UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549


FORM
      10-QSB





(Mark
      One)





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





For
      the
      quarterly period ended September 30, 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




Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act)       
YES o NOx





The
      number of shares outstanding of the issuer's common stock, as of November 13,
      2007 was 138,129,045.





Transitional
      Small Business Disclosure Format (check one):   Yes
o
      No x









**m-Wise,
      Inc.**





TABLE
      OF
      CONTENTS




PagePART
                  I
              
              FINANCIAL
                  INFORMATIONItem
                  1.
              
              Financial
                  Statements (Unaudited)Consolidated
                  Balance Sheet as of September 30, 2007
              
              2Consolidated
                  Statements of Operations for the Three Months and Nine Months Ended
                  September 30, 2007 and 2006
              
              3Consolidated
                  Statements of Stockholders' Deficit for the Periods Ended September
                  30,
                  2007 and 2006
              
              4Consolidated
                  Statements of Cash Flows for the Nine Months Ended September 30,
                  2007 and
                  2006
              
              5Notes
                  to Unaudited Financial Statements
              
              6Item
                  2.
              
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              21Item
                  3.
              
              Controls
                  and Procedures
              
              24PART
                  II
              
              OTHER
                  INFORMATIONItem
                  1
              
              Legal
                  Proceedings
              
              24Item
                  2
              
              Changes
                  in Securities and Small Business Issuer Purchases of Equity
                  Securities
              
              24Item
                  3
              
              Defaults
                  upon Senior Securities
              
              24Item
                  4
              
              Submission
                  of Matters to a Vote of Security Holders
              
              25Item
                  5
              
              Other
                  Information
              
              25Item
                  6
              
              Exhibits
                  and Reports on Form 8-K
              
              25







PART
      I FINANCIAL
      INFORMATION




Item
      1. Financial
      Statements




**M-WISE,
        INC. AND SUBSIDIARY**
  CONSOLIDATED
        FINANCIAL STATEMENTS
  PERIODS
        ENDED SEPTEMBER 30, 2007, AND 2006
  (UNAUDITED)
  **CONTENTS**
  Consolidated
                  Balance Sheet
              
              
              2Consolidated
                  Statements of Operations
              
              
              3Consolidated
                  Statements of Stockholders' (Deficit)
              
              
              4Consolidated
                  Statements of Cash Flows
              
              
              5Notes
                  to Consolidated Financial Statements
              
              
              6
                  - 20
  
  **M-WISE,
                    INC. AND SUBSIDIARY****CONSOLIDATED
                    BALANCE SHEET (NOTE 2)****AS
                    OF SEPTEMBER 30, 2007****(Unaudited)**
  **2007****ASSETS****Current
                    Assets:**Cash
                    and cash equivalents
                
                $
                251,678Accounts
                    receivable - Trade (net of allowancefor
                    doubtful accounts of $ 224,215)
                
                
                449,482Prepaid
                    and other assets
                
                
                23,969Total
                    current assets
                
                
                725,129**Long-term
                    Assets:**Long-term
                    prepaid expenses
                
                
                21,706Equipment,
                    net (note 3)
                
                
                91,099Debt
                    issuance costs, net
                
                
                3,167Total
                    long-term assets
                
                
                115,972**Total
                    Assets**
                
                $
                841,101**LIABILITIES
                    AND STOCKHOLDERS' (DEFICIT)****Current
                    Liabilities:**Accounts
                    payable - Trade
                
                $
                67,643Other
                    payables and accrued expenses
                
                
                788,668Advances
                    from stockholder (note 4)
                
                
                307,229Total
                    current liabilities
                
                
                1,163,540**Long-term
                    Liabilities:**Accrued
                    severance pay (note 5)
                
                
                49,999Total
                    long-term liabilities
                
                
                49,999Total
                    liabilities
                
                
                1,213,539**Commitments
                    and Contingencies**(note
                    10)**Stockholders'
                    (Deficit):**Preferred
                    stock (note 6)
                
                
                -Common
                    stock (note 6)
                
                
                233,842Additional
                    paid-in capital
                
                
                10,766,673Accumulated
                    (deficit)
                
                
                (11,372,953
                )Total
                    stockholders' (deficit)
                
                
                (372,438
                )**Total
                    Liabilities and Stockholders' (Deficit)**
                
                $
                841,101
 (The
        accompanying notes of the consolidated financial
        statements is an integral
        part of this statement).
  2
 **M-WISE,
                    INC. AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF OPERATIONS (NOTE 2)****FOR
                    THE THREE-MONTHS AND NINE-MONTHS****ENDED
                    SEPTEMBER 30, 2007, AND 2006****(Unaudited)**
  **Three-Months
                    Ended**
                
                **Nine-Months
                    Ended****September
                    30,**
                
                **September
                    30,****2007**
                
                **2006**
                
                **2007**
                
                **2006****Net
                    Sales**
                
                $
                537,288
                
                $
                499,253
                
                $
                1,442,487
                
                $
                1,523,953**Cost
                    of Sales**
                
                
                71,225
                
                
                53,366
                
                
                206,467
                
                
                165,106**Gross
                    Profit**
                
                
                466,063
                
                
                445,887
                
                
                1,236,020
                
                
                1,358,847**Expenses:**Research
                    and development
                
                
                175,250
                
                
                123,826
                
                
                554,328
                
                
                396,575General
                    and administrative
                
                
                428,388
                
                
                306,797
                
                
                1,181,697
                
                
                920,203Total
                    expenses
                
                
                603,638
                
                
                430,623
                
                
                1,736,025
                
                
                1,316,778**Income
                    (loss) from operations**
                
                
                (137,575
                )
                
                15,264
                
                
                (500,005
                )
                
                42,069**Other
                    Income (Expense):**Interest
                    and other
                
                
                (17,601
                )
                
                (16,259
                )
                
                (36,886
                )
                
                (267,777
                )Total
                    other income (expense)
                
                
                (17,601
                )
                
                (16,259
                )
                
                (36,886
                )
                
                (267,777
                )**Provision
                    for income taxes**
                
                
                -
                
                
                -
                
                
                -
                
                
                -**Net
                    (Loss)**
                
                $
                (155,176
                )
                $
                (995
                )
                $
                (536,891
                )
                $
                (225,708
                )**Basic
                    and Fully Diluted Loss per Share**(note
                    6)Gain
                    (loss) per common share - Basic and diluted
                
                $
                (0.00
                )
                $
                (0.00
                )
                $
                (0.00
                )
                
                (0.00
                )**Weighted
                    Average Number of Common Shares****Outstanding
                    - Basic and Diluted**
                
                
                137,552,923
                
                
                128,902,659
                
                
                134,616,929
                
                
                124,656,511
 (The
        accompanying notes of the consolidated
        financial statements is an integral part of these statements)**.**
 3
  **M-WISE,
                    INC. AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF STOCKHOLDERS' (DEFICIT)****FOR
                    THE PERIODS ENDED SEPTEMBER 30, 2007, AND 2006****(Unaudited)**
  **Additional****Common
                    stock**
                
                **Paid-in**
                
                **Accumulated****Description**
                
                **Shares**
                
                **Amount**
                
                **Capital**
                
                **(Deficit)**
                
                **Total****Balance
                    - January 1, 2006**
                
                
                113,514,158
                
                $
                192,974
                
                $
                7,399,394
                
                $
                (10,639,491
                )
                $
                (3,047,123
                )Conversion
                    of note payable - Stock
                
                
                12,400,448
                
                
                21,081
                
                
                1,723,829
                
                
                -
                
                
                1,744,910Conversion
                    of note payable - Warrants
                
                
                -
                
                
                -
                
                
                436,228
                
                
                -
                
                
                436,228Exercise
                    of stock options
                
                
                169,871
                
                
                289
                
                
                (18
                )
                
                -
                
                
                271Options
                    vested for employee services (note 6)
                
                
                -
                
                
                -
                
                
                60,531
                
                
                -
                
                
                60,531Net
                    (loss) for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                (387,117
                )
                
                (387,117
                )**Balance
                    - March 31, 2006**
                
                
                126,084,477
                
                $
                214,344
                
                $
                9,619,964
                
                $
                (11,026,608
                )
                $
                (1,192,300
                )Options
                    vested for employee services (note 6)
                
                
                -
                
                
                -
                
                
                14,501
                
                
                -
                
                
                14,501Shares
                    issued for consulting services
                
                
                2,818,182
                
                
                4,791
                
                
                305,209
                
                
                -
                
                
                310,000Net
                    income for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                162,404
                
                
                162,404**Balance
                    - June 30, 2006**
                
                
                128,902,659
                
                $
                219,135
                
                $
                9,939,674
                
                $
                (10,864,204
                )
                $
                (705,395
                )Options
                    vested for employee services (note 6)
                
                
                -
                
                
                -
                
                
                10,708
                
                
                -
                
                
                10,708Shares
                    issued for consulting services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Net
                    (loss) for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                (995
                )
                
                (995
                )**Balance
                    - September 30, 2006**
                
                
                128,902,659
                
                $
                219,135
                
                $
                9,950,382
                
                $
                (10,865,199
                )
                $
                (695,682
                )**Balance,
                    January 1, 2007**
                
                
                128,902,659
                
                $
                219,135
                
                $
                9,981,686
                
                $
                (10,836,062
                )
                $
                (635,241
                )Share
                    issuance pursuant to EquityFinancing
                    Agreement (note 6)
                
                
                1,062,600
                
                
                1,806
                
                
                139,612
                
                
                -
                
                
                141,418Exercise
                    of stock options
                
                
                2,859,646
                
                
                4,862
                
                
                -
                
                
                -
                
                
                4,862Options
                    vested for employee services
                
                
                -
                
                
                -
                
                
                43,762
                
                
                -
                
                
                43,762Net
                    (loss) for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                (134,035
                )
                
                (134,035
                )**Balance
                    - March 31, 2007**
                
                
                132,824,905
                
                $
                225,803
                
                $
                10,165,060
                
                $
                (10,970,097
                )
                $
                (579,234
                )Share
                    issuance pursuant to EquityFinancing
                    Agreement (note 6)
                
                
                3,824,783
                
                
                6,502
                
                
                510,906
                
                
                -
                
                
                517,408Exercise
                    of stock options (note 6)
                
                
                301,127
                
                
                511
                
                
                (6
                )
                
                -
                
                
                505Exercise
                    of warrants (note 6)
                
                
                500,000
                
                
                850
                
                
                (10
                )
                
                -
                
                
                840Options
                    vested for employee services (note 6)
                
                
                -
                
                
                -
                
                
                44,563
                
                
                -
                
                
                44,563Net
                    (loss) for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                (247,680
                )
                
                (247,680
                )**Balance
                    - June 30, 2007**
                
                
                137,450,815
                
                $
                233,666
                
                $
                10,720,513
                
                $
                (11,217,777
                )
                $
                (263,598
                )Exercise
                    of stock options (note 6)
                
                
                103,230
                
                
                176
                
                
                16
                
                
                -
                
                
                192Options
                    vested for employee services (note 6)
                
                
                -
                
                
                -
                
                
                46,144
                
                
                -
                
                
                46,144Net
                    (loss) for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                (155,176
                )
                
                (155,176
                )**Balance
                    - September 30, 2007**
                
                
                137,554,045
                
                $
                233,842
                
                $
                10,766,673
                
                $
                (11,372,953
                )
                $
                (372,438
                )
  (The
        accompanying notes of the consolidated financial
        statements is an integral part of these statements)**.**
 4
 **M-WISE,
                    INC. AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS (NOTE 2)****FOR
                    THE NINE-MONTHS ENDED SEPTEMBER 30, 2007, AND
                    2006****(Unaudited)**
  **2007**
                
                **2006****Operating
                    Activities:**Net
                    (loss)
                
                $
                (536,891
                )
                $
                (225,708
                )Adjustments
                    to reconcile net (loss) to net cash(used
                    in) operating activities:Depreciation
                
                
                44,775
                
                
                82,551Employee
                    options vested
                
                
                134,489
                
                
                -Expenses
                    paid by cashless exercise of stock options and
                    warrants
                
                
                6,381
                
                
                -Financing
                    fees paid by issuance of shares
                
                
                -
                
                
                222,104Wages
                    and salaries paid by options
                
                
                -
                
                
                86,011Consulting
                    services paid by issuance of shares
                
                
                -
                
                
                129,167Amortization
                    of debt issuance costs
                
                
                9,471
                
                
                9,471Net
                    changes in assets and liabiltiesAccounts
                    receivable - Trade
                
                
                69,429
                
                
                (297,619
                )Prepaid
                    and other assets
                
                
                99,206
                
                
                (12,365
                )Billings
                    in excess of costs on uncompleted contracts
                
                
                -
                
                
                51,583Accounts
                    payable - Trade
                
                
                43,653
                
                
                (34,893
                )Other
                    payables and accrued liabilities
                
                
                (136,854
                )
                
                (91,328
                )Long-term
                    prepaid expenses
                
                
                (2,841
                )
                
                2,282Accrued
                    severence pay
                
                
                14,124
                
                
                4,869**Net
                    Cash (Used in) Operating Activities**
                
                
                (255,058
                )
                
                (73,875
                )**Investing
                    Activities:**Acquisition
                    of equipment
                
                
                (24,770
                )
                
                (50,149
                )**Net
                    Cash (Used in) Investing Activities**
                
                
                (24,770
                )
                
                (50,149
                )**Financing
                    Activities:**Advances
                    from (payments to) stockholder
                
                
                (129,142
                )
                
                143,989Proceeds
                    from issuance of common stock and warrantsfor
                    repayment of notes payable
                
                
                -
                
                
                1,959,034Repayment
                    of notes payable
                
                
                -
                
                
                (1,959,034
                )Sale
                    of common shares under Equity Financing Agreement
                
                
                658,826
                
                
                -Bank
                    indebtedness - Net
                
                
                (3,250
                )
                
                353**Net
                    Cash Provided by Financing Activities**
                
                
                526,434
                
                
                144,342**Net
                    Increase in Cash and Cash Equivalents**
                
                
                246,606
                
                
                20,318**Cash
                    and Cash Equivalents - Beginning of Period**
                
                
                5,072
                
                
                573**Cash
                    and Cash Equivalents - End of Period**
                
                $
                251,678
                
                $
                20,891**Supplemental
                    Disclosure of Cash Flow Information:**Cash
                    paid during the period for:Interest
                
                $
                383
                
                $
                1,924Income
                    taxes
                
                $
                -
                
                $
                -
  (The
        accompanying notes of the consolidated financial
        statements is an integral part of these statements)**.**
  5
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 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 nine-months ended September 30, 2007,
        the
        Company experienced a net loss of $536,891 (2006 - $225,708) and as of September
        30, 2007 the Company’s working capital deficit was $438,411 (2006 -
        $801,665).
  The
        Company is in an industry where operational fluctuation is usually higher
        than
        other 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 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.
  6
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
 **2.**
              **Summary
                  of Significant Accounting Policies**
  The
        accounting policies of the Company are in accordance with accounting principles
        generally accepted in the United States of America, and their basis of
        application is consistent with that of the previous year. Outlined below
        are
        those policies considered particularly significant:
  a)
              Reporting
                  Currency
  A
        majority of the Company's revenues are generated in United States dollars.
        In
        addition, a substantial portion of the Company's costs are incurred in United
        States dollars. Management has determined that the United States dollar is
        the
        functional and reporting currency of the Company.
  b)
              Principles
                  of Consolidation
  The
        consolidated financial statements include the operations of m-Wise, Inc.
        and its
        wholly owned subsidiary. Intercompany balances and transactions have been
        eliminated in consolidation.
  c)
              Debt
                  Issuance Costs
  Debt
        issuance costs relate to non-interest bearing credit line facility of $500,000
        provided by a stockholder as disclosed in Note 4. The
        overdraft from the credit facility is non-interest bearing and there are
        no
        covenants with which the Company will need to comply. The credit line facility
        has no expiration date and management expects to retain the facility for
        a
        period of at least five years. Accordingly, the debt issuance costs 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 annual rates and methods listed
        below:
 Furniture
                    and equipment
                6-15%
                Straight
                    lineComputer
                    equipment
                33%
                Straight
                    lineLeasehold
                    improvements
                Straight-line
                  method over the term of the lease.
  e)
              Revenue
                  Recognition
  The
        Company generates revenues from product sales, licensing, customer services,
        and
        technical support.
  Revenues
        from product sales are recognized on a completed-contract basis, in accordance
        with Staff Accounting Bulletin No. 104 "Revenue Recognition in Financial
        Statements" ("SAB No. 104"), 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 are 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 at 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 revenue, 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.
  7
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
  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. 104 at the time
        the
        technology and license is delivered to the customer, collection is probable,
        the
        fee is fixed and determinable, a persuasive evidence of an agreement exists,
        no
        significant obligation remains under the sale or licensing agreement, and
        no
        significant customer acceptance requirements exist after delivery of the
        technology.
  Revenues
        relating to customer services and technical support are recognized as the
        services are rendered ratably over the period of the related
        contract.
  The
        Company does not sell products with multiple deliverables. It is management's
        opinion that EITF 00-21, "Revenue Arrangements With Multiple Deliverables"
        is
        not applicable.
  f)
              Research
                  and Development Costs
  Research
        and development costs are expensed as incurred.
  g)
              Use
                  of Estimates
  The
        preparation of financial statements, in conformity with accounting principles
        generally accepted in the United States, 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 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.
  8
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
 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. As of September 30, 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.
  j)
              Earnings
                  (Loss) per Common Share
  The
        Company calculates net loss per share based on SFAS No. 128, "Earnings Per
        Share.” Basic earnings (loss) per share is computed by dividing the net earnings
        (loss) attributable to the common stockholders by the weighted average number
        of
        common shares outstanding. Fully diluted earnings (loss) per share is computed
        similar to basic earnings (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
        July
        2006, the Financial Accounting Standards Board ("FASB") issued Financial
        Accounting Standards Interpretation No. 48 (“FIN No. 48”), “Accounting for
        Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109.” FIN
        No. 48 clarifies the accounting for uncertainty in income taxes recognized
        in an
        enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
        for Income Taxes.” FIN No. 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 No. 48 also provides
        guidance on derecognition, classification, interest and penalties, accounting
        in
        interim periods, disclosures, and transitions. FIN No. 48 is effective for
        fiscal years beginning after December 15, 2006. The Company is currently
        reviewing the effect, if any, FIN No. 48 will have on its financial
        position.
  In
        September 2006, the Securities and Exchange Commission (“SEC”) staff issued
        Staff Accounting Bulletin No. 108 (“SAB No. 108”), “Considering the Effects of
        Prior Year Misstatements when Quantifying Misstatements in Current Year
        Financial Statements.” SAB No. 108 was issued to provide consistency in how
        registrants quantify financial statement misstatements. The Company is required
        to and will initially apply SAB No. 108 in connection with
        the
        preparation of its annual financial statements for the year ending December
        31,
        2006.
  9
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
 The
        Company does not expect the application of SAB No. 108 to have a material
        effect
        on its financial position and results of operations.
  In
        September 2006, the FASB issued 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
        September 2006, the FASB issued SFAS 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 No. 158"). SFAS No. 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 No. 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 No.
        87.
        SFAS No. 158 also requires an employer to measure the funded status of a
        plan as
        of the date of its year-end. Additional footnote disclosures are also required
        about certain effects on net periodic benefit costs 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 No. 158 is effective for the year ending December 31, 2006.
        The Company does not anticipate that the adoption of this Statement will
        have a
        material effect on its financial condition or operations.
  In
        February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
        Financial Assets and Financial Liabilities - Including an Amendment of FASB
        Statement No. 115" ("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.
  10
  **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
  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 Measurements.” Upon
        implementation, an entity shall report the effect of the first re-measurement
        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.
  On
        May 2,
        2007, the FASB issued FASB Interpretation FIN No. 48-1, “Definition of
        Settlement in FASB Interpretation 48” (“FIN No. 48-1”). FIN 48-1 amends FIN No.
        48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB
        Statement No. 109,” to provide guidance on how an enterprise should determine
        whether a tax position is effectively settled for the purpose of recognizing
        previously unrecognized tax benefits. The guidance in FIN No. 48-1 shall
        be
        applied upon the initial adoption of FIN No. 48. Accordingly, the Company
        has
        applied the provisions of FIN No. 48-1 effective January 1, 2007. The adoption
        of FIN No. 48-1 did not have a material impact on the Company’s results of
        operations and financial condition.
 
 On
        September 5, 2007, the FASB published Proposed FSP No. APB 14-a, “Accounting for Convertible
        Debt Instruments That May Be Settled in Cash upon Conversion.” The proposed FSP
        applies to convertible debt instruments that, by their stated terms, may
        be
        settled in cash (or
        other
        assets) upon conversion, including partial cash settlement, unless the embedded conversion
        option is required to be separately accounted for as a derivative under SFAS
        No.
        133. Convertible debt instruments within the scope of the proposed FSP are
        not
        addressed by APB No. 14. Therefore, the liability and equity components of
        convertible debt instruments within the scope of the proposed FSP shall be
        separately accounted for in a manner that will reflect the entity’s
        nonconvertible debt borrowing rate. This will require an allocation of the
        convertible debt proceeds between the liability component and the embedded
        conversion option (i.e., the equity component). The difference between the
        principal amount of the debt and the amount of the proceeds allocated to
        the
        liability component would be reported as a debt discount and subsequently
        amortized to earnings over the instrument’s expected life using the effective
        interest method. The Company is currently reviewing the effect, if any, if
        the
        proposed FSP were to be adopted.
 
 11
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
  **3.**
              **Equipment**
  Equipment
        is comprised as follows:
 **2007**
                
                2006**Accumulated**
                
                
                
                Accumulated**Cost**
                
                **Depreciation**
                
                Cost
                
                DepreciationFurniture
                    and equipment
                
                **$**
                **63,832**
                
                **$**
                **(36,886**
                **)**
                $
                60,090
                
                $
                (31,067
                )Computer
                    equipment
                
                
                **341,970**
                
                
                **(279,268**
                **)**
                
                415,011
                
                
                (312,573
                )Leasehold
                    improvements
                
                
                **2,593**
                
                
                **(1,142**
                **)**
                
                20,868
                
                
                (18,816
                )**$**
                **408,395**
                
                **$**
                **(317,296**
                **)**
                $
                495,969
                
                $
                (362,456
                )Net
                    carrying amount
                
                
                
                
                **$**
                **91,099**
                
                
                
                
                $
                133,513
  Depreciation
        expenses of $42,691 (2006 - $74,277) and $2,084 (2006 - $8,274) have been
        included in research and development, and general and administrative expenses
        respectively.
  **4.**
              **Advances
                  from Stockholder**
  The
        advances from the major stockholder are non-interest bearing and have no
        fixed
        terms of repayment. According to an agreement dated January 2003, a stockholder
        granted a credit facility of $500,000 to the Company in return for preferred
        class "C" shares as described in Note 6. As of the period ended September
        30,
        2007, the line of credit has an outstanding balance of $307,229.
  **5.**
              **Accrued
                  Severance Pay**
  The
        Company accounts for its potential severance liability of its Israel subsidiary
        in accordance with EITF 88-1, "Determination of Vested Benefit Obligation
        for a
        Defined Benefit Pension Plan.” The Company's liability for severance pay is
        calculated pursuant to applicable labor 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 of September 30, 2006, and 2007, the amount of the liabilities accrued
        were
        $133,115 and $143,310 respectively. Severance pay expenses for the periods
        ended
        September 30, 2006, and 2007, were $19,948 and $47,403
        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 labor agreements.
        Cash surrender values of the deposit funds as of September 30, 2006, and
        2007,
        were $69,775 and $93,311 respectively. Income earned from the deposit funds
        for
        2006 and 2007 was immaterial.
  12
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
  **6.**
              **Capital
                  Stock**
  Authorized
  210,000,000
              
              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
  Issued
                
                
                
                **2007**
                
                2006137,554,045
                
                
                Common
                    shares (2006 - 128,902,659)
                
                **$**
                **233,842**
                
                $
                219,135
  Stock
        Warrants and Options:
  The
        Company has accounted for its stock options and warrants in accordance with
        SFAS
        No. 123 "Accounting for Stock - Based Compensation" and SFAS No. 148 "Accounting
        for Stock - Based Compensation - Transition and Disclosure - An Amendment
        of
        FASB Statement No. 123." 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**
                
                **International**Interest
                    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 stockholders 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.
  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.
  13
  **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
  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 7,025,778 shares
        outstanding.
  On
        April
        4, 2007, 505,732 of the above warrants were converted into common shares
        and the
        number of warrants outstanding as of September 30, 2007, was 6,520,046. ****
  On
        December 22, 2005, the Company entered into an agreement with Syntek Capital
        AG
        (“Syntek”), as part of the agreement for conversion of the note payable into
        common shares, whereby the Company issued warrants to purchase up to 5,263,158
        common shares of the Company at an exercise price of $0.19. As of September
        30,
        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. (“DEP”). The value assigned to the warrants was $
        218,114. As of September 30, 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 SEC. 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
        stockholder 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.
        As
        of September 30, 2007, the line of credit had an outstanding balance of $321,019.
        The 6,315,258 Class "C" preferred shares were subsequently converted into
        37,891,548 common shares post forward stock split.
  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 stock for repayment of the
        $1,800,000 notes payable to Syntek and DEP.
  14
  **M-WISE,
            INC. AND SUBSIDIARY**
 Notes
            to
            Consolidated Financial Statements
 September
            30, 2007, and 2006
 (Unaudited)
  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 period ended September
        30,
        2007, $103,333 has been charged to consulting expense.
  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 stockholder
        can
        sell up to 30,000,000 common shares at market value. For the period ended
        September 30, 2007, 4,887,383 common shares were issued under the agreement
        for
        $658,826.
  Stock
        Options:
  In
        February 2001, the Board of Directors of the Company adopted two option plans
        to
        allow employees and consultants to purchase common 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 options
        plan,
        stock options for 300,000 common shares having a $0.0017 nominal par value
        each
        and an exercise price of $0.0017. As of September 30, 2007, 3,672 options
        under
        the Israel 2001 share option plan for common stock were not yet
        granted.
  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.
        On January 16, 2007, the plan was amended to authorize an additional 1,530,000
        stock options (1,250,000 at an exercise price of $0.08 and 280,000 at an
        exercise price of $0.05). On June 29, 2007, the plan was further amended
        to
        issue an additional 180,000 stock options at an exercise price of $0.13.
        As of
        September 30, 2007, 38,256 options under the Israel 2003 share option plan
        were
        not yet granted.
  15
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
  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 was cancelled and reissued, in accordance with SFAS No. 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.
  On
        November 27, 2006, 2,500,000 stock options under the Israel 2003 share option
        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.
  On
        June
        22, 2007, 132,914 stock options under the Israel 2003 share option plan and
        168,213 under the Israel 2001 share option plan were exercised.
  On
        June
        29, 2007, 180,000 stock options at an exercise price of $0.13 were granted
        under
        the Israel 2003 share option plan.
 
 On
        July
        1, 2007, 103,230 stock options under the Israel 2003 share option plan were
        exercised.
 
 On
        September 14, 2007, 500,000 stock options at an exercise price of $0.11 were
        granted under the
 International
        share option plan.
  16
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
  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 December 31, 2001
                
                $
                9,000Year
                    ended December 31, 2002
                
                
                -Year
                    ended December 31, 2003
                
                
                384,889Year
                    ended December 31, 2004
                
                
                25,480Year
                    ended December 31, 2005
                
                
                13,733Year
                    ended December 31, 2006
                
                
                117,044Period
                    ended September 30, 2007
                
                
                134,469$
                684,615
  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
                
                
                **1,710,000**
                
                
                **500,000**
                
                
                7,260,000
                
                
                -Exercised
                
                
                **(3,264,003**
                **)**
                
                **-**
                
                
                (169,871
                )
                
                -Forfeited
                
                
                **(50,988**
                **)**
                
                **-**
                
                
                (1,813
                )
                
                -Outstanding,
                    end of period
                
                
                **12,628,517**
                
                
                **11,526,797**
                
                
                10,833,508
                
                
                1,026,797Weighted
                    average fair value of options granted during the period
                
                **$**
                **0.0364**
                
                **$**
                **0.0770**
                
                $
                0.0356
                
                $
                -Weighted
                    average exercise price of common stock options, beginning of
                    period
                
                **$**
                **0.0217**
                
                **$**
                **0.0727**
                
                $
                0.0017
                
                $
                0.0017Weighted
                    average exercise price of common stock options granted in the
                    period
                
                **$**
                **0.0674**
                
                **$**
                **0.1100**
                
                $
                0.0417
                
                $
                -Weighted
                    average exercise price of common stock options, end of
                    period
                
                **$**
                **0.0275**
                
                **$**
                **0.0700**
                
                $
                0.0285
                
                $
                0.0017Weighted
                    average remaining contractual life of common stock options
                
                
                **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.
  17
  **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
 **7.**
              **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
                
                **$**
                **2,724,000**
                
                $
                2,618,000Valuation
                    allowance for deferred income tax assets
                
                
                **(2,724,000**
                **)**
                
                (2,618,000
                )**$**
                **-**
                
                $
                -
  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
        of
        September 30, 2007, the Company has approximately $10,897,000 in net operating
        loss carryforwards in the United States parent and approximately $68,000
        in 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
                
                
                469,000$
                10,897,000
  18
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
  **8.**
              **Related
                  Party Transactions**
  During
        the period ended September 30, 2007, the Company’s Directors incurred consulting
        fees and salaries to Directors in the amount of $111,660 (2006 - $165,000).
        As
        of September 30, 2007, $456,100 (2006 - $533,000) 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.
  **9.**
              **Major
                  Customers**
  For
        the
        nine-months ended September 30, 2007, the Company had two major customers
        which
        accounted for 52% and 16% of total revenue. For the nine-months ended September
        30, 2006, the Company had four major customers which accounted for 29%, 22%,
        16%
        and 12% of the total revenue. For the nine-months ended September 30, 2007,
        78%
        (2006, 77%) of the total sales were in the United States and 12% were in
        Asia
        (2006, 8%).
  **10.**
              **Commitments**
  a)
              Leases
  The
        Company is committed under an operating lease for its premises which expires
        on
        June 30, 2008. Minimum annual payments (exclusive of taxes, insurance, and
        maintenance costs) under the lease are $54,000.
  In
        addition, the Company is committed under operating vehicle leases as
        follows:
 2008
                
                $
                94,0002009
                
                
                75,0002010
                
                
                34,000$
                203,000
 
 b)
              Equity
                  Financing Agreement
  On
        March
        6, 2007, the Company exercised its right pursuant to the February 6, 2006,
        equity financing agreement with a 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 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.
  19
 **M-WISE,
          INC. AND SUBSIDIARY**
 Notes
          to
          Consolidated Financial Statements
 September
          30, 2007, and 2006
 (Unaudited)
  In
        connection with the equity financing agreement, the Company has issued a
        preliminary prospectus whereby the DLP and a current significant stockholder
        can
        sell up to 30,000,000 common shares at market value. As of September 30,
        2007,
        4,887,383 common shares have been issued under the agreement for
        $658,826.
  **11.**
              **Subsequent
                  Events**
 
 Subsequent
        to year end, the Company issued 575,000 common shares to DLP on October 16,
        2007,
 pursuant
        to the equity financing agreement as described in note 10b.
  20




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.







21





RESULTS
      OF OPERATIONS


THREE
        MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER
        30, 2006.
 
 REVENUES
 
 License
        fees and products. Revenues from license fees and products decreased 22%
        to
        $99,999 for the three months ended September 30, 2007 from $127,510 for the
        same
        period in 2006.
 
 Revenue
        share. Revenues from revenue share increased 63% to $172,088 for the three
        months ended September 30, 2007 from $105,504 for the same period in 2006.
        The
        increase primarily consisted of revenues from current customers who were
        not our
        customers during 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 was $265,201 for the three months ended September 30, 2007 and $266,239
        for the same period in 2006.
 
 Cost
        of revenues.
 
 Cost
        of
        revenues increased 33% to $71,225 for the three months ended September 30,
        2007
        from $53,366 for the same period in 2006.
 
 Operating
        expenses.
 
 Research
        and development. Research and development expenses increased 42% to $175,250
        for
        the three months ended September 30, 2007 from $123,826 for the same period
        in
        2006. This increase was primarily due to a $60,799 increase in payroll and
        related expenses. Research and development expenses, stated as a percentage
        of
        revenues increased to 33% for the three months ended September 30, 2007 from
        25%
        for the same period in 2006.
 
 General
        and administrative.
 
 General
        and administrative expenses increased 40% to $428,388 for the three months
        ended
        September 30, 2007 from $306,797 for the same period in 2006. This increase
        was
        primarily due to a $76,068 increase in marketing expenses. General and
        administrative expenses, stated as a percentage of revenues, increased to
        80%
        for the three months ended September 30, 2007 from 61% for the same period
        in
        2006.
  Financing
        expenses.
 
 Financing
        expenses. Our financing expenses increased 8% to $17,601 for the three months
        ended September 30, 2007 from $16,259 for the same period in
        2006.




NINE
      MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER
      30, 2006.





REVENUES





License
      fees and products. Revenues from license fees and products decreased 66% to
      $299,997 for the nine months ended September 30, 2007 from $873,440 for the
      same
      period in 2006.





Revenue
      share. Revenues from revenue share increased 53% to $405,539 for the nine months
      ended September 30, 2007 from $265,576 for the same period in 2006. The increase
      primarily consisted of revenues from current customers who were not our
      customers during the first nine 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 91% to $736,951 for the nine months ended September 30, 2007
      from $384,937 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 25% to $206,467 for the nine months ended September 30,
      2007
      from $165,106 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 $554,328
      for
      the nine months ended September 30, 2007 from $396,575 for the same period
      in
      2006. This increase was primarily due to a $173,024 increase in payroll and
      related expenses. Research and development expenses, stated as a percentage
      of
      revenues increased to 38% for the nine months ended September 30, 2007 from
      26%
      for the same period in 2006.





General
      and administrative.





General
      and administrative expenses increased 28% to $1,181,697 for the nine months
      ended September 30, 2007 from $920,203 for the same period in 2006. This
      increase was primarily due to a $192,819 increase in marketing expenses. General
      and administrative expenses, stated as a percentage of revenues, increased
      to
      82% for the nine months ended September 30, 2007 from 60% for the same period
      in
      2006.





Financing
      expenses.




22





Financing
      expenses. Our financing expenses decreased 86% to $36,886 for the nine months
      ended September 30, 2007 from $267,777 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 $251,678
      as of
      September 30, 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
      September 30, 2007, $307,229 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 November 13, 2007 we have drawn $714,900
      under the Equity Line. We will need approximately $1.2 million for the next
      twelve months for our operating costs which mainly include salaries, office
      rent
      and network connectivity, which total approximately $80,000 per month, and
      for
      working capital. We intend to finance this amount from our ongoing sales and
      through the sale of either our debt or equity securities or a combination
      thereof, to affiliates, current stockholders and/or new investors. Currently
      we
      do not believe that our future capital requirements for equipment and facilities
      will be material.





Operating
      activities.





For
      the
      nine months ended September 30, 2007 net cash used in operating activities
      was
      $255,058 primarily due to our net loss of $536,891 and a $136,854 decrease
      in
      other payables and accrued liabilities, partially offset by a $134,489 in
      employee vested options expense, a $99,206 decrease in prepaid and other assets
      and a $69,429 decrease in accounts receivables. In the same period in 2006
      we
      used $73,875 of cash in operating activities primarily due to our net loss
      of
      $225,708 and a $297,619 increase in accounts receivables, partially offset
      by
      $222,104 financing fee paid by issuance of common shares and a $129,167 increase
      in consulting fees paid by issuance of common shares.





Investing
      and financing activities.




23





Property
      and equipment consist primarily of computers, software, and office equipment.
      For the nine months ended September 30, 2007, net cash used in investing
      activities was $24,770 consisting of an investment in equipment. In the same
      period in 2006 net cash used in investing activities was $50,149 consisting
      of
      an investment in equipment. For the nine months ended September 30, 2007, net
      cash provided by financing activities was $526,434 primarily due to a $658,826
      sale of common shares under equity financing agreement, partially offset by
      a
      $129,142 decrease in advances from a shareholder. In the same period in 2006,
      net cash provided by financing activities was $144,342 primarily due to a
      $143,989 increase in advances from a shareholder.





**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, 2007, 2,516,454 common shares for total proceeds of
      $341,003 in April 2007, 1,192,329 common shares for total proceeds of $164,829
      in May 2007, 116,000 common shares for total proceeds of $11,576 in June 2007,
      and 575,000 common shares for total proceeds of $56,074 in October
      2007.





Item
      3.  Default
      upon Senior Securities





Not
      applicable.




24





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





Not
      applicable.





Item
      5.  Other
      Information





Not
      applicable.





Item
      6.  Exhibits
      and Reports on Form 8-K








(a)  Exhibits





3.1
            Amended
                and restated Certificate of
                Incorporation**


3.2
            Bylaws**


4.1
            Purchase
                and registration rights agreement and schedule of
                details**


10.1
            Amended
                and Restated Employment Agreement with Mordechai
                Broudo**


10.2
            Amendment
                to Amended and Restated Employment Agreement with MordechaiBroudo**


10.3
            Amended
                and Restated Employment Agreement with Shay
                Ben-Asulin**


10.4
            Amendment
                to Amended and Restated Employment Agreement with ShayBen-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 datedMay
                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-Wisedated
                June 24, 2003, subsequently amended see exhibit 10.20
                above**


10.22
            Amendment
                to Investors' Rights Agreement dated October 2,
                2003**


10.23
            Appendices
                to 2003 Israel Stock Option Plan**


10.24
            Appendices
                to 2001 Israel Share Option Plan**


10.25
            Credit
                Line Agreement between m-Wise, Inc. and Miretzky Holdings,Limited
                dated January 25, 2004**







25




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





Not
      applicable.




26


**SIGNATURES**





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


**m-Wise,
                INC.**
              (Registrant)Date:
              November 13, 2007
            By:
            /s/ Mordechai
              BroudoName:
              Mordechai BroudoTitle: Chairman


27