UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 10-QSB

                                   (Mark One)

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

               For the quarterly period ended September 30, 2006

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

   For the transition period from _______________________ to ________________

                       Commission File Number 333-106160

                                  m-Wise, Inc.
                                  ------------

       (Exact name of small business issuer as specified in its charter)

               Delaware                           11-3536906
               --------
   (State or other jurisdiction of             (I.R.S. Employer
    incorporation or organization)             Identification No.)

                 3 Sapir Street, Herzeliya Pituach, Israel 46852
                 -----------------------------------------------

                    (Address of principal executive offices)

                                 +972-9-9611212
                                 --------------
                (Issuer's telephone number, including area code)

                             All Correspondence to:
                             Arthur S. Marcus, Esq.
                               Gersten Savage LLP
                         600 Lexington Avenue, 9th Floor
                            New York, New York 10022
                                 (212) 752-9700

     Check whether the issuer (1) filed all reports required to be filed by
 Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
 shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                                 Yes [X] No [ ]

      The number of shares  outstanding  of the  issuer's  common  stock,  as of
November 13, 2006 was 128,902,659.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]


<PAGE>

                                  m-Wise, INC.

                                TABLE OF CONTENTS

                                                                            Page

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements
        Unaudited Balance Sheet as of September 30, 2006                     F-1
        Unaudited Statements of Operations for the Three Months
          Ended and Nine Months Ended September 30, 2006 and 2005      F-4 - F-5
        Unaudited Statements of Cash Flows for the Nine Months
          Ended September 30, 2006 and 2005                                  F-7
        Notes to Unaudited Financial Statements                       F-8 - F-22
Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations                                  3
Item 3. Controls and Procedures                                                6

PART II
OTHER INFORMATION

Item 1  Legal Proceedings                                                     23
Item 2  Changes in Securities and Small Business                              23
        Issuer Purchases of Equity Securities                                 23
Item 3  Defaults upon Senior Securities                                       23
Item 4  Submission of Matters to a Vote of Security Holders                   23
Item 5  Other Information                                                     23
Item 6  Exhibits and Reports on Form 8-K                                      23


                                       2
<PAGE>

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

                                  m-Wise, Inc.

                        CONSOLIDATED FINANCIAL STATEMENTS

                    PERIODS ENDED SEPTEMBER 30, 2006 AND 2005



                                    CONTENTS

Report of Independent Registered Public Accounting Firm                      F-2

Consolidated Balance Sheets                                                  F-3

Consolidated Statements of Operations                                  F-4 - F-5

Consolidated Statements of Changes in Stockholders' Deficit                  F-6

Consolidated Statements of Cash Flows                                        F-7

Notes to Consolidated Financial Statements                            F-8 - F-22


                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of m-Wise, Inc.


         We have  reviewed  the  accompanying  consolidated  balance  sheets  of
m-Wise, Inc. and subsidiaries (the "Company") as of September 30, 2006 and 2005,
and the related consolidated statements of operations, stockholders' deficit and
cash flows for the nine months then ended.  These interim  financial  statements
are the responsibility of the Company's management.

         We conducted  our reviews in  accordance  with  standards of the Public
Company  Accounting  Oversight  Board  (United  States).  A  review  of  interim
financial  information consists primarily of applying analytical  procedures and
making inquires of persons  responsible for financial and accounting matters. It
is  substantially  less in scope  than an audit  conducted  in  accordance  with
standards of the Public Company Accounting  Oversight Board (United States), the
objective  of which is the  expression  of an opinion  regarding  the  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

         Based on our reviews,  we are not aware of any  material  modifications
that should be made to the consolidated interim financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.



                                                 "SF PARTNERSHIP, LLP"



Toronto, Canada                                  CHARTERED ACCOUNTANTS
November 6, 2006


                                      F-2
<PAGE>

m-Wise, Inc.
Balance Sheets
September 30, 2006 and 2005

<TABLE>
<CAPTION>

                                                               2006            2005
<S>                                                        <C>             <C>

                                     ASSETS
Current
    Cash                                                   $     20,891    $      9,988
    Accounts receivable - trade (net of allowance for           450,653         236,996
       doubtful accounts of $70,186, 2005, $25,177)
    Prepaid and sundry assets                                   204,097          45,457
                                                           ------------    ------------
Total Current Assets                                            675,641         292,441
Long-term Prepaid Expenses                                       20,015          21,015
Equipment (note 3)                                              133,513         176,391
Deferred Financing Fees                                          15,795          28,423
                                                           ------------    ------------
Total Assets                                               $    844,964    $    518,270
                                                           ============    ============


                                   LIABILITIES
Current
    Bank indebtedness                                      $     11,421    $     24,307
    Trade accounts payable                                       60,011         148,679
    Advances from stockholder (note 4)                          435,254         133,853
    Other payables and accrued liabilities                      905,237         990,338
    Billings in excess of costs on uncompleted contracts         65,383              --
    Notes payable - current portion                                  --         166,800
                                                           ------------    ------------
Total Current Liabilities                                     1,477,306       1,463,977
Accrued Severance Pay (note 5)                                   63,340          48,520
Notes Payable (note 6)                                               --       1,751,893
                                                           ------------    ------------
Total Liabilities                                             1,540,646       3,264,390
                                                           ------------    ------------


Commitments and Contingencies (note 11)

                                  STOCKHOLDERS'
                                   DEFICIENCY

Common Stock (note 7)                                      $    219,135    $    134,307
Additional Paid in Capital                                    9,950,382       7,397,721
Accumulated Deficit                                         (10,865,199)    (10,278,148)
                                                           ------------    ------------
Total Stockholders' Deficiency                                 (695,682)     (2,746,120)
                                                           ------------    ------------
Total Liabilities and Stockholders' Deficiency             $    844,964    $    518,270
                                                           ============    ============

</TABLE>

          (The  accompanying  notes of the financial  statements are an integral
part of these statements.)


                                      F-3
<PAGE>

m-Wise, Inc.
Consolidated Statements of Operations
Nine Months Ended September 30, 2006 and 2005

<TABLE>
<CAPTION>

                                                       2006             2005
<S>                                               <C>              <C>

Net Sales                                         $   1,523,953    $   1,976,469

Cost of Sales                                           165,106          436,559
                                                  -------------    -------------

Gross Profit                                          1,358,847        1,539,910
                                                  -------------    -------------

Expenses
    General and administrative                          920,203        1,278,200
    Research and development                            396,575          521,601
    Financial                                           267,777           23,458
                                                  -------------    -------------

                                                      1,584,555        1,823,259
                                                  -------------    -------------

Net Loss and Comprehensive Loss                   $    (225,708)   $    (283,349)
                                                  =============    =============

Basic and Fully Diluted Loss Per Share (note 7)   $        0.00             0.00
                                                  =============    =============

Basic Weighted Average Number of Shares             124,656,511       72,300,957
                                                  =============    =============

</TABLE>

          (The  accompanying  notes of the financial  statements are an integral
part of these statements.)


                                      F-4
<PAGE>


m-Wise, Inc.
Consolidated Statements of Operations
Three Months Ended September 30, 2006 and 2005

<TABLE>
<CAPTION>

                                                       2006             2005
<S>                                               <C>              <C>

Sales                                             $     499,253    $     352,687

Cost of Sales                                            53,366           79,186
                                                  -------------    -------------

Gross Profit                                            445,887          273,501
                                                  -------------    -------------

Expenses
    General and administrative                          306,797          693,617
    Research and development                            123,826          166,073
    Financial                                            16,259            4,937
                                                  -------------    -------------

                                                        446,882          864,627
                                                  -------------    -------------

Net Loss and Comprehensive Loss                   $        (995)   $    (591,126)
                                                  =============    =============

Basic and Fully Diluted Loss Per Share (note 7)   $        0.00            (0.01)
                                                  =============    =============

Basic Weighted Average Number of Shares             128,902,659       77,363,180
                                                  =============    =============

</TABLE>

          (The  accompanying  notes of the financial  statements are an integral
part of these statements.)


                                      F-5
<PAGE>

m-Wise, Inc.
Consolidated Statements of Stockholders' Deficit
Nine Months Ended September 30, 2006 and 2005

<TABLE>
<CAPTION>

                                               Common Stocks
                                                                       Additional
                                         Number of                      Paid in       Accumulated
                                           Shares         Amount        Capital         Deficit
                                        ------------   ------------   ------------    ------------
<S>                                     <C>            <C>            <C>             <C>

Balance, January 1, 2005                  69,506,898   $    118,162   $  6,894,664    $ (9,994,799)

Options vested for employee services              --             --         11,735              --

Shares issued for employee services        5,000,000          8,500        491,500              --

Exercise of stock options                  4,497,204          7,645           (178)             --

Net Loss                                          --             --             --        (283,349)
                                        ------------   ------------   ------------    ------------

Balance, September 30, 2005               79,004,102   $    134,307   $  7,397,721    $(10,278,148)
                                        ============   ============   ============    ============

Balance, January 1, 2006                 113,514,158   $    192,974   $  7,399,394    $(10,639,491)

Issuance of common stock for
   repayment of the notes payable
    (notes 6 and 7)                       12,400,448         21,081      1,723,829              --

Issuance of warrants for repayment of
   notes payable (notes 6 and 7)                  --             --        436,228              --

Exercise of stock options (note 7)
   - quarter ended March 31, 2006            169,871            289            (18)             --

Issuance of common stock for
   consulting fees (note 7) - quarter
   ended June 30, 2006                     2,818,182          4,791        305,209              --

Options vested for employee services
   (note 7)                                       --             --         85,740              --

Net loss                                          --             --             --        (225,708)
                                        ------------   ------------   ------------    ------------

Balance, September 30, 2006              128,902,659   $    219,135   $  9,950,382    $(10,865,199)
                                        ============   ============   ============    ============

</TABLE>

          (The  accompanying  notes of the financial  statements are an integral
part of these statements.)


                                      F-6
<PAGE>

m-Wise, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2006 and 2005

<TABLE>
<CAPTION>

                                                                                       2006           2005
<S>                                                                                <C>            <C>
Cash Flows from Operating Activities
    Net loss                                                                       $  (225,708)   $  (283,349)
    Adjustments  required to  reconcile  net loss to net cash used in  operating
      activities:
      Consulting fees paid by issuance of common stocks                                129,167             --
      Depreciation                                                                      82,551         83,084
      Wages and salaries paid by options                                                86,011         11,735
      Financing fees paid by issuance of common stocks                                 222,104             --
      Wages and salaries paid by issuance of shares                                         --        500,000
    Net Changes in Assets & Liabilities
      Accounts receivable - trade                                                     (297,619)       (81,633)
      Prepaid and sundry assets                                                        (12,365)       (38,449)
      Billings in excess of costs on uncompleted contracts                              51,583       (669,890)
      Trade accounts payable                                                           (34,893)           126
      Other payables and accrued liabilities                                           (91,328)       183,461
      Long-term prepaid expenses                                                         2,282         (6,420)
      Amortization of deferred financing fees                                            9,471          9,471
      Accrued severance pay                                                              4,869         32,003
                                                                                   -----------    -----------
Net Cash Used in Operating Activities                                                  (73,875)      (259,861)
                                                                                   -----------    -----------
Cash Flows from Investing Activities
    Acquisition of equipment                                                           (50,149)       (38,696)
                                                                                   -----------    -----------

Net Cash Used in Investing Activities                                                  (50,149)       (38,696)
                                                                                   -----------    -----------

Cash Flows from Financing Activities
    Advances from stockholder                                                          143,989        133,853
    Proceeds from issuance of Promissory Notes                                              --         34,800
    Proceeds from issuance of common stock and warrants
       for repayment of notes payable                                                1,959,034             --
    Repayment of notes payable                                                      (1,959,034)            --
    Bank indebtedness - net                                                                353          7,571
    Proceeds from stock options exercised                                                   --          7,467
                                                                                   -----------    -----------
Net Cash Provided by Financing Activities                                              144,342        183,691
                                                                                   -----------    -----------
Net Increase (Decrease) in Cash                                                         20,318       (114,866)
Cash - beginning of  period                                                                573        124,854
                                                                                   -----------    -----------
Cash - end of period                                                               $    20,891    $     9,988
                                                                                   ===========    ===========

Interest and Income Taxes Paid

During the quarter, the Company had no cash flows arising
    from income taxes and interests paid as follows:
    Interest paid                                                                  $     1,924    $       769
                                                                                   ===========    ===========

</TABLE>


                                      F-7
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


1.    Description of Business and Going Concern

      a)    Description of Business

            m-Wise Inc. (the "Company") is a Delaware corporation which develops
            interactive  messaging  platforms for mobile phone-based  commercial
            applications,  transactions  and information  services with internet
            billing capabilities.

            The Company's  wholly-owned  subsidiary,  m-Wise Ltd., is located in
            Israel and was incorporated in 2000 under the laws of Israel.

      b)    Going Concern

            The Company's financial  statements are presented on a going concern
            basis, which contemplates the realization of assets and satisfaction
            of  liabilities  in the normal  course of business.  The Company has
            experienced  recurring  losses since  inception,  has negative  cash
            flows from  operations  with  negative  working  capital  that raise
            substantial  doubt as to its ability to continue as a going concern.
            For the quarter ended  September 30, 2006,  the Company  experienced
            net losses of  $225,708  and a working  capital  deficit of $801,665
            (2005 - $1,171,536).

            The  Company is in an  industry  where  operational  fluctuation  is
            usually  higher than other  ordinary  industries.  The  accompanying
            financial  statements reflect management's current assessment of the
            impact to date of the economic  situation on the financial  position
            of  the  Company.   Actual  results  may  differ   materially   from
            management's current assessment.

            The  Company's  ability  to  continue  as a  going  concern  is also
            contingent  upon  its  ability  to  secure   additional   financing,
            continuing   sale  of  its   products  and   sustaining   profitable
            operations.

            The Company is  pursuing  additional  financing  but there can be no
            assurance  that the Company  will be able to secure  financing  when
            needed or obtain financing on terms satisfactory to the Company,  if
            at all.

            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  possible  inability of the Company to continue as a
            going concern.


                                      F-8
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


2.    Summary of Significant Accounting Policies

      The  accounting  policies  of the  Company  are in  accordance  with  U.S.
      generally accepted accounting  principles,  and their basis of application
      is consistent with that of the previous  period.  Outlined below are those
      policies considered particularly significant:

      a)    Reporting Currency

            A majority of the Company's  revenues are generated in U.S. dollars.
            In  addition,  a  substantial  portion  of the  Company's  costs are
            incurred in U.S.  dollars.  Management has determined  that the U.S.
            dollar  will be  used  as the  Company's  functional  and  reporting
            currency.

      b)    Basis of Consolidation

            The  consolidated  financial  statements  include the  operations of
            m-Wise Inc. and its wholly-owned subsidiary. Intercompany's balances
            and transactions have been eliminated.

      c)    Deferred Financing Fees

            Deferred financing fees relate to a non-interest bearing credit line
            facility of $500,000  provided by a stockholder as disclosed in note
            4. The overdraft from the credit  facility is  non-interest  bearing
            and there are no  covenants  with  which  the  Company  will need to
            comply.  The  credit  line  facility  has  no  expiration  date  and
            management  expects to retain the  facility for a period of at least
            five  years.  Accordingly,  the fees are being  amortized  using the
            straight-line method over five years.

      d)    Equipment and Depreciation

            Equipment stated at cost less accumulated depreciation. Depreciation
            is based on the estimated useful lives of the assets and is provided
            using the undernoted annual rates and methods:

             Furniture and equipment              6-15%          Straight line
             Computer equipment                     33%          Straight line
             Leasehold improvements    Straight line over the term of the lease


                                      F-9
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


2. Summary of Significant Accounting Policies (cont'd)

      e)    Revenue Recognition

            The  Company  generates  revenues  from  product  sales,  licensing,
            customer services and technical support.

            Revenues from products sales are recognized on a  completed-contract
            basis, in accordance with Staff Accounting Bulletin No. 101 "Revenue
            Recognition in Financial  Statements" ("SAB No. 101"),  Statement of
            Position  97-2  "Software  Revenue  Recognition"  and  Statement  of
            Position 81-1 "Accounting for Performance of  Construction-Type  and
            Certain  Production-Type   Contracts".  The  Company  has  primarily
            short-term contracts whereby revenues and costs in the aggregate for
            all  contracts  is expected to result in a matching of gross  profit
            with period  overhead or fixed costs similar to that achieved by use
            of  the  percentage-of-completion  method.  Accordingly,   financial
            position and results of operations  would not vary  materially  from
            those resulting from the use of the percentage-of-completion method.
            Revenue is  recognized  only after all three stages of  deliverables
            are complete;  installation,  approval of acceptance test results by
            the customer and when the product is successfully put into real-life
            application.   Customers   are  billed,   according  to   individual
            agreements,  a percentage of the total contract fee upon  completion
            of work in each stage; approximately 40% for installation,  40% upon
            approval of acceptance  tests by the customer and the balance of the
            total  contract  price when the  software is  successfully  put into
            real-life application. The revenues, less its' associated costs, are
            deferred and  recognized  on completion of the contract and customer
            acceptance.  Amounts  received for work  performed in each stage are
            not refundable.

            On-going  service and technical  support  contracts  are  negotiated
            separately at an additional  fee. The technical  support is separate
            from the  functionality of the products,  which can function without
            on-going support.

            Technology  license  revenues are recognized in accordance  with SAB
            No. 101 at the time the  technology  and license is delivered to the
            customer, collection is probable, the fee is fixed and determinable,
            a  persuasive  evidence  of  an  agreement  exists,  no  significant
            obligation  remains  under the sale or  licensing  agreement  and no
            significant customer acceptance requirements exist after delivery of
            the technology.

            Revenues  relating to customer  services and  technical  support are
            recognized  as the services are rendered  ratably over the period of
            the related contract.

            The Company does not sell products with multiple deliverables. It is
            management's  opinion that EITF 00-21,  "Revenue  Arrangements  With
            Multiple Deliverables" is not applicable.

      f)    Research and Development Costs

            Research and development costs are expensed as incurred.


                                      F-10
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


2. Summary of Significant Accounting Policies (cont'd)

      g)    Use of Estimates

            The  preparation of financial  statements,  in conformity  with U.S.
            generally accepted  accounting  principles,  requires  management to
            make estimates and assumptions  that affect the reported  amounts of
            assets and  liabilities  and  disclosure  of  contingent  assets and
            liabilities at the date of the financial statements and the reported
            amounts of revenues and expenses during the reporting period. Actual
            results could differ from those estimates.

      h)    Concentration of Credit Risk

            SFAS No. 105, "Disclosure of Information About Financial Instruments
            with   Off-Balance   Sheet  Risk  and  Financial   Instruments  with
            Concentration   of  Credit   Risk",   requires   disclosure  of  any
            significant  off-balance  sheet risk and credit risk  concentration.
            The  Company  does not have  significant  off-balance  sheet risk or
            credit   concentration.   The  Company   maintains   cash  and  cash
            equivalents with major Israel financial institutions.

            The Company's provides credit to its clients in the normal course of
            its  operations.  Depending  on their size,  financial  strength and
            reputation,  customers are given credit terms of up to 60 days.  The
            Company  carries out, on a continuing  basis,  credit  checks on its
            clients and maintains provisions for contingent credit losses which,
            once they materialize, are consistent with management's forecasts.

            For other debts, the Company determines,  on a continuing basis, the
            probable  losses and sets up a  provision  for  losses  based on the
            estimated realizable value.

            Concentration of credit risk arises when a group of clients having a
            similar  characteristic  such  that  their  ability  to  meet  their
            obligations  is  expected  to be  affected  similarly  by changes in
            economic  or  other  conditions.  The  Company  does  not  have  any
            significant risk with respect to a single client.

      i)    Fair Value of Financial Instruments

            The  estimated  fair  value  of  financial   instruments   has  been
            determined by the Company using  available  market  information  and
            valuation  methodologies.   Considerable  judgment  is  required  in
            estimating  fair  value.  Accordingly,  the  estimates  may  not  be
            indicative  of the amounts the  Company  could  realize in a current
            market  exchange.  At  September  30,  2006 and 2005,  the  carrying
            amounts  of  cash  equivalents,   short-term  bank  deposits,  trade
            receivables and trade payables  approximate their fair values due to
            the short-term maturities of these instruments.


                                      F-11
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


2. Summary of Significant Accounting Policies (cont'd)

      j)    Earnings per Common Stock

            The Company calculates net earnings per share based on SFAS No. 128,
            "Earnings  Per  Share".  Basic  earnings  per share is  computed  by
            dividing net earnings attributable to the common stockholders by the
            weighted average number of common stocks outstanding.  Fully diluted
            earnings per share is computed  similar to basic  earnings per share
            except that the  denominator  is  increased to include the number of
            additional  common  stocks that would have been  outstanding  if the
            potential common stocks had been issued and if the additional common
            stocks were dilutive.

      k)    Impact of Recently Issued Accounting Standards

            In  December  2004,  the FASB  issued a  revision  to SFAS No.  123,
            "Share-Based  Payment"  (Statement 123R). This Statement  requires a
            public entity 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 (with limited exceptions). That cost will be
            recognized  over the period during which the employee is required to
            provide service in exchange for the award  requisite  service period
            (usually the vesting period). No compensation cost is recognized for
            equity  instruments  for which employees do not render the requisite
            service.   Employee   share   purchase  plans  will  not  result  in
            recognition  of  compensation  cost if certain  conditions  are met;
            those  conditions  are much the same as the  related  conditions  in
            Statement 123. This Statement is effective for public  entities that
            do not file as a small  business  issuers as of the beginning of the
            first interim or annual  reporting period that begins after June 15,
            2005.  This  Statement  applies  to all  awards  granted  after  the
            required  effective  date and to awards  modified,  repurchased,  or
            cancelled  after  that  date.  The  cumulative  effect of  initially
            applying  this  Statement,  if any, is recognized as of the required
            effective date and is not expected to have a material  impact on the
            Company's consolidated financial statements.

            In May 2005, the FASB issued Statement No. 154,  Accounting  Changes
            and Error Corrections - A Replacement of APB Opinion No. 20 and FASB
            Statement No. 3 (Statement  No. 154).  Statement No. 154 changes the
            requirements  for the  accounting  for and  reporting of a change in
            accounting  principle.  Statement  No.  154  requires  retrospective
            application of any change in accounting  principle to prior periods'
            financial  statements.  Statement No. 154 is effective for the first
            fiscal period  beginning  after  December 15, 2005. We do not expect
            the implementation of Statement No. 154 to have a significant impact
            on our consolidated financial statements.


                                      F-12
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


2. Summary of Significant Accounting Policies (cont'd)

      k) Impact of Recently Issued Accounting Standards (cont'd)

            In March 2006,  FASB issued SFAS No. 156,  "Accounting for Servicing
            of Financial  Assets",  which amends SFAS No. 140,  "Accounting  for
            Transfers and Servicing of Financial Assets and  Extinguishments  of
            Liabilities".  In a significant change to current guidance, SFAS No.
            156 permits an entity to choose either of the  following  subsequent
            measurement   methods  for  each  class  of  separately   recognized
            servicing assets and servicing liabilities:  (1) Amortization Method
            or (2) Fair Value Measurement  Method.  SFAS No. 156 is effective as
            of the beginning of an entity's  first fiscal year that begins after
            September 15, 2006.  The Company is currently  reviewing the effect,
            if any, the proposed guidance will have on its financial position.

            In  July   2006   FASB   issued   Financial   Accounting   Standards
            Interpretation  No. 48 ("FIN 48"),  "Accounting  for  Uncertainty in
            Income Taxes".  FIN 48 clarifies the  accounting for  uncertainty in
            income taxes recognized in an enterprises'  financial  statements in
            accordance with SFAS No. 109,  "Accounting for Income Taxes". FIN 48
            prescribes a recognition threshold and measurement  attributable for
            the  financial  statement  recognition  and  measurement  of  a  tax
            position taken or expected to be taken in a tax return.  FIN 48 also
            provides  guidance on  derecognition,  classification,  interest and
            penalties,   accounting   in  interim   periods,   disclosures   and
            transitions.  FIN 48 is effective for fiscal years  beginning  after
            December 15, 2006. The Company is currently reviewing the effect, if
            any, FIN48 will have on its financial position.

             In September 2006, the Securities and Exchange  Commission  ("SEC")
            staff  issued  Staff  Accounting   Bulletin  No.  108  ("SAB  108"),
            "Considering   the   Effects  of  Prior  Year   Misstatements   when
            Quantifying Misstatements in Current Year Financial Statements." SAB
            108 was issued to provide  consistency in how  registrants  quantify
            financial  statement  misstatements.  The Company is required to and
            will initially  apply SAB 108 in connection  with the preparation of
            its annual  financial  statements  for the year ending  December 31,
            2006. The Company does not expect the application of SAB 108 to have
            a  material  effect  on  its  financial   position  and  results  of
            operations.


                                      F-13
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


2. Summary of Significant Accounting Policies (cont'd)

      k) Impact of Recently Issued Accounting Standards (cont'd)

            In September 2006, the FASB issued Statement of Financial Accounting
            Standards No. 158, Employers' Accounting for Defined Benefit Pension
            and Other Postretirement Plans - an amendment of FASB Statements No.
            87, 88, 106 and 132 (R) ("SFAS 158").  SFAS 158 requires an employer
            to recognize the funded status of a defined  benefit  postretirement
            plan as an asset or liability in its statement of financial position
            and to recognize  changes in that funded status in the year in which
            the changes occur through comprehensive income. The funded status of
            a benefit plan is defined as the  difference  between the fair value
            of the plan assets and the plans benefit  obligation.  For a pension
            plan the benefit  obligation is the projected benefit obligation and
            for any other postretirement  benefit plan, such as a retiree health
            care plan, the benefit obligation is the accumulated  postretirement
            benefit obligation.  SFAS 158 requires an employer to recognize as a
            component of other  comprehensive  income, net of tax, the gains and
            losses  and prior  service  costs or credits  that arise  during the
            period but that are not  recognized  as  components  of net periodic
            benefit  costs  pursuant  to SFAS  87.  SFAS 158  also  requires  an
            employer  to measure  the funded  status of a plan as of the date of
            its year-end.  Additional footnote disclosure is also required about
            certain effects on net periodic  benefit cost for the next year that
            arise from the delayed recognition of gains or losses, prior service
            costs or credits, and transition asset or obligation. Except for the
            year-end measurement requirement, SFAS 158 is effective for the year
            ending  December 31, 2006. The Company does not anticipate  that the
            adoption  of this  Statement  will  have a  material  effect  on its
            financial condition or operations.

            In September 2006, the Financial Accounting Standards Board ("FASB")
            issued Statement of Financial Accounting Standards ("SFAS") No. 157,
            "Fair Value  Measurements,"  which is effective  for  calendar  year
            companies  on January 1, 2008.  The  Statement  defines  fair value,
            establishes a framework for measuring fair value in accordance  with
            Generally Accepted  Accounting  Principles,  and expands disclosures
            about fair value measurements. The Statement codifies the definition
            of fair value as the price that would be  received  to sell an asset
            or paid to transfer a liability  in an orderly  transaction  between
            market  participants at the measurement date. The standard clarifies
            the  principle  that fair value  should be based on the  assumptions
            market  participants  would use when  pricing the asset or liability
            and  establishes  a  fair  value  hierarchy  that   prioritizes  the
            information  used to  develop  those  assumptions.  The  Company  is
            currently  assessing  the  potential  impacts of  implementing  this
            standard.


                                      F-14
<PAGE>

<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005

<TABLE>
<CAPTION>

3.    Equipment

      Equipment is comprised as follows:

                                                  2006                          2005
                                               Accumulated                   Accumulated
                                    Cost       Depreciation       Cost       Depreciation
                                ------------   ------------   ------------   ------------
<S>                             <C>            <C>            <C>            <C>

      Furniture and equipment         60,090         31,067         57,747         24,737
      Computer equipment        $    415,011   $    312,573   $    552,116   $    415,247
      Leasehold improvements          20,868         18,816         37,684         31,172
                                ------------   ------------   ------------   ------------

                                $    495,969   $    362,456   $    647,547   $    471,156
                                ------------   ------------   ------------   ------------

      Net carrying amount                      $    133,513                  $    176,391
                                               ------------                  ------------

</TABLE>

4.    Advances from Stockholder

      The advances from the major stockholder are non-interest  bearing and have
      no fixed terms of repayment. According to an agreement dated January 2003,
      the  stockholder  granted a credit  facility of $500,000 to the Company in
      return for preferred class C shares as described in note 7. At the quarter
      ended  September 30, 2006,  the company has drawn  $435,254 on the line of
      credit.


5.    Accrued Severance Pay

      The Company accounts for its potential  severance  liability of its Israel
      subsidiary in accordance with EITF 88-1,  "Determination of Vested Benefit
      Obligation for a Defined  Benefit Pension Plan".  The Company's  liability
      for  severance pay is  calculated  pursuant to  applicable  labour laws in
      Israel on the most recent salary of the employees multiplied by the number
      of years of employment as of the balance sheet date for all employees. The
      Company's  liability is fully accrued and reduced by monthly deposits with
      severance pay funds and insurance  policies.  As at September 30, 2006 and
      2005,  the amount of the  liabilities  accrued  were  $133,115 and $99,824
      respectively.  Severance pay expenses for the periods ended  September 30,
      2006 and 2005 were $19,948 and $42,864 respectively.

      The deposit funds include profits accumulated up to the balance sheet date
      from the Israeli  company.  The deposited funds may be withdrawn only upon
      the fulfillment of the obligation  pursuant to Israeli  severance pay laws
      or labour  agreements.  Cash  surrender  values of the deposit funds as at
      September 30, 2006 and 2005 were $69,775 and $51,304 respectively.  Income
      earned from the deposit funds for 2006 and 2005 was immaterial.


                                      F-15
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


6.    Notes Payable

<TABLE>
<CAPTION>

                                                         2006         2005
<S>                                                   <C>          <C>
      Syntek Capital AG
        - a significant stockholder until July 2002   $       --   $  900,000
      DEP Technology Holdings Ltd.
        - a significant stockholder until July 2002           --      900,000
      Accrued interest                                        --      118,693
                                                      ----------   ----------
                                                              --    1,918,693
      Less: Current portion                                   --      166,800
                                                      ----------   ----------
                                                      $       --   $1,751,893
                                                      ==========   ==========
</TABLE>


      On March 8, 2006,  the above  $900,000  note payable to Syntek  Capital AG
      ("Syntek")  was  converted  into  6,200,224  common  stocks of the Company
      pursuant to an agreement dated December 22, 2005.

      In addition, the Company will issue warrants to Syntek for the purchase of
      up to 5,263,158 common stocks of the Company at an exercise price of $0.19
      per warrant.  As at September 30, 2006,  warrants have been issued but not
      exercised.

      On March 8, 2006, the Company entered into an identical agreement with DEP
      Technology Holdings Ltd. ("DEP").

      Under both agreements,  the three founding stockholders transferred 11.25%
      of their shareholdings to Syntek and DEP in accordance with the agreement.

      As a result of the above transfers,  each of Syntek and DEP owns 9% of the
      total outstanding common stock of the Company as at September 30, 2006. If
      the warrants are exercised, their percentage ownership in the Company will
      increase to 13%.


                                      F-16
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


7.    Common Stock

<TABLE>
<CAPTION>

<S>     <C>                <C>
        Authorized
          210,000,000      Common stocks
          170,000,000      Preferred shares
                           Series "A": convertible, voting,  par value of $0.0017 per share
                           Series "B": 10% non-cumulative dividend, redeemable, convertible,
                                       voting,  par value of $0.0017 per share
                           Series "C": 10% non-cumulative dividend, convertible, voting, par
                                       value of $0.0017 per share

</TABLE>

                                                          2006       2005
       Issued and outstanding
                  128,902,659   Common stocks
                  (2005 - 79,004,102)                   $219,135   $134,307
                                                        --------   --------

      Stock warrants and options:

      The Company  accounted  for its stock  options and warrants in  accordance
      with SFAS 123  "Accounting  for Stock - Based  Compensation"  and SFAS 148
      "Accounting for Stock - Based  compensation - Transition and  Disclosure."
      Value of options  granted has been  estimated by the Black Scholes  option
      pricing model. The following assumptions were used:

<TABLE>
<CAPTION>

                                        2006                          2005
                                 Israel       International    Israel       International
<S>                              <C>          <C>              <C>          <C>

      Interest rate                   8%                  8%        5%                  5%
      Expected volatility            80%                 80%       50%                 50%
      Expected life in years          5                   7         8                  10

</TABLE>

      Warrants:

      On December 22, 2005,  the Company  entered into an agreement  with Syntek
      Capital AG, as part of the  agreement  for  conversion of the note payable
      into common  stocks as  mentioned  in note 6,  whereby the Company  issued
      warrants to purchase up to  5,263,158  common  stocks of the Company at an
      exercise price of $0.19. The value assigned to the warrants was $ 218,114.
      As of September 30, 2006, the warrants have not been converted into common
      stocks.


                                      F-17
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


7. Common Stock (cont'd)

      On February 2, 2006, the Company entered into an identical  agreement with
      DEP Technology Holdings Ltd. as mentioned in note 6. The value assigned to
      the  warrants was $218,114.  As of September  30, 2006,  the warrants have
      not been converted into common stocks.

      Capital stock:

      On July 29, 2005,  the Company  issued  5,000,000  common  stocks,  at par
      value,  to its  Chief  Financial  Officer  as  compensation  for  services
      rendered from  September  2002 to December 2005. It was agreed upon by the
      parties that the fair value of such  services was  $500,000,  all of which
      has been charged to wage expense

      On  March 8,  2006,  the  Company  issued  12,400,448  common  stocks  for
      repayment of the  $1,800,000  note payable to Syntek Capital AG ("Syntek")
      and DEP as mentioned in note 6.

      On April 28,  2006,  the Company  issued  2,818,182  common  stocks to its
      external  consultant in exchange for  consulting  services.  It was agreed
      upon by the parties that the fair value of such services was $310,000.  At
      September 30, 2006,  $129,167 has been charged to  consulting  expense and
      $180,833  has been  deferred  and will be  amortized  over the term of the
      contract.

      Stock Options:

      In February 2001 the Board of Directors of the Company  adopted two option
      plans to allow  employees and  consultants to purchase  ordinary shares of
      the Company.

      Under the Israel  2001  share  option  plan  management  authorized  stock
      options  for  2,403,672  common  stocks  of the  Company  having a $0.0017
      nominal  par value each and an exercise  price of  $0.0017,  and under the
      International  2001 share option plan,  stock  options for 300,000  common
      stocks  having a $0.0017  nominal par value each and an exercise  price of
      $0.0017.  As of September  30, 2006,  3,672  options under the Israel 2001
      share option plan for common stock were not yet granted.

      In the  quarter  ended March 31,  2006,  a total of 169,871  common  stock
      options were exercised by the employees.


                                      F-18
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


7. Common Stock (cont'd)

      Under the Israel  2003  share  option  plan  management  authorized  stock
      options (on a post conversion,  post split basis) for 16,094,106 preferred
      Class "B" shares, which were converted to options for common stocks of the
      Company  having a $0.0017  nominal par value each and an exercise price of
      $0.0017,  and under the International 2003 share option plan stock options
      (on a post  conversion,  post split basis) for 25,061,094  preferred Class
      "B"  shares  which were  converted  to  options  for common  stocks of the
      Company  having a $0.0017  nominal par value each and an exercise price of
      $0.0017.  On  January  5,  2006,  the share  option  plan was  amended  to
      authorize an additional 1,260,000 stock options and the exercise price per
      share for the new options will be $0.12 for options  granted after January
      5,  2006.  On August  14,  2006,  the share  option  plan was  amended  to
      authorize an additional  6,000,000  stock options at an exercise  price of
      $0.04.  As of September  30, 2006,  38,256  options  under the Israel 2003
      share option plan were not yet granted.

      On January 12, 2006,  1,260,000  stock options under the Israel 2003 share
      options plan were granted at an exercise price of $0.12.  On June 6, 2006,
      the exercise price was amended to $0.05.  The  compensation  cost has been
      revalued  as if the  option  plan  has  been  cancelled  and  reissued  in
      accordance  with SFAS  123,  paragraph  187  Accounting  for  Stock  Based
      Payments (Modification of Awards).

      On August 14, 2006,  6,000,000  stock  options under the Israel 2003 share
      options plan were granted at an exercise price of $0.04.

      The options vest gradually over a period of 4 years from the date of grant
      for  Israel  and 10 years  (no less  than 20% per year for five  years for
      options granted to employees) for the International plan. The term of each
      option shall not be more than 8 years from the date of grant in Israel and
      10 years from the date of grant in the International plan. The outstanding
      options  that  have  vested  have  been  expensed  in  the  statements  of
      operations as follows:

<TABLE>
<CAPTION>

<S>           <C>                                         <C>
              Year ended December 31, 2001                $        9,000
              Year ended December 31, 2002                             --
              Year ended December 31, 2003                       384,889
              Year ended December 31, 2004                        25,480
              Year ended December 31, 2005                        13,733
               Period ended September 30, 2006                    85,740
                                                          --------------

                                                          $      518,842
                                                          --------------

</TABLE>


                                      F-19
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


7. Common Stock (cont'd)

      The following table summarizes the activity of common stock options during
2006 and 2005:

<TABLE>
<CAPTION>

                                                        2006                           2005
                                                 Israel       International      Israel     International
                                               -----------    --------------   ----------   -------------
<S>                                              <C>          <C>              <C>          <C>

      Outstanding, beginning of period           3,745,192         1,026,797   18,455,850      25,361,094
         Granted                                 7,260,000                --           --              --
         Exercised                                (169,871)               --   (4,000,464)       (496,740)
         Preferred stock options converted
         to common                                      --                --           --              --
         Forfeited                                  (1,813)               --       (3,797)         (1,404)
                                               -----------    --------------   ----------   -------------

      Outstanding, end of period                10,833,508         1,026,797   14,451,589      24,862,950
                                               -----------    --------------   ----------   -------------

      Weighted average fair value of common
      stock options granted during the
      period                                   $    0.0356    $           --   $       --   $          --
                                               -----------    --------------   ----------   -------------

      Weighted average exercise price of
      common stock options, beginning of
      period                                   $    0.0017    $       0.0017   $   0.0017   $      0.0017
                                               -----------    --------------   ----------   -------------

      Weighted average exercise price of
      common stock options granted in the
      period                                   $    0.0417    $           --   $       --   $          --
                                               -----------    --------------   ----------   -------------

      Weighted average exercise price of
      common stock options, end of
      period                                   $    0.0285    $       0.0017   $   0.0017   $      0.0017
                                                 ---------    --------------   ----------   -------------

      Weighted average remaining contractual
      life of common stock options                 5 years           7 years      6 years         8 years
                                                 ---------    --------------   ----------   -------------

</TABLE>


                                      F-20
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


 8.   Income Taxes

      The Company  accounts  for income taxes in  accordance  with SFAS No. 109,
      "Accounting  for Income  Taxes".  This Standard  prescribes the use of the
      liability method whereby deferred tax asset 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.  The  effects  of  future  changes  in tax  laws or  rates  are not
      anticipated.

      Under SFAS No. 109  income  taxes are  recognized  for the  following:  a)
      amount  of  tax  payable  for  the  current  year,  and  b)  deferred  tax
      liabilities  and assets for future tax  consequences  of events  that have
      been  recognized  differently  in the  financial  statements  than for tax
      purposes.  Management  determined that accounting values of its assets and
      liabilities  recorded are not  materially  different from their tax values
      and  therefore  no  deferred  tax  assets/liabilities  have been  setup to
      account for the temporary differences.

      The Company has deferred income tax assets as follows:

<TABLE>
<CAPTION>

                                                                   2006           2005
<S>                                                            <C>              <C>

        Deferred income tax assets
          Non-capital losses carried forward                   $ 2,618,000      2,460,000
          Valuation allowance for deferred income tax assets    (2,618,000)    (2,460,000)
                                                               -----------      ---------
                                                               $        --      $      --
                                                               ===========      =========

</TABLE>

      The Company  provided a valuation  allowance  equal to the deferred income
      tax assets because it is not presently more likely than not that they will
      be realized.

      As at September 30, 2006,  the Company has  approximately  $10,472,000  of
      tax losses carried forward in the parent company and no tax losses carried
      forward in the Israeli  subsidiary.  Losses in the United  States,  if not
      utilized will expire in twenty years from the year of origin as follows:

          December 31, 2020                         $     909,500
                       2021                             2,398,000
                       2022                               778,000
                       2023                             5,005,000
                       2024                               581,000
                       2025                               560,500
                       2026                               240,000
                                                 ----------------

                                                 $     10,472,000


                                      F-21
<PAGE>

m-Wise, Inc.
Notes to Financial Statements
September 30, 2006 and 2005


9.    Related Party Transactions

      During the period,  the Company  incurred  directors  consulting  fees and
      salaries in the amount of $165,000 (2005, $165,000). At September 30, 2006
      and 2005, $533,000 and $512,000  respectively,  was unpaid and included in
      other payables and accrued expenses.

      These  transactions  were in the normal course of business and recorded at
      an  exchange  value  established  and agreed  upon by the above  mentioned
      parties.


10.   Major Customers

      In the nine months ended  September  30, 2006,  the Company had four major
      customers  which accounted for 29%, 22%, 16% and 12% of the total revenue.
      77% of the Company's total sales in the September 30, 2006 quarter were in
      the United States.In the nine months ended September 30, 2005, the Company
      had one major  customer in Asia which  primarily  accounted for 57% of the
      total revenue.


11.   Commitments

      a)    The company is committed  under an operating  lease for its premises
            expiring June 30, 2008.  Minimum annual payment  exclusive of taxes,
            insurance,  and  maintenance  costs) under the lease is $54,000.  In
            addition,  the company is committed under operating vehicle lease as
            follows:

<TABLE>
<CAPTION>

<S>              <C>                                          <C>
                 Twelve months ended September 30, 2007       $       83,000
                 Twelve months ended September 30, 2008               49,000
                 Twelve months ended September 30, 2009               25,000
                                                              --------------

                                                              $      157,000

</TABLE>

      b)    On February 10, 2006, the Company  entered into an equity  financing
            agreement with a Delaware limited partnership ("DLP"), to sell up to
            20,000,000 of the Company's  common stocks (up to $10,000,000)  over
            the  course of 36  months.  The  amount  that the  Company  shall be
            entitled to request from each of the purchase "Puts", shall be equal
            to either 1) $300,000 or 2) 200% of the average daily volume ("ADV")
            multiplied by the average of the 3 daily closing prices  immediately
            preceding  the Put  date.  The ADV  shall be  computed  using the 10
            trading  days  prior to the Put  Date.  The  Purchase  Price for the
            common stock identified in the Put Notice shall be set at 93% of the
            lowest  closing  bid price of the common  stock  during the  Pricing
            Period.  The Pricing Period is equal to the period  beginning on the
            Put  Notice  date and  ending  on and  including  the date that is 5
            trading days after such Put Date. There are put restrictions applied
            on days  between the Put Date and the Closing  Date with  respect to
            that Put.  During this time,  the  Company  shall not be entitled to
            deliver another Put Notice.

            In connection with the equity financing  agreement,  the Company has
            issued  a  preliminary  prospectus  whereby  the DLP  and a  current
            significant  stockholder can sell up to 30,000,000  common stocks at
            market value.


                                      F-22
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and  Results
        of Operation

The following  discussion  should be read in conjunction  with our  consolidated
financial statements and related notes included elsewhere in this Report.

This  filing  contains  forward-looking   statements.  The  words  "anticipate,"
"believe,"  "expect,  "plan," "intend," "seek,"  "estimate,"  "project," "will,"
"could," "may," and similar expressions are intended to identify forward-looking
statements. These statements include, among others, information regarding future
operations,  future  capital  expenditures,  and  future  net  cash  flow.  Such
statements reflect our management's  current views with respect to future events
and  financial  performance  and  involve  risks and  uncertainties,  including,
without  limitation:  (a) the timing of our sales  could  fluctuate  and lead to
performance  delays;  (b) without  additional equity or debt financing we cannot
carry out our business plan; (c) our  stockholders  have  pre-emptive  rights to
purchase securities of m-Wise,  which could impair our ability to raise capital;
(d) we operate  internationally and are subject to currency fluctuations,  which
could cause us to incur losses even if our operations are profitable; (e) we are
dependent  upon  certain  major  customers,  and the loss of one or more of such
customers  could  adversely  affect  our  revenues  and  profitability;  (f) our
research and development  facilities are located in Israel and we have important
facilities  and resources  located in Israel which could be negatively  affected
due to military or political tensions; (g) certain of our officers and employees
are required to serve in the Israel  defense forces and this could force them to
be absent from our business for extended  periods;  (h) the rate of inflation in
Israel may negatively  impact our costs if it exceeds the rate of devaluation of
the NIS against the Dollar.  Should one or more of these risks or  uncertainties
occur, or should underlying  assumptions  prove to be incorrect,  actual results
may vary materially and adversely from those anticipated, believed, estimated or
otherwise indicated.  These forward-looking statements speak only as of the date
of  this  prospectus.  Subject  at all  times  to  relevant  federal  and  state
securities law disclosure requirements,  we expressly disclaim any obligation or
undertaking  to  disseminate  any  update or  revisions  to any  forward-looking
statement contained herein to reflect any change in our expectations with regard
thereto or any changes in events,  conditions or circumstances on which any such
statement is based. Consequently,  all of the forward-looking statements made in
this Report are  qualified by these  cautionary  statements  and there can be no
assurance of the actual results or developments.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 2005.

REVENUES


                                      3
<PAGE>

License fees and products. Revenues from license fees and products decreased 30%
to $873,440 for the nine months ended September 30, 2006 from $1,251,438 for the
same period in 2005.  The decrease  primarily  consisted of $1,135,350  revenues
which was derived  from a one time  licensing  fee  recognized  in 2005 from our
contract with First Advanced Multi-Media Entertainment.

Revenue  share.  Revenues from revenue share  increased 159% to $265,576 for the
nine months ended  September 30, 2006 from $102,637 for the same period in 2005.
The increase primarily consisted of revenues from current customers who were not
our customers  during the first nine months of 2005 and from  customers that did
not generate revenues from selling services to end users previously.

Customer  services and technical  support.  Revenues from customer  services and
technical  support decreased 38% to $384,937 for the nine months ended September
30, 2006 from  $622,394  for the same  period in 2005.  The  decrease  primarily
consisted  of  $363,173  revenues  derived in 2005 from two  customers  who have
ceased the usage of our support services.

Cost of revenues.

Cost of revenues  decreased 62% to $165,106 for the nine months ended  September
30, 2006 from $436,559 for the same period in 2005.  This decrease was primarily
due to lower  revenues from License fees and products and revenues from customer
services and technical support.

Operating expenses.

Research and  development.  Research and development  expenses  decreased 24% to
$396,575 for the nine months ended September 30, 2006 from $521,601 for the same
period in 2005.  This  decrease  was  primarily  due to a $112,251  decrease  in
payroll and related  expenses.  Research and development  expenses,  stated as a
percentage of revenues was 26% for the nine months ended  September 30, 2006 and
26% for the same period in 2005.

General and administrative.

General and  administrative  expenses  decreased  28% to  $920,203  for the nine
months ended  September  30, 2006 from  $1,278,200  for the same period in 2005.
This decrease was primarily  due to a $363,596  decrease in consulting  expenses
and a $61,144  decrease in marketing  expenses,  partially  offset by a $100,100
increase  in  payroll  and  related  expenses  and a $28,305  increase  in other
expenses.  General  and  administrative  expenses,  stated  as a  percentage  of
revenues, decreased to 60% for the nine months ended September 30, 2006 from 65%
for the same period in 2005.

Financing expenses.


                                      4
<PAGE>

Financing expenses.  Our financing expenses increased 1,042% to $267,777 for the
nine months ended  September  30, 2006 from $23,458 for the same period in 2005.
The increase  primarily  consisted of $222,104 financing fee paid by issuance of
common shares.

Liquidity and Capital Resources

Our principal  sources of liquidity  since our inception have been private sales
of equity securities,  stockholder loans,  borrowings from banks and to a lesser
extent, cash from operations.  We had cash and cash equivalents of $20,891 as of
September  30, 2006 and $573 as of December 31, 2005.  Our initial  capital came
from an aggregate  investment of $1.3 million from Cap Ventures Ltd. To date, we
have raised an aggregate of $5,300,000 from placements of our equity  securities
(including the investment by Cap Ventures and a $4,000,000  investment by Syntek
Capital AG and DEP Technology Holdings Ltd.). We have also borrowed an aggregate
of $1,800,000 from Syntek Capital AG and DEP Technology  Holdings Ltd. and as of
the date of this prospectus we have no funds available to us under bank lines of
credit. We have a credit line agreement with Miretzky  Holdings  Limited.  As of
September 30, 2006,  $435,254 is  outstanding  under the credit line. The credit
line is for  $500,000.  The  credit  line has no  termination  date and does not
provide for interest payments.

Other  than  the  credit  line  agreement  with  Miretzky,  we do not  have  any
commitments  from any of our  affiliates or current  stockholders,  or any other
non-affiliated  parties,  to provide  additional sources of capital to us. We do
have an equity line for $10.0 million with Dutchess Private Equity Fund although
we have not yet made any draws on such  line.  We will need  approximately  $1.0
million for the next twelve months for our operating  costs which mainly include
salaries,  office  rent and  network  connectivity,  which  total  approximately
$60,000 per month,  and for working  capital.  We intend to finance  this amount
from our  ongoing  sales  and  through  the sale of  either  our debt or  equity
securities or a combination thereof, to affiliates,  current stockholders and/or
new investors.  Currently we do not believe that our future capital requirements
for equipment and facilities will be material.

Operating activities.

For the  nine  months  ended  September  30,  2006 we  used  $73,875  of cash in
operating  activities  primarily  due to our net loss of $225,708 and a $297,619
increase in accounts  receivables,  partially offset by a $222,104 financing fee
paid by issuance of common  shares and a $129,167  increase in  consulting  fees
paid by issuance of common shares.  In the same period in 2005, we used $259,861
of cash in operating activities primarily due to a $669,890 decrease in deferred
revenues and our net loss of $283,349, partially offset by $500,000 in wages and
salaries  paid by issuance of shares and a $183,461  increase in other  payables
and accrued liabilities.

Investing and financing activities.


                                       5
<PAGE>

Property and  equipment  consist  primarily of computers,  software,  and office
equipment.  For the nine  months  ended  September  30,  2006,  net cash used in
investing  activities was $50,149  consisting of an investment in equipment.  In
the same  period in 2005,  net cash used in  investing  activities  was  $38,696
consisting of an investment  in equipment.  For the nine months ended  September
30, 2006, net cash provided by financing  activities was $144,342  primarily due
to a $143,989  increase in advances  from a  shareholder.  In the same period in
2005,  net cash provided by financing  activities was $183,691 due to a $133,853
increase  in  advances  from a  shareholder  and a  $34,800  increase  in  notes
payables.

Dividends

We have not paid any  dividends  on our common  stock.  We  currently  intend to
retain any earnings for use in our  business,  and  therefore do not  anticipate
paying cash dividends in the foreseeable future.

Off Balance Sheet Arrangements

None.

Item 3.  Controls and Procedures

With the  participation  of management,  our Chief  Executive  Officer and Chief
Financial Officer evaluated our disclosure controls and procedures within the 90
days  preceding  the  filing  date of this  quarterly  report.  Based  upon this
evaluation,  the Chief Executive  Officer and Chief Financial  Officer concluded
that our  disclosure  controls and  procedures  are  effective in ensuring  that
material information required to be disclosed is included in the reports that we
file with the Securities and Exchange Commission.

There  were no  significant  changes  in our  internal  control  over  financial
reporting to the  knowledge  of our  management,  or in other  factors that have
materially affected or are reasonably likely to materially affect these internal
controls over financial reporting subsequent to the evaluation date.

PART II
OTHER INFORMATION

Item1.  Legal Proceedings

None.

Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
        Securities

None.

Item 3. Default upon Senior Securities

Not applicable.

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


                                       6
<PAGE>

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a)     Exhibits

3.1     Amended and restated Certificate of Incorporation**
3.2     Bylaws**
4.1     Purchase and registration rights agreement and schedule of details**
10.1    Amended and Restated Employment Agreement with Mordechai Broudo**
10.2    Amendment to Amended and Restated Employment Agreement with Mordechai
        Broudo**
10.3    Amended and Restated Employment Agreement with Shay Ben-Asulin**
10.4    Amendment to Amended and Restated Employment Agreement with Shay
        Ben-Asulin**
10.5    Employment Agreement, Gabriel Kabazo**
10.6    Confidentiality rider to Gabriel Kabazo Employment Agreement**
10.7    Employment Agreement Asaf Lewin**
10.8    2003 International Share Option Plan**
10.9    Form of Option Agreement, 2003 International Share Option Plan**
10.10   2001 International Share Option Plan**
10.11   Form of Option Agreement, 2001 International Share Option Plan**
10.12   2003 Israel Stock Option Plan**
10.13   Form of Option Agreement, 2003 Israel Stock Option Plan**
10.14   2001 Israel Share Option Plan**
10.15   Form of Option Agreement, 2001 Israel Share Option Plan**
10.16   Investors' Rights Agreement dated January 11, 2001**
10.17   Stockholders Agreement**
10.18   Agreement for Supply of Software and Related Services dated October 14,
        2002, by and between i Touch plc and m-Wise, Inc.**
10.19   Purchase agreement between m-Wise, Inc. and Comtrend Corporation dated
        May 22, 2002**
10.20   Amended and Restated Consulting agreement between Hilltek Investments
        Limited and m-Wise dated November 13, 2003**
10.21   Consulting agreement between Hilltek Investments Limited and m-Wise
        dated June 24, 2003, subsequently amended see exhibit 10.20 above**
10.22   Amendment to Investors' Rights Agreement dated October 2, 2003**
10.23   Appendices to 2003 Israel Stock Option Plan**
10.24   Appendices to 2001 Israel Share Option Plan**
10.25   Credit Line Agreement between m-Wise, Inc. and Miretzky Holdings,
        Limited dated January 25, 2004**
10.26   Termination  and Release  Agreement by and among the Company and Syntek
        capital AG.  (Incorporated  by reference to Exhibit 10.1 of the current
        report on Form 8-K filed on January 13, 2006)
10.27   Termination and Release Agreement dated February 2, 2006 by and among
        the Company and DEP Technology Holdings Ltd (Incorporated by reference
        to Exhibit 10.1 of the current report on Form 8-K filed on February 7,
        2006)


                                       7
<PAGE>

21.     List of Subsidiaries**
31.1    Rule 13a-14(a)/15d-14(a) Certification.*
31.2    Rule 13a-14(a)/15d-14(a) Certification.*
32.1    Certification by the Chairman Relating to a Periodic Report Containing
        Financial Statements. ***
32.2    Certification by the Chief Financial Officer Relating to a Periodic
        Report Containing Financial Statements. ***

-------------
*       Filed herewith.

**      Incorporated by reference from the registration statement filed with the
Securities and Exchange Commission Registration Statement on Form SB-2 (Reg. No.
333-106160).


***     The Exhibit attached to this Form 10-QSB shall not be deemed "filed" for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or otherwise subject to liability under that section, nor shall
it be deemed incorporated by reference in any filing under the Securities Act of
1933, as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.

(b) Reports on Form 8-K

The Company filed a current report on Form 8-K on January 13, 2006 pursuant to
entering into a Termination and Release Agreement with Syntek capital Ag.The
Company issued Syntek an aggregate of 5,561,994 shares of its common stock and
warrants to purchase 5,263,158 shares shares of its Common stock at $.19 per
shares for a period of three years.

      The  Company  filed a  current  report  on Form 8-K on  February  7,  2006
disclosing  that the Company  entered into a Termination  and Release  Agreement
with DEP  Technology  Holdings  Ltd.,  The Company  issued DEP an  aggregate  of
5,561,994  shares of its common stock and warrants to purchase  5,263,158 shares
of its Common stock at $.19 per shares for a period of three years.


                                       8
<PAGE>

                                   SIGNATURES

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

                                           m-Wise, INC.
                                           (Registrant)

Date: November 13, 2006                    /s/ Shay Ben-Asulin
                                           -------------------
                                           Name: Shay Ben-Asulin
                                           Title:  Chairman


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