UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One) 

Commission file number: 000-27145 

SOCIALWISE, INC.

(Name of small business issuer in its charter)

(858) 677-0080

(Issuer’s telephone number, including area code)

At May 12, 2010, there were ­­­­­­49,996,267 shares outstanding of the issuer’s common stock (trading under the symbol SCLW), the only class of common equity.

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

TABLE OF CONTENTS

PART I: Financial Information

Item 1 –

Financial Statements

Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2010 and September 30, 2009

Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 2010 and 2009

Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended March 31, 2010 and 2009

Notes to Condensed Consolidated Financial Statements (unaudited)

Item 2 –

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3 –

Quantitative and Qualitative Disclosures about Market Risk

Item 4 –

Controls and Procedures

PART II: Other Information

Item 1 –

Legal Proceedings

Item 1A –

Risk Factors

Item 2 –

Sales of Unregistered Securities and Use of Proceeds

Item 3 –

Defaults upon Senior Securities

Item 4 –

(Removed and Reserved)

Item 5 –

Other Information

Item 6 –

Exhibits and Reports on Form 8-K

Signatures

Exhibits

FORWARD LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q may contain statements relating to future results of Socialwise, Inc. (formerly known as IdeaEdge, Inc.) (including certain projections and business trends) that are “forward-looking statements.” Our actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, without limitation, statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements of the Company to be materially different from any future results or achievements of the Company expressed or implied by such forward-looking statements. Such factors include, among others, those set forth herein and those detailed from time to time in our other Securities and Exchange Commission (“SEC”) filings including those contained in our most recent Form 10-K. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Also, there can be no assurance that the Company will be able to raise sufficient capital to continue as a going concern.

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2

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Socialwise, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1.

Basis of Presentation

Socialwise, Inc. (hereinafter referred to as “we” or “the/our Company”) is a Colorado corporation.  Through our subsidiary incorporated in the state of California, Socialwise, Inc. (“Socialwise-CA”), we develop and market innovative gifting and payment solutions.  We are a publicly traded company trading on the OTC Bulletin Board under the symbol “SCLW.”  

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements.  In the opinion of our management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included.  Operating results for the six months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the entire year.  For further information, see our consolidated financial statements and related disclosures thereto for the year ended September 30, 2009 in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.  All intercompany amounts have been eliminated in consolidation.  

Our financial statements have been prepared assuming that we will continue as a going concern.   However, we have incurred net losses, have yet to establish profitable operations, have negative stockholders’ equity and have current liabilities in excess of current assets at March 31, 2010.  These factors, among others, create a substantial doubt about our ability to continue as a going concern.  We are dependent upon sufficient future revenues, additional sales of our securities or obtaining debt financing to meet our cash requirements.  Barring our generation of revenues in excess of our costs and expenses or our obtaining additional funds from equity or debt financing, we will not have sufficient cash to continue to fund our operations through our September 30, 2010 fiscal year end.  Subsequent to the date of the accompanying financial statements and through May 12, 2010, we raised an additional $103,000 ($94,600 net of related costs of $8,400) from the sale of 257,500 shares of our common stock and warrants to purchase 193,125 additional shares of common stock with an exercise price of $0.60 per share.

2.

Summary of Significant Accounting Policies

Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our 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.

Revenue Recognition

We recognize revenue at the time the product or service is purchased or contracted for by customers, the product has been shipped or the service rendered, the selling price and our commission for the transaction is fixed, collection is reasonably assured and when both title and risk of loss transfers to the customer, provided no significant obligations remain.  Cash received in advance of the satisfaction of the criteria for revenue recognition will be deferred until such time as the criteria are satisfied.  We do not anticipate collecting sales taxes in connection with our products or services.  The SEC's Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues.  We believe that our revenue recognition policies are appropriate and in accordance with generally accepted accounting principles and SAB No. 104.

Cash and cash equivalents

We consider all investments with a fixed principal repayment amount and an original maturity of six months or less to be cash equivalents.  Cash equivalents primarily represent funds invested in money market funds, bank certificates of deposit and U.S. government debt securities whose cost equals fair market value.

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Socialwise, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

From time to time, we have maintained bank balances in excess of the amounts insured by the Federal Deposit Insurance Corporation.  We have not experienced any losses with respect to cash.  Management believes our Company is not exposed to any significant credit risk with respect to its cash and cash equivalents.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets.  Costs incurred for maintenance and repairs are expensed as incurred and expenditures for major replacements and improvements are capitalized and depreciated over their estimated remaining useful lives.  

Valuation of Long-Lived Assets

We record impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the estimated fair value of the assets.  We perform periodic reviews of the carrying value of our long-lived assets to be held and used, including certain identifiable intangible assets, on a periodic basis or whenever evidence comes to our attention that such impairment might have occurred.

Income Tax Expense Estimates and Policies

As part of the income tax provision process of preparing our financial statements, we are required to estimate our Company’s provision for income taxes.  This process involves estimating our current tax liabilities together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes.  These differences result in deferred tax assets and liabilities.  Management then assesses the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent believed that recovery is not likely, a valuation allowance is established.  Further, to the extent a valuation allowance is established and changes occur to this allowance in a financial accounting period, such changes are recognized in our tax provision in our consolidated statement of operations.  We use our judgment in making estimates to determine our provision for income taxes, deferred tax assets and liabilities and any valuation allowance is recorded against our net deferred tax assets.

There are various factors that may cause these tax assumptions to change in the near term, and we may have to record a future valuation allowance against our deferred tax assets.  We recognize the benefit of an uncertain tax position taken or expected to be taken on our income tax returns if it is “more likely than not” that such tax position will be sustained based on its technical merits.

Stock Based Compensation

We account for stock based compensation arrangements in accordance with accounting standards that require the measurement and recognition of compensation expense for all stock based payment awards to employees and directors based on estimated fair values. We use the Black-Scholes-Merton option valuation model to estimate the fair value of our stock options and warrants at the date of grant.  The Black-Scholes-Merton option valuation model requires the input of subjective assumptions to calculate the value of options and warrants.  We use historical company data among other information to estimate the expected price volatility and the expected forfeiture rate and not comparable company information, due to the lack of publicly traded companies that exist in our industry.  

Derivatives

We account for the embedded derivative features of certain of our equity securities as derivatives in accordance with newly issued guidance effective with our 2010 fiscal year beginning October 1, 2009.   The new guidance requires our Company to consider whether provisions that protect holders from a decline in the price of future equity sold by our Company (down-round provisions or “DRPs”) should be properly reclassified from stockholders’ equity to liabilities.  We have DRPs in connection with 8,600 shares of our Series A preferred stock outstanding (convertible into 2,606,060 shares of our Company’s common stock) and in connection with outstanding warrants to purchase 2,272,728 shares of our common stock with an exercise price of $0.40 per share.  The estimated value of the equity instruments containing DRPs is required to be accounted for as a liability if our Company is required to pay cash to

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Socialwise, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

settle the provisions of the DRPs or in the event that our Company’s stock trades in sufficient volumes such that such instruments can be readily converted into cash.  We have analyzed the securities containing DRPs and concluded that these instruments are properly accounted for within stockholders’ equity at March 31, 2010.    

Net Loss per Share

We calculate basic earnings per share (“EPS”) by dividing our net loss by the weighted average number of common shares outstanding for the period, without considering common stock equivalents.  Diluted EPS is computed by dividing net income or net loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants.  Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive.  Potentially dilutive securities at March 31, 2010 were excluded from historical basic and diluted earnings per share, respectively, due to their anti-dilutive effect.

Advertising

We will expense advertising costs as incurred.  We have no existing arrangements under which we provide or receive advertising services from others for any consideration other than cash.  

Litigation

From time to time, we may become involved in disputes, litigation and other legal actions.  We estimate the range of liability related to any pending litigation where the amount and range of loss can be estimated.  We record our best estimate of a loss when the loss is considered probable.  Where a liability is probable and there is a range of estimated loss with no best estimate in the range, we record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated.  As of the date of this quarterly report, we are currently not involved in disputes, litigation and other legal actions.  

Recently Issued Accounting Pronouncements

In September 2009, the Financial Accounting Standards Board (the “FASB”) ratified the final consensus reached by the Emerging Issues Task Force that revised the authoritative guidance for revenue arrangements with multiple deliverables. The guidance addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among the separate units of accounting. The guidance will be effective for our Company’s fiscal 2011 beginning October 1, 2010 with early adoption permitted.  The guidance may be applied retrospectively or prospectively for new or materially modified arrangements.  Adoption of the guidance will have no effect on our Company’s consolidated financial statements.

3.

Finder and Investor Relations Services Agreements

Finder Services

We entered into a Finder Agreement (“Finder Agreement”) effective June 1, 2008 with SPN Investments, Inc. (“SPN”).  The Finder Agreement calls for SPN or its designees to be paid a finder’s fee (in cash or shares of our Company’s equity securities) of 10% of all debt or equity funds raised by the Company where SPN acts as a Finder.  The Finder Agreement (as amended and supplemented as of August 12, 2009) also called for the issuance to SPN of up to 500,000 of our Company’s restricted common shares along with five year warrants to purchase 175,000 shares of common stock with an exercise price of $1 per share as follows:  

·

SPN received one share of common stock for each $10 of gross proceeds raised from sales of our Company’s preferred or common stock; up to a maximum of 500,000 shares of common stock (100,500 shares of the remaining total consideration of 500,000 shares were earned during the six months ended March 31, 2010 and accounted for as an issuance cost in consideration with the shares sold).  

·

SPN received 175,000 vested five year warrants in May 2009 with an exercise price of $1.00 per share.  

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Socialwise, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Investor Relations Services

During the three months ended March 31, 2010 and December 2009, we issued 575,000 and 84,555 shares, respectively, of our common stock Kay Holdings, Inc. (“Kay”) and its designees.  During the three months ended March 31, 2010 and December 2009, we issued two year term warrants with exercise prices of $0.60 per share to purchase 390,000 and 281,250 shares, respectively, of our common stock to Kay in exchange for investment banking services it performed on our Company’s behalf.  Kay and SPN have a common principal officer.  Our Company recognized a noncash expense in connection with the services performed on its behalf totaling $230,000 and $361,432 during the three and six months ended March 31, 2010.  

On August 24, 2009, we entered into a non-exclusive agreement with Equity Source Partners, LLC (“ESP”) to provide financial assistance in connection with fund raising activities.  Under the agreement, we issued ESP 50,000 shares of our Company’s restricted common stock and (as subsequently revised) will pay them or their designees: 1) up to 8% (as amended) of the cash raised by ESP or its associates on our Company’s behalf; and 2) a five year warrant to purchase one share of common stock for each 25 shares sold at the exercise price of $0.60 per share.  Through March 31, 2010, ESP has earned cash totaling $61,950 and warrants to purchase 97,100 shares of our common stock under the agreement.  

On May 8, 2009, we entered into an agreement with an individual (the “Advisor”) to provide strategic advisory services to our Company through May 2011, unless cancelled by either the Company or the Advisor after November 2009.  During the three and six months ended March 31, 2010, the Advisor was issued 42,000 and 56,000 shares of common stock, respectively, and warrants to purchase 42,000 and 56,000 shares, respectively, of our common stock (in addition to consideration received during the three months ended June 30, 2009 of 150,000 common shares and warrants to purchase 100,000 shares of common stock).  Noncash charges to operations during the three and six months ended March 31, 2010 in connection with our issuance of common shares and warrants to the Advisor totaled $36,960 and $50,260, respectively.

In November 2008, we entered into an agreement with Two Eight, Inc. (“Two Eight”) to provide investor relations services through March 31, 2009 to our Company in exchange for $100,000 in cash.  All amounts under the Two Eight agreement were charged to general and administrative expenses during the six months ended March 31, 2009.  

4.

Issuances of Common Stock and Warrants

During the six months ended March 31, 2010, we entered into subscription agreements with 38 accredited investors pursuant to which we issued 3,932,000 shares of our common stock and warrants to purchase an additional 2,904,000 shares of our common stock with an exercise price of $0.60 per share for a period of two years after their date of issuance, in exchange for gross proceeds totaling $1,581,800 ($1,442,040 net of expected expenses totaling $139,760).  SPN, Kay and ESP assisted our Company in connection with the transactions and they and their designees earned the fees and commissions therewith.

During the six months ended March 31, 2010, we issued 152,000 shares of common stock to a contractor in exchange for services performed in the current and prior fiscal years.  In connection with the issuance of shares, we recognized expenses of $24,000 and $80,000 during the three and six months ended March 31, 2010.  

From November 20, 2008 through December 19, 2008, we entered into subscription agreements with nine accredited investors pursuant to which we issued 2,034,375 shares of our common stock and warrants to purchase an additional 508,594 shares of our common stock at an exercise price of $1.00 per share for a period of two years after their date of issuance, in exchange for gross proceeds totaling $1,627,500 ($1,507,500 net of cash expenses totaling $120,000).  SPN acted as a Finder in connection with the transaction and directed the payment (in cash and stock of our Company) of fees earned in connection with the funds raised totaling $162,750 to three recipients who assisted in the fund raising. 

5.

Note Payable

On March 31, 2009, we issued a 12% Senior Note (the “Note”) payable for $750,000 due March 31, 2010, and 400,000 shares of our Company’s restricted common stock.  This financing transaction resulted in net proceeds to us of $573,750, after deducting discounts,

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Socialwise, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

prepaid interest expense, and fees totaling $63,750 paid in connection with the transaction.  The Note is neither convertible nor secured and carries certain operating and other covenants as well as prescribing certain events of default.  Upon the occurrence of an uncured event of default, the Note holder would be entitled to demand repayment of the entire amount outstanding under the Note multiplied by 115% and all remaining amounts outstanding would accrue interest at the rate of 20% per annum.  

Under the original terms of the Note, we were required to use no less than 50% of the proceeds of any subsequent equity or debt financing to repay the Note during the time that the Note remains outstanding.  In November 2009, the Note holder agreed to revise the required repayments under the Note due to future financings to payments of $25,000, $250,000 and $100,000 on October 30, 2009, November 20, 2009 and December 15, 2009, respectively (which required payments the Company made).  On December 28, 2009, the Company exercised its option (with the issuance of 75,000 shares of our common stock to the Note holder), to extend the maturity date of the Note to February 28, 2010.  

On February 28, 2010, the Note holder agreed to a further extension of the maturity date of the Note to May 31, 2010 in exchange for 50,000 shares of our common stock and the added option to convert the Note into shares of our common stock at the rate of $0.40 per share.  The value of all additional shares issued to the Note holder totaling $56,750 was accounted for as prepaid interest expense at the time of issuance and is amortized through the revised maturity date of May 31, 2010.  We recognized the convertibility feature granted to the Note holder as a beneficial conversion feature which equaled the difference between the closing market price of our stock at the time of the grant ($0.47) less the conversion price ($0.40), multiplied by the number of shares into which it was convertible (950,000) or $66,500.  The value of the convertibility feature granted will be amortized over the remaining term of the Note.  During the three and six months ended March 31, 2010, we recognized interest expense in connection with all of the related costs of the note payable totaling $78,559 and $199,653, respectively.

6.

Stockholders’ equity

Stock options

Our Company maintains the IdeaEdge, Inc. 2007 Equity Incentive Plan (the “Plan”) which provides for the granting of stock-based awards including: incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock.  The total number of shares of common stock that may be issued pursuant to stock awards under the Plan (as subsequently amended by our Board of Directors and subject to future approval by our shareholders) shall not exceed (in the aggregate) 4,000,000 shares of common stock of our Company.  During the six months ended March 31, 2010, we issued 400,000 nonqualified stock options to four employees with five year terms, two year vesting and exercise prices of $0.49 per share and cancelled 30,000 options upon the termination of an individual’s employment.  Through March 31, 2010, we have granted a total of 3,845,000 incentive and nonqualified stock options to six employees and two advisors under the Plan, 3,815,000 of which remain outstanding (3,289,580 options were vested as of March 31, 2010).  

Warrants

Our Company issued 3,712,000 and 5,113,286 warrants to advisors and consultants during the three and six months ended March 31, 2010.  Through March 31, 2010, we have issued warrants to purchase a total of 7,112,226 shares of common stock to advisors and consultants.  Warrants to purchase 50,000 shares were previously exercised and warrants to purchase 7,062,226 shares of common stock remain outstanding at March 31, 2010, 5,371,806 of which have vested.  The warrants have remaining terms ranging from five to fifty-nine months as of March 31, 2010 and exercise prices ranging from $0.37 to $2.45 per share.  

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Socialwise, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Through March 31, 2010, we have also issued warrants to purchase up to 6,396,199 shares of our common stock to investors (and as compensation in connection with investments) in connection with the sale of our common stock.  The numbers and exercise prices of investor warrants outstanding at March 31, 2010 (all of which are vested) are as follows:  

We issued warrants to purchasers of our common stock during the three and six months ended March 31, 2010 to purchase 620,750 and 3,001,100 shares of our common stock with terms of two years and exercise prices of $0.60 per share.  We previously issued warrants to purchasers of our common stock during the six months ended September 30, 2009 to purchase 183,750 shares of our common stock with terms of two years and exercise prices of $1.00 per share.  We also issued warrants to purchasers of our common stock in December 2008 to purchase 521,954 shares of our common stock with terms of two years and exercise prices of $1.00 per share.  

We issued warrants to purchasers of our preferred and common stock in June and August 2008 to purchase 2,272,722 shares (as adjusted) and 416,667, respectively of our common stock with terms of sixty-six months and exercise prices of $0.40 (as adjusted) and $0.60 per share, respectively.  The number of warrants under the June 2008 warrants was adjusted from 1,818,182 to 2,272,728 (and their exercise price was reduced from $0.50 to $0.40) due to sales of our Company’s common stock that took place in October 2009 at $0.40 per share.  The warrants issued in June and August 2008 have a call provision that allows our Company to require them to be exercised when (and if) our common stock maintains a closing market price of $1.00 per share for three consecutive trading days (subject to certain limitations).   The warrants also carry additional provisions in favor of the warrant-holders including: (1) severe penalties for failure to timely deliver underlying share certificates upon exercise; and 2) anti-dilution adjustments for any future issuances of common stock at prices less than the exercise price of the warrants.

Warrant activity (including all warrants issued) during the six months ended March 31, 2010 was as follows:

Stock-based compensation

During the three and six months ended March 31, 2010, we recognized stock-based compensation expense totaling $1,240,172 and $1,545,963, respectively ($372,981 and $908,300 during the three and six months ended March 31, 2009), in connection with the issuance of stock options and warrants issued to advisors and consultants (not including expenses for warrants issued in exchange for investor relations services totaling $90,000 during the three months ended December 31, 2009).  For purposes of accounting for stock-based compensation, the fair value of each warrant award is estimated on the date of grant (or performance of the contracted services as appropriate) using the Black-Scholes-Merton option pricing formula.  The following weighted average assumptions were utilized

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Socialwise, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

for the calculations of newly issued options and warrants during the three months ended March 31, 2010: expected life (in years) – 2.41 years; weighted average volatility – 165.37%; forfeiture rate – 0%; risk-free interest rate – 1.63%; and expected dividend rate – 0%.  At March 31, 2010, the weighted average exercise price of options and warrants outstanding (issued in connection with stock-based compensation) is $0.75 per share while the corresponding weighted average remaining contractual period was 37.4 months.  As of March 31, 2010, $1,089,911 of total unrecognized compensation expense related to unvested stock-based compensation is expected to be recognized through November 2011.

On February 11, 2010, we entered into an agreement with our Vice President of Business Development (and a member of our Company’s Board of Directors) Chris Nicolaidis concerning certain matters in relation to his holdings of our Company’s common stock.  Under the agreement, Mr. Nicolaidis agreed to: 1) tender to our Company 875,000 shares of common stock held by him; and 2) to restrict future sales of our Company’s common stock during the period of time covered by the agreement.

7.

Income taxes

We currently estimate our Company’s book net operating loss carryforwards (“NOL”) and deferred tax asset balance total approximately $10,600,000 and $4,200,000, respectively, as of March 31, 2010.  We have recorded a valuation allowance against our entire deferred tax asset balance due to our lack of a history of earnings, the limitations on the use of our NOL as a result of the Socialwise-CA acquisition and the future expiration of the NOL.  These factors give rise to substantial uncertainty as to whether our net deferred tax assets will be realized.  As a result of these factors, our utilization of the NOL will likely be severely limited and a substantial portion of the NOL may expire unused.  

8.

Commitments and contingencies

Our Company leases its office facilities on a month to month basis with current monthly rentals of $2,576.  Rent expense was $7,728 and $15,456 for the three and six months ended March 31, 2010 ($7,641 and $14,847 for the three and six months ended March 31, 2010).  

At the time of our acquisition of Socialwise-CA, our Company entered into an agreement with our former President that provided for his assumption of all the liabilities of our Company and a former subsidiary incurred through October 16, 2007.  Through the date of this report, no liabilities arising prior to October 17, 2007 have been asserted against either the subsidiary or our Company.  Should the Company’s former President fail to honor his obligations under the agreement, we could ultimately be responsible for these liabilities.  

9.

Subsequent events

One April 7, 2010, we entered into an agreement with Two Eight, Inc. (“Two Eight”) who will provide investor relations services through June 30, 2010 to our Company in exchange for 200,000 shares of our restricted common stock.  On May 10, 2010, we entered into an agreement with Kay who will provide investor relations services through June 30, 2010 to our Company in exchange for 550,000 shares of our restricted common stock.  The value of the common stock issued under the agreements to Two Eight and Kay totaling $300,000 will be charged to general and administrative expenses during the three months ended June 30, 2010.  

On April 28, 2010, we entered into an agreement with Maxim Group LLC (“Maxim”) to act as a non-exclusive placement agent for the sale of additional equity securities of our Company.  Under the terms of the agreement with Maxim, they will receive a cash payment equaling 10% of the proceeds raised from investors introduced to the Company by Maxim and warrants to purchase between ten and twenty percent of the shares of our common stock at terms similar to those sold to the investors introduced by Maxim.  In a related agreement, we granted ESP warrants to purchase up to 300,000 additional shares of our common stock at terms similar to those sold to the investors introduced by Maxim.  

From April 1, 2010 through May 12, 2010, we entered into additional subscription agreements for the sale of 257,500 shares of our common stock and two-year warrants to purchase 193,125 shares of common stock with an exercise price of $0.60 per share.  The sale of common stock and warrants resulted in gross proceeds to our Company totaling $103,000 ($94,600 net of related issuance costs totaling $8,400).  Our Company has evaluated subsequent events through the date that the financial statements were issued on May 12, 2010.  

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

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated.  The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein.  In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this Quarterly Report and our other periodic reports filed with the Securities and Exchange Commission.

Overview and Financial Condition

Discussions with respect to our Company’s operations included herein refer to our operating subsidiary, Socialwise-CA.  Our Company purchased Socialwise-CA on October 16, 2007.  We have no other operations than those of Socialwise-CA.  

Results of Operations

Revenues

Our Company had insignificant revenues totaling $1,473 and $1,964 for the three and six months ended March 31, 2010.  Our Company’s BillMyParents™ payment system (“BMP”) was only available on two youth gaming sites through most of the period ended March 31, 2010, and we did not promote BMP’s use on those sites to the general public in any significant way while the BMP product continued to undergo further technical and marketing development.  We hope to launch BMP with significant marketing support prior to our third fiscal quarter end on June 30, 2010.  BMP will be targeted at enabling parents and young people to link and communicate in order to guide responsible e-commerce transactions on the Internet.  BMP has been designed with significant features that we believe consumers will find compelling.  Going forward (and subject to receiving additional funding) we plan to make substantial efforts to market BMP (and related youth payment card methods) to the public as a convenient and safe youth payment system.  While we are optimistic about the prospects for BMP, since this is a new product offering (and we have not recognized significant revenues to date), there can be no assurance about whether or when BMP will turn out to be a successful new focus for us or that it will generate sufficient revenues with adequate margins to fund our operations over future periods.  There were no revenues from any sources during the three or six months ended March 31, 2009.  

Cost of Revenues

Our cost of revenues for the three and six months ending March 31, 2010 totaled $1,349 and $3,051 (our gross margins for the same periods were $124 and a negative $701).  Due to the low volume of revenues during the six months ended March 31, 2010, we did not cover the basic costs in connection with the maintenance of payment capabilities required to allow for the use of BMP where it was available.  There were no cost of revenues nor gross margin during the three or six months ended March 31, 2009.  

Operating Expenses

Selling and marketing expenses for the three and six months ended March 31, 2010 totaled $1,068,759 and $1,262,212, respectively ($172,853 and $538,733 for the comparable periods ended March 31, 2009).  Included in these expenses for the three and six months ended March 31, 2010 were employee compensation and related expenses of $27,733 and $73,287, respectively ($48,662 and $94,287 for the comparable periods ended March 31, 2009), payments to consultants for business development, marketing and merchandising services totaling $41,500 and $47,750, respectively ($39,850 and $85,904 for the comparable periods ended March 31, 2009), marketing, sales, creative services and public relations expenses of $38,750 and $39,861, respectively, ($52,365 and $106,695 for the comparable periods ended March 31, 2009) and noncash stock-based compensation expenses totaling $958,800 and $1,095,698, respectively ($24,588 and $236,385 for the comparable periods ended March 31, 2009).  The surge in stock-based compensation expenses in 2010 was due primarily to the signing of action sports athletes to endorse BMP and given the nature of the vesting of their warrants granted to purchase common stock, the total should decrease significantly going forward.  

Operations, general and administrative expenses for the three and six months ended March 31, 2010 totaled $983,375 and $1,798,464, respectively ($945,822 and $2,360,588 for the comparable periods ended March 31, 2009).  Included in these expenses for the three and six months ended March 31, 2010 were operations expenses in connection with building our two major IT platforms totaling $136,877 and $286,540, respectively ($283,006 and $841,704 for the comparable periods ended March 31, 2009), employee compensation and related charges of $266,128 and $524,219, respectively ($200,141 and $376,877 for the comparable periods ended

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March 31, 2009),  noncash stock-based compensation of $281,372 and $450,266, respectively ($348,393 and $671,915 for the comparable periods ended March 31, 2009), cash and noncash charges in connection with the payment of cash and the grant of common stock in connection with investor relations services totaling $246,800 and $400,232, respectively ($39,845 and $254,666 for the comparable periods ended March 31, 2009), legal fees of $2,496 and $18,575, respectively ($9,957 and $28,750 for the comparable periods ended March 31, 2009), accounting and auditing charges of $5,477 and $47,851, respectively ($5,401 and $34,477 for the comparable periods ended March 31, 2009), insurance of $11,604 and $23,531, respectively ($10,500 and $24,360 for the comparable periods ended March 31, 2009) and facility related expenses of $8,205 and $16,465, respectively ($8,055 and $16,011 for the comparable periods ended March 31, 2009).

Operating expenses for the three and six months ended March 31, 2010 totaled $2,052,134 and $3,060,676, respectively ($1,118,675 and $2,899,321 for the comparable periods ended March 31, 2009).  Noncash charges for stock-based compensation, investor relations services and depreciation included in these amounts for the three and six months ended March 31, 2010 totaled $1,490,549 and $1,938,348, respectively ($442,003 and $649,263 for the comparable periods ended March 31, 2009).  The increase in operating expenses compared to the prior year’s corresponding period is due significant charges incurred in connection with the grant of sizable grants of warrants to purchase our common stock to celebrity athlete endorsers of BMP.  This was offset from our focusing of all development, implementation, marketing and sales efforts on BMP in the current year (the prior year’s expenses included substantial expenditures made in connection with our Socialwise™ Group Gifting Platform (“SGGP”) in addition to BMP).  

Interest Income and Expense

For the three and six months ended March 31, 2010, interest income totaled $315 and $769, respectively ($2,985 and $11,249 for the comparable periods ended March 31, 2009), while interest expense totaled $78,559 and $199,653 for the three and six months ended March 31, 2010 (none in either the three or six months ended March 31, 2009).  Interest expense in the current year arose from the amortization and accretion of financing costs and discount along with the amortization of the related value of additional shares issued to the Note holder in connection with our note payable outstanding during the period.  

Net Loss and Net Loss per Share

For the three and six months ended March 31, 2010, our net loss totaled $2,130,254 and $3,260,647, respectively ($1,115,690 and $2,888,072 for the comparable periods ended March 31, 2009).  Our basic and diluted net loss per share of $0.04 and $0.07 for the three and six months ended March 31, 2010 ($0.03 and $0.07 for the comparable periods ended March 31, 2009) were identical due to the anti-dilutive effects of common stock equivalents during all the periods represented.  

Liquidity and Capital Resources

We have primarily financed our operations to date through the sale of unregistered equity and with the issuance of notes payable.  At March 31, 2010, our total assets were $487,671 (including prepaid interest of $57,667), while working capital totaled a deficit of $239,587.  Total liabilities (including the remaining balance and accrued interest of $381,526 from a note payable due (as modified) on February 28, 2010) were $703,987 (all of which were current) and our stockholders’ deficiency totaled $216,316.  Our cash and cash equivalents balance at March 31, 2010 totaled $372,961.  The change in our financial position from the previous amounts reported at September 30, 2009 resulted from the sale of unregistered common stock and warrants to purchase common stock that resulted in additional net cash proceeds totaling $1,442,040, offset by negative cash flows from operating activities totaling $1,016,294 and repayments of the note payable totaling $375,000 during the same period.  

Our total liabilities at March 31, 2010 included $65,072 in salary deferrals from our employees.  Of the $243,995 recorded as accounts payable and accrued liabilities at March 31, 2010, a total of $78,917 was due to one vendor for software programming services.  

Plan of Operations

We continue to be dependent upon future revenues, additional sales of our equity securities or obtaining debt financing to meet our cash requirements.  During the six months ended March 31, 2010, we raised additional equity funding totaling $1,442,040 (net of expenses) from the sale of our common stock and warrants to purchase shares of our Common Stock ($375,000 of which we used for the repayment of the note payable outstanding).  Barring our generation of revenues in excess of our costs and expenses or our

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obtaining additional funds from equity or debt financing, we estimate we do not have sufficient cash as of the date of this Quarterly Report to continue to fund the operations of our Company significantly past our September 30, 2010 fiscal year end.   From April 1, 2010 through May 12, 2010, we raised an additional $94,600 (net of related commissions and expenses totaling $8,400) from the sale of 257,500 shares of our common stock and warrants to purchase 193,125 additional shares of common stock with an exercise price of $0.60 per share.

Longer term, we continue our attempts to raise additional equity financing through the sale of unregistered shares of our Company’s preferred and/or common stock in order to finance our future investing and operating cash flow needs.  However, there can be no assurance as to whether, when, or upon what terms we will be able to consummate any such financing.

We do not expect to purchase any significant property or equipment, or to have any significant change in the number of our employees for the next twelve months.  We expect however to continue to incur costs in improving, maintaining and marketing BMP over the rest of fiscal 2010.

Going Concern

As noted above, there exists an uncertainty about our ability to continue as a going concern significantly past the end of our current fiscal year in September 30, 2010, absent additional funding.  This uncertainty may adversely affect our relationship with customers and suppliers and have an adverse effect on our ability to obtain future equity financing to maintain our operations.  

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related 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.  We continually evaluate our estimates and judgments and we base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances.  Materially different results can occur as circumstances change and additional information becomes known.

Item 3—Quantitative and Qualitative Disclosures about Market Risk

Intentionally omitted pursuant to Item 305(e) of Regulation S-K.

Item 4 – Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures and internal controls that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures and internal controls, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures and internal controls.

As required by the Securities and Exchange Commission Rule 13a-15(e) and Rule 15d-15(e), we carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Controls over Financial Reporting

There have not been any changes in our internal controls over financial reporting during the fiscal quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part II

Item 1 – Legal Proceedings

From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief.  The amount of the ultimate liability, if any, from such claims cannot be determined. However, in the opinion of our management, there are no legal claims currently pending or threatened against us that would be likely to have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A – Risk Factors

Investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this herein before making an investment decision.  If any of the following risks actually occur, our business, financial condition or results of operations could suffer. In that case, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

We have a very limited operating history overall and have only recently embarked on our current corporate focus of providing online payment solutions.  We completed our acquisition of Socialwise-CA on October 16, 2007.  Socialwise-CA was formed in April 2007 to pursue opportunities in the gift card industry.  We have since refocused our efforts on facilitating commerce for young consumers.  We do not currently have significant operating revenues and have a very limited operating history.  We do not have any historical financial data upon which to base planned operations. Because we have no operating history, our historical financial information is not a reliable indicator of future performance. Therefore, it is difficult to evaluate the business and prospects of our Company.  Furthermore, we only recently embarked on a revised business focus centered on BMP.  We have no experience as to whether BMP will be popular programs with consumers.  Failure to correctly evaluate our Company’s prospects could result in an investor’s loss of a significant portion or all of his investment in our Company.  

Our failure to obtain additional adequate financing would materially and adversely affect our business. We do not currently have sufficient revenues and gross margin to cover our operating expenses and have never been profitable. We cannot be certain that our Company will ever generate sufficient revenues and gross margin to achieve profitability.  Furthermore, we project that our current cash on hand and commitments for additional investment will not be sufficient to maintain our Company’s operations through the end of our fiscal year ended September 30, 2010 and could severely hinder our progress towards our business objectives significantly before this date.  Our failure to significantly increase revenues or to raise additional adequate and necessary financing would seriously harm our business and operating results.  We have incurred significant costs in building, launching and marketing BMP.  If we fail to achieve sufficient revenues and gross margin with BMP, or our revenues grow more slowly than anticipated, or if our operating or capital expenses increase more than is expected or cannot be reduced in the event of lower revenues, our business will be materially and adversely affected and an investor could suffer the loss of a significant portion or all of his investment in our Company.  Additionally, our 12% Senior Note (the “Note”) payable with a balance (including accrued interest) of $381,526 as of March 31, 2010, is currently due on May 31, 2010.  If we fail to raise additional adequate financing to repay the Note, our business may be materially and adversely affected and an investor could suffer the loss of a significant portion or all of his investment in our Company.

We face competition from other online payment systems.  We will face competition from other companies with similar product offerings.  Many of these companies have longer operating histories, greater name recognition and substantially greater financial, technical and marketing resources than us.  Many of these companies also have more extensive customer bases, broader customer relationships and broader industry alliances than us, including relationships with many of our potential customers. Increased competition from any of these sources could result in our failure to achieve and maintain an adequate level of customers and market share to support the cost of our operations.

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We have limited resources to develop our product offerings.  We face a challenging capital market at the same time that our Company has required funding for the development and marketing of our product offerings.  This has caused and will likely continue to cause us to restrict funding of the development of our products and to favor the development of one product offering over the other based on their relative estimated potentials for commercial success as evaluated by our management.  Our current focus is on BMP.  The failure of BMP to be commercially successful would substantially harm our business and results of operations.  Furthermore, in the future we may determine that it is in the best interest of our Company to severely curtail, license, jointly develop with a third party or sell one of our product offerings, which may be on terms which limit the revenue potential of the product offering to the Company.

We rely on third-party suppliers and distributors that are specific to our business and distribution channels such as processors, programmers, social networks and security advisors.  We will be dependent on other companies to provide necessary products and services in connection with key elements of our business.  Any interruption in our ability to obtain these services, or comparable quality replacements would severely harm our business and results of operations.  Our current business model includes our plan to incorporate BMP within existing social networks.  We will be dependent on these social networks to allow our product offerings to run within their proprietary Internet websites.  Permission for our applications to run on social networks is revocable at any time at the discretion of the social networks. Should such social networks for any reason deny our applications access to their networks, this could substantially harm our business and results of operations and an investor could suffer the loss of a significant portion or all of his investment in our Company.

Our ability to protect our intellectual property and proprietary technology surrounding BMP is uncertain. Our future success may depend significantly on our ability to protect our proprietary rights to the intellectual property upon which our products and services will be based.  Our pending U.S. patent application, which includes claims to material aspects of our products and services that are not currently protected by issued patents, may not be issued as patents in a form that will be advantageous to us. Any patents we obtain in the future may be challenged by re-examination or otherwise invalidated or eventually be found unenforceable. Both the patent application process and the process of managing patent disputes can be time consuming and expensive. Competitors may attempt to challenge or invalidate our patents, or may be able to design alternative techniques or devices that avoid infringement of our patents, or develop products with functionalities that are comparable to ours. In the event a competitor infringes upon our patent or other intellectual property rights, litigation to enforce our intellectual property rights or to defend our patents against challenge, even if successful, could be expensive and time consuming and could require significant time and attention from our management. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against challenges from others.

We are dependent upon consumer tastes with respect to preferred methods of online payment for the success of our products and services. Our product offerings’ acceptance by consumers and their consequent generation of revenues will depend upon a variety of unpredictable factors, including:

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Public taste, which is always subject to change;

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The quantity and popularity of other payment systems available to the public;

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The continued use and popularity of social networking sites; and

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The fact that the distribution and sales methods chosen for the products and services we market may be ineffective.

For any of these reasons, our programs may be commercially unsuccessful.  If we are unable to market products which are commercially successful, we may not be able to recoup our expenses and/or generate sufficient revenues. In the event that we are unable to generate sufficient revenues, we may not be able to continue operating as a viable business and an investor could suffer the loss of a significant portion or all of his investment in our Company.

Our Company is economically sensitive to general economic conditions, including continued weakening of the economy; therefore a reduction in consumer purchases of discretionary items could consequently materially impact our Company’s future revenues from BMP for the worse.   Consumer purchases are subject to cyclical variations, recessions in the general economy and the future economic outlook. Our results may be dependent on a number of factors impacting consumer spending, including general economic and business conditions; consumer confidence; wages and employment levels; the housing market; consumer debt levels; availability of consumer credit; credit and interest rates; fuel and energy costs; energy shortages; taxes; general political conditions, both domestic and abroad; and the level of customer traffic on social networking websites. Consumer purchases of discretionary items may decline during recessionary periods and at other times when disposable income is lower. A downturn or an uncertain outlook in the economy may materially adversely affect our business and the success of BMP.

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Financial Risks

Our financial statements have been prepared assuming that the Company will continue as a going concern. The factors described herein raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from this uncertainty. The report of our independent registered public accounting firm included an explanatory paragraph expressing doubt about our ability to continue as a going concern in their audit report for the fiscal years ended September 30, 2009 and 2008.  We currently project that our cash on hand and existing commitments for additional investment will not be sufficient to maintain our Company’s operations significantly beyond our fiscal year end September 30, 2009.  If we cannot generate the required revenues and gross margin to achieve profitability or obtain additional capital on acceptable terms, we will need to substantially revise our business plan or cease operations and an investor could suffer the loss of a significant portion or all of his investment in our Company.  The financial statements do not include any adjustments that might result from the outcome from this uncertainty.  

Additionally, since the fall of 2008 there has been significant deterioration in the global credit and equity markets. Recessionary conditions in the global economy threaten to cause further tightening of the credit and equity markets and more stringent lending and investing standards.   The persistence of these conditions could have a material adverse effect on our access to further debt or equity capital. In addition, further deterioration in the economy could adversely affect our corporate results, which could adversely affect our financial condition and operations.

We do not expect to pay dividends for the foreseeable future, and we may never pay dividends and, consequently, the only opportunity for investors to achieve a return on their investment is if a trading market develops and investors are able to sell their shares for a profit or if our business is sold at a price that enables investors to recognize a profit. We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends for the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, we cannot assure investors any return on their investment, other than in connection with a sale of their shares or a sale of our business. At the present time there is a limited trading market for our shares. Therefore, holders of our securities may be unable to sell them. We cannot assure investors that an active trading market will develop or that any third party will offer to purchase our business on acceptable terms and at a price that would enable our investors to recognize a profit.

Our net operating loss carry-forward is limited.  We have recorded a valuation allowance amounting to our entire net deferred tax asset balance due to our lack of a history of earnings, possible statutory limitations on the use of tax loss carry-forwards generated in the past and the future expiration of our NOL.  This gives rise to uncertainty as to whether the net deferred tax asset is realizable.  Internal Revenue Code Section 382, and similar California rules, place a limitation on the amount of taxable income that can be offset by carry-forwards after a change in control (generally greater than a 50% change in ownership).  As a result of these provisions, it is likely that given our acquisition of Socialwise-CA, future utilization of the NOL will be severely limited.  Our inability to use our Company’s historical NOL, or the full amount of the NOL, would limit our ability to offset any future tax liabilities with its NOL.

Corporate and Other Risks

Limitations on director and officer liability and indemnification of our Company’s officers and directors by us may discourage stockholders from bringing suit against an officer or director. Our Company’s articles of incorporation and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director.

We are responsible for the indemnification of our officers and directors. Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our articles of incorporation and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities

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on behalf of our Company. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant, or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.

Our executive officers, directors and insider stockholders beneficially own or control a substantial portion of our outstanding common stock, which may limit your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management or overall direction of our Company. Additionally, this concentration of ownership could discourage or prevent a potential takeover of our Company that might otherwise result in an investor receiving a premium over the market price for his shares. A substantial portion of our outstanding shares of common stock is beneficially owned and controlled by a group of insiders, including our directors and executive officers. Accordingly, any of our existing outside principal stockholders together with our directors, executive officers and insider shareholders would have the power to control the election of our directors and the approval of actions for which the approval of our stockholders is required. If you acquire shares of our common stock, you may have no effective voice in the management of our Company.  Such concentrated control of our Company may adversely affect the price of our common stock. Our principal stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

While our management has evaluated our internal controls over financial reporting as effective in our most recent annual report of Form 10-K, in the future our independent auditors may not be able to certify as to their effectiveness at the time that such certification is required, which could have a significant and adverse effect on our business. We are subject to various regulatory requirements, including the Sarbanes-Oxley Act. We, like all other public companies, must incur additional expenses and to a lesser extent the diversion of our management’s time in our efforts to comply with Section 404 of the Sarbanes-Oxley Act regarding internal controls over financial reporting. While our management has evaluated our internal controls over financial reporting for the purpose of allowing management to report on them (and has evaluated them as effective in our most recent evaluation), our independent auditors in the future will be required to attest to them as well.  This could be required as soon as our fiscal year ended September 30, 2010, as currently mandated by Section 404 of the Sarbanes-Oxley Act and the rules and regulations of the SEC, which we collectively refer to as Section 404. If in the future our external auditors are unable to attest that our management’s report is fairly stated or to express an opinion on the effectiveness of our internal controls, this could result in a loss of investor confidence in our financial reports, have an adverse effect on our stock price and/or subject us to sanctions or investigation by regulatory authorities.

We are dependent for our success on a few key executive officers, particularly our Company’s Chief Executive Officer. Our inability to retain those officers would impede our business plan and growth strategies, which would have a negative impact on our business and the value of your investment. Our success depends on the skills, experience and performance of key members of our management team.  We do not have long-term employment agreements with any of the members of our senior management team. Each of those individuals may voluntarily terminate his employment with the Company at any time. Were we to lose one or more of these key executive officers, we would be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital. We do not maintain a key man insurance policy on any of our executive officers.

As we transition from a Company with insignificant revenues to what we hope will be a Company generating substantial revenues, we may not be able to manage our growth effectively, which could adversely affect our operations and financial performance. The ability to manage and operate our business as we execute our growth strategy will require effective planning. Significant rapid growth could strain our internal resources, leading to a lower quality of customer service, reporting problems and delays in meeting important deadlines resulting in loss of market share and other problems that could adversely affect our financial performance. Our efforts to grow could place a significant strain on our personnel, management systems, infrastructure and other resources. If we do not manage our growth effectively, our operations could be adversely affected, resulting in slower growth and a failure to achieve or sustain profitability.

Capital Market Risks

Our common stock is thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares. There is limited market activity in our stock and we are too small

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to attract the interest of many brokerage firms and analysts. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained. While we are trading on the OTC Bulletin Board, the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in Bulletin Board stocks and certain major brokerage firms restrict their brokers from recommending Bulletin Board stocks because they are considered speculative, volatile, thinly traded and the market price of the common stock may not accurately reflect the underlying value of our Company.  The market price of our common stock could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant sales of our common stock, including “short” sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

The application of the “penny stock” rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares.  As long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance.  Stockholders should be aware that, according to Securities and Exchange Commission (“SEC”) Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include 1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; 2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; 3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; 4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and 5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.

We may not be able to attract the attention of major brokerage firms, which could have a material adverse impact on the market value of our common stock. Security analysts of major brokerage firms may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It will also likely make it more difficult to attract new investors at times when we require additional capital.

We may be unable to list our common stock on NASDAQ or on any securities exchange. Although we may apply to list our common stock on NASDAQ or the American Stock Exchange in the future, we cannot assure you that we will be able to meet the initial listing standards, including the minimum per share price and minimum capitalization requirements, or that we will be able to maintain a listing of our common stock on either of those or any other trading venue. Until such time as we qualify for listing on NASDAQ, the American Stock Exchange or another trading venue, our common stock will continue to trade on the OTC Bulletin Board or another over-the-counter quotation system, or on the ‘‘pink sheets,’’ where an investor may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, rules promulgated by the SEC impose various practice requirements on broker-dealers who sell securities that fail to meet certain criteria set forth in those rules to persons other than established customers and accredited investors.  Consequently, these rules may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. It would also make it more difficult for us to raise additional capital.

Further future sales of our equity securities could put downward selling pressure on our securities, and adversely affect the stock price.  There is a risk that this downward pressure may make it impossible for an investor to sell his or her securities at any

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reasonable price, if at all. Future sales of substantial amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure on our securities, and adversely affect the market price of our common stock.

Item 2 – Sales of Unregistered Securities and Use of Proceeds

Beginning January 1, 2010 and through May 12, 2010, we have sold 1,072,500 shares of our common stock at $0.40 per share to 13 accredited investors (as defined under Rule 501 of the Securities Act of 1933, as amended (the “Securities Act”)), bringing our Company gross proceeds of $429,000.  Each four shares of common stock sold were accompanied by a warrant to purchase three additional shares of common stock at an exercise price of $0.60 per share (804,375 warrants issued therewith), exercisable by the holder any time on or before two years from the date of the sale of the accompanying common stock.  The issuance of shares of common stock and warrants was exempt from registration under the Securities Act pursuant to Section 4(2) thereof and/or Rule 506 of Regulation D under the Securities Act.  The offering was not conducted in connection with a public offering, and no public solicitation or advertisement was made or relied upon by the investors in connection with the offering.   

One April 7, 2010, we entered into an agreement with Two Eight, Inc. (“Two Eight”) who will provide investor relations services through June 30, 2010 to our Company in exchange for 200,000 shares of our restricted common stock.  On May 10, 2010, we entered into an agreement with Kay who will provide investor relations services through June 30, 2010 to our Company in exchange for 550,000 shares of our restricted common stock.  The value of the common stock issued under the agreements to Two Eight and Kay totals $300,000.  The issuance of shares of common stock was exempt from registration under the Securities Act pursuant to Section 4(2) thereof.  The issuance of shares was not conducted in connection with a public offering, and no public solicitation or advertisement was made or relied upon by the investors in connection with the issuance of shares

On April 30, 2010, we granted ESP warrants to purchase up to 300,000 additional shares of our common stock on the terms discussed in Item 5 below.  The issuance of warrants was exempt from registration under the Securities Act pursuant to Section 4(2) thereof.  The issuance of warrants was not conducted in connection with a public offering, and no public solicitation or advertisement was made or relied upon by the investors in connection with the issuance of shares

Item 3 – Defaults upon Senior Securities

Not applicable.

Item 4 – (Removed and Reserved)

Not applicable.

Item 5 – Other Information

One April 7, 2010, we entered into an agreement with Two Eight who will provide investor relations services through June 30, 2010 to our Company in exchange for 200,000 shares of our restricted common stock.  On May 10, 2010, we entered into an agreement with Kay who will provide investor relations services through June 30, 2010 to our Company in exchange for 550,000 shares of our restricted common stock.  The value of the common stock issued under the agreements to Two Eight and Kay totaling $300,000 will be charged to general and administrative expenses during the three months ended June 30, 2010.  

On April 28, 2010, we entered into an agreement with Maxim Group LLC (“Maxim”) to act as a non-exclusive placement agent for the sale of additional equity securities of our Company.  Under the terms of the agreement with Maxim, they will receive a cash payment equaling 10% of the proceeds raised from investors introduced to the Company by Maxim and warrants to purchase between ten and twenty percent of the shares of our common stock at terms similar to those sold to the investors introduced by Maxim.  In a related agreement, we granted ESP warrants to purchase up to 300,000 additional shares of our common stock at terms similar to those sold to the investors introduced by Maxim.  

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Item 6 – Exhibits and Reports on Form 8-K

(a)

Exhibits

See Exhibit Index immediately following signatures.

(b)

Reports on Form 8-K

The Company filed a Form 8-K on March 4, 2010 regarding an amendment to its 12% Senior Note with Gemini Master Fund, Ltd.

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.

Socialwise, Inc., a Colorado corporation

By: /s/ JAMES COLLAS

       James Collas, Chief Executive Officer

By: /s/ JONATHAN SHULTZ

       Jonathan Shultz, Chief Financial Officer

May 12, 2010

Exhibit Index

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