UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549




FORM
10-Q




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




For the
quarterly period ended March 31, 2010




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




For the
transition period from ____________ to ____________




Commission
file number:  001-51743




m-Wise,
Inc.




(Exact
name of Registrant as specified in its charter)




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





3
Sapir Street, Herzeliya Pituach, Israel 46852


(Address
of principal executive offices)




+972-73-2620000


(Registrant’s
telephone number, including area code)




All
Correspondence to:


Arthur S.
Marcus, Esq.


Gersten
Savage LLP


600
Lexington Avenue, 9th
Floor


New York,
New York 10022


(212)
752-9700





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x No  ̈




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


Yes o No o





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





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





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





Yes  ̈ No x





The
number of shares outstanding of the issuer's common stock, as of May 17, 2010,
was 148,392,452.









Index


PagePART
      I: FINANCIAL INFORMATION
                                                                    
                                                                    
                                                                    2Item
      2.
                                                                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                                    
                                                                    
                                                                    2Item
      3.
                                                                    Quantitative
      and Qualitative Disclosures about Market Risk
                                                                    
                                                                    
                                                                    10Item
      4T.
                                                                    Controls
      and Procedures
                                                                    
                                                                    
                                                                    10PART
      II:  OTHER INFORMATION
                                                                    
                                                                    
                                                                    10Item
      1.
                                                                    Legal
      Proceedings
                                                                    
                                                                    
                                                                    10Item
      1A.
                                                                    Risk
      Factors
                                                                    
                                                                    
                                                                    10Item
      2.
                                                                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                                                                    
                                                                    
                                                                    10Item
      3.
                                                                    Defaults
      upon Senior Securities
                                                                    
                                                                    
                                                                    10Item
      4.
                                                                    (Removed
      and Reserved)
                                                                    
                                                                    
                                                                    11Item
      5.
                                                                    Other
      Information
                                                                    
                                                                    
                                                                    11Item
      6.
                                                                    Exhibits
                                                                    
                                                                    
                                                                    11SIGNATURES
                                                                    
                                                                    
                                                                    13




i




PART
I:


FINANCIAL
INFORMATION




Item
1:         Financial
Statements





M-WISE,
INC. AND SUBSIDIARIES




CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS




THREE
MONTHS ENDED MARCH 31, 2010 AND 2009




UNAUDITED





CONTENTSCondensed
      Consolidated Balance Sheets
                                
                                
                                1Condensed
      Consolidated Statements of Operations and Comprehensive (Loss)
      Income
                                
                                
                                2Condensed
      Consolidated Statements of Cash Flows
                                
                                
                                3Notes
      to Condensed Consolidated Financial Statements
                                
                                
                                4
      -
13







M-WISE,
INC. AND SUBSIDIARIES


Condensed
Consolidated Balance Sheets


As of
March 31, 2010 and December 31, 2009




March
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Audited)ASSETSCurrentCash
                    
                    $
                    274,393
                    
                    
                    $
                    165,504Short-term
      investment
                    
                    
                    7,842
                    
                    
                    
                    7,837Accounts
      receivable - trade (net of allowance for doubtful accounts of
      $22,239;  - $12,563)
                    
                    
                    784,302
                    
                    
                    
                    822,741Prepaid
      expenses and other assets
                    
                    
                    82,321
                    
                    
                    
                    47,729Government
      grants receivable
                    
                    
                    26,906
                    
                    
                    
                    87,026Total
      Current Assets
                    
                    
                    1,175,764
                    
                    
                    
                    1,130,837Long-term
      Prepaid Expenses
                    
                    
                    13,338
                    
                    
                    
                    10,930Plant and Equipment, net(note
      3)
                    
                    
                    74,336
                    
                    
                    
                    71,891Total
      Long-term Assets
                    
                    
                    87,674
                    
                    
                    
                    82,821Total
      Assets
                    
                    $
                    1,263,438
                    
                    
                    $
                    1,213,658LIABILITIESCurrentAccounts
      payable - trade
                    
                    $
                    19,737
                    
                    
                    $
                    46,541Other
      payables and accrued expenses (note 8)
                    
                    
                    1,185,883
                    
                    
                    
                    1,136,324Advances
      from stockholder (note 4)
                    
                    
                    290,860
                    
                    
                    
                    304,688Billings
      in excess of costs on uncompleted contracts
                    
                    
                    -
                    
                    
                    
                    24,400Total
      Current Liabilities
                    
                    
                    1,496,480
                    
                    
                    
                    1,511,953Accrued Severance Pay(note
      5)
                    
                    
                    139,089
                    
                    
                    
                    127,493Total
      Liabilities
                    
                    
                    1,635,569
                    
                    
                    
                    1,639,446Commitments
      and Contingencies (note 11)STOCKHOLDERS'
      DEFICITCapital Stock(note 6) (148,392,452 common
      stock; 2009 - 139,322,145 common stock)
                    
                    
                    252,267
                    
                    
                    
                    236,848Additional
      Paid-in Capital
                    
                    
                    12,037,074
                    
                    
                    
                    11,850,838Accumulated
      Deficit
                    
                    
                    (12,661,472
                    )
                    
                    
                    (12,513,474
                    )Total Stockholders' Deficit
                    
                    
                    (372,131
                    )
                    
                    
                    (425,788
                    )Total
      Liabilities and Stockholders' Deficit
                    
                    $
                    1,263,438
                    
                    
                    $
                    1,213,658





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




- 1
-




M-WISE,
INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Operations and Comprehensive (Loss)
Income


For the
Three Months Ended March 31, 2010 and 2009


Unaudited





(Note
      13)Three
      Months
                        
                        
                        Three
      MonthsEnded
                        
                        
                        EndedMarch
      31,
                        
                        
                        March
      31,2010
                        
                        
                        2009SalesCustomer
      services and technical support
                        
                        $
                        445,857
                        
                        
                        $
                        305,591Revenue
      share
                        
                        
                        252,016
                        
                        
                        
                        284,241Product
      sales and license
                        
                        
                        216,646
                        
                        
                        
                        202,947914,519
                        
                        
                        
                        792,779Cost
      of Sales
                        
                        
                        338,453
                        
                        
                        
                        178,365Gross
      Profit
                        
                        
                        576,066
                        
                        
                        
                        614,414ExpensesGeneral
      and administrative
                        
                        
                        596,366
                        
                        
                        
                        335,052Research
      and development
                        
                        
                        124,540
                        
                        
                        
                        139,119Total
      Expenses
                        
                        
                        720,906
                        
                        
                        
                        474,171(Loss)
      Earnings from Operations
                        
                        
                        (144,840
                        )
                        
                        
                        140,243Other
      Income (Expenses)Extinguishment
      of debt
                        
                        
                        13,164
                        
                        
                        
                        -Interest
      and other
                        
                        
                        (16,322
                        )
                        
                        
                        29,995Total
      Other Income (Expenses)
                        
                        
                        (3,158
                        )
                        
                        
                        29,995(Loss)
      Earnings before Income Taxes
                        
                        
                        (147,998
                        )
                        
                        
                        170,238Provision
      for income taxes (note 7)
                        
                        
                        -
                        
                        
                        
                        -Net
      (Loss) Earnings and Comprehensive (Loss) Income
                        
                        $
                        (147,998
                        )
                        
                        $
                        170,238(Loss)
      Earnings Per Share - Basic and Diluted
                        
                        $
                        0.00
                        
                        
                        $
                        0.00Weighted
      Average Number of Common Shares Outstanding - Basic and
      Diluted
                        
                        
                        146,507,200
                        
                        
                        
                        139,322,145





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




- 2
-




M-WISE,
INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Cash Flows


For the
Three Months Ended March 31, 2010 and 2009


Unaudited





(Note
      13)Three
      Months
                              
                              
                              Three
      MonthsEnded
                              
                              
                              EndedMarch
      31,
                              
                              
                              March
      31,2010
                              
                              
                              2009Cash
      Flows from Operating ActivitiesNet
      (loss) earnings
                              
                              $
                              (147,998
                              )
                              
                              $
                              170,238Adjustments
      to reconcile net earnings (loss) to net cash provided by (used in)
      operating activities:Consulting
      fees paid by issuance of common stock
                              
                              
                              50,000
                              
                              
                              
                              -Depreciation
                              
                              
                              7,588
                              
                              
                              
                              8,216Expense
      paid by cashless exercise of warrants
                              
                              
                              3,172
                              
                              
                              
                              -Employee
      options vested
                              
                              
                              68,850
                              
                              
                              
                              54,354(18,388
                              )
                              
                              
                              232,808Net
      changes in assets and liabilities:Accounts
      receivable - trade
                              
                              
                              38,439
                              
                              
                              
                              (17,678
                              )Prepaid
      expenses and other assets
                              
                              
                              (37,000
                              )
                              
                              
                              8,454Government
      grants receivable
                              
                              
                              60,120
                              
                              
                              
                              -Accounts
      payable - trade
                              
                              
                              (26,801
                              )
                              
                              
                              (13,982
                              )Other
      payables and accrued expenses
                              
                              
                              49,559
                              
                              
                              
                              (76,404
                              )Billings
      in excess of costs on uncompleted contracts
                              
                              
                              (24,400
                              )
                              
                              
                              -Accrued
      severance pay
                              
                              
                              11,596
                              
                              
                              
                              (12,225
                              )Net
      Cash Provided by Operating Activities
                              
                              
                              53,125
                              
                              
                              
                              120,973Cash
      Flows from Investing ActivitiesAcquisition
      of plant and equipment
                              
                              
                              (10,036
                              )
                              
                              
                              (1,769
                              )Short-term
      investment
                              
                              
                              (5
                              )
                              
                              
                              -Net
      Cash Used in Investing Activities
                              
                              
                              (10,041
                              )
                              
                              
                              (1,769
                              )Cash
      Flows from Financing ActivitiesPayments
      to stockholder
                              
                              
                              (13,828
                              )
                              
                              
                              (6,392
                              )Proceeds
      from issuance of common stock
                              
                              
                              79,633
                              
                              
                              
                              -Net
      Cash Provided by (Used in) Financing Activities
                              
                              
                              65,805
                              
                              
                              
                              (6,392
                              )Net
      Increase in Cash
                              
                              
                              108,889
                              
                              
                              
                              112,812Cash
      - Beginning of Period
                              
                              
                              165,504
                              
                              
                              
                              169,206Cash
      - End of Period
                              
                              $
                              274,393
                              
                              
                              $
                              282,018Interest
      and Income Taxes PaidDuring
      the year, the Company had cash flows arising from income taxes and
      interest paid as follows:Interest
                              
                              $
                              21
                              
                              
                              $
                              24Income
      taxes
                              
                              $
                              -
                              
                              
                              $
                              -





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




- 3
-





M-WISE,
INC. AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


March 31,
2010 and 2009





1.
            Description
      of Business and Going Concern




a)
              Description
      of Business




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




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




b)
              Going
      Concern




The
Company's unaudited consolidated financial statements are presented on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company's negative working
capital raises substantial doubt as to its ability to continue as a going
concern. As at March 31, 2010 and December 31, 2009, the Company experienced a
working capital deficit of $320,716 and $381,116, respectively.




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




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




The
unaudited consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going
concern.


- 4
-


M-WISE,
INC. AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


March 31,
2010 and 2009




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)
              Basis
      of Presentation




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




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




b)
              Recent
      Accounting Pronouncements Affecting the
Company




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


- 5
-


M-WISE,
INC. AND SUBSIDIARIES


Notes to
Condensed Consolidated Financial Statements


March 31,
2010 and 2009




3.
            Plant
      and Equipment, net




Plant and
equipment is comprised of the following:





March
      31,
                        
                        
                        
                        
                        
                        December
      31,2010
                        
                        
                        
                        
                        
                        2009Accumulated
                        
                        
                        
                        
                        
                        AccumulatedCost
                        
                        
                        Depreciation
                        
                        
                        Cost
                        
                        
                        DepreciationFurniture
      and equipment
                        
                        $
                        73,559
                        
                        
                        $
                        43,934
                        
                        
                        $
                        73,559
                        
                        
                        $
                        42,590Computer
      equipment
                        
                        
                        185,014
                        
                        
                        
                        140,511
                        
                        
                        
                        174,978
                        
                        
                        
                        134,292Leasehold
      improvements
                        
                        
                        2,592
                        
                        
                        
                        2,384
                        
                        
                        
                        2,592
                        
                        
                        
                        2,356$
                        261,165
                        
                        
                        $
                        186,829
                        
                        
                        $
                        251,129
                        
                        
                        $
                        179,238Net
      carrying amount
                        
                        
                        
                        
                        
                        $
                        74,336
                        
                        
                        
                        
                        
                        
                        $
                        71,891




Depreciation
expenses of $6,920 (2009 - $7,584) and $668 (2009 - $632) have been included in
research and development, and general and administrative expenses,
respectively.




4.
            Advances
      from Stockholder




The
advances from the Company's major stockholder are non-interest bearing,
unsecured and have no fixed terms of repayment. According to an agreement dated
January 2003, the stockholder granted a credit facility of $500,000 to the
Company in return for all preferred class "C" shares as described in note 6. As
of March 31, 2010 and December 31, 2009, the line of credit had an outstanding
balance of $290,860 and $304,688, respectively.




5.
            Accrued
      Severance Pay




The
Company accounts for its potential severance liability of its Israeli subsidiary
in accordance with EITF 88-1, "Determination of Vested Benefit Obligation for a
Defined Benefit Pension Plan". The Company's liability for severance pay is
calculated pursuant to applicable labour laws in Israel on the most recent
salary of the employees multiplied by the number of years of employment as of
the balance sheet date for all employees. The Company's liability is fully
accrued and reduced by monthly deposits with severance pay funds and insurance
policies.  As at March 31, 2010 and December 31, 2009, the amount of
the liabilities accrued were $387,205 and $353,880, respectively. Severance pay
expenses for the three months ended March 31, 2010, and 2009 were $27,241 and
$16,444 respectively.




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


- 6
-


M-WISE,
INC. AND SUBSIDIARIES
 Notes to
Condensed Consolidated Financial Statements
 March 31,
2010 and 2009




5.
            Accrued Severance
      Pay (cont'd)




The
deposit funds include profits accumulated up to the balance sheet date from the
Israeli company. The deposited funds may be withdrawn only upon the fulfillment
of the obligation pursuant to Israeli severance pay laws or labour
agreements.  Cash surrender values of the deposit funds as of March
31, 2010, and December 31, 2009, were $248,116 and $226,387,
respectively.  Income earned from the deposit funds for 2010 and 2009
was immaterial.




6.
            Capital
      Stock




Authorized:


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


170,000,000
            Preferred
      stock


Series
      "A": convertible, voting,  par value of $0.0017 per
      share


Series
      "B": 10% non-cumulative dividend, redeemable, convertible,
      voting,  par value of $0.0017 per
  share


Series
      "C": 10% non-cumulative dividend, convertible, voting, par value of
      $0.0017 per share





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




Stock
Options and Warrants:




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





2010
                  
                  
                  2009Israel
                  
                  
                  International
                  
                  
                  Israel
                  
                  
                  InternationalExpected
      discount yield
                  
                  
                  -
                  %
                  
                  
                  -
                  %
                  
                  
                  -
                  %
                  
                  
                  -
                  %Risk-free
      interest rate
                  
                  
                  2.1
                  %
                  
                  
                  1.5
                  %
                  
                  
                  2.1
                  %
                  
                  
                  1.2
                  %Expected
      volatility
                  
                  
                  122
                  %
                  
                  
                  122
                  %
                  
                  
                  122
                  %
                  
                  
                  122
                  %Expected
      life in years
                  
                  
                  1.75
                  
                  
                  
                  3.75
                  
                  
                  
                  2
                  
                  
                  
                  4




- 7
-


M-WISE,
INC. AND SUBSIDIARIES
 Notes to
Condensed Consolidated Financial Statements
 March 31,
2010 and 2009


6.
            Capital Stock(cont'd)




Warrants:




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




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




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




Capital
Stock:




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




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




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




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




Stock
Options:




Under the
Israel 2001 Share Option Plan, management authorized stock options for
2,403,672  common shares of the Company, and under the International
2001 Share Option Plan, stock options for 300,000 common shares.  As
of March 31, 2010, 3,672 options under the Israel 2001 Share Option Plan for
common stock were not yet granted and available for future grant.




Under the
Israel 2003 Stock Option Plan, management authorized stock options (on a post
conversion, post split basis) for 16,094,106 preferred Class "B"
shares.  On January 5, 2006, the share option plan was amended to
authorize an additional 1,260,000 stock options. On August 14, 2006, the share
option plan was amended to authorize an additional 6,000,000 stock options. On
August 3, 2009, the exercise price of 5,000,000 options granted under the Israel
2003 Stock Option Plan and 11,000,000 options granted under the 2003
International Share Option Plan was amended to $0.02. As of March 31, 2010,
38,256 options under the Israel 2003 Stock Option Plan were not yet granted and
available for future grant.




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


- 8
-


M-WISE,
INC. AND SUBSIDIARIES
 Notes to
Condensed Consolidated Financial Statements
 March 31,
2010 and 2009


6.
            Capital Stock(cont'd)




Stock
Options (cont'd):




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




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




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




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




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




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




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





Year
      ended December 31, 2001
                    
                    $
                    9,000Year
      ended December 31, 2002
                    
                    
                    -Year
      ended December 31, 2003
                    
                    
                    384,889Year
      ended December 31, 2004
                    
                    
                    25,480Year
      ended December 31, 2005
                    
                    
                    13,733Year
      ended December 31, 2006
                    
                    
                    117,044Year
      ended December 31, 2007
                    
                    
                    181,622Year
      ended December 31, 2008
                    
                    
                    583,477Year
      ended December 31, 2009
                    
                    
                    207,343Three
      months ended March 31, 2010
                    
                    
                    68,850$
                    1,591,438


- 9
-


M-WISE,
INC. AND SUBSIDIARIES
 Notes to
Condensed Consolidated Financial Statements
 March 31,
2010 and 2009


6.
            Capital Stock(cont'd)




Stock
Options (cont'd):




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




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




7.
            Income
      Taxes




The
Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes" ("SFAS No.109"). This standard prescribes the use of the
liability method whereby deferred tax asset and liability account balances are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates. The effects
of future changes in tax laws or rates are not anticipated.


- 10
-


M-WISE,
INC. AND SUBSIDIARIES
 Notes to
Condensed Consolidated Financial Statements
 March 31,
2010 and 2009


7.
            Income Taxes (cont'd)




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




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




The
Company has deferred income tax assets as follows:





March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009Deferred
      income tax assetsLoss
      carryforwards
                  
                  $
                  3,065,000
                  
                  
                  $
                  3,027,000Less:
      Valuation allowance
                  
                  
                  (3,065,000
                  )
                  
                  
                  (3,027,000
                  )Total
      net deferred tax assets
                  
                  $
                  -
                  
                  
                  $
                  -




For the
three months ended March 31, 2010 and the year ended December 31, 2009, the
Company provided a valuation allowance equal to the deferred income tax assets
because it is not presently more likely than not that they will be
realized.




As of
March 31, 2010, the Company had approximately$12,038,000 tax loss
carryforwards in the United States. Tax loss carryforwards in the United States,
if not utilized, will expire in 20 years from the year of origin as
follows:




December
      31, 2020
                  
                  $
                  751,5002021
                  
                  
                  2,398,0002022
                  
                  
                  778,0002023
                  
                  
                  5,005,0002024
                  
                  
                  581,0002025
                  
                  
                  560,5002026
                  
                  
                  196,0002027
                  
                  
                  700,0002028
                  
                  
                  945,0002029
                  
                  
                  123,000$
                  12,038,000




As of
March 31, 2010, the Company had approximately $212,000 (December 31, 2009 -
$187,000)in tax
losses in its Israeli subsidiary which will carryforward
indefinitely.




- 11
-


M-WISE,
INC. AND SUBSIDIARIES
 Notes to
Condensed Consolidated Financial Statements
 March 31,
2010 and 2009


8.
            Related
      Party Transactions




For the
three months ended March 31, 2010, the Company incurred directors' consulting
fees and salaries in the amount of $34,998 (2009 - $34,998). As of March 31,
2010, $637,722 (December 31, 2009 - $623,924) was unpaid and included in other
payables and accrued expenses.




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




9.
            Significant
      Customers




For the
three months ended March 31, 2010, the Company had three major customers which
primarily accounted for 24%, 20%, and 16% of total revenues. For the three
months ended March 31, 2009, the Company had four major customers which
primarily accounted for 35%, 18%, 17% and 11% of total revenues.




10.
            Segmented
      Information




Israel
                              
                              
                              USA
                              
                              
                              Brazil
                              
                              
                              TotalGross
      revenue
                              March
      31, 2010
                              
                              $
                              228,981
                              
                              
                              $
                              685,538
                              
                              
                              $
                              -
                              
                              
                              $
                              914,519March
      31, 2009
                              
                              $
                              165,683
                              
                              
                              $
                              627,096
                              
                              
                              $
                              -
                              
                              
                              $
                              792,779Net
      income (loss)
                              March
      31, 2010
                              
                              $
                              (24,590
                              )
                              
                              $
                              (77,708
                              )
                              
                              $
                              (45,700
                              )
                              
                              $
                              (147,998
                              )March
      31, 2009
                              
                              $
                              41,504
                              
                              
                              $
                              128,734
                              
                              
                              $
                              -
                              
                              
                              $
                              170,238Total
      assets
                              March
      31, 2010
                              
                              $
                              515,718
                              
                              
                              $
                              743,420
                              
                              
                              $
                              4,300
                              
                              
                              $
                              1,263,438December
      31, 2009
                              
                              $
                              636,617
                              
                              
                              $
                              577,041
                              
                              
                              $
                              -
                              
                              
                              $
                              1,213,658




For the
three months ended March 31, 2010, the Company derived 24% (2009 - 17%) of its
revenues from sales to the Far East, 14% from sales to Europe (2009 - 16%) and
62% (2009 - 67%) from sales to America.


- 12
-





11.
            Commitments
      and Contingencies




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





2010
                        
                        $
                        61,0002011
                        
                        
                        38,400$
                        99,400




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





2010
                        
                        $
                        55,0592011
                        
                        
                        45,8522012
                        
                        
                        18,3022013
                        
                        
                        2,046$
                        121,259




Rent
expense paid during the three months ended March 31, 2010 and March 31, 2009 was
$28,504and
$22,311, respectively.




12.
            Government
      Grants




During
the year 2009, the Israeli subsidiary was authorized to receive approximately
$253,000 from the Israeli government grant program. The Israeli subsidiary is
required to pay the government agency royalties in the amount of 3% of gross
sales from the products and services being developed relating to the grant
during the initial 2 years and 3.5% per annum thereafter. As at March 31, 2010
the Company received approximately $155,346 and no royalties have been paid. The
amount was recorded as a reduction of the research and development expense
incurred in the year. The Company will complete the project in
2010.




13.
            Comparative
      Information




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


- 13
-




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




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





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





OVERVIEW





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


2





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




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





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





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


3





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




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





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





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


4





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





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





In
addition, we have strengthened our position in the US market which is still our
main market. We have initiated a focused approached to media and content
companies which we believe are ready to take advantage of the mobile space and
we expect to see the results of our efforts in the coming quarters of
2010.





For the
rest of calendar 2010, we plan to continue our expansion in the US and
Brazilian market and we plan to make our services available to many of the
global players in the mobile entertainment market and so set the foundation to
our expansion to other markets in Europe and in Latin America. We also plan to
become more involved in the creative and operational side of our clients
business and expand our role as a technology player and use our aggregated know
how and expertise to provide more solutions and services to our existing and
future clients.





Revenues





Our
revenues grew from $792,779 in the three months ended March 31, 2009 to $914,519
in the three months ended March 31, 2010 and from $2,833,626 in the year ended
December 31, 2008 to $3,166,276 in the year ended December 31, 2009. Management
believes that our efforts to refocus our resources towards building
relationships with OEMs may yield additional contracts. Although we are in
negotiations for several new contracts there can be no assurance that such
contracts will be secured or that they will generate significant revenue. We
derive revenues from product sales, licensing, revenue share, customer services
and technical support.




5


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





Customers
and customer concentration. Historically we have derived the majority of our
revenues from a small number of customers and, although our customer base is
expanding, we expect to continue to do so in the future. For the three months
ended March 31, 2010, approximately 24% of our sales were derived from sales to
Comtrend, 20% to Thumbplay and 16% to Boltcel. For the three months ended
March 31, 2009, approximately 35% of our sales were derived from sales to
Thumbplay, 18% to Arvato Mobile and 17% to Comtrend Corporation In the year
ended December 31, 2009, approximately 32% of our sales were derived from sales
to Thumbplay, 21% to Arvato Mobile and 10% to Comtrend.





Geographical
breakdown. We sell our products primarily to customers in America and Europe.
For the three months ended March 31, 2010, we derived 62% of our revenues from
sales in America, 14% from sales in Europe and 24% from sales in the Far East.
Of these revenues, 75% were derived from sales by the Company, and 25% of our
revenues were derived from sales by our subsidiary. For the three months ended
March 31, 2009, we derived 67% of our revenues from sales in America, 17% from
sales in the Far East and 16% from sales in Europe.


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





Cost
of revenues





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





Operating
expense





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





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





Financing
income and expenses





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




6


Critical
Accounting Policies.





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





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





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





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





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





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





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




7


RESULTS
OF OPERATIONS




THREE
MONTHS ENDED MARCH 31, 2010, COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2009.




Revenues.





License
fees and products. Revenues from license fees and products increased 7% to
$216,646 for the three months ended March 31, 2010, from $202,947 for the same
period in 2009. The increase is due to revenues which were derived from one
contract with one customer during 2010 that were not earned in
2009.





Revenue
share. Revenues from revenue share decreased 11% to $252,016 for the three
months ended March 31, 2010, from $284,241 for the same period in
2009.   The decrease is primarily due to a loss of one customer
during the three months ended March 31, 2010.





Customer
services and technical support. Revenues from customer services and technical
support increased 46% to $445,857 for the three months ended March 31, 2010,
from $305,591 for the same period in 2009. The increase is primarily due to an
increase in orders and corresponding demand for customer services during
2010.





Cost of
revenues.





Cost of
revenues increased 90% to $338,453 for the three months ended March 31, 2010,
from $178,365 for the same period in 2009. The increase was primarily due to
increase in revenues from customer services and technical support during the
three month period ended March 31, 2010.





Operating
expenses.





Research
and development. Research and development expenses decreased 10% to $124,540 for
the three months ended March 31, 2010, from $139,119 for the same period in
2009. This decrease was primarily due to an increase of $54,249 in government
grant income, partially offset by a $28,805 increase in payroll and related
expenses. Research and development expenses, stated as a percentage of revenues
decreased to 14% for the three months ended March 31, 2010, from 18% for the
same period in 2009.





General and
administrative.





General
and administrative expenses increased 78% to $596,366 for the three months ended
March 31, 2010, from $335,052 for the same period in 2009. This increase was
primarily due to a $71,804 increase in payroll and related expenses, a $67,638
increase in consulting expenses and a $47,827 increase in marketing expenses.
General and administrative expenses, stated as a percentage of revenues
increased to 65% for the three months ended March 31, 2010 from 42% for the same
period in 2009.





Other income
(expenses).





Our other
expenses were $3,158 for the three months ended March 31, 2010 compared with
other income of $29,995 for the same period in 2009.




8


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 $274,393 as of
March 31, 2010 and $165,504 as of December 31, 2009. Our initial capital came
from an aggregate investment of $1.3 million from Cap Ventures Ltd. To date, we
have raised an aggregate of $5,300,000 from placements of our equity securities
(including the investment by Cap Ventures and a $4,000,000 investment by Syntek
Capital AG and DEP Technology Holdings Ltd.). We have also borrowed an aggregate
of $1,800,000 from Syntek Capital AG and DEP Technology Holdings Ltd. and as of
the date of this quarterly report we have no funds available to us under bank
lines of credit. We have a credit line agreement for $500,000 with Miretzky
Holdings Limited. As of March 31, 2010, $290,860 is outstanding under the credit
line. The credit line has no termination date and does not provide for interest
payments.





Other
than the credit line agreement with Miretzky, we do not have any commitments
from any of our affiliates or current stockholders, or any other non-affiliated
parties, to provide additional sources of capital to us. We have an equity line
for $10.0 million with Dutchess Private Equity Fund and as of May 13, 2010 we
have drawn $828,675 under the Equity Line. We will need approximately $1.2
million for the next twelve months for our operating costs which mainly include
salaries, office rent and network connectivity, which we estimate will total
approximately $80,000 per month, and for working capital. We intend to finance
this amount from our ongoing sales and through the sale of either our debt or
equity securities or a combination thereof, to affiliates, current stockholders
and/or new investors. Currently we do not believe that our future capital
requirements for equipment and facilities will be material.





Operating
activities.





For the
three months ended March 31, 2010, net cash provided by operating activities was
$53,125 primarily due to a $68,850 in employee vested options expense, a $60,120
decrease in government grants receivable and a $50,000 consulting fees paid by
issuance of common stock, partially offset by our net loss of $ 147,998. In the
same period in 2009, net cash provided by operating activities was $ $120,973
primarily due to our net earnings of $170,238 and $54,354 in employee vested
options expense, partially offset by a $76,404 decrease in other payables and
accrued expenses and a $17,678 increase in accounts receivable –
trade.





Investing and financing
activities.





Property
and equipment consist primarily of computers, software, and office equipment.
For the three months ended March 31, 2010, net cash used in investing activities
was $10,041 consisting of an investment of $10,036 in equipment and a $5
increase in short-term investment. In the same period in 2009, net cash used in
investing activities was $ $1,769 consisting of an investment of $1,769 in
equipment.. For the three months ended March 31, 2010, net cash provided by
financing activities was $65,805 consisting of $79,633 proceeds from issuance of
common stock, partially offset by a $13,828 decrease in advances from
shareholders. In the same period in 2009, net cash used in financing activities
was $6,392 due to a decrease in advances from shareholders.




Dividends




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


9




Off
Balance Sheet Arrangements





None.




Item
      3.
            Quantitative
      and Qualitative Disclosures about Market
Risk




Not
applicable.




Item
      4T.
            Controls
      and Procedures




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





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




PART
II:


OTHER
INFORMATION




Item
      1.
            Legal
      Proceedings




None.




Item
      1A.
            Risk
      Factors




Not
applicable.




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




None.




Item
      3.
            Defaults
      upon Senior Securities




Not
applicable.


10




Item
      4.
            (Removed
      and Reserved)




Item
      5.
            Other
      Information




Not
applicable.




Item
      6.
            Exhibits




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




11




10.22
            
            Amendment
      to Investors' Rights Agreement dated October 2, 2003(2)10.23
            
            Appendices
      to 2003 Israel Stock Option Plan(2)10.24
            
            Appendices
      to 2001 Israel Share Option Plan(2)10.25
            
            Credit
      Line Agreement between m-Wise, Inc. and Miretzky Holdings, Limited dated
      January 25, 2004(2)10.26
            
            Termination
      and Release Agreement by and among the Company and Syntek capital AG.(3)10.27
            
            Termination
      and Release Agreement dated February 2, 2006, by and among the Company and
      DEP Technology Holdings Ltd.(4)21.1
            
            List
      of Subsidiaries(2)31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification.(1)31.2
            
            Rule
      13a-14(a)/15d-14(a) Certification.(1)32.1
            
            Certification
      by the Chairman Relating to a Periodic Report Containing Financial
      Statements.(1)32.2
            
            Certification
      by the Chief Financial Officer Relating to a Periodic Report Containing
      Financial Statements.(1)




(1)           Filed
herewith.




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




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




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




12




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.






m-Wise,
      Inc.(Registrant)Date: May
      17, 2010
                  By:
                  /s/ Mordechai
      BroudoName:
      Mordechai BroudoTitle:
      ChairmanDate: May
      17, 2010
                  By:
                  /s/ Gabriel
      KabazoName:
      Gabriel KabazoTitle:
      Chief Financial Officer and PrincipalAccounting
      Officer
  13