UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION




WASHINGTON,
      D.C. 20549




**FORM
      10-Q**




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




For
      the
      quarterly period ended June 30, 2008




o  
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, 9 th 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
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 o
            Accelerated
                filer  oNon-accelerated
                filer o(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
o No
x





The
      number of shares outstanding of the issuer's common stock, as of August 14,
      2008, was 139,322,145.





**Index**





**Page**PART
                I: FINANCIAL INFORMATION
            F-1Item
                1:
            Financial
                Statements
            F-1Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            2Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            4Item
                4T.
            Controls
                and Procedures
            4PART
                II: OTHER INFORMATION
            5Item
                1.
            Legal
                Proceedings
            5Item
                1A.
            Risk
                Factors
            5Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            5Item
                3.
            Defaults
                upon Senior Securities
            5Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            5Item
                5.
            Other
                Information
            5Item
                6.
            Exhibits
            5SIGNATURES
            8


i




**PART
      I:**


**FINANCIAL
      INFORMATION**




**Item
      1:**  **Financial
      Statements** ****




**m-Wise,
      Inc. and Subsidiary**




**CONSOLIDATED
      FINANCIAL STATEMENTS**




**THREE
      MONTHS AND SIX MONTHS ENDED JUNE 30, 2008, AND 2007**




**(UNAUDITED)**




CONTENTS





Consolidated
                Balance Sheets
            **F-2**Consolidated
                Statements of Operations
            **F-3**Consolidated
                Statements of Cash Flows
            **F-4**Notes
                to Consolidated Financial Statements
            **F-5**


F-1


**M-WISE,
      INC. AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEETS (NOTE 2)**


**AS
      OF JUNE 30, 2008, AND DECEMBER 31, 2007**


**(Unaudited)**





**June
                30,**
            
            **December
                31,****2008**
            
            **2007****ASSETS****Current
                Assets:**Cash
                and cash equivalents
            
            $
            20,382
            
            $
            365,513Accounts
                receivable - Trade (net of allowance for doubtfulaccounts
                of $ 306,915; 2007 $ 291,915)
            
            
            678,545
            
            
            710,782Prepaid
                and other assets
            
            
            41,125
            
            
            21,238Total
                current assets
            
            
            740,052
            
            
            1,097,533**Long-term
                Assets:**Long-term
                prepaid expenses
            
            
            14,285
            
            
            19,758Equipment,
                net (Note 3)
            
            
            66,593
            
            
            79,601Total
                long-term assets
            
            
            80,878
            
            
            99,359**Total
                Assets**
            
            $
            820,930
            
            $
            1,196,892**LIABILITIES
                AND STOCKHOLDERS' (DEFICIT)****Current
                Liabilities:**Bank
                indebtedness (Note 4)
            
            $
            5,403
            
            $
            -Accounts
                payable - Trade
            
            
            25,271
            
            
            36,845Other
                payables and accrued expenses (Note 5)
            
            
            970,628
            
            
            1,019,965Advances
                from stockholder (Note 6)
            
            
            315,187
            
            
            310,083Billings
                in excess of costs on uncompleted contracts
            
            
            105,873
            
            
            136,633Total
                current liabilities
            
            
            1,422,362
            
            
            1,503,526**Long-term
                Liabilities:**Accrued
                severance pay (Note 7)
            
            
            97,696
            
            
            39,916Total
                long-term liabilities
            
            
            97,696
            
            
            39,916Total
                liabilities
            
            
            1,520,058
            
            
            1,543,442**Commitments
                and Contingencies**(Note
                13)**Stockholders'
                (Deficit):**Preferred
                stock (Note 8)
            
            
            -
            
            
            -Common
                stock (Note 8)
            
            
            236,848
            
            
            236,610Additional
                paid-in capital
            
            
            11,182,209
            
            
            10,977,577Accumulated
                (deficit)
            
            
            (12,118,185
            )
            
            (11,560,737
            )Total
                stockholders' (deficit)
            
            
            (699,128
            )
            
            (346,550
            )**Total
                Liabilities and Stockholders' (Deficit)**
            
            $
            820,930
            
            $
            1,196,892





The
      accompanying notes to consolidated financial statements are


an
      integral part of these consolidated balance sheets.


F-2


**M-WISE,
      INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS (NOTE 2)**


**FOR
      THE THREE MONTHS AND SIX MONTHS ENDED**


**JUNE
      30, 2008, AND 2007**


**(Unaudited)**





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007****Net
                Sales**
            
            $
            612,584
            
            $
            426,333
            
            $
            1,295,161
            
            $
            905,199**Cost
                of Sales**
            
            
            271,615
            
            
            76,132
            
            
            504,391
            
            
            135,242**Gross
                Profit**
            
            
            340,969
            
            
            350,201
            
            
            790,770
            
            
            769,957**Expenses:**Research
                and development
            
            
            182,431
            
            
            189,492
            
            
            387,657
            
            
            379,078General
                and administrative
            
            
            495,405
            
            
            398,298
            
            
            926,787
            
            
            753,309Total
                expenses
            
            
            677,836
            
            
            587,790
            
            
            1,314,444
            
            
            1,132,387**(Loss)
                from operations**
            
            
            (336,867
            )
            
            (237,589
            )
            
            (523,674
            )
            
            (362,430
            )**Other
                (Expense):**Interest
                and other
            
            
            (10,689
            )
            
            (10,091
            )
            
            (33,774
            )
            
            (19,285
            )Total
                other (expense)
            
            
            (10,689
            )
            
            (10,091
            )
            
            (33,774
            )
            
            (19,285
            )**Provision
                for income taxes**
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Net
                (Loss)**
            
            $
            (347,556
            )
            $
            (247,680
            )
            $
            (557,448
            )
            
            (381,715
            )**Basic
                and Diluted (Loss) per Share**(Note
                8)(Loss)
                per common share - Basic and diluted
            
            $
            (0.00
            )
            
            (0.00
            )
            
            (0.00
            )
            
            (0.00
            )**Weighted
                Average Number of Common Shares****Outstanding
                - Basic and Diluted**
            
            
            139,233,478
            
            
            136,103,398
            
            
            139,207,670
            
            
            133,124,601





The
      accompanying notes to consolidated financial statements are


an
      integral part of these consolidated statements.


F-3


**M-WISE,
      INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (NOTE 2)**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008, AND 2007**


**(Unaudited)**





**Six
                Months Ended****June
                30,****2008**
            
            **2007****Operating
                Activities:**Net
                (loss)
            
            $
            (557,448
            )
            $
            (381,715
            )Adjustments
                to reconcile net (loss) to net cashprovided by (used in) operating activities:Depreciation
            
            
            22,268
            
            
            30,575Exercise
                of stock options
            
            
            -
            
            
            6,206Employee
                options vested
            
            
            201,560
            
            
            88,325Net
                changes in assets and liabilties-Accounts
                receivable - Trade
            
            
            32,237
            
            
            21,284Prepaid
                and other assets
            
            
            (19,887
            )
            
            98,187Loan
                receivable
            
            
            -
            
            
            -Accounts
                payable - Trade
            
            
            (11,574
            )
            
            27,492Other
                payables and accrued liabilities
            
            
            (49,337
            )
            
            (5,888
            )Billings
                in excess of costs on uncompleted contracts
            
            
            (30,760
            )
            
            -Long-term
                prepaid expenses
            
            
            5,473
            
            
            4,089Accrued
                severence pay
            
            
            57,780
            
            
            10,198**Net
                Cash (Used in) Operating Activities**
            
            
            (349,688
            )
            
            (101,247
            )**Investing
                Activities:**Acquisition
                of equipment
            
            
            (9,260
            )
            
            (21,570
            )**Net
                Cash (Used in) Investing Activities**
            
            
            (9,260
            )
            
            (21,570
            )**Financing
                Activities:**Advances
                from (payments to) stockholder
            
            
            5,104
            
            
            (115,352
            )Deferred
                financing fees
            
            
            -
            
            
            6,314Sale
                of common shares under Equity Financing Agreement
            
            
            3,310
            
            
            658,826Bank
                indebtedness - Net
            
            
            5,403
            
            
            (3,110
            )**Net
                Cash Provided by Financing Activities**
            
            
            13,817
            
            
            546,678**Net
                (Decrease) Increase in Cash and Cash Equivalents**
            
            
            (345,131
            )
            
            423,861**Cash
                and Cash Equivalents - Beginning of Period**
            
            
            365,513
            
            
            5,072**Cash
                and Cash Equivalents - End of Period**
            
            $
            20,382
            
            $
            428,933**Supplemental
                Disclosure of Cash Flow Information:**Cash
                paid during the period for:Interest
            
            $
            261
            
            $
            261Income
                taxes
            
            $
            -
            
            $
            -





The
      accompanying notes to financial statements


are
      an
      integral part of these consolidated statements.


F-4


**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




**1.**
            **Description
                of Business and Going
                Concern**




*Description
      of Business*




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




The
      Company’s wholly owned subsidiary, m-Wise Ltd., is located in Israel and was
      incorporated in 2000 under the laws of Israel.




*Going
      Concern*




The
      Company’s consolidated financial statements are presented on a going concern
      basis, which contemplates the realization of assets and satisfaction of
      liabilities in the normal course of business. The Company has experienced
      recurring losses since inception, and has negative cash flows from operations
      with negative working capital that raise substantial doubt as to its ability
      to
      continue as a going concern. For the six months ended June 30, 2008, the Company
      experienced net losses of $557,448 (2007 - $381,715) and a working capital
      deficit of $682,310 (December 31, 2007 - $405,993).




The
      Company is in an industry where operational fluctuation is usually higher than
      other ordinary industries. The accompanying financial statements reflect
      management’s current assessment of the impact to date of the economic situation
      on the financial position of the Company. Actual results may differ materially
      from management’s current assessment.




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




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




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




**2.**
            **Summary
                of Significant Accounting Policies**




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


F-5


**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**





*Unaudited
      Interim Financial Statements*




The
      interim financial statements of the Company as of June 30, 2008, and 2007,
      and
      for the three and six months ended June 30, 2008, and 2007, are unaudited.
      However, in the opinion of management, the interim financial statements include
      all adjustments, consisting only of normal recurring adjustments, necessary
      to
      present fairly the Company’s financial position as of June 30, 2008, and 2007,
      and the results of its operations and its cash flows for the three and six
      months ended June 30, 2008, and 2007. These results are not necessarily
      indicative of the results expected for the calendar year ending December 31,
      2008. The accompanying financial statements and notes thereto do not reflect
      all
      disclosures required under accounting principles generally accepted in the
      United States of America. Refer to m-Wise’s audited financial statements as of
      December 31, 2007, in its annual report on form 10-KSB filed
      with the SEC on April 8, 2008 for additional information, including significant
      accounting policies.




*Reporting
      Currency*




A
      majority of the Company’s revenues are generated in U.S. dollars. In addition, a
      substantial portion of the Company’s costs are incurred in U.S. dollars.
      Management has determined that the U.S. dollar will be used as the Company’s
      functional and reporting currency.




*Basis
      of Consolidation*




The
      consolidated financial statements include the operations of m-Wise Inc. and
      its
      wholly owned subsidiary. Intercompany balances and transactions have been
      eliminated in consolidation.




*Equipment
      and Depreciation*




Equipment
      is stated at cost. Depreciation is based on the estimated useful lives of the
      related assets and is provided using the undernoted annual rates and
      methods:







Furniture
                and equipment
            6-15
            %
            Straight
                lineComputer
                equipment
            33
            %
            Straight
                lineLeasehold
                improvements
            Straight
                line over the term of the lease.




*Revenue
      Recognition*




The
      Company generates revenues from product sales, licensing, customer services,
      and
      technical support.




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


F-6


**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**







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




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




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




The
      Company does not sell products with multiple deliverables. It is management’s
      opinion that EITF 00-21, “ *Revenue
      Arrangements with Multiple Deliverables,* ”
is
      not
      applicable.




*Research
      and Development Costs*




Research
      and development costs are expensed as incurred.




*Use
      of Estimates*




The
      preparation of financial statements, in conformity with generally accepted
      accounting principles in the United States of America, requires management
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.




*Concentration
      of Credit Risk*




SFAS
      No.
      105, “ *Disclosure
      of Information About Financial Instruments with Off-Balance Sheet Risk and
      Financial Instruments with Concentration of Credit Risk* ”
(“SFAS
      No. 105”), requires disclosure of any significant off-balance sheet risk and
      credit risk concentration. The Company does not have significant off-balance
      sheet risk or credit concentration. The Company maintains cash and cash
      equivalents with major Israeli financial institutions.




The
      Company provides credit to its clients in the normal course of its operations.
      Depending on their size, financial strength, and reputation, customers are
      given
      credit terms of up to 60 days. The Company carries out, on a continuing basis,
      credit checks on its clients and maintains provisions for contingent credit
      losses which, once they materialize, are consistent with management’s
      forecasts.




For
      other
      debts, the Company determines, on a continuing basis, the probable losses and
      sets up a provision for losses based on the estimated realizable value.


F-7


**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




Concentration
      of credit risk arises when a group of clients having a similar characteristic
      such that their ability to meet their obligations is expected to be affected
      similarly by changes in economic or other conditions. The Company does not
      have
      any significant risk with respect to a single client.




*Fair
      Value of Financial Instruments*




The
      estimated fair value of financial instruments has been determined by the Company
      using available market information and valuation methodologies. Considerable
      judgment is required in estimating fair value. Accordingly, the estimates may
      not be indicative of the amounts the Company could realize in a current market
      exchange. As of June 30, 2008, and December 31, 2007, the carrying amounts
      of
      cash equivalents, short-term bank deposits, trade receivables, and trade
      payables approximate their fair values due to the short-term maturities of
      these
      instruments.




*Loss
      per Common Share*




The
      Company calculates net loss per share based on SFAS No. 128, “ *Earnings
      per Share* .”
Basic
      loss per share is computed by dividing net loss attributable to the common
      stockholders by the weighted average number of common shares outstanding.
      Diluted loss per share is computed similar to basic loss per share except that
      the denominator is increased to include the number of additional common shares
      that would have been outstanding if the potential common shares had been issued
      and if the additional common shares were dilutive.




*Impact
      of Recently Issued Accounting Standards*




In
      February 2007, the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Liabilities* ”
(“SFAS
      No. 159”), which permits entities to measure many financial instruments and
      certain other items at fair value that are not currently required to be measured
      at fair value. An entity would report unrealized gains and losses on items
      for
      which the fair value option has been elected in earnings at each subsequent
      reporting date. The objective is to improve financial reporting by providing
      entities with the opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. The decision about whether to elect the
      fair value option is applied instrument by instrument, with a few exceptions;
      the decision is irrevocable; and it is applied only to entire instruments and
      not to portions of instruments. The statement requires disclosures that
      facilitate comparisons (a) between entities that choose different measurement
      attributes for similar assets and liabilities and (b) between assets and
      liabilities in the financial statements of an entity that selects different
      measurement attributes for similar assets and liabilities. SFAS No. 159 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
      year provided the entity also elects to apply the provisions of SFAS No. 157.
      Upon implementation, an entity shall report the effect of the first
      remeasurement to fair value as a cumulative-effect adjustment to the opening
      balance of retained earnings. Since the provisions of SFAS No. 159 are applied
      prospectively, any potential impact will depend on the instruments selected
      for
      fair value measurement at the time of implementation. The adoption of this
      pronouncement did not have a material impact on the Company’s financial position
      or results of operations.


F-8


**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




On
      May 2,
      2007, the FASB issued FASB Interpretation FIN No. 48-1, “ *Definition
      of Settlement in FASB Interpretation 48* ”
(“FIN
      No. 48-1”). FIN No. 48-1 amends FIN No. 48, “ *Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
      109* ,”
to
      provide guidance on how an enterprise should determine whether a tax position
      is
      effectively settled for the purpose of recognizing previously unrecognized
      tax
      benefits. The guidance in FIN No. 48-1 shall be applied upon the initial
      adoption of FIN No. 48. Accordingly, the Company has applied the provisions
      of
      FIN 48-1 effective January 1, 2007. The adoption of FIN No. 48-1 did not have
      a
      material impact on the Company’s financial position or results of operations.




In
      September 5, 2007, the FASB published Proposed FSP No. APB 14-a, “ *Accounting
      for Convertible Debt Instruments That May Be Settled in Cash upon
      Conversion* ”
(FSP
      No. APB 14”). The proposed FSP applies to convertible debt instruments that, by
      their stated terms, may be settled in cash (or other assets) upon conversion,
      including partial cash settlement, unless the embedded conversion option is
      required to be separately accounted for as a derivative under SFAS No. 133.
      Convertible debt instruments within the scope of the proposed FSP are not
      addressed by FSP No. APB 14. Therefore, the liability and equity components
      of
      convertible debt instruments within the scope of the proposed FSP shall be
      separately accounted for in a manner that will reflect the entity’s
      nonconvertible debt borrowing rate. This will require an allocation of the
      convertible debt proceeds between the liability component and the embedded
      conversion option (i.e., the equity component). The difference between the
      principal amount of the debt and the amount of the proceeds allocated to the
      liability component would be reported as a debt discount and subsequently
      amortized to earnings over the instrument’s expected life using the effective
      interest method. The Company is currently reviewing the impact, if any, of
      the
      proposed FSP if it were to be adopted.




In
      November 2007, the FASB ratified the consensus on the Emerging Issues Task
      Forces (“EITF”) Issue 07-01, “ *Accounting
      for Collaborative Arrangements* ”
(“EITF
      07-01”). EITF 07-01 requires collaborators to present the results of activities
      for which they act as the principal on a gross basis and report any payments
      received from (made to) other collaborators based on other applicable GAAP
      or,
      in the absence of other applicable GAAP, based on analogy to authoritative
      accounting literature or a reasonable, rational, and consistently applied
      accounting policy election. Further, EITF 07-01 clarified that the determination
      of whether transactions within a collaborative arrangement are part of a
      vendor-customer (or analogous) relationship subject to Issue 01-9, “ *Accounting
      for Consideration Given by a Vendor to a Customer* .”
EITF
      07-01 is effective for fiscal years beginning after December 15, 2008. The
      Company has not yet completed its evaluation of EIFT 07-01 on the consolidated
      financial position and results of operations.




In
      December 2007, FASB issued SFAS No. 141 (revised 2007), “ *Business
      Combinations* ”
(“SFAS
      No. 141(R)”). This statement replaces SFAS No. 141, “ *Business
      Combinations,* ”
and
      requires an acquirer to recognize the assets acquired, the liabilities assumed,
      including those arising from contractual contingencies, any contingent
      consideration, and any noncontrolling interest in the acquiree at the
      acquisition date, measured at their fair values as of that date, with limited
      exceptions specified in the statement. SFAS No. 141(R) also requires the
      acquirer in a business combination achieved in stages (sometimes referred to
      as
      a step acquisition) to recognize the identifiable assets and liabilities, as
      well as the noncontrolling interest in the acquiree, at the full amounts of
      their fair values (or other amounts determined in accordance with SFAS No.
      141(R)). In addition, SFAS No. 141(R)’s requirement to measure the
      noncontrolling interest in the acquiree at fair value will result in recognizing
      the goodwill attributable to the noncontrolling interest in addition to that
      attributable to the acquirer. SFAS No. 141(R) amends SFAS No. 109 to require
      the
      acquirer to recognize changes in the amount of its deferred tax benefits that
      are recognizable because of a business combination either in income from
      continuing operations in the period of the combination or directly in
      contributed capital, depending on the circumstances. It also amends SFAS No.
      142, “ *Goodwill
      and Other Intangible Assets* ”
(“SFAS
      No. 142”), to, among other things, provide guidance on the impairment testing of
      acquired research and development intangible assets and assets that the acquirer
      intends not to use. SFAS No. 141(R) applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008. The
      Company is currently assessing the potential impact that the adoption of SFAS
      No. 141(R) could have on its consolidated financial statements.


F-9


**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




In
      December 2007, the FASB issued SFAS No. 160, “ *Noncontrolling
      Interests in Consolidated Financial Statements— an amendment of Accounting
      Research Bulletin No. 51* ”
(“SFAS
      No. 160”). SFAS No. 160 establishes accounting and reporting standards for the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. It also clarifies that a noncontrolling interest in a subsidiary
      is
      an ownership interest in the consolidated entity that should be reported as
      equity in the consolidated financial statements. SFAS No. 160 also changes
      the
      way the consolidated income statement is presented by requiring consolidated
      net
      income to be reported at amounts that include the amounts attributable to both
      the parent and the noncontrolling interest. It also requires disclosure, on
      the
      face of the consolidated statement of income, of the amounts of consolidated
      net
      income attributable to the parent and to the noncontrolling interest. SFAS
      No.
      160 requires that a parent recognize a gain or loss in net income when a
      subsidiary is deconsolidated and requires expanded disclosures in the
      consolidated financial statements that clearly identify and distinguish between
      the interests of the parent owners and the interests of the noncontrolling
      owners of a subsidiary. SFAS No. 160 is effective for fiscal periods, and
      interim periods within those fiscal years, beginning on or after December 15,
      2008. The Company is currently assessing the potential impact that the adoption
      of SFAS No. 160 could have on its consolidated financial statements.




In
      February 2008, FASB issued FASB Staff Position (“FSP”) on SFAS No. 140-3,
“ *Accounting
      for Transfers of Financial Assets and Repurchase Financing
      Transactions* ”
(“FSP
      SFAS No. 140-3”). The objective of this FSP is to provide guidance on accounting
      for a transfer of a financial asset and a repurchase financing. This FSP
      presumes that an initial transfer of a financial asset and a repurchase
      financing are considered part of the same arrangement (linked transaction)
      under
      SFAS No. 140, “ *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* ”
(“SFAS
      No. 140”). However, if certain criteria are met, the initial transfer and
      repurchase financing shall not be evaluated as a linked transaction and shall
      be
      evaluated separately under SFAS No. 140. FSP SFAS No. 140-3 is effective for
      financial statements issued for fiscal years beginning after November 15, 2008,
      and interim periods within these fiscal years. Earlier application is not
      permitted. The Company is currently reviewing the effect, if any, the proposed
      guidance will have on its consolidated financial statements.


F-10





**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




In
      February 2008, FASB issued FSP SFAS No. 157-1, “ *Application
      of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
      Pronouncements That Address Fair Value Measurements for Purposes of Lease
      Classification or Measurement under Statement 13* ,”
(“FSP
      SFAS No. 157-1”). FSP SFAS No. 157-1 amends SFAS No. 157 to exclude FASB No. 13,
“ *Accounting
      for Leases* ,”
and
      other accounting pronouncements that address fair value measurements for
      purposes of lease classification or measurement under FASB No. 13. However,
      this
      scope exception does not apply to assets acquired and liabilities assumed in
      a
      business combination that are required to be measured at fair value under FASB
      No. 141, “ *Business
      Combinations* ,”
or
      FASB No. 141 (revised 2007), “ *Business
      Combinations* ,”
      regardless of whether those assets and liabilities are related to leases. This
      FSP shall be effective upon the initial adoption of SFAS No. 157.




In
      February 2008, FASB issued FSP SFAS No. 157-2, *“Effective Date of FASB
      Statement No. 157”* (“FSP SFAS No. 157-2”). FSP SFAS No. 157-2 delays the
      effective date of SFAS No. 157, “ *Fair
      Value Measurement* ”
to
      fiscal years beginning after November 15, 2008, and interim periods within
      those
      fiscal years. The Company is currently reviewing the affect, if any, the
      proposed guidance will have on its consolidated financial
      statements.




In
      March
      2008, the FASB issued FASB Statement No. 161, “ *Disclosures
      about Derivative Instruments and Hedging Activities – an amendment of FASB
      Statement 133* ”
(“SFAS
      No. 161”). SFAS No. 161 enhances required disclosures regarding derivatives and
      hedging activities, including enhanced disclosures regarding how: (a) an entity
      uses derivative instruments; (b) derivative instruments and related hedged
      items
      are accounted for under SFAS No. 133, *“Accounting
      for Derivative Instruments and Hedging Activities”* ;
      and (c)
      derivative instruments and related hedged items affect an entity’s financial
      position, financial performance, and cash flows. Specifically, SFAS No. 161
      requires:





·
            Disclosure
                of the objectives for using derivative instruments be disclosed in
                terms
                of underlying risk and accounting
                designation;


·
            Disclosure
                of the fair values of derivative instruments and their gains and
                losses in
                a tabular format;


·
            Disclosure
                of information about credit-risk-related contingent features;
                and


·
            Cross-reference
                from the derivative footnote to other footnotes in which
                derivative-related information is
                disclosed.




SFAS
      No.
      161 is effective for fiscal years and interim periods beginning after November
      15, 2008. Earlier application is encouraged. The Company does not expect the
      adoption of this pronouncement to have a material impact on its consolidated
      financial statements.




In
      April
      2008, FASB issued FASB Staff Position SFAS No. 142-3, “ *Determination
      of the Useful Life of Intangible Assets* ”
(“FSP
      SFAS No. 142-3”). FSP SFAS No. 142-3 amends the factors that should be
      considered in developing renewal or extension assumptions used to determine
      the
      useful life of a recognizable intangible asset under SFAS No. 142, “ *Goodwill
      and Other Intangible Assets* ”
(“SFAS
      No. 142”). The intent of FSP SFAS No. 142-3 is to improve the consistency
      between the useful life of a recognizable intangible asset under SFAS No. 142
      and the period of expected cash flows used to measure the fair value of the
      asset under SFAS 141(R), “ *Business
      Combinations* ,”
and
      other U.S. generally accepted accounting principles. FSP SFAS No. 142-3 is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2008, and interim periods within those fiscal years. Early adoption
      is prohibited. The Company does not anticipate that the adoption of FSP SFAS
      No.
      142-3 will have an impact on its financial position or results of operations.


F-11


**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




On
      May
      26, 2008, the FASB issued FASB Statement No. 163, “ *Accounting
      for Financial Guarantee Insurance Contracts* ”
(“SFAS
      No. 163”). SFAS No. 163 clarifies how FASB Statement No. 60, “ *Accounting
      and Reporting by Insurance Enterprises* ”
(“SFAS
      No. 60”), applies to financial guarantee insurance contracts issued by insurance
      enterprises, including the recognition and measurement of premium revenue and
      claim liabilities. It also requires expanded disclosures about financial
      guarantee insurance contracts.




The
      accounting and disclosure requirements of SFAS No. 163 are intended to improve
      the comparability and quality of information provided to users of financial
      statements by creating consistency. Diversity exists in practice in accounting
      for financial guarantee insurance contracts by insurance enterprises under
      SFAS
      No. 60, “ *Accounting
      and Reporting by Insurance Enterprises* .”
That
      diversity results in inconsistencies in the recognition and measurement of
      claim
      liabilities because of differing views about when a loss has been incurred
      under
      FASB Statement No. 5, “ *Accounting
      for Contingencies* ”
(“SFAS
      No. 5”). SFAS No. 163 requires that an insurance enterprise recognize a claim
      liability prior to an event of default when there is evidence that credit
      deterioration has occurred in an insured financial obligation. It also requires
      disclosure about (a) the risk-management activities used by an insurance
      enterprise to evaluate credit deterioration in its insured financial obligations
      and (b) the insurance enterprise’s surveillance or watch list.




SFAS
      No.
      163 is effective for financial statements issued for fiscal years beginning
      after December 15, 2008, and all interim periods within those fiscal years,
      except for disclosures about the insurance enterprise’s risk-management
      activities. Disclosures about the insurance enterprise’s risk-management
      activities are effective the first period beginning after issuance of SFAS
      No.
      163. Except for those disclosures, earlier application is not permitted. The
      Company does not expect the adoption of this pronouncement to have a material
      impact on its consolidated financial statements.


F-12




**M-WISE,
        INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2008, AND 2007**
 **(UNAUDITED)**


**3.**
            **Equipment,
                net**




Equipment,
      net is comprised of the following:




**June 30,**
            
            
            
            December 31,**2008**
            
            
            
            2007**Accumulated**
            
            
            
            Accumulated**Cost**
            
            **Depreciation**
            
            Cost
            
            DepreciationFurniture
                and equipment
            
            **$**
            **57,491**
            
            **$**
            **(33,989**
            **)**
            $
            63,832
            
            $
            (38,311
            )Computer
                equipment
            
            
            **136,460**
            
            
            **(93,967**
            **)**
            
            342,755
            
            
            (289,841
            )Leasehold
                improvements
            
            
            **2,592**
            
            
            **(1,994**
            **)**
            
            2,592
            
            
            (1,426
            )**$**
            **196,543**
            
            **$**
            **(129,950**
            **)**
            $
            409,179
            
            $
            (329,578
            )**$**
            **66,593**
            
            
            
            
            $
            79,601




Depreciation
      expenses during the six months ended June 30, 2008, of $20,298 (June 30, 2007
      -
      $29,188) and $1,970 (June 30, 2007 - $1,387) have been included in research
      and
      development, and general and administrative expenses, respectively.




**4.**
            **Bank
                Indebtedness**




The
      Company’s Israel subsidiary has an overdraft facility of $15,000, bearing
      interest at 9.26% per annum. The line of credit is unsecured. As of June 30,
      2008, bank indebtedness was $5,403 (December 31, 2007 - $0).




**5.**
            **Other
                Payables and Accrued
                Expenses**




Other
      payables and accrued expenses consisted of the following as of June 30, 2008
      and
      December 31, 2007 respectively:





**2008**
            
            2007Employee
                payroll accruals
            
            **$**
            **564,136**
            
            $
            538,349Accrued
                payroll taxes
            
            
            **29,005**
            
            
            32,820Accrued
                expenses
            
            
            **377,487**
            
            
            448,796**$**
            **970,628**
            
            $
            1,019,965




F-13


**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




**6.**
            **Advances
                from Stockholders**




The
      advances from the Company’s major stockholder are non-interest bearing and have
      no fixed terms of repayment. According to an agreement dated January 2003,
      a
      stockholder granted a credit facility of $500,000 to the Company in return
      for
      preferred class “C” shares as described in Note 8. As of June 30, 2008, and
      December 31, 2007, the line of credit had an outstanding balance of $315,187
      and
      $310,083, respectively.




**7.**
            **Accrued
                Severance Pay**




The
      Company accounts for its potential severance liability of its Israel subsidiary
      in accordance with EITF 88-1, “ *Determination
      of Vested Benefit Obligation for a Defined Benefit Pension Plan* .”
The
      Company’s liability for severance pay is calculated pursuant to applicable labor
      laws in Israel on the most recent salary of the employees multiplied by the
      number of years of employment as of the balance sheet date for all employees.
      The Company’s liability is fully accrued and reduced by monthly deposits with
      severance pay funds and insurance policies. As of June 30, 2008, and December
      31, 2007, the amount of the liabilities accrued were $268,072 and $169,335,
      respectively. Severance pay expenses for the six months ended June 30, 2008,
      and
      2007 were $90,143 and $31,792 respectively.




The
      deposit funds include profits accumulated up to the balance sheet date from
      the
      Israeli company. The deposited funds may be withdrawn only upon the fulfillment
      of the obligation pursuant to Israeli severance pay laws or labor agreements.
      Cash surrender values of the deposit funds as of June 30, 2008, and December
      31,
      2007, were $170,376 and $129,419, respectively. Income earned from the deposit
      funds for 2008, and 2007, was immaterial.




**8.**
            **Capital
                Stock**




Authorized:


210,000,000
            Common
                shares, par value $0.0017 per share


170,000,000
            Preferred
                shares Series
              “A”: convertible, voting, par value of $0.0017 per
              share Series
              “B”: 10% non-cumulative dividend, redeemable,convertible, voting, par
              value of $0.0017 per share Series
              “C”: 10% non-cumulative dividend, convertible, voting, par value of
              $0.0017 per share




**June 30,**
            
            December 31,Issued:
            
            **2008**
            
            2007139,322,145
                Common stock (2007 - 139,182,145)
            
            **$**
            **236,848**
            
            $
            236,610




F-14





**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




Stock
      Options and Warrants:




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





**2008**
            
            2007**Israel**
            
            **International**
            
            Israel
            
            InternationalInterest
                rate
            
            
            **4.5**
            **%**
            
            **4.5**
            **%**
            
            4.5
            %
            
            4.5
            %Expected
                volatility
            
            
            **80**
            **%**
            
            **80**
            **%**
            
            80
            %
            
            80
            %Expected
                life in years
            
            
            **3**
            
            
            **5**
            
            
            4
            
            
            6




Warrants:




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




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




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




On
      April
      4, 2007, 505,732 of the above warrants have been converted into common shares
      and the number of warrants outstanding as of June 30, 2008, was
      6,520,046.




On
      December 22, 2005, the Company entered into an agreement with Syntek Capital
      AG,
      as part of the agreement for conversion of the note payable into common shares,
      whereby the Company issued warrants to purchase up to 5,263,158 common shares
      of
      the Company at an exercise price of $0.19. As of June 30, 2008, the warrants
      had
      not been converted into shares of common stock.




On
      February 2, 2006, the Company entered into an identical agreement with DEP
      Technology Holdings Ltd. The value assigned to the warrants was $ 218,114.
      As of
      June 30, 2008, the warrants had not been converted into shares of common
      stock.


F-15





**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




Capital
      Stock:




In
      January 2003, the Company issued 4,297,816 common shares, equivalent to
      25,786,896 after the six-for-one forward stock split, for $250,000 of offering
      costs with regard to the registration of its securities with the Securities
      and
      Exchange Commission. In November 2003, it was agreed upon by the parties that
      the fair value of the offering costs was only $60,000 and therefore 19,786,896
      of the post-split shares were forfeited. The offering costs have been charged
      to
      professional services expense in the year.




In
      January 2003, the Company issued 6,315,258 Class “C” preferred shares to a
      stockholder for providing a non-interest bearing credit line facility of
      $300,000. These shares were issued at par value, which approximates the fair
      market value of the financing fees relating to the credit line facility. As
      of
      June 30, 2008, the line of credit had an outstanding balance of $315,187. The
      6,315,258 Class “C” preferred shares were subsequently converted into 37,891,548
      common shares post forward stock split.




On
      November 19, 2003, the Company, in accordance with the holders, agreed to
      convert all the 268,382 Class “A,” 489,456 Class “B,” and 6,315,258 Class “C”
preferred shares into common shares. Following the conversion, the Company
      granted a six-for-one forward stock split of its common shares. The conversion
      has been recorded prospectively in the consolidated financial statements, while
      the forward stock split has been recorded retroactively.




On
      July
      29, 2005, the Company issued 5,000,000 shares of common stock, at par value,
      to
      its Chief Financial Officer as compensation for services rendered from September
      2002 to December 2005. It was agreed upon by the parties that the fair value
      of
      such services was $500,000, all of which has been charged to wage
      expense.




On
      March
      8, 2006, the Company issued 12,400,448 shares of common stock for repayment
      of
      the $1,744,910 note payable to Syntek Capital AG (“Syntek”) and
      DEP.




On
      April
      28, 2006, the Company issued 2,818,182 shares of common stock to its external
      consultant in exchange for consulting services. It was agreed upon by the
      parties that the fair value of such services was $310,000. As of December 31,
      2006, $206,667 had been charged to consulting expense and $103,333 had been
      deferred and will be amortized over the term of the contract. The balance of
      $103,333 has been amortized and charged to consulting expense in
      2007.




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


F-16





**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




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




On
      May
      29, 2008, 140,000 common shares have been issued under the DPEF equity financing
      agreement for $3,310.




Stock
      Options:




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




Under
      the
      Israel 2001 Share Option Plan, management authorized stock options for 2,403,672
      common shares of the Company having a $0.0017 nominal par value each and an
      exercise price of $0.0017, and under the International 2001 Share Option Plan,
      stock options for 300,000 common shares having a $0.0017 nominal par value
      each
      and an exercise price of $0.0017. As of June 30, 2008, 3,672 options under
      the
      Israel 2001 Share Option Plan for common stock were not yet
      granted.




Under
      the
      Israel 2003 Share Option Plan, management authorized stock options (on a post
      conversion, post split basis) for 16,094,106 preferred Class “B” shares, which
      were converted to options for common shares of the Company having a $0.0017
      nominal par value each and an exercise price of $0.0017, and under the
      International 2003 Share Option Plan stock options (on a post conversion, post
      split basis) for 25,061,094 preferred Class “B” shares which were converted to
      options for common shares of the Company having a $0.0017 nominal par value
      each
      and an exercise price of $0.0017. On January 5, 2006, the share option plan
      was
      amended to authorize an additional 1,260,000 stock options and the exercise
      price per share for the new options will be $0.12 for options granted after
      January 5, 2006. On August 14, 2006, the share option plan was amended to
      authorize an additional 6,000,000 stock options at an exercise price of $0.04.
      On June 16, 2008, the exercise price of 17,080,000 options granted under Israel
      Stock Option (2003) and 15,750,000 options granted under the International
      Stock
      Option Plan (2003) was amended to $0.03. As of June 30, 2008, 38,256 options
      under the Israel 2003 Share Option Plan were not yet granted.




On
      January 12, 2006, 1,260,000 stock options under the Israel 2003 Share Option
      Plan were granted at an exercise price of $0.12. On June 6, 2006, the exercise
      price was amended to $0.05. The compensation cost has been revalued as if the
      option plan has been cancelled and reissued.




On
      August
      14, 2006, 6,000,000 stock options under the Israel 2003 Share Option Plan were
      granted at an exercise price of $0.04.




On
      November 1, 2006, 700,000 stock options under the Israel 2003 Share Option
      Plan
      were granted at an exercise price of $0.04.




On
      November 27, 2006, 10,000,000 stock options under the International 2003 Share
      Option Plan were granted at an exercise price of $0.08.


F-17





**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




On
      November 27, 2006, 2,500,000 stock options under the Israel 2003 Share Option
      Plan were granted at an exercise price of $0.08.




On
      December 1, 2006, 200,000 stock options under the Israel 2003 Share Option
      Plan
      were granted at an exercise price of $0.05.




On
      January 16, 2007, 1,250,000 stock options at an exercise price of $0.08 and
      280,000 stock options at an exercise price of $0.05 were granted, all under
      the
      Israel 2003 Share Option Plan.




In
      February 2007, 872,864 stock options under the Israel 2001 Share Option Plan
      were exercised.




In
      March
      2007, 1,586,782 stock options under the Israel 2003 Share Option Plan, and
      400,000 stock options under the Israel 2001 Share Option Plan were
      exercised.




On
      June
      22 2007, 132,914 stock options under the Israel 2003 Share Option Plan, and
      168,213 stock options under the Israel 2001 Share Option Plan were
      exercised.




On
      June
      29, 2007, 180,000 stock options at an exercise price of $0.13 were granted
      under
      the Israel 2003 Share Option Plan.




On
      July
      1, 2007, 103,230 stock options under the Israel 2003 Share Option Plan were
      exercised.




On
      September 14, 2007, 500,000 stock options at an exercise price of $0.11 were
      granted under the International 2003 Share Option Plan.




On
      December 14, 2007, 5,500,000 stock options at an exercise price of $0.09 were
      granted under the Israel 2003 Share Option Plan.




On
      December 16, 2007, 400,000 stock options at an exercise price of $0.09 were
      granted under the Israel 2003 Share Option Plan.




On
      December 14, 2007, 5,250,000 stock options at an exercise price of $0.09 were
      granted under the International 2003 Share Option Plan.




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




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




The
      options vest gradually over a period of four years from the date of grant for
      Israel and 10 years (no less than 20% per year for five years for options
      granted to employees) for the International Plan. The term of each option shall
      not be more than eight years from the date of grant in Israel and 10 years
      from
      the date of grant in the International Plan. The outstanding options that have
      vested have been expensed in the consolidated statements of operations as
      follows:


F-18





**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**





Year
                ended December 31,2001
            
            $
            9,0002002
            
            
            -2003
            
            
            384,8892004
            
            
            25,4802005
            
            
            13,7332006
            
            
            117,0442007
            
            
            181,622Six
                months ended June 30, 2008
            
            
            201,560$
            933,328




The
      following table summarizes the activity of common stock options during the
      six
      months ended June 30, 2008, and year ended December 31, 2007:





**June 30, 2008**
            
            December 31, 2007**Israel**
            
            **International**
            
            Israel
            
            InternationalOutstanding,
                beginning of period
            
            
            **18,209,767**
            
            
            **16,776,797**
            
            
            14,233,508
            
            
            11,026,797Granted
            
            
            **-**
            
            
            **500,000**
            
            
            7,610,000
            
            
            5,750,000Exercised
            
            
            **-**
            
            
            **-**
            
            
            (3,264,003
            )
            
            -Forfeited
            
            
            **(510,000**
            **)**
            
            **(500,000**
            **)**
            
            (369,738
            )
            
            -Outstanding,
                end of period
            
            
            **17,699,767**
            
            
            **16,776,797**
            
            
            18,209,767
            
            
            16,776,797Weighted
                average fair value of options granted during the period
            
            **$**
            **-**
            
            **$**
            **0.0552**
            
            $
            0.0575
            
            $
            0.0595Weighted
                average exercise price of common stock options, beginning of
                period
            
            **$**
            **0.0493**
            
            **$**
            **0.0792**
            
            $
            0.0217
            
            $
            0.0727Weighted
                average exercise price of common stock options granted in the
                period
            
            **$**
            **-**
            
            **$**
            **0.0900**
            
            $
            0.0878
            
            $
            0.0917Weighted
                average exercise price of common stock options, end of
                period
            
            **$**
            **0.0307**
            
            **$**
            **0.0330**
            
            $
            0.0493
            
            $
            0.0792Weighted
                average remaining contractual life of comon stock options
            
            
            **3
                years**
            
            
            **5
                years**
            
            
            4
                year
            
            
            6
                years




F-19





**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




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




**9.**
            **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.




Under
      SFAS No. 109, income taxes are recognized for the following: a) amount of taxes
      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.




The
      Company has deferred income tax assets as follows:





**2008**
            
            2007Loss
                carryforwards
            
            **$**
            **2,910,000**
            
            $
            2,686,000Less
                - Valuation allowance
            
            
            **(2,910,000**
            **)**
            
            (2,686,000
            )Total
                net deferred tax assets
            
            **$**
            **-**
            
            $
            -




For
      the
      six months ended June 30, 2008, and 2007, 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.




F-20





**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




As
        of
        June 30, 2008, the Company had approximately $11,640,000 in tax loss
        carryforwards in the United States, and insignificant tax losses in its Israeli
        subsidiary. 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
            
            $
            909,5002021
            
            
            2,398,0002022
            
            
            778,0002023
            
            
            5,005,0002024
            
            
            581,0002025
            
            
            560,5002026
            
            
            196,0002027
            
            
            700,0002028
            
            
            512,000$
            11,640,000




**10.**
            **Related
                Party Transactions**




During
      the six months ended June 30, 2008, the Company incurred directors’ consulting
      fees and salaries in the amount of $69,996 (2007 - $77,000). As of June 30,
      2008, $515,396 (December 31, 2007 - $486,098) 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 parties mentioned above.




**11.**
            **Major
                Customers**




For
      the
      six months ended June 30, 2008, the Company had three major customers which
      primarily accounted for 51%, 13%, and 10% of the total revenues. For the six
      months ended June 30, 2007, the Company had three major customers which
      accounted for 54%, 16%, and 10% of the total revenues.


F-21





**M-WISE,
      INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008, AND 2007**


**(UNAUDITED)**




**12.**
            **Segment
                Information**




Israel
            
            USA
            
            TotalGross
                revenueJune
                30, 2008
            
            $
            25,286
            
            $
            1,269,875
            
            $
            1,295,161June
                30, 2007
            
            
            10,757
            
            
            894,442
            
            
            905,199Net
                lossJune
                30, 2008
            
            
            (45,698
            )
            
            (511,750
            )
            
            (557,448
            )June
                30, 2007
            
            
            (64,992
            )
            
            (316,723
            )
            
            (381,715
            )Total
                assetsJune
                30, 2008
            
            
            124,940
            
            
            695,990
            
            
            820,930December
                31, 2007
            
            
            129,816
            
            
            1,067,076
            
            
            1,196,892




For
      the
      six months ended June 30, 2008, the Company derived 7% (2007, 10%) of its
      revenues from sales to the Far East, 22% from sales to Europe (2007, 7%), and
      71% (2007, 83%) from sales to America.




**13.**
            **Commitments**




The
      Company was committed under an operating lease for its premises which expired
      June 30, 2008. Minimum annual payments (exclusive of taxes, insurance, and
      maintenance costs) under the lease amount to $54,000. On June 30, 2008, the
      lease was renewed and expires June 30, 2010. Under the new agreement, minimum
      annual payments (exclusive of taxes, insurance, and maintenance costs) under
      the
      lease amount to $90,000.




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





2009
            
            $
            87,6902010
            
            
            51,3302011
            
            
            13,590$
            152,610




Rent
      expense paid during the six months ended June 30, 2008, and 2007, amounted
      to
      $43,905 and $33,504, respectively.


F-22






**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.
 
 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 year 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 prefered 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.
 In
        calendar year 2007, we have been able to acquire prestige and market leaders
        customers and strengthen the profit share model that we have 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 have also
        strengthen the relationship 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 see that the business shift made in 2005
        from
        a license model to profit share model is starting to bear the desired fruits
        by
        generating a stable business environment for recurring revenues and consistently
        increasing profitability. In 2007 we made considerable business development
        investments in the penetration into the US market and the establishment of
        a
        local sales and marketing presence. We are
        starting to see positive results for these efforts in Calendar 2008 in a
        manner
        that will ensure the continuous growth of the company.
 
 **Revenues**
 
 Our
        revenues grew from $905,199 in the six months ended June 30, 2007 to 1,295,161
        in the six months ended June 30, 2008 and from $2,230,264 in the year ended
        December 31, 2006 to $2,295,260 in the year ended December 31, 2007. Management
        believes that our efforts to refocus our resources towards building
        relationships with
        OEMs may yield additional contracts. Although we are in negotiations for
        several
        new contracts there can be no assurance that such contracts will be secured
        or
        that they will generate significant revenue. We derive revenues from product
        sales, licensing, revenue share, customer services and technical
        support.
 
 When
        we
        license our MOMA Platform solutions to our customers, we generate revenues
        by
        receiving a license payment, ongoing support fees which are typically 15%
        of the
        annual license payment, and professional service fees which are generated
        from
        our customers’ request for additional training, IT administration and tailoring
        of our products for their specific needs. When we license our products to
        our
        customers, we install our product at a location specified by our client.
        We also
        derive revenue through our hosted services, whereby we enable customers to
        remotely use features of our MOMA Platform (such as a mobile content sales
        and
        delivery service for ring tones and color images), which is installed and
        hosted
        at our location, and receive a set-up fee for launching the services for
        them,
        as well as a portion of our customer's revenues generated through our platform.
        When we provide hosted services, we maintain the MOMA Platform at our location
        on behalf of our customer.
 
 Customers
        and customer concentration. Historically we have derived the majority of
        our
        revenues from a small number of customers and, although our customer base
        is
        expanding, we expect to continue to do so in the future. For the six months
        Ended June 30, 2008, approximately 51% of our sales were derived from sales
        to
        Thumbplay, 13% to mBlox and 10% to Arvato Mobile. In the year ended December
        31,
        2007, approximately 46% of our sales were derived from sales to Thumbplay,
        14%
        to Comtrend Corporation and 13% to Supportcomm.
 
 Geographical
        breakdown. We sell our products primarily to customers in America and Europe.
        For the six months Ended June 30, 2008, we derived 71% of our revenues from
        sales in America, 22% from sales in Europe and 7% from sales in the Far East.
        For the year ended December 31, 2007, we derived 65% of our revenues from
        sales
        in America, 17% from sales in Europe and 18% from sales in the Far East.
        Of
        these revenues, 98% were derived from sales by the Company, and 2% of our
        revenues were derived from sales by our subsidiary.
 
 **Cost
        of revenues**
 
 Customer
        services and technical support cost of revenues consist of the salary and
        related costs for our technical staff that provide those services and support
        and related overhead expenses.
 
 **Operating
        expense**
 
 Research
        and development. Our research and development expenses consist primarily
        of
        salaries and related expenses of our research and development staff, as well
        as
        subcontracting expenses. All research and development costs are expensed
        as
        incurred except equipment purchases that are depreciated over the estimated
        useful lives of the assets.
 
 General
        and administrative. Our general and administrative expenses consist primarily
        of
        salaries and related expenses of our executive, financial, administrative
        and
        sales and marketing staff. These expenses also include costs of professional
        advisors such as legal and accounting experts, depreciation expenses as well
        as
        expenses related to advertising, professional expenses and participation
        in
        exhibitions and tradeshows.
 
 **Financing
        income and expenses**
 
 Financing
        income consists primarily of interest earned on our cash equivalents balances
        and other financial investments and foreign exchange gains. Financing expenses
        consist primarily of interest payable on bank loans and foreign exchange
        losses.
 
 Critical
        Accounting Policies.
 
 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.




2




RESULTS
        OF OPERATIONS
  ***THREE*** ***MONTHS ENDED JUNE 30, 2008, COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
          2007.***
 
 Revenues
 
 License
          fees and products. Revenues from license fees and products were $99,999
          for the
          three months ended June 30, 2008 and $99,999 for the same period in 2007.
 
 Revenue
          share. Revenues from revenue share increased 89% to $173,849 for the three
          months ended June 30, 2008 from $92,179 for the same period in 2007. The
          increase is primarily due to revenues received from current customers who
          were
          not our customers during 2007 and from customers that did not previously
          generate revenues from selling services to end users.
 
 Customer
          services and technical support. Revenues from customer services and technical
          support increased 45% to $338,736 for the three months ended June 30, 2008
          from
          $234,155 for the same period in 2007.
 
 Cost
          of revenues.
 
 Cost
          of
          revenues increased 257% to $271,615 for the three months ended June 30,
          2008
          from $76,132 for the same period in 2007. The increase was primarily due
          to
          higher costs associated with our revenue share income.
 
 Operating
          expenses.
 
 Research
          and development. Research and development expenses decreased 4% to $182,431
          for
          the three months ended June 30, 2008 from $189,492 for the same period
          in 2007.
          This decrease was primarily due to a $9,139 decrease in payroll and related
          expenses. Research and development expenses, stated as a percentage of
          revenues
          decreased to 30% for the three months ended June 30, 2008 from 44% for
          the same
          period in 2007.
 
 General
          and administrative.
 
 General
          and administrative expenses increased 24% to $495,405 for the three months
          ended
          June 30, 2008 from $398,298 for the same period in 2007. This increase
          was
          primarily due to a $82,334 increase in payroll and related expenses and
          a
          $18,079 increase in travel expenses, partially offset by a $14,447 decrease
          in
          professional services expenses. General and administrative expenses, stated
          as a
          percentage of revenues, decreased to 81% for the three months ended June
          30,
          2008 from 93% for the same period in 2007.
 
 Financing
          expenses.
 
 Our
          financing expenses increased 6% to $10,689 for the three months ended June
          30,
          2008 from $10,091 for the same period in 2007.
  ***SIX
        MONTHS ENDED JUNE 30, 2008, COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
        2007.***
  Revenues
 
 License
        fees and products. Revenues from license fees and products increased 34%
        to
        $267,518 for the six months ended June 30, 2008 from $199,998 for the same
        period in 2007. This increase in revenues of $67,520 was derived from a new
        customer.
 
 Revenue
        share. Revenues from revenue share increased 62% to $378,647 for the six
        months
        ended June 30, 2008 from $233,450 for the same period in 2007. The increase
        is
        primarily due to revenues received from current customers who were not our
        customers during 2007 and from customers that did not previously generate
        revenues from selling services to end users.
  Customer
      services and technical support. Revenues from customer services and technical
      support increased 38% to $648,996 for the six months ended June 30, 2008, from
      $471,751 for the same period in 2007.


Cost
      of revenues.





Cost
      of
      revenues increased 273% to $504,391 for the six months ended June 30, 2008,
      from
      $135,242 for the same period in 2007. The increase was primarily due to higher
      costs associated with our revenue share income.





Operating
      expenses.





Research
      and development. Research and development expenses increased 2% to $387,657
      for
      the six months ended June 30, 2008, from $379,078 for the same period in 2007.
      This increase was primarily due to a $21,033 increase in payroll and related
      expenses, partially offset by a $10,224 decrease in subcontractors expenses.
      Research and development expenses, stated as a percentage of revenues, decreased
      to 30% for the six months ended June 30, 2008, from 42% for the same period
      in
      2007.





General
      and administrative.





General
      and administrative expenses increased 23% to $926,787 for the six months ended
      June 30, 2008, from $753,309 for the same period in 2007. This increase was
      primarily due to a $191,044 increase in payroll and related expenses and a
      $25,921 increase in travel expenses, partially offset by a $70,110 decrease
      in
      consulting expenses. General and administrative expenses, stated as a percentage
      of revenues, decreased to 72% for the six months ended June 30, 2008, from
      83%
      for the same period in 2007.





Financing
      expenses.





Our
      financing expenses increased 75% to $33,774 for the six months ended June 30,
      2008, from $19,285 for the same period in 2007.




3




**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 $20,382
        as of
        June 30, 2008, and $365,513 as of December 31, 2007. Our initial capital
        came
        from an aggregate investment of $1.3 million from Cap Ventures Ltd. To date,
        we
        have raised an aggregate of $5,300,000 from placements of our equity securities
        (including the investment by Cap Ventures and a $4,000,000 investment by
        Syntek
        Capital AG and DEP Technology Holdings Ltd.). We have also borrowed an aggregate
        of $1,800,000 from Syntek Capital AG and DEP Technology Holdings Ltd. and
        as of
        the date of this quarterly report we have no funds available to us under
        bank
        lines of credit. We have a credit line agreement for $500,000 with Miretzky
        Holdings Limited. As of June 30, 2008, $315,187 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 August 14,
        2008,
        we have drawn $828,675 under the Equity Line. We will need approximately
        $1.2
        million for the next twelve months for our operating costs which mainly include
        salaries, office rent, and network connectivity, which we estimate
        will total approximately $80,000 per month, and for working capital. We
        intend to finance this amount from our ongoing sales and through the sale
        of
        either our debt or equity securities or a combination thereof, to affiliates,
        current stockholders, and/or new investors. Currently, we do not believe
        that
        our future capital requirements for equipment and facilities will be
        material.


Operating
      activities.





For
      the
      six months ended June 30, 2008, net cash used in operating activities was
      $349,688 primarily due to our net loss of $557,448 and a $49,337 decrease in
      other payables and accrued liabilities, partially offset by a $201,560 in
      employee vested options expense and a $57,780 increase in accrued severance
      pay.
      In the same period in 2007, net cash used in operating activities was $101,247
      primarily due to our net loss of $381,715, partially offset by a $98,187
      decrease in prepaid and sundry assets, a $88,325 in employee vested options
      expense, and a $30,575 in depreciation expenses.





Investing
      and financing activities.





Property
      and equipment consist primarily of computers, software, and office equipment.
      For the six months ended June 30, 2008, net cash used in investing activities
      was $9,260 consisting of an investment in equipment. In the same period in
      2007,
      net cash used in investing activities was $21,570 consisting of an investment
      in
      equipment. For the six months ended June 30, 2008, net cash provided by
      financing activities was $13,817 primarily due to a $5,403 increase in bank
      indebtedness and a $5,104 increase in advances from shareholders. In the same
      period in 2007, net cash provided by financing activities was $546,678 primarily
      due to a $658,826 sale of common shares under equity financing agreement,
      partially offset by a $115,352 decrease in advances from
      shareholders.




**Dividends.**




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





**Off
      Balance Sheet Arrangements**





None.




**Item
      3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**




Not
      applicable.




**Item
      4T.**  **Controls
      and Procedures**




With
      the
      participation of management, our Chief Executive Officer and Chief Financial
      Officer evaluated our disclosure controls and procedures 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 Securities Exchange Act of
      1934,
      as amended.




4




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




**PART
      II:**


**OTHER
      INFORMATION**




**Item
      1.**  **Legal
      Proceedings** ****




None.




**Item
      1A.**  **Risk
      Factors**




Not
      applicable.




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




None.




**Item
      3.**  **Defaults
      upon Senior Securities**




Not
      applicable.




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




Not
      applicable.




**Item
      5.**  **Other
      Information**




Not
      applicable.




**Item
      6.**  **Exhibits** ****




**Exhibit
                No.**
            
            **Description**3.1
            
            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)




5




10.3
            
            Amended
                and Restated Employment Agreement with Shay
                Ben-Asulin(2)10.4
            
            Amendment
                to Amended and Restated Employment Agreement with Shay
                Ben-Asulin(2)10.5
            
            Employment
                Agreement, Gabriel Kabazo(2)10.6
            
            Confidentiality
                Rider to Gabriel Kabazo Employment
                Agreement(2)10.7
            
            Employment
                Agreement Asaf Lewin(2)10.8
            
            2003
                International Share Option Plan(2)10.9
            
            Form
                of Option Agreement, 2003 International Share Option
                Plan(2)10.10
            
            2001
                International Share Option Plan(2)10.11
            
            Form
                of Option Agreement, 2001 International Share Option
                Plan(2)10.12
            
            2003
                Israel Stock Option Plan(2)10.13
            
            Form
                of Option Agreement, 2003 Israel Stock Option
                Plan(2)10.14
            
            2001
                Israel Share Option Plan(2)10.15
            
            Form
                of Option Agreement, 2001 Israel Share Option
                Plan(2)10.16
            
            Investors'
                Rights Agreement dated January 11, 2001(2)10.17
            
            Stockholders
                Agreement(2)10.18
            
            Agreement
                for Supply of Software and Related Services dated October 14, 2002,
                by and
                between i Touch plc and m-Wise, Inc.(2)10.19
            
            Purchase
                Agreement between m-Wise, Inc. and Comtrend Corporation dated May
                22,
                2002(2)10.20
            
            Amended
                and Restated Consulting agreement between Hilltek Investments Limited
                and
                m-Wise dated November 13, 2003(2)10.21
            
            Consulting
                Agreement between Hilltek Investments Limited and m-Wise dated June
                24,
                2003, subsequently amended (see Exhibit 10.20 above)(2)10.22
            
            Amendment
                to Investors' Rights Agreement dated October 2,
                2003(2)10.23
            
            Appendices
                to 2003 Israel Stock Option Plan(2)10.24
            
            Appendices
                to 2001 Israel Share Option Plan(2)10.25
            
            Credit
                Line Agreement between m-Wise, Inc. and Miretzky Holdings, Limited
                dated
                January 25, 2004(2)10.26
            
            Termination
                and Release Agreement by and among the Company and Syntek capital
                AG.(3)10.27
            
            Termination
                and Release Agreement dated February 2, 2006, by and among the Company
                and
                DEP Technology Holdings Ltd.(4)21
            
            List
                of Subsidiaries(2)31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification.(1)31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification.(1)




6




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.




7




**SIGNATURES**




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




**m-Wise,
                Inc.**
              (Registrant)Date: August
                14, 2008
            By:
            /s/ Mordechai
                BroudoName:
                Mordechai Broudo
              Title:
                Chairman




Date: August
                14, 2008
            By:
            /s/ Gabriel
                KabazoName:
                Gabriel Kabazo
              Title:
                Chief Financial Officer and Principal Accounting
                Officer




8