini Funds and Landa Ventures,
                  dated October 25, 2007 (incorporated by reference to Exhibit 10.01
                  to Form
                  8-K filed with the SEC on October 29, 2007)10.56
              
              Letter
                  Agreement for Conversion of Debt for Southpoint Master Fund, dated
                  October
                  25, 2007 (incorporated by reference to Exhibit 10.02 to Form 8-K
                  filed
                  with the SEC on October 29, 2007)10.57*
              
              Letter
                  Agreement for Conversion of Debt, dated November 14, 200710.58*
              
              Stock
                  Purchase Agreement with Tailor-Made Capital Ltd.10.59
              
              Registration
                  Rights Agreement with Tailor-Made Capital Ltd. (incorporated by
                  reference
                  to Exhibit 10.03 to Form 8-K filed with the SEC on November 15,
                  2007)10.60
              
              Amendment
                  to employment agreement for Lihi Segal (incorporated by reference
                  to
                  Exhibit 10.02 to Form 8-K filed with the SEC on November 19, 2007)10.61
              
              Amendment
                  to employment agreement for Gadi Meroz (incorporated by reference
                  to
                  Exhibit 10.01 to Form 8-K filed with the SEC on November 19, 2007)10.62
              
              Employment
                  Agreement among the Company and Amnon Shachar (incorporated by
                  reference
                  to Exhibit 99.01 to Form 8-K filed with the SEC on December 3,
                  2007)10.63*
              
              Letter
                  Agreement, dated March 28, 2007, between IXI Mobile, Inc., IXI
                  Mobile
                  (R&D) Ltd and Southpoint Master Fund, LP10.64*
              
              Letter
                  Agreement, dated March 28, 2007, between IXI Mobile, Inc., Gemini
                  Israel
                  Funds and Landa Ventures Ltd10.65
              
              Third
                  Amendment, dated March 28, 2008, by and among IXI Mobile (R&D) Ltd.,
                  IXI Mobile, Inc. and Southpoint Master Fund L.P., to the Loan Agreement,
                  dated June 19, 2006, as previously amended by the First Amendment
                  thereto,
                  dated June 26, 2006 and the Second Amendment thereto, dated December
                  5,
                  2006 (incorporated by reference to Exhibit 10.1 to Form 8-K filed
                  with the
                  SEC on March 31, 2008)10.66
              
              Second
                  Amendment, dated March 28, 2008, by and among IXI Mobile, Inc,
                  IXI Mobile
                  (R&D) Ltd. and Gemini Israel Funds to the Letter Agreement, executed
                  June 20, 2006 and effective June 19, 2006, as previously amended
                  by the
                  First Amendment thereto, dated December 26, 2006 (incorporated
                  by
                  reference to Exhibit 10.2 to Form 8-K filed with the SEC on March
                  31,
                  2008)10.67
              
              First
                  Amendment, dated March 28, 2008, by and among IXI Mobile (R&D) Ltd.,
                  IXI Mobile, Inc. and Southpoint Master Fund L.P. to the Loan Agreement,
                  dated March 28, 2007 (incorporated by reference to Exhibit 10.3
                  to Form
                  8-K filed with the SEC on March 31,
                  2008)
  83
 
 **Exhibit**
              
              **Description**10.68
              
              First
                  Amendment, dated March 28, 2008, by and among IXI Mobile, Inc,
                  IXI Mobile
                  (R&D) Ltd. and Gemini Israel Funds to Letter Agreement, dated March
                  28, 2007 (incorporated by reference to Exhibit 10.4 to Form 8-K
                  filed with
                  the SEC on March 31, 2008)21.01
              
              List
                  of Subsidiaries (incorporated by reference to Exhibit 21.01 to
                  Form 8-K
                  filed with the SEC on June 12, 2007)23.1*
              
              Consent
                  of Kost, Forer, Gabbay and Kasierer, a member of Ernst & Young Global31.1*
              
              Certification
                  of Chief Executive Officer of the Company pursuant to Rule 13a-14(a)
                  of
                  the Securities Exchange Act of 1934, as amended.31.2*
              
              Certification
                  of Chief Financial Officer of the Company pursuant to Rule 13a-14(a)
                  of
                  the Securities Exchange Act of 1934, as amended.32.1*
              
              Certification
                  of Chief Executive Officer of the Company pursuant to 18 U.S.C.
                  Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002.32.2*
              
              Certification
                  of Chief Financial Officer of the Company pursuant to 18 U.S.C.
                  Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002.
 
 *
              Filed
                  herewith**
              Portions
                  of this exhibit have been omitted and filed separately with the
                  SEC
                  pursuant to a confidential treatment
                  request.
 84


**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized, on March 31, 2008.





**IXI
                MOBILE, INC.****By:**
            /s/
              Amit HallerAmit
                HallerChief
                Executive Officer, Director




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant in the
      capacity and on the dated indicated.




**Name**
                
                **Title**
                
                **Date**/s/
                  Amit Haller
                
                Chief
                    Executive Officer and Director
                
                March
                    31, 2008Amit
                    Haller
                
                (Principal
                    Executive Officer)/s/
                    Lihi Segal
                
                Executive
                  Vice President and Chief Financial
                  OfficerLihi
                    Segal
                
                (Principal
                    Accounting and Financial Officer)
                
                March
                    31, 2008/s/
                    Israel FriederIsrael
                    Frieder
                
                Co-Chairman
                    of the BoardMarch
                    31, 2008/s/
                    Gideon BarakGideon
                    Barak
                
                Co-Chairman
                    of the BoardMarch
                    31, 2008/s/
                    Yossi SelaYossi
                    Sela
                
                DirectorMarch
                    31, 2008/s/
                    Shlomo ShalevShlomo
                    Shalev
                
                Director
                
                March
                    31, 2008/s/
                    Shmuel M. GitlinShmuel
                    M. Gitlin
                
                Director
                
                March
                    31, 2008/s/
                    Matthew HillsMatthew
                    Hills
                
                Director
                
                March
                    31, 2008  85
  **IXI
          MOBILE, INC.INDEX TO CONSOLIDATED FINANCIAL
          STATEMENTS**




**IXI
      MOBILE INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY
      (“ITAC”))**  **AND**


**ITS
      SUBSIDIARIES**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**AS
      OF DECEMBER 31, 2007**





**U.S.
      DOLLARS IN THOUSANDS**





**INDEX**





**Page**Report
                of Independent Registered Public Accounting Firm
            F-
                2Consolidated
                Balance Sheets
            F-3Consolidated
                Statements of Operations
            F-5Consolidated
                Statements of Changes in Shareholders' Equity (Deficiency)
            F-6Consolidated
                Statements of Cash Flows
            F-8Notes
                to Consolidated Financial Statements
            F-11




F-1











**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





**To
      the Board of Directors and Stockholders of**





**IXI
      MOBILE INC. (FORMERLY ISRAEL TECHNOLOGY ACQUISITION COMPANY
      ("ITAC"))**





We
      have
      audited the accompanying consolidated balance sheets of IXI Mobile Inc.
      (formerly Israel Technology Acquisition Company ("ITAC" or "the Company"))
      and
      its subsidiaries as of December 31, 2007 and 2006, and the related consolidated
      statements of operations, changes in stockholders' equity (deficiency) and
      cash
      flows for each of the three years in the period ended December 31, 2007. These
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. We were not engaged to perform
      an
      audit of the Company's internal control over financial reporting. Our audits
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company's internal control over financial reporting. Accordingly, we express
      no
      such opinion. An audit also includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the financial statements, assessing
      the accounting principles used and significant estimates made by management,
      and
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of the Company
      and
      its subsidiaries as of December 31, 2007 and 2006, and the consolidated results
      of their operations and their cash flows for each of the three years in the
      period ended December 31, 2007, in conformity with U.S. generally accepted
      accounting principles.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As more fully described in Note 1e, the
      Company has incurred recurring operating losses and negative cash flows from
      operating activities. These conditions, among other matters described in Note
      1e, raise substantial doubt about the Company's ability to continue as a going
      concern. Management's plans in regard to these matters also are described in
      Note 1e. The financial statements do not include any adjustments to reflect
      the
      possible future effects on the recoverability and classification of assets
      or
      the amounts and classification of liabilities that may result from the outcome
      of this uncertainty.


As
        discussed in Note 2w to the consolidated financial statements, in 2006, the
        Company adopted Statement of Financial Accounting Standards Board No. 123
        (revised 2004), “Share-Based Payment”. Also, as discussed in note 2r and note 13
        to the consolidated financial statements, in 2007, the Company adopted
        Interpretation No.48, “Accounting for Uncertainty in Income Taxes, an
        interpretation of FASB Statement No. 109”.





/s/
                Kost Forer Gabbay &
                KasiererTel-Aviv,
                Israel
            KOST
                FORER GABBAY & KASIERERMarch
                31, 2008
            A
                Member of Ernst & Young Global




F-2


**IXI
      MOBILE INC.**


**(formerly:
      ISRAEL TECHNOLOGY ACQUISITION COMPANY ("ITAC"))**


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**U.S.
      dollars in thousands**





**December
                31,****2007**
            
            **2006**ASSETSCURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            17,278
            
            $
            2,729Restricted
                cash
            
            
            183
            
            
            269Trade
                receivables, net
            
            
            3,019
            
            
            3,286Other
                receivables and prepaid expenses
            
            
            1,364
            
            
            682Vendor
                advance payments
            
            
            4,081
            
            
            3,947Inventories,
                net(of
                which $7,806 and $9,946 delivered to customers but not yet recognized
                as
                revenues as of December 31, 2007 and 2006, respectively)
            
            
            14,239
            
            
            13,473Totalcurrent assets
            
            
            40,164
            
            
            24,386LONG-TERM
                ASSETS:Severance
                pay fund
            
            
            917
            
            
            596Long-term
                prepaid expenses
            
            
            39
            
            
            93Property
                and equipment, net
            
            
            487
            
            
            429Deferred
                debt costs
            
            
            348
            
            
            1,411Deferred
                Merger costs
            
            
            -
            
            
            876Other
                assets, net
            
            
            -
            
            
            62Totallong-term assets
            
            
            1,791
            
            
            3,467Totalassets
            
            $
            41,955
            
            $
            27,853




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


F-3


**IXI
      MOBILE INC.**


**(formerly:
      ISRAEL TECHNOLOGY ACQUISITION COMPANY ("ITAC"))**


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


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




**December 31,****2007**
            
            **2006**LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIENCY)CURRENT
                LIABILITIES:Current
                maturities of long-term convertible loan from shareholders
            
            $
            4,492
            
            $
            -Current
                maturities of long-term loans from shareholders
            
            
            2,000
            
            
            -Short-term
                bank credit
            
            
            1,942
            
            
            6,767Trade
                payables
            
            
            2,095
            
            
            3,159Employees
                and payroll accruals
            
            
            1,488
            
            
            1,016Deferred
                revenues
            
            
            10,149
            
            
            13,035Other
                payables and accrued expenses
            
            
            6,401
            
            
            3,446Liabilities
                of discontinued operations
            
            
            2,523
            
            
            2,431Totalcurrent
                liabilities
            
            
            31,090
            
            
            29,854LONG-TERM
                LIABILITIES:Long-term
                loans from shareholders, net of current maturities
            
            
            2,000
            
            
            -Long-term
                convertible loan from shareholders
            
            
            -
            
            
            4,160Other
                long term liabilities
            
            
            286
            
            
            -Accrued
                severance pay
            
            
            1,138
            
            
            721Totallong-term liabilities
            
            
            3,424
            
            
            4,881COMMITMENTS
                AND CONTINGENT LIABILITIESCONVERTIBLE
                LOAN
            
            
            -
            
            
            15,840STOCKHOLDERS'
                EQUITY (DEFICIENCY) ****):Stock
                capital -Common
                stock of $0.0001 par value: Authorized: 60,000,000 and 7,570,862
                shares at
                December 31, 2007 and 2006, respectively; Issued and outstanding:
                20,787,955 and 687,992 shares at December 31, 2007 and 2006, respectively
            
            
            2
            
            
            *) -Series
                A Convertible Preferred Stock of $0.01 par value: Authorized: 0 and
                90,645
                shares at December 31, 2007 and 2006, respectively; Issued and
                outstanding: 0 and 77,718 shares at December 31, 2007 and 2006,
                respectively
            
            
            -
            
            
            *) -Series
                B Convertible Preferred Stock of $0.01 par value: Authorized: 0 and
                247,952 shares at December 31, 2007 and 2006, respectively; Issued
                and
                outstanding: 0 and 67,861 shares at December 31, 2007 and 2006,
                respectively
            
            
            -
            
            
            *) -Series
                C Convertible Preferred Stock of $0.01 par value: Authorized: 0 and
                479,627 shares at December 31, 2007 and 2006, respectively; Issued
                and
                outstanding: 0 and 222,426 shares at December 31, 2007 and 2006,
                respectively
            
            
            -
            
            
            *) -Series
                D Convertible Preferred Stock of $0.01 par value: Authorized: 0 and
                5,500,463 shares at December 31, 2007 and 2006, respectively; Issued
                and
                outstanding: 0 and 5,104,902 shares at December 31, 2007 and 2006,
                respectively
            
            
            -
            
            
            *) -Receipt
                on account of stock ***)
            
            
            15,840
            
            
            -Additional
                paid-in capital **)
            
            
            151,750
            
            
            68,715Notes
                receivable
            
            
            -
            
            
            (110
            )Accumulated
                deficit
            
            
            (160,151
            )
            
            (91,327
            )Totalstockholders'
                equity (deficiency)
            
            
            7,441
            
            
            (22,722
            )Totalliabilities and stockholders' equity (deficiency)
            
            $
            41,955
            
            $
            27,853


*)
            Represents
                an amount lower than $1.


**)
            Net
                of deferred stock compensation.


***)
            Including
                4,400,000 shares of Common stock that the Company was contractually
                obligated to issue on account of long-term convertible loan from
                stockholders converted on October 25, 2007, that were issued on February
                22, 2008 (See also Note 17b)


****)
            Upon
                the Merger, the shares of IXI stock were canceled and exchanged into
                the
                Company's shares at a ratio of 1:0.15. All share information included
                in
                this report has been retroactively adjusted to reflect this
                exchange.





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


F-4




**IXI
      MOBILE INC.**


**(formerly:
      ISRAEL TECHNOLOGY ACQUISITION COMPANY ("ITAC"))**


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


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





**Year ended December 31,****2007**
            
            **2006**
            
            **2005**RevenuesProducts
                sales
            
            $
            13,471
            
            $
            11,842
            
            $
            7,793Services
            
            
            2,769
            
            
            1,087
            
            
            174Total
                Revenues
            
            
            16,240
            
            
            12,929
            
            
            7,967Cost
                of revenues:Products
                sales
            
            
            15,840
            
            
            11,885
            
            
            9,243Services
            
            
            2,724
            
            
            4,351
            
            
            386Total
                Cost of revenues
            
            
            18,564
            
            
            16,236
            
            
            9,629Gross
                loss
            
            
            (2,324
            )
            
            (3,307
            )
            
            (1,662
            )Operating
                expenses:Research
                and development
            
            
            15,890
            
            
            6,897
            
            
            4,271Selling
                and marketing
            
            
            8,730
            
            
            7,928
            
            
            3,323General
                and administrative
            
            
            7,729
            
            
            3,038
            
            
            1,449Totaloperating
                expenses
            
            
            32,349
            
            
            17,863
            
            
            9,043Gain
                from terminating agreement with CW
            
            
            -
            
            
            -
            
            
            11,695Operating
                income (loss)
            
            
            (34,673
            )
            
            (21,170
            )
            
            990Financial
                expenses, net
            
            
            (33,808
            )
            
            (2,530
            )
            
            (1,334
            )Other
                income
            
            
            -
            
            
            13
            
            
            -Loss
                from continuing operations
            
            
            (68,481
            )
            
            (23,687
            )
            
            (344
            )Income
                (loss) from discontinued operations
            
            
            (109
            )
            
            1,035
            
            
            (11,630
            )Net
                loss
            
            $
            (68,590
            )
            $
            (22,652
            )
            $
            (11,974
            )Basic
                and diluted net earnings (loss) per share of Common stock:From
                continuing operations
            
            $
            (6.42
            )
            $
            (38.55
            )
            $
            (6.65
            )From
                discontinued operations
            
            $
            (0.01
            )
            $
            1.51
            
            $
            (39.47
            )Basic
                and diluted net loss per share
            
            $
            (6.43
            )
            $
            (37.04
            )
            $
            (46.12
            )Weighted
                average number of shares of Common stock used in computing basic
                and
                diluted net earnings (loss) per share of Common stock
            
            
            10,812,986
            
            
            684,890
            
            
            294,626




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


F-5


**IXI
      MOBILE INC.**


**(formerly:
      ISRAEL TECHNOLOGY ACQUISITION COMPANY ("ITAC"))**


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)**


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




**Common stock**
            
            **Series A Convertible**
              **Preferred stock**
            
            **Series B Convertible**
              **Preferred stock**
            
            **Series C Convertible**
              **Preferred stock**
            
            **Series D Convertible**
              **Preferred stock**
            
            **Receipts on**
              **account of**
            
            **Additional**
              **paid-in**
            
            **Notes**
            
            **Accumulated****Number**
            
            **Amount**
            
            **Number**
            
            **Amount**
            
            **Number**
            
            **Amount**
            
            **Number**
            
            **Amount**
            
            **Number**
            
            **Amount**
            
            **stock**
            
            **capital**
            
            **receivable**
            
            **deficit**
            
            **Total**Balance
                at January 1, 2005
            
            
            141,982
            
            $
            *)
            
            
            77,986
            
            $
            *)
            
            
            247,952
            
            $
            *)
            
            
            468,675
            
            $
            *)
            
            
            356,936
            
            $
            *)
            
            
            -
            
            $
            47,659
            
            $
            (378
            )
            $
            (56,701
            )
            $
            (9,420
            )Exercise
                of employee and consultant stock options
            
            
            986
            
            
            *) -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            12
            
            
            -
            
            
            -
            
            
            12Issuance
                of Series D Convertible Preferred stock, net
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            306,209
            
            
            *)
            
            
            -
            
            
            10,228
            
            
            -
            
            
            -
            
            
            10,228Cancellation
                of notes receivable for treasury stock
            
            
            (17,254
            )
            
            *)
                -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (268
            )
            
            268
            
            
            -
            
            
            -Conversion
                of Preferred stock to Common stock
            
            
            556,938
            
            
            *)
            
            
            (268
            )
            
            *)
                -
            
            
            (180,091
            )
            
            *)
            
            
            (246,249
            )
            
            *)
            
            
            (130,330
            )
            
            *)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Costs
                of Keep Well Agreement
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,761
            
            
            -
            
            
            -
            
            
            3,761Detachable
                warrant costs, issued in connection with short-term bank
                credit
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            269
            
            
            -
            
            
            -
            
            
            269Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            304
            
            
            -
            
            
            -
            
            
            304Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (11,974
            )
            
            (11,974
            )Total
                comprehensive loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (11,974
            )Balance
                at December 31, 2005
            
            
            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 upon conversion of
                convertible loans
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            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
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            454
            
            
            -
            
            
            -
            
            
            454Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (22,652
            )
            
            (22,652
            )Total
                comprehensive loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (22,652
            )Balance
                at December 31, 2006
            
            
            687,992
            
            $
            *)
            
            
            77,718
            
            $
            *)
                -
            
            
            67,861
            
            $
            *)
            
            
            222,426
            
            $
            *)
            
            
            5,104,902
            
            $
            *)
            
            
            -
            
            
            **) 68,715
            
            
            (110
            )
            $
            (91,327
            )
            $
            (22,722
            )


*)
            Represents
                an amount lower than $ 1. **)
            Net
              of deferred stock compensation in an amount of $340, $540 and $782
              as of
              December 31, 2007, 2006, and 2005 respectively. ***)
            Upon
              the Merger, the shares of IXI stock were canceled and exchanged into
              the
              Company's shares on a ratio of 1:0.15. All share information included
              in
              this report has been retroactively adjusted to reflect this
              exchange.




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


F-6




**IXI
      MOBILE INC.**


**(formerly:
      ISRAEL TECHNOLOGY ACQUISITION COMPANY ("ITAC"))**


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)**


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





**Common stock**
            
            **Series A Convertible**
              **Preferred stock**
            
            **Series B Convertible**
              **Preferred stock**
            
            **Series C Convertible**
              **Preferred stock**
            
            **Series D Convertible**
              **Preferred stock**
            
            **Receipts on**
              **account of**
            
            **Additional**
              **paid-in**
            
            **Notes**
            
            **Accumulated****Number**
            
            **Amount**
            
            **Number**
            
            **Amount**
            
            **Number**
            
            **Amount**
            
            **Number**
            
            **Amount**
            
            **Number**
            
            **Amount**
            
            **stock**
            
            **capital**
            
            **receivable**
            
            **deficit**
            
            **Total**Balance
                at January 1, 2007
            
            
            687,992
            
            $
            *)
                -
            
            
            77,718
            
            $
            *) -
            
            
            67,861
            
            $
            *) -
            
            
            222,426
            
            $
            *) -
            
            
            5,104,902
            
            $
            *) -
            
            $
            -
            
            $
            **)68,715
            
            $
            (110
            )
            $
            (91,327
            )
            $
            (22,722
            )Accumulated
                affect adjustment upon adoption of FIN 48.
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (234
            )
            
            (234
            )Exercise
                of warrants to Common stock
            
            
            166,262
            
            
            *)
                -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of stock to Co-Chairman
            
            
            216,000
            
            
            *)
                -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,309
            
            
            -
            
            
            -
            
            
            1,309Conversion
                of warrants to Preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,936
            
            
            -
            
            
            5,384
            
            
            -
            
            
            -
            
            
            17
            
            
            -
            
            
            -
            
            
            17Conversion
                of convertible Preferred stock into Common stock
            
            
            5,483,478
            
            
            1
            
            
            (77,718
            )
            
            *) -
            
            
            (67,861
            )
            
            *) -
            
            
            (227,362
            )
            
            *) -
            
            
            (5,110,286
            )
            
            *) -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1Issuance
                of Common stock in connection with the Merger, net of acquisition
                costs
            
            
            7,818,000
            
            
            1
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            32,435
            
            
            -
            
            
            -
            
            
            32,436Issuance
                of stock following the merger
            
            
            1,566,000
            
            
            *) -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            -
            
            
            7,927
            
            
            -
            
            
            -
            
            
            7,927Collection
                of notes receivable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            110
            
            
            -
            
            
            110Issuance
                of Common stock in a private placement, net
            
            
            2,703,000
            
            
            *) -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            9,160
            
            
            -
            
            
            -
            
            
            9,160Conversion
                of convertible loan into Common stock ***
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            15,840
            
            
            1,840
            
            
            -
            
            
            -
            
            
            17,680Assumption
                and Conversion of Guarantee into Common stock
            
            
            1,516,667
            
            
            *) -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,460
            
            
            -
            
            
            -
            
            
            5,460Issuance
                of Common stock upon partial satisfaction of long term loan
            
            
            555,556
            
            
            *) -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,000
            
            
            -
            
            
            -
            
            
            2,000Issuance
                of shares of Common stock related to Equity Line of Credit agreement,
                net
            
            
            75,000
            
            
            *) -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            284
            
            
            -
            
            
            -
            
            
            284Costs
                related to issuance of warrants to investors
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,818
            
            
            -
            
            
            -
            
            
            10,818Costs
                related to inducement of loans conversions
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,829
            
            
            -
            
            
            -
            
            
            8,829Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,956
            
            
            -
            
            
            -
            
            
            2,956Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (68,590
            )
            
            (68,590
            )Total
                comprehensive loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (68,590
            )Balance
                at December 31, 2007
            
            
            20,787,955
            
            $
            2
            
            
            -
            
            $
            -
            
            
            -
            
            
            
            
            $
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            $
            15,840
            
            $
            **)151,750
            
            $
            -
            
            $
            (160,151
            )
            $
            7,441


*)
            Represents
                an amount lower than $ 1.


**)
            Net
                of deferred stock compensation in an amount of $340, $540 and $782
                as of
                December 31, 2007, 2006 and 2005, respectively.


***)
            Upon
                the Merger, the shares of IXI stock were canceled and exchanged into
                the
                Company's shares at a ratio of 1:0.15. All share information included
                in
                this report has been retroactively adjusted to reflect this
                exchange.


****)
            Including
                4,400,000 shares of Common stock that the Company was contractually
                obligated to issue on account of long-term convertible loan converted
                on
                October 25, 2007, that were issued on February 22, 2008. (See also
                Note
                17b)




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


F-7


**IXI
        MOBILE INC.**
 **(formerly:
        ISRAEL TECHNOLOGY ACQUISITION COMPANY ("ITAC"))**
 **AND
        ITS SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**U.S.
      dollars in thousand**




**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Cash
                flows from operating activities:Net
                loss
            
            $
            (68,590
            )
            $
            (22,652
            )
            $
            (11,974
            )Loss
                (income) from discontinued operations
            
            
            109
            
            
            (1,035
            )
            
            11,630Loss
                from continuing operations
            
            
            (68,481
            )
            
            (23,687
            )
            
            (344
            )Adjustments
                to reconcile loss from continuing operations to net cash used in
                operating
                activities from continuing operations:Depreciation
                and amortization
            
            
            342
            
            
            359
            
            
            252Amortization
                of deferred debt and Merger costs
            
            
            1,411
            
            
            503
            
            
            -Gain
                from terminating agreement with CW (2)
            
            
            -
            
            
            -
            
            
            (11,695
            )Stock-based
                compensation expenses
            
            
            2,956
            
            
            454
            
            
            304Amortization
                of deferred debt issuance cost related to valuation of Bridge Loan
            
            
            2,173
            
            
            -
            
            
            -Merger
                related expenses, included in the general and administrative and
                financial
                expenses
            
            
            9,035
            
            
            -
            
            
            -Costs
                related to inducement of loans conversion
            
            
            8,829
            
            
            -
            
            
            -Issuance
                of shares of Common stock related to Equity Line of Credit agreement,
                net
            
            
            284
            
            
            -
            
            
            -Costs
                related to issuance of warrants to investors
            
            
            10,818
            
            
            -
            
            
            -Cash
                consideration from terminating agreement with CW (2)
            
            
            -
            
            
            -
            
            
            3,850Amortization
                of discounts attributed to detachable warrant costs and guarantee
                costs of
                Keep Well Agreement
            
            
            -
            
            
            3,473
            
            
            848Decrease
                (increase) in trade receivables
            
            
            267
            
            
            (648
            )
            
            (2,534
            )Increase
                in other receivables, prepaid expenses and vendor advance
                payments
            
            
            (816
            )
            
            (3,841
            )
            
            (306
            )Decrease
                (increase) in inventories, net
            
            
            (766
            )
            
            (6,009
            )
            
            15,024Decrease
                in long-term prepaid expenses
            
            
            54
            
            
            3
            
            
            105Increase
                (decrease) in trade payables
            
            
            (1,287
            )
            
            1,285
            
            
            (1,590
            )Increase
                in employees and payroll accruals
            
            
            472
            
            
            405
            
            
            68Increase
                (decrease) in deferred revenues
            
            
            (2,886
            )
            
            8,878
            
            
            (13,510
            )Increase
                in other payables and accrued expenses
            
            
            855
            
            
            458
            
            
            2,855Increase
                in other long term liabilities
            
            
            82
            
            
            -
            
            
            -Increase
                in accrued severance pay, net
            
            
            96
            
            
            55
            
            
            20Accrued
                interest, net
            
            
            2,070
            
            
            1,038
            
            
            173Net
                cash used in operating activities from continuing
                operations
            
            
            (34,492
            )
            
            (17,274
            )
            
            (6,480
            )Net
                cash used in operating activities from discontinued
                operations
            
            
            (17
            )
            
            (751
            )
            
            (8,618
            )Net
                cash used in operating activities
            
            
            (34,509
            )
            
            (18,025
            )
            
            (15,098
            )Cash
                flows from investing activities:Short-term
                bank deposit
            
            
            -
            
            
            -
            
            
            19Restricted
                cash, net
            
            
            86
            
            
            (71
            )
            
            (25
            )Purchase
                of property and equipment
            
            
            (298
            )
            
            (272
            )
            
            (218
            )Net
                cash used in investing activities from continuing
                operations
            
            
            (212
            )
            
            (343
            )
            
            (224
            )Net
                cash used in investing activities from discontinued
                operations
            
            
            -
            
            
            -
            
            
            (20
            )Net
                cash used in investing activities
            
            
            (212
            )
            
            (343
            )
            
            (244
            )





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


F-8




**IXI
      MOBILE INC.**


**(formerly:
      ISRAEL TECHNOLOGY ACQUISITION COMPANY ("ITAC"))**


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**U.S.
      dollars in thousands**





**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Cash
                flows from financing activities:Proceeds
                from issuance of shares of Common stock in the Merger, net of issuance
                costs (1)
            
            $
            33,373
            
            $
            -
            
            $
            -Proceeds
                from issuance of shares of Common stock, net of issuance
                expenses
            
            
            -
            
            
            (18
            )
            
            10,228Payment
                of deferred debt and Merger costs
            
            
            (24
            )
            
            (2,510
            )
            
            -Proceeds
                from exercise of warrants by investors
            
            
            17
            
            
            -
            
            
            -Proceeds
                from exercise of employee stock options
            
            
            -
            
            
            2
            
            
            12Proceeds
                from short-term bank credit
            
            
            634
            
            
            6,767
            
            
            750Proceeds
                from short-term bank loan
            
            
            5,000
            
            
            -
            
            
            -Collection
                of notes receivable
            
            
            110
            
            
            -
            
            
            -Proceeds
                from issuance of shares of Common stock in a private placement,
                net
            
            
            9,160
            
            
            -
            
            
            -Payment
                of short-term bank credit
            
            
            -
            
            
            (750
            )
            
            -Payment
                of short-term bank loan
            
            
            (5,000
            )
            
            -
            
            
            (1,256
            )Proceeds
                from long-term loans (of which $2,000 were converted)
            
            
            6,000
            
            
            -
            
            
            -Principal
                payment of long-term loans
            
            
            -
            
            
            (2,578
            )
            
            (2,917
            )Proceeds
                from convertible loans
            
            
            -
            
            
            20,000
            
            
            6,109Net
                cash provided by financing activities from continuing
                operations
            
            
            49,270
            
            
            20,913
            
            
            12,926Increase
                (decrease) in cash and cash equivalents
            
            
            14,549
            
            
            2,545
            
            
            (2,416
            )Cash
                and cash equivalents at the beginning of the year
            
            
            2,729
            
            
            184
            
            
            2,600Cash
                and cash equivalents at the end of the year
            
            $
            17,278
            
            $
            2,729
            
            $
            184Supplemental
                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
            
            $
            -
            
            $
            6,312
            
            $
            -Purchase
                of property and equipment by credit
            
            $
            40
            
            $
            52
            
            $
            40Deferred
                issuance cost
            
            $
            -
            
            $
            280
            
            $
            -Issuance
                of shares of Common stock upon conversion of long-term convertible
                loan*
            
            $
            17,680
            
            $
            -
            
            $
            -Issuance
                of shares of Common stock upon conversion of credit line
            
            $
            5,460
            
            $
            -
            
            $
            -Issuance
                of shares of Common stock upon partial conversion of long-term
                loan
            
            $
            2,000
            
            $
            -
            
            $
            -Cancellation
                of notes receivable for treasury stock
            
            $
            -
            
            $
            -
            
            $
            268Issuance
                of warrants in exchange for guarantee
            
            $
            -
            
            $
            -
            
            $
            3,761Technology
                acquired from CW (2)
            
            $
            -
            
            $
            -
            
            $
            146Cash
                paid during the year for:Interest
            
            $
            912
            
            $
            748
            
            $
            580Taxes
            
            $
            95
            
            $
            67
            
            $
            97





(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 upon consummation of the Merger
            
            
            35,038
            
            
            -
            
            
            -Merger
                costs
            
            
            (1,848
            )
            
            -
            
            
            -$
            33,373
            
            $
            -
            
            $
            -


*)
              Including
                  4,400,000 shares of Common stock that the Company was contractually
                  obligated to issue on account of long-term convertible loan converted
                  on
                  October 25, 2007, that were issued on February 22, 2008 (See also
                  Note
                  17b).


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


F-9




**IXI
      MOBILE INC.**


**(formerly:
      ISRAEL TECHNOLOGY ACQUISITION COMPANY ("ITAC"))**


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**U.S.
      dollars in thousands**


(2)  Cash
        consideration from terminating agreement with CW:


**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Gain
                from terminating agreement with CW
            
            $
            -
            
            $
            -
            
            $
            11,695Acquired
                technology
            
            
            
            
            
            -
            
            
            (146
            )Deferred
                revenues earned upon termination of agreement
            
            
            -
            
            
            -
            
            
            (7,699
            )$
            -
            
            $
            -
            
            $
            3,850





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


F-10


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**


**NOTE
      1:-** **GENERAL**





a.
            IXI
                Mobile, Inc. (formerly Israel Technology Acquisition Corporation
                ("ITAC"))
                ("the Company") is a Delaware holding company operating through a
                wholly-owned subsidiary, IXI Mobile (USA), Inc. ("IXI"). ITAC was
                originally formed on February 22, 2005 as a blank check company to
                effect
                a merger, capital stock exchange, asset acquisition or other similar
                business combination with an unidentified operating business that
                had
                manufacturing operations or research and development facilities located
                in
                Israel. On June 6, 2007, pursuant to an agreement and plan of merger,
                dated February 28, 2006, as amended, the Company completed the merger
                with
                IXI ("Merger") and IXI merged with ITAC Acquisition Subsidiary Corp.,
                a
                wholly-owned subsidiary of ITAC. Prior to the Merger, the Company
                had no
                substantial operations as it was a blank check company. Therefore,
                the
                financial statements and accompanying notes represent the historical
                results of IXI, unless otherwise stated.





Immediately
                following the Merger, the holders of equity interests of IXI (including
                holders of certain options under IXI's employee stock option plans
                and
                holders of warrants to purchase IXI's shares of Common stock) owned
                or had
                the right to acquire approximately 7,818,000 shares of ITAC Common
                stock,
                of which approximately 1,264,291 shares of Common stock became available
                for issuance to IXI's senior management and optionees under IXI's
                employee
                stock option plans. As further consideration, the holders of equity
                interests of IXI received the right to acquire up to an additional
                10,000,000 shares ("the Contingent Shares") of ITAC Common stock
                based on
                attaining various performance targets.





Since
      IXI
      is considered in substance the accounting acquirer upon the Merger consummation,
      Merger costs have been deferred in an amount of approximately $880 and were
      fully recognized upon consummation of the Merger. Upon closing, on June 6,
      2007,
      ITAC changed its name to IXI Mobile, Inc.





In
      accordance with the guidance applicable to these circumstances, the Merger
      was
      deemed to be a capital transaction in substance. Accordingly, for accounting
      purposes, the Merger was treated as the equivalent of IXI issuing stock for
      the
      net monetary assets of the Company. The net monetary assets of the Company
      were
      stated at their fair value, essentially equivalent to historical costs, with
      no
      goodwill or other intangible assets recorded. The accumulated deficit of IXI
      is
      carried forward after the Merger. The shares of IXI Common stock were canceled
      and converted into the Company's stock at a ratio of 1:0.15. Accordingly, for
      accounting purposes, the Merger was treated as the equivalent of
      recapitalization by IXI. All historical share and per share data have been
      retroactively adjusted to give effect to the reverse acquisition of the Company
      and related recapitalization. Total cash received in the Merger with the Company
      was $ 33,400, net of Merger expenses.


F-11


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**


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





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 design, development, production and marketing
                of
                mobile messaging devices ("Ogo") 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 and internet service providers(“ISPs”). In the
                past IXI was also engaged in an operating system business for mobile
                devices which was discontinued during
                2005.





c.
            As
                of December 31, 2007, the Company has five wholly-owned active
                subsidiaries: IXI, IXI R&D, 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. (all together "the
                Group").





d.
            All
                of the Company's mobile messaging devices are manufactured by independent
                contractors. The Company is and will continue to be dependent upon
                these
                contractors to achieve acceptable manufacturing output, quality levels
                and
                costs, and to allocate to the Company a sufficient portion of production
                capacity to meet the Company's needs in a timely manner. Moreover,
                the Ogo
                incorporates a modem that is proprietary of one of the contractors.
                Revenues could be materially and adversely affected should this contractor
                fail to meet the Company's request for products due to a shortage
                of
                production capacity, process difficulties, low output rates or financial
                instability since the Company would likely experience delays while
                preparing to work with another contractor. Additionally, certain
                of the
                components are obtained from a limited group of suppliers. Disruptions,
                shortages, or termination of certain of these sources of supply could
                occur and could negatively affect the Company's business condition
                and
                results of operations.





The
      Company also currently licenses from third parties certain software used in
      the
      manufacture and operation of its products and provision of services (see also
      Note 2f). Any supplier may discontinue or restrict licensing software to the
      Company. If a supplier discontinues or restricts supplying a component or
      licensing software, the Company's business may be harmed by the resulting
      product manufacturing and delivery delays, or by inability to provide services.





In
      addition, hosting of internet services that the Company provides in connection
      with the Ogo service is currently outsourced to a single supplier. Should that
      supplier encounter financial difficulties, technical problems or other
      adversities, the Company could be required to establish a second hosting
      relationship or to begin providing such services on its own. Either of these
      alternatives would require a lengthy period of transition, would cause the
      Company to incur considerable expense and could result in its service being
      unavailable or unreliable for a period of time, which could have a significant
      adverse effect on its business.


F-12


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




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





e.
            From
                inception, the Company has generated recurring losses from operations
                and
                negative cash flows from operating activities. As of December 31,
                2007 and
                2006, the Company has aworkingcapital
                (deficiency) of $ 9,074 and ($ 5,468) and stockholders' equity
                (deficiency) of $ 7,441 and ($22,722), respectively. The Company
                plans to continue to finance its operations through raising additional
                capital and in the longer term, to generate sufficient revenues to
                finance
                its operations (see also Note 17c). In spite of the fact that the
                Company
                has positive working capital and stockholders’ equity as of December 31,
                2007, there are no assurances that the Company will be successful
                in
                obtaining an adequate level of financing needed for current operations
                and
                long-term development.





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.





f.
            Termination
                of agreement with AT&T Wireless
                Services:





AT&T
      Wireless Services (“AT&T”), now known as Cingular Wireless Services, Inc.
      ("CW"), to which the Company sold its Ogo devices under a development and supply
      agreement ("the Development and Supply Agreement"), accounted for 0%, 0% and
      85%
      of the Company's revenues for the years ended December 31, 2007, 2006 and 2005,
      respectively.





In
      April
      2005, following the acquisition of AT&T by CW, CW and the Company entered
      into an addendum to the original Development and Supply Agreement ("the
      Addendum") which terminated CW's obligation to purchase devices and resulted
      in
      a settlement pursuant to which CW agreed to transfer to the Company all rights
      and intellectual property rights ("IPR") associated with the Ogo and marketing
      materials (including the www.Ogo.com .
      webstore) and the rights to distribute the Ogo device globally. In addition,
      CW
      undertook to pay the Company $3,850 in cash and to transfer to the Company
      ownership of all unsold Ogo devices at no charge, and without any further
      obligation of the Company.





The
      transaction has been accounted for based on the fair values of identifiable
      assets transferred by CW to the Company and, accordingly, the Company recorded
      in the year ended December 31, 2005 a gain related to the Addendum in the amount
      of $11,695 against the recognition of the following at estimated fair values:





Cash
            
            $
            3,850Acquired
                technology (three-year useful life at the acquisition
                date)
            
            
            146Deferred
                revenue earned upon termination
            
            
            7,699Total
                gain from termination of agreement with CW
            
            $
            11,695




F-13


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




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





The
      loss
      of CW in 2005 as the Company's main customer had a material adverse impact
      on
      the Company's revenues and results of operations.





g.
            Discontinued
                operations:





On
      July
      25, 2005, the Company's Board of Directors resolved to dispose of the operating
      system, or OS, related activities and to focus on the Ogo device business unit.
      As a result of this resolution, the Company significantly reduced its research
      and development group, and restructured the sales and marketing department
      as
      well as the management team. The strategic initiatives included the termination
      of all the operating system business unit employees, termination of certain
      agreements with subcontractors, closing the portion of its leased facilities
      that was occupied by the operating system business unit, abandoning assets
      of
      the operating system unit business and recognizing a reduction in the operations
      performed in a part of the leased facilities, recognizing an impairment of
      under-performing assets and certain other non-recurring charges. During the
      period covered by the accompanying financial statements, the operating system
      related activities were classified as discontinued operations.





The
      operating system disposed activity is considered a "component of an entity"
      since it comprise operations and cash flows that can be clearly distinguished,
      operationally and for financial reporting purposes, from the rest of the entity.





Since
      no
      significant cash outflows are expected to be recognized by the ongoing entity
      as
      a result of the abandonment except for payments for outstanding obligations
      of
      the abandoned operating system business, such as the obligation to the Chief
      Scientist at the Israel Ministry of Industry, Trade and Labor ("OCS") (see
      further details in h below), and since the Company has not received and will
      not
      receive any fees or other revenues attributable to the operating system business
      unit after the component was abandoned except from indirect royalties from
      the
      third party to which the Company granted the non exclusive license (see note
      h
      below), the Company's management concluded that since such royalties are
      considered as indirect cash flow in accordance with EITF 03-13, "Applying the
      Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether
      to
      Report Discontinued Operations" ("EITF 03-13"), the disposed component meets
      the
      criteria to be considered as discontinued operations.





The
      major
      classes of assets and liabilities of the operating system business unit that
      was
      classified as discontinued operations were:


F-14


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




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





**December 31,****2007**
            
            **2006**Liabilities:Other
                payables and accrued expenses *)
            
            $
            2,523
            
            $
            2,431Liabilities
                of discontinued operations
            
            
            2,523
            
            
            2,431Net
                liabilities of discontinued operations
            
            $
            2,523
            
            $
            2,431


*)
      The
      Company has provided an accrual of $2,173 and $2,064 as of December 31, 2007
      and
      2006, respectively, due to OCS commitment (see h below).





The
      results of the discontinued operating system business for the years ended
      December 31, 2007, 2006 and 2005, are presented below:





**Year ended December 31,****2007**
            
            **2006**
            
            **2005**Revenues
            
            $
            -
            
            $
            600
            
            $
            -Operating
                expenses:Cost
                of revenues
            
            
            (109
            )
            
            (105
            )
            
            (2,410
            )Research
                and development expenses, net
            
            
            -
            
            
            -
            
            
            (8,109
            )Selling
                and marketing expenses
            
            
            -
            
            
            -
            
            
            (1,289
            )General
                and administrative income (expenses)
            
            
            -
            
            
            540
            
            
            (1,432
            )Totaloperating income (expenses)
            
            
            (109
            )
            
            435
            
            
            (13,240
            )Operating
                income (loss)
            
            
            (109
            )
            
            1,035
            
            
            (13,240
            )Other
                income
            
            
            -
            
            
            -
            
            
            1,810Income
                (loss) before taxes on income
            
            
            (109
            )
            
            1,035
            
            
            (11,430
            )Taxes
                on income
            
            
            -
            
            
            -
            
            
            200Net
                income (loss)
            
            $
            (109
            )
            $
            1,035
            
            $
            (11,630
            )





In
      September 2006, the Company reached a settlement with a subcontractor regarding
      his claim against the Company in the amount of $ 1,368 (see also Note 11c(3)).
      The settlement resulted in a total payment of $ 210. An adjustment of $ 540
      was
      recorded as general and administrative income against reduction of the liability
      recorded in this respect previously in the accounts of the discontinued
      operations.


F-15


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




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





In
      November 2006, a certain licensee of the Company ("the Licensee"), which had
      previously sent the Company a demand to pay $300 for failing to deliver its
      license on time, agreed to release and discharge the Company from any and all
      claims, liabilities and obliga tions
      if
      the Company agrees to assign all of the licensee rights and obligations to
      the
      purchaser that negotiates the agreement terms to purchase the licensee's
      communication and application processor business (see also Note 11c(2)).
      Accordingly, the Company's management reversed a previously recorded accrual.
      The adjustment of approximately $600 was recorded as revenue in the statements
      of operations from discontinued operations against deduction of other payables
      and accrued expenses in the accounts of the discontinued operations.





h.
            On
                October 19, 2005, as part of the discontinuation of operations of
                the OS
                business unit, and as a result of the Company's immediate need to
                increase
                its cash flows, the Company granted to a foreign company a non-exclusive
                license for the use, development and sale of the OS that was developed
                by
                the Company. The license enables the foreign company to continue
                the
                development of the OS and to market it to its customers. It also
                provides
                that the foreign company will own the intellectual property rights
                with
                respect to its development of the software, while the Company will
                retain
                ownership in any intellectual property licensed to the foreign company.
                In
                consideration of the software license, the foreign company paid the
                Company a net license fee in the amount of approximately $1,800,
                which was
                recognized as other income of the discontinued operations. In addition,
                the foreign company will pay the Company a royalty of ten cents for
                each
                product that is sold by the foreign company that contains the OS
                or a
                development of it, in whole or in part, without limit as to term,
                the
                Company shall receive, up to an aggregate amount of $5,000. As of
                December
                31, 2007, the Company has not received any royalty payments from
                the
                foreign company.





In
      order
      to facilitate the agreement with the foreign company, in September 2005, the
      Israeli subsidiary entered into agreements with certain former employees of
      the
      OS business unit for a period of six months, in order for those former employees
      to enter into agreements with the foreign company to provide support services.





A
      portion
      of the proceeds of the net license fee was placed in escrow for the purpose
      of
      hiring those former employees to act on behalf of the foreign company. As of
      December 31, 2007, the escrowed funds had been fully paid to these former
      employees, and the Company has no further obligations to them.





The
      licensed software was partially funded by royalty bearing grants by the OCS.
      The
      agreement that was reached between the Company and the foreign company was
      made
      without obtaining the required approval from the OCS, thereby effectively
      violating the law and the conditions of the commitment with the OCS. The Company
      has applied to the OCS for retroactive approval of the license. In June 2005,
      an
      amendment to the Law for the Encouragement of Research and Development in the
      Industry, 1984, became effective, according to which the OCS has the discretion
      to grant this retroactive approval, but the regulations governing the
      calculation of the amount to be paid to the OCS in this case have not yet been
      promulgated. There can be no assurance that the OCS will grant the
      Company retroactive approval for the license, and the Company
      does not know the exact amount that it may be required to pay to the
      OCS if the approval is granted. Accordingly, the Company is obliged to repay
      all
      funds provided by the OCS, including accrued interest at the LIBOR rate. In
      addition, there is no assurance that criminal proceedings will not be initiated
      as a result of the violation of the terms of the OCS funding program. If the
      Company is required to pay to the OCS the estimated amounts or amounts that
      are
      significantly higher than estimated by the Company's management, or if criminal
      proceedings are initiated against the Company or any of its officers, the
      Company's business, financial condition and results of operations would be
      adversely affected (see also Note 11a).


F-16


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




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





During
      2006, the Company was in negotiation with the OCS in order to achieve a
      settlement between the parties regarding the aforesaid breaches. During 2007
      there were no further negotiations. As of December 31, 2007, based on management
      assessment of the outcome of such negotiations, the Company has provided an
      accrual of $3,261 and $3,097 of which $1,088 and $1,032 were attributed to
      continuing operations and $2,173 and $2,064 were attributed to discontinued
      operations, as of December 31, 2007 and 2006, respectively. The allocation
      of
      such accrual between continuing operations and discontinued operations was
      based
      on the specific grants that the Company was historically granted for PMG
      (continuing operations) and operating systems (discontinued operations). Such
      accrual represents all the funds provided by the OCS plus applicable interest
      at
      the LIBOR rate, which was included in the statement of operations as cost of
      revenues. Interest incurred in respect of these accruals for the years ended
      December 31, 2007, 2006 and 2005 amounted to $109, $105 and $104,
      respectively.





i.
            On
                June 20, 2006, IXI entered into a bridge loan agreement ("the New
                Convertible Bridge Loan Agreement" or "the New Convertible Bridge
                Loan")
                with a new venture lender ("the New Lender") and the Israeli subsidiary.
                Pursuant to the terms of the New Convertible Bridge Loan Agreement,
                the
                Israeli subsidiary received a loan in the amount of $20,000, with
                IXI
                acting as guarantor thereof.





In
      December 2006, the parties to the New Convertible Bridge Loan agreed to amend
      the New Convertible Bridge Loan ("the New Amendment") so that after the
      Amendment becomes effective the terms of the New Convertible Bridge Loan would
      change. On October 25, 2007, the parties further amended the New Amendment,
      accordingly an amount of approximately $15,840 of the New Convertible Bridge
      Loan was converted into shares of Common stock (see also Note 9c).





j.
            In
                November 2005, certain stockholders of IXI entered into a Keep Well
                Agreement ("the Agreement") with one of IXI's customers. Pursuant
                to the
                terms of the Agreement, if the customer sustains damages due to failure
                of
                IXI to meet its obligations under the agreement with the customer,
                and
                such failure is due to a lack of stockholders' equity (as defined
                therein), then upon the occurrence of various terms set forth in
                the
                Agreement, the stockholders will compensate the customer for such
                damages
                up to a maximum of $4,000. As a consideration for such undertaking,
                in
                February 2006, IXI issued to such stockholders 1,773,494 shares of
                Convertible Preferred stock at a par value of $0.01 per
                share.


F-17


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




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


Accordingly,
      in November 2005 the value of the shares of Convertible Preferred stock to
      be
      issued in an amount of $3,761 was recorded as a deferred charge with a
      corresponding credit to additional paid-in capital. The value recorded was
      based
      on the shares issued, which management assessed as a more reliable measure
      than
      the value of the guarantee. The deferred charge was being amortized to the
      statement of operations over the expected guarantee period of twenty months
      as
      selling and marketing expenses. For the years ended December 31, 2007, 2006
      and
      2005, total expenses included in the statements of operations in respect of
      such
      guarantee amounted to $0 ,$3,385 and $376, respectively. The expenses in an
      amount of $3,385 in 2006 included the full amortization of the remaining balance
      of the deferred charge in the amount of $2,257 resulting from termination of
      the
      Keep Well Agreement due to the New Convertible Bridge Loan Agreement (see also
      i
      above).





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





The
      consolidated financial statements have been prepared according to United States
      generally accepted accounting principles ("U.S. GAAP") on a basis consistent
      for
      all periods presented.





a.       
       U se
      of
      estimates:





The
      preparation of the Company's consolidated financial statements in accordance
      with U.S. GAAP requires management to make estimates and assumptions that affect
      the reported amounts of assets and liabilities and disclosure of contingent
      liabilities as at the dates of the consolidated financial statements and the
      reported amounts of revenues and expenses during the reporting periods.
      Significant areas requiring the use of management estimates relate to revenue
      recognition, the determination of reserves for various litigation claims,
      allowance for doubtful accounts, provision for excess and obsolete inventory,
      depreciation and amortization expenses, obligation to the OCS, realization
      of
      future tax assets and the related components of the valuation allowance,
      provision for warranty and the fair values of financial instruments. Actual
      results could differ from these estimates.





b.
            Financial
                statements in U.S. dollars:





A
      portion
      of the revenues of the Company's subsidiaries is generated in U.S. dollars
      ("dollar"). In addition, a substantial portion of the costs of the Company's
      subsidiaries is incurred in dollars. The Company's management believes that
      the
      dollar is the primary currency of the economic environment in which the Company
      and its subsidiaries operate. Thus, the functional currency of the Company
      and
      its subsidiaries is the dollar.





Accordingly,
      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 operations as financial income or expenses, as
      appropriate.


F-18


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





c.
            Principles
                of consolidation:





The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiaries. Intercompany balances and transactions not realized
      outside the Group have been eliminated upon consolidation.





d.
            Cash
                equivalents:





Cash
      equivalents are short-term highly liquid investments that are readily
      convertible to cash with original maturities of three months or less at the
      date
      acquired.





e. Restricted
      cash:





Restricted
      cash is primarily invested in certificates of deposit, which mature within
      up to
      one year, and is used as a security mainly for the lease of the Israeli
      subsidiary's offices and for corporate credit cards.





f. Vendor
      advance payments:





Vendor
      advance payments are installments paid to vendors prior to the date the Ogo
      units are shipped to the Company (for customers or inventory purposes) or
      designated customers and are required to finance the production of the Ogo
      devices. The timing of the advance payments are based on different lead times
      of
      the relevant components and the progress of the production and are deducted
      from
      the total shipment payment which is accrued upon the delivery of the Ogo units.





The
      Company has no formal agreement with respect to the advances and their terms.
      Since the Company has long term relationship and accumulated experience with
      these vendors and since each purchase order and advance payment are done after
      coordination of both the Company and the vendors operation and finance
      departments, the Company's management believes that there is a low risk of
      loss
      with respect to these advances.





As
      of
      December 31, 2007, the Company's management believes, that due to the commercial
      launch of new products during the second quarter of 2007 it will be able to
      sell
      smaller quantities of its older products than it has previously anticipated.
      Accordingly, it believes that as of December 31, 2007 it will not realize
      $ 1,879 from the advance payments and has recorded provision for write-down
      in the amount of $ 1,879 for advance payments to suppliers.





g. Inventories:





Inventories
      are stated at the lower of cost or market value. Inventory write-down provision
      is provided to cover risks arising from slow-moving items, technological
      obsolescence, excess inventories, discontinued products and market prices lower
      than cost. As of December 31, 2007 and 2006, the provision for inventory
      write-down amounted to $1,019 and $151, respectively.


F-19


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





Cost
      is
      determined as follows:





Raw
      materials and finished products: based on direct manufacturing and
      subcontracting costs, using the "first-in, first-out" method.





h.
            Property
                and equipment:





Property
      and equipment are stated at cost, net of accumulated depreciation. Depreciation
      is calculated using the straight-line method over the estimated useful lives
      of
      the assets, at the following annual rates:





%Computers
                and peripheral equipment
            
            
            33Electronic
                equipment
            
            
            15Office
                furniture and equipment
            
            
            15





Leasehold
      improvements are depreciated by the straight-line method over the term of the
      lease or the estimated useful life of the improvements, whichever is shorter.





The
      Company's property and equipment are reviewed for impairment in accordance
      with
      SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
      ("SFAS 144"), whenever events or changes in circumstances indicate that the
      carrying amount of an asset may not be recoverable. Recoverability of assets
      to
      be held and used is measured by a comparison of the carrying amount of an asset
      to the future undiscounted cash flows expected to be generated by the asset.
      If
      such assets are considered to be impaired, the impairment to be recognized
      is
      measured by the amount by which the carrying amount of the assets exceeds the
      fair value of the assets. Assets to be disposed of by sale are reported at
      the
      lower of the carrying amount or fair value less costs to sell.





In
      2005,
      as part of the disposal of the operating systems related activities, the Company
      abandoned certain assets. In accordance with SFAS No. 144, when such assets
      are
      abandoned, the carrying amount of the assets should be written-off. Accordingly,
      in 2005, an impairment loss in the amount of $525 was recognized, which was
      included as part of discontinued operations. During the years ended December
      31,
      2007 and 2006 no impairment losses have been recognized.





i. Intangible
      assets:





Intangible
      assets consist of acquired technology. Intangible assets are amortized over
      their estimate useful life using a method of amortization that reflects the
      pattern in which the economic benefits of the intangible assets are consumed
      or
      otherwise used up, in accordance with SFAS No. 142, "Goodwill and Other
      Intangible Assets" ("SFAS No. 142"). The acquired technology’s economic benefits
      were estimated to be consumed over three years and accordingly were amortized
      using the straight-line method.





During
      the first quarter of 2007 the Company's intangible assets have been fully
      amortized.


F-20


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**





**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





j.
            Short-term
                bank credit:





Short-term
      bank credit matures within less than one year.





k.
            Revenue
                recognition:





The
      Company recognizes revenue when it is realized or realizable and earned. The
      Company considers revenue realized or realizable and earned when it has
      persuasive evidence of an arrangement, the product has been delivered or the
      services have been provided to the customer, the sales price is fixed or
      determinable and collectability is reasonably assured. The Company does not
      grant a right of return to its customers. In addition to this general policy,
      the following paragraphs describe the specific revenue recognition policies
      for
      each major category of revenue.





*Multiple-element
      arrangements* — the
      Company enters into transactions that represent multiple-element arrangements,
      which may include combination of hardware, service and software. These
      multiple-element arrangements are assessed to determine whether they can be
      separated into more than one unit of accounting or element for the purpose
      of
      revenue recognition. When the appropriate criteria for separating revenue into
      more than one unit of accounting are met and there is vendor specific objective
      evidence of fair value for all undelivered elements in an arrangement, the
      arrangement consideration is allocated to the separate units of accounting
      or
      elements based on the residual value. This vendor specific objective evidence
      of
      fair value is established through prices charged for each revenue element when
      that element is sold separately. The revenue recognition policies described
      below are then applied to each unit of accounting.





*Hardware* — generally,
      revenue from the sale of Ogo devices is recognized upon delivery to the end
      user
      when title is transferred to the customer and all significant contractual
      obligations that affect the customer's final acceptance have been fulfilled.
      Revenues from sales of demonstration Ogo devices are recognized upon delivery.
      Provisions are made at the time of sale for warranties, royalties, sales
      commissions and estimated price protection, and are recorded as operating
      expenses or deduction of revenues, as appropriate. Since the embedded software
      in the Ogo device is deemed not to be incidental, the Company recognizes revenue
      from such devices in accordance with the American Institute of Certified Public
      Accountants Statement of Position No. 97-2, "Software Revenue Recognition"
      ("SOP
      No. 97-2").


F-21


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





The
      Company currently recognizes revenues from Ogo devices upon ultimate sale to
      the
      end user and activation, since the Company has not yet established sufficient
      experience to predict the product acceptance in the market in order to recognize
      revenues upon delivery to the operators, internet service providers or reseller.
      Where the Company established sufficient experience, in cases that after one
      year from delivery a portion of the delivered devices were not activated, the
      Company's management considers revenue recognition relating to the inactive
      devices when the following criteria are met: (a) the customer is not deemed
      a
      strategic customer, (b) the customer has not placed additional purchase orders
      within the past 12 months and the Company's management does not anticipate
      future purchase orders from such customer, and (c) the Company's management
      believes that the customer has no bargaining power over the Company and
      therefore it is not in a position to demand return of the inactive devices,
      and
      the customer has no right of return, contractual nor implied.





During
      the years ended December 31, 2007, 2006 and 2005, the Company recognized
      revenues for inactive devices in the amount of $ 1,634, $ 0 and $ 0,
      respectively.





*Services* — revenues
      from hosting services (such as email and push email, IM gateways and
      attachments) are recognized on a monthly basis as the services are provided.





*Non-recurring
      engineering contracts* — revenue
      from non-recurring engineering contracts that were bundled with subsequent
      manufacturing and supply arrangements are initially deferred and then recognized
      on a pro rata basis over the recognition of subsequent supply of Ogo devices.





*Software* — revenue
      from licensing of software is recognized at the inception of the license term
      and in accordance with SOP No. 97-2. Revenue from software maintenance,
      unspecified upgrades and technical support contracts is recognized over the
      period that such items are delivered or that services are provided. Where vendor
      specific objective evidence for undelivered elements was not considered
      substantive, the Company recognized revenues upon delivery of the last
      undelivered element.





*Shipping
      and handling costs* — wherever
      can be reasonably attributed to certain revenue, shipping and handling costs
      are
      included in cost of sales.





Deferred
      revenues include payments received for devices and for non-recurring engineering
      contracts for which revenues have not yet been recognized.





l.
            Allowance
                for doubtful debts





Allowance
      for doubtful debts is calculated according to the specific method and in
      addition includes a general provision calculated as a percentage of its
      outstanding trade receivables based on their aging.


F-22


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





m.
            Research
                and development costs:





Research
      and development costs net of grants received are charged to the statement of
      operations as incurred.





n.
            Advertising
                expenses:





Advertising
      costs are expensed as incurred. Advertising expenses for the years ended
      December 31, 2007, 2006 and 2005 amounted to $145, $33 and $387,
      respectively.





o.
            Marketing
                contribution:





Marketing
      contribution is participation in marketing efforts of the Company’s customers
      through reimbursement of direct expenses actually paid by such customer, up
      to
      limited, pre-defined amounts. Such participation costs are recorded as selling
      and marketing expenses or deduction of revenues, as appropriate. For the years
      ended December 31, 2007 and 2006, the Company recorded reimbursement costs
      in a
      total amount of $ 955 and $ 274, respectively as selling and marketing
      expenses.





p.
            Warranty
                costs:





Provisions
      for warranty costs are made at the time such warranty costs are deemed to be
      incurred, generally at the time revenue is recognized.





Provision
      for warranty as of December 31, 2007, 2006 and 2005 amounted to approximately
      $272, $86 and $100, respectively.





q.
            Government
                grants:





Royalty-bearing
      grants from the OCS for funding approved research and development projects
      were
      recognized at the time the Israeli subsidiary was entitled to such grants,
      on
      the basis of the costs incurred and were included as a deduction of research
      and
      development costs.





No
      research and development grants were deducted from research and development
      costs from continuing operations during the years ended December 31, 2007,
      2006 and 2005.





Research
      and development grants were deducted from research and development costs from
      discontinued operations amounted to $0, $0 and $75 in the years ended
      December 31, 2007, 2006 and 2005, respectively (see also Note
      1h).


F-23


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





r. Income
      taxes:





The
      Group
      accounts for income taxes in accordance with SFAS No. 109, "Accounting for
      Income Taxes". This Statement prescribes the use of the liability method whereby
      deferred tax assets and liability account balances are determined based on
      differences between financial reporting and tax bases of assets and liabilities
      and are measured using the enacted tax rates and laws that will be in effect
      when the differences are expected to reverse. The Group provides a valuation
      allowance, if necessary, to reduce deferred tax assets to their estimated
      realizable value.





In
      July
      2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
      in
      Income Taxes, an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN
      48 clarifies the accounting for income taxes by prescribing the minimum
      recognition threshold a tax position is required to meet before being recognized
      in the financial statements. FIN 48 utilizes a two-step approach for evaluating
      tax positions. Recognition (step one) occurs when an enterprise concludes that
      a
      tax position, based solely on its technical merits, is more-likely-than-not
      to
      be sustained upon examination. Measurement (step two) is only addressed if
      step
      one has been satisfied (i.e., the position is more-likely-than-not to be
      sustained). Under step two, the tax benefit is measured as the largest amount
      of
      benefit, determined on a cumulative probability basis that is
      more-likely-than-not to be realized upon ultimate settlement.





FIN
      48
      applies to all tax positions related to income taxes subject to the Financial
      Accounting Standard Board Statement No. 109, "Accounting for Income Taxes"
      ("SFAS 109"). This includes tax positions considered to be "routine" as well
      as
      those with a high degree of uncertainty.





FIN
      48
      has expanded disclosure requirements, which include a tabular roll forward
      of
      the beginning and ending aggregate unrecognized tax benefits as well as specific
      detail related to tax uncertainties for which it is reasonably possible the
      amount of unrecognized tax benefit will significantly increase or decrease
      within twelve months. These disclosures are required at each annual reporting
      period unless a significant change occurs in an interim period.





FIN
      48 is
      effective for fiscal years beginning after December 15, 2006. The cumulative
      effect of applying FIN 48 is reported as an adjustment to the opening balance
      of
      retained earnings.





The
      adoption of FIN 48 resulted in an increase of the tax provision in the amount
      of
      $234, which was an adjustment to the opening balance of the accumulated
      deficit.


F-24


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





s.
            Concentrations
                of credit risk:





Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist principally of cash and cash equivalents, restricted cash and
      trade
      receivables.





Cash
      and
      cash equivalents are invested in major banks in Israel and the United States.
      Such deposits in the United States may be in excess of insured limits and are
      not insured in other jurisdictions. Management believes that the financial
      institutions that hold the Company's investments are financially sound and,
      accordingly, minimal credit risk exists with respect to these investments.





The
      Company has historically been dependent on a small number of significant
      customers and on large contracts with respect to sales of the majority of its
      products, software and services. The Company expects this trend and related
      increasing trade receivables balances with its large customers to continue
      as it
      sells an increasing number of its Ogo devices and service relay access through
      network carriers and resellers rather than selling directly to end users. The
      Company evaluates the collectability of its trade receivables balances based
      upon a combination of factors on a periodic basis. If the Company becomes aware
      of a specific customer's inability to meet its financial obligations to the
      Company, it records a specific bad debt provision to reduce the customer's
      related trade receivable to its estimated net realizable value. In addition,
      the
      Company provides general provision based on the aging of its outstanding trade
      receivables. As of December 31, 2007 and 2006, the Company recorded specific
      and
      general provision in the amount of $191 and $0, respectively.





As
      of
      December 31, 2007 and 2006, the Company had no significant off-balance-sheet
      concentration of credit risk such as foreign exchange contracts, option
      contracts or other foreign hedging arrangements.





t. Severance
      pay:





The
      Israeli subsidiary's liability for severance pay is calculated pursuant to
      Israeli Severance Pay Law based on the most recent monthly salary of the
      subsidiary's employees multiplied by the number of years of employment as of
      the
      balance sheet date. These employees are entitled to one month's salary for
      each
      year of employment or a portion thereof. The subsidiary's liability to these
      employees is fully provided by monthly deposits for insurance policies and
      by an
      accrual.





The
      deposited funds include profits accumulated up to the balance sheet date. The
      deposited funds may be withdrawn only upon the fulfillment of the obligation
      pursuant to Israeli Severance Pay Law or labor agreements. The value of the
      deposited funds is based on the cash surrendered value of these policies and
      includes immaterial profits.





Severance
      expenses for the years ended December 31, 2007, 2006 and 2005 amounted to $495,
      $330 and $217, respectively.


F-25


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





u.
            Fair
                value of financial instruments:





The
      following methods and assumptions were used by the Company in estimating fair
      value and disclosures for financial instruments:





The
      carrying amount reported in the balance sheet of cash and cash equivalents,
      restricted cash, trade receivables, net, other receivables and prepaid expenses,
      short-term bank credit, trade payables, employees and payroll accruals, and
      other payables and accrued expenses approximates their fair values due to the
      short-term maturities of such instruments.





The
      fair
      value of long-term loans is estimated by discounting the future cash flow using
      the current interest rate for loans of similar terms and maturities. The
      carrying amount of the long-term loans approximates their fair value.





As
      of
      December 31, 2007, the fair value of the remaining New Convertible Bridge Loan
      was valuated at approximately $4,492.





v.
            Basic
                and diluted net earnings (loss) per share:





The
      Company applies the two-class method as required by EITF No. 03-6,
      "Participating Securities and the Two-Class Method under FASB Statement No.
      128,
      Earnings per Share" ("EITF No. 03-6"). EITF No. 03-6 requires the net earnings
      (loss) per share for each class of stock (Common stock and Convertible Preferred
      stock) to be calculated assuming 100% of the Company's earnings are distributed
      as dividends to each class of stock based on their contractual rights.





Basic
      net
      earnings (loss) per share of Common stock are computed based on the weighted
      average number of shares of Common stock outstanding during each period. Diluted
      net earnings (loss) per share of Common stock are computed based on the weighted
      average number of shares of Common stock outstanding during each period, plus
      dilutive potential share of Common stock considered outstanding during the
      period, in accordance with SFAS No. 128, "Earnings per Share".





w. Accounting
      for stock-based compensation:





On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)") which
      requires the measurement and recognition of compensation expense based on
      estimated fair values for all share-based payment awards made to employees
      and
      directors. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25,
      "Accounting for Stock Issued to Employees" ("APB 25"), for periods beginning
      in
      fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff
      Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company
      has
      applied the provisions of SAB 107 in its adoption of SFAS 123(R).


F-26


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





SFAS
      123(R) requires companies to estimate the fair value of equity-based payment
      awards on the date of grant using an option-pricing model. The value of the
      portion of the award that is ultimately expected to vest is recognized as an
      expense over the requisite service periods in the Company's consolidated
      statements of operations. Prior to the adoption of SFAS 123(R), the Company
      accounted for equity-based awards to employees and officers and directors using
      the intrinsic value method in accordance with APB 25 as allowed under Statement
      of Financial Accounting Standards No. 123, "Accounting for Stock-Based
      Compensation" ("SFAS 123"). Under APB 25, compensation expense is equal to
      the
      excess, if any, of the market price of the stock over the exercise price on
      the
      grant date of the award. Pro forma information regarding net earnings (loss)
      is
      required by SFAS 123 and had been determined as if the Company has accounted
      for
      its employee stock options under the Minimum Value (which assumes an expected
      volatility of zero).





SFAS
      123(R) requires nonpublic companies that used the Minimum Value method of
      measuring equity share options for pro forma disclosure purposes under SFAS
      123
      to adopt its requirements prospectively to new awards and to awards modified,
      repurchased, or cancelled after the required effective date. As the company
      was
      non public at the effective date, the Company continues to account for any
      portion of awards outstanding at the date of initial application using the
      accounting principles originally applied to those awards, the provisions of
      APB
      25 and its related interpretive guidance.





The
      Company recognizes compensation expenses for the value of its awards, which
      have
      graded vesting based on the accelerated method over the requisite service period
      of each of the awards, net of estimated forfeitures. Estimated forfeitures
      and
      retention rate are based on actual historical pre-vesting forfeitures.





The
                Company used the Black-Scholes formula for options granted to employees
                and non-employees and the Binomial Lattice model for market based
                compensation awards to its executives (see also Note 11e(7)).





Similar
                to the Black-Scholes formula, the Binomial Lattice model takes into
                account variables such as volatility, dividend yield rate and risk
                free
                interest rate. However, the Binomial Lattice model also considers
                the
                contractual term of the option, the probability that the option will
                be
                exercised prior to the end of its contractual life, and the probability
                of
                termination or retirement of the option holder in computing the value
                of
                the option.





The
                fair value of the market-based compensation awards was estimated
                using the Binomial Lattice model using the following weighted-average
                assumptions:





Risk-free
      interest rate of 4.97%,


Dividend
      yield of 0%,


Expected
      volatility of 75%,


Expected
      forfeiture of 0%, and


The
      term
      determined as 10 years.


F-27


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**




The
      fair
      value of the Company's stock options granted to employees and directors for
      the
      year ended December 31, 2007 was estimated on the date of grant using the
      Black-Scholes formula with the following weighted average assumptions: expected
      volatility of 70%-90%, risk-free interest rates of 3.05%-4.97%, dividend yields
      of 0% and an expected life of six years.





The
      expected option term represents the period that the Company's stock options
      are
      expected to be outstanding and was determined based on the simplified method
      permitted by SAB No. 107 as the average of the vesting period and the
      contractual term. The computation of expected volatility is based on realized
      historical stock price volatility of peer companies. The risk-free interest
      rate
      is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent
      term. The Company has historically not paid dividends and has no foreseeable
      plans to pay dividends.





Prior
      to
      January 1, 2006, the Company had elected to follow APB 25, and FASB
      Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
      Compensation", in accounting for its employee stock option plan. Under APB
      25,
      when the exercise price of an employee stock option is equivalent to or above
      the market price of the underlying stock on the date of grant, no compensation
      expense is recognized.





Additionally,
      the Company applies 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. The fair value of each option granted to non-employees is
      estimated on the date of grant and at each subsequent vesting date using the
      Black-Scholes formula with the following weighted average assumptions: expected
      volatility of 75%-90%, risk-free interest rates of 3.05%-4.97% dividend yields
      of 0% and an expected life equal to the options' contractual life.





x. Merger
      and accounting treatment





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


F-28


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





y. Impact
      of
      recently issued accounting pronouncements:





1.
            In
                September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
                ("SFAS No. 157"). This statement provides a single definition of
                fair
                value, a framework for measuring fair value, and expanded disclosures
                concerning fair value. Previously, different definitions of fair
                value
                were contained in various accounting pronouncements creating
                inconsistencies in measurement and disclosures. SFAS No. 157 applies
                under those previously issued pronouncements that prescribe fair
                value as
                the relevant measure of value, except SFAS No. 123(R) and related
                interpretations. The statement does not apply to accounting standard
                that
                require or permit measurement similar to fair value but are not intended
                to measure fair value.





This
      pronouncement is effective for fiscal years beginning after November 15, 2007.
      Subsequently, the FASB provided for a one-year deferral of the provisions of
      SFAS 157 for non-financial assets and liabilities that are recognized or
      disclosed at fair value in the consolidated financial statements on a
      non-recurring basis. The Company does not expect the adoption of SFAS No. 157
      will have an impact on its consolidated financial statements.





2.
            In
                February 2007, the FASB issued SFAS No. 159, The Fair Value Option
                for
                Financial Assets and Financial Liabilities ("SFAS No. 159"). This
                statement provides companies with an option to report selected financial
                assets and liabilities at fair value. Generally accepted accounting
                principles have required different measurement attributes for different
                assets and liabilities that can create artificial volatility in earnings.
                The Standard's objective is to reduce both complexity in accounting
                for
                financial instruments and the volatility in earnings caused by measuring
                related assets and liabilities differently. This Statement is effective
                as
                of the beginning of an entity's first fiscal year beginning after
                November
                15, 2007. The Company has determined that the adoption of SFAS No.
                159
                will not have an impact on its consolidated financial statements,
                since
                the Company did not elected the fair value option for any of its
                existing
                assets or liabilities as of SFAS No. 159 effective
                date.




F-29


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





3.
            In
                December 2007, the FASB issued SFAS 141(R), Business Combinations
                ("SFAS
                No. 141(R)"). This Statement replaces SFAS No. 141, Business Combinations
                ("SFAS No. 141"), and requires an acquirer to recognize the assets
                acquired, the liabilities assumed, including those arising from
                contractual contingencies, any contingent consideration, and any
                noncontrolling interest in the acquiree at the acquisition date,
                measured
                at their fair values as of that date, with limited exceptions specified
                in
                the statement. SFAS No. 141(R) also requires the acquirer in a business
                combination achieved in stages (sometimes referred to as a step
                acquisition) to recognize the identifiable assets and liabilities,
                as well
                as the noncontrolling interest in the acquiree, at the full amounts
                of
                their fair values (or other amounts determined in accordance with
                SFAS No.
                141(R)). In addition, SFAS No. 141(R)'s requirement to measure the
                noncontrolling interest in the acquiree at fair value will result
                in
                recognizing the goodwill attributable to the noncontrolling interest
                in
                addition to that attributable to the acquirer. SFAS No. 141(R) amends
                SFAS
                No. 109, Accounting for Income Taxes ("SFAS No. 109"), to require
                the
                acquirer to recognize changes in the amount of its deferred tax benefits
                that are recognizable because of a business combination either in
                income
                from continuing operations in the period of the combination or directly
                in
                contributed capital, depending on the circumstances. It also amends
                SFAS
                No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"), to,
                among
                other things, provide guidance on the impairment testing of acquired
                research and development intangible assets and assets that the acquirer
                intends not to use. SFAS No. 141(R) applies prospectively to business
                combinations for which the acquisition date is on or after the beginning
                of the first annual reporting period beginning on or after December
                15,
                2008. SFAS No. 141(R) is effective for fiscal years, and interim
                periods
                within those fiscal years, beginning on or after December 15, 2008.
                The
                Company does not expect the adoption of SFAS No. 141(R) will have
                significant impact on its consolidated financial
                statements.





4.
            In
                December 2007, the FASB issued SFAS 160 ("SFAS No. 160"), Noncontrolling
                Interests in Consolidated Financial Statements. SFAS No. 160 amends
                Accounting Research Bulletin 51, Consolidated Financial Statements,
                to
                establish accounting and reporting standards for the noncontrolling
                interest in a subsidiary and for the deconsolidation of a subsidiary.
                It
                also clarifies that a noncontrolling interest in a subsidiary is
                an
                ownership interest in the consolidated entity that should be reported
                as
                equity in the consolidated financial statements. SFAS No. 160 also
                changes
                the way the consolidated income statement is presented by requiring
                consolidated net income to be reported at amounts that include the
                amounts
                attributable to both the parent and the noncontrolling interest.
                It also
                requires disclosure, on the face of the consolidated statement of
                income,
                of the amounts of consolidated net income attributable to the parent
                and
                to the noncontrolling interest. SFAS No. 160 requires that a parent
                recognize a gain or loss in net income when a subsidiary is deconsolidated
                and requires expanded disclosures in the consolidated financial statements
                that clearly identify and distinguish between the interests of the
                parent
                owners and the interests of the noncontrolling owners of a subsidiary.
                SFAS No. 160 is effective for fiscal periods, and interim periods
                within
                those fiscal years, beginning on or after December 15, 2008. SFAS
                No. 160
                is effective for fiscal years, and interim periods within those
                fiscal years, beginning on or after December 15, 2008. The Company
                does
                not expect the adoption of SFAS No. 160 will have significant impact
                on
                its consolidated financial
                statement.


F-30


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
      2:-** **SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**





5.
            In
                December 2007, the U.S. Securities and Exchange Commission ("SEC")
                issued Staff Accounting Bulletin 110 ("SAB No. 110") to
                amend the SEC's views discussed in Staff Accounting Bulletin 107
                ("SAB No. 107") regarding the use of the simplified method in
                developing an estimate of expected life of share options in accordance
                with SFAS No. 123(R). SAB No. 110 is effective for the company
                beginning in the first quarter of fiscal year 2008. SAB No. 110 extends
                the use of the simplified method for “plain vanilla” awards in certain
                situations. The SEC staff does not expect the simplified method to
                be used
                when sufficient information regarding exercise behavior, such as
                historical exercise data or exercise information from external sources,
                becomes available. The Company will continue to use the simplified
                method
                for its “plain vanilla” awards, since it does not have sufficient
                information regarding exercise behavior. As a result, the Company
                does not
                expect the adoption of SAB No. 110 will have a significant impact
                on its
                consolidated financial statements.





**NOTE
      3:-**  **OTHER
      RECEIVABLES AND PREPAID EXPENSES**





**December 31,****2007**
            
            **2006**Government
                authorities
            
            $
            388
            
            $
            205Prepaid
                expenses
            
            
            890
            
            
            345Others
            
            
            86
            
            
            132$
            1,364
            
            $
            682






**NOTE
          4:-** **INVENTORIES**





**December 31,****2007**
            
            **2006**Raw
                materials
            
            $
            3,882
            
            $
            993Finished
                products
            
            
            3,570
            
            
            2,685Finished
                products at customers *)
            
            
            7,806
            
            
            9,946Write-down
                provision
            
            
            (1,019
            )
            
            (151
            )$
            14,239
            
            $
            13,473





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





Total
      write-down expenses in the years ended December 31, 2007, 2006 and 2005 amounted
      to approximately $1,027, $240 and $242, respectively.


As
        for a
        commitment to purchase inventories, see Note 11e(5).


F-31


**IXI
                  MOBILE INC.****(Formerly:
                  Israel Technology Acquisition Company
                  ("ITAC"))****And
                  Its Subsidiaries****NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                  dollars in thousands, except share and per share
                  data**




**NOTE
          5:-** **PROPERTY
          AND EQUIPMENT**






**December 31,****2007**
            
            **2006**Cost:Computers
                and peripheral equipment
            
            $
            1,276
            
            $
            1,080Electronic
                equipment
            
            
            173
            
            
            134Office
                furniture and equipment
            
            
            34
            
            
            20Leasehold
                improvements
            
            
            25
            
            
            221,508
            
            
            1,256Accumulated
                depreciation:Computers
                and peripheral equipment
            
            
            913
            
            
            756Electronic
                equipment
            
            
            66
            
            
            43Office
                furniture and equipment
            
            
            21
            
            
            10Leasehold
                improvements
            
            
            21
            
            
            181,021
            
            
            827Depreciated
                cost
            
            $
            487
            
            $
            429





Depreciation
      expenses for the years ended December 31, 2007, 2006 and 2005, were $280, $310
      and $217, respectively.





During
      the year ended December 31, 2007, the Company disposed of a fully depreciated
      property and equipment in the cost amount of approximately $ 86 (depreciated
      cost of $0).





**NOTE
                6:-**
            **OTHER
                ASSETS**





a.**** Intangible
      assets:




**December 31,****2007**
            
            **2006**Cost:Acquired
                technology
            
            $
            146
            
            $
            146Accumulated
                amortization
            
            
            146
            
            
            84$
            -
            
            $
            62





b.
            Amortization
                expenses of intangible assets amounted to $ 62, $ 49 and $ 35
                for the years ended December 31, 2007, 2006 and 2005,
                respectively.





F-32




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
                7:-**
            **SHORT-TERM
                BANK CREDIT**





Short-term
      bank credit is comprised as follows:





**Weighted
                average**
              **interest
                rate****December
                31,**
            
            **December
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Short-term
                bank credit - linked to the dollar
            
            
            *) Libor + 3
            %
            
            Libor
                + 3
            %
            $
            1,942
            
            $
            6,767





*)
            As
                of December 31, 2007, the annual dollar LIBOR rate was
                4.46%.





a.
            In
                October 2005, the Israeli subsidiary received short-term bank credit
                from
                an Israeli bank in the amount of $750 which bears annual interest
                at a
                rate of LIBOR + 3% (see also Note 12k). The short-term bank credit
                was
                repaid in January 2006. The bank credit was replaced in January 2006
                by a
                short term bank credit of $2,000 (see b
                below).





b.
            In
                January 2006, the Israeli subsidiary received a short-term bank credit
                from an Israeli bank in the amount of $2,000, which bears annual
                interest
                at a rate of 9.3% to be repaid in March 2006. The bank credit was
                replaced
                in March 2006 by short-term bank credit of $4,000 (see c
                below).





c.
            In
                March 2006, the Israeli subsidiary received a short-term bank credit
                from
                an Israeli bank in the amount of $4,000, which bears annual interest
                at a
                rate of 9%, to be repaid in April 2006. The bank credit was replaced
                in
                April 2006 by a short term bank credit in the amount of $8,000, bearing
                annual interest at a rate of LIBOR + 3% to be repaid on December
                31,
                2006.





Several
      stockholders, ("the Guarantors") provided a guarantee ("the Guarantee") to
      the
      bank to secure the payment of the short-term bank credit. As a consideration
      for
      the guarantee, the Guarantors were entitled to an amount equal to the difference
      between the basic interest rate (nominal interest of 10% per annum) and the
      interest rate owed under the short-term bank credit (nominal interest of 8.17%
      as of December 31, 2007).





d.
            In
                October and November 2007, the Company has reached an agreement with
                its
                Guarantors amending the conversion price of the Guarantee and as
                a result
                the Guarantors utilized their assumption right and immediately converted
                a
                portion of a short term bank credit from an Israeli bank. The terms
                of the
                agreement included the assumption and immediate conversion of $5,460
                principal amount of the short term bank credit into shares of Common
                stock
                at a reduced conversion price of $3.60 per share and warrants to
                purchase
                shares of Common stock at an exercise price of $4.10, expiring 5
                years
                from the date of grant. This conversion resulted in the issuance
                of
                1,516,667 shares of Common stock and warrants (exercisable to Common
                stock
                at a ratio of 1:1) to purchase 910,000 shares of Common
                stock.




F-33




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
                7:-**
            **SHORT-TERM
                BANK CREDIT****(Cont.)**





The
      modifications to the terms of the Guarantee were accounted for under the
      provisions of SFAS 84, "Induced Conversion of Convertible Debt" ("SFAS 84")
      as
      an inducement to the Guarantors. As such the Company recorded a non-recurring
      loss upon inducement in the amount of $2,187, which was recorded as financial
      expenses against additional paid in capital.





The
                Company calculated the fair value of the warrants using the Black-Scholes
                formula with the following weighted-average assumptions: expected
                volatility of 80%, risk free interest rate of 3.9%, dividend yield
                of 0%
                and a weighted-average expected life of the warrants of 5 years.
                Accordingly, the amount of $2,539, attributed to the issuance of
                warrants,
                was recorded as financial expense against additional paid-in capital.
                Subsequent to the balance sheet date, the remaining short-term bank
                credit
                was extended (see also Note 17a)




As
      of
      December 31, 2007, the Company paid and accrued interest expenses in the amount
      of $178 which reflects the difference between the basic interest rate and the
      interest owed in cash under the short-term credit.





**NOTE
              8:-**
            **LONG-TERM
                LOANS**





a.
            Long-term
                loans are comprised as follows:





**Interest
                rate****December
                31,**
            
            **December
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Total
                long-term loans
            
            
            10
            %
            
            -
            
            
            4,000
            
            
            -Less
                - current maturities
            
            
            
            
            
            
            
            
            2,000
            
            
            -Total
                long-term loans, net of current maturities
            
            
            
            
            
            
            
            $
            2,000
            
            $
            -





b.
            In
                August 2003, a certain venture lender which has minor stockholding
                in the
                Company, and the Israeli subsidiary signed a loan and security agreement
                ("the August 2003 Agreement") in the amount of up to $4,500. In accordance
                with the August 2003 Agreement, in January 2004, loans in the amount
                of
                $4,148, net, were received (net of the first and the last installments
                in
                the amounts of $352). During 2007, 2006 and 2005, principal amounts
                of $0,
                $1,000 and $1,813, respectively, were repaid by the Company. The
                Israeli
                subsidiary's assets were pledged by a floating charge to secure the
                repayment of the loan.





The
      loans
      bear interest at an annual rate of the U.S. dollar Prime + 9.2% – 9.4%
      and were to be repaid in thirty monthly installments (the last installment
      was
      scheduled in July 2006).





In
      August
      2003, upon signing the August 2003 Agreement, the Company issued to the lender
      detachable warrants to purchase 6,652 shares of Series C Convertible Preferred
      stock of the Company, at an exercise price equal to $46.6 per share (see Note
      12f). The Company calculated the fair value of these warrants, using the
      Black-Scholes formula with the following weighted-average assumptions: expected
      volatility of 90%, risk free interest rate of 3.7%, dividend yield of 0% and
      a
      weighted-average expected life of the warrants of 7.4 years.




F-34




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              8:-**
            **LONG-TERM
                LOANS (Cont.)**




Accordingly,
      the amount of $250, attributed to the issuance of warrants, was recorded as
      deferred expense against additional paid-in capital. The deferred expense was
      amortized over the contractual life of the August 2003 Agreement and was
      included in the statements of operations as financial expense. For the years
      ended December 31, 2007, 2006 and 2005, a total amount of $0, $0 and $179,
      respectively, had been amortized and recorded as financial expenses.





In
      January 2004, in conjunction with actual withdrawal of the loan, the Company
      issued to the lender additional warrants to purchase 3,219 shares of Series
      C
      Convertible Preferred stock of the Company, at an exercise price equal to $46.6
      per share.





The
      Company calculated the fair value of these warrants, using the Black-Scholes
      formula with the following weighted-average assumptions: expected volatility
      of
      90%, risk free interest rate of 3.7%, dividend yield of 0% and a
      weighted-average expected life of the warrants of 7 years, and accordingly,
      the
      amount of $119, attributed to the issuance of warrants, was recorded as a
      discount from the long-term loan balance against additional paid-in capital.
      The
      discount is amortized over the loan period as financial expense for the years
      ended December 31, 2007, 2006 and 2005, total amounts of $0, $8, and $46 had
      been amortized and recorded as financial expenses, respectively.





The
      loan
      was fully repaid in June 2006.





c.
            In
                October 2004, a certain venture lender which has minor stockholding
                in the
                Company and the Israeli subsidiary signed a loan and security agreement
                ("the October 2004 Agreement") in the amount of up to $5,000. The
                loaned
                funds were available as follows: the first tranche of $3,000 was
                available
                through November 2004, the second tranche of $1,500 was available
                through
                February 2005, and the third tranche of $500 was available through
                May 1,
                2005. The second and the third tranches were contingent upon achieving
                revenue goals as described in the October 2004 Agreement. Since the
                Company did not achieve the revenue goals, it withdrew only $3,000
                during
                2004.





The
      loan
      bore annual interest of 12.1% and was to be repaid in thirty monthly
      installments. In addition, as part of the October 2004 Agreement, the Company
      granted the lender, subject to actual utilization of the available funds,
      warrants to purchase 10,769 shares of Series D Convertible Preferred stock,
      at a
      per share exercise price of $ 33.7. The warrants are exercisable for seven
      and a
      half years from the issuance date.




F-35




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              8:-**
            **LONG-TERM
                LOANS (Cont.)**





In
      November 2004, the Company obtained a secured loan in the amount of $2,770,
      net,
      through the first tranche of the October 2004 Agreement described above (net
      of
      the first and the last installments in the amount of $230). During 2005 and
      2004, principal amounts of $1,104 and $86, respectively were repaid by the
      Company. The Israeli subsidiary's assets are pledged as a floating charge (see
      Note 12h).





The
      Company calculated the fair value of these warrants, using the Black-Scholes
      formula with the following weighted-average assumptions: expected volatility
      of
      90%, risk free interest rate of 3.3%, dividend yield of 0% and a
      weighted-average expected life of the warrants of 7.5 years and accordingly,
      the
      value attributed to these warrants in the amount of $249 was recorded as a
      discount from the long-term loan balance. The discount is amortized over the
      loan period as financial expense. For the years ended December 31, 2007, 2006
      and 2005, $0, $81 and $152 had been amortized and recorded as financial
      expenses, respectively.





The
      loan
      was fully repaid in June 2006.





d.
            In
                March 2007 IXI and IXI R&D entered into new loan agreements ("March
                2007 Loans") with certain existing IXI shareholders and existing
                lenders
                of the Convertible Bridge Loan under which IXI received a gross amount
                of
                $6,000 in two tranches of $3,000 each. The March 2007 Loans bear
                interest
                at the rate of 10% per annum. One-half of the March 2007 Loans is
                to be
                repaid on June 6, 2008 and the balance of the March 2007 Loans shall
                be
                due and payable on June 6, 2009, in each case together with any interest
                accrued and unpaid thereon.





In
      November 2007, the Company has reached an agreement with one of its existing
      shareholders amending the terms of its non-convertible loan into convertible
      debt and the immediate conversion of $2,000 principal amount of debt related
      to
      the March 2007 Loans, into shares of Common stock at a reduced conversion price
      of $3.60 per share and the issuance warrants to purchase shares of Common stock
      at an exercise price of $4.10, expiring 5 years from the date of grant. This
      amount represents the entire amount of the principal debt held by the specific
      existing shareholder from the March 2007 Loans. This conversion resulted in
      the
      issuance of 555,556 shares of Common stock and warrants (exercisable to Common
      stock at a ratio of 1:1) to purchase 333,334 shares of Common
      stock.





The
      modifications to the terms of the March 2007 Loans were accounted for under
      the
      provisions of SFAS 84, as an inducement to the lender. As such, the Company
      recorded a non-recurring loss upon inducement in the amount of $289 in the
      financial expenses against additional paid-in capital.





The
      Company calculated the fair value of the warrants, using the Black-Scholes
      formula with the following weighted-average assumptions: expected volatility
      of
      80%, risk free interest rate of 3.9%, dividend yield of 0% and a
      weighted-average expected life of the warrants of 5 years. Accordingly, the
      amount of $ 913, attributed to the issuance of warrants, was recorded as
      financial expenses against additional paid-in capital.




F-36




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              9:-**
            **CONVERTIBLE
                LOANS**





a.
            In
                May and July 2004, IXI and certain of its existing stockholders signed
                pre-round convertible loan agreements in the amount of $3,515. The
                loans
                were linked to the dollar and bore interest at an annual rate of
                8%.





On
      August
      24, 2004, the loans together with the accrued interest in an amount of $3,564
      were converted into shares of Series D Convertible Preferred Stock as part
      of
      the investment round (see Note 12g). No beneficial conversion feature was
      embedded in such transaction.





In
      January and February 2005, the lender was issued 21,322 detachable warrants
      fully exercisable into shares of Series D Convertible Preferred Stock (see
      Note
      12i).





The
      fair
      value attributed to the warrants granted upon conversion of the convertible
      loan, amounted to $180, and was recorded as financial expense.





b.
            In
                July 2005, IXI entered into a new convertible loan agreement with
                certain
                of its existing stockholders under which it received a convertible
                loan in
                the total amount of $6,109 ("the Convertible Loan"). The Convertible
                Loan
                bore annual interest at a rate of
                8%.





Under
      the
      terms of the Convertible Loan, in the event that no investment transaction,
      liquidity event or asset sale had occurred prior to December 31, 2005 as defined
      in the Convertible Loan agreement, then at the option of the lenders, the loan
      amount with the interest accrued thereon through such date shall either: (i)
      be
      automatically converted into new shares of Convertible Preferred Stock, but
      at a
      per share price providing the lenders with 50% of the equity capital of IXI
      in
      the aggregate on a fully diluted basis as of the date of such conversion, or
      (ii) be paid in cash, in which case IXI will pay the lenders the Convertible
      Loan amount which was not paid prior to such time together with the interest
      accrued thereon through such date within 10 days after the repayment date.
      No
      beneficial conversion feature was embedded in such transaction.





In
      February 2006, IXI issued 2,798,593 shares of Series D-1 Convertible Preferred
      stock to the lenders upon the conversion of the Convertible Loan (see also
      Note
      12m).





c.
            On
                June 20, 2006, IXI entered into the New Convertible Bridge Loan Agreement
                with a new lender ("the New Lender") and the Israeli subsidiary.
                Pursuant
                to the original terms of the New Convertible Bridge Loan, the New
                Lender
                loaned the Israeli subsidiary $20,000 (of which the Company paid
                costs of
                $1,700 in cash to certain private placement agents and $700 in cash,
                upon
                consummation of the Merger, to certain financial institutions providing
                advisory services to the Company) with IXI acting as guarantor thereto.
                The New Convertible Bridge Loan bears interest of 10% per annum during
                the
                first twelve months from the date of closing, and thereafter will
                go up to
                20% per annum.





IXI
      has
      provided to the New Lender and is subject to certain covenants in respect of
      the
      New Convertible Bridge Loan Agreement. As of December 31, 2007 and 2006, the
      Company and IXI, respectively, complied with these covenants.




F-37




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              9:-**
            **CONVERTIBLE
                LOANS (Cont.)**





Pursuant
      to the original terms of the New Convertible Bridge Loan, it will be repaid
      upon
      the earlier of: (1) sixty business days following the closing of the Merger
      ("the Repayment Date"); (2) the acceleration of the New Convertible Bridge
      Loan
      in accordance with the New Convertible Bridge Loan Agreement, and (3) twenty
      four months from the date of closing of the New Convertible Bridge Loan, unless
      prepaid by the Israeli subsidiary (the events in (2) and (3) above being
      referred to as the "Maturity Date"). The first interest payment will be made
      on
      June 30, 2007 and thereafter on a quarterly basis. Should the Merger fail,
      the
      Israeli subsidiary has the right at any time to prepay the entire outstanding
      principal amount of the New Convertible Bridge Loan along with accrued and
      unpaid interest thereon plus a six months premium interest. All obligations
      of
      IXI and the Israeli subsidiary are secured by a first priority security interest
      on the Company's and the Israeli subsidiary's assets (subject to limited
      exceptions).





In
      addition, pursuant to the original terms of the New Convertible Bridge Loan
      upon
      the consummation of the Merger, the New Lender was entitled to receive 600,000
      shares of ITAC Common stock and the Guarantors were entitled to receive 240,000
      shares of ITAC Common stock. Conditional on the closing of the Merger, certain
      private placement agents were entitled to receive 18,000 shares of ITAC Common
      stock. In addition, conditional on the closing of the Merger, certain financial
      institutions providing advisory services to IXI, were entitled to receive 36,000
      shares of ITAC Common stock and warrants to purchase 100,000 shares of ITAC
      Common stock at an exercise price of $5.00, expiring in 2009. In addition,
      each
      of the New Lender and the Guarantors were entitled to convert all or part of
      their respective debt facilities into shares of ITAC Common stock within 60
      business days following the consummation of the Merger, at a price of $6.50
      per
      share.





In
      addition, the Guarantors have undertaken in the letter agreement to extend
      their
      Guarantee and to maintain the existing short-term bank credit and loan at $8,000
      until the Repayment Date or Maturity Date (as the case may be) (see also Note
      7d). Pursuant to the letter agreement, each of the Guarantors is entitled to
      assume all or any part of any amounts owed by the Israeli subsidiary to the
      bank
      under the bank 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
      New
      Lender by the New Convertible Bridge Loan Agreement. In consideration of the
      extension of the Guarantee, the Guarantors are entitled to an amount equal
      to
      the difference between the basic interest rate set forth in the New Convertible
      Bridge Loan Agreement (nominal interest of 10% per annum during the first twelve
      months from the date of closing, and thereafter 20% per annum) and the interest
      rate owed under the short-term bank credit (nominal interest of LIBOR+3%) and
      the loan received from the bank calculated on the aggregate principal amount
      of
      the short-term bank credit and the bank loan for any period during which the
      Guarantee has been outstanding (see also Note 7d).





Furthermore
      pursuant to the original terms , if each of the above converts 50% or more
      of
      its respective debt facility within 60 business days following the closing
      of
      the Merger, it will be entitled to receive warrants to purchase ITAC Common
      stock at an exercise price of $5.00, expiring in 2009. The maximum total number
      of shares under the warrants is 1,000,000, allocated between the New Lender
      and
      the Guarantors according to the proportionate amount of their debt facility.
      The
      foregoing obligations of IXI and of the Israeli
      subsidiary were assumed by ITAC in conjunction with and as part of the Merger.
      The New Lender agreed to be subject to lock-up arrangements which have been
      agreed to by the principal stockholders of IXI and are entitled to registration
      rights, in respect of ITAC shares of Common stock on the same terms as those
      stockholders.




F-38




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              9:-**
            **CONVERTIBLE
                LOANS (Cont.)**




IXI
      accounted for the New Convertible Bridge Loan under EITF No. 00-27 "Application
      of Issue 98-5 to Certain Convertible Instruments" ("EITF No. 00-27") according
      to which, upon receiving the New Convertible Bridge Loan to IXI, no beneficial
      conversion feature was recorded. Furthermore, since the conversion of the
      convertible debt was contingent upon future events, at the time of such
      amendment - specifically the Merger closing and conversion of the debt, the
      beneficial conversion feature of the debt, if any, would have been recorded
      to
      the extent that a triggering event occurs and the contingency is resolved,
      based
      on the original fair value of ITAC's shares on the commitment date of issuance
      of the convertible debt.





Consequently,
      upon the consummation of the Merger, the fair value of the conversion feature
      detailed above was recorded.





In
      December 2006, the parties to the New Convertible Bridge Loan agreed to amend
      the New Convertible Bridge Loan (see also Note 1i) so that after the New
      Amendment becomes effective, the terms of the New Convertible Bridge Loan would
      change as detailed below. The New Amendment is only applicable in the event
      that
      the Merger is consummated and approved by ITAC's stockholders. Following the
      New
      Amendment, the new interest rate of the New Convertible Bridge Loan is a flat
      interest of 10% per annum throughout its term. The New Repayment Date will
      be
      365 days as of the closing of the Merger. According to the New Amendment, the
      Lenders shall have a right to convert their respective debt facilities into
      shares of ITAC Common stock at any time within this period, at a price of $5.50
      per share (as opposed to $6.50 before the New Amendment). Upon consummation
      of
      the Merger, the New Lender received 1,000,000 (as opposed to 600,000 before
      the
      New Amendment) shares of ITAC Common stock and the Guarantors received 400,000
      (as opposed to 240,000 before the New Amendment) shares of ITAC Common stock.
      All other terms of the New Convertible Bridge Loan remain the same.





The
      modification to the terms of the Convertible Bridge Loan was accounted for
      under
      the provisions of EITF 06-6, "Debtor's Accounting For a Modification (or
      Exchange) of Convertible Debt Instruments", as an extinguishment of the
      Convertible Bridge Loan, and the issuance of a new loan under the modified
      terms, and as such, the Company recorded an immediate loss of approximately
      $8,800 for the extinguishment of the original Convertible Bridge Loan as
      additional financial expenses. Additional financial expenses of approximately
      $
      1,200 were recognized due to the full amortization of various deferred charges
      related to the loan. The amended Convertible Bridge Loan was recorded in the
      balance sheet based on its fair value which amounted to approximately $26,000.
      As the fair value of the amended Convertible Bridge Loan is greater than its
      contractual repayment schedule, such premium was amortized over the contractual
      term of the loan using the effective interest method as financial income.




F-39




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              9:-**
            **CONVERTIBLE
                LOANS (Cont.)**





In
      October 2007, the Company has reached an agreement with the New Lender of the
      New Convertible Bridge Loan amending the New Convertible Bridge Loan with
      respect of immediate conversion of approximately $ 15,840 principal amount
      of the New Convertible Bridge Loan into shares of Common stock at a reduced
      conversion price of $ 3.60 per share and warrants to purchase shares of Common
      stock at an exercise price of $ 4.10, expiring 5 years from the date of grant.
      This conversion resulted in the issuance of 4,400,000 shares of Common stock
      and
      warrants (exercisable to Common stock at a ratio of 1:1) to purchase 2,640,000
      shares of Common stock (see Note 17b).





The
      modifications to the terms of the New Convertible Bridge Loan were accounted
      for
      under the provisions of SFAS 84, as an inducement to the New Lender. As such
      the
      Company recorded a non-recurring loss upon inducement in the amount of $ 6,353
      in the financial expenses against additional paid-in capital. The Company also
      recorded additional charges in the amount of $ 1,430 in the financial expenses
      due to the acceleration of amortization of deferred debt issuance costs.





The
      Company calculated the fair value of the warrants, using the Black-Scholes
      formula with the following weighted-average assumptions: expected volatility
      of
      80%, risk free interest rate of 3.9%, dividend yield of 0% and a
      weighted-average expected life of the warrants of 5 years. Accordingly, the
      amount of $ 7,366, attributed to the issuance of warrants, was recorded as
      financial expenses against additional paid-in capital.





As
      of
      December 31, 2007 the remaining principal amount of the New Convertible Bridge
      Loan which has not been subject to the aforementioned inducement offer is $
      4,492 (see also Note 17c).





**NOTE
                10:-**
            **OTHER
                PAYABLES AND ACCRUED
                EXPENSES**





**December
                31,****2007**
            
            **2006**Accrued
                expenses
            
            $
            2,075
            
            $
            1,041Accrued
                interest on loans
            
            
            3,004
            
            
            1,067Government
                authorities
            
            
            1,322
            
            
            1,032Related
                parties
            
            
            -
            
            
            306$
            6,401
            
            $
            3,446





F-40





**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              11:-**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES**





a.
            OCS
                commitment:





The
      Israeli subsidiary participated in programs sponsored by the OCS for the support
      of research and development activities. According to the original terms of
      the
      grant, the Israeli subsidiary was obligated to pay royalties to the OCS, at
      the
      rate of 3% based on the sales of the products and other related revenues
      generated by such projects, up to 100% of the grants received. During the years
      2007, 2006 and 2005, the Israeli subsidiary did not pay any royalties to the
      OCS.





Due
      to
      the breach of the terms of the grant, as more fully described in Note 1h, as
      of
      December 31, 2007, the Company had entered into discussions with the OCS in
      order to achieve a settlement regarding the breach of the agreement terms by
      the
      Company. The Company has provided accruals totaling $3,261 to cover the
      repayment of all funds provided by the OCS with accrued interest thereon (see
      also Note 1h).





b.
            Lease
                commitments:





The
      Group
      leases its office facilities and motor vehicles under various operating leases.





1.
            The
                Group leases its office facilities under several non cancellable
                operating
                lease agreements for various periods ending through December 2009.
                Future
                minimum lease commitments under non-cancelable operating leases are
                as
                follows:





**December
                31,**2008
            
            $
            6872009
            
            
            476$ *)
            1,163





*)
            Net
                of future sub-leases payments, in the total amount of $130 as of
                December 31, 2007.





Total
                rent expenses for the years ended December 31, 2007, 2006 and 2005
                were
                approximately $548, $454 and $229,
                respectively.





2.
            The
                Israeli subsidiary leases its motor vehicles under cancelable operating
                lease agreements, which expire on various dates, the latest of which
                is in
                November 2009.





The
      minimum payment (penalty) secured by a deposit under these operative lease
      agreements upon cancellation of these lease agreements was $63 as of December
      31, 2007.





Lease
      expenses of vehicles for the years ended December 31, 2007, 2006 and 2005 were
      $485, $336 and $243, respectively.




F-41




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              11:-**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES
                (Cont.)**





c.
            Legal:





1.
            On
                September 18, 2005 and September 27, 2005, the Company received letters
                from a certain vendor claiming that the Company breached the contractual
                relationship between the parties. The Company's management is of
                the
                opinion that such claim has no legal basis, as reflected in the Company's
                responses to said letters issued by its external legal counsel in
                corresponding letters, dated September 22, 2005 and October 20, 2005.
                Consequently, no amount has been accrued on account of these
                claims.





2.
            On
                August 10, 2005, the Company received a demand to pay $300 from the
                licensee of the Company for failing to deliver its software on time,
                since
                the Company did not meet the license agreements terms, following
                the
                discontinuing of operations of the operating system business unit.
                Although the formal demand was in the amount of $300, the Company
                has
                anticipated a refund of the total amount of $600 collected from the
                licensee, which was recognized as deferred
                revenues.





In
      November 2006, the licensee agreed to release and discharge the Company from
      any
      and all claims, liabilities and obligations if the Company agrees to assign
      all
      of the licensee rights and obligations to the purchaser of the licensee's
      communication and application processor business (see also Note 1g).





Accordingly,
      the Company's management decided to reverse the liability. The adjustment of
      $600 was recorded as revenue in the statements of operations from discontinued
      operations against reduction of other payable and accrued expenses of the
      discontinued operation (see also Note 1g).





3.
            In
                November 2005, the Company received a demand to pay $1,368 from a
                subcontractor. The Company had recorded a provision which the Company's
                management believed to be sufficient to cover the probable costs
                to
                resolve such a demand.





In
      September 2006, the Company reached a settlement with that subcontractor. The
      settlement resulted in a total payment of $210. (see also Note 1g).





4.
            Liabilities
                related to legal proceedings, demands and claims are recorded when
                it is
                probable that a loss has been incurred and the associated amount
                can be
                reasonably estimated. The Company's management, based on its legal
                counsel
                opinion, believes that it had provided an adequate accrual to cover
                the
                costs to resolve the aforementioned legal proceedings, demands and
                claims.





d.
            Charges
                and guarantees:





IXI
      and
      the Israeli subsidiary have floating and standing charges on all of their assets
      pursuant to certain loan and security agreements.




F-42




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              11:-**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES
                (Cont.)**





The
      Israeli subsidiary has pledged in favor of a certain bank all rights and funds
      for the benefit of the accounts and deposits managed in said bank for the
      benefit of any substitute accounts and deposits, as well as all accrued income
      and benefits resulting from the deposit account.





IXI
      and
      the Israeli subsidiary have pledged certain bank accounts in the amount of
      $ 183
      and $ 269 as of December 31, 2007 and 2006, respectively to cover bank
      guarantees mainly in respect of an office lease agreement and credit line
      relating to its use of credit cards.





e.
            Other:





1.
            The
                Company provides a warranty for its products for various periods
                ranging
                between twelve months to thirty months. The Company provides an accrual
                to
                cover the costs of such commitments, when such costs are estimated
                by the
                Company's management as probable to be
                incurred.





2.
            The
                Company is committed to participate in marketing and advertising
                efforts
                of a number of its customers through reimbursement of direct expenses
                actually paid by such customer, up to limited, pre-defined amounts.
                Such
                participation costs are recorded as selling and marketing expenses
                or
                deduction of revenues, as appropriate. For the years ended December
                31,
                2007 and 2006, the Company recorded reimbursement costs in a total
                amount
                of $ 955 and $ 274, respectively as selling and marketing
                expenses.





3.
            Agreement
                between IXI Israel and US Leading Corporation (the
                "Corporation"):





In
      October 2005, IXI R&D entered into an agreement with the Corporation for a
      period of two years, following the first commercial deployment of the service
      enabling IXI R&D to provide to its customers the services that the
      Corporation provides for mobile devices ("the Service") provided that the
      Corporation shall also sign a separate marketing agreement with each cellular
      or
      internet service provider the Company is or will be engaged with. The
      Corporation is entitled, at its own discretion and in accordance with the terms
      of the agreement, to cancel such marketing agreement with the cellular operators
      of internet service providers and shall notify IXI R&D on such cancellation.
      Should the Corporation cancel such marketing agreement, IXI R&D shall have
      no right to make a claim against the Corporation for losses it may incur, if
      any, from such cancellation of the marketing agreement, as hereinabove. The
      agreement provides the Company with the right to use the trademarks of the
      Corporation.





For
      the
      deployment of the Service, IXI R&D paid the Corporation an advance payment
      of $100. In addition, IXI R&D is required to pay a certain percentage of the
      monthly revenues derived from each user of the Service, depending on the
      geographic region in which such Services are provided. The agreement also
      contained a commitment to pay minimum amounts, based on future estimated
      revenues from subscribers, to be paid by the Company for the years 2007, 2006
      and 2005 of $7,980, $3,630 and $180, respectively.




F-43




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              11:-**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES
                (Cont.)**





In
      April
      2007, IXI R&D and the Corporation signed an amendment ("the 2007 Amendment")
      to the original agreement between the parties dated October 2005. 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.





For
      the
      years ended December 31, 2007, 2006 and 2005 total amount of $1,020, $3,630
      and
      $180, respectively, were paid and recorded as cost of revenues in the statement
      of operations.





4.
            In
                November 2006, the Company entered into an agreement with a second
                major
                IM provider, enabling the Company 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 annual payment
                to be
                made throughout the duration of the agreement is $360. However, this
                amount may increase depending on the number of deployments with customers
                as well as the geographical regions in which deployment
                occurs.




For
      the
      years ended December 31, 2007, 2006 and 2005, the Company recorded expenses
      in
      respect of this agreement in total amount of $601, $0 and $0, respectively,
      as
      costs of revenues in the statements of operations.




5.
            In
                December 2007, The Company entered into an agreement with a major
                IM
                provider, enabling the Company for a period of two years to provide
                end-users of the Ogo device with access to IM and email services
                for
                mobile devices. The Company is 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 the Company to make minimum payments in the amount
                of
                approximately $1,000 through the two year term of the
                agreement.





6
            As
                of December 31, 2007, the Company had open purchase orders attributed
                mainly to purchasing inventory and products development in a total
                amount
                of approximately $5,240.





7.
            Compensation
                agreement with the Co-Chairman of the Company ("the Co-Chairman")
                and the
                Chief Executive Officer ("CEO"):





The
      Co-Chairman's employment agreement includes salary based on annual cost for
      the
      Company of $210. The CEO's employment agreement provides for an annual salary
      that was changed due to the Merger from $200 to $250.





The
      Co-Chairman and the CEO are eligible to participate in all applicable Company
      benefit plans.




F-44




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              11:-**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES
                (Cont.)**





The
      Co-Chairman and the CEO were each granted prior to the Merger, right to receive
      options to purchase up to 750,000 shares of ITAC Common stock at an exercise
      price of $5.00 per share. The options will vest based on the Company’s attaining
      certain performance or market conditions.





During
      the year ended December 31, 2007, the Company recorded compensation costs
      in the amount of $619 in connection with the market condition awards. The
      compensation was calculated using the Binomial Lattice model.




During
      the year ended December 31, 2007, since the Company estimated that it was
      not probable that the performance goals will be achieved, no expenses were
      recorded with respect to the performance-based compensation awards.





In
      addition, the Co-Chairman and the CEO are entitled to an "Annual Bonus" and
      "Target Bonuses." The Annual Bonus entitles each of the Co-Chairman and the
      CEO
      to 2% of the growth of the annual consolidated net income compared to the
      previous year. The Target Bonuses entitle the Co-Chairman and the CEO, each,
      to
      the following payments:





a)
            A
                cash bonus ("the Share Price Bonus") of $200, upon the achievement
                of
                $8.50 price per share during any twenty trading days during any thirty
                consecutive trading day period prior to the fourth anniversary of
                the
                consummation of the Merger;





b)
            If
                the Co-Chairman and the CEO become entitled to the Share Price Bonus,
                they
                will be eligible to receive additional cash bonuses of up to $800
                ("the
                Second Bonus") based on certain future events of the exercise of
                warrants.





c)
            Four
                cash bonuses of up to $200 each, for the achievement of certain
                performance and market conditions.




As
      of
      December 31, 2007, the Company recorded long-term liabilities in the amount
      of
      $82 due to Target Bonuses liability. The liability was calculated using the
      Binomial Lattice model.





If
      the
      Co-Chairman's or the CEO's employment agreement is terminated by the Company
      for
      any reason other than termination for cause or is terminated by them for
      justifiable reason, all as defined in the employment agreements, they will
      be
      entitled to receive their salary and benefits for 12 months; the vesting of
      all
      the options that vest as a function of time will be accelerated and they will
      get the pro rata share of the Annual Bonuses and the Target Bonuses. In
      addition, the milestone options, the Share Price Bonus and the Second Bonus
      shall not expire and shall vest upon their applicable triggering events even
      if
      those occur after termination. The exercise period of all options shall be
      extended to the full term of the options.





If
      a
      termination for cause of the Co-Chairman's and the CEO's employment is effected
      by the merged entity or their employment is terminated by them for a reason
      other than justifiable reason all as defined in the employment agreements,
      they
      shall be entitled only to the salary and benefits and the Annual Bonuses, Target
      Bonuses, Share Price Bonus, Second Bonus and additional options (subject to
      vesting events and conditions precedent) that would have been due to them in
      the
      three-month period following giving of the notice of termination.




F-45




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              11:-**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES
                (Cont.)**




8.
            Covenants:





The
      Company has provided to ITAC and is subject to certain covenants in respect
      of
      the Merger Agreement (see also Note 1a).




**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)**





a.
            Upon
                the Merger, the shares of IXI stock were canceled and exchanged into
                the
                Company's shares at a ratio of 1:0.15. All share information included
                in
                this report has been retroactively adjusted to reflect this
                exchange.





b.
            Common
                stock:





Shares
      of
      Common stock entitle holders to voting rights, the right to receive cash
      dividends and the right to share in excess assets upon liquidation of the
      Company.





c.
            Convertible
                Preferred stock:





Shares
      of
      Preferred stock entitle holders to have all the rights of holders of Common
      stock and in addition, they have preferences in the event of liquidation,
      dividend, registration and anti-dilution rights. Each share of Preferred stock
      is convertible into one share of Common stock (except for Shares of Series
      A
      Convertible Preferred stock which will be converted in a ratio of 1:1.76) at
      any
      time, at the holder's discretion, and automatically upon an IPO of the Company's
      Common stock. Holders of Series D Convertible Preferred stock have preference
      over Series C Convertible Preferred stock, Series B Convertible Preferred stock,
      Series A Convertible Preferred stock and over Common stock, including cumulative
      dividends at a rate of 8% per share. Holders of Series C Convertible Preferred
      stock have preference over Series B Convertible Preferred stock, Series A
      Convertible Preferred stock and over Common stock. Series B Convertible
      Preferred stock have preference over Common stock and over Series A Convertible
      Preferred stock. Holders of Series A Convertible Preferred stock have preference
      over Common stock. The preference is in connection with the abovementioned
      rights





Upon
      consummation of the Merger, all of the outstanding shares of Preferred stock
      were converted into shares of Common stock of the Company.





d.
            The
                Company is obligated to issue to a legal consultant in consideration
                of
                legal services provided to the Company in the year ended December
                31,
                2000, up to 1,488 shares of Common stock at par value with estimated
                fair
                value of $10, which were recorded as
                expenses.




F-46




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)
                (Cont.)**





e.
            On
                July 15, 2003, certain officers of the Company early-exercised options
                to
                purchase a total of 24,360 shares of Common stock, paying the exercise
                price in the form of nine-year full-recourse promissory notes, in
                an
                aggregate amount of $378 bearing interest of 2.75% per annum. The
                restricted stock received by officers in exchange for the payment
                of the
                exercise price are subject to a repurchase feature by the Company,
                which
                is exercisable upon a voluntary or non-voluntary termination before
                the
                end of the remaining vesting period. The notes are presented as a
                deduction from stockholders' equity
                (deficiency).





On
      August
      31, 2005, as part of the termination of their agreement, the Company
      re-purchased from two employees an aggregate of 17,254 shares of Common stock
      that were subject to a repurchase feature, by waiving full recourse promissory
      notes previously provided to the employees by the Company. Accordingly, an
      expense of $268, representing the difference between the book value of the
      forgiven loan and the fair value of the repurchased shares, was recorded in
      operating expenses.





During
      the year ended December 31, 2007, the officer paid the remaining amount of
      $
      110.





f.
            In
                August 2003, certain investor and IXI R&D signed the August 2003
                Agreement (see also Note 8b).





In
      October 2003, as part of the August 2003 Agreement, the Company granted the
      investor warrants to purchase 6,652 shares of Series C Convertible Preferred
      stock, at an exercise price of $46.6 per share. These warrants are exercisable
      at any time prior to the expiration of their term in 2010.





In
      January 2004, in accordance with the August 2003 Agreement, the Company issued
      additional warrants to purchase 3,219 shares of Series C Convertible Preferred
      stock at an exercise price of $46.6 per share. The Company calculated the fair
      value of these warrants, using the Black-Scholes formula with the following
      weighted-average assumptions: expected volatility of 90%, risk free interest
      rate of 3.7%, dividend yield of 0% and a weighted-average expected life of
      the
      warrants of 7 years, and accordingly, the amount of $119, attributed to the
      issuance of warrants, was recorded as a discount from the long-term loan balance
      against additional paid-in capital. The discount is amortized over the loan
      period as financial expense. For the years ended December 31, 2007, 2006 and
      2005 total amounts of $0, $8 and $46 had been amortized and recorded as
      financial expenses, respectively. Prior to the consummation of the Merger
      agreement IXI and the warrants holders reached an agreement, accordingly, upon
      the consummation of the Merger the warrants amount was reduced by 50% and the
      exercise price was adjusted to $0.06. The warrants were exercised upon the
      consummation of the Merger.




g.
            In
                August 2004, the Company signed a stock purchase agreement with some
                of
                its current stockholders and a new investor for the sale and issuance
                of
                356,936 shares of Series D Convertible Preferred stock for a total
                gross
                amount of $11,932 (prior to $209 of issuance costs and including
                the
                conversion of pre-round convertible loans and accrued interest, received
                in May and July 2004 in the total amount of
                $3,564).




F-47




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)
                (Cont.)**





As
      part
      of this agreement, the investors were granted warrants to purchase 5,577 and
      140,380 shares of Series D Convertible Preferred stock at an exercise price
      of
      $25.9 and $33.7, respectively. These warrants were cancelled upon the
      consummation of Merger.





h.
            In
                November 2004, the Company obtained $2,770 as a secured loan through
                the
                first tranche of the agreement described in Note 8c. As a result,
                the
                Company granted warrants to purchase 10,769 shares of Series D Convertible
                Preferred stock, at an exercise price of $33.7 per
                share.





i.
            In
                January and February 2005, the Company signed an addendum to the
                Series D
                Convertible Preferred Stock Purchase Agreement originally signed
                in August
                2004. Pursuant to the addendum, the Company issued 306,209 shares
                of
                Series D Convertible Preferred stock, in consideration of proceeds
                in the
                amount of $10,228 (net of $8 in issuance costs). As part of the addendum,
                the Company issued to the investors warrants to purchase 107,173
                shares of
                Series D Convertible Preferred stock at an exercise price of $33.7
                per
                share. These warrants were cancelled upon the Merger consummation.





j.
            On
                September 15, 2005, the stockholders of the Company resolved to amend
                and
                restate the Company's Certificate of Incorporation by conversion
                into
                shares of Common stock of all the shares of Preferred Stock (and
                securities convertible into Preferred stock) held by stockholders
                who did
                not participate in the convertible loan agreement of July 2005. The
                conversion of all the other classes of Preferred Stock into shares
                of
                Common stock was at a ratio of 1:1, which was the original conversion
                ratio.





k.
            In
                October 2005, the Company obtained short-term bank credit in the
                amount of
                $750 as described in Note 7a. Several stockholders provided a guarantee
                for the payment of the short-term bank
                credit.





As
      consideration for the guarantee, in February 2006, the Company issued the
      stockholders warrants to purchase 166,262 shares of Common stock at an aggregate
      exercise price of $0.06 per share. These warrants are exercisable at any time
      until an IPO or a change in control of the Company. The amount attributed to
      the
      issuance of these warrants was $269 and was recorded as financial expenses
      during 2005 pursuant to the provisions of EITF 96-18 and SFAS No. 123.





The
      Company calculated the fair value of these warrants, using the Black-Scholes
      formula with the following weighted-average assumptions: expected volatility
      of
      90%, risk free interest rate of 3.3%, dividend yield of 0% and a
      weighted-average expected life of the warrants of one year.





l.
            During
                July 2006, an employee exercised 5,340 options into shares of Common
                stock
                in consideration of a total amount of
                $2.





m.
            In
                February 2006, the Company issued 2,798,593 shares of Series D-1
                Convertible Preferred stock for the conversion of the Convertible
                Loan.





F-48





**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)
                (Cont.)**





In
      February 2006, the Company issued 1,773,494 shares of Series D-1 Convertible
      Preferred Stock to those stockholders of the Company that entered, directly
      or
      indirectly, into the Keep Well Agreement with one of the Company's customers
      for
      an exercise price of $0.06 per share (see also Note 1j).





n.
            On
                June 6, 2007, prior to the Merger, the Co-Chairman was granted 216,000
                shares of IXI's Common stock.





o.
            In
                October and November 2007, the Company has reached an agreement with
                the
                Guarantors and with the New Lender of the New Convertible Bridge
                Loan. The
                agreement includes the immediate assumption and the conversion of
                approximately $5,460 of a short term bank credit of an Israeli bank
                (see
                Note 7d) and conversion approximately $15,840 principal amount of
                the new
                convertible bridge loan (see note 9c) by the Guarantors and the New
                Lender, respectively, into shares of Common stock at a reduced conversion
                price of $3.60 per share (this being an amendment to the previously
                agreed
                conversion price of $5.50). The agreement also includes issuance
                of
                warrants to purchase shares of Common stock at an exercise price
                of $4.10,
                expiring 5 years from the date of grant. This conversion will result
                in
                the issuance of 5,916,667 shares of Common stock and warrants (exercisable
                to Common stock at a ratio of 1:1) to purchase 3,550,000 shares of
                Common
                stock.





The
      Company calculated the fair value of these warrants, using the Black-Scholes
      formula. (See also Note 9c and Note 7d)





p.
            In
                October 2007, the Company entered into binding subscriptions for
                a private
                placement of $5,123 ("First Tranche"). In November 2007 the Company
                entered into binding subscriptions for an additional amount of $4,608
                ("Second Tranche") on terms identical to those of the First
                Tranche.





Upon
      closing, the Company issued 2,703,000 shares of Common stock at a price of
      $3.60
      per share. The investors were also issued warrants to purchase an aggregate
      amount of 1,621,800 shares of Common stock at a price of $4.10, expiring 5
      years
      from the date of grant. Total proceeds to the Company in the private placement
      were $ 9,160, net of issuance expenses.





In
      October 2007, the Company signed an agreement with a certain advisor to assist
      the Company in its investment efforts. Under this agreement the Company agreed
      to pay the advisor an annual fee and a success fee in the event that the advisor
      assists the Company in fund raising. The success fee will be combined of a
      cash
      fee and Company's warrants according to the actual funds raised by the
      Company.





Consequently,
      as a result of the private placement investment, this advisor was entitled
      to
      $558 cash payment which was deducted from his investment in the Company and
      135,150 warrants (exercisable
      to Common stock at a ratio of 1:1) **** to
      purchase shares of Common stock at a conversion price of $4.10 per share. The
      net proceeds received in this private placement were recorded as stockholders'
      equity. The amount attributed to the issuance of these warrants was $383. These
      issuance costs were recorded as additional paid in capital pursuant to the
      provisions of EITF 96-18 so that the net effect of the warrants was zero.





F-49





**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)
                (Cont.)**





The
      Company calculated the fair value of these warrants, using the Black-Scholes
      formula with the following weighted-average assumptions: expected volatility
      of
      80%, risk free interest rate of 3.9%, dividend yield of 0% and a
      weighted-average expected life of the warrants of 5 years.





q.
            In
                November 2007, the Company has reached an agreement with one of its
                existing shareholders amending the terms of its March 2007 Loan (non
                convertible) into convertible loan and the immediate conversion of
                $2,000
                principal amount of debt, into shares of Common stock at a reduced
                conversion price of $3.60 per share (this being an amendment to the
                previously agreed conversion price of $5.50) and issuance warrants
                to
                purchase shares of Common stock at an exercise price of $4.10, expiring
                5
                years from the date of grant. This amount represents the entire amount
                of
                the principal debt held by the specific existing shareholder from
                the
                March 2007 Loans. This conversion resulted in the issuance of 555,556
                shares of Common stock and warrants (exercisable to Common stock
                at a
                ratio of 1:1) to purchase 333,334 shares of Common
                stock.





The
      Company calculated the fair value of the warrants, using the Black-Scholes
      formula (see Note 8d)





r.
            In
                November 2007, the Company entered into an equity line of credit
                ("ELOC") arrangement with a certain investor. Pursuant to the terms
                of the
                ELOC arrangement, the Company has the right to sell and investor
                is
                obligated to purchase up to an aggregate of $5,000 in shares of Common
                stock at a discount to the market price as defined in the ELOC agreement
                ranging between 5% and 10% depending on the market price as defined
                in the
                ELOC agreement of the Common stock at the time of sale. The ELOC
                arrangement will remain in effect until the earlier of 24 months
                following
                the date that this agreement is declared effective and November 10,
                2010,
                unless otherwise terminated by the Company or the investor pursuant
                to the
                terms of the ELOC arrangement. In connection with the ELOC arrangement,
                the Company issued investor as a commitment fee 75,000 shares of
                Common
                stock and a 5 years warrant to purchase up to 312,500 shares of Common
                stock at an exercise price of $4.10 per share. The warrant issued
                to
                investor will vest proportionally to the value of the shares purchased
                by
                investor under the ELOC arrangement at the time of purchase. The
                amount
                attributed to the issuance of these shares of Common stock was $284
                (net
                of $9 issuance costs) and was recorded as financial expenses during
                2007.




The
      Company calculated the fair value of these warrants, using the Black-Scholes
      formula with the following weighted-average assumptions: expected volatility
      of
      80%, risk free interest rate of 3.97%, dividend yield of 0% and a
      weighted-average expected life of the warrants of 5 years. As of December 31,
      2007 no amounts have been withdrawn from the ELOC. Consequently, none of the
      warrants vested; accordingly, no financial expenses were recorded.





s.
            As
                of December 31, 2006, the amount of outstanding warrants to purchase
                shares of Series D Convertible Preferred stock and Series C Convertible
                Preferred stock were 207,828 and 9,871,
                respectively.




F-50




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)
                (Cont.)**





Most
      warrants to purchase shares of Series D Convertible Preferred stock were
      exercisable at any time until an IPO or a change in control of the Company,
      except for warrants to purchase 10,769 shares of Series D Convertible Preferred
      stock which were exercisable at any time until 2012.





Warrants
      to purchase shares of Series C Convertible Preferred stock were exercisable
      at
      any time prior to the expiration of their term in 2010.





The
      Company has negotiated with the warrant holders who held warrants which do
      not
      expire upon the Merger so that the exercise price of the warrants was reduced
      to
      $0.06 and the quantity was reduced by 50% upon the Merger. Simultaneously,
      the
      (remaining) warrants were exercised by said holders. Such changes in the
      exercise price were accounted for as a modification to the original award terms.
      Accordingly, the incremental value representing a greater value to the holders
      immediately after the modification when compared to the warrant value
      immediately before the modification, such difference was recognized as a
      financial expense.





t.
            Stock
                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, 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 $2,956, $454
      and
      $304 for the years ended December 31, 2007, 2006 and 2005, respectively. The
      options granted generally have a four-year vesting schedule and expire ten
      years
      subsequent to the date of grant.





The
      Company currently operates three option plans. For U.S. employee and
      non-employee service providers, the 2000 Second Amended and Restated Stock
      Incentive Plan ("the U.S. Plan") and the 2003 Israeli Stock Option Plan ("the
      Israeli Plan"), for Israeli employee and non-employee service providers (the
      U.S. Plan and the Israeli Plan collectively "the Company's Plans").





On
      October 2, 2007 the Company's Board of Directors approved an increase in the
      number of options available for future grant of 800,000 options under the Plans
      for the retention of directors, employees, officers and
      consultants.





The
      Company's Plans, as were amended and approved by the Company's shareholders,
      permit the grant of share options and shares to its employees for up to
      2,065,175 shares of Common stock as of December 31, 2007. The Company's
      management believes that such awards better align the interests of its employees
      with those of the Company and its shareholders. In the past, as a private
      company, option awards were generally granted with an exercise price equal
      to
      the fair market value as determined by the Board of Directors in good faith.
      Option awards generally vest based on four years of continuous service and
      have
      10-year contractual terms. Certain option awards provide for accelerated vesting
      if there is a change in control (as defined in the Plans).




F-51




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)
                (Cont.)**





On
      January 1, 2006, the Company adopted SFAS 123(R) for options granted or modified
      effective January 1, 2006. Stock-based compensation expense recognized under
      SFAS 123(R) for the year ended December 31, 2007 was $2,677.





Options
      granted prior to January 1, 2006 are still accounted for under APB 25 since
      prior to the adoption of SFAS 123(R), the compensation to employees options
      was
      accounted for under the Minimum Value method as permitted by SFAS No. 123 for
      non public entities.





As
      of
      December 31, 2007, 2006 and 2005, 631, 141,880 and 89,599 shares of Common
      stock
      are reserved for future grants to employees, respectively.





A
      summary
      of the Company's option activity and related information with respect to options
      granted to employees for the years ended December 31, 2007, 2006 and 2005 is
      as
      follows:





1)  Options
      issued to employees




**Year
                ended**
              **December
                31, 2007****Amount**
            
            **Weighted**
              **average**
              **exercise**
              **price**
            
            **Weighted**
              **average**
              **remaining
                contractual**
              **term**
              **(in
                years)**
            
            **Aggregate**
              **intrinsic**
              **value**Outstanding
                at beginning of year
            
            
            766,867
            
            $
            1.07Granted
            
            
            1,288,557
            
            $
            4.87Exercised
            
            
            -
            
            $
            -Forfeited
            
            
            (52,709
            )
            $
            5.09Outstanding
                at end of year
            
            
            2,002,715
            
            $
            3.41
            
            
            8.76
            
            
            18,021Vested
                or expected to be vested as of December 31, 2007
            
            
            1,954,030
            
            $
            3.06
            
            
            8.54
            
            
            17,741Options
                exercisable
            
            
            785,587
            
            $
            2.80
            
            
            8.24
            
            
            11,025





The
      weighted average grant-date fair values of the options granted during 2007,
      2006
      and 2005 were $3.42, $0 and $1.36, respectively.





The
      aggregate intrinsic value in the table above represents the total intrinsic
      value that would have been received by the option holders had all option holders
      exercised their options on December 31, 2007. This amount changes based on
      the
      fair market value of the Common stock.




F-52




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)
                (Cont.)**





During
      the year ended December 31, 2007, the Company recognized stock-based
      compensation expense related to employee stock options in the amount of $2,876
      as follows:


Cost
                  of revenues
              
              $
              204Research
                  and development costs
              
              
              567Selling
                  and marketing expenses
              
              
              253General
                  and administrative expenses *)
              
              
              1,852Total
                  stock-based compensation expense
              
              $
              2,876




***)** Includes
      an amount of $619 due to market based compensation award granted to the
      Co-Chairman and the CEO (see also Note 11e(7)).





The
      employees' options outstanding as of December 31, 2007, have been separated
      into ranges of exercise price, as follows:





**Options
                outstanding**
            
            **Options
                exercisable****Options**
            
            **Weighted**
            
            
            
            **Options**
            
            **Weighted**
              **average****outstanding**
            
            **average**
            
            **Weighted**
            
            **exercisable**
            
            **exercise****as
                of**
            
            **remaining**
            
            **average**
            
            **as
                of**
            
            **price
                of****Exercise**
            
            **December 31,**
            
            **contractual**
            
            **exercise**
            
            **December 31,**
            
            **options****price**
            
            **2007**
            
            **life
                (years)**
            
            **price**
            
            **2007**
            
            **exercisable**$                    
                0.32
            
            
            708,724
            
            
            7.76
            
            $
            0.32
            
            
            425,048
            
            $
            0.32$                    
                1.68
            
            
            60,576
            
            
            7.60
            
            $
            1.68
            
            
            50,523
            
            $
            1.68$                     4.05
            
            
            27,000
            
            
            10.00
            
            $
            4.05
            
            
            -
            
            $
            4.05$                    
                4.25
            
            
            50,000
            
            
            9.77
            
            $
            4.25
            
            
            -
            
            $
            4.25$                    
                4.40
            
            
            711,369
            
            
            9.66
            
            $
            4.40
            
            
            5,100
            
            $
            4.40$                    
                6.06
            
            
            431,445
            
            
            8.99
            
            $
            6.06
            
            
            293,094
            
            $
            6.06$                     7.77
            
            
            1,010
            
            
            2.78
            
            $
            7.77
            
            
            1,010
            
            $
            7.77$                  
                15.53
            
            
            12,591
            
            
            5.93
            
            $
            15.53
            
            
            10,812
            
            $
            15.532,002,715
            
            
            
            
            $
            3.41
            
            
            785,587
            
            $
            2.80





During
      2005, the Company granted certain options with an exercise price lower than
      share market price at the grant date. The grant resulted in the recording of
      $798 as deferred stock compensation with a corresponding increase of additional
      paid-in capital, and was presented at the net amount. An amount of $199, $242
      and $16 was recognized as an amortization of deferred stock compensation during
      the years ended December 31, 2007, 2006 and 2005, respectively.




F-53




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)
                (Cont.)**





As
      under
      U.S. tax law, a person taxed under U.S. law who is granted an option at an
      exercise price which is less than the fair market value at the date of grant
      may
      be subject to a tax liability upon the vesting of such options for the potential
      gain between the exercise price and the fair market value as well as to 20%
      penalty tax. In July 2006, the Company's Board of Directors resolved to offer
      U.S. employees who so requested to change the exercise price of the options
      granted to those employees in November 2005 to equal the fair market value
      as of
      such date, and to avoid any such tax implications. Such changes in the exercise
      price were accounted for as a modification under the provisions of SFAS 123(R).
      Since the new exercise price is designated to equal the fair market value of
      the
      Company's share upon the modification, and given the fact that all other option
      terms will remain as in the original award, no incremental compensation costs
      under the provisions of SFAS 123(R) was recognized.





2)  Options
      issued to non employees





A
      summary
      of the Company's stock option activity and related information with respect
      to
      options granted to non-employees for the years ended December 31, 2007, 2006
      and
      2005 is as follows:




**Year ended December 31,****2007****Weighted**
              **average****Amount**
            
            **exercise**
              **price**Outstanding
                at beginning of year
            
            
            177,210
            
            $
            0.33Granted
            
            
            51,516
            
            $
            4.99Exercised
            
            
            (166,266
            )
            $
            0.06Change
                in status
            
            
            -
            
            $
            -Forfeited
            
            
            -
            
            $
            -Outstanding
                at end of year
            
            
            62,460
            
            $
            4.87Options
                exercisable
            
            
            21,218
            
            $
            2.79





The
      weighted average fair values of the options granted during 2007, 2006 and 2005
      were $ 4.30, $1.62 and $ 1.62, respectively.





During
      2007, the intrinsic value of options exercised on their exercise day was
      $998.




F-54




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              12:-**
            **STOCKHOLDERS'
                EQUITY (DEFICIENCY)
                (Cont.)**





During
      the year ended December 31, 2007, the Company recognized stock-based
      compensation expense related to non-employee stock options in the amount of
      $80,
      as follows:




Research
                and development costs
            
            $
            3Selling
                and marketing expenses
            
            
            6General
                and administrative expenses
            
            
            71Total
                stock-based compensation expense
            
            $
            80





The
      non-employees' options outstanding as of December 31, 2007, have been
      separated into ranges of exercise price, as follows:





**Options
                outstanding**
            
            **Options
                exercisable****Options**
            
            **Weighted**
            
            
            
            **Options**
            
            **Weightedaverage****Outstanding**
            
            **average**
            
            **Weighted**
            
            **exercisable**
            
            **exercise****as
                of**
            
            **remaining**
            
            **Average**
            
            **as
                of**
            
            **price
                of****Exercise**
            
            **December 31,**
            
            **contractual**
            
            **Exercise**
            
            **December 31,**
            
            **options****Price**
            
            **2007**
            
            **life
                (years)**
            
            **Price**
            
            **2007**
            
            **exercisable**$                
                     0.32
            
            
            18,343
            
            
            8.60
            
            $
            0.32
            
            
            16,240
            
            $
            0.32$                     
                1.94
            
            
            1,681
            
            
            2.12
            
            $
            1.94
            
            
            1,681
            
            $
            1.94$                      4.05
            
            
            500
            
            
            10.00
            
            $
            4.05
            
            
            36
            
            $
            4.05$                     
                4.40
            
            
            10,000
            
            
            9.63
            
            $
            4.40
            
            
            -
            
            $
            4.40$                     
                6.06
            
            
            28,672
            
            
            9.43
            
            $
            6.06
            
            
            -
            
            $
            6.06$                      7.77
            
            
            26
            
            
            2.67
            
            $
            7.77
            
            
            26
            
            $
            7.77$             
                      15.53
            
            
            3,238
            
            
            6.81
            
            $
            15.53
            
            
            3,235
            
            $
            15.5362,460
            
            
            
            
            $
            4.87
            
            
            21,218
            
            $
            2.79





The
      fair
      value for these options was estimated at the grant date and at each subsequent
      vesting date using the Black-Scholes formula with the following weighted-average
      assumptions: expected volatility of 70%-90%, risk-free interest rates of
      1.5% – 4.97%, dividend yields of 0% and an expected life equal to the
      options' contractual life.





Compensation
      expense in respect of options granted to non employees amounted to $ 80, $40
      and
      $20 for the years ended December 31, 2007, 2006 and 2005, respectively.





u.
            As
                of December 31, 2007, there were $6,017 and $215 of total unrecognized
                compensation cost related to non-vested share-based compensation
                arrangements granted with respect to employees and non employees,
                respectively. That cost is expected to be recognized over a
                weighted-average period of2.86years. Total grant-date fair value of options with respect to options
                granted to employees and non employees that vested for the year ended
                December 31, 2007 were $4.65 and $4.45, respectively.





v.
            Prior
                to the Merger the fair values assigned to shares of Common stock
                and
                Preferred Stock, and for options and warrants were determined primarily
                by
                management. In determining the fair values, management has considered
                a
                number of factors, including valuations and
                appraisals.




F-55




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              13:-**
            **INCOME
                TAXES**





a.
            Domestic:
                U.S. income taxes:





The
      Company was incorporated in Delaware U.S.A. and is taxed according to the tax
      laws in the U.S.A. in which the federal statutory tax rate is up to 35%. It
      is
      also subject to California state tax. The Company and IXI were granted
      permission to file a consolidated tax report.





b.
            Foreign:
                Israeli income taxes:





1.
            Tax
                benefits under the Law for the Encouragement of Capital Investments,
                1959
                ("the Law"):





IXI
      Israel's production facilities in Israel have been granted an "Approved
      Enterprise" status under the Law. The main benefit arising from such status
      is
      the reduction in tax rates on income derived from "Approved Enterprise" status.
      According to the provisions of the Law, IXI Israel has been granted the
      "Alternative Benefit Plan", under which the main benefits are tax exemption
      and
      reduced tax rate.





Therefore,
      IXI Israel's income derived from the "Approved Enterprise" and allocated to
      the
      IXI Israel's production facilities in Israel may be entitled to a tax exemption
      for a period of two years and to an additional period of five to eight years
      with a reduced tax rate of 10% - 25% (based on percentage of foreign
      ownership). The duration of tax benefits is subject to limitation of the earlier
      of 12 years from year of operation, or 14 years from the approval date.





The
      entitlement to the above benefits is subject to fulfilling the conditions
      stipulated by the Law, regulations published thereunder and instruments of
      approval for the specific investments in "Approved Enterprises".





Should
      IXI Israel fail to meet such conditions in the future, it would be required
      to
      refund the amount of tax benefits already received, plus a consumer price index
      linkage adjustment and interest.





IXI
      Israel has filed an application with the Investment Center of the Israeli
      Ministry of Industry, Trade and Labor to approve production of the Ogo products
      outside Israel, change the business program of its "Approved Enterprise" and
      expand the product definition initially approved by the Investment Center,
      as
      well as to change the number of IXI Israel's employees as reported to the
      Investment Center. There can be no assurance that the Investment Center will
      approve the changes to the "Approved Enterprise" program as requested by IXI
      Israel. If IXI Israel's request is not approved, in whole or in part, IXI Israel
      may not be entitled to all of the tax benefits described above.





F-56





**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              13:-**
            **INCOME
                TAXES (Cont.)**





If
      dividends are distributed out of tax exempt profits, as above, IXI Israel will
      be subject to corporate tax in the year the dividend is distributed in respect
      of the gross amount distributed 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 dividend recipient is subject to withholding tax at
      the source of reduced tax rate of 15%. As of December 31, 2007, IXI Israel
      has
      not created a maximum deferred tax liability due to its accumulated losses
      and the
      accumulated deficit does not include tax exempt profits earned by an "Approved
      Enterprise"





IXI
      Israel currently
      has no plan to distribute any amounts of its undistributed tax-exempt income
      as
      a dividend. IXI
      Israel intends
      to reinvest its tax-exempt income and not to distribute such income as a
      dividend. Accordingly,
      no deferred income taxes have been provided on income attributable to the
      Company ' s Approved
      Enterprise programs as the undistributed tax exempt income is essentially
      permanent in duration.





Income
      of
      IXI Israel from sources other than the "Approved Enterprise" during the benefit
      period will be subject to tax at the effective regular corporate tax rate in
      Israel.





On
      April
      1, 2005, an amendment to the Investment Law came into effect ("the Amendment")
      which significantly changed the provisions of the Investment Law. The Amendment
      limits the scope of enterprises which may be approved by the Investment Center
      by setting criteria for the approval of a facility as an "Approved Enterprise",
      such as provisions generally requiring that at least 25% of the Approved
      Enterprise's income will be derived from export. Additionally, the Amendment
      enacted major changes in the manner in which tax benefits are awarded under
      the
      Investment Law so that companies no longer require Investment Center approval
      in
      order to qualify for tax benefits.





However,
      the Investment Law provides that terms and benefits included in any certificate
      of approval already granted will remain subject to the provisions of the law
      in
      effect on the date of such approval. As a result of the Amendment, tax-exempt
      income generated under the provisions of the new law, will subject the Company
      to taxes upon distribution or liquidation and the Company may be required in
      the
      future to record deferred tax liability with respect to such tax-exempt income.
      As of December 31, 2007, the Company did not generate income under the
      provisions of the new law.





2.
            Tax
                rates:





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 — 25%.




F-57




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              13:-**
            **INCOME
                TAXES (Cont.)**





The
      amendment is not expected to have a material effect on the Company's financial
      position and results of operations.





c.
            Net
                operating loss carryforward:





*Domestic* — As
      of December 31, 2007, the state and the federal tax losses carryforward of
      the
      Company and its U.S. subsidiary amounted to approximately $16,400 and $19,800,
      respectively. Such losses are available to be offset against future U.S. taxable
      income of the U.S. subsidiary and will expire in 2021 and 2027,
      respectively.





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, the Company is currently in a
      process of assessing such limitations on its net operating losses 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.





*Foreign* — at
      December 31, 2007, IXI Israel had accumulated losses for tax purposes in the
      amount of approximately $84,000, which may be carried forward and offset against
      taxable income in the future for an indefinite period.





The
      Company's management expects that during the period in which these tax losses
      related to IXI Israel are utilized, its income would be substantially tax
      exempt. Accordingly, no deferred income taxes in respect of such losses have
      been included in these financial statements.





d.
            The
                Company adopted the provisions of FIN 48 as of January 1, 2007. The
                adoption resulted in an increase of the tax provision in the amount
                of
                $234, which was an adjustment to the opening balance of the accumulated
                deficit.





Interest
      associated with uncertain income tax positions and penalties expense are
      classified as income tax expenses. The Company has not recorded any material
      interest or penalties during any of the years presented.





A
      reconciliation of the beginning and ending balances of the total amounts of
      gross unrecognized tax benefits is as follows:


Gross
                  unrecognized tax benefits at January 1, 2007
              
              $
              234Increases
                  in tax positions for prior years
              
              
              -Increases
                  in tax positions for current years
              
              
              -Gross
                  unrecognized tax benefits at December 31, 2007
              
              $
              234




F-58





**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              13:-**
            **INCOME
                TAXES (Cont.)**





e.
            Tax
                reconciliation:





In
      2007,
      2006 and 2005, the main reconciling item between the statutory tax rate of
      the
      Group and the effective tax rate (0%) is carryforward tax losses and other
      deferred taxes for which a full valuation allowance was provided.





f.
            Deferred
                income taxes:





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes.





**December
                31,****2007**
            
            **2006**Provided
                in respect of the following:Carryforward
                tax losses
            
            $
            28,647
            
            $
            18,892Other
                temporary differences
            
            
            3,383
            
            
            1,203Gross
                deferred tax assets
            
            
            32,030
            
            
            20,095Valuation
                allowance
            
            
            (32,030
            )
            
            (20,095
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -





The
      Company provided valuation allowances in respect of deferred tax assets
      resulting principally from the carryforward of tax losses. Management currently
      believes that it is more likely than not that the deferred tax regarding the
      carryforward of losses will not be realized in the foreseeable future. The
      changes in valuation allowance as of December 31, 2007 were $11,935. Deferred
      taxes in respect of other temporary differences were immaterial.





g.
            Loss
                before income taxes is comprised as
                follows:





**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**Domestic
            
            $
            (7,964
            )
            $
            (2,102
            )
            $
            (2,500
            )Foreign
            
            
            (60,626
            )
            
            (21,585
            )
            
            2,156Loss
                before income taxes
            
            $
            (68,590
            )
            $
            (23,687
            )
            $
            (344
            )





F-59





**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              14:-**
            **NET
                EARNINGS (LOSS) PER SHARE**





a.
            Basic
                net loss per share of Common stock is computed based on the weighted
                average number of shares of Common stock outstanding during each
                period.
                Diluted net loss per share of Common stock is computed based on the
                weighted average number of shares of Common stock outstanding during
                each
                period, plus dilutive potential share of Common stock considered
                outstanding during the period, in accordance into SFAS No. 128,
                "Earnings per Share". The shares of IXI Common stock were canceled
                and
                converted into the Company's shares at a ratio of 1:0.15. All share
                and
                earnings (loss) per share information included in this report have
                been
                retroactively adjusted to reflect this conversion (see also Note
                2x). Loss
                for Common stock before the Merger includes accumulated dividend
                due to
                Series D Convertible Preferred stock.





b.
            The
                calculation of basic and diluted net loss per share for the years
                ended
                December 31, 2007, 2006 and 2005 was as
                follows:


**Year
                  ended December 31,****2007**
              
              **2006**
              
              **2005**Numerator:Loss
                  for the period
              
              $
              (68,590
              )
              $
              (22,652
              )
              $
              (11,974
              )Accumulated
                  dividend to Series D Convertible Preferred stock
              
              
              (899
              )
              
              (2,714
              )
              
              (1,616
              )Total
                  loss for the period, included accumulated dividend to Series D
                  convertible
                  Preferred stock:
              
              
              (69,489
              )
              
              (25,366
              )
              
              (13,590
              )Numerator
                  for basic and diluted net income (loss) per share from continuing
                  operations
              
              
              (69,380
              )
              
              (26,401
              )
              
              (1,960
              )Numerator
                  for basic and diluted net from discontinued activities
              
              
              (109
              )
              
              1,035
              
              
              (11,630
              )Denominator:Weighted-average
                  number of shares of Common stock
              
              
              10,812,986
              
              
              684,890
              
              
              294,626Denominator
                  for basic net income (loss) per share
              
              
              10,812,986
              
              
              684,890
              
              
              294,626Basic
                  and diluted net earnings (loss) per Common stockFrom
                  continuing operations
              
              $
              (6.42
              )
              $
              (38.55
              )
              $
              (
                  6.65
              )From
                  discontinued operations
              
              $
              (0.01
              )
              $
              1.51
              
              $
              (39.47
              )Basic
                  and diluted net loss per share
              
              $
              (6.43
              )
              $
              (37.04
              )
              $
              (46.12
              )




**NOTE
              15:-**
            **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.




F-60




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
              15:-**
            **SEGMENTS,
                CUSTOMERS AND GEOGRAPHIC INFORMATION
                (Cont.)**





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
      years ended December 31, 2007, 2006 and 2005, and long-lived assets as of
      December 31, 2007 and 2006:





**2007**
            
            **2006**
            
            **2005****Revenues**
            
            **Long-lived**
              **assets**
            
            **Revenues**
            
            **Long-lived**
              **assets**
            
            **Revenues**Europe
                and the Middle East
            
            $
            14,460
            
            $
            468
            
            $
            12,645
            
            $
            458
            
            $
            825South
                America
            
            
            1,761
            
            
            -
            
            
            184
            
            
            -
            
            
            -Asia
                Pacific
            
            
            19
            
            
            1
            
            
            100
            
            
            3
            
            
            348United
                States
            
            
            -
            
            
            18
            
            
            -
            
            
            30
            
            
            6,794$
            16,240
            
            $
            487
            
            $
            12,929
            
            $
            491
            
            $
            7,967





c.
            Revenues
                from major customers:





**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**Customer
                A
            
            
            48
            %
            
            45
            %
            
            8
            %Customer
                B
            
            
            29
            %
            
            46
            %
            
            -Customer
                C
            
            
            11
            %
            
            1
            %
            
            4
            %Customer
                D
            
            
            -
            
            
            -
            
            
            85
            %




F-61




**IXI
                MOBILE INC.****(Formerly:
                Israel Technology Acquisition Company
                ("ITAC"))****And
                Its Subsidiaries****NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS****U.S.
                dollars in thousands, except share and per share
                data**





**NOTE
                16:-**
            **SUPPLEMENTARY
                DATA ON SELECTED STATEMENTS OF OPERATIONS
                ITEMS**





Financial
      expenses, net:





**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**Financial
                income:Interest
                on bank deposits
            
            $
            569
            
            $
            172
            
            $
            8Exchange
                rate differences, net
            
            
            204
            
            
            111
            
            
            -773
            
            
            283
            
            
            8Financial
                expenses:Interest
                on short-term and long-term loans and short term bank
                credit
            
            
            (1,243
            )
            
            (307
            )
            
            (548
            )Interest
                on convertible loan
            
            
            (1,733
            )
            
            (1,669
            )
            
            (204
            )Exchange
                rate differences, net
            
            
            -
            
            
            -
            
            
            (73
            )Amortization
                of discount attributed to detachable warrant costs
            
            
            -
            
            
            (460
            )
            
            (472
            )Merger
                related expenses
            
            
            (11,288
            )
            
            -
            
            
            -Costs
                related to issuance of warrants to investors
            
            
            (10,818
            )
            
            -
            
            
            -Costs
                related to inducement of loans conversions
            
            
            (8,829
            )
            
            -
            
            
            -Issuance
                of shares of Common stock related to Equity Line of Credit agreement,
                net
            
            
            (284
            )
            
            -
            
            
            -Other
            
            
            (386
            )
            
            (377
            )
            
            (45
            )(34,581
            )
            
            (2,813
            )
            
            (1,342
            )$
            (33,808
            )
            $
            (2,530
            )
            $
            (1,334
            )




**NOTE
                17:-**
            **SUBSEQUENT
                EVENTS (UNAUDITED)**





a.
            On
                January 6, 2008, the Company received an extension of the term of
                the
                remaining $2,540 short-term bank credit, to be repaid on January
                8,
                2009.





b.
            On
                February 28, 2008 the Company issued 4,400,000 shares of Common stock
                relating to contractual obligation to issue on account of long-term
                convertible loan converted into equity on October 25, 2007 and which
                was
                included in stockholders' equity as of December 31, 2007 as receipts
                on
                account of stock.





c.
            On
                March 28, 2008, the Company, the New Lender and the remaining Guarantor
                signed an amendment to the New Convertible Bridge Loan Agreement,
                the
                March 2007 Loans agreements and the Guarantee agreement. The amendments
                defer the repayment date to June 5, 2010 (“Maturity Date”), capitalize any
                principal and accrued and unpaid interests and change the interest
                rates
                to 20% as of April 1, 2008. Additionally the amendments revise the
                time of
                payment of any principal and interest to the Maturity Date. Upon
                a change
                of control of the Company (as defined in the agreements), all unpaid
                principal and accrued and unpaid interest through the Maturity Date
                shall
                be due and payable in full.




F-62