UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        DC 20549
 FORM
        10-QSB
 
 (Mark
        One)
 
 x
        Quarterly report under
        Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 For
        the quarterly period ended March 31, 2007
 
 o
        Transition report under
        Section 13 or 15(d) of the Exchange Act
 
 For
        the transition period from _______________________ to
        ________________
 
 Commission
        File Number 333-106160
 
 **m-Wise,
        Inc.**
 
 (Exact
        name of small business issuer as specified in its charter)
 Delaware
                11-3536906(State
                    or other jurisdiction of
                (I.R.S.
                    Employerincorporation
                    or organization)
                Identification
                    No.)
  3
        Sapir Street, Herzeliya Pituach, Israel 46852
 (Address
        of principal executive offices)
 
 +972-73-2620000
 (Issuer's
        telephone number, including area code)
 
 All
        Correspondence to:
 Arthur
        S. Marcus, Esq.
 Gersten
        Savage LLP
 600
        Lexington Avenue, 9 th Floor
 New
        York,
        New York 10022
 (212)
        752-9700
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.
 Yes
        x No o
 
 The
        number of shares outstanding of the issuer's common stock, as of May 14,
        2007
        was 136,523,990.
 
 Transitional
        Small Business Disclosure Format (check one):   Yes o
        No x
 
 
  **m-Wise,
        INC.**
 
 TABLE
        OF CONTENTS
 PagePART
                    IFINANCIAL
                    INFORMATIONItem
                    1.
                Financial
                    StatementsUnaudited
                    Balance Sheet as of March 31, 2007
                2Unaudited
                    Statements of Operations for the Three Months Ended March 31,
                    2007 and
                    2006
                3Unaudited
                    Statements of Cash Flows for the Three Months Ended March 31,
                    2007 and
                    2006
                5Notes
                    to Unaudited Financial Statements
                6Item
                    2.
                Management's
                    Discussion and Analysis of Financial Condition and Results of
                    Operations
                18Item
                    3.
                Controls
                    and Procedures
                22PART
                    IIOTHER
                    INFORMATIONItem
                    1
                Legal
                    Proceedings
                23Item
                    2
                Changes
                    in Securities and Small Business Issuer Purchases of Equity
                    Securities
                23Item
                    3
                Defaults
                    upon Senior Securities
                23Item
                    4
                Submission
                    of Matters to a Vote of Security Holders
                23Item
                    5
                Other
                    Information
                23Item
                    6
                Exhibits
                    and Reports on Form 8-K
                23
  
  PART
        I
 FINANCIAL
        INFORMATION
  Item
        1. Financial
        Statements
  **m-Wise,
          Inc. and Subsidiary**
  CONSOLIDATED
          FINANCIAL STATEMENTS
  QUARTERS
          ENDED MARCH 31, 2007 AND 2006
  UNAUDITED
  **CONTENTS**
  Consolidated
                      Balance Sheets
                  **1**Consolidated
                      Statements of Operations
                  **2**Consolidated
                      Statements of Stockholders' Deficit
                  **3**Consolidated
                      Statements of Cash Flows
                  **4**Notes
                      to Consolidated Financial Statements
                  **5 -
                      21**
  
  **m-Wise,
          Inc. and Subsidiary**
 Consolidated
          Balance Sheets
 March
          31, 2007 and 2006
 Unaudited
 **2007**
                  
                  2006**ASSETS****Current**Cash
                      and cash equivalents
                  
                  **$**
                  **143,435**
                  
                  $
                  20,239Accounts
                      receivable - trade (net of allowance for doubtful accounts
                      of $126,906;
                      2006 - $63,952)
                  
                  
                  **486,264**
                  
                  
                  330,452Prepaid
                      and sundry assets
                  
                  
                  **52,550**
                  
                  
                  14,235Loan
                      receivable (note 3)
                  
                  
                  **20,000**
                  
                  
                  -**Total
                      Current Assets**
                  
                  
                  **702,249**
                  
                  
                  364,926**Long-term
                      Prepaid Expenses**
                  
                  
                  **14,849**
                  
                  
                  17,658**Equipment**(note
                      4)
                  
                  
                  **95,257**
                  
                  
                  155,887**Deferred
                      Financing Fees**
                  
                  
                  **9,481**
                  
                  
                  22,109**Total
                      Long-term Assets**
                  
                  
                  **119,587**
                  
                  
                  195,654**Total
                      Assets**
                  
                  **$**
                  **821,836**
                  
                  $
                  560,580**LIABILITIES****Current**Trade
                      accounts payable
                  
                  **$**
                  **29,800**
                  
                  $
                  77,019Other
                      payables and accrued expenses
                  
                  
                  **946,894**
                  
                  
                  1,004,375Advances
                      from shareholder (note 5)
                  
                  
                  **377,423**
                  
                  
                  450,484Billings
                      in excess of costs on uncompleted contracts
                  
                  
                  **-**
                  
                  
                  163,800**Total
                      Current Liabilities**
                  
                  
                  **1,354,117**
                  
                  
                  1,695,678**Accrued
                      Severance Pay**(note
                      6)
                  
                  
                  **46,953**
                  
                  
                  57,202**Total
                      Liabilities**
                  
                  
                  **1,401,070**
                  
                  
                  1,752,880**STOCKHOLDERS'
                      DEFICIT****Capital
                      Stock******(note
                      7)
                  
                  
                  **225,803**
                  
                  
                  214,344**Paid-in
                      Capital**
                  
                  
                  **10,165,060**
                  
                  
                  9,619,964**Accumulated
                      Deficit**
                  
                  
                  **(10,970,097**
                  **)**
                  
                  (11,026,608
                  )**Total****Stockholders'****Deficit**
                  
                  
                  **(579,234**
                  **)**
                  
                  (1,192,300
                  )**Total
                      Liabilities and Stockholders' Deficit**
                  
                  **$**
                  **821,836**
                  
                  $
                  560,580
 (The
            accompanying notes of the consolidated financial statements is an integral
            part
            of these statements)
 -1-
  **m-Wise,
          Inc. and Subsidiary**
 Consolidated
          Statements of Operations
 Quarters
          Ended March 31, 2007 and 2006
 Unaudited
  **2007**
                
                2006**Net
                    Sales**
                
                **$**
                **478,866**
                
                $
                253,783**Cost
                    of Sales**
                
                
                **59,110**
                
                
                12,947**Gross
                    Profit**
                
                
                **419,756**
                
                
                240,836**Expenses**General
                    and administrative
                
                
                **355,011**
                
                
                262,518Research
                    and development
                
                
                **189,586**
                
                
                135,377**544,597**
                
                
                397,895**Loss
                    from operations**
                
                
                **(124,841**
                **)**
                
                (157,059
                )**Other
                  expenses**Financial
                
                
                **9,194**
                
                
                230,058**Net
                    Loss after income taxes**
                
                **$**
                **(134,035**
                **)**
                $
                (387,117
                )**Basic
                    and Fully Diluted Loss Per Share**(note
                    7)
                
                **$**
                **0.00**
                
                
                0.00**Basic
                    Weighted Average Number of Shares**
                
                
                **131,652,883**
                
                
                116,868,131
  (The
          accompanying notes of the consolidated financial
          statements is an integral part of these statements)
  -2-
  **m-Wise,
          Inc. and Subsidiary**
 Consolidated
          Statements of Stockholders' Deicit
 Quarters
          ended March 31, 2007 and 2006
 Unaudited
  **Common
                    Shares****Additional****Paid
                    in**
                
                **Accumulated****Number**
                
                **Amount**
                
                **Capital**
                
                **Deficit**Balance,
                    January 1, 2006
                
                
                113,514,158
                
                $
                192,974
                
                $
                7,399,394
                
                $
                (10,639,491
                )Conversion
                    of note payable
                
                
                12,400,448
                
                
                21,081
                
                
                2,160,057
                
                
                -Exercise
                    of stock options
                
                
                169,871
                
                
                289
                
                
                (18
                )
                
                -Net
                    loss
                
                
                -
                
                
                -
                
                
                (387,117
                )
                
                -Shares
                    issued for employeeservices
                
                
                -
                
                
                -
                
                
                60,531
                
                
                -Balance,
                    March 31, 2006
                
                
                126,084,477
                
                $
                214,344
                
                $
                9,619,964
                
                $
                (11,026,608
                )Balance,
                    January 1, 2007
                
                
                128,902,659
                
                $
                219,135
                
                $
                9,981,686
                
                $
                (10,836,062
                )Share
                    issuance pursuant to EquityFinancing
                    Agreement
                
                
                1,062,600
                
                
                1,806
                
                
                139,612
                
                
                -Exercise
                    of stock options
                
                
                2,859,646
                
                
                4,862
                
                
                -
                
                
                -Options
                    vested for employeeservices
                
                
                -
                
                
                -
                
                
                -
                
                
                43,762Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                (134,035
                )**Balance,
                    March 31, 2007**
                
                
                **132,824,905**
                ****
                **$**
                **225,803**
                ****
                **$**
                **10,165,060**
                ****
                **$**
                **(10,970,097**
                **)**
  (The
          accompanying notes of the consolidated financial
          statements is an integral part of these statements)
  -3-
  **m-Wise,
          Inc. and Subsidiary**
 Consolidated
          Statements of Cash Flows
 Quarters
          Ended March 31, 2007 and 2006
 Unaudited
 **2007**
                
                2006**Cash
                    Flows from Operating Activities**Net
                    loss
                
                **$**
                **(134,035**
                **)**
                $
                (387,117
                )Adjustments
                    required to reconcile net loss to net cash used in operating
                    activities:Depreciation
                
                
                **16,390**
                
                
                26,764Wages
                    and salaries paid by options
                
                
                **-**
                
                
                271Exercise
                    of stock options
                
                
                **4,862**
                
                
                -Financing
                    fees paid by issuance of shares
                
                
                **-**
                
                
                222,104Employee
                    options vested
                
                
                **43,762**
                
                
                60,531**(69,021**
                **)**
                
                (77,447
                )Net
                    changes in assets and liabilitiesAccounts
                    receivable - trade
                
                
                **32,648**
                
                
                (177,418
                )Loan
                    receivable
                
                
                **(20,000**
                **)**
                
                -Prepaid
                    and sundry assets
                
                
                **70,625**
                
                
                (3,336
                )Trade
                    accounts payable
                
                
                **5,811**
                
                
                (17,885
                )Other
                    payables and accrued liabilities
                
                
                **21,372**
                
                
                7,810Billings
                    in excess of costs on uncompleted contracts
                
                
                **-**
                
                
                150,000Long-term
                    prepaid expenses
                
                
                **4,016**
                
                
                4,639Deferred
                    financing fees
                
                
                **3,157**
                
                
                3,157Accrued
                    severance pay
                
                
                **11,078**
                
                
                (1,269
                )**Net
                    Cash Provided by (Used in) Operating Activities**
                
                
                **59,686**
                
                
                (111,749
                )**Cash
                    Flows from Investing Activities**Acquisition
                    of equipment
                
                
                **(543**
                **)**
                
                (16,736
                )**Net
                    Cash Used in Investing Activities**
                
                
                **(543**
                **)**
                
                (16,736
                )**Cash
                    Flows from Financing Activities**Advances
                    from shareholder
                
                
                **(58,948**
                **)**
                
                159,219Sale
                    of common shares under Equity Financing agreement
                
                
                **141,418**
                
                
                **-**Bank
                    indebtedness - net
                
                
                **(3,250**
                **)**
                
                (11,068
                )**Net
                    Cash Provided by Financing Activities**
                
                
                **79,220**
                
                
                148,151**Net
                    Increase in Cash and Cash Equivalents**
                
                
                **138,363**
                
                
                19,666**Cash
                    and Cash Equivalents - Beginning of Period**
                
                
                **5,072**
                
                
                573**Cash
                    and Cash Equivalents - End of Period**
                
                **$**
                **143,435**
                
                $
                20,239**Interest
                    and Income Taxes Paid**During
                    the quarter, the company had no cash flows arisingfrom
                    income taxes and interests paid as follows:Interest
                    paid
                
                **$**
                **143**
                
                $
                1,002Income
                    taxes
                
                $
                -
                
                $
                -
  (The
          accompanying notes of the consolidated financial
          statements is an integral part of these statements)
  -4-
 **m-Wise,
            Inc. and Subsidiary**
 Notes
            to Consolidated Financial Statements
 March
            31, 2007 and 2006
 Unaudited
  **1.**
              **Description
                  of Business and Going
                  Concern**
  a)
                Description
                    of Business  m-Wise
                      Inc. (the "Company") is a Delaware corporation which develops
                      interactive
                      messaging platforms for mobile phone-based commercial applications,
                      transactions and information services with internet billing
                      capabilities.
                    
                    The
                      Company's wholly-owned subsidiary, m-Wise LTD., is located
                      in Israel and
                      was incorporated in 2000 under the laws of
                      Israel.
 b)
              Going
                  Concern  The
                  Company's 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 experienced recurring losses since inception, has negative
                  cash flows
                  from operations with negative working capital that raise substantial
                  doubt
                  as to its ability to continue as a going concern. For the year
                  ended March
                  31, 2007, the Company experienced net losses of $134,035 (2006
                  - $387,117)
                  and working capital deficit of $651,868 (2006 - $1,330,752).
                
                The
                  Company is in an industry where operational fluctuation is usually
                  higher
                  than other ordinary industries. The accompanying financial statements
                  reflect management's current assessment of the impact to date of
                  the
                  economic situation on the financial position of the Company. Actual
                  results may differ materially from management's current
                  assessment.
                
                The
                  Company's ability to continue as a going concern is also contingent
                  upon
                  its ability to secure additional financing, continuing sale of
                  its
                  products and 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
                  consolidated financial statements do not include any adjustments
                  to
                  reflect the possible future effects on the recoverability and
                  classification of assets or the amounts and classification of liabilities
                  that may result from the possible inability of the Company to continue
                  as
                  a going concern.
  -5-
  **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **2.**
              **Summary
                  of Significant Accounting Policies**
  The
        accounting policies of the Company are in accordance with U.S. generally
        accepted accounting principles, and their basis of application is consistent
        with that of the previous year. Outlined below are those policies considered
        particularly significant:
  a)
              Reporting
                  Currency
  A
        majority of the Company's revenues are generated in U.S. dollars. In addition,
        a
        substantial portion of the Company's costs are incurred in U.S. dollars.
        Management has determined that the U.S. dollar will be used as the Company's
        functional and reporting currency.
  b)
              Basis
                  of Consolidation
  The
        consolidated financial statements include the operations of m-Wise Inc. and
        its
        wholly-owned subsidiary. Intercompany's balances and transactions have been
        eliminated.
  c)
              Deferred
                  Financing Fees
  Deferred
        financing fees relate to a non-interest bearing credit line facility of $500,000
        provided by a shareholder as disclosed in note . The overdraft from the credit
        facility is non-interest bearing and there are no covenants with which the
        Company will need to comply. The credit line facility has no expiration date
        and
        management expects to retain the facility for a period of at least five years.
        Accordingly, the fees are being amortized using the straight-line method
        over
        five years.
  d)
              Equipment
                  and Depreciation
  Equipment
        is stated at cost. Depreciation is based on the estimated useful lives of
        the
        assets and is provided using the undernoted annual rates and
        methods:
 Furniture
                    and equipment
                6-15%
                Straight
                    lineComputer
                    equipment
                33%
                Straight
                    lineLeasehold
                    improvements
                Straight
                    line over the term of the
                    lease.
 
 -6-
  **m-Wise,
        Inc. and Subsidiary**
 Notes
        to Consolidated Financial Statements
 March
        31, 2007 and 2006
 Unaudited
 **2.**
              **Summary
                  of Significant Accounting Policies******(cont'd)****
  e)
              Revenue
                  Recognition
  The
        Company generates revenues from product sales, licensing, customer services
        and
        technical support.
  Revenues
        from products sales are recognized on a completed-contract basis, in accordance
        with Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
        Statements" ("SAB No. 101"), Statement of Position 97-2 "Software Revenue
        Recognition" and Statement of Position 81-1 "Accounting for Performance of
        Construction-Type and Certain Production-Type Contracts". The Company has
        primarily short-term contracts whereby revenues and costs in the aggregate
        for
        all contracts is expected to result in a matching of gross profit with period
        overhead or fixed costs similar to that achieved by use of the
        percentage-of-completion method. Accordingly, financial position and results
        of
        operations would not vary materially from those resulting from the use of
        the
        percentage-of-completion method. Revenue is recognized only after all three
        stages of deliverables are complete; installation, approval of acceptance
        test
        results by the customer and when the product is successfully put into real-life
        application. Customers are billed, according to individual agreements, a
        percentage of the total contract fee upon completion of work in each stage;
        approximately 40% for installation, 40% upon approval of acceptance tests
        by the
        customer and the balance of the total contract price when the software is
        successfully put into real-life application. The revenues, less its' associated
        costs, are deferred and recognized on completion of the contract and customer
        acceptance. Amounts received for work performed in each stage are not
        refundable.
  On-going
        service and technical support contracts are negotiated separately at an
        additional fee. The technical support is separate from the functionality
        of the
        products, which can operate without on-going support.
  Technology
        license revenues are recognized in accordance with SAB No. 101 at the time
        the
        technology and license is delivered to the customer, collection is probable,
        the
        fee is fixed and determinable, a persuasive evidence of an agreement exists,
        no
        significant obligation remains under the sale or licensing agreement and
        no
        significant customer acceptance requirements exist after delivery of the
        technology.
  Revenues
        relating to customer services and technical support are recognized as the
        services are rendered ratably over the period of the related
        contract.
  The
        Company does not sell products with multiple deliverables. It is management's
        opinion that EITF 00-21, "Revenue Arrangements With Multiple Deliverables"
        is
        not applicable.
 
 -7-
  **m-Wise,
        Inc. and Subsidiary**
 Notes
        to Consolidated Financial Statements
 March
        31, 2007 and 2006
 Unaudited
 **2.**
              **Summary
                  of Significant Accounting Policies**(cont'd)
  f)
              Research
                  and Development Costs
  Research
        and development costs are expensed as incurred.
  g)
              Use
                  of Estimates
  The
        preparation of financial statements, in conformity with U.S. generally accepted
        accounting principles, requires management to make estimates and assumptions
        that affect the reported amounts of assets and liabilities and disclosure
        of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from those estimates.
  h)
              Concentration
                  of Credit Risk
  SFAS
        No. 105, "Disclosure of Information About Financial Instruments with Off-Balance
        Sheet Risk and Financial Instruments with Concentration of Credit Risk",
        requires disclosure of any significant off-balance sheet risk and credit
        risk
        concentration. The Company does not have significant off-balance sheet risk
        or
        credit concentration. The Company maintains cash and cash equivalents with
        major
        Israel financial institutions.
  The
        Company's provides credit to its clients in the normal course of its operations.
        Depending on their size, financial strength and reputation, customers are
        given
        credit terms of up to 60 days. The Company carries out, on a continuing basis,
        credit checks on its clients and maintains provisions for contingent credit
        losses which, once they materialize, are consistent with management's
        forecasts.
  For
        other debts, the Company determines, on a continuing basis, the probable
        losses
        and sets up a provision for losses based on the estimated realizable value.
  Concentration
        of credit risk arises when a group of clients having a similar characteristic
        such that their ability to meet their obligations is expected to be affected
        similarly by changes in economic or other conditions. The Company does not
        have
        any significant risk with respect to a single client.
  i)
              Fair
                  Value of Financial Instruments
  The
        estimated fair value of financial instruments has been determined by the
        Company
        using available market information and valuation methodologies. Considerable
        judgment is required in estimating fair value. Accordingly, the estimates
        may
        not be indicative of the amounts the Company could realize in a current market
        exchange. At March 31, 2006 and 2007, the carrying amounts of cash equivalents,
        short-term bank deposits, trade receivables and trade payables approximate
        their
        fair values due to the short-term maturities of these instruments.
 
 -8-
 **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **2.**
              **Summary
                  of Significant Accounting Policies**(cont'd)
  j)
              Loss
                  per Common Share
  The
        Company calculates net loss per share based on SFAS No. 128, "Earnings Per
        Share". Basic loss per share is computed by dividing net loss attributable
        to
        the common stockholders by the weighted average number of common shares
        outstanding. Fully diluted loss per share is computed similar to basic loss
        per
        share except that the denominator is increased to include the number of
        additional common shares that would have been outstanding if the potential
        common shares had been issued and if the additional common shares were dilutive.
  k)
              Impact
                  of Recently Issued Accounting
                  Standards
  In
        December 2004, the FASB issued a revision to SFAS No. 123, "Share-Based Payment"
        (Statement 123). This Statement requires a public entity to measure the cost
        of
        employee services received in exchange for an award of equity instruments
        based
        on the grant-date fair value of the award (with limited exceptions). That
        cost
        will be recognized over the period during which the employee is required
        to
        provide service in exchange for the award requisite service period (usually
        the
        vesting period). No compensation cost is recognized for equity instruments
        for
        which employees do not render the requisite service. Employee share purchase
        plans will not result in recognition of compensation cost if certain conditions
        are met; those conditions are much the same as the related conditions in
        Statement 123. This Statement is effective for public entities that do not
        file
        as a small business issuers as of the beginning of the first interim or annual
        reporting period that begins after June 15, 2005. This Statement applies
        to all
        awards granted after the required effective date and to awards modified,
        repurchased, or cancelled after that date. The cumulative effect of initially
        applying this Statement, if any, is recognized as of the required effective
        date
        and is not expected to have a material impact on the Company's consolidated
        financial statements.
  In
        May 2005, the FASB issued Statement No. 154, Accounting Changes and Error
        Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No.
        3
        (Statement No. 154). Statement No. 154 changes the requirements for the
        accounting for and reporting of a change in accounting principle. Statement
        No.
        154 requires retrospective application of any change in accounting principle
        to
        prior periods' financial statements. Statement No. 154 is effective for the
        first fiscal period beginning after December 15, 2005. We do not expect the
        implementation of Statement No. 154 to have a significant impact on our
        consolidated financial statements.
  In
        March 2006, FASB issued SFAS No. 156, "Accounting for Servicing of Financial
        Assets", which amends SFAS No. 140, "Accounting for Transfers and Servicing
        of
        Financial Assets and Extinguishments of Liabilities". In a significant change
        to
        current guidance, SFAS No. 156 permits an entity to choose either of the
        following subsequent measurement methods for each class of separately recognized
        servicing assets and servicing liabilities: (1) Amortization Method or (2)
        Fair
        Value Measurement Method. SFAS No. 156 is effective as of the beginning of
        an
        entity’s first fiscal year that begins after September 15, 2006. The Company is
        currently reviewing the effect, if any, the proposed guidance will have on
        its
        financial position.
 
 -9-
 **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **2.**
              **Summary
                  of Significant Accounting Policies**(cont'd)
  k)
              Impact
                  of Recently Issued Accounting Standards
                  (cont'd)
  In
        July 2006 FASB issued Financial Accounting Standards Interpretation No. 48
        (“FIN
        48”), “Accounting for Uncertainty in Income Taxes”. FIN 48 clarifies the
        accounting for uncertainty in income taxes recognized in an enterprises’
financial statements in accordance with SFAS No. 109, “Accounting for Income
        Taxes”. FIN 48 prescribes a recognition threshold and measurement attributable
        for the financial statement recognition and measurement of a tax position
        taken
        or expected to be taken in a tax return. FIN 48 also provides guidance on
        derecognition, classification, interest and penalties, accounting in interim
        periods, disclosures and transitions. FIN 48 is effective for fiscal years
        beginning after December 15, 2006. The Company is currently reviewing the
        effect, if any, FIN48 will have on its financial position.
  In
        September 2006, the Securities and Exchange Commission (“SEC”) staff issued
        Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior
        Year Misstatements when Quantifying Misstatements in Current Year Financial
        Statements.” SAB 108 was issued to provide consistency in how registrants
        quantify financial statement misstatements. The Company is required to and
        will
        initially apply SAB 108 in connection with the preparation of its annual
        financial statements for the year ending December 31, 2006. The Company does
        not
        expect the application of SAB 108 to have a material effect on its financial
        position and results of operations.
  In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        158, Employers' Accounting for Defined Benefit Pension and Other Postretirement
        Plans - an amendment of FASB Statements No. 87, 88, 106 and 132 (R) ("SFAS
        158"). SFAS 158 requires an employer to recognize the funded status of a
        defined
        benefit postretirement plan as an asset or liability in its statement of
        financial position and to recognize changes in that funded status in the
        year in
        which the changes occur through comprehensive income. The funded status of
        a
        benefit plan is defined as the difference between the fair value of the plan
        assets and the plans benefit obligation. For a pension plan the benefit
        obligation is the projected benefit obligation and for any other postretirement
        benefit plan, such as a retiree health care plan, the benefit obligation
        is the
        accumulated postretirement benefit obligation. SFAS 158 requires an employer
        to
        recognize as a component of other comprehensive income, net of tax, the gains
        and losses and prior service costs or credits that arise during the period
        but
        that are not recognized as components of net periodic benefit costs pursuant
        to
        SFAS 87. SFAS 158 also requires an employer to measure the funded status
        of a
        plan as of the date of its year-end. Additional footnote disclosure is also
        required about certain effects on net periodic benefit cost for the next
        year
        that arise from the delayed recognition of gains or losses, prior service
        costs
        or credits, and transition asset or obligation. Except for the year-end
        measurement requirement, SFAS 158 is effective for the year ending December
        31,
        2006. The Company does not anticipate that the adoption of this Statement
        will
        have a material effect on its financial condition or operations.
 
 -10-
 **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **2.**
              **Summary
                  of Significant Accounting Policies**(cont'd)
  k)
              Impact
                  of Recently Issued Accounting Standards
                  (cont'd)
  In
        September 2006, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
        Measurements,” which is effective for calendar year companies on January 1,
        2008. The Statement defines fair value, establishes a framework for measuring
        fair value in accordance with Generally Accepted Accounting Principles, and
        expands disclosures about fair value measurements. The Statement codifies
        the
        definition of fair value as the price that would be received to sell an asset
        or
        paid to transfer a liability in an orderly transaction between market
        participants at the measurement date. The standard clarifies the principle
        that
        fair value should be based on the assumptions market participants would use
        when
        pricing the asset or liability and establishes a fair value hierarchy that
        prioritizes the information used to develop those assumptions. The Company
        is
        currently assessing the potential impacts of implementing this
        standard.
  In
        February 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 159, "The Fair Value of
        Option for Financial Assets and Liabilities" ("SFAS No. 159"), which permits
        entities to measure many financial instruments and certain other items at
        fair
        value that are not currently required to be measured at fair value. An entity
        would report unrealized gains and losses on items for which the fair value
        option has been elected in earnings at each subsequent reporting date. The
        objective is to improve financial reporting by providing entities with the
        opportunity to mitigate volatility in reported earnings caused by measuring
        related assets and liabilities differently without having to apply complex
        hedge
        accounting provisions. The decision about whether to elect the fair value
        option
        is applied instrument by instrument, with a few exceptions; the decision
        is
        irrevocable; and it is applied only to entire instruments and not to portions
        of
        instruments.
  The
        statement requires disclosures that facilitate comparisons (a) between entities
        that choose different measurement attributes for similar assets and liabilities
        and (b) between assets and liabilities in the financial statements of an
        entity
        that selects different measurement attributes for similar assets and
        liabilities.
  SFAS
        No. 159 is effective for financial statements issued for fiscal years beginning
        after November 15, 2007. Early adoption is permitted as of the beginning
        of a
        fiscal year that begins on or before November 15, 2007, provided the entity
        also
        elects to apply the provisions of SFAS No. 157, “Fair Value Measurement”. Upon
        implementation, an entity shall report the effect of the first remeasurement
        to
        fair value as a cumulative-effect adjustment to the opening balance of retained
        earnings. Since the provisions of SFAS No. 159 are applied prospectively,
        any
        potential impact will depend on the instruments selected for fair value
        measurement at the time of implementation.
  **3.**
              **Loan
                  receivable**
  The
        loan receivable from a customer is non-interest bearing and due on
        demand.
 
 -11-


**m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **4.**
              **Equipment**
  Equipment
        is comprised as follows:
 **2007**
                
                
                
                2006**Accumulated**
                
                
                
                Accumulated**Cost**
                
                **Depreciation**
                
                Cost
                
                DepreciationFurniture
                    and equipment
                
                **$**
                **62,329**
                ****
                **$**
                **34,093**
                
                $
                57,930
                
                $
                27,865Computer
                    equipment
                
                
                **319,241**
                
                
                **254,239**
                
                
                386,929
                
                
                262,637Leasehold
                    improvements
                
                
                **2,593**
                
                
                **574**
                
                
                18,810
                
                
                17,280**$**
                **384,163**
                ****
                **$**
                **288,906**
                
                $
                463,669
                
                $
                307,782Net
                    carrying amount
                
                
                
                
                **$**
                **95,257**
                ****
                
                
                
                $
                155,887
  Depreciation
        expenses of $15,696 (2006 - $24,074) and $694 (2006 - $2,690) have been included
        in research and development, and general and administrative expenses
        respectively.
  **5.**
              **Advances
                  from Shareholder**
  The
        advances from the major shareholder are non-interest bearing and have no
        fixed
        terms of repayment. According to an agreement dated January 2003, a shareholder
        granted a credit facility of $500,000 to the Company in return for preferred
        class "C" shares as described in note 7. At the quarter ended March 31, 2007,
        the line of credit has an outstanding balance of $377,423.
  **6.**
              **Accrued
                  Severance Pay**
  The
        Company accounts for its potential severance liability of its Israel subsidiary
        in accordance with EITF 88-1, "Determination of Vested Benefit Obligation
        for a
        Defined Benefit Pension Plan". The Company's liability for severance pay
        is
        calculated pursuant to applicable labour laws in Israel on the most recent
        salary of the employees multiplied by the number of years of employment as
        of
        the balance sheet date for all employees. The Company's liability is fully
        accrued and reduced by monthly deposits with severance pay funds and insurance
        policies. As at March 31, 2006 and 2007, the amount of the liabilities accrued
        were $113,123 and $115,283 respectively. Severance pay expenses for the periods
        ended March 31, 2006 and 2007 were $590 and $20,483 respectively.
  The
        deposit funds include profits accumulated up to the balance sheet date from
        the
        Israeli company. The deposited funds may be withdrawn only upon the fulfillment
        of the obligation pursuant to Israeli severance pay laws or labour agreements.
        Cash surrender values of the deposit funds as at March 31, 2006 and 2007
        were
        $55,921 and $68,330 respectively. Income earned from the deposit funds for
        2006
        and 2007 was immaterial.
 
 -12-
  **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **7.**
              **Capital
                  Stock**
  Authorized210,000,000
                Common
                    shares170,000,000
                Preferred
                    sharesSeries
                    "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**2007**
                
                
                2006Issued132,824,905
                Common
                    shares (2006 - 126,084,477)
                **$**
                **225,803**
                
                $
                214,344
  Stock
        Warrants and Options:
  The
        Company has accounted for its stock options and warrants in accordance with
        SFAS
        123 "Accounting for Stock - Based Compensation" and SFAS 148 "Accounting
        for
        Stock - Based compensation - Transition and Disclosure." Value of options
        granted has been estimated by the Black Scholes option pricing model. The
        assumptions are evaluated annually and revised as necessary to reflect market
        conditions and additional experience. The following assumptions were
        used:
 **2007**
                
                2006**Israel**
                **International**
                Israel
                InternationalInterest
                    rate
                
                
                **8**
                **%**
                ****
                **8**
                **%**
                
                8
                %
                
                8
                %Expected
                    volatility
                
                
                **80**
                **%**
                ****
                **80**
                **%**
                
                80
                %
                
                80
                %Expected
                    life in years
                
                
                **4**
                
                
                **6**
                
                
                5
                
                
                7
  Warrants:
  In
        April
        2000, 56,180 warrants, equivalent to 337,080 shares after the 1 to 6 forward
        stock split, were issued to one of the shareholders with his preferred Class
        "A"
        shares for a total investment of $750,000. Warrants will expire in the event
        of
        an initial public offering of the Company's securities. Warrants have an
        exercise price for preferred Class "A" shares of the Company at $4.45 per
        share,
        equivalent to $0.74 after the 1 to 6 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 1 to 1 basis during the year.
  -13-
  **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **7.**
              **Capital
                  Stock**(cont'd)****
  Warrants
        (cont'd):
  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 1 to 6 in accordance
        with the forward stock split of the common shares. After the conversion and
        the
        forward split, there were warrants to purchase 7,025,788 shares outstanding.
  On
        December 22, 2005, the Company entered into an agreement with Syntek Capital
        AG,
        as part of the agreement for conversion of the note payable into common 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 March 31, 2007, the warrants
        have not been converted into common stocks.
  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
        March 31, 2007, the warrants have not been converted into common
        stocks.
  Capital
        Stock:
  In
        January 2003, the Company issued 4,297,816 common shares, equivalent to
        25,786,896 after the 1 to 6 forward stock split, for $250,000 of offering
        costs
        with regard to the registration of its securities with the Securities and
        Exchange Commission. In November 2003 it was agreed upon by the parties that
        the
        fair value of the offering costs was only $60,000 and therefore 19,786,896
        of
        the post-split shares were forfeited. The offering costs have been charged
        to
        professional services expense in the year.
  In
        January 2003, the Company issued 6,315,258 Class "C" preferred shares to
        a
        shareholder for providing a non-interest bearing credit line facility of
        $300,000. These shares were issued at par value, which approximates the fair
        market value of the financing fees relating to the credit line facility.
        At
        March 31, 2007, the line of credit has an outstanding balance of $377,423.
        The
        6,315,258 Class "C" preferred shares were subsequently converted into 37,891,548
        common shares post forward stock split.
 
 -14-
 **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **7.**
              **Capital
                  Stock**(cont'd)****
  Capital
        Stock (cont'd):
  On
        November 19, 2003, the Company, in accordance with the holders, agreed to
        convert all the 268,382 Class "A", 489,456 Class "B", and 6,315,258 Class
        "C"
        preferred shares into common shares. Following the conversion, the Company
        granted a 1 to 6 forward stock split of its common shares. The conversion
        has
        been recorded prospectively in the consolidated financial statements, while
        the
        forward stock split has been recorded retroactively.
  On
        July 29, 2005, the Company issued 5,000,000 common shares, at par value,
        to its
        Chief Financial Officer as compensation for services rendered from September
        2002 to December 2005. It was agreed upon by the parties that the fair value
        of
        such services was $500,000, all of which has been charged to wage
        expense.
  On
        March 8, 2006, the Company issued 12,400,448 common stocks for repayment
        of the
        $1,800,000 note payable to Syntek Capital AG ("Syntek") and DEP.
  On
        April 28, 2006, the Company issued 2,818,182 common stocks to its external
        consultant in exchange for consulting services. It was agreed upon by the
        parties that the fair value of such services was $310,000. For the quarter
        ended
        March 31, 2007, $77,500 has been charged to consulting expense and $25,833
        has
        been deferred and will be amortized over the term of the contract.
  On
        March 6, 2007, the Company exercised its right pursuant to the February 6,
        2006
        equity financing agreement with a Delaware limited partnership ("DLP"). The
        agreement entitled the Company to sell up to 20,000,000 of the Company's
        common
        shares (up to $10,000,000) over the course of 36 months. The amount that
        the
        Company shall be entitled to request from each of the purchase "Puts", shall
        be
        equal to either 1) $300,000 or 2) 200% of the average daily volume ("ADV")
        multiplied by the average of the 3 daily closing prices immediately preceding
        the Put date. The ADV shall be computed using the 10 trading days prior to
        the
        Put Date. The Purchase Price for the common stock identified in the Put Notice
        shall be set at 93% of the lowest closing bid price of the common stock during
        the Pricing Period. The Pricing Period is equal to the period beginning on
        the
        Put Notice date and ending on and including the date that is 5 trading days
        after such Put Date. There are put restrictions applied on days between the
        Put
        Date and the Closing Date with respect to that Put. During this time, the
        Company shall not be entitled to deliver another Put Notice.
  In
        connection with the equity financing agreement, the Company has issued a
        preliminary prospectus whereby the DLP and a current significant shareholder
        can
        sell up to 30,000,000 common shares at market value.
 
 -15-
  **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **7.**
              **Capital
                  Stock**(cont'd)
  Stock
        Options:
  In
        February 2001 the Board of Directors of the Company adopted two option plans
        to
        allow employees and consultants to purchase ordinary shares of the
        Company.
  Under
        the Israel 2001 share option plan management authorized stock options for
        2,403,672 common 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 March 31, 2007, 3,672 options
        under
        the Israel 2001 share option plan for common stock were not yet
        granted.
  In
        the quarter ended March 31, 2006, a total of 169,871 common stock options
        were
        exercised by the employees.
  Under
        the Israel 2003 share option plan management authorized stock options (on
        a post
        conversion, post split basis) for 16,094,106 preferred Class "B" shares,
        which
        were converted to options for common 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.
        As of March 31, 2007, 38,256 options under the Israel 2003 share option plan
        were not yet granted.
  On
        January 12, 2006, 1,260,000 stock options under the Israel 2003 share options
        plan were granted at an exercise price of $0.12. On June 6, 2006, the exercise
        price was amended to $0.05. The compensation cost has been revalued as if
        the
        option plan has been cancelled and reissued in accordance with SFAS 123,
        paragraph 187 Accounting for Stock Based Payments (Modification of
        Awards).
  On
        August 14, 2006, 6,000,000 stock options under the Israel 2003 share options
        plan were granted at an exercise price of $0.04.
  On
        November 1, 2006, 700,000 stock options under the Israel 2003 share options
        plan
        were granted at an exercise price of $0.04.
  On
        November 27, 2006, 1,000,000 stock options under the International 2003 share
        options plan were granted at an exercise price of $0.08.
 
 -16-
  **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **7.**
              **Capital
                  Stock**(cont'd)
  Stock
        Options (cont'd):
  On
        November 27, 2006, 2,500,000 stock options under the Israel 2003 share options
        plan were granted at an exercise price of $0.08.
  On
        December 1, 2006, 200,000 stock options under the Israel 2003 share options
        plan
        were granted at an exercise price of $0.05.
  On
        January 16, 2007, 1,250,000 stock options at an exercise price of $0.08 and
        280,000 stock options at an exercise price of $0.05 were granted, all under
        the
        Israel 2003 share option plan. .
  In
        February, 2007, 872,864 stock options under the Israel 2001 share options
        plan
        were exercised.
  In
        March 2007, 1,586,782 stock options under the Israel 2003 share option plan
        and
        400,000 under the Israel 2001 share option plan were exercised.
  The
        options vest gradually over a period of 4 years from the date of grant for
        Israel and 10 years (no less than 20% per year for five years for options
        granted to employees) for the International plan. The term of each option
        shall
        not be more than 8 years from the date of grant in Israel and 10 years from
        the
        date of grant in the International plan. The outstanding options that have
        vested have been expensed in the consolidated statements of operations as
        follows:
 Year
                    ended December31,2001
                
                $
                9,000Year
                    ended December31,2002
                
                
                -Year
                    ended December31,2003
                
                
                384,889Year
                    ended December31,2004
                
                
                25,480Year
                    ended December31,2005
                
                
                13,733Year
                    ended December31,2006
                
                
                117,044Period
                    ended March 31, 2007
                
                
                43,762$
                593,908
 
 -17-
  **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **7.**
              **Capital
                  Stock**(cont'd)****
  The
        following table summarizes the activity of common stock options during 2007
        and
        2006:
 **2007**
                
                
                2006**Israel**
                
                
                **International**
                
                
                Israel
                
                
                InternationalOutstanding,
                    beginning of period
                
                
                **14,233,508**
                
                
                **11,026,797**
                
                
                3,745,192
                
                
                1,026,797Granted
                
                
                **1,530,000**
                
                
                **-**
                
                
                1,260,000
                
                
                -Exercised
                
                
                **(2,859,646**
                **)**
                
                **-**
                
                
                (169,871
                )
                
                -Forfeited
                
                
                **(45,000**
                **)**
                
                **-**
                
                
                (1,813
                )
                
                -Outstanding,
                    end of period
                
                
                **12,858,862**
                
                
                **11,026,797**
                
                
                4,833,508
                
                
                1,026,797Weighted
                    average fair value ofoptions
                    granted during the period
                
                **$**
                **0.0339**
                ****
                **$**
                -
                
                $
                0.1284
                
                $
                -Weighted
                    average exercise price ofcommon
                    stock options,beginning
                    of period
                
                **$**
                **0.0217**
                
                **$**
                **0.0727**
                
                $
                0.0017
                
                $
                0.0017Weighted
                    average exercise price ofcommon
                    stock options granted inthe
                    period
                
                **$**
                **0.0686**
                
                **$**
                **-**
                
                $
                0.1200
                
                $
                -Weighted
                    average exercise price ofcommon
                    stock options, end ofperiod
                
                **$**
                **0.0280**
                
                **$**
                **0.0727**
                
                $
                0.0300
                
                $
                0.0017Weighted
                    average remainingcontractual
                    life of common stockoptions
                
                
                **4
                    years**
                
                
                **6
                    years**
                
                
                5
                    years
                
                
                7
                    years
  The
        stock options have not been included in the calculation of the diluted earnings
        per share as their inclusion would be antidilutive.
 
 -18-
  **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **8.**
              **Income
                  Taxes**
  The
        Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
        for Income Taxes". This Standard prescribes the use of the liability method
        whereby deferred tax asset and liability account balances are determined
        based
        on differences between financial reporting and tax bases of assets and
        liabilities and are measured using the enacted tax rates. The effects of
        future
        changes in tax laws or rates are not anticipated.
  Under
        SFAS No. 109 income taxes are recognized for the following: a) amount of
        tax
        payable for the current year, and b) deferred tax liabilities and assets
        for
        future tax consequences of events that have been recognized differently in
        the
        financial statements than for tax purposes. Management determined that
        accounting values of its assets and liabilities recorded are not materially
        different from their tax values and therefore no deferred tax assets/liabilities
        have been setup to account for the temporary differences.
  The
        Company has deferred income tax assets as follows:
 **2007**
                
                2006Deferred
                    income tax assetsNet
                    operating loss carryforwards
                
                **$**
                **2,631,000**
                
                
                2,654,000Valuation
                    allowance for deferred income tax assets
                
                ****
                **(2,631,000**
                **)**
                
                (2,654,000
                )****
                **$**
                **-**
                
                
                -
  The
        Company provided a valuation allowance equal to the deferred income tax assets
        because it is not presently more likely than not that they will be
        realized.
  As
        at
        March 31, 2007, the Company has approximately $10,524,000 in tax losses in
        the
        United States parent and insignificant tax losses in its Israeli subsidiary.
        Losses in the United States, if not utilized, will expire in twenty years
        from
        the year of origin as follows:
  December
                    31, 2020
                
                $
                909,5002021
                
                
                2,398,0002022
                
                
                778,0002023
                
                
                5,005,0002024
                
                
                581,0002025
                
                
                560,5002026
                
                
                196,0002027
                
                
                96,000$
                10,524,000
 
 -19-
  **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **9.**
              **Related
                  Party Transactions**
  During
        the period, the Company incurred consulting fees and salaries to
        directors in the amount of $42,000 (2006 - $55,000). At the quarter end,
        $542,000 (2006 - $568,000) was unpaid and included in other payables and
        accrued
        expenses.
  These
        transactions were in the normal course of business and recorded at an exchange
        value established and agreed upon by the above mentioned parties.
  **10.**
              **Major
                  Customers**
  In
        the quarter ended March 31, 2007, the Company had three major customers which
        accounted for 52%, 17% and 11% of the total revenue. In the quarter ended
        2006,
        the Company had three major customers which accounted for 53%, 16% and 15%
        of
        the total revenue. For the quarter ended March 31, 2007, 83% of the total
        sales
        were in the United States and 12% in Asia. For the quarter ended March 31,
        2006,
        84% of the sales were in the United States and 9% were in Asia.
  **11.**
              **Commitments**
  a)
              Leases
  The
        Company is committed under an operating lease for its premises expiring November
        11, 2009. Minimum annual payments (exclusive of taxes, insurance, and
        maintenance costs) under the lease is $54,000.
  In
        addition, the Company is committed under operating vehicle leases as
        follows:
 2008
                
                $
                67,0002009
                
                
                51,0002010
                
                
                17,000$
                135,000
  -20-
  **m-Wise,
          Inc. and Subsidiary**
 Notes
          to Consolidated Financial Statements
 March
          31, 2007 and 2006
 Unaudited
 **11.**
              **Commitments**(cont'd)
  b)
              Equity
                  Financing Agreement
  On
        March 6, 2007, the Company exercised its right pursuant to the February 6,
        2006
        equity financing agreement with a Delaware limited partnership ("DLP"). The
        agreement entitled the Company to sell up to 20,000,000 of the Company's
        common
        shares (up to $10,000,000) over the course of 36 months. The amount that
        the
        Company shall be entitled to request from each of the purchase "Puts", shall
        be
        equal to either 1) $300,000 or 2) 200% of the average daily volume ("ADV")
        multiplied by the average of the 3 daily closing prices immediately preceding
        the Put date. The ADV shall be computed using the 10 trading days prior to
        the
        Put Date. The Purchase Price for the common stock identified in the Put Notice
        shall be set at 93% of the lowest closing bid price of the common stock during
        the Pricing Period. The Pricing Period is equal to the period beginning on
        the
        Put Notice date and ending on and including the date that is 5 trading days
        after such Put Date. There are put restrictions applied on days between the
        Put
        Date and the Closing Date with respect to that Put. During this time, the
        Company shall not be entitled to deliver another Put Notice.
  In
        connection with the equity financing agreement, the Company has issued a
        preliminary prospectus whereby the DLP and a current significant shareholder
        can
        sell up to 30,000,000 common shares at market value.
  **12.**
              **Subsequent
                  Events**
  a)
              Exercise
                  of warrants
  On
                  April 4, 2007, 500,000 warrants, as described in note 7, were
                  exercised.
  b)
              Equity
                  Financing Agreement
  Pursuant
                  to the February 6, 2006 equity financing agreement with DLP as
                  described
                  in note 7, the Company sold 2,516,454 common shares for total proceeds
                  of
                  $340,928 in April 2007, and from May 1 to May 8, 2007, the Company
                  sold an
                  additional 682,631 common shares for total proceeds of
                  $98,541.
  c)
              New
                  subsidiary
  On
        May 1, 2007, m-Wise Interactive, Inc., owned 51% by the Company, was
        incorporated in the State of Delaware. The other 49% of common shares are
        owned
        by the Company's customer as mentioned in note 3. The newly incorporated
        subsidiary will be primarily engaged in generating and providing mobile
        marketing activities and certain interactive mobile services.
  -21-
  Item
        2.  Management's
        Discussion and Analysis of Financial Condition and Results of
        Operation
 
 The
        following discussion should be read in conjunction with our consolidated
        financial statements and related notes included elsewhere in this Report.
 
 This
        filing contains forward-looking statements. The words "anticipate," "believe,"
        "expect, "plan," "intend," "seek," "estimate," "project," "will," "could,"
        "may," and similar expressions are intended to identify forward-looking
        statements. These statements include, among others, information regarding
        future
        operations, future capital expenditures, and future net cash flow. Such
        statements reflect our management’s current views with respect to future events
        and financial performance and involve risks and uncertainties, including,
        without limitation: (a) the timing of our sales could fluctuate and lead
        to
        performance delays; (b) without additional equity or debt financing we cannot
        carry out our business plan; (c) our stockholders have pre-emptive rights
        to
        purchase securities of m-Wise, which could impair our ability to raise capital;
        (d) we operate internationally and are subject to currency fluctuations,
        which
        could cause us to incur losses even if our operations are profitable; (e)
        we are
        dependent upon certain major customers, and the loss of one or more of such
        customers could adversely affect our revenues and profitability; (f) our
        research and development facilities are located in Israel and we have important
        facilities and resources located in Israel which could be negatively affected
        due to military or political tensions; (g) certain of our officers and employees
        are required to serve in the Israel defense forces and this could force them
        to
        be absent from our business for extended periods; (h) the rate of inflation
        in
        Israel may negatively impact our costs if it exceeds the rate of devaluation
        of
        the NIS against the Dollar. Should one or more of these risks or uncertainties
        occur, or should underlying assumptions prove to be incorrect, actual results
        may vary materially and adversely from those anticipated, believed, estimated
        or
        otherwise indicated. These forward-looking statements speak only as of the
        date
        of this prospectus. Subject at all times to relevant federal and state
        securities law disclosure requirements, we expressly disclaim any obligation
        or
        undertaking to disseminate any update or revisions to any forward-looking
        statement contained herein to reflect any change in our expectations with
        regard
        thereto or any changes in events, conditions or circumstances on which any
        such
        statement is based. Consequently, all of the forward-looking statements made
        in
        this Report are qualified by these cautionary statements and there can be
        no
        assurance of the actual results or developments.
 
 RESULTS
        OF OPERATIONS
  **-3-**
  THREE
        MONTHS ENDED MARCH 31, 2007 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
        2006.
 
 REVENUES
 
 License
        fees and products. Revenues from license fees and products decreased 26%
        to
        $99,999 for the three months ended March 31, 2007 from $135,000 for the same
        period in 2006.
 
 Revenue
        share. Revenues from revenue share increased 277% to $141,271 for the three
        months ended March 31, 2007 from $37,433 for the same period in 2006. The
        increase primarily consisted of revenues from current customers who were
        not our
        customers during the first three months of 2006 and from customers that did
        not
        generate revenues from selling services to end users previously.
 
 Customer
        services and technical support. Revenues from customer services and technical
        support increased 192% to $237,596 for the three months ended March 31, 2007
        from $81,350 for the same period in 2006. The increase primarily consisted
        of
        increased orders for services from existing customers.
 
 Cost
        of revenues.
 
 Cost
        of
        revenues increased 357% to $59,110 for the three months ended March 31, 2007
        from $12,947 for the same period in 2006. This increase was primarily due
        to
        Higher revenues from customer services and technical support.
 
 Operating
        expenses.
 
 Research
        and development.
  Research
        and development expenses increased 40% to $189,586 for the three months ended
        March 31, 2007 from $135,377 for the same period in 2006. This increase was
        primarily due to a $44,047 increase in payroll and related expenses. Research
        and development expenses, stated as a percentage of revenues decreased to
        40%
        for the three months ended March 31, 2007 from 53% for the same period in
        2006.
 
 General
        and administrative.
 
 General
        and administrative expenses increased 35% to $355,011 for the three months
        ended
        March 31, 2007 from $262,518 for the same period in 2006. This increase was
        primarily due to a $55,853 increase in consulting expenses and a $40,563
        increase in marketing expenses. General and administrative expenses, stated
        as a
        percentage of revenues, decreased to 74% for the three months ended March
        31,
        2007 from 103% for the same period in 2006.
  Financing
        expenses.
  **-4-**
 
 Financing
        expenses. Our financing expenses decreased 96% to $9,194 for the three months
        ended March 31, 2007 from $230,058 for the same period in 2006. The decrease
        primarily consisted of $222,104 financing fee paid by issuance of common
        shares
        in 2006.
 
 **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 $143,435
        as of
        March 31, 2007 and $5,072 as of December 31, 2006. Our initial capital came
        from
        an aggregate investment of $1.3 million from Cap Ventures Ltd. To date, we
        have
        raised an aggregate of $5,300,000 from placements of our equity securities
        (including the investment by Cap Ventures and a $4,000,000 investment by
        Syntek
        Capital AG and DEP Technology Holdings Ltd.). We have also borrowed an aggregate
        of $1,800,000 from Syntek Capital AG and DEP Technology Holdings Ltd. and
        as of
        the date of this prospectus we have no funds available to us under bank lines
        of
        credit. We have a credit line agreement with Miretzky Holdings Limited. As
        of
        March 31, 2007, $377,423 is outstanding under the credit line. The credit
        line
        is for $500,000. The credit line has no termination date and does not provide
        for interest payments.
 
 Other
        than the credit line agreement with Miretzky, we do not have any commitments
        from any of our affiliates or current stockholders, or any other non-affiliated
        parties, to provide additional sources of capital to us. We do have an equity
        line for $10.0 million
 with
        Dutchess Private Equity Fund and as of May 14, 2007 we have drawn $580,887
        under
        the Equity Line. We will need approximately $1.0 million for the next twelve
        months for our operating costs which mainly include salaries, office rent
        and
        network connectivity, which total approximately $60,000 per month, and for
        working capital. We intend to finance this amount from our ongoing sales
        and
        through the sale of either our debt or equity securities or a combination
        thereof, to affiliates, current stockholders and/or new investors. Currently
        we
        do not believe that our future capital requirements for equipment and facilities
        will be material.
 
 Operating
        activities.
 
 For
        the three months ended March 31, 2007 net cash provided by operating activities
        was $59,686 primarily due to a $70,625 decrease in prepaid and sundry assets,
        a
        $43,762 in employee vested options expense and a $32,648 decrease in accounts
        receivables, partially offset by our net loss of $134,035. In the same period
        in
        2006 we used $111,749 of cash in operating activities primarily due to our
        net
        loss of $387,117 and a $177,418 increase in accounts receivables, partially
        offset by a $222,104 financing fees paid by issuance of shares and a $150,000
        increase in billing in excess of costs on uncompleted contracts.
  Investing
        and financing
        activities.
  **-5-**
 
 Property
        and equipment consist primarily of computers, software, and office equipment.
        For the three months ended March 31, 2007, net cash used in investing activities
        was $543 consisting of an investment in equipment. In the same period in
        2006
        net cash used in investing activities was $16,736 consisting of an investment
        in
        equipment. For the three months ended March 31, 2007, net cash provided by
        financing activities was $79,220 primarily due to a $141,418 sale of common
        shares under equity financing agreement, partially offset by a $58,948 decrease
        in advances from a shareholder. In the same period in 2006, net cash provided
        by
        financing activities was $148,151 due to a $159,219 increase in advances
        from a
        shareholder, partially offset by a $11,068 decrease in bank indebtedness.
 
 **Dividends**
 
 We
        have
        not paid any dividends on our common stock. We currently intend to retain
        any
        earnings for use in our business, and therefore do not anticipate paying
        cash
        dividends in the foreseeable future.
 
 **Off
        Balance Sheet Arrangements**
 
 None.
 
 Item
        3.  Controls
        and Procedures
 
 With
        the
        participation of management, our Chief Executive Officer and Chief Financial
        Officer evaluated our disclosure controls and procedures within the 90 days
        preceding the filing date of this quarterly report. Based upon this evaluation,
        the Chief Executive Officer and Chief Financial Officer concluded that our
        disclosure controls and procedures are effective in ensuring that material
        information required to be disclosed is included in the reports that we file
        with the Securities and Exchange Commission.
 
 There
        were no significant changes in our internal control over financial reporting
        to
        the knowledge of our management, or in other factors that have materially
        affected or are reasonably likely to materially affect these internal controls
        over financial reporting subsequent to the evaluation date.
 
 PART
        II
 OTHER
        INFORMATION
 
 Item
        1.  Legal
        Proceedings
 
 None.
 
 Item
        2.  Changes
        in Securities and Small Business Issuer Purchases of Equity
        Securities
 
 Pursuant
        to the February 6, 2006 equity line credit agreement with Dutchess Private
        Equities Fund, LP , the Company sold 1,062,600 common shares for total proceeds
        of $141,418 in March , 2,516,454 common shares for total proceeds of $340,928
        in
        April 2007, and from May 1 to May 8, 2007, the Company sold an additional
        682,631 common shares for total proceeds of $98,541.
 
 Item
        3.  Default
        upon Senior Securities
  **-6-**
  Not
        applicable.
 
 Item
        4.  Submission
        of Matters to a Vote of Security Holders
 
 Not
        applicable.
 
 Item
        5.  Other
        Information
 
 On
        May 1,
        2007, m-Wise Interactive, Inc., owned 51% by the Company, was incorporated
        in
        the State of Delaware. The other 49% of common shares are owned by Divine
        Management Holdings Limited. The newly incorporated subsidiary will be primarily
        engaged in generating and providing mobile marketing activities and certain
        interactive mobile services.
 
 Item
        6.  Exhibits
        and Reports on Form 8-K
 (a)
                Exhibits
 
 3.1
                Amended
                    and restated Certificate of
                    Incorporation**
 3.2
                Bylaws**
 4.1
                Purchase
                    and registration rights agreement and schedule of
                    details**
 10.1
                Amended
                    and Restated Employment Agreement with Mordechai
                    Broudo**
 10.2
                Amendment
                    to Amended and Restated Employment Agreement with Mordechai
                    Broudo**
 10.3
                Amended
                    and Restated Employment Agreement with Shay
                    Ben-Asulin**
 10.4
                Amendment
                    to Amended and Restated Employment Agreement with Shay
                    Ben-Asulin**
 10.5
                Employment
                    Agreement, Gabriel Kabazo**
 10.6
                Confidentiality
                    rider to Gabriel Kabazo Employment
                    Agreement**
 10.7
                Employment
                    Agreement Asaf Lewin**
 10.8
                2003
                    International Share Option Plan**
 10.9
                Form
                    of Option Agreement, 2003 International Share Option
                    Plan**
 10.10
                2001
                    International Share Option Plan**
 10.11
                Form
                    of Option Agreement, 2001 International Share Option
                    Plan**
 10.12
                2003
                    Israel Stock Option Plan**
 10.13
                Form
                    of Option Agreement, 2003 Israel Stock Option
                    Plan**
 10.14
                2001
                    Israel Share Option Plan**
 10.15
                Form
                    of Option Agreement, 2001 Israel Share Option
                    Plan**
 10.16
                Investors’
                    Rights Agreement dated January 11,
                    2001**
 10.17
                Stockholders
                    Agreement**
 10.18
                Agreement
                    for Supply of Software and Related Services dated October 14,
                    2002, by and
                    between I Touch plc and m-Wise,
                    Inc.**
 10.19
                Purchase
                    agreement between m-Wise, Inc. and Comtrend Corporation dated
                    May 22,
                    2002**
 10.20
                Amended
                    and Restated Consulting agreement between Hilltek Investments
                    Limited and
                    m-Wise dated November 13, 2003**
 10.21
                Consulting
                    agreement between Hilltek Investments Limited and m-Wise dated
                    June 24,
                    2003, subsequently amended see exhibit 10.20
                    above**
 10.22
                Amendment
                    to Investors’ Rights Agreement dated October 2,
                    2003**
 10.23
                Appendices
                    to 2003 Israel Stock Option Plan**
   **-7-**
  10.24
                Appendices
                    to 2001 Israel Share Option Plan**
 10.25
                Credit
                    Line Agreement between m-Wise, Inc. and Miretzky Holdings, Limited
                    dated
                    January 25, 2004**
 10.26
                Termination
                    and Release Agreement by and among the Company and Syntek capital
                    AG.
                    (Incorporated by reference to Exhibit 10.1 of the current report
                    on Form
                    8-K filed on January 13, 2006)
 10.27
                Termination
                    and Release Agreement dated February 2, 2006 by and among the
                    Company andDEP
                    Technology Holdings Ltd(Incorporated by reference to Exhibit 10.1 of the current report
                    on Form
                    8-K filed on February 7, 2006)
 21.
                List
                    of Subsidiaries**
 31.1
                Rule
                    13a-14(a)/15d-14(a) Certification.*
 31.2
                Rule
                    13a-14(a)/15d-14(a) Certification.*
 32.1
                Certification
                    by the Chairman Relating to a Periodic Report Containing Financial
                    Statements. ***
 32.2
                Certification
                    by the Chief Financial Officer Relating to a Periodic Report
                    Containing
                    Financial Statements. ***
  _____________
 *  Filed
        herewith.
 
 **
        Incorporated by reference from the registration statement filed with the Securities
        and Exchange Commission Registration Statement on Form SB-2 (Reg. No. 333-106160).
  ***  The
        Exhibit attached to this Form 10-QSB shall not be deemed "filed" for purposes
        of
        Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange
        Act"), or otherwise subject to liability under that section, nor shall it
        be
        deemed incorporated by reference in any filing under the Securities Act of
        1933,
        as amended, or the Exchange Act, except as expressly set forth by specific
        reference in such filing.
 
 (b)
            Reports
                on Form 8-K 
 The
        Company filed a current report on Form 8-K on February 13, 2007 pursuant
        to the
        Election of Mr. Mordechai Broudo as Chairman and Mr. Zach Sivan as Chief
        Executive Officer.
 
 The
        Company filed a current report on Form 8-K on March 30, 2007 pursuant to
        the
        resignation of SF Partnership, LLC as our auditor. As a result, we have retained
        Davis Accounting Group, LLC, to serve as our independent auditor and will
        report
        on our financial statements.
  **-8-**
  **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  **m-Wise,
                INC.**(Registrant)Date:
                May 15, 2007
              
              /s/ Mordechai
                BroudoName:
                Mordechai BroudoTitle:
                Chairman
 
 **-9-**