UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549




FORM
10-Q




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




For the
quarterly period ended June 30, 2010




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




For the
transition period from ____________ to ____________




Commission
file number:  001-51743




m-Wise,
Inc.




(Exact
name of Registrant as specified in its charter)




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





3
Sapir Street, Herzeliya Pituach, Israel 46852


(Address
of principal executive offices)




+972-73-2620000


(Registrant’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





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  ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes o No o





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





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer   ̈ (Do not check if
      a smaller reporting company)
            Smaller
      reporting company x





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


Yes  ̈ No x




The
number of shares outstanding of the issuer's common stock, as of August 12,
2010, was 148,392,452.





Index




PagePART
      I: FINANCIAL INFORMATION
                                1Item
      2.
                                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                2Item
      3.
                                Quantitative
      and Qualitative Disclosures about Market Risk
                                10Item
      4T.
                                Controls
      and Procedures
                                11PART
      II:  OTHER INFORMATION
                                11Item
      1.
                                Legal
      Proceedings
                                11Item
      1A.
                                Risk
      Factors
                                11Item
      2.
                                Unregistered
      Sales of Equity Securities and Use of Proceeds
                                11Item
      3.
                                Defaults
      upon Senior Securities
                                11Item
      4.
                                (Removed
      and Reserved)
                                11Item
      5.
                                Other
      Information
                                11Item
      6.
                                Exhibits
                                12SIGNATURES
                                14


i




PART
I:


FINANCIAL
INFORMATION




Item
1:       Financial Statements





M-WISE, INC. AND
SUBSIDIARIES




CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS




SIX MONTHS ENDED JUNE 30, 2010 AND
2009




UNAUDITED




CONTENTS





Condensed Consolidated Balance
      Sheets
              1Condensed Consolidated Statements
      of Operations and Comprehensive (Loss) Income
              2 - 3Condensed Consolidated Statements
      of Cash Flows
              4Notes to Condensed Consolidated
      Financial Statements
              5 -
  14







M-WISE, INC. AND
SUBSIDIARIES


Condensed Consolidated Balance
Sheets


As of June 30, 2010 and December 31,
2009





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Audited)ASSETSCurrentCash
                    
                    $
                    161,276
                    
                    
                    $
                    165,504Short-term
      investment
                    
                    
                    7,844
                    
                    
                    
                    7,837Accounts
      receivable - trade (net of allowance for doubtful accounts of $21,589;
      2009 - $12,563)
                    
                    
                    656,933
                    
                    
                    
                    822,741Prepaid
      expenses and other assets
                    
                    
                    38,402
                    
                    
                    
                    47,729Government
      grants receivable
                    
                    
                    69,267
                    
                    
                    
                    87,026Total
      Current Assets
                    
                    
                    933,722
                    
                    
                    
                    1,130,837Long-term
      Prepaid Expenses
                    
                    
                    10,407
                    
                    
                    
                    10,930Plant
      and Equipment, net (note
      3)
                    
                    
                    69,232
                    
                    
                    
                    71,891Total
      Long-term Assets
                    
                    
                    79,639
                    
                    
                    
                    82,821Total
      Assets
                    
                    $
                    1,013,361
                    
                    
                    $
                    1,213,658LIABILITIESCurrentAccounts
      payable - trade
                    
                    $
                    24,708
                    
                    
                    $
                    46,541Other
      payables and accrued expenses (note 8)
                    
                    
                    1,080,716
                    
                    
                    
                    1,136,324Advances
      from stockholder (note 4)
                    
                    
                    287,877
                    
                    
                    
                    304,688Billings
      in excess of costs on uncompleted contracts
                    
                    
                    11,000
                    
                    
                    
                    24,400Total
      Current Liabilities
                    
                    
                    1,404,301
                    
                    
                    
                    1,511,953Accrued
      Severance Pay (note
      5)
                    
                    
                    142,964
                    
                    
                    
                    127,493Total
      Liabilities
                    
                    
                    1,547,265
                    
                    
                    
                    1,639,446Commitments
      and Contingencies (note
      11)STOCKHOLDERS'
      DEFICITCapital Stock(note 6)
      (148,392,452 common stock;2009
      - 139,322,145 common stock)
                    
                    
                    252,267
                    
                    
                    
                    236,848Additional
      Paid-in Capital
                    
                    
                    12,105,556
                    
                    
                    
                    11,850,838Accumulated
      Deficit
                    
                    
                    (12,891,727
                    )
                    
                    
                    (12,513,474
                    )Total
      Stockholders' Deficit
                    
                    
                    (533,904
                    )
                    
                    
                    (425,788
                    )Total
      Liabilities and Stockholders' Deficit
                    
                    $
                    1,013,361
                    
                    
                    $
                    1,213,658




(The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.)


- 1 -




M-WISE, INC. AND
SUBSIDIARIES


Condensed Consolidated Statements of
Operations and Comprehensive (Loss) Income


For the Six Months Ended June 30, 2010
and 2009


Unaudited




(Note 13)Six Months
                        
                        
                        Six MonthsEnded
                        
                        
                        EndedJune 30,
                        
                        
                        June 30,2010
                        
                        
                        2009SalesCustomer
      services and technical support
                        
                        $
                        860,589
                        
                        
                        $
                        574,837Revenue
      share
                        
                        
                        344,864
                        
                        
                        
                        506,811Product
      sales and license
                        
                        
                        330,675
                        
                        
                        
                        392,9471,536,128
                        
                        
                        
                        1,474,595Cost
      of Sales
                        
                        
                        611,574
                        
                        
                        
                        362,894Gross
      Profit
                        
                        
                        924,554
                        
                        
                        
                        1,111,701ExpensesGeneral
      and administrative
                        
                        
                        1,108,880
                        
                        
                        
                        730,156Research
      and development
                        
                        
                        208,886
                        
                        
                        
                        292,303Total
      Expenses
                        
                        
                        1,317,766
                        
                        
                        
                        1,022,459(Loss)
      Earnings from Operations
                        
                        
                        (393,212
                        )
                        
                        
                        89,242Other
      Income (Expenses)Extinguishment
      of debt
                        
                        
                        24,488
                        
                        
                        
                        21,697Interest
      and other
                        
                        
                        (9,529
                        )
                        
                        
                        (3,053
                        )Total
      Other Income (Expenses)
                        
                        
                        14,959
                        
                        
                        
                        18,644(Loss)
      Earnings before Income Taxes
                        
                        
                        (378,253
                        )
                        
                        
                        107,886Provision for Income
      Taxes (note
      7)
                        
                        
                        -
                        
                        
                        
                        -Net
      (Loss) Income and Comprehensive (Loss) Income
                        
                        $
                        (378,253
                        )
                        
                        $
                        107,886(Loss)
      Earnings Per Share - Basic and Diluted
                        
                        $
                        0.00
                        
                        
                        $
                        0.00Weighted
      Average Number of Common Shares Outstanding - Basic and
      Diluted
                        
                        
                        147,449,826
                        
                        
                        
                        139,322,145




(The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.)


- 2 -




M-WISE, INC. AND
SUBSIDIARIES


Condensed Consolidated Statements of
Operations and Comprehensive Loss


For the Three Months Ended June 30, 2010
and 2009


Unaudited




(Note
      13)Three
      Months
                      
                      
                      Three
      MonthsEnded
                      
                      
                      EndedJune
      30,
                      
                      
                      June
      30,2010
                      
                      
                      2009SalesCustomer
      services and technical support
                      
                      $
                      414,732
                      
                      
                      $
                      269,246Revenue
      share
                      
                      
                      92,848
                      
                      
                      
                      222,570Product
      sales and license
                      
                      
                      114,029
                      
                      
                      
                      190,000621,609
                      
                      
                      
                      681,816Cost
      of Sales
                      
                      
                      273,121
                      
                      
                      
                      184,529Gross
      Profit
                      
                      
                      348,488
                      
                      
                      
                      497,287ExpensesGeneral
      and administrative
                      
                      
                      512,515
                      
                      
                      
                      395,104Research
      and development
                      
                      
                      84,346
                      
                      
                      
                      153,184Total
      Expenses
                      
                      
                      596,861
                      
                      
                      
                      548,288Loss
      from Operations
                      
                      
                      (248,373
                      )
                      
                      
                      (51,001
                      )Other
      Income (Expenses)Extinguishment
      of debt
                      
                      
                      11,324
                      
                      
                      
                      12,599Interest
      and other
                      
                      
                      6,793
                      
                      
                      
                      (23,950
                      )Total
      Other Income (Expenses)
                      
                      
                      18,117
                      
                      
                      
                      (11,351
                      )Loss
      Before Income Taxes
                      
                      
                      (230,256
                      )
                      
                      
                      (62,352
                      )Provision
      for Income Taxes (note
      7)
                      
                      
                      -
                      
                      
                      
                      -Net
      Loss and Comprehensive Loss
                      
                      $
                      (230,256
                      )
                      
                      $
                      (62,352
                      )Loss
      Per Share - Basic and Diluted
                      
                      $
                      0.00
                      
                      
                      $
                      0.00Weighted
      Average Number of Common Shares Outstanding - Basic and
      Diluted
                      
                      
                      148,392,451
                      
                      
                      
                      139,322,145




(The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.)


- 3 -




M-WISE, INC. AND
SUBSIDIARIES


Condensed Consolidated Statements of
Cash Flows


For the Six Months Ended June 30, 2010
and 2009


Unaudited




(Note13)Six
      Months
                                    
                                    
                                    Six
      MonthsEnded
                                    
                                    
                                    EndedJune
      30,
                                    
                                    
                                    June
      30,2010
                                    
                                    
                                    2009Cash
      Flows from Operating ActivitiesNet
      (loss) earnings
                                    
                                    $
                                    (378,253
                                    )
                                    
                                    $
                                    107,886Adjustments
      to reconcile net earnings (loss) to net cash used in operating
      activities:Consulting
      fees paid by issuance of common stocks
                                    
                                    
                                    50,000
                                    
                                    
                                    
                                    -Depreciation
                                    
                                    
                                    15,902
                                    
                                    
                                    
                                    14,888Expense
      paid by cashless exercise of warrants
                                    
                                    
                                    3,172
                                    
                                    
                                    
                                    -Stock
      based compensation
                                    
                                    
                                    137,332
                                    
                                    
                                    
                                    88,240(171,847
                                    )
                                    
                                    
                                    211,014Net
      changes in assets and liabilities:Accounts
      receivable – trade
                                    
                                    
                                    165,808
                                    
                                    
                                    
                                    (219,940
                                    )Government
      grant receivable
                                    
                                    
                                    17,759
                                    
                                    
                                    
                                    -Prepaid
      expenses and other assets
                                    
                                    
                                    9,850
                                    
                                    
                                    
                                    4,047Accounts
      payable – trade
                                    
                                    
                                    (21,833
                                    )
                                    
                                    
                                    (665
                                    )Other
      payables and accrued expenses
                                    
                                    
                                    (55,608
                                    )
                                    
                                    
                                    (134,204
                                    )Billings
      in excess of costs on uncompleted contracts
                                    
                                    
                                    (13,400
                                    )
                                    
                                    
                                    12,120Accrued
      severance pay
                                    
                                    
                                    15,471
                                    
                                    
                                    
                                    3,449Net
      Cash Used in Operating Activities
                                    
                                    
                                    (53,800
                                    )
                                    
                                    
                                    (124,179
                                    )Cash
      Flows from Investing ActivitiesAcquisition
      of plant and equipment
                                    
                                    
                                    (13,243
                                    )
                                    
                                    
                                    (4,880
                                    )Acquisition
      of short-term investment
                                    
                                    
                                    (7
                                    )
                                    
                                    
                                    -Net
      Cash Used in Investing Activities
                                    
                                    
                                    (13,250
                                    )
                                    
                                    
                                    (4,880
                                    )Cash
      Flows from Financing ActivitiesPayments
      to stockholder
                                    
                                    
                                    (16,811
                                    )
                                    
                                    
                                    (2,069
                                    )Proceeds
      from issuance of common stock
                                    
                                    
                                    79,633
                                    
                                    
                                    
                                    -Net
      Cash Provided by (Used in) Financing Activities
                                    
                                    
                                    62,822
                                    
                                    
                                    
                                    (2,069
                                    )Net
      Decrease in Cash
                                    
                                    
                                    (4,228
                                    )
                                    
                                    
                                    (131,128
                                    )Cash
      - Beginning of Period
                                    
                                    
                                    165,504
                                    
                                    
                                    
                                    169,206Cash
      - End of Period
                                    
                                    $
                                    161,276
                                    
                                    
                                    $
                                    38,078Interest
      and Income TaxesDuring
      the period, the Company had cash flows arising from income taxes and
      interest as follows:Interest
                                    
                                    $
                                    21
                                    
                                    
                                    $
                                    43Income
      taxes
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -




(The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.)


- 4 -




M-WISE, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated
Financial Statements


June 30, 2010 and
2009


Unaudited




1.
            Description of Business and Going
      Concern




a)
              Description of
      Business




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




The Company's wholly-owned subsidiaries
are: m-Wise Ltd., which is located in Israel and was incorporated in 2000 under
the laws of Israel; and m-Wise Tecnologia LTDA., which is located in Brazil and
was incorporated in 2009 under the laws of Brazil.




b)
              Going
    Concern




The Company's unaudited consolidated
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's negative working capital raises substantial doubt as
to its ability to continue as a going concern. As at June 30, 2010, and December
31, 2009, the Company experienced a working capital deficit of $470,579 and
$381,116, respectively.




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 attaining 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 unaudited consolidated 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.


- 5 -




M-WISE, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated
Financial Statements


June 30, 2010 and
2009


Unaudited




2.
            Summary of Significant Accounting
      Policies




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




a)
              Basis of
      Presentation




The unaudited consolidated financial
statements presented herein have been prepared by the Company in accordance with
accounting principles generally accepted in the United States of America
("GAAP") for interim financial statements and in accordance with the
instructions to Form 10-Q.  Accordingly, they do not include all
information and notes required by GAAP for complete financial statements. The
unaudited consolidated financial statements reflect all adjustments, consisting
of normal recurring adjustments and accruals which, in the opinion of
management, are considered necessary for a fair presentation of the Company's
consolidated financial position, results of operations and cash flows for the
interim periods presented.




Results of operations for the interim
periods are not necessarily indicative of results of operations for future
interim periods or for the full fiscal year ending December 31, 2010. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of the Company
for the fiscal year ended December 31, 2009.




b)
              Recent Accounting Pronouncements
      Affecting the Company




In February 2010, the FASB issued ASI
2010-09, “Subsequent Events (Topic 855); Amendments to Certain Recognition and
Disclosure Requirements” (“ASU 2010-9”). The standard amends Subtopic 855-10,
“Subsequent Events” to remove the requirement for a SEC filer to disclose the
date through which subsequent events have been evaluated. ASI 2010-9 is
effective upon issuance of the final update. The Company does not expect the
adoption of ASI 2010-9 to have a material impact on its financial
statements.


- 6 -




M-WISE, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated
Financial Statements


June 30, 2010 and
2009


Unaudited




3.
            Plant and
      Equipment




Plant and equipment is comprised of the
following:




June
      30,
                      
                      
                      
                      
                      
                      December
      31,2010
                      
                      
                      
                      
                      
                      2009Accumulated
                      
                      
                      
                      
                      
                      AccumulatedCost
                      
                      
                      Depreciation
                      
                      
                      Cost
                      
                      
                      DepreciationFurniture
      and equipment
                      
                      $
                      73,559
                      
                      
                      $
                      45,277
                      
                      
                      $
                      73,559
                      
                      
                      $
                      42,590Computer
      equipment
                      
                      
                      188,221
                      
                      
                      
                      147,454
                      
                      
                      
                      174,978
                      
                      
                      
                      134,292Leasehold
      improvements
                      
                      
                      2,592
                      
                      
                      
                      2,409
                      
                      
                      
                      2,592
                      
                      
                      
                      2,356$
                      264,372
                      
                      
                      $
                      195,140
                      
                      
                      $
                      251,129
                      
                      
                      $
                      179,238Net
      carrying amount
                      
                      
                      
                      
                      
                      $
                      69,232
                      
                      
                      
                      
                      
                      
                      $
                      71,891




Depreciation expenses of $14,566 (2009 -
$13,276) and $1,336 (2009 - $1,612) have been included in research and
development, and general and administrative expenses,
respectively.




4.
            Advances from
      Stockholder




The advances from the Company's major
stockholder are non-interest bearing, unsecured and have no fixed terms of
repayment.




5.
            Accrued Severance
      Pay




The Company accounts for its potential
severance liability of its Israeli subsidiary in accordance with ASC 715,
"Compensation - Retirement Benefits". 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 June 30, 2010 and December 31, 2009, the amount of
the liabilities accrued were $399,366 and $353,880, respectively. Severance pay
expenses for the six months ended June 30, 2010, and 2009 were $55,205 and
$25,451 respectively.




The Company makes monthly payments to
the severance funds with insurance companies, that the employees choose. The
amounts deposited with the insurance companies are not under the control or
administration of the Company. The insurance companies are governed by local
regulations that limit the asset allocation in high risk
assets.


- 7 -




M-WISE, INC. AND
SUBSIDIARIES
 Notes to Condensed Consolidated
Financial Statements
 June 30, 2010 and
2009
 Unaudited




5.
            Accrued
      Severance Pay(cont'd)




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 of June 30, 2010, and December 31, 2009, were
$256,402 and $226,387, respectively.  Income earned from the deposit
funds for 2010 and 2009 was immaterial.




6.
            Capital
    Stock




Authorized:


310,000,000 Common stock, par value $0.0017 per
share


170,000,000 Preferred
stock


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


June
      30,
                            
                            
                            December
      31,2010
                            
                            
                            2009Issued:148,392,452
                            Common
      stock (2009 - 139,322,145 )
                            
                            $
                            252,267
                            
                            
                            $
                            236,848




Stock Options and
Warrants:




The Company has accounted for its stock
options and warrants in accordance with SFAS No. 123(R) "Share-Based Payments"
("FAS No. 123(R)"), and SFAS No. 148, "Accounting for Stock - Based Compensation
- Transition and Disclosure - an amendment of FASB Statements No. 123" ("SFAS
No. 148"). The value of options granted has been estimated by the Black Scholes
option pricing model. The assumptions are evaluated annually and revised as
necessary to reflect market conditions and additional experience. The following
assumptions were used:





2010
                    
                    
                    2009Israel
                    
                    
                    International
                    
                    
                    Israel
                    
                    
                    InternationalExpected
      discount yield
                    
                    
                    -
                    %
                    
                    
                    -
                    %
                    
                    
                    -
                    %
                    
                    
                    -
                    %Risk-free
      interest rate
                    
                    
                    2.1
                    %
                    
                    
                    1.5
                    %
                    
                    
                    2.1
                    %
                    
                    
                    1.2
                    %Expected
      volatility
                    
                    
                    122
                    %
                    
                    
                    122
                    %
                    
                    
                    122
                    %
                    
                    
                    122
                    %Expected
      life in years
                    
                    
                    1.50
                    
                    
                    
                    3.50
                    
                    
                    
                    2
                    
                    
                    
                    4


- 8 -




M-WISE, INC. AND
SUBSIDIARIES
 Notes to Condensed Consolidated
Financial Statements
 June 30, 2010 and
2009
 Unaudited




6.
            Capital Stock(cont'd)




Warrants:




On December 18, 2009, the exercise price
of the 5,263,158 warrants originally issued to Syntek was changed to $0.015,
resulting in additional compensation cost of $17,369 included in interest and
other.




On January 12, 2010, 5,263,158 warrants
were converted into 5,263,158 common shares at an exercise price of $0.015 per
warrant, and cash received was $79,633.




On January 17, 2010, 2,248,251 warrants
were converted into 2,057,149 common shares in a cashless
exercise.




Capital Stock:




On January 12, 2010, 5,263,158 warrants
were converted into 5,263,158 common shares at an exercise price of $0.015 per
warrant, and cash received was $79,633.




On January 17,
2010,  2,248,251 warrants were converted into 2,057,149 common shares,
in a cashless exercise.




On February 1, 2010, the Company issued
750,000 common shares, valued at $30,000, for consulting
services.




On March 10, 2010, the Company issued
1,000,000 common shares, valued at $20,000, for consulting
services.




Stock Options:




Under the Israel 2001 Share Option Plan,
management authorized stock options for 2,403,672  common shares of
the Company, and under the International 2001 Share Option Plan, stock options
for 300,000 common shares.  As of June 30, 2010, 3,672 options under
the Israel 2001 Share Option Plan for common stock were not yet granted and
available for future grant.




Under the Israel 2003 Stock Option Plan,
management authorized stock options (on a post conversion, post split basis) for
16,094,106 preferred Class "B" shares.  On January 5, 2006, the share
option plan was amended to authorize an additional 1,260,000 stock options. On
August 14, 2006, the share option plan was amended to authorize an additional
6,000,000 stock options. On August 3, 2009, the exercise price of 5,000,000
options granted under the Israel 2003 Stock Option Plan and 11,000,000 options
granted under the 2003 International Share Option Plan was amended to $0.02. As
of June 30, 2010, 38,256 options under the Israel 2003 Stock Option Plan were
not yet granted and available for future grant.




On August 3, 2009, the Company lowered
the exercise price of 5,000,000 options in its Israel 2003 Stock Option Plan and
11,000,000 options in the International 2003 Share Option Plan to $0.02,
resulting in additional compensation costs of $28,800 in accordance with SFAS
123(R), Paragraph A150. $28,800 was included in general and administrative
expense.


- 9 -




M-WISE, INC. AND
SUBSIDIARIES
 Notes to Condensed Consolidated
Financial Statements
 June 30, 2010 and
2009
 Unaudited




6.
            Capital Stock(cont'd)




Stock Options
(cont'd):




On August 18, 2009, 180,000 stock
options at an exercise price of $0.02 were granted under the International 2003
Share Option Plan.




On August 25, 2009, 60,000 stock options
at an exercise price of $0.0017 were granted under the International 2003 Share
Option Plan.




On October 22, 2009, 200,000 stock
options at an exercise price of $0.03 were granted under the International 2003
Share Option Plan.




On December 30, 2009, 4,000,000 stock
options at an exercise price of $0.02 and 7,000,000 stock options at an exercise
price of $0.03 were granted under the International 2003 Share Option
Plan.




On December 30, 2009, 13,000,000 stock
options at an exercise price of $0.02 were granted under the Israel 2003 Stock
Option Plan.




On March 23, 2010, 500,000 stock options
at an exercise price of $0.03 were granted under the International 2003 Share
Option Plan.




The options vest gradually over a period
of four years from the date of grant for the Israel Plan and ten 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 eight years
from the date of grant in Israel and ten years from the date of grant in the
International Plan.  The outstanding options that have vested have
been expensed in the consolidated statements of operations as
follows:





Year
      ended December 31, 2001
                      
                      $
                      9,000Year
      ended December 31, 2002
                      
                      
                      -Year
      ended December 31, 2003
                      
                      
                      384,889Year
      ended December 31, 2004
                      
                      
                      25,480Year
      ended December 31, 2005
                      
                      
                      13,733Year
      ended December 31, 2006
                      
                      
                      117,044Year
      ended December 31, 2007
                      
                      
                      181,622Year
      ended December 31, 2008
                      
                      
                      583,477Year
      ended December 31, 2009
                      
                      
                      207,343Six
      months ended June 30, 2010
                      
                      
                      137,332$
                      1,659,920


- 10 -




M-WISE, INC. AND
SUBSIDIARIES
 Notes to Condensed Consolidated
Financial Statements
 June 30, 2010 and
2009
 Unaudited




6.
            Capital Stock(cont'd)




Stock Options
(cont'd):




The following table summarizes the
activity of common stock options during the six months ended June 30, 2010 and
the year ended December 31, 2009:




2010
                  
                  
                  2009Israel
                  
                  
                  International
                  
                  
                  Israel
                  
                  
                  InternationalOutstanding,
      beginning of period
                  
                  
                  38,901,400
                  
                  
                  
                  39,616,797
                  
                  
                  
                  25,901,400
                  
                  
                  
                  28,176,797Granted
                  
                  
                  -
                  
                  
                  
                  500,000
                  
                  
                  
                  13,000,000
                  
                  
                  
                  11,440,000Expired
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Cancelled
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Forfeited
                  
                  
                  (361,250
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Outstanding,
      end of period
                  
                  
                  38,540,150
                  
                  
                  
                  40,116,797
                  
                  
                  
                  38,901,400
                  
                  
                  
                  39,616,797Weighted
      average fair value of options granted during the period
                  
                  $
                  -
                  
                  
                  $
                  0.0236
                  
                  
                  $
                  0.0157
                  
                  
                  $
                  0.0153Weighted
      average exercise price of common stock options, beginning of
      period
                  
                  $
                  0.0262
                  
                  
                  $
                  0.0286
                  
                  
                  $
                  0.0315
                  
                  
                  $
                  0.0356Weighted
      average exercise price of common stock options granted in the
      period
                  
                  $
                  -
                  
                  
                  $
                  0.0300
                  
                  
                  $
                  0.0200
                  
                  
                  $
                  0.0262Weighted
      average exercise price of common stock options, end of
    period
                  
                  $
                  0.0262
                  
                  
                  $
                  0.0356
                  
                  
                  $
                  0.0262
                  
                  
                  $
                  0.0286Weighted
      average remaining contractual life of common stock options
                  
                  2.03 years
                  
                  
                  2.15 years
                  
                  
                  2.5 years
                  
                  
                  2.63 years




7.
            Income
  Taxes




The Company accounts for income taxes in
accordance with ASC 740, "Income Taxes" ("ASC 740"). 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.


- 11 -




M-WISE, INC. AND
SUBSIDIARIES
 Notes to Condensed Consolidated
Financial Statements
 June 30, 2010 and
2009
 Unaudited




7.
            Income
      Taxes(cont'd)




Under ASC 740, 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 the values of its assets and liabilities
recorded for financial reporting purposes are not materially different from
their values for income tax purposes and therefore, no deferred tax
assets/liabilities have been recorded in the accompanying financial statements
to account for the temporary differences.




There are no differences between the
Company's reported income tax expense on operating income and the expense that
would otherwise result from the application of statutory rates. The Company's
non capital loss carryforwards are being used to offset the current income tax
expense.




The Company has deferred income tax
assets as follows:





June
      30,
                    
                    
                    December
      31,2010
                    
                    
                    2009Deferred
      income tax assetsLoss
      carryforwards
                    
                    $
                    3,096,000
                    
                    
                    $
                    3,027,000Less:
      Valuation allowance
                    
                    
                    (3,096,000
                    )
                    
                    
                    (3,027,000
                    )Total
      net deferred tax assets
                    
                    $
                    -
                    
                    
                    $
                    -




For the six months ended June 30, 2010
and the year ended December 31, 2009, 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 of June 30, 2010, the Company had
approximately$12,201,000 tax loss carryforwards in
the United States. Tax loss carryforwards in the United States, if not utilized,
will expire in 20 years from the year of origin as follows:




December
      31, 2020
                    
                    $
                    751,5002021
                    
                    
                    2,398,0002022
                    
                    
                    778,0002023
                    
                    
                    5,005,0002024
                    
                    
                    581,0002025
                    
                    
                    560,5002026
                    
                    
                    196,0002027
                    
                    
                    700,0002028
                    
                    
                    945,0002029
                    
                    
                    286,000$
                    12,201,000




As of June 30, 2010, the Company had
approximately $239,000(December 31, 2009 - $187,000) and
approximately $40,000 (December 31, 2009 - nil) in tax losses in its Israeli
subsidiary and Brazil subsidiary, respectively, which will carryforward
indefinitely.


- 12 -




M-WISE, INC. AND
SUBSIDIARIES
 Notes to Condensed Consolidated
Financial Statements
 June 30, 2010 and
2009
 Unaudited




8.
            Related Party
      Transactions




During the six months ended June 30,
2010, the Company incurred directors' consulting fees and salaries in the amount
of $69,996 (2009 - $69,996). As of June 30, 2010, $648,720 (December 31, 2009 -
$623,924) 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 related parties.




9.
            Significant
      Customers




For the six months ended June 30, 2010,
the Company had four major customers which primarily accounted for 21%, 18%, 14%
and 12% of total revenues. For the six months ended June 30, 2009, the Company
had three major customers which accounted for 37%, 20%, and 11% of total
revenues.




10.
            Segmented
      Information




Israel
                          
                          
                          USA
                          
                          
                          Brazil
                          
                          
                          TotalGross
      revenue
                          
                          June
      30, 2010
                          
                          $
                          333,504
                          
                          
                          $
                          1,153,783
                          
                          
                          $
                          48,841
                          
                          
                          $
                          1,536,128June
      30, 2009
                          
                          $
                          392,468
                          
                          
                          $
                          1,082,127
                          
                          
                          $
                          -
                          
                          
                          $
                          1,474,595Net
      income (loss)
                          
                          June
      30, 2010
                          
                          $
                          (52,236
                          )
                          
                          $
                          (285,885
                          )
                          
                          $
                          (40,132
                          )
                          
                          $
                          (378,253
                          )June
      30, 2009
                          
                          $
                          9,670
                          
                          
                          $
                          98,216
                          
                          
                          $
                          -
                          
                          
                          $
                          107,886Total assets
                          
                          June
      30, 2010
                          
                          $
                          412,908
                          
                          
                          $
                          565,586
                          
                          
                          $
                          34,867
                          
                          
                          $
                          1,013,361December31,2009
                          
                          $
                          636,617
                          
                          
                          $
                          577,041
                          
                          
                          $
                          -
                          
                          
                          $
                          1,213,658




For the six months ended June 30, 2010,
the Company derived 18% (2009 - 11%) of its revenues from sales to the Far East,
19% from sales to Europe (2009 - 16%) and 63% (2009 - 73%) from sales to
America.


- 13 -




11.
            Commitments
      and Contingencies




The
Company is committed under an operating lease for its premises expiring June 30,
2011. Minimum annual payments (exclusive of taxes, insurance, and maintenance
costs) are as follows:





2010
                    
                    $
                    38,4002011
                    
                    
                    38,400$
                    76,800




In
addition, the Company is committed under operating vehicle leases as
follows:





2010
                  
                  $
                  33,4202011
                  
                  
                  45,5002012
                  
                  
                  18,380$
                  97,300




Rent
expense paid during the six months ended June 30, 2010 and 2009 was $55,652and $41,577
respectively.




12.
            Government
      Grants




In 2009,
the Israeli subsidiary was authorized to receive approximately $253,000 from the
Israeli government grant program. The Israeli subsidiary is required to pay the
government agency royalties in the amount of 3% of gross sales from the products
and services being developed relating to the grant during the initial 2 years
and 3.5% per annum thereafter. As at June 30, 2010 the Company received
approximately $191,375 and no royalties have been paid. The amount was recorded
as a reduction of the research and development expense incurred in the period.
The Company will complete the project in 2010.




13.
            Comparative
      Information




Certain
comparative figures have been reclassified to conform to the current period’s
financial statement presentation.


- 14
-




Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations




The
following discussion should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this Quarterly
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 U.S. 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 Quarterly Report.  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 Quarterly
Report are qualified by these cautionary statements and there can be no
assurance of the actual results or developments.





OVERVIEW





We were
incorporated in February 2000, and commenced operations immediately thereafter.
We initially primarily provided pan-European wireless application service
provider operations by hosted MOMA Platform services to customers in the United
Kingdom, Spain, France and Italy. We established data centers in Spain, Italy,
and France that were connected to our main data center in the United Kingdom. We
had connectivity and billing arrangements with cellular operators that enabled
us to provide our hosted services. We gained strong credibility and experience
as a wireless application service provider during calendar years 2000 and 2001,
while we continued to build and develop our wireless middleware product.
However, due to the high costs and low revenues in the European wireless
application service provider (ASP) market, in 2002, our management decided to
transition our focus away from pan-European wireless application service
providers, toward installing and licensing our middleware technology at cellular
operators and wireless application service providers worldwide, and to operate
through original equipment manufacturers (OEMs) and regional sales
representatives to sell our products.  Our shift away from hosted wireless
application services using our Platform enabled us to focus more on the core
middleware benefits of our technology in fiscal 2002.


2





During
calendar 2002, we channeled our research and development efforts to enhance and
update our middleware technology to interface with advanced and emerging
wireless technologies such as MMS (Multimedia Messaging Service - delivery of
highly enhanced images and audio files) and J2ME, which utilizes Java
programming technology built into certain cellular phones, enables applications
to be written once for a wide range of devices, to be downloaded dynamically,
and to leverage each device’s native capabilities. We also upgraded our
middleware platform to incorporate modules for application deployment and
management, for centralized management of multiple value added services and
multiple third-party content and media providers, and for managing increased
data traffic and real-time billing and reporting requirements.  In
addition, we restructured our sales efforts toward establishing distribution
channels via OEMs and partnerships with major IT vendors and system
integrators.  In fiscal 2003, we had to direct our research and development
resources in an effort to respond to specific business opportunities that were
introduced to us by our distributors and original equipment manufacturers, and
to be able to meet our customers’ enhanced requirements in elements such as
increased transactions volume support and new J2ME possibilities.




During
calendar 2004, we followed the market evolution with respect to the enhanced
ability to deliver downloadable content directly to mobile phones and invested
significant research and development efforts to comply with such new market
trends. We substantially improved the MOMA Platform mobile content management
abilities, especially with respect to content adaptation to a growing number and
types of mobile handsets, and connectivity between the MOMA platform and content
presentation layers such as Internet and WAP interfaces. We also concluded sales
agreements with new wireless operators and wireless application service provider
clients, and at the same time, improved our product positioning in the
market.





During
calendar 2005, we continued to follow-up with the rapid changes in the mobile
entertainment market, especially with the growing introduction of enhanced
mobile entertainment services through the third generation infrastructure for
wireless services, and the continuous development of wireless handsets and their
ability to present higher levels of multi media. We invested significant
research and development efforts in complying with these changes, and indeed,
the delivery of enhanced mobile entertainment services became a central part of
the MOMA Platform functionalities. We also identified a growing trend in the
market that many potential customers preferred to outsource platform
functionalities to service providers (ASPs) rather than to purchase platform and
install on site (Customer Premises Model) and we invested significant funds and
efforts in the infrastructure that was required for this ASP model. During 2006,
we invested extensive efforts in establishing our customer base and expanding
our distribution channels, by enhancing our technology and expanding the terms
and scope of our relationships with our customers.





During
calendar 2007, we were able to acquire prestige and market leader customers, and
strengthen the profit share model that we began developing in 2005. We signed
profit share based deals with News International, part of the News Corp group,
to deliver mobile entertainment services in conjunction of leading UK
newspapers, The Sun and The Times. We signed a profit share based deal with
Telcogames, a leading mobile games company, to provide a hosted environment for
the delivery of their services to their customers. This deal expanded the reach
of our technology and it made it available to the large market of mobile games
provider which we actively pursue. We signed a deal with Arvato Mobile, part of
the great media group Bertelsmann and one of the largest leaders in mobile
entertainment worldwide, to provide large variety of mobile content management
and delivery services on a profit share model. We also strengthened our
relationships with existing customers such as Thumbplay, SupportComm, Logia
Mobile and Interchan (formerly Comtrend) by providing the needed support and
technical expertise to their expansion and expanding the basis for cooperation.
We clearly saw that our business shift made in 2005 from a license model to
profit share model started to bear the desired outcome by generating a
stable business environment for recurring revenues and consistently increasing
profitability. Also during 2007, we made considerable business development
investments in the penetration into the US market and the establishment of a
local sales and marketing presence.


3





During
calendar 2008, we expanded our business in our primary markets of the USA and
Brazil. Our US presence, which we established in 2007, developed and expanded as
we had hoped, and we signed new deals in this territory during 2008. We geared
our special expertise in the mobile entertainment industry and signed deals with
records labels such as Universal Motown Republic Group and Interscope which are
part of the Universal Records Group, to deliver various artist specific mobile
content experience. We started working with the leading WPP advertising agency,
Burson Marsteller, and delivered a relatively small mobile marketing project for
them with the expectation to become their selected technology partner in this
market segment and launch additional projects in the future. We also laid the
groundwork for two additional significant business deals in the US which we
expect to execute early in 2009. We also secured two major deals in the
territory of Brazil with Zero 9 and David2Mobile’s Boltcel, leaders in the
Italian mobile entertainment market that plan to launch their services in Brazil
using our technology. We have also been able to strengthen our partnerships with
existing customers, Thumbplay, Arvato Mobile, Interchan, Logia Mobile and
Supportcomm and have been able to benefit from the revenue share model that we
have established with some of them and see growth in our revenues following
their growth in business. Unfortunately we have had to depart from customers
such as The Sun newspaper (one of the accounts we had in News International),
due to expiration of our contract, and Telcogames, due to Telcogames bankruptcy
procedures. We have seen the implication of the global economy downturn
reflected in the activity of some of our customers, yet despite that, we
experienced significant improvement in our revenue growth of 23%
since 2007.




During
2009, we expanded and further established our presence in the Americas. We
increased volume of sales in the US market and engaged and expanded
relationships with many key players in the entertainment industry such as
Fox Mobile Group, Universal Records and Warner Music. We also significantly
strengthened our position as a mobile marketing leader and executed mobile
marketing campaigns for companies like Kodak and WPP's Burson Marsteller
agency.





Additionally,
we expanded our penetration into the Latin and Central America markets. We
established a local presence in Brazil and launched new mobile entertainment
services for local market leaders such as Zero 9, Mega-Vas and Boltcel. We see
Brazil as a key market for m-Wise and we plan to expand our presence in this
country and use it to establish access additional Latin American markets such as
Mexico and Argentina. We also signed an agreement with the Digicel Group of
mobile carriers who selected us to deliver mobile content services in
26 Caribbean and Central and Latin American markets. We expect to see the
results of this agreement in 2010.





Calendar
year 2009 was a significant year for m-Wise as we have been able
to emphasize our unique position as an off-deck mobile marketing and
mobile entertainment service provider. We have significantly enhanced the
underlying technology of our content management and delivery platform and apply
many improvements that would make it an off-the-shelf platform that
significantly minimizes time-to-market for entertainment companies, content
storefronts and mobile marketing campaigns.


4





Further,
calendar year 2009 was a key year in the evolution of mobile entertainment as
the expansion and further penetration of improved mobile networks and mobile
devices became a clear phenomena during this year. We foresee the
expansion of mobile video and other rich media services as a result of improved
mobile bandwidth and the growth of wide screen mobile devices and
we continuously expand our investments in relevant and supporting
technologies. With this evolution we expect to see in 2010 more and more
businesses looking to establish and expand their presence and services in the
mobile world and we believe that our one stop shop mobile platform
will become very attractive for such companies and that we will continue to
expand the reach of our business and our path of profit and growth.




During
the first quarter of 2010, we made a strong investment effort in the expansion
of our presence in the Brazilian market. We expanded the team dedicated to our
Brazilian operations and set our first local human resources in the country. We
strengthened our relationships with existing customers and other key players in
Brazil such as mobile billing aggregators, local content providers and mobile
carriers and we expect to see the results in significant growth in operation in
this market towards the fourth quarter of fiscal 2010 and into 2011. We
anticipate that this investment will have an impact on our balance sheets during
2010. Brazil is one of the largest and fastest growing mobile markets worldwide
and this market plays a key role in our growth strategy.





During
the second quarter of 2010 we have expanded the foundation of our position as a
full service provider comparing to the technology orientation of our position so
far. We signed an agreement with Universal Music where in addition to our
technical platform services we also offer billing and customer care services and
we expect to gain as a result a more significant role in our relationship with
our partners and therefore higher revenues and profit rates.





During
the second quarter of 2010, we also signed a number of deals with companies like
Latcel and Snackable Media which validate our position as a strong player in
mobile content and delivery in the US market and we expect to see the results in
the coming quarters.





For the
rest of calendar year 2010 we plan to continue to establish our growing position
as a full service provider in the US and at the same
time strengthen our position as a technology player in
Brazil.





Revenues





Our
revenues grew from $1,474,595 in the six months ended June 30, 2009 to
$1,536,128 in the six months ended June 30, 2010 and from $2,833,626 in the year
ended December 31, 2008 to $3,166,276 in the year ended December 31, 2009.
Management believes that our efforts to refocus our resources towards building
relationships with OEMs may yield additional contracts. Although we are in
negotiations for several new contracts there can be no assurance that such
contracts will be secured or that they will generate significant revenue. We
derive revenues from product sales, licensing, revenue share, customer services
and technical support.





When we
license our MOMA Platform solutions to our customers, we generate revenues by
receiving a license payment, ongoing support fees which are typically 15% of the
annual license payment, and professional service fees which are generated from
our customers’ request for additional training, IT administration and tailoring
of our products for their specific needs. When we license our products to our
customers, we install our product at a location specified by our client. We also
derive revenue through our hosted services, whereby we enable customers to
remotely use features of our MOMA Platform (such as a mobile content sales and
delivery service for ring tones and color images), which is installed and hosted
at our location, and receive a set-up fee for launching the services for them,
as well as a portion of our customer's revenues generated through our platform.
When we provide hosted services, we maintain the MOMA Platform at our location
on behalf of our customer.


5





Customers and customer concentration. Historically we have
derived the majority of our revenues from a small number of customers and,
although our customer base is expanding, we expect to continue to do so in the
future. For the six months ended June 30, 2010, approximately 21% of our sales
were derived from sales to Thumbplay, 18% to Comtrend, 14% to Boltcel and 12% to
Fox Mobile Group. For the six months ended June 30, 2009, approximately 37%
of our sales were derived from sales to Thumbplay, 20% to Arvato Mobile and 11%
to Comtrend Corporation In the year ended December 31, 2009, approximately
32% of our sales were derived from sales to Thumbplay, 21% to Arvato Mobile and
10% to Comtrend.





Geographical
breakdown. We sell our products primarily to customers in America and Europe.
For the six months ended June 30, 2010, we derived 63% of our revenues from
sales in America, 19% from sales in Europe and 18% from sales in the Far East.
Of these revenues, 75% were derived from sales by the Company, and 25% of our
revenues were derived from sales by our subsidiaries. For the six months ended
June 30, 2009, we derived 73% of our revenues from sales in America, 11% from
sales in the Far East and 16% from sales in Europe.





For the
year ended December 31, 2009, we derived 76% of our revenues from sales in
America, 14% from sales in Europe and 10% from sales in the Far East. Of these
revenues, 69% were derived from sales by the Company, and 31% of our revenues
were derived from sales by our subsidiary.





Cost
of revenues





Customer
services and technical support cost of revenues consist of the salary and
related costs for our technical staff that provide those services and support
and related overhead expenses.





Operating
expense





Research
and development. Our research and development expenses consist primarily of
salaries and related expenses of our research and development staff, as well as
subcontracting expenses. All research and development costs are expensed as
incurred except equipment purchases that are depreciated over the estimated
useful lives of the assets.





General
and administrative. Our general and administrative expenses consist primarily of
salaries and related expenses of our executive, financial, administrative and
sales and marketing staff. These expenses also include costs of professional
advisors such as legal and accounting experts, depreciation expenses as well as
expenses related to advertising, professional expenses and participation in
exhibitions and tradeshows.





Financing
income and expenses





Financing
income consists primarily of interest earned on our cash equivalents balances
and other financial investments and foreign exchange gains. Financing expenses
consist primarily of interest payable on bank loans and foreign exchange
losses.





Critical
Accounting Policies.


6





We
prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States. As such, we are required to
make certain estimates, judgments and assumptions that we believe are reasonable
based upon the information available.





These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
the periods presented. To fully understand and evaluate our reported
consolidated financial results, we believe it is important to understand our
revenue recognition policy.





Revenue
recognition. 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 the three
stages of deliverables are complete; installation, approval of acceptance tests
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.





Revenue
share is recognized as earned based on a certain percentage of our clients'
revenues from selling services to end users. Usage is determined by receiving
confirmation from the clients.





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


7





RESULTS
OF OPERATIONS




THREE
MONTHS ENDED JUNE 30, 2010, COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
2009.




Revenues.





License
fees and products. Revenues from license fees and products decreased 40% to
$114,029 for the three months ended June 30, 2010, from $190,000 for the same
period in 2009. The decrease is primarily due to $99,999 in revenues which was
derived from one contract with one customer during 2009.





Revenue
share. Revenues from revenue share decreased 58% to $92,848 for the three months
ended June 30, 2010, from $222,570 for the same period in 2009.   The
decrease is primarily due to a loss of one customer during the three months
ended June 30, 2010.





Customer
services and technical support. Revenues from customer services and technical
support increased 54% to $414,732 for the three months ended June 30, 2010, from
$269,246 for the same period in 2009. The increase is primarily due to an
increase in orders and corresponding demand for customer services during
2010.





Cost of
revenues.





Cost of
revenues increased 48% to $273,121 for the three months ended June 30, 2010,
from $184,529 for the same period in 2009. The increase was primarily due to
increase in revenues from customer services and technical support during the
three month period ended June 30, 2010.





Operating
expenses.





Research
and development. Research and development expenses decreased 45% to $84,346 for
the three months ended June 30, 2010, from $153,184 for the same period in 2009.
This decrease was primarily due to an increase of $77,913 in government grant
income. Research and development expenses, stated as a percentage of revenues
decreased to 14% for the three months ended June 30, 2010, from 22% for the same
period in 2009.





General and
administrative.





General
and administrative expenses increased 30% to $512,515 for the three months ended
June 30, 2010, from $395,104 for the same period in 2009. This increase was
primarily due to a $67,626 increase in consulting expenses and a $45,345
increase in payroll and related expenses. General and administrative expenses,
stated as a percentage of revenues increased to 82% for the three months ended
June 30, 2010 from 58% for the same period in 2009.





Other income
(expenses).





Our other
income were $18,117 for the three months ended June 30, 2010 compared with other
expenses of $11,351 for the same period in 2009.




SIX
MONTHS ENDED JUNE 30, 2010, COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
2009.




Revenues.





License
fees and products. Revenues from license fees and products decreased 16% to
$330,675 for the six months ended June 30, 2010, from $392,947 for the same
period in 2009. The decrease is primarily due to $302,946 in revenues which was
derived from two contracts with two customers during 2009, partially offset by
$215,704 in revenues which was derived from two contracts with two customers
during 2010.


8





Revenue
share. Revenues from revenue share decreased 32% to $344,864 for the six months
ended June 30, 2010, from $506,811 for the same period in 2009.   The
decrease is primarily due to a loss of one customer during the three months
ended June 30, 2010.





Customer
services and technical support. Revenues from customer services and technical
support increased 50% to $860,589 for the six months ended June 30, 2010, from
$574,837 for the same period in 2009. The increase is primarily due to an
increase in orders and corresponding demand for customer services during
2010.





Cost of
revenues.





Cost of
revenues increased 69% to $611,574 for the six months ended June 30, 2010, from
$362,894 for the same period in 2009. The increase was primarily due to increase
in revenues from customer services and technical support during the three month
period ended June 30, 2010.





Operating
expenses.





Research
and development. Research and development expenses decreased 29% to $208,886 for
the six months ended June 30, 2010, from $292,303 for the same period in 2009.
This decrease was primarily due to an increase of $132,162 in government grant
income, partially offset by a $15,684 increase in travel expenses. Research and
development expenses, stated as a percentage of revenues decreased to 14% for
the six months ended June 30, 2010, from 20% for the same period in
2009.





General and
administrative.





General
and administrative expenses increased 52% to $1,108,880 for the six months ended
June 30, 2010, from $730,156 for the same period in 2009. This increase was
primarily due to a $117,149 increase in payroll and related expenses, a $135,264
increase in consulting expenses and a $44,830 increase in other expenses.
General and administrative expenses, stated as a percentage of revenues
increased to 72% for the six months ended June 30, 2010 from 50% for the same
period in 2009.





Other income
(expenses).





Our other
income decreased 20% to $14,959 for the six months ended June 30, 2010, from
$18,644 for the same period in 2009.





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 $161,276 as of
June 30, 2010 and $165,504 as of December 31, 2009. 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 quarterly report we have no funds available to us under bank
lines of credit. We have a credit line agreement for $500,000 with Miretzky
Holdings Limited. As of June 30, 2010, $287.877 is outstanding under the credit
line. The credit line has no termination date and does not provide for interest
payments.


9





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 have an equity line
for up to $10.0 million with Dutchess Private Equity Fund and as of August 12,
2010 we have drawn $828,675 under the Equity Line. We will need approximately
$1.2 million for the next twelve months for our operating costs which mainly
include salaries, office rent and network connectivity, which we estimate will
total approximately $80,000 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
six months ended June 30, 2010, net cash used in operating activities was
$53,800 primarily due to our net loss of $378,253, partially offset by a
$165,808 decrease in accounts receivable – trade and  $137,332 in
employee vested options expense. In the same period in 2009, net cash used in
operating activities was $124,179 primarily due to a $219,940 increase in
accounts receivable – trade and a $134,204 decrease in other payables and
accrued expenses, partially offset by our net earnings of $107,886.





Investing and financing
activities.





Property
and equipment consist primarily of computers, software, and office equipment.
For the six months ended June 30, 2010, net cash used in investing activities
was $13,250 consisting of an investment of $13,243 in equipment and a $7
increase in short-term investment. In the same period in 2009, net cash used in
investing activities was $4,880 consisting of an investment of $4,880 in
equipment.. For the six months ended June 30, 2010, net cash provided by
financing activities was $62,822 consisting of $79,633 proceeds from issuance of
common stock, partially offset by a $16,811 decrease in advances from
shareholders. In the same period in 2009, net cash used in financing activities
was $2,069 due to a decrease in advances from shareholders.




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.
            Quantitative
      and Qualitative Disclosures about Market
Risk




Not
applicable.


10




Item
      4T.
            Controls
      and Procedures




Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the
period covered by 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 that
information required to be disclosed is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and is accumulated and communicated to management,
to allow for timely decisions regarding required disclosure of material
information required to be disclosed in the reports that we file or submit under
the Exchange Act.





There
were no changes in our internal control over financial reporting identified in
connection with the evaluation described above during the period covered by this
report that has materially affected or is reasonably likely to materially affect
our internal controls over financial reporting.




PART
II:


OTHER
INFORMATION




Item
      1.
            Legal
      Proceedings




None.




Item
      1A.
            Risk
      Factors




Not
applicable.




Item
      2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds




None.




Item
      3.
            Defaults
      upon Senior Securities




Not
applicable.




Item
      4.
            (Removed
      and Reserved)




Item
      5.
            Other
      Information




Not
applicable.


11




Item
      6.
            Exhibits




Exhibit No.
              
              Description3.1
              
              Amended
      and Restated Certificate of Incorporation(2)3.2
              
              Bylaws(2)4.1
              
              Purchase
      and registration rights agreement and schedule of details(2)10.1
              
              Amended
      and Restated Employment Agreement with Mordechai Broudo(2)10.2
              
              Amendment
      to Amended and Restated Employment Agreement with Mordechai Broudo(2)10.3
              
              Amended
      and Restated Employment Agreement with Shay Ben-Asulin(2)10.4
              
              Amendment
      to Amended and Restated Employment Agreement with Shay Ben-Asulin(2)10.5
              
              Employment
      Agreement, Gabriel Kabazo(2)10.6
              
              Confidentiality
      Rider to Gabriel Kabazo Employment Agreement(2)10.7
              
              Employment
      Agreement Asaf Lewin(2)10.8
              
              2003
      International Share Option Plan(2)10.9
              
              Form
      of Option Agreement, 2003 International Share Option Plan(2)10.10
              
              2001
      International Share Option Plan(2)10.11
              
              Form
      of Option Agreement, 2001 International Share Option Plan(2)10.12
              
              2003
      Israel Stock Option Plan(2)10.13
              
              Form
      of Option Agreement, 2003 Israel Stock Option Plan(2)10.14
              
              2001
      Israel Share Option Plan(2)10.15
              
              Form
      of Option Agreement, 2001 Israel Share Option Plan(2)10.16
              
              Investors'
      Rights Agreement dated January 11, 2001(2)10.17
              
              Stockholders
      Agreement(2)10.18
              
              Agreement
      for Supply of Software and Related Services dated October 14, 2002, by and
      between i Touch plc and m-Wise, Inc.(2)10.19
              
              Purchase
      Agreement between m-Wise, Inc. and Comtrend Corporation dated May 22,
      2002(2)10.20
              
              Amended
      and Restated Consulting agreement between Hilltek Investments Limited and
      m-Wise dated November 13, 2003(2)10.21
              
              Consulting
      Agreement between Hilltek Investments Limited and m-Wise dated June 24,
      2003, subsequently amended (see Exhibit 10.20 above)(2)10.22
              
              Amendment
      to Investors' Rights Agreement dated October 2, 2003(2)10.23
              
              Appendices
      to 2003 Israel Stock Option Plan(2)10.24
              
              Appendices
      to 2001 Israel Share Option Plan(2)10.25
              
              Credit
      Line Agreement between m-Wise, Inc. and Miretzky Holdings, Limited dated
      January 25, 2004(2)10.26
              
              Termination
      and Release Agreement by and among the Company and Syntek capital AG.(3)


12





10.27
              
              Termination
      and Release Agreement dated February 2, 2006, by and among the Company and
      DEP Technology Holdings Ltd.(4)21.1
              
              List
      of Subsidiaries(2)31.1
              
              Rule
      13a-14(a)/15d-14(a) Certification.(1)31.2
              
              Rule
      13a-14(a)/15d-14(a) Certification.(1)32.1
              
              Certification
      by the Chairman Relating to a Periodic Report Containing Financial
      Statements.(1)32.2
              
              Certification
      by the Chief Financial Officer Relating to a Periodic Report Containing
      Financial Statements.(1)




(1)           Filed
herewith.




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




(3)           Incorporated
by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on January
13, 2006.




(4)           Incorporated
by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on February
7, 2006.


13




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.




m-Wise,
      Inc.
                (Registrant)Date: August
      13, 2010
              By:
              /s/ Mordechai
      BroudoName:
      Mordechai Broudo
                Title:
      Chairman





Date: August
      13, 2010
                  By:
                  /s/ Gabriel KabazoName:
      Gabriel Kabazo
                    Title:
      Chief Financial Officer and Principal
                    Accounting
      Officer


14