UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        DC 20549
 FORM
        10-QSB
 
 (Mark
        One)
 
 x
        Quarterly report under
        Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 For
        the
        quarterly period ended June 30, 2007
 
 o
        Transition report under
        Section 13 or 15(d) of the Exchange Act
 
 For
        the
        transition period from _______________________ to
        _______________________
 
 Commission
        File Number 333-106160
 
 **m-Wise,
        Inc.**
 
 (Exact
        name of small business issuer as specified in its charter)
 
 Delaware
              11-3536906(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  No.)
 
 3
        Sapir Street, Herzeliya Pituach, Israel 46852
 (Address
        of principal executive offices)
 
 +972-73-2620000
 (Issuer's
        telephone number, including area code)
 
 All
        Correspondence to:
 Arthur
        S.
        Marcus, Esq.
 Gersten
        Savage LLP
 600
        Lexington Avenue, 9 th Floor
 New
        York,
        New York 10022
 (212)
        752-9700
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.
 Yes
x
        No o
 
 The
        number of shares outstanding of the issuer's common stock, as of August 14,
        2007
        was 137,554,045.
 
 Transitional
        Small Business Disclosure Format (check
        one): Yes
o
        No x
  
 
 **m-Wise,
        INC.**
 
 TABLE
        OF
        CONTENTS
 
 PagePART
                  IFINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  Statements (Unaudited)Consolidated
                  Balance Sheet as of June 30, 2007
              2Consolidated
                  Statements of Operations for the Three Months and Six Months Ended
                  June
                  30, 2007 and 2006
              3Consolidated
                  Statements of Stockholders' Deficit for the Periods Ended June
                  30, 2007
                  and 2006
              4Consolidated
                  Statements of Cash Flows for the Six Months Ended June 30, 2007
                  and
                  2006
              5Notes
                  to Unaudited Financial Statements
              6Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              20Item
                  3.
              Controls
                  and Procedures
              23PART
                  IIOTHER
                  INFORMATIONItem
                  1
              Legal
                  Proceedings
              23Item
                  2
              Changes
                  in Securities and Small Business Issuer Purchases of Equity
                  Securities
              23Item
                  3
              Defaults
                  upon Senior Securities
              24Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              24Item
                  5
              Other
                  Information
              24Item
                  6
              Exhibits
                  and Reports on Form 8-K
              24
 
 
 
 PART
        I
 FINANCIAL
        INFORMATION
  Item
        1. Financial
        Statements
 
 **M-WISE,
        INC. AND SUBSIDIARIES**
 CONSOLIDATED
        FINANCIAL STATEMENTS
 PERIODS
        ENDED JUNE 30, 2007 AND 2006
 UNAUDITED
 
 **CONTENTS**
  Consolidated
                  Balance Sheets
              
              
              **2**Consolidated
                  Statements of Operations
              
              
              **3**Consolidated
                  Statements of Stockholders' Deficit
              
              
              **4**Consolidated
                  Statements of Cash Flows
              
              
              **5**Notes
                  to Consolidated Financial Statements
              
              
              **6
                  - 23**
 
 
  **M-WISE,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET (NOTE 2)**
 **AS
        OF JUNE 30, 2007**
 **(Unaudited)**
 
 **ASSETS**
 **2007****Current
                    Assets:**Cash
                    and cash equivalents
                
                $
                428,933Accounts
                    receivable - Trade (net of allowance for doubtful accounts of
                    $150,983)
                
                
                497,628Prepaid
                    and sundry assets
                
                
                24,988Total
                    current assets
                
                
                951,549**Long-term
                    Assets:**Long-term
                    Prepaid Expenses
                
                
                14,776Equipment,
                    net (note 3)
                
                
                102,100Deferred
                    Financing Fees
                
                
                6,324Total
                    Long-term Assets
                
                
                123,200**Total
                    Assets**
                
                $
                1,074,749**LIABILITIES
                    AND STOCKHOLDERS' DEFICIT****Current
                    Liabilities:**Bank
                    indebtedness
                
                $
                140Accounts
                    payable - Trade
                
                
                51,481Other
                    payables and accrued expenses
                
                
                919,634Advances
                    from shareholder (note 4)
                
                
                321,019Total
                    current liabilities
                
                
                1,292,274**Long-term
                    Liabilities:**Accrued
                    severance pay (note 5)
                
                
                46,073Total
                    long-term liabilities
                
                
                46,073Total
                    liabilities
                
                
                1,338,347**Commitments
                    and Contingencies**(note
                    10)**Stockholders'
                    Deficit:**Preferred
                    stock (note 6)
                
                
                -Common
                    stock (note 6)
                
                
                233,650Additional
                    paid-in capital
                
                
                10,720,529Accumulated
                    deficit
                
                
                (11,217,777
                )Total
                    stockholders' deficit
                
                
                (263,598
                )**Total
                    Liabilities and Stockholders' Deficit**
                
                $
                1,074,749
 (The
            accompanying notes of the consolidated financial statements is an integral
            part
            of this statement).
  2
  **M-WISE,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS (NOTE 2)**
 **FOR
        THE THREE-MONTHS AND SIX-MONTHS**
 **ENDED
        JUNE 30, 2007, AND 2006**
 **(Unaudited)**
 **Three
                    Months Ended**
                
                **Six
                    Months Ended****June
                    30,**
                
                **June
                    30,****2007**
                
                **2006**
                
                **2007**
                
                **2006****Net
                    Sales**
                
                $
                426,333
                
                $
                770,917
                
                $
                905,199
                
                $
                1,024,700**Cost
                    of Sales**
                
                
                76,132
                
                
                98,793
                
                
                135,242
                
                
                111,740**Gross
                    Profit**
                
                
                350,201
                
                
                672,124
                
                
                769,957
                
                
                912,960**Expenses:**General
                    and administrative
                
                
                398,298
                
                
                350,888
                
                
                753,309
                
                
                613,406Research
                    and development
                
                
                189,492
                
                
                137,372
                
                
                379,078
                
                
                272,749Total
                    expenses
                
                
                587,790
                
                
                488,260
                
                
                1,132,387
                
                
                886,155**Gain
                    (Loss) from Operations**
                
                
                (237,589
                )
                
                183,864
                
                
                (362,430
                )
                
                26,805**Other
                    Income (Expense)**Financial
                
                
                (10,091
                )
                
                (21,460
                )
                
                (19,285
                )
                
                (251,518
                )Total
                    other income (expense)
                
                
                (10,091
                )
                
                (21,460
                )
                
                (19,285
                )
                
                (251,518
                )**Net
                    Income (Loss) after Income Taxes**
                
                $
                (247,680
                )
                $
                162,404
                
                $
                (381,715
                )
                $
                (224,713
                )**Basic
                    and Fully Diluted Loss per Share**(note
                    6)Gain
                    (loss) per common share - Basic and diluted
                
                $
                (0.00
                )
                $
                0.00
                
                $
                (0.00
                )
                
                (0.00
                )**Weighted
                    Average Number of Common Shares**
                  **Outstanding
                    - Basic and Diluted**
                
                
                136,103,398
                
                
                128,066,495
                
                
                133,124,601
                
                
                122,498,248
  (The
          accompanying notes of the consolidated financial statements is an integral
          part
          of this statement).
  3
  **M-WISE,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' DEFICIT**
 **FOR
        THE PERIODS ENDED JUNE 30, 2007, AND 2006**
 **(Unaudited)**
 
 **Additional****Common
                  stock**
              
              **Paid-in**
              
              **Accumulated****Description**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Total****Balance
                  - January 1, 2006**
              
              
              113,514,158
              
              $
              192,974
              
              $
              7,399,394
              
              $
              (10,639,491
              )
              $
              (3,047,123
              )Conversion
                  of note payable - Stock
              
              
              12,400,448
              
              
              21,081
              
              
              1,723,829
              
              
              -
              
              
              1,744,910Conversion
                  of note payable - Warrants
              
              
              -
              
              
              -
              
              
              436,228
              
              
              -
              
              
              436,228Exercise
                  of stock options
              
              
              169,871
              
              
              289
              
              
              (18
              )
              
              -
              
              
              271Shares
                  issued for employee services
              
              
              -
              
              
              -
              
              
              60,531
              
              
              -
              
              
              60,531Net
                  (loss) for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              (387,117
              )
              
              (387,117
              )**Balance
                  - March 31, 2006**
              
              
              126,084,477
              
              $
              214,344
              
              $
              9,619,964
              
              $
              (11,026,608
              )
              $
              (1,192,300
              )Options
                  vested for employee services (note 6)
              
              
              -
              
              
              -
              
              
              14,501
              
              
              -
              
              
              14,501Shares
                  issued for consulting services
              
              
              2,818,182
              
              
              4,791
              
              
              305,209
              
              
              -
              
              
              310,000Net
                  income for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              162,404
              
              
              162,404**Balance
                  - June 30, 2006**
              
              
              128,902,659
              
              $
              219,135
              
              $
              9,939,674
              
              $
              (10,864,204
              )
              $
              (705,395
              )**Balance,
                  January 1, 2007**
              
              
              128,902,659
              
              $
              219,135
              
              $
              9,981,686
              
              $
              (10,836,062
              )
              $
              (635,241
              )Share
                  issuance pursuant to Equity
                Financing
                  Agreement (note 6)
              
              
              1,062,600
              
              
              1,806
              
              
              139,612
              
              
              -
              
              
              141,418Exercise
                  of stock options
              
              
              2,859,646
              
              
              4,862
              
              
              -
              
              
              -
              
              
              4,862Options
                  vested for employee services
              
              
              -
              
              
              -
              
              
              43,762
              
              
              -
              
              
              43,762Net
                  (loss) for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              (134,035
              )
              
              (134,035
              )**Balance
                  - March 31, 2007**
              
              
              132,824,905
              
              $
              225,803
              
              $
              10,165,060
              
              $
              (10,970,097
              )
              $
              (579,234
              )Share
                    issuance pursuant to Equity
                Financing
                  Agreement (note 6)
              
              
              3,824,783
              
              
              6,502
              
              
              510,906
              
              
              -
              
              
              517,408Exercise
                  of stock options (note 6)
              
              
              301,127
              
              
              505
              
              
              -
              
              
              -
              
              
              505Exercise
                  of warrants (note 6)
              
              
              500,000
              
              
              840
              
              
              -
              
              
              -
              
              
              840Options
                  vested for employee services (note 6)
              
              
              -
              
              
              -
              
              
              44,563
              
              
              -
              
              
              44,563Net
                  (loss) for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              (247,680
              )
              
              (247,680
              )**Balance
                  - June 30, 2007**
              
              
              137,450,815
              
              $
              233,650
              
              $
              10,720,529
              
              $
              (11,217,777
              )
              $
              (263,598
              )
  (The
          accompanying notes of the consolidated financial statements is an integral
          part
          of this statement).
 4
 
 **M-WISE,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (NOTE 2)**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2007, AND 2006**
 **(Unaudited)**
 
 **2007**
              
              **2006****Operating
                  Activities:**Net
                  (loss)
              
              $
              (381,715
              )
              $
              (224,713
              )Adjustments
                    to reconcile net (loss) to net cash
                  provided
                    by operating activities:Depreciation
              
              
              30,575
              
              
              54,640Employee
                  options vested
              
              
              88,325
              
              
              75,303Exercise
                  of stock options and warrants
              
              
              6,206
              
              
              -Financing
                  fees paid by issuance of shares
              
              
              -
              
              
              222,104Consulting
                  services paid by issuance of shares
              
              
              -
              
              
              51,667Net
                  changes in assets and liabiltiesAccounts
                  receivable - Trade
              
              
              21,284
              
              
              (374,141
              )Prepaid
                  and sundry assets
              
              
              98,187
              
              
              (3,323
              )Accounts
                  payable - Trade
              
              
              27,492
              
              
              7,556Other
                  payables and accrued liabilities
              
              
              (5,888
              )
              
              12,018Deferred
                  revenue
              
              
              -
              
              
              136,963Long-term
                  prepaid expenses
              
              
              4,089
              
              
              (865
              )Deferred
                  financing fees
              
              
              6,314
              
              
              6,314Accrued
                  severence pay
              
              
              10,198
              
              
              1,503**Net
                  Cash (Used in) Operating Activities**
              
              
              (94,933
              )
              
              (34,974
              )**Investing
                  Activities:**Acquisition
                  of equipment
              
              
              (21,570
              )
              
              (28,829
              )**Net
                  Cash (Used in) Investing Activities**
              
              
              (21,570
              )
              
              (28,829
              )**Financing
                  Activities:**Advances
                  from shareholder
              
              
              (115,352
              )
              
              142,084Proceeds
                    from issuance of common stock and warrants
                  for
                    repayment of notes payable
              
              
              -
              
              
              1,959,034Repayment
                  of notes payable
              
              
              -
              
              
              (1,959,034
              )Sale
                  of common shares under Equity Financing Agreement
              
              
              658,826Bank
                  indebtedness - Net
              
              
              (3,110
              )
              
              (10,318
              )**Net
                  Cash Provided by Financing Activities**
              
              
              540,364
              
              
              131,766**Net
                  Increase in Cash and Cash Equivalents**
              
              
              423,861
              
              
              67,963**Cash
                  and Cash Equivalents - Beginning of Period**
              
              
              5,072
              
              
              573**Cash
                  and Cash Equivalents - End of Period**
              
              $
              428,933
              
              $
              68,536**Supplemental
                  Disclosure of Cash Flow Information:**Cash
                  paid during the period for:Interest
              
              $
              261
              
              $
              1,463Income
                  taxes
              
              $
              -
              
              $
              -
 
 (The
          accompanying notes of the consolidated financial statements is an integral
          part
          of this statement).
 5
  **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
  **1.**
              **Description
                  of Business and Going
                  Concern**
  a)
              Description
                  of Business
  m-Wise
        Inc. (the "Company") is a Delaware corporation which develops interactive
        messaging platforms for mobile phone-based commercial applications, transactions
        and information services with internet billing capabilities.
  The
        Company's wholly owned subsidiaries include m-Wise LTD., located in Israel
        and
        incorporated in 2000 under the laws of Israel, and m-Wise Interactive, Inc.,
        located in the United States and incorporated in May 2007 as a Delaware
        corporation. However, m-Wise Interactive, Inc. has essentially been inactive
        since its incorporation date.
  b)
              Going
                  Concern
  The
        Company's consolidated financial statements are presented on a going concern
        basis, which contemplates the realization of assets and satisfaction of
        liabilities in the normal course of business. The Company has experienced
        recurring losses since inception, has negative cash flows from operations
        with
        negative working capital that raise substantial doubt as to its ability to
        continue as a going concern. For the six months ended June 30, 2007, the
        Company
        experienced net losses of $381,715 (2006 - $224,713), and as of June 30,
        2007,
        had a working capital deficit of $340,725 (2006 - $827,639).
  The
        Company is in an industry where operational fluctuation is usually higher
        than
        other industries. The accompanying financial statements reflect management's
        current assessment of the impact to date of the economic situation on the
        financial position of the Company. Actual results may differ materially from
        management's current assessment.
  The
        Company's ability to continue as a going concern is contingent upon its ability
        to secure additional financing, continuing sale of its products and attaining
        profitable operations.
  The
        Company is pursuing additional financing, but there can be no assurance that
        the
        Company will be able to secure financing when needed or obtain financing
        on
        terms satisfactory to the Company, if at all.
  The
        consolidated financial statements do not include any adjustments to reflect
        the
        possible future effects on the recoverability and classification of assets
        or
        the amounts and classification of liabilities that may result from the possible
        inability of the Company to continue as a going concern.
 
 6
 **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 
 **2.**
              **Summary
                  of Significant Accounting Policies**
  The
        accounting policies of the Company are in accordance with U.S. generally
        accepted accounting principles, and their basis of application is consistent
        with that of the previous year. Outlined below are those policies considered
        particularly significant:
  a)
              Reporting
                  Currency
  A
        majority of the Company's revenues are generated in United States dollars.
        In
        addition, a substantial portion of the Company's costs are incurred in United
        States dollars. Management has determined that the United States dollar is
        the
        functional and reporting currency of the Company.
  b)
              Principles
                  of Consolidation
  The
        consolidated financial statements include the operations of m-Wise, Inc.
        and its
        wholly owned subsidiaries. Intercompany balances and transactions have been
        eliminated in consolidation.
  c)
              Deferred
                  Financing Fees
  Deferred
        financing fees relate to non-interest bearing credit line facility of $500,000
        provided by a shareholder as disclosed in Note 4. The
        overdraft from the credit facility is non-interest bearing and there are
        no
        covenants with which the Company will need to comply. The credit line facility
        has no expiration date and management expects to retain the facility for
        a
        period of at least five years. Accordingly, the fees are being amortized
        using
        the straight-line method over five years.
  d)
              Equipment
                  and Depreciation
  Equipment
        is stated at cost. Depreciation is based on the estimated useful lives of
        the
        assets and is provided using the annual rates and methods listed
        below:
 Furniture
                    and equipment
                
                
                6-15
                %
                
                Straight
                    lineComputer
                    equipment
                
                
                33
                %
                
                Straight
                    lineLeasehold
                    improvements
                
                
                Straight-line
                    method over the term of the lease.
  e)
              Revenue
                  Recognition
  The
        Company generates revenues from product sales, licensing, customer services
        and
        technical support.
  Revenues
        from 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 are expected to result in a matching of gross profit with period
  7
 **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 overhead
        or fixed costs similar to that achieved by use of the percentage-of-completion
        method. Accordingly, financial position and results of operations would not
        vary
        materially from those resulting from the use of the percentage-of-completion
        method. Revenue is recognized only after all three stages of deliverables
        are
        complete; installation, approval of acceptance test results by the customer
        and
        when the product is successfully put into real-life application. Customers
        are
        billed, according to individual agreements, a percentage of the total contract
        fee upon completion of work at each stage; approximately 40% for installation,
        40% upon approval of acceptance tests by the customer and the balance of
        the
        total contract price when the software is successfully put into real-life
        application. The revenue, less its associated costs, are deferred and recognized
        on completion of the contract and customer acceptance. Amounts received for
        work
        performed in each stage are not refundable.
  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 n ot
        sell
        products with multiple deliverables. It is management's opinion that EITF
        00-21,
        "Revenue Arrangements With Multiple Deliverables" is not
        applicable.
  f)
              Research
                  and Development Costs
  Research
        and development costs are expensed as incurred.
  g)
              Use
                  of Estimates
  The
        preparation of financial statements, in conformity with accounting principles
        generally accepted in the United States, requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reporting period. Actual results could differ from those estimates.
  h)
              Concentration
                  of Credit Risk
  SFAS
        No.
        105, "Disclosure of Information About Financial Instruments with Off-Balance
        Sheet Risk and Financial Instruments with Concentration of Credit Risk",
        requires disclosure of any significant off-balance sheet risk and credit
        risk
        concentration. The Company does not have significant off-balance sheet risk
        or
        credit concentration. The Company maintains cash and cash equivalents with
        major
        Israel financial institutions.
  The
        Company provides credit to its clients in the normal course of its operations.
        Depending on their size, financial strength and reputation, customers are
        given
        credit terms of up to 60 days.
        The
        Company carries out, on a continuing basis, credit checks on its clients
        and
        maintains provisions for contingent credit losses which, once they materialize,
        are consistent with management's forecasts.
  8
  **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 For
        other
        debts, the Company determines, on a continuing basis, the probable losses
        and
        sets up a provision for losses based on the estimated realizable value.
  Concentration
        of credit risk arises when a group of clients having a similar characteristic
        such that their ability to meet their obligations is expected to be affected
        similarly by changes in economic or other conditions. The Company does not
        have
        any significant risk with respect to a single client.
  i)
              Fair
                  Value of Financial Instruments
  The
        estimated fair value of financial instruments has been determined by the
        Company
        using available market information and valuation methodologies. Considerable
        judgment is required in estimating fair value. Accordingly, the estimates
        may
        not be indicative of the amounts the Company could realize in a current market
        exchange. At June 30, 2007 and 2006, the carrying amounts of cash equivalents,
        short-term bank deposits, trade receivables and trade payables approximate
        their
        fair values due to the short-term maturities of these instruments.
  j)
              Earnings
                  (loss) per Common Share
  The
        Company calculates net loss per share based on SFAS No. 128, "Earnings Per
        Share". Basic earnings (loss) per share is computed by dividing the net earnings
        (loss) attributable to the common stockholders by the weighted average number
        of
        common shares outstanding. Fully diluted earnings (loss) per share is computed
        similar to basic earnings (loss) per share except that the denominator is
        increased to include the number of additional common shares that would have
        been
        outstanding if the potential common shares had been issued and if the additional
        common shares were dilutive.
  k)
              Impact
                  of Recently Issued Accounting
                  Standards
  In
        July
        2006, the Financial Accounting Standards Board ("FASB") issued Financial
        Accounting Standards Interpretation No. 48 (“FIN 48”), “Accounting for
        Uncertainty in Income Taxes”. FIN 48 clarifies the accounting for uncertainty in
        income taxes recognized in an enterprises’ financial statements in accordance
        with SFAS No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a
        recognition threshold and measurement attributable for the financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return. FIN 48 also provides guidance on derecognition, classification,
        interest and penalties, accounting in interim periods, disclosures and
        transitions. FIN 48 is effective for fiscal years beginning after December
        15,
        2006. The Company is currently reviewing the effect, if any, FIN48 will have
        on
        its financial position.
  In
        September 2006, the Securities and Exchange Commission (“SEC”) staff issued
        Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior
        Year Misstatements when Quantifying Misstatements in Current Year Financial
        Statements.” SAB 108 was issued to provide consistency in how registrants
        quantify financial statement misstatements. The Company is required to and
        will
        initially apply SAB 108 in connection with the preparation of its annual
        financial statements for the year ending December 31, 2006.
  9
 **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 The
        Company does not expect the application of SAB 108 to have a material effect
        on
        its financial position and results of operations.
  In
        September 2006, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
        Measurements,” which is effective for calendar year companies on January 1,
        2008. The Statement defines fair value, establishes a framework for measuring
        fair value in accordance with Generally Accepted Accounting Principles, and
        expands disclosures about fair value measurements. The Statement codifies
        the
        definition of fair value as the price that would be received to sell an asset
        or
        paid to transfer a liability in an orderly transaction between market
        participants at the measurement date. The standard clarifies the principle
        that
        fair value should be based on the assumptions market participants would use
        when
        pricing the asset or liability and establishes a fair value hierarchy that
        prioritizes the information used to develop those assumptions. The Company
        is
        currently assessing the potential impacts of implementing this
        standard.
  In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        158, Employers' Accounting for Defined Benefit Pension and Other Postretirement
        Plans - an amendment of FASB Statements No. 87, 88, 106 and 132 (R) ("SFAS
        158"). SFAS 158 requires an employer to recognize the funded status of a
        defined
        benefit postretirement plan as an asset or liability in its statement of
        financial position and to recognize changes in that funded status in the
        year in
        which the changes occur through comprehensive income. The funded status of
        a
        benefit plan is defined as the difference between the fair value of the plan
        assets and the plans benefit obligation. For a pension plan the benefit
        obligation is the projected benefit obligation and for any other postretirement
        benefit plan, such as a retiree health care plan, the benefit obligation
        is the
        accumulated postretirement benefit obligation. SFAS 158 requires an employer
        to
        recognize as a component of other comprehensive income, net of tax, the gains
        and losses and prior service costs or credits that arise during the period
        but
        that are not recognized as components of net periodic benefit costs pursuant
        to
        SFAS 87. SFAS 158 also requires an employer to measure the funded status
        of a
        plan as of the date of its year-end. Additional footnote disclosure is also
        required about certain effects on net periodic benefit cost for the next
        year
        that arise from the delayed recognition of gains or losses, prior service
        costs
        or credits, and transition asset or obligation. Except for the year-end
        measurement requirement, SFAS 158 is effective for the year ending December
        31,
        2006. The Company does not anticipate that the adoption of this Statement
        will
        have a material effect on its financial condition or operations.
  In
        February 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 159, "The Fair Value of
        Option for Financial Assets and Liabilities" ("SFAS No. 159"), which permits
        entities to measure many financial instruments and certain other items at
        fair
        value that are not currently required to be measured at fair value. An entity
        would report unrealized gains and losses on items for which the fair value
        option has been elected in earnings at each subsequent reporting date. The
        objective is to improve financial reporting by providing entities with the
        opportunity to mitigate volatility in reported earnings caused by measuring
        related assets and liabilities differently without having to apply complex
        hedge
        accounting provisions. The decision about whether to elect the fair value
        option
        is applied instrument by instrument, with a few exceptions; the decision
        is
        irrevocable; and it is applied only to entire instruments and not to portions
        of
        instruments.
  10
  **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 The
        statement requires disclosures that facilitate comparisons (a) between entities
        that choose different measurement attributes for similar assets and liabilities
        and (b) between assets and liabilities in the financial statements of an
        entity
        that selects different measurement attributes for similar assets and
        liabilities.
  SFAS
        No.
        159 is effective for financial statements issued for fiscal years beginning
        after November 15, 2007. Early adoption is permitted as of the beginning
        of a
        fiscal year that begins on or before November 15, 2007, provided the entity
        also
        elects to apply the provisions of SFAS No. 157, “Fair Value Measurement”. Upon
        implementation, an entity shall report the effect of the first remeasurement
        to
        fair value as a cumulative-effect adjustment to the opening balance of retained
        earnings. Since the provisions of SFAS No. 159 are applied prospectively,
        any
        potential impact will depend on the instruments selected for fair value
        measurement at the time of implementation.
  On
        May 2,
        2007, the FASB issued FASB Interpretation FIN No. 48-1, “Definition of
        Settlement in FASB Interpretation 48” (“FIN 48-1”). FIN 48-1 amends FIN 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 48-1 shall be applied upon
        the
        initial adoption of FIN 48. Accordingly, the Company has applied the provisions
        of FIN 48-1 effective January 1, 2007. The adoption of FIN 48-1 did not have
        a
        material impact on the Company’s results of operations and financial condition.
 
 **3.**
              **Equipment**
  Equipment
        is comprised as follows:
 **2007**
                
                
                
                2006**Accumulated**
                
                
                
                Accumulated**Cost**
                
                **Depreciation**
                
                Cost
                
                DepreciationFurniture
                    and equipment
                
                **$**
                **62,329**
                
                **$**
                **35,475**
                
                $
                60,090
                
                $
                29,451Computer
                    equipment
                
                
                **340,280**
                
                
                **266,769**
                
                
                396,856
                
                
                287,845Leasehold
                    improvements
                
                
                **2,593**
                
                
                **858**
                
                
                18,810
                
                
                18,356**$**
                **405,202**
                ****
                **$**
                **303,102**
                
                $
                475,756
                
                $
                335,652Net
                    carrying amount
                
                
                
                
                **$**
                **102,100**
                
                
                
                
                $
                140,104
 Depreciation
        expenses of $29,188 (2006 - $49,179) and $1,387 (2006 - $5,461) have been
        included in research and development, and general and administrative expenses
        respectively.
 
 11
  **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 **4.**
              **Advances
                  from Shareholder**
  The
        advances from the major shareholder are non-interest bearing and have no
        fixed
        terms of repayment. According to an agreement dated January 2003, a shareholder
        granted a credit facility of $500,000 to the Company in return for preferred
        class "C" shares as described in Note 6. At the period ended June 30, 2007,
        the
        line of credit has an outstanding balance of $321,019.
 
 **5.**
              **Accrued
                  Severance Pay**
  The
        Company accounts for its potential severance liability of its Israel subsidiary
        in accordance with EITF 88-1, "Determination of Vested Benefit Obligation
        for a
        Defined Benefit Pension Plan". The Company's liability for severance pay
        is
        calculated pursuant to applicable labor laws in Israel on the most recent
        salary
        of the employees multiplied by the number of years of employment as of the
        balance sheet date for all employees. The Company's liability is fully accrued
        and reduced by monthly deposits with severance pay funds and insurance policies.
        As at June 30, 2006 and 2007, the amount of the liabilities accrued were
        $126,188 and $126,862 respectively. Severance pay expenses for the periods
        ended
        June 30, 2006 and 2007 were $12,812 and $31,792 respectively.
  The
        deposit funds include profits accumulated up to the balance sheet date from
        the
        Israeli company. The deposited funds may be withdrawn only upon the fulfillment
        of the obligation pursuant to Israeli severance pay laws or labor agreements.
        Cash surrender values of the deposit funds as at June 30, 2006 and 2007 were
        $66,214 and $80,789 respectively. Income earned from the deposit funds for
        2006
        and 2007 was immaterial.
 
 **6.**
              **Capital
                  Stock**
 Authorized210,000,000
                  Common
                      shares170,000,000
                  Preferred
                      sharesSeries
                      "A": convertible, voting, par value of $0.0017 per
                      shareSeries
                      "B": 10% non-cumulative dividend, redeemable, convertible,
                      voting, par
                      value of $0.0017 per shareSeries
                      "C":0%
                      non-cumulative dividend, convertible, voting, ar value of $0.0017
                      per
                      share
 **2007**
                    
                    2006Issued137,450,815
                    
                    
                    Common
                        shares (2006 - 128,902,659)
                    
                    **$**
                    **233,667**
                    
                    $
                    219,135
  12
 **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 Stock
          Warrants and Options:
  The
        Company has accounted for its stock options and warrants in accordance with
        SFAS
        123 "Accounting for Stock - Based Compensation" and SFAS 148 "Accounting
        for
        Stock - Based Compensation - Transition and Disclosure." Value of options
        granted has been estimated by the Black Scholes option pricing model. The
        assumptions are evaluated annually and revised as necessary to reflect market
        conditions and additional experience. The following assumptions were
        used:
 **2007**
                
                2006**Israel**
                
                **International**
                
                Israel
                
                InternationalInterest
                    rate
                
                
                **8**
                **%**
                
                **8**
                **%**
                
                8
                %
                
                8
                %Expected
                    volatility
                
                
                **80**
                **%**
                
                **80**
                **%**
                
                80
                %
                
                80
                %Expected
                    life in years
                
                
                **4**
                
                
                **6**
                
                
                5
                
                
                7
 
 Warrants:
  In
        April
        2000, 56,180 warrants, equivalent to 337,080 shares after the 1 to 6 forward
        stock split, were issued to one of the shareholders with his preferred Class
        "A"
        shares for a total investment of $750,000. Warrants will expire in the event
        of
        an initial public offering of the Company's securities. Warrants have an
        exercise price for preferred Class "A" shares of the Company at $4.45 per
        share,
        equivalent to $0.74 after the 1 to 6 forward stock split. No value has been
        assigned to the warrants and the total investment net of par value of preferred
        Class "A" shares has been presented as additional paid-in capital. The warrants
        for preferred Class "A" shares were converted into warrants for common shares
        on
        a 1 to 1 basis during the year.
  In
        January 2003, the Company issued warrants to purchase 180,441 Class "B"
        preferred shares of the Company for deferral of debt for legal services
        rendered, which was valued at $10,000. The warrants will expire in
        2010.
  The
        warrants for preferred Class "B" shares have been converted into warrants
        for
        common shares during the year at a ratio of 1 to 6.3828125. After the
        conversion, the warrants were further split at the ratio of 1 to 6 in accordance
        with the forward stock split of the common shares. After the conversion and
        the
        forward split, there were warrants to purchase 7,025,778 shares
        outstanding.
  On
        April
        4, 2007, 505,732 of the above warrants were converted into common shares
        and the
        number of warrants outstanding as at June 30, 2007 was 6,520,046. ****
  On
        December 22, 2005, the Company entered into an agreement with Syntek Capital
        AG,
        as part of the agreement for conversion of the note payable into common shares,
        whereby the Company issued warrants to purchase up to 5,263,158 common shares
        of
        the Company at an exercise price of $0.19. As of June 30, 2007, the warrants
        have not been converted into common stocks.
  On
        February 2, 2006, the Company entered into an identical agreement with DEP
        Technology Holdings Ltd. The value assigned to the warrants was $ 218,114.
        As of
        June 30, 2007, the warrants have not been converted into common
        stocks.
  13
  **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 Capital
        Stock:
  In
        January 2003, the Company issued 4,297,816 common shares, equivalent to
        25,786,896 after the 1 to 6 forward stock split, for $250,000 of offering
        costs
        with regard to the registration of its securities with the Securities and
        Exchange Commission. In November 2003 it was agreed upon by the parties that
        the
        fair value of the offering costs was only $60,000 and therefore 19,786,896
        of
        the post-split shares were forfeited. The offering costs have been charged
        to
        professional services expense in the year.
  In
        January 2003, the Company issued 6,315,258 Class "C" preferred shares to
        a
        shareholder for providing a non-interest bearing credit line facility of
        $300,000. These shares were issued at par value, which approximates the fair
        market value of the financing fees relating to the credit line facility.
        At June 30, 2007, the line of credit had an outstanding balance of $321,019.
        The
        6,315,258 Class "C" preferred shares were subsequently converted into 37,891,548
        common shares post forward stock split.
  On
        November 19, 2003, the Company, in accordance with the holders, agreed to
        convert all the 268,382 Class "A", 489,456 Class "B", and 6,315,258 Class
        "C"
        preferred shares into common shares. Following the conversion, the Company
        granted a 1 to 6 forward stock split of its common shares. The conversion
        has
        been recorded prospectively in the consolidated financial statements, while
        the
        forward stock split has been recorded retroactively.
 On
        July
        29, 2005, the Company issued 5,000,000 common shares, at par value, to its
        Chief
        Financial Officer as compensation for services rendered from September 2002
        to
        December 2005. It was agreed upon by the parties that the fair value of such
        services was $500,000, all of which has been charged to wage
        expense.
  On
        March
        8, 2006, the Company issued 12,400,448 common stock for repayment of the
        $1,800,000 notes payable to Syntek Capital AG ("Syntek") and DEP.
  On
        April
        28, 2006, the Company issued 2,818,182 common stocks to its external consultant
        in exchange for consulting services. It was agreed upon by the parties that
        the
        fair value of such services was $310,000. For the period ended June 30, 2007,
        $103,333 has been charged to consulting expense.
  On
        March
        6, 2007, the Company exercised its right pursuant to the February 6, 2006
        equity
        financing agreement with a Delaware limited partnership ("DLP"). The agreement
        entitled the Company to sell up to 20,000,000 of the Company’s common shares (up
        to $10,000,000) over the course of 36 months. The amount that the Company
        shall
        be entitled to request from each of the purchase "Puts", shall be equal to
        either 1) $300,000 or 2) 200% of the average daily volume ("ADV") multiplied
        by
        the average of the 3 daily closing prices immediately preceding the Put date.
        The ADV shall be computed using the 10 trading days prior to the Put Date.
        The
        Purchase Price for the common stock identified in the Put Notice shall be
        set at
        93% of the lowest closing bid price of the common stock during the Pricing
        Period. The Pricing Period is equal to the period beginning on the Put Notice
        date and ending on and including the date that is 5 trading days after such
        Put
        Date. There are put restrictions applied on days between the Put Date and
        the
        Closing Date with respect to that Put. During this time, the Company shall
        not
        be entitled to deliver another Put Notice.
  14
  **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 In
        connection with the equity financing agreement, the Company has issued a
        preliminary prospectus whereby the DLP and a current significant shareholder
        can
        sell up to 30,000,000 common shares at market value. For the period ended
        June
        30, 2007, 4,887,383 common shares were issued under the agreement for
        $658,826.
  Stock
        Options:
  In
        February 2001 the Board of Directors of the Company adopted two option plans
        to
        allow employees and consultants to purchase common shares of the
        Company.
  Under
        the
        Israel 2001 share option plan, management authorized stock options for 2,403,672
        common shares of the Company having a $0.0017 nominal par value each and
        an
        exercise price of $0.0017, and under the International 2001 share option
        plan,
        stock options for 300,000 common shares having a $0.0017 nominal par value
        each
        and an exercise price of $0.0017. As of June 30, 2007, 3,672 options under
        the
        Israel 2001 share option plan for common stock were not yet
        granted.
  Under
        the
        Israel 2003 share option plan, management authorized stock options (on a
        post
        conversion, post split basis) for 16,094,106 preferred Class "B" shares,
        which
        were converted to options for common shares of the Company having a $0.0017
        nominal par value each and an exercise price of $0.0017, and under the
        International 2003 share option plan stock options (on a post conversion,
        post
        split basis) for 25,061,094 preferred Class "B" shares which were converted
        to
        options for common shares of the Company having a $0.0017 nominal par value
        each
        and an exercise price of $0.0017. On January 5, 2006, the share option plan
        was
        amended to authorize an additional 1,260,000 stock options and the exercise
        price per share for the new options will be $0.12 for options granted after
        January 5, 2006. On August 14, 2006, the share option plan was amended to
        authorize an additional 6,000,000 stock options at an exercise price of $0.04.
        On January 16, 2007, the plan was amended to authorize an additional 1,530,000
        stock options (1,250,000 at an exercise price of $0.08 and 280,000 at an
        exercise price of $0.05). On June 29, 2007, the plan was further amended
        to
        issue an additional 180,000 stock options at an exercise price of $0.13.
        As of
        June 30, 2007, 38,256 options under the Israel 2003 share option plan were
        not
        yet granted.
  On
        January 12, 2006, 1,260,000 stock options under the Israel 2003 share options
        plan were granted at an exercise price of $0.12. On June 6, 2006, the exercise
        price was amended to $0.05. The compensation cost has been revalued as if
        the
        option plan was cancelled and reissued, in accordance with SFAS 123, paragraph
        187 Accounting for Stock Based Payments (Modification of Awards).
  On
        August
        14, 2006, 6,000,000 stock options under the Israel 2003 share options plan
        were
        granted at an exercise price of $0.04.
  On
        November 1, 2006, 700,000 stock options under the Israel 2003 share options
        plan
        were granted at an exercise price of $0.04.
  On
        November 27, 2006, 1,000,000 stock options under the International 2003 share
        options plan were granted at an exercise price of $0.08.
  On
        November 27, 2006, 2,500,000 stock options under the Israel 2003 share option
        plan were granted at an exercise price of $0.08.
  On
        December 1, 2006, 200,000 stock options under the Israel 2003 share options
        plan
        were granted at an exercise price of $0.05.
  15


**m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 On
        January 16, 2007, 1,250,000 stock options at an exercise price of $0.08 and
        280,000 stock options at an exercise price of $0.05 were granted, all under
        the
        Israel 2003 share option plan.
  In
        February, 2007, 872,864 stock options under the Israel 2001 share options
        plan
        were exercised.
  In
        March
        2007, 1,586,782 stock options under the Israel 2003 share option plan and
        400,000 under the Israel 2001 share option plan were exercised.
  On
        June
        22 2007, 132,914 stock options under the Israel 2003 share option plan and
        168,213 under the Israel 2001 share option plan were exercised.
  On
        June
        29, 2007, 180,000 stock options at an exercise price of $0.13 were granted
        under
        the Israel 2003 share option plan.
  The
        options vest gradually over a period of 4 years from the date of grant for
        Israel and 10 years (no less than 20% per year for five years for options
        granted to employees) for the International plan. The term of each option
        shall
        not be more than 8 years from the date of grant in Israel and 10 years from
        the
        date of grant in the International plan. The outstanding options that have
        vested have been expensed in the consolidated statements of operations as
        follows:
 Year
                    ended December 31, 2001
                
                $
                9,000Year
                    ended December 31, 2002
                
                
                -Year
                    ended December 31, 2003
                
                
                384,889Year
                    ended December 31, 2004
                
                
                25,480Year
                    ended December 31, 2005
                
                
                13,733Year
                    ended December 31, 2006
                
                
                117,044Period
                    ended June 30, 2007
                
                
                88,325$
                638,471
  16
  **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 The
        following table summarizes the activity of common
        stock options during 2007 and 2006:
 **2007**
                
                2006**Israel**
                
                **International**
                
                Israel
                
                InternationaOutstanding,
                    beginning of period
                
                
                **14,233,508**
                
                
                **11,026,797**
                
                
                3,745,192
                
                
                1,026,797Granted
                
                
                **1,710,000**
                
                
                **-**
                
                
                1,260,000
                
                
                -Exercised
                
                
                **(3,160,773**
                **)**
                
                **-**
                
                
                (169,871
                )
                
                -Forfeited
                
                
                **(49,368**
                **)**
                
                **-**
                
                
                (1,813
                )
                
                -Outstanding,
                    end of period
                
                
                **12,733,367**
                
                
                **11,026,797**
                
                
                4,833,508
                
                
                1,026,797Weighted
                    average fair value of options granted during the period
                
                **$**
                **0.0458**
                ****
                **$**
                **-**
                
                $
                0.0494
                
                $
                -Weighted
                    average exercise price of common stock options, beginning of
                    period
                
                **$**
                **0.0217**
                ****
                **$**
                **0.0727**
                
                $
                0.0017
                
                $
                0.0017Weighted
                    average exercise price of common stock options granted in the
                    period
                
                **$**
                **0.0804**
                ****
                **$**
                **-**
                
                $
                0.0500
                
                $
                -Weighted
                    average exercise price of common stock options, end of period
                
                **$**
                **0.0296**
                ****
                **$**
                **0.0727**
                
                $
                0.0143
                
                $
                0.0017Weighted
                    average remaining contractual life of common stock options
                
                
                **4
                    years**
                
                
                **6
                    years**
                
                
                5
                    years
                
                
                7
                    years
  The
        stock
        options have not been included in the calculation of the diluted earnings
        per
        share as their inclusion would be antidilutive.
 
 **7.**
              **Income
                  Taxes**
  The
        Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
        for Income Taxes". This Standard prescribes the use of the liability method
        whereby deferred tax asset and liability account balances are determined
        based
        on differences between financial reporting and tax bases of assets and
        liabilities and are measured using the enacted tax rates. The effects of
        future
        changes in tax laws or rates are not anticipated.
  Under
        SFAS No. 109 income taxes are recognized for the following: a) amount of
        tax
        payable for the current year, and b) deferred tax liabilities and assets
        for
        future tax consequences of events that have been recognized differently in
        the
        financial statements than for tax purposes. Management determined that
        accounting values of its assets and liabilities recorded are not materially
        different from their tax values and therefore no deferred tax assets/liabilities
        have been setup to account for the temporary differences.
  The
        Company has deferred income tax assets as follows:
 **2007**
                
                2006Deferred
                    income tax assetsNet
                    operating loss carryforwards
                
                **$**
                **2,686,000**
                ****
                $
                2,602,000Valuation
                    allowance for deferred income tax assets
                
                ****
                **(2,686,000**
                **)**
                
                (2,602,000
                )**$**
                **-**
                ****
                $
                -
 
 The
        Company provided a valuation allowance equal to the deferred income tax assets
        because it is not presently more likely than not that they will be
        realized.
  17
  **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 As
        at
        June 30, 2007, the Company has approximately $10,745,000 in net operating
        loss
        carryforwards in the United States parent and insignificant tax losses in
        its
        Israeli subsidiary. Losses in the United States, if not utilized, will expire
        in
        twenty years from the year of origin as follows:
 
 December
                    31, 2020
                
                $
                909,5002021
                
                
                2,398,0002022
                
                
                778,0002023
                
                
                5,005,0002024
                
                
                581,0002025
                
                
                560,5002026
                
                
                196,0002027
                
                
                317,000$
                10,745,000
 
 **8.**
              **Related
                  Party Transactions**
  During
        the period ended June 30, 2007, the Company directors incurred consulting
        fees
        and salaries to directors in the amount of $77,000 (2006 - $110,000). As
        of June
        30, 2007, $506,000 (2006 - $566,000) was unpaid and included in other payables
        and accrued expenses.
  These
        transactions were in the normal course of business and recorded at an exchange
        value established and agreed upon by the above mentioned parties.
 
 **9.**
              **Major
                  Customers**
  For
        the
        six months ended June 30, 2007, the Company had three major customers which
        accounted for 54%, 16% and 10% of total revenue. For the six months ended
        2006,
        the Company had four major customers which accounted for 39%, 18%, 18% and
        13%
        of the total revenue. For the six months ended June 30, 2007, 83% (2006,
        71%) of
        the total sales were in the United States and 10% were in Asia (2006, 8%).
 
 **10.**
              **Commitments**
  a)
              Leases
  The
        Company is committed under an operating lease for its premises which expires
        on
        June 30, 2008. Minimum annual payments (exclusive of taxes, insurance, and
        maintenance costs) under the lease are $54,000.
  In
        addition, the Company is committed under operating vehicle leases as
        follows:
 2008
                
                $
                70,0002009
                
                
                55,0002010
                
                
                14,000$
                139,000
  18
  **m-Wise,
          Inc. and Subsidiaries**
 Notes
          to
          Consolidated Financial Statements
 June
          30,
          2007, and 2006
 (Unaudited)
 b)
              Equity
                  Financing Agreement
  On
        March
        6, 2007, the Company exercised its right pursuant to the February 6, 2006,
        equity financing agreement with a Delaware limited partnership ("DLP"). The
        agreement entitled the Company to sell up to 20,000,000 of the Company’s common
        shares (up to $10,000,000) over the course of 36 months. The amount that
        the
        Company shall be entitled to request from each of the purchase "Puts", shall
        be
        equal to either 1) $300,000 or 2) 200% of the average daily volume ("ADV")
        multiplied by the average of the 3 daily closing prices immediately preceding
        the Put date. The ADV shall be computed using the 10 trading days prior to
        the
        Put Date. The Purchase Price for the common stock identified in the Put Notice
        shall be set at 93% of the lowest closing bid price of the common stock during
        the Pricing Period. The Pricing Period is equal to the period beginning on
        the
        Put Notice date and ending on and including the date that is 5 trading days
        after such Put Date. There are put restrictions applied on days between the
        Put
        Date and the Closing Date with respect to that Put. During this time, the
        Company shall not be entitled to deliver another Put Notice.
  In
        connection with the equity financing agreement, the Company has issued a
        preliminary prospectus whereby the DLP and a current significant shareholder
        can
        sell up to 30,000,000 common shares at market value. As at June 30, 2007,
        4,887,383 common shares have been issued under the agreement for
        $658,826.
 
 **11.**
              **Subsequent
                  Events**
  Exercise
        of Stock Options:
  On
        July
        1, 2007, 103,230 stock options under the Israel 2003 share option plan were
        exercised.
  19
 
 Item
        2.  Management's
        Discussion and Analysis of Financial Condition and Results of
        Operation
 
 The
        following discussion should be read in conjunction with our consolidated
        financial statements and related notes included elsewhere in this Report.
 
 This
        filing contains forward-looking statements. The words "anticipate," "believe,"
        "expect, "plan," "intend," "seek," "estimate," "project," "will," "could,"
        "may," and similar expressions are intended to identify forward-looking
        statements. These statements include, among others, information regarding
        future
        operations, future capital expenditures, and future net cash flow. Such
        statements reflect our management’s current views with respect to future events
        and financial performance and involve risks and uncertainties, including,
        without limitation: (a) the timing of our sales could fluctuate and lead
        to
        performance delays; (b) without additional equity or debt financing we cannot
        carry out our business plan; (c) our stockholders have pre-emptive rights
        to
        purchase securities of m-Wise, which could impair our ability to raise capital;
        (d) we operate internationally and are subject to currency fluctuations,
        which
        could cause us to incur losses even if our operations are profitable; (e)
        we are
        dependent upon certain major customers, and the loss of one or more of such
        customers could adversely affect our revenues and profitability; (f) our
        research and development facilities are located in Israel and we have important
        facilities and resources located in Israel which could be negatively affected
        due to military or political tensions; (g) certain of our officers and employees
        are required to serve in the Israel defense forces and this could force them
        to
        be absent from our business for extended periods; (h) the rate of inflation
        in
        Israel may negatively impact our costs if it exceeds the rate of devaluation
        of
        the NIS against the Dollar. Should one or more of these risks or uncertainties
        occur, or should underlying assumptions prove to be incorrect, actual results
        may vary materially and adversely from those anticipated, believed, estimated
        or
        otherwise indicated. These forward-looking statements speak only as of the
        date
        of this prospectus. Subject at all times to relevant federal and state
        securities law disclosure requirements, we expressly disclaim any obligation
        or
        undertaking to disseminate any update or revisions to any forward-looking
        statement contained herein to reflect any change in our expectations with
        regard
        thereto or any changes in events, conditions or circumstances on which any
        such
        statement is based. Consequently, all of the forward-looking statements made
        in
        this Report are qualified by these cautionary statements and there can be
        no
        assurance of the actual results or developments.
  20
  RESULTS
        OF OPERATIONS
 
 SIX
        MONTHS ENDED JUNE 30, 2007 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
        2006.
 
 REVENUES
 
 License
        fees and products. Revenues from license fees and products decreased 68%
        to
        $199,998 for the six months ended June 30, 2007 from $622,650 for the same
        period in 2006.
 
 Revenue
        share. Revenues from revenue share increased 46% to $233,450 for the six
        months
        ended June 30, 2007 from $160,072 for the same period in 2006. The increase
        primarily consisted of revenues from current customers who were not our
        customers during the first six months of 2006 and from customers that did
        not
        generate revenues from selling services to end users previously.
 
 Customer
        services and technical support. Revenues from customer services and technical
        support increased 95% to $471,751 for the six months ended June 30, 2007
        from
        $241,978 for the same period in 2006. The increase primarily consisted of
        increased orders for services from existing customers.
 
 Cost
        of revenues.
 
 Cost
        of
        revenues increased 21% to $135,242 for the six months ended June 30, 2007
        from
        $111,740 for the same period in 2006. This increase was primarily due to
        Higher
        revenues from customer services and technical support.
 
 Operating
        expenses.
 
 Research
        and development. Research and development expenses increased 39% to $379,078
        for
        the six months ended June 30, 2007 from $272,749 for the same period in 2006.
        This increase was primarily due to a $112,225 increase in payroll and related
        expenses. Research and development expenses, stated as a percentage of revenues
        increased to 42% for the six months ended June 30, 2007 from 27% for the
        same
        period in 2006.
 
 General
        and administrative.
 
 General
        and administrative expenses increased 23% to $753,309 for the six months
        ended
        June 30, 2007 from $613,406 for the same period in 2006. This increase was
        primarily due to a $116,751 increase in marketing expenses and a $41,695
        increase in payroll and related expenses. General and administrative expenses,
        stated as a percentage of revenues, increased to 83% for the six months ended
        June 30, 2007 from 60% for the same period in 2006.
 
 21
 
 Financing
        expenses.
 
 Financing
        expenses. Our financing expenses decreased 92% to $19,285 for the six months
        ended June 30, 2007 from $251,518 for the same period in 2006. The decrease
        primarily consisted of $222,104 financing fee paid by issuance of common
        shares
        in 2006.
 
 **Liquidity
        and Capital Resources**
 
 Our
        principal sources of liquidity since our inception have been private sales
        of
        equity securities, stockholder loans, borrowings from banks and to a lesser
        extent, cash from operations. We had cash and cash equivalents of $428,933
        as of
        June 30, 2007 and $5,072 as of December 31, 2006. Our initial capital came
        from
        an aggregate investment of $1.3 million from Cap Ventures Ltd. To date, we
        have
        raised an aggregate of $5,300,000 from placements of our equity securities
        (including the investment by Cap Ventures and a $4,000,000 investment by
        Syntek
        Capital AG and DEP Technology Holdings Ltd.). We have also borrowed an aggregate
        of $1,800,000 from Syntek Capital AG and DEP Technology Holdings Ltd. and
        as of
        the date of this prospectus we have no funds available to us under bank lines
        of
        credit. We have a credit line agreement with Miretzky Holdings Limited. As
        of
        June 30, 2007, $321,019 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 August 14, 2007 we have drawn $658,826
        under the Equity Line. We will need approximately $1.2 million for the next
        twelve months for our operating costs which mainly include salaries, office
        rent
        and network connectivity, which total approximately $80,000 per month, and
        for
        working capital. We intend to finance this amount from our ongoing sales
        and
        through the sale of either our debt or equity securities or a combination
        thereof, to affiliates, current stockholders and/or new investors. Currently
        we
        do not believe that our future capital requirements for equipment and facilities
        will be material.
 
 Operating
        activities.
 
 For
        the
        six months ended June 30, 2007 net cash used in operating activities was
        $94,933
        primarily due to our net loss of $381,715, partially offset by a $98,187
        decrease in prepaid and sundry assets, a $88,325 in employee vested options
        expense and a $30,575 in consulting fees paid by issuance of common stocks.
        In
        the same period in 2006 we used $34,974 of cash in operating activities
        primarily due to our net loss of $224,713 and a $374,141 increase in accounts
        receivables, partially offset by $222,104 financing fee paid by issuance
        of
        common shares and a $136,963 increase in deferred revenues.
 
 Investing
        and financing activities.
 
 Property
        and equipment consist primarily of computers, software, and office equipment.
        For the six months ended June 30, 2007, net cash used in investing activities
        was $21,570 consisting of an investment in equipment. In the same period
        in 2006
        net cash used in investing activities was $28,829 consisting of an investment
        in
        equipment. For the six months ended June 30, 2007, net cash provided by
        financing activities was $540,364 primarily due to a $658,826 sale of common
        shares under equity financing agreement, partially offset by a $115,352 decrease
        in advances from a shareholder. In the same period in 2006, net cash provided
        by
        financing activities was $131,766 due to a $142,084 increase in advances
        from a
        shareholder, partially offset by a $10,318 decrease in bank indebtedness.
  22
  **Dividends**
 
 We
        have
        not paid any dividends on our common stock. We currently intend to retain
        any
        earnings for use in our business, and therefore do not anticipate paying
        cash
        dividends in the foreseeable future.
 
 **Off
        Balance Sheet Arrangements**
 
 None.
 
 Item
        3.  Controls
        and Procedures
 
 With
        the
        participation of management, our Chief Executive Officer and Chief Financial
        Officer evaluated our disclosure controls and procedures within the 90 days
        preceding the filing date of this quarterly report. Based upon this evaluation,
        the Chief Executive Officer and Chief Financial Officer concluded that our
        disclosure controls and procedures are effective in ensuring that material
        information required to be disclosed is included in the reports that we file
        with the Securities and Exchange Commission.
 
 There
        were no significant changes in our internal control over financial reporting
        to
        the knowledge of our management, or in other factors that have materially
        affected or are reasonably likely to materially affect these internal controls
        over financial reporting subsequent to the evaluation date.
 
 PART
        II
 OTHER
        INFORMATION
 
 Item
        1.  Legal
        Proceedings
 
 None.
 
 Item
        2.  Changes
        in Securities and Small Business Issuer Purchases of Equity
        Securities
 
 Pursuant
        to the February 6, 2006 equity line credit agreement with Dutchess Private
        Equities Fund, LP , the Company sold 1,062,600 common shares for total proceeds
        of $141,418 in March , 2,516,454 common shares for total proceeds of $341,003
        in
        April 2007, 1,192,329 common shares for total proceeds of $164,829 in May
        2007
        and 116,000 common shares for total proceeds of $11,576 in June
        2007.
  23
 Item
        3.  Default
        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
        and Reports on Form 8-K
 (a)
                Exhibits3.1
                Amended
                    and restated Certificate of Incorporation**3.2
                Bylaws**4.1
                Purchase
                    and registration rights agreement and schedule of
                    details**10.1
                Amended
                    and Restated Employment Agreement with Mordechai
                    Broudo**10.2
                Amendment
                    to Amended and Restated Employment Agreement with Mordechai
                    Broudo**10.3
                Amended
                    and Restated Employment Agreement with Shay
                    Ben-Asulin**10.4
                Amendment
                    to Amended and Restated Employment Agreement with Shay
                    Ben-Asulin**10.5
                Employment
                    Agreement, Gabriel Kabazo**10.6
                Confidentiality
                    rider to Gabriel Kabazo Employment Agreement**10.7
                Employment
                    Agreement Asaf Lewin**10.8
                2003
                    International Share Option Plan**10.9
                Form
                    of Option Agreement, 2003 International Share Option
                    Plan**10.10
                2001
                    International Share Option Plan**10.11
                Form
                    of Option Agreement, 2001 International Share Option
                    Plan**10.12
                2003
                    Israel Stock Option Plan**10.13
                Form
                    of Option Agreement, 2003 Israel Stock Option Plan**10.14
                2001
                    Israel Share Option Plan**10.15
                Form
                    of Option Agreement, 2001 Israel Share Option Plan**10.16
                Investors'
                    Rights Agreement dated January 11, 2001**10.17
                Stockholders
                    Agreement**10.18
                Agreement
                    for Supply of Software and Related Services dated October 14,
                    2002, by and
                    between i Touch plc and m-Wise, Inc.**10.19
                Purchase
                    agreement between m-Wise, Inc. and Comtrend Corporation dated
                    May 22,
                    2002**10.20
                Amended
                    and Restated Consulting agreement between Hilltek Investments
                    Limited and
                    m-Wise dated November 13, 2003**10.21
                Consulting
                    agreement between Hilltek Investments Limited and m-Wise dated
                    June 24,
                    2003, subsequently amended see exhibit 10.20 above**10.22
                Amendment
                    to Investors' Rights Agreement dated October 2, 2003**10.23
                Appendices
                    to 2003 Israel Stock Option Plan**10.24
                Appendices
                    to 2001 Israel Share Option Plan**10.25
                Credit
                    Line Agreement between m-Wise, Inc. and Miretzky Holdings, Limited
                    dated
                    January 25, 2004**
  24
  10.26
                Termination
                    and Release Agreement by and among the Company and Syntek capital
                    AG.
                    (Incorporated by reference to Exhibit 10.1 of the current report
                    on Form
                    8-K filed on January 13, 2006)10.27
                Termination
                    and Release Agreement dated February 2, 2006 by and among the
                    Company andDEP
                    Technology Holdings Ltd(Incorporated by reference to Exhibit 10.1 of the current report
                    on Form
                    8-K filed on February 7, 2006)21.
                List
                    of Subsidiaries**31.1
                Rule
                    13a-14(a)/15d-14(a) Certification.*31.2
                Rule
                    13a-14(a)/15d-14(a) Certification.*32.1
                Certification
                    by the Chairman Relating to a Periodic Report Containing Financial
                    Statements. ***32.2
                Certification
                    by the Chief Financial Officer Relating to a Periodic Report
                    Containing
                    Financial Statements. ***
 _____________
 *
              Filed
                  herewith.
 
 **
              Incorporated
                  by reference from the registration statement filed with theSecurities
                  and Exchange Commission Registration Statement on Form SB-2 (Reg.
                  No.333-106160).
  ***
              The
                  Exhibit attached to this Form 10-QSB shall not be deemed "filed"
                  for
                  purposes of Section 18 of the Securities Exchange Act of 1934,
                  as amended
                  (the "Exchange Act"), or otherwise subject to liability under that
                  section, nor shall it be deemed incorporated by reference in any
                  filing
                  under the Securities Act of 1933, as amended, or the Exchange Act,
                  except
                  as expressly set forth by specific reference in such
                  filing.
 
 (b)
              Reports
                  on Form 8-K
 
 Not
        applicable.
 
 25
  **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  **m-Wise,
                  INC.**
                (Registrant)Date:
                August 14, 2007
              
              /s/ Mordechai
                BroudoName:
                Mordechai BroudoTitle:
                Chairman
  26