UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION




WASHINGTON,
      D.C. 20549




**FORM
      10-Q**




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




For
      the
      quarterly period ended March 31, 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,
      I****nc.**


(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 filero
            Accelerated
                fileroNon-accelerated
                filero(Do not check if a smaller reporting company)
            Smaller
                reporting companyx





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 May 14, 2008
      was 139,182,145.





**Index**




**Page**PART
              I: FINANCIAL INFORMATION
            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 ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**





**Page**Consolidated
                Balance Sheets
            F-1Consolidated
                Statements of Operations
            F-2Consolidated
                Statements of Cash Flows
            F-3Notes
                to Consolidated Financial Statements
            F-4


1




**M-WISE,
        INC. AND SUBSIDIARY**
 **CONSOLIDATED
        BALANCE SHEETS (NOTES 1 AND 2)**
 **AS
        OF MARCH 31, 2008, AND DECEMBER 31, 2007**
  **2008**
                **(Unaudited)**
              
              **2007**
                **(Audited)****ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              108,545
              
              $
              365,513Accounts
                  receivable - Trade (net of allowance for doubtful accounts of $
                  291,915;
                  2007 $ 291,915)
              
              
              757,842
              
              
              710,782Prepaid
                  and other assets
              
              
              19,377
              
              
              21,238Total
                  current assets
              
              
              885,764
              
              
              1,097,533**Long-term
                  Assets:**Long-term
                  prepaid expenses
              
              
              18,392
              
              
              19,758Equipment,
                  net (Note 3)
              
              
              71,390
              
              
              79,601Total
                  long-term assets
              
              
              89,782
              
              
              99,359**Total
                  Assets**
              
              $
              975,546
              
              $
              1,196,892**LIABILITIES
                  AND STOCKHOLDERS’ (DEFICIT)****Current
                  Liabilities:**Bank
                  indebtedness (Note 4)
              
              $
              5,204
              
              $
              -Accounts
                  payable - Trade
              
              
              30,730
              
              
              36,845Other
                  payables and accrued expenses (Note 5)
              
              
              941,292
              
              
              1,019,965Advances
                  from stockholder (Note 6)
              
              
              310,737
              
              
              310,083Billings
                  in excess of costs on uncompleted contracts
              
              
              105,873
              
              
              136,633Total
                  current liabilities
              
              
              1,393,836
              
              
              1,503,526**Long-term
                  Liabilities:**Accrued
                  severance pay (Note 7)
              
              
              51,883
              
              
              39,916Total
                  long-term liabilities
              
              
              51,883
              
              
              39,916Total
                  liabilities
              
              
              1,445,719
              
              
              1,543,442**Commitments
                  and Contingencies**(Note
                  13)**Stockholders’
                  (Deficit):**Preferred
                  stock (Note 8)
              
              
              -
              
              
              -Common
                  stock (Note 8)
              
              
              236,610
              
              
              236,610Additional
                  paid-in capital
              
              
              11,063,846
              
              
              10,977,577Accumulated
                  (deficit)
              
              
              (11,770,629
              )
              
              (11,560,737
              )Total
                  stockholders’ (deficit)
              
              
              (470,173
              )
              
              (346,550
              )**Total
                  Liabilities and Stockholders’ (Deficit)**
              
              $
              975,546
              
              $
              1,196,892


The
      accompanying notes to consolidated financial statements are


an
      integral part of these consolidated balance sheets.


F-1


**M-WISE,
        INC. AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS (NOTES 1 AND 2)**
 **FOR
        THE THREE MONTHS ENDED**
 **MARCH
        31, 2008, AND 2007**
 **(Unaudited)**


**Three
                  Months Ended**
                **March
                  31,****2008**
              
              **2007****Net
                  Sales**
              
              $
              682,577
              
              $
              478,866**Cost
                  of Sales**
              
              
              232,776
              
              
              59,110**Gross
                  Profit**
              
              
              449,801
              
              
              419,756**Expenses:**Research
                  and development
              
              
              205,226
              
              
              189,586General
                  and administrative
              
              
              431,382
              
              
              355,011Total
                  expenses
              
              
              636,608
              
              
              544,597**(Loss)
                  from operations**
              
              
              (186,807
              )
              
              (124,841
              )**Other
                  (Expense):**Interest
                  and other
              
              
              (23,085
              )
              
              (9,194
              )Total
                  other (expense)
              
              
              (23,085
              )
              
              (9,194
              )**Provision
                  for income taxes**
              
              
              -
              
              
              -**Net
                  (Loss)**
              
              $
              (209,892
              )
              $
              (134,035
              )**Basic
                  and Diluted (Loss) per Share**(Note
                  8)(Loss)
                  per common share - Basic and diluted
              
              $
              (0.00
              )
              
              (0.00
              )**Weighted
                  Average Number of Common SharesOutstanding - Basic and
                  Diluted**
              
              
              139,182,145
              
              
              131,652,883


The
      accompanying notes to consolidated financial statements are


an
      integral part of these consolidated statements.


F-2


**M-WISE,
        INC. AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (NOTES 1 AND 2)**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008, AND 2007**
 **(Unaudited)**


**Three
                  Months Ended**
                **March
                  31,****2008**
              
              **2007****Operating
                  Activities:**Net
                  (loss)
              
              $
              (209,892
              )
              $
              (134,035
              )Adjustments
                    to reconcile net (loss) to net cash provided by (used in) operating
                    activities:Depreciation
              
              
              11,557
              
              
              16,390Exercise
                  of stock options
              
              
              -
              
              
              4,862Employee
                  options vested
              
              
              86,269
              
              
              43,762Net
                  changes in assets and liabilties-Accounts
                  receivable - Trade
              
              
              (47,060
              )
              
              32,648Prepaid
                  and other assets
              
              
              1,861
              
              
              70,625Loan
                  receivable
              
              
              -
              
              
              (20,000
              )Accounts
                  payable - Trade
              
              
              (6,115
              )
              
              5,811Other
                  payables and accrued liabilities
              
              
              (78,673
              )
              
              21,372Billings
                  in excess of costs on uncompleted contracts
              
              
              (30,760
              )
              
              -Long-term
                  prepaid expenses
              
              
              1,366
              
              
              4,016Accrued
                  severence pay
              
              
              11,967
              
              
              11,078**Net
                  Cash (Used in) Provided by Operating Activities**
              
              
              (259,480
              )
              
              56,529**Investing
                  Activities:**Acquisition
                  of equipment
              
              
              (3,346
              )
              
              (543
              )**Net
                  Cash (Used in) Investing Activities**
              
              
              (3,346
              )
              
              (543
              )**Financing
                  Activities:**Advances
                  from (payments to) stockholder
              
              
              654
              
              
              (58,948
              )Deferred
                  financing fees
              
              
              -
              
              
              3,157Sale
                  of common shares under Equity Financing Agreement
              
              
              -
              
              
              141,418Bank
                  indebtedness - Net
              
              
              5,204
              
              
              (3,250
              )**Net
                  Cash Provided by Financing Activities**
              
              
              5,858
              
              
              82,377**Net
                  (Decrease) Increase in Cash and Cash Equivalents**
              
              
              (256,968
              )
              
              138,363**Cash
                  and Cash Equivalents - Beginning of Period**
              
              
              365,513
              
              
              5,072**Cash
                  and Cash Equivalents - End of Period**
              
              $
              108,545
              
              $
              143,435**Supplemental
                  Disclosure of Cash Flow Information:**Cash
                  paid during the period for:Interest
              
              $
              -
              
              $
              143Income
                  taxes
              
              $
              -
              
              $
              -




The
      accompanying notes to financial statements


are
      an
      integral part of these consolidated statements.


F-3


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 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 three months ended March 31, 2008 and 2007, the Company experienced
      net
      losses of $209,892 and $134,035, respectively, and a working capital deficit
      of
      $508,072 and $651,868, respectively.




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-4


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**





*Unaudited
      Interim Financial Statements*




The
      interim financial statements of the Company as of March 31, 2008, and 2007,
      and
      for the three months ended March 31, 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 March 31, 2008 and 2007,
      and the results of its operations and its cash flows for the three months ended
      March 31, 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, filed with the SEC 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-5


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 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.





*C* *oncentration
      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 Israel financial institutions.




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


F-6


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**





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




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





*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 March 31, 2008, and 2007, the carrying amounts of cash
      equivalents, short-term bank deposits, trade receivables, and trade payables
      approximate their fair values due to the short-term maturities of these
      instruments.





*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-7


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 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’s management 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’s management has not yet completed its evaluation of EIFT 07-01 on the
      consolidated financial position and results of operations.


F-8


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**





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’s management is currently assessing the potential impact that the
      adoption of SFAS No. 141(R) could have on its consolidated financial statements.




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’s management 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’s management is currently reviewing the effect, if any,
        the proposed guidance will have on its consolidated financial
        statements.


F-9


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 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’s management 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’s management does not
      expect the adoption of this pronouncement to have a material impact on its
      consolidated financial statements.




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




Equipment,
      net is comprised of the following:


F-10


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**




**Cost**
              
              **March
                  31,2008**
                **Accumulated**
                **Depreciation**
              
              Cost
              
              December
                  31,
                2007
                Accumulated
                DepreciationFurniture
                  and equipment
              
              **$**
              **64,456**
              
              **$**
              **(39,663**
              **)**
              $
              63,832
              
              $
              (38,311
              )Computer
                  equipment
              
              
              **345,476**
              
              
              **(299,762**
              **)**
              
              342,755
              
              
              (289,841
              )Leasehold
                  improvements
              
              
              **2,593**
              
              
              **(1,710**
              **)**
              
              2,592
              
              
              (1,426
              )**$**
              **412,525**
              
              **$**
              **(341,135**
              **)**
              $
              409,179
              
              $
              (329,578
              )Equipment,
                  net
              
              
              
              
              **$**
              **71,390**
              
              
              
              
              $
              79,601




Depreciation
      expenses of $10,572 (2007 - $53,163) and $985 (2007 - $3,898) have been included
      in research and development, and general and administrative expenses,
      respectively.




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




Bank
      indebtedness includes an operating line of credit of $5,204 (2007 - $0), bearing
      interest at 9.26% per annum. The line of credit is unsecured.




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




Other
        payables and accrued expenses consisted of the following as of March 31,
        2008
        and December 31, 2007: ****
 **2008**
                  
                  2007Employee
                      payroll accrual
                  
                  **$**
                  **535,160**
                  
                  $
                  538,349Accrued
                      payroll taxes
                  
                  
                  **26,428**
                  
                  
                  32,820Accrued
                      expenses
                  
                  
                  **379,704**
                  
                  
                  448,796**$**
                  **941,292**
                  
                  $
                  1,019,965
 F-11


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 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 Series "C" shares as described in
      Note
      8. As of March 31 2008, and December 31, 2007, the line of credit had an
      outstanding balance of $310,737 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 March 31, 2008, and December
      31, 2007, the amount of the liabilities accrued were $200,571 and $169,335,
      respectively. Severance pay expenses for the three months ended March 31, 2008
      and 2007 were $25,218 and $20,483, respectively.




The
      deposit funds include profits accumulated up to the balance sheet date from
      the
      Israeli company. The deposited funds may be withdrawn only upon the fulfillment
      of the obligation pursuant to Israeli severance pay laws or labor agreements.
      Cash surrender values of the deposit funds as of March 31, 2008, and December
      31, 2007, were $148,688 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 share170,000,000
            
            Preferred
                sharesSeries
                “A”:
            convertible,
                voting, par value of $0.0017 per shareSeries
                “B”:
            10%
                non-cumulative dividend, redeemable,convertible,
                voting, par value of $0.0017 per shareSeries
                “C”:
            10%
                non-cumulative dividend, convertible, voting, par value of $0.0017
                per
                share





**March
                31,**
              **2008**
              **(Unaudited)**
            
            December
                31,
              2007
              (Audited)Issued:139,182,145
                Common shares (2007 - 139,182,145)
            
            **$**
            **236,610**
            
            $
            236,610


F-12


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 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 Payment*” (“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**
            **%**
            
            8
            %
            
            8
            %Expected
                volatility
            
            
            **80**
            **%**
            
            **80**
            **%**
            
            80
            %
            
            80
            %Expected
                life in years
            
            
            **4**
            
            
            **6**
            
            
            5
            
            
            7




Warrants:




In
      April
      2000, 56,180 warrants, equivalent to 337,080 shares after the 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 March 31, 2008, was
      6,520,046.




On
      December 22, 2005, the Company entered into an agreement with Syntek Capital
      AG
      (“Syntek”), as part of the agreement for conversion of the note payable into
      common shares, whereby the Company issued warrants to purchase up to 5,263,158
      common shares of the Company at an exercise price of $0.19. As of March 31,
      2008, the warrants had not been converted into shares of common
      stock.


F-13


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


**NOTES
      TO FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**





On
      February 2, 2006, the Company entered into an identical agreement with DEP
      Technology Holdings Ltd. The value assigned to the warrants was $ 218,114.
      As of
      March 31, 2008, the warrants had not been converted into shares of common
      stock.




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
      March 31,
      2008, the line of credit had an outstanding balance of $310,737. 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 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.


F-14


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**





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




In
      connection with the equity financing agreement, the Company has issued a
      preliminary prospectus whereby DLP 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.




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 March 31, 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.
      As of March 31, 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.


F-15


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**





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.




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.


F-16


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**





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:


Year
                    Ended December 31,2001
                
                $
                9,0002002
                
                
                -2003
                
                
                384,8892004
                
                
                25,4802005
                
                
                13,7332006
                
                
                117,0442007
                
                
                181,622Three
                    months ended March 31, 2008
                
                
                86,269$
                818,037





The
      following table summarizes the activity of common stock options during 2008
      and
      2007:


F-17


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**


**2008**
              
              2007**Israel**
              
              **International**
              
              Israel
              
              IsraelOutstanding,
                  beginning of period
              
              
              **18,209,767**
              
              
              **16,776,797**
              
              
              14,233,508
              
              
              11,026,797Granted
              
              
              -
              
              
              **500,000**
              
              
              1,530,000
              
              
              -Exercised
              
              
              -
              
              
              **-**
              
              
              (2,859,646
              )
              
              -Forfeited
              
              
              **(375,000**
              **)**
              
              **(500,000**
              **)**
              
              (45,000
              )
              
              -Outstanding,
                  end of period
              
              
              **17,834,767**
              
              
              **16,776,797**
              
              
              12,858,862
              
              
              11,026,797Weighted
                  average fair value of options granted during the period
              
              **$**
              -
              
              **$**
              **0.0552**
              
              $
              0.0339
              
              $
              -Weighted
                  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**
              
              $
              0.0686
              
              $
              -Weighted
                  average exercise price of common stock options, end of
                  period
              
              **$**
              **0.0493**
              
              $
              **0.0792**
              
              $
              0.0280
              
              $
              0.0727Weighted
                  average remaining contractual life of comon stock options
              
              
              **3
                  years**
              
              
              **5
                  years**
              
              
              4
                  year
              
              
              6
                  years




The
      stock
      options have not been included in the calculation of the diluted earnings per
      share as their effect 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.


F-18


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**





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**
              
              **2007**Loss
                  carryforwards
              
              **$**
              **2,823,000**
              
              $
              2,631,000Less
                  - Valuation allowance
              
              
              **(2,823,000**
              **)**
              
              (2,631,000
              )Total
                  net deferred tax assets
              
              **$**
              **-**
              
              $
              -




For
      the
      three months ended March 31, 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.




As
      of
      March 31, 2008, the Company had approximately $11,294,000 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
            
            
            166,000$
            11,294,000






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




During
      the three months ended March 31, 2008, the Company incurred Directors’
consulting fees and salaries in the amount of $34,998 (2007 - $42,000). As
      of
      March 31, 2008, $489,208 (2007 - $542,000) was unpaid and included in Due to
      Related Parties.




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


F-19


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2008, AND 2007**


**(UNAUDITED)**




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




For
      the
      three months ended March 31, 2008, the Company had four major customers which
      primarily accounted for 48%, 11%, 10%, and 10% of the total revenues. For the
      three months ended March 31, 2007, the Company had three major customers which
      accounted for 52%, 17%, and 11% of the total revenues.




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




Israel
              
              USA
              
              TotalGross
                  revenueMarch
                  31, 2008
              
              $
              20,809
              
              
              661,768
              
              
              682,577March
                  31, 2007
              
              
              4,392
              
              
              474,474
              
              
              478,866Net
                  lossMarch
                  31, 2008
              
              
              (44,036
              )
              
              (165,856
              )
              
              (209,892
              )March
                  31, 2007
              
              
              (38,062
              )
              
              (95,973
              )
              
              (134,035
              )Total
                  assetsMarch
                  31, 2008
              
              
              111,433
              
              
              864,113
              
              
              975,546March
                  31, 2007
              
              
              180,096
              
              
              641,740
              
              
              821,836




For
      the
      three months ended March 31, 2008, the Company derived 13% (2007, 12%) of its
      revenues from sales to the Far East, 21% from sales to Europe (2007, 5%), and
      66% (2007, 83%) from sales to America.




**13.**
            **Commitments**




The
      Company is committed under an operating lease for its premises expiring June
      30,
      2008. Minimum annual payments (exclusive of taxes, insurance, and maintenance
      costs) under the lease amount to $54,000.




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




2009
            
            $
            93,3602010
            
            
            61,4802011
            
            
            22,140$
            176,980




Rent
      expenses paid in the three months ended March 31, 2008 and 2007, were $16,968
      and $15,503, respectively.


F-20


**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.





RESULTS
      OF OPERATIONS




***THREE
      MONTHS ENDED MARCH 31, 2008 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
      2007.***




Revenue





License
      fees and products. Revenues from license fees and products increased 68% to
      $167,519 for the three months ended March 31, 2008 from $99,999 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 45% to $204,798 for the three
      months ended March 31, 2008 from $141,271 for the same period in 2007. The
      increase primarily consisted of revenues 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.


2





Customer
      services and technical support. Revenues from customer services and technical
      support increased 31% to $310,260 for the three months ended March 31, 2008
      from
      $237,596 for the same period in 2007.





Cost
      of revenues.





Cost
      of
      revenues increased 294% to $232,776 for the three months ended March 31, 2008
      from $59,110 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 8% to $205,226
      for
      the three months ended March 31, 2008 from $189,586 for the same period in
      2007.
      This increase was primarily due to a $30,172 increase in payroll and related
      expenses. Research and development expenses, stated as a percentage of revenues
      decreased to 30% for the three months ended March 31, 2008 from 40% for the
      same
      period in 2007.





General
      and administrative.





General
      and administrative expenses increased 22% to $431,382 for the three months
      ended
      March 31, 2008 from $355,011 for the same period in 2007. This increase was
      primarily due to a $108,710 increase in payroll and related expenses, partially
      offset by a $67,881 decrease in consulting expenses. General and administrative
      expenses, stated as a percentage of revenues, decreased to 63% for the three
      months ended March 31, 2008 from 74% for the same period in 2007.





Financing
      expenses.





Our
      financing expenses increased 151% to $23,085 for the three months ended March
      31, 2008 from $9,194 for the same period in 2007.




**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 $108,545
      as of
      March 31, 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 with Miretzky Holdings Limited.
      As of March 31, 2008, $310,737 is outstanding under the credit line. The credit
      line is for $500,000. The credit line has no termination date and does not
      provide for interest payments.





Other
      than the credit line agreement with Miretzky, we do not have any commitments
      from any of our affiliates or current stockholders, or any other non-affiliated
      parties, to provide additional sources of capital to us. We do have an equity
      line for $10.0 million with Dutchess Private Equity Fund and as of May 15,
      2008
      we have drawn $825,365 under the Equity Line. We will need approximately $1.2
      million for the next twelve months for our operating costs which mainly include
      salaries, office rent and network connectivity, which total approximately
      $80,000 per month, and for working capital. We intend to finance this amount
      from our ongoing sales and through the sale of either our debt or equity
      securities or a combination thereof, to affiliates, current stockholders and/or
      new investors. Currently we do not believe that our future capital requirements
      for equipment and facilities will be material.


3





Operating
      activities.





For
      the
      three months ended March 31, 2008 net cash used in operating activities was
      $259,480 primarily due to our net loss of $209,892, a $78,673 decrease in other
      payables and accrued liabilities and a $47,060 increase in accounts receivables,
      partially offset by a $86,269 in employee vested options expense. In the same
      period in 2007 net cash provided by operating activities was $56,529 primarily
      due to a $70,625 decrease in prepaid and sundry assets, a $43,762 in employee
      vested options expense, a $32,648 decrease in accounts receivables and a $21,372
      increase in other payables and accrued liabilities, partially offset by our
      net
      loss of $134,035.





Investing
      and financing activities.





Property
      and equipment consist primarily of computers, software, and office equipment.
      For the three months ended March 31, 2008, net cash used in investing activities
      was $3,346 consisting of an investment in equipment. In the same period in
      2007
      net cash used in investing activities was $543 consisting of an investment
      in
      equipment. For the three months ended March 31, 2008, net cash provided by
      financing activities was $5,858 primarily due to a $5,204 increase in bank
      indebtedness. In the same period in 2007, net cash provided by financing
      activities was $82,377 primarily due to a $141,418 sale of common shares under
      equity financing agreement, partially offset by a $58,948 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 within.
      Based upon this evaluation, the Chief Executive Officer and Chief Financial
      Officer concluded that our disclosure controls and procedures are effective
      in
      ensuring that that
      information required to be disclosed is recorded, processed, summarized and
      reported within the time periods specified in the Securities and Exchange
      Commission’s rules and forms, and is accumulated and communicated to management,
      to allow for timely decisions regarding required disclosure of material
      information required to be disclosed in the reports that we file or submit
      under
      the Exchange Act.


4





There
      were no significant changes in our internal control over financial reporting
      to
      the knowledge of our management, or in other factors that have materially
      affected or are reasonably likely to materially affect these internal controls
      over financial reporting subsequent to the evaluation date.




**PART
      II:**


**OTHER
      INFORMATION**




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




None.




**Item
      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).




(5)  The
      Exhibit attached to this Form 10-Q shall not be deemed "filed" for purposes
      of
      Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange
      Act"), or otherwise subject to liability under that section, nor shall it be
      deemed incorporated by reference in any filing under the Securities Act of
      1933,
      as amended, or the Exchange Act, except as expressly set forth by specific
      reference in such filing.


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: May
                15, 2008
            By:
            /s/ Mordechai
                BroudoName:
                Mordechai Broudo
              Title:
                Chairman





Date: May
                15, 2008
            By:
            /s/ Gabriel
                KabazoName:
                Gabriel Kabazo
              Title:
                Chief Financial Officer and Principal Accounting
                Officer




8