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 September 30, 2009




 ̈
            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  ̈ No  ̈





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 November 13,
2009, was 139,322,145.





Index


PagePART
      I: FINANCIAL INFORMATIONItem
      1:
                  Financial
      Statements
                  1Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  2Item
      3.
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  11Item
      4T.
                  Controls
      and Procedures
                  11PART
      II:  OTHER INFORMATION 1Item
      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.
                  Submission
      of Matters to a Vote of Security Holders
                  11Item
      5.
                  Other
      Information
                  12Item
      6.
                  Exhibits
                  12SIGNATURES
                  
                  14




i




PART
I:


FINANCIAL
INFORMATION




Item
1:         Financial
Statements




M-WISE,
INC. AND SUBSIDIARY




CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS




THREE
MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008




UNAUDITED




CONTENTS


Condensed
      Consolidated Balance Sheets
              F-1Condensed
      Consolidated Statements of Operations and Comprehensive Earnings
      (Loss)
              F-2
      - F-3Condensed
      Consolidated Statements of Cash Flows
              F-4Notes
      to Condensed Consolidated Financial Statements
              F-5
      - F-17


1




M-WISE,
INC. AND SUBSIDIARY


Condensed
Consolidated Balance Sheets


As of
September 30, 2009 and December 31, 2008





September 30,
                                
                                
                                December 31,2009
                                
                                
                                2008(Unaudited)
                                
                                
                                (Audited)ASSETSCurrentCash
                                
                                $
                                112,183
                                
                                
                                $
                                169,206Short-term
      investment
                                
                                
                                7,837
                                
                                
                                
                                7,769Accounts
      receivable - trade (net of allowance for doubtful accounts of $337,940;
      2008 - $337,940)
                                
                                
                                816,896
                                
                                
                                
                                606,610Prepaid
      expenses and other assets
                                
                                
                                32,159
                                
                                
                                
                                35,591Total
      Current Assets
                                
                                
                                969,075
                                
                                
                                
                                819,176Long-term
      Account Receivable
                                
                                
                                27,500
                                
                                
                                
                                -Long-term
      Prepaid Expenses
                                
                                
                                13,769
                                
                                
                                
                                13,523Plant and Equipment, net(note
      3)
                                
                                
                                69,154
                                
                                
                                
                                62,927Total
      Long-term Assets
                                
                                
                                110,423
                                
                                
                                
                                76,450Total
      Assets
                                
                                $
                                1,079,498
                                
                                
                                $
                                895,626LIABILITIESCurrentAccounts
      payable - trade
                                
                                $
                                23,471
                                
                                
                                $
                                27,144Other
      payables and accrued expenses
                                
                                
                                1,044,907
                                
                                
                                
                                1,177,780Advances
      from stockholder (note 4)
                                
                                
                                305,902
                                
                                
                                
                                305,876Billings
      in excess of costs on uncompleted contracts
                                
                                
                                15,800
                                
                                
                                
                                3,680Total
      Current Liabilities
                                
                                
                                1,390,080
                                
                                
                                
                                1,514,480Accrued Severance Pay(note
      5)
                                
                                
                                124,090
                                
                                
                                
                                114,631Total
      Liabilities
                                
                                
                                1,514,170
                                
                                
                                
                                1,629,111Commitments
      and Contingencies (note 11)STOCKHOLDERS'
      DEFICITCapital Stock(note 6)
                                
                                
                                236,848
                                
                                
                                
                                236,848Additional
      Paid-in Capital
                                
                                
                                11,788,513
                                
                                
                                
                                11,626,126Accumulated
      Deficit
                                
                                
                                (12,460,033
                                )
                                
                                
                                (12,596,459
                                )Total Stockholders' Deficit
                                
                                
                                (434,672
                                )
                                
                                
                                (733,485
                                )Total
      Liabilities and Stockholders' Deficit
                                
                                $
                                1,079,498
                                
                                
                                $
                                895,626





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


F-1




M-WISE,
INC. AND SUBSIDIARY


Condensed
Consolidated Statements of Operations and Comprehensive Earnings
(Loss)


For the
Nine Months Ended September 30, 2009 and 2008


Unaudited





Nine Months
                    
                    
                    Nine MonthsEnded
                    
                    
                    EndedSeptember 30,
                    
                    
                    September 30,2009
                    
                    
                    2008SalesCustomer
      services and technical support
                    
                    $
                    1,152,487
                    
                    
                    $
                    993,128Revenue
      share
                    
                    
                    965,966
                    
                    
                    
                    677,112Product
      sales and license
                    
                    
                    266,664
                    
                    
                    
                    367,5172,385,117
                    
                    
                    
                    2,037,757Cost
      of Sales
                    
                    
                    666,377
                    
                    
                    
                    676,100Gross
      Profit
                    
                    
                    1,718,740
                    
                    
                    
                    1,361,657ExpensesGeneral
      and administrative
                    
                    
                    1,177,613
                    
                    
                    
                    1,291,712Research
      and development
                    
                    
                    437,659
                    
                    
                    
                    573,013Total
      Expenses
                    
                    
                    1,615,272
                    
                    
                    
                    1,864,725Earnings
      (Loss) from Operations
                    
                    
                    103,468
                    
                    
                    
                    (503,068
                    )Other
      Income (Expenses)Extinguishment
      of debt
                    
                    
                    37,798
                    
                    
                    
                    -Interest
      and other
                    
                    
                    (4,840
                    )
                    
                    
                    (47,412
                    )Total
      Other Income (Expenses)
                    
                    
                    32,958
                    
                    
                    
                    (47,412
                    )Earnings
      (Loss) before Income Taxes
                    
                    
                    136,426
                    
                    
                    
                    (550,480
                    )Provision for
      Income Taxes(note
    7)
                    
                    
                    -
                    
                    
                    
                    -Net
      Earnings (Loss)  and Comprehensive Earnings
    (Loss)
                    
                    $
                    136,426
                    
                    
                    $
                    (550,480
                    )Earnings
      (Loss) Per Share - Basic and Diluted
                    
                    $
                    0.00
                    
                    
                    $
                    0.00Weighted
      Average Number of Common Shares  Outstanding - Basic and
      Diluted
                    
                    
                    139,322,145
                    
                    
                    
                    139,246,248





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


F-2




M-WISE,
INC. AND SUBSIDIARY


Condensed
Consolidated Statements of Operations and Comprehensive Earnings


For the
Three Months Ended September 30, 2009 and 2008


Unaudited





Three Months
                                
                                
                                Three MonthsEnded
                                
                                
                                EndedSeptember 30,
                                
                                
                                September 30,2009
                                
                                
                                2008SalesCustomer
      services and technical support
                                
                                $
                                474,701
                                
                                
                                $
                                344,132Revenue
      share
                                
                                
                                369,155
                                
                                
                                
                                298,465Product
      sales and license
                                
                                
                                66,666
                                
                                
                                
                                99,999910,522
                                
                                
                                
                                742,596Cost
      of Sales
                                
                                
                                303,483
                                
                                
                                
                                171,709Gross
      Profit
                                
                                
                                607,039
                                
                                
                                
                                570,887ExpensesGeneral
      and administrative
                                
                                
                                443,956
                                
                                
                                
                                364,924Research
      and development
                                
                                
                                145,356
                                
                                
                                
                                185,356Total
      Expenses
                                
                                
                                589,312
                                
                                
                                
                                550,280Earnings
      from Operations
                                
                                
                                17,727
                                
                                
                                
                                20,607Other
      Income (Expenses)Extinguishment
      of debt
                                
                                
                                12,600
                                
                                
                                
                                -Interest
      and other
                                
                                
                                (1,787
                                )
                                
                                
                                (13,639
                                )Total
      Other Income (Expenses)
                                
                                
                                10,813
                                
                                
                                
                                (13,639
                                )Earnings
      Before Income Taxes
                                
                                
                                28,540
                                
                                
                                
                                6,968Provision
      for Income Taxes
                                
                                
                                -
                                
                                
                                
                                -Net
      Earnings and Comprehensive Earnings
                                
                                $
                                28,540
                                
                                
                                $
                                6,968Earnings
      Per Share - Basic and Diluted
                                
                                $
                                0.00
                                
                                
                                $
                                0.00Weighted
      Average Number of Common Shares  Outstanding - Basic and
      Diluted
                                
                                
                                139,322,145
                                
                                
                                
                                139,322,145




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




F-3




M-WISE,
INC. AND SUBSIDIARY


Condensed
Consolidated Statements of Cash Flows


For the
Nine Months Ended September 30, 2009 and 2008


Unaudited




Nine Months
                    
                    
                    Nine MonthsEnded
                    
                    
                    EndedSeptember 30,
                    
                    
                    September 30,2009
                    
                    
                    2008Cash
      Flows from Operating ActivitiesNet
      earnings (loss)
                    
                    $
                    136,426
                    
                    
                    $
                    (550,480
                    )Adjustments
      to reconcile net earnings (loss) to net cash used in operating
      activities:Depreciation
                    
                    
                    21,780
                    
                    
                    
                    33,260Employee
      options vested
                    
                    
                    162,387
                    
                    
                    
                    248,080320,593
                    
                    
                    
                    (269,140
                    )Net
      changes in assets and liabilities:Accounts
      receivable - trade
                    
                    
                    (237,786
                    )
                    
                    
                    82,035Prepaid
      expenses and other assets
                    
                    
                    3,186
                    
                    
                    
                    (15,473
                    )Accounts
      payable - trade
                    
                    
                    (3,673
                    )
                    
                    
                    (15,253
                    )Other
      payables and accrued expenses
                    
                    
                    (132,873
                    )
                    
                    
                    (16,193
                    )Billings
      in excess of costs on uncompleted contracts
                    
                    
                    12,120
                    
                    
                    
                    (136,633
                    )Accrued
      severance pay
                    
                    
                    9,459
                    
                    
                    
                    69,699Net
      Cash Used in Operating Activities
                    
                    
                    (28,974
                    )
                    
                    
                    (300,958
                    )Cash
      Flows from Investing ActivitiesAcquisition
      of plant and equipment
                    
                    
                    (28,007
                    )
                    
                    
                    (21,709
                    )Short-term
      investment
                    
                    
                    (68
                    )
                    
                    
                    (7,769
                    )Net
      Cash Used in Investing Activities
                    
                    
                    (28,075
                    )
                    
                    
                    (29,478
                    )Cash
      Flows from Financing ActivitiesAdvances
      from stockholder
                    
                    
                    26
                    
                    
                    
                    5,104Sale
      of common shares under Equity Financing agreement
                    
                    
                    -
                    
                    
                    
                    3,310Net
      Cash Provided by Financing Activities
                    
                    
                    26
                    
                    
                    
                    8,414Net
      Decrease in Cash
                    
                    
                    (57,023
                    )
                    
                    
                    (322,022
                    )Cash
      - Beginning of Period
                    
                    
                    169,206
                    
                    
                    
                    365,513Cash
      - End of Period
                    
                    $
                    112,183
                    
                    
                    $
                    43,491Interest
      and Income Taxes PaidDuring
      the period, the Company had cash flows arising from income taxes and
      interests paid as follows:Interest
                    
                    $
                    178
                    
                    
                    $
                    416Income
      taxes
                    
                    $
                    -
                    
                    
                    $
                    -





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


F-4




M-WISE,
INC. AND SUBSIDIARY


Notes to
Condensed Consolidated Financial Statements


September
30, 2009 and 2008


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 subsidiary, m-Wise Ltd., is located in Israel and was
incorporated in 2000 under the laws of Israel.




b)
              Going
      Concern




The
Company's unaudited condensed 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 has
negative cash flows from operations and negative working capital that raises
substantial doubt as to its ability to continue as a going concern. For the nine
months ended September 30, 2009, and the year ended December 31, 2008, the
Company experienced a working capital deficit of $421,005 (2008 -
$695,304).




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.


F-5




M-WISE,
INC. AND SUBSIDIARY


Notes to
Condensed Consolidated Financial Statements


September
30, 2009 and 2008


Unaudited




2.
            Summary
      of Significant Accounting Policies




a)
              Basis
      of Presentation




The
accompanying unaudited condensed consolidated financial statements of the
Company have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”) for interim financial
information.  Accordingly they do not include all of the information
and footnotes required by the accounting principles generally accepted in the
United States for complete financial statements.  In the opinion of
the Company’s management, all adjustments (consisting of only normal recurring
accruals) considered necessary for a fair presentation have been
included.  Operating results for the nine-month period ended September
30, 2009 are not necessarily indicative of results that may be expected for the
full fiscal year ending December 31, 2009.  The accompanying condensed
consolidated financial statements should be read in conjunction with the audited
financial statements of the Company for the fiscal year ended December 31, 2008.
The Company has evaluated subsequent events for recognition or disclosure
through November 13, 2009, which was the date the Company filed this Form 10-Q
with the SEC.




b)
              Recent
      Accounting Pronouncements




In June
2009, the FASB issued SFAS 166 "Accounting for Transfers of Financial Assets—an
amendment of FASB Statement No. 140." This standard eliminates the concept of a
qualifying special purpose entity ("QSPE") and modifies the derecognition
provisions in SFAS 140. This statement is effective for financial asset
transfers occurring after the beginning of an entity's first fiscal year that
begins after November 15, 2009. The Company is currently reviewing the effect,
if any, the proposed guidance will have on its consolidated financial
statements.




In June
2009, the FASB issued SFAS 167 "Amendments to FASB Interpretation No. 46(R)."
This statement amends the consolidation guidance applicable to variable interest
entities and is effective as of the beginning of an entity's first fiscal year
that begins after November 15, 2009. The Company is currently reviewing the
effect, if any, the proposed guidance will have on its consolidated financial
statements.




In June
2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles – a replacement of
FASB Statement No. 162” (“SFAS 168”).  SFAS 168 provides for the FASB
Accounting Standards Codification (the “Codification”) to become the single
official source of authoritative, nongovernmental U.S. generally accepted
accounting principles (GAAP).  The Codification did not change GAAP
but reorganizes the literature. SFAS 168 is effective for interim and annual
periods ending after September 15, 2009. The Company adopted SFAS 168 effective
September 15, 2009. The adoption of SFAS 168 did not impact the Company’s
financial position or results of operations.


F-6




M-WISE,
INC. AND SUBSIDIARY


Notes to
Condensed Consolidated Financial Statements


September
30, 2009 and 2008


Unaudited




3.
            Plant
      and Equipment




Plant and
equipment is comprised of the following:


September
      30,
                    
                    
                    
                    
                    
                    December
      31,2009
                    
                    
                    
                    
                    
                    2008Accumulated
                    
                    
                    
                    
                    
                    AccumulatedCost
                    
                    
                    Depreciation
                    
                    
                    Cost
                    
                    
                    DepreciationFurniture
      and equipment
                    
                    $
                    73,044
                    
                    
                    $
                    41,255
                    
                    
                    $
                    69,940
                    
                    
                    $
                    37,405Computer
      equipment
                    
                    
                    165,655
                    
                    
                    
                    128,551
                    
                    
                    
                    140,751
                    
                    
                    
                    110,701Leasehold
      improvements
                    
                    
                    2,591
                    
                    
                    
                    2,330
                    
                    
                    
                    2,592
                    
                    
                    
                    2,250$
                    241,290
                    
                    
                    $
                    172,136
                    
                    
                    $
                    213,283
                    
                    
                    $
                    150,356Net
      carrying amount
                    
                    
                    
                    
                    
                    $
                    69,154
                    
                    
                    
                    
                    
                    
                    $
                    62,927




Depreciation
expenses of $19,797 (2008 - $20,298) and $1,983 (2008 - $1,970) 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. According to an agreement dated
January 2003, the stockholder granted a credit facility of $500,000 to the
Company in return for preferred class "C" shares as described in note 6. As of
September 30, 2009 and December 31, 2008, the line of credit had an outstanding
balance of $305,902 and $305,876, respectively.




5.
            Accrued
      Severance Pay




The
Company accounts for its potential severance liability of its Israeli subsidiary
in accordance with EITF 88-1, "Determination of Vested Benefit Obligation for a
Defined Benefit Pension Plan". The Company's liability for severance pay is
calculated pursuant to applicable labour laws in Israel on the most recent
salary of the employees multiplied by the number of years of employment as of
the balance sheet date for all employees. The Company's liability is fully
accrued and reduced by monthly deposits with severance pay funds and insurance
policies.  At September 30, 2009 and December 31, 2008, the amount of
the liabilities accrued were $335,431and $272,653, respectively. Severance pay
expenses for the nine months ended September 30, 2009 and 2008 were $59,590 and
$102,578 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.


F-7




M-WISE,
INC. AND SUBSIDIARY


Notes to
Condensed Consolidated Financial Statements


September
30, 2009 and 2008


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
September 30, 2009, and December 31, 2008, were $211,341 and $158,022,
respectively.  Income earned from the deposit funds for 2009 and 2008
was immaterial.




6.
              Capital
      Stock


Authorized:210,000,000     
      Common stock, par value $0.0017 per share170,000,000     
      Preferred stockSeries
      "A": convertible, voting,  par value of $0.0017 per
      shareSeries
      "B": 10% non-cumulative dividend, redeemable, convertible,
      voting,  par value of $0.0017 per shareSeries
      "C": 10% non-cumulative dividend, convertible, voting, par value of
      $0.0017 per share




December
      31,2009
                    
                    
                    2008Issued:139,322,145    Common
      stock (2008 - 139,322,145)
                    
                    $
                    236,848
                    
                    
                    $
                    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:





2009
                      
                      
                      2008Israel
                      
                      
                      International
                      
                      
                      Israel
                      
                      
                      InternationalInterest
      rate
                      
                      
                      1.2
                      %
                      
                      
                      1.2
                      %
                      
                      
                      1.2
                      %
                      
                      
                      1.2
                      %Expected
      volatility
                      
                      
                      138
                      %
                      
                      
                      138
                      %
                      
                      
                      138
                      %
                      
                      
                      138
                      %Expected
      life in years
                      
                      
                      2.25
                      
                      
                      
                      4.25
                      
                      
                      
                      3
                      
                      
                      
                      5


F-8




M-WISE,
INC. AND SUBSIDIARY


Notes to
Condensed Consolidated Financial Statements


September
30, 2009 and 2008


Unaudited




6.
            Capital Stock(cont'd)




Warrants




In April
2000, 56,180 warrants, equivalent to 337,080 shares after the Company's
six-for-one forward stock split, were issued to one of the stockholders with his
preferred Class "A" shares for a total investment of $750,000. The warrants will
expire in the event of an initial public offering of the Company's securities.
The warrants have an exercise price for preferred Class "A" shares of the
Company at $4.45 per share, equivalent to $0.74 after the six-for-one forward
stock split.  No value has been assigned to the warrants and the total
investment net of par value of preferred Class "A" shares has been presented as
additional paid-in capital.  The warrants for preferred Class "A"
shares were converted into warrants for common shares on a one-to-one basis in
2003.




In
January 2003, the Company issued warrants to purchase 180,441 Class "B"
preferred shares of the Company for deferral of debt for legal services
rendered, which was valued at $10,000. The warrants will expire in
2010.




The
warrants for preferred Class "B" shares have been converted into warrants for
common shares during the year at a ratio of 1-to-6.3828125. After the
conversion, the warrants were further split at the ratio of one-to-six in
accordance with the forward stock split of the common shares.  After
the conversion and the forward split, there were warrants to purchase 7,025,778
shares outstanding.




On April
4, 2007, 505,732 of the above warrants have been converted into common shares
and the number of warrants outstanding as at September 30, 2009 was
6,520,046.




On
December 22, 2005, the Company entered into an agreement with Syntek Capital AG
("Syntek"), as part of the agreement for conversion of the note payable into
common shares, whereby the Company issued warrants to purchase up to 5,263,158
common shares of the Company at an exercise price of $0.19. As of September 30,
2009, the warrants have not been converted into common stock.




On
February 2, 2006, the Company entered into an identical agreement with DEP
Technology Holdings Ltd.  The value assigned to the warrants was
$218,114. As of September 30, 2009, the warrants have not been converted into
common stock.




On
December 29, 2008, the Company issued warrants to a stockholder as compensation
for non-interest bearing credit line facility provided from March 2004 to
December 31, 2008, which was valued at $62,000. The stockholder can purchase up
to 4,000,000 common shares of the Company at an exercise price of $0.04. The
warrants will expire in 2012.




F-9


M-WISE,
INC. AND SUBSIDIARY
 Notes to
Condensed Consolidated Financial Statements
 September
30, 2009 and 2008
 Unaudited




6.
            Capital Stock(cont'd)




Capital
Stock:




On March
6, 2007, the Company exercised its right pursuant to the February 6, 2006 equity
financing agreement with Dutchess Private Equity Fund ("DPEF"). The agreement
entitled the Company to sell up to 20,000,000 of the Company's common shares (to
maximum of $10,000,000) over the course of 36 months.  The amount that
the Company shall be entitled to request from each of the purchase "Puts", shall
be equal to either 1) $300,000 or 2) 200% of the average daily volume ("ADV")
multiplied by the average of the three daily closing prices immediately
preceding the Put date.  The ADV shall be computed using the 10
trading days prior to the Put Date.  The Purchase Price for the common
stock identified in the Put Notice shall be set at 93% of the lowest closing bid
price of the common stock during the Pricing Period.  The Pricing
Period is equal to the period beginning on the Put Notice date and ending on and
including the date that is five trading days after such Put
Date.  There are put restrictions applied on days between the Put Date
and the Closing Date with respect to that Put.  During this time, the
Company shall not be entitled to deliver another Put Notice.




In
connection with the equity financing agreement, the Company has issued a
preliminary prospectus whereby the DPEF and a current significant stockholder
can sell up to 30,000,000 common shares at market value. During the year ended
December 31, 2007, 6,515,483 common shares were issued under the agreement for
$825,365.




During
the year ended December 31, 2008, 140,000 common shares were issued under the
DPEF equity financing agreement for $3,310.




Stock
Options:




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




Under the
Israel 2001 Share Option Plan, management authorized stock options for
2,403,672  common shares of the Company having a $0.0017 nominal par
value each and an exercise price of $0.0017, and under the International 2001
Share Option Plan, stock options for 300,000 common shares having a $0.0017
nominal par value each and an exercise price of $0.0017.  As of
September 30, 2009, 3,672 options under the Israel 2001 Share Option Plan for
common stock were not yet granted and available for future
grant.


F-10


M-WISE,
INC. AND SUBSIDIARY
 Notes to
Condensed Consolidated Financial Statements
 September
30, 2009 and 2008
 Unaudited




6.
            Capital Stock(cont'd)




Stock
Options (cont'd):




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, which
were converted to options for common shares of the Company having a $0.0017
nominal par value each and an exercise price of $0.0017, and under the
International 2003 Share Option Plan stock options (on a post conversion, post
split basis) for 25,061,094 preferred Class "B" shares which were converted to
options for common shares of the Company having a $0.0017 nominal par value each
and an exercise price of $0.0017.  On January 5, 2006, the share
option plan was amended to authorize an additional 1,260,000 stock options and
the exercise price per share for the new options will be $0.12 for options
granted after January 5, 2006. On August 14, 2006, the share option plan was
amended to authorize an additional 6,000,000 stock options at an exercise price
of $0.04. On June 16, 2008, the exercise price of 17,080,000 options granted
under the Israel 2003 Stock Option Plan and 15,750,000 options granted under the
2003 International Share Option Plan was amended to $0.03. 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 September 30, 2009, 38,256 options under
the Israel 2003 Stock Option Plan were not yet granted and available for future
grant.




On
January 4, 2008, 500,000 stock options at an exercise price of $0.09 were
granted under the International 2003 Share Option Plan.




On June
16, 2008, the Company reduced the exercise price of 17,080,000 options in its
Israel 2003 Stock Option Plan and 15,750,000 options in the International 2003
Share Option Plan to $0.03, resulting in additional compensation costs of
$41,059 in accordance with SFAS 123(R), Paragraph A150. $35,229 and $5,830 were
included in general and administrative and research and development expenses,
respectively.




On August
3, 2009, the Company reduced 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.




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.


F-11


M-WISE,
INC. AND SUBSIDIARY
 Notes to
Condensed Consolidated Financial Statements
 September
30, 2009 and 2008
 Unaudited




6.
            Capital Stock(cont'd)




Stock
Options (cont'd):




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
                        
                        
                        583,477Nine
      months ended September 30, 2009
                        
                        
                        162,387$
                        1,477,632


F-12


M-WISE,
INC. AND SUBSIDIARY
 Notes to
Condensed Consolidated Financial Statements
 September
30, 2009 and 2008
 Unaudited




6.
            Capital Stock(cont'd)




Stock
Options (cont'd):




The
following table summarizes the activity of common stock options during the nine
months ended September 30, 2009 and the year ended December 31,
2008:




2009
                          
                          
                          2008Israel
                          
                          
                          International
                          
                          
                          Israel
                          
                          
                          InternationalOutstanding,
      beginning of period
                          
                          
                          25,901,400
                          
                          
                          
                          28,176,797
                          
                          
                          
                          18,209,767
                          
                          
                          
                          16,776,797Granted
                          
                          
                          -
                          
                          
                          
                          240,000
                          
                          
                          
                          8,500,000
                          
                          
                          
                          11,900,000Forfeited
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (808,367
                          )
                          
                          
                          (500,000
                          )Outstanding,
      end of period
                          
                          
                          25,901,400
                          
                          
                          
                          28,416,797
                          
                          
                          
                          25,901,400
                          
                          
                          
                          28,176,797Weighted
      average fair value of options granted during the period
                          
                          $
                          -
                          
                          
                          $
                          0.0166
                          
                          
                          $
                          0.0160
                          
                          
                          $
                          0.0172Weighted
      average exercise price of common stock options, beginning of
      period
                          
                          $
                          0.0315
                          
                          
                          $
                          0.0356
                          
                          
                          $
                          0.0493
                          
                          
                          $
                          0.0792Weighted
      average exercise price of common stock options granted in the
      period
                          
                          $
                          -
                          
                          
                          $
                          0.0154
                          
                          
                          $
                          0.0318
                          
                          
                          $
                          0.0414Weighted
      average exercise price of common stock options, end of
    period
                          
                          $
                          0.0293
                          
                          
                          $
                          0.0294
                          
                          
                          $
                          0.0315
                          
                          
                          $
                          0.0356Weighted
      average remaining contractual life of common stock options
                          
                          1.99 years
                          
                          
                          2.34 year
                          
                          
                          2.72 years
                          
                          
                          3.08 years




The stock
options have not been included in the calculation of the diluted earnings per
share as their effect would be anti-dilutive.




7.
            Income
      Taxes




The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes" ("SFAS No.109"). 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.


F-13


M-WISE,
INC. AND SUBSIDIARY
 Notes to
Condensed Consolidated Financial Statements
 September
30, 2009 and 2008
 Unaudited




7.
            Income Taxes (cont'd)




Under
SFAS No. 109, income taxes are recognized for the following: a) amount of tax
payable for the current year, and b) deferred tax liabilities and assets for
future tax consequences of events that have been recognized differently in the
financial statements than for tax purposes. Management determined that 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:




December 31,2009
                              
                              
                              2008Deferred
      income tax assetsLoss
      carryforwards
                              
                              $
                              3,013,000
                              
                              
                              $
                              3,049,000Less:
      Valuation allowance
                              
                              
                              (3,013,000
                              )
                              
                              
                              (3,049,000
                              )Total
      net deferred tax assets
                              
                              $
                              -
                              
                              
                              $
                              -




For the
nine months ended September 30, 2009 and the year ended December 31, 2008, 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
September 30, 2009, the Company had approximately$11,989,000 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
                    
                    $
                    825,5002021
                    
                    
                    2,398,0002022
                    
                    
                    778,0002023
                    
                    
                    5,005,0002024
                    
                    
                    581,0002025
                    
                    
                    560,5002026
                    
                    
                    196,0002027
                    
                    
                    700,0002028
                    
                    
                    945,000$
                    11,989,000




As of
September 30, 2009, the Company had approximately $60,000in tax losses in its
Israeli subsidiary which will carryforward indefinitely.


F-14


M-WISE,
INC. AND SUBSIDIARY
 Notes to
Condensed Consolidated Financial Statements
 September
30, 2009 and 2008
 Unaudited




8.
            Related
      Party Transactions




During
the nine months ended September 30, 2009, the Company incurred directors'
consulting fees and salaries in the amount of $104,994 (2008 - $104,994). As of
September 30, 2009, $611,386 (December 31, 2008 - $570,392) 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
nine months ended September 30, 2009, the Company had three major customers
which primarily accounted for 33%, 20%, and 12% of total revenues. For the nine
months ended September 30, 2008, the Company had three major customers which
accounted for 47%, 16%, and 10% of total revenues.




10.
            Segmented
      Information




Israel
                            
                            
                            USA
                            
                            
                            TotalGross revenue
                            September 30, 2009
                            
                            $
                            710,780
                            
                            
                            $
                            1,674,337
                            
                            
                            $
                            2,385,117September 30, 2008
                            
                            $
                            28,791
                            
                            
                            $
                            2,008,966
                            
                            
                            $
                            2,037,757Net income (loss)
                            September 30, 2009
                            
                            $
                            52,403
                            
                            
                            $
                            84,023
                            
                            
                            $
                            136,426September 30, 2008
                            
                            $
                            (125,220
                            )
                            
                            $
                            (425,260
                            )
                            
                            $
                            (550,480
                            )Total assets
                            September 30, 2009
                            
                            $
                            454,216
                            
                            
                            $
                            625,282
                            
                            
                            $
                            1,079,498December 31, 2008
                            
                            $
                            134,107
                            
                            
                            $
                            761,519
                            
                            
                            $
                            895,626




For the
nine months ended September 30, 2009, the Company derived 12% (2008 - 6%) of its
revenues from sales to the Far East, 16% from sales to Europe (2008 - 21%) and
72% (2008 - 73%) from sales to America.


F-15


M-WISE,
INC. AND SUBSIDIARY
 Notes to
Condensed Consolidated Financial Statements
 September
30, 2009 and 2008
 Unaudited




11.
            Commitments
      and Contingencies




The
Company is committed under an operating lease for its premises expiring June 30,
2010. Minimum annual payments (exclusive of taxes, insurance, and maintenance
costs) are as follows:




2009
                          
                          $
                          21,3002010
                          
                          
                          41,400$
                          62,700




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




2009
                          
                          $
                          20,8902010
                          
                          
                          67,7402011
                          
                          
                          37,2202012
                          
                          
                          10,100$
                          135,950




Rent
expense paid during the nine months ended September 30, 2009 and 2008 was
$58,991and $59,917
respectively.




12.
            Financial
      Instruments




Unless
otherwise noted, it is management's opinion that the Company is not exposed to
significant interest, currency or credit risks arising from the financial
instruments.




Credit
risk




Financial
instruments that are potentially subject to credit risk consist principally of
trade receivables. The Company believes the concentration of credit risk in its
trade receivables is substantially mitigated by its ongoing credit evaluation
process. The Company does not generally require collateral from customers. The
Company evaluates the need for an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends and
other information.




For the
nine months ended September 30, 2009, the Company had four major customers which
primarily accounted for 20%, 20%, 20% and 15% of total accounts receivable. For
the nine months ended September 30, 2008, the Company had four major customers
which accounted for 33%, 23%, 18% and 14% of total accounts
receivable.


F-16




M-WISE,
INC. AND SUBSIDIARY


Notes to
Condensed Consolidated Financial Statements


September
30, 2009 and 2008


Unaudited




13.
            Fair
      Value Measurements




Effective
January 1, 2008, the Company adopted SFAS 157, except as it applies to the
nonfinancial assets and nonfinancial liabilities subject to FSP SFAS
157-2.  SFAS 157 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants.  As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or a liability.  As a basis for considering such
assumptions, SFAS 157 establishes a three-tier value hierarchy, which
prioritizes the inputs used in the valuation methodologies in measuring fair
value:




Level 1 -
                  Observable
      inputs that reflect quoted prices (unadjusted) for identical assets or
      liabilities in active
markets.




Level 2 -
              Include
      other inputs that are directly or indirectly observable in the
      marketplace.




Level 3 -
              Unobservable
      inputs which are supported by little or no market
  activity.




The fair
value hierarchy also requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair
value.




Cash and
short-term investment (level 1), accounts receivable-trade, accounts
payable-trade, other payables and accrued expenses and advances from stockholder
(level 2) are reflected in the consolidated balance sheets at carrying value,
which approximates fair value due to the short-term nature of these
instruments.




The fair
value of the financial instruments approximates their carrying values, unless
otherwise noted.




14.
            Comparative
      Information




Certain
figures for the period ended September 30, 2008 have been reclassified to
conform with the current year's financial statement
presentation.


F-17




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
the first quarter of 2009, we expanded our business in our primary markets of
the USA and Brazil. Our US presence, which we established in late 2007, has
developed and expanded as we had hoped, and we signed new deals in this
territory. We geared our special expertise in the mobile marketing industry and
signed deals with leading players such as The Secret and WPP’s advertising and
PR agency Burson Marsteller. We also launched a major customer in the Brazilian
market and we expect to see significant revenues coming from this customer this
year. We further created a strategic alliance with Ozonion, an important player
in the Brazilian mobile entertainment market and we expect to see new deals
coming through this partnership. We have seen the implication of the global
economic downturn reflected in the activity of some of our customers, yet
despite that, we have seen a significant improvement in our revenue growth of
16% from the comparative quarter of last year.


4


During
the second quarter of 2009, we have continued to expand our presence in the
Americas. We won an RFP with the Digicel Group, the leading mobile carrier in 23
countries in Central America and the Caribbean. According to the purchase order
that has already been received, m-Wise will provide its service and content
delivery platforms in a hosted and service model, and we expect to sign the
agreement shortly and work for Digicel as a content aggregator as well
as  the technology service provider. We have also closed some
strategic deals in the US market which are expected to boost our revenues in
this market and pave the way for additional deals of the same type. We have
closed a deal with Malaco, a relatively small record label where our platform
will be used as the end-to-end content storefront for this label. We intend to
use this relatively unique model and approach the major record labels with the
same offer and concept. We have also closed a deal with Tribune Media Services
to deliver daily horoscope services through all the publishers and newspapers
who syndicate content from this global leader of content licensing and
syndications. We expect dozens of publishers to pick this service and make it
available to millions of readers in the US market. We have also strengthened our
position in the Brazilian market by signing a new customer, a company called
Mega-Vas, and seeing growing revenue share rates from our existing customers.
Brazil has become a primary market for m-Wise and we intend to make investments
in order to leverage our strong position in this market and generate
substantially higher rates of revenues in this market.





During
the third quarter of 2009, we significantly strengthened our position as a
global player in the mobile content industry. We received a deal from Fox Mobile
Group (FMG), one of the largest global retailers of mobile content off-deck
industry which, among others, operates the known mobile content brands of Jamba
and Jamster. FMG chose our content delivery platform due to its unique qualities
and we have already launched the first stage of operation in Brazil. We believe
that the qualities of our content solutions and services will result a further
expansion of our implementations within the FMG structure and as such it holds
promising expansion of revenue generation from this operation. We have also
closed a couple of small deals in the territory of the United Kingdom, and also
a mobile fan club engagement with Warner Music Group and enhanced our operations
in the territory of Brazil. The substantial growth of profit in Q3 2009 and the
steady growth in profit is a direct result of the successful deployment of
revenue share deals with our clients as we see more revenues following the
growth of existing clients.





For the
rest of calendar 2009, we plan to emphasize the resource-saving advantages
of our technology, and are planning to target those potential customers who can
significantly benefit from outsourcing their technical services to us instead of
continuing the research and development in-house. We believe that 2009 will be
characterized by serious efforts by many enterprises to save on expenses as a
result of the current state of the global economy, and we plan to offer our
relative advantages in that respect. Additionally, we intend to further deepen
our presence in the emerging market of Brazil by starting a local presence and
expand our business alliances in that region with an objective to expand beyond
Brazil and extend our technology offering to large neighboring regions such as
Mexico and Argentina. We also plan to expand further into the mobile
entertainment market in the USA, especially in the music market, and leverage
our existing relationship with Universal Records and Warner Music Group to gain
additional mobile entertainment and infotainment deals. In all cases, we plan to
continue our software-as-a-service based business model and use our successes in
an effort to generate reoccurring revenues that will provide us with future
stability.





We
believe that the strength of our technology and position in the market allows
some of our potential customers to become more effective with our technology and
therefore, despite the recent downturn in the global economy, and based on our
current sales pipeline we have, we expect 2009 to be another year of growth in
revenues during which we expect to achieve profitability.


5





Revenues





Our
revenues grew from $2,037,757 in the nine months ended September 30, 2008 to
$2,385,117 in the nine months ended September 30, 2009 and from $2,295,260 in
the year ended December 31, 2007 to $2,833,626 in the year ended December 31,
2008. 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.





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 nine months ended September 30, 2009, approximately 33% of our
sales were derived from sales to Thumbplay, 20% to Arvato Mobile and 12% to
Comtrend. In the year ended December 31, 2008, approximately 45% of our sales
were derived from sales to Thumbplay, 17% to Arvato Mobile and 9% to
Comtrend.





Geographical
breakdown. We sell our products primarily to customers in America and Europe.
For the nine months ended September 30, 2009, we derived 72% of our revenues
from sales in America, 16% from sales in Europe and 12% from sales in the Far
East. Of these revenues, 70% were derived from sales by the Company, and 30% of
our revenues were derived from sales by our subsidiary.


For the
year ended December 31, 2008, we derived 71% of our revenues from sales in
America, 19% from sales in Europe and 10% from sales in the Far East. Of these
revenues, 99% were derived from sales by the Company, and 1% 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.


6




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.





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 SEPTEMBER 30, 2009, COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER
30, 2008.




Revenues.





License
fees and products. Revenues from license fees and products decreased 33% to
$66,666 for the three months ended September 30, 2009, from $99,999 for the same
period in 2008. The decrease is due to an expiration of a license agreement with
one of our customers.





Revenue
share. Revenues from revenue share increased 24% to $369,155 for the three
months ended September 30, 2009, from $298,465 for the same period in
2008.   The increase is primarily due to revenues received from
current customers who were not our customers during 2008 and from customers that
did not previously generate revenues from selling services to end
users.





Customer
services and technical support. Revenues from customer services and technical
support increased 38% to $474,701 for the three months ended September 30, 2009,
from $344,132 for the same period in 2008.





Cost of
revenues.





Cost of
revenues increased 77% to $303,483 for the three months ended September 30,
2009, from $171,709 for the same period in 2008. The increase was primarily due
to increase in revenues from customer services and technical support during the
three month period ended September 30, 2009.





Operating
expenses.





Research
and development. Research and development expenses decreased 22% to $145,356 for
the three months ended September 30, 2009, from $185,356 for the same period in
2008. This decrease was primarily due to a $22,510 decrease in payroll and
related expenses. Research and development expenses, stated as a percentage of
revenues decreased to 16% for the three months ended September 30, 2009, from
25% for the same period in 2008.





General and
administrative.





General
and administrative expenses increased 22% to $443,956 for the three months ended
September 30, 2009, from $364,924 for the same period in 2008. This increase was
primarily due to a $42,435 increase in marketing expenses and a $36,605 increase
in payroll and related expenses. General and administrative expenses, stated as
a percentage of revenues, was 49% for the three months ended September 30, 2009
and 49% for the same period in 2008.





Financing  expenses.





Our
financing expenses decreased 87% to $1,787 for the three months ended September
30, 2009, from $13,639 for the same period in 2008.


8




NINE
MONTHS ENDED SEPTEMBER 30, 2009 COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER
30, 2008.




Revenues





License
fees and products. Revenues from license fees and products decreased 27% to
$266,664 for the nine months ended September 30, 2009, from $367,517 for the
same period in 2008. This decrease was primarily due to a $67,520 one time
payment by a new customer in 2008.





Revenue
share. Revenues from revenue share increased 43% to $965,966 for the nine months
ended September 30, 2009, from $677,112 for the same period in
2008.   The increase is primarily due to revenues received from
current customers who were not our customers during 2008 and from customers that
did not previously generate revenues from selling services to end
users.





Customer
services and technical support. Revenues from customer services and technical
support increased 16% to $1,152,487 for the nine months ended September 30,
2009, from $993,128 for the same period in 2008.





Cost of
revenues.





Cost of
revenues decreased 1% to $666,377 for the nine months ended September 30, 2009,
from $676,100 for the same period in 2008. The decrease was primarily due to a
decrease in payroll and related expenses during the nine months ended September
30, 2009.





Operating
expenses.





Research
and development. Research and development expenses decreased 24% to $437,659 for
the nine months ended September 30, 2009, from $573,013 for the same period in
2008. This decrease was primarily due to a $56,739 decrease in payroll and
related expenses. Research and development expenses, stated as a percentage of
revenues, decreased to 18% for the nine months ended September 30, 2009, from
28% for the same period in 2008.





General and
administrative.





General
and administrative expenses decreased 9% to $1,177,613 for the nine months ended
September 30, 2009, from $1,291,712 for the same period in 2008. This decrease
was primarily due to a $60,835 decrease in payroll and related expenses and a
$39,982 decrease in consulting expenses. General and administrative expenses,
stated as a percentage of revenues, decreased to 49% for the nine months ended
September 30, 2009, from 63% for the same period in 2008.





Financing
expenses.





Our
financing expenses decreased 90% to $4,840 for the nine months ended September
30, 2009, from $47,412 for the same period in 2008.


9


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 $112,183 as of
September 30, 2009 and $169,206 as of December 31, 2008. 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 September 30, 2009, $305,902 is outstanding
under the credit line. The credit line has no termination date and does not
provide for interest payments.





Other
than the credit line agreement with Miretzky, we do not have any commitments
from any of our affiliates or current stockholders, or any other non-affiliated
parties, to provide additional sources of capital to us. We have an equity line
for $10.0 million with Dutchess Private Equity Fund and as of November 13, 2009
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
nine months ended September 30, 2009, net cash used in operating activities was
$28,974 primarily due to a $237,786 increase in accounts receivables and a
$132,873 decrease in other payables and accrued liabilities, partially offset by
our net profit of $136,426 and a $162,387 in employee vested options expense. In
the same period in 2008, net cash used in operating activities was $300,958
primarily due to our net loss of $550,480 partially offset by a $248,080 in
employee vested options expense.





Investing and financing
activities.





Property
and equipment consist primarily of computers, software, and office equipment.
For the nine months ended September 30, 2009, net cash used in investing
activities was $28,075 consisting of an investment of $28,007 in equipment and a
$68 increase in short-term investment. In the same period in 2008, net cash used
in investing activities was $29,478 consisting of an investment of $21,709 in
equipment and a $7,769 increase in short-term investment. For the nine months
ended September 30, 2009, net cash provided by financing activities was $26
consisting of increase in advances from shareholders. In the same period in
2008, net cash provided by financing activities was $8,414 primarily due to a
$5,104 increase 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.


10


Off
Balance Sheet Arrangements





None.




Item
      3.
            Quantitative
      and Qualitative Disclosures about Market
Risk




Not
applicable.




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.
            Submission
      of Matters to a Vote of Security
Holders




Not
applicable.


11




Item
      5.
            Other
      Information




Not
applicable.




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)


12





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)10.27
              
              Termination
      and Release Agreement dated February 2, 2006, by and among the Company and
      DEP Technology Holdings Ltd.(4)21
              
              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: November
      13, 2009
              By:
              /s/ Mordechai
BroudoName:
      Mordechai Broudo
                Title:
      Chairman





Date: November
      13, 2009
                By:
                /s/ Gabriel KabazoName:
      Gabriel KabazoTitle:
      Chief Financial Officer and Principal
                  Accounting
      Officer


14