UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2006
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-29625

OASYS MOBILE, INC.

(Exact name of Registrant as Specified in its Charter)

Delaware	65-0185306
(State of incorporation)	(I.R.S. Employer Identification No.)

434 Fayetteville Street, Suite 600
Raleigh, North Carolina 27601
(919) 807-5600
(Address, including zip code, and telephone number (including area code) of
Registrant’s principal executive offices)

Indicate by checkmark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The number of shares outstanding of the Registrant’s common stock, par value $.001 per share, as of August 10, 2006 was 13,543,038.

OASYS MOBILE, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

TABLE OF CONTENTS

		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Balance Sheets as of June 30, 2006 and December 31, 2005	3
	Statements of Operations for the Three-Month Periods Ended June 30, 2006 and 2005	4
	Statements of Operations for the Six-Month Periods Ended June 30, 2006 and 2005	5
	Statement of Stockholders’ Equity for the Six-Month Period Ended June 30, 2006	6
	Statements of Cash Flows for the Six-Month Periods Ended June 30, 2006 and 2005	8
	Notes to Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
PART II	OTHER INFORMATION
Item 6.	Exhibits	37

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

OASYS MOBILE, INC.

BALANCE SHEETS (UNAUDITED)

	June 30,			December 31,
	2006			2005
Assets
Current assets:
Cash	$	5,198,770		$	8,985,158
Accounts receivable		1,482,674			1,072,615
Prepaids and other current assets		219,559			36,172
Total current assets		6,901,003			10,093,945

Equipment, software and furniture, net		164,200			125,839
Total assets	$	7,065,203		$	10,219,784

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,165,380		$	2,319,754
Accrued salaries and related costs		223,039			205,076
Accrued interest		381,416			151,500
Current portion of notes payable		77,500			77,500
Current portion of capital lease obligations		12,311			-
Convertible notes payable		8,000,000			-
Discount on convertible notes payable		(4,957,556	)		-
Total current liabilities		5,902,090			2,753,830

Long-term liabilities:
Capital lease obligations		22,604			-
Convertible notes payable		-			8,000,000
Discount on convertible notes payable		-			(7,415,960	)
Total liabilities		5,924,694			3,337,870

Stockholders’ equity:
Series A convertible preferred stock, $0.001 par value; 10,000 shares designated, 2,407 shares issued and outstanding at June 30, 2006 and December 31, 2005 (liquidation preference of $2,760,027 as of June 30, 2006)		2,407,295			2,407,295
Common stock, $.001 par value, 185,000,000 shares authorized; 13,546,888 issued and 13,543,038 outstanding at June 30, 2006 and 13,523,554 issued and 13,519,704 outstanding at December 31, 2005		13,543			13,520
Additional paid-in capital		65,974,094			65,369,259
Deferred compensation		-			(85,578	)
Accumulated deficit		(67,026,804	)		(60,594,963	)
Treasury stock, at cost (3,850 shares)		(227,619	)		(227,619	)
Total stockholders’ equity		1,140,509			6,881,914
Total liabilities and stockholders’ equity	$	7,065,203		$	10,219,784

The accompanying notes constitute an integral part of these financial statements.

OASYS MOBILE, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)

	Three-Month Period Ended
	June 30, 2006			June 30, 2005
Revenues:
Wireless applications and contracts	$	1,806,376		$	1,792,686
Wireless license fees		2,100			1,500
Total revenues		1,808,476			1,794,186

Cost of revenues:
Wireless applications and contracts		966,618			883,428
Total cost of revenues		966,618			883,428
Gross profit		841,858			910,758

Operating expenses:
General and administrative		613,235			708,156
Research and development		902,648			677,114
Sales and marketing		759,950			355,965
Non-cash compensation		341,353			9,666
Non-cash consulting expense		-			5,199
Total operating expenses		2,617,186			1,756,100
Loss from operations		(1,775,328	)		(845,342	)

Interest expense		(60,035	)		(1,492	)
Amortization of discount on debt and beneficial conversion feature		(1,235,993	)		-
Net loss	$	(3,071,356	)	$	(846,834	)

Net loss applicable to common stockholders:
Net loss	$	(3,071,356	)	$	(846,834	)
Preferred stock dividends		(48,140	)		(48,140	)
Net loss applicable to common stockholders	$	(3,119,496	)	$	(894,974	)

Per share amounts (basic and diluted)	$	(0.23	)	$	(0.07	)

Weighted average shares of common stock outstanding		13,536,884			13,484,362

The accompanying notes constitute an integral part of these financial statements.

OASYS MOBILE, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)

	Six-Month Period Ended
	June 30, 2006			June 30, 2005
Revenues:
Wireless applications and contracts	$	3,902,891		$	3,779,033
Wireless license fees		22,750			5,200
Total revenues		3,925,641			3,784,233

Cost of revenues:
Wireless applications and contracts		2,077,408			1,839,615
Total cost of revenues		2,077,408			1,839,615
Gross profit		1,848,233			1,944,618

Operating expenses:
General and administrative		1,430,507			1,435,259
Research and development		1,720,526			1,321,690
Sales and marketing		1,910,510			639,264
Non-cash compensation		657,769			20,734
Non-cash consulting expense		-			10,401
Non-cash settlements		-			58,750
Total operating expenses		5,719,312			3,486,098
Loss from operations		(3,871,079	)		(1,541,480	)

Interest expense		(102,358	)		(44,829	)
Amortization of discount on debt and beneficial conversion feature		(2,458,404	)		(851,332	)
Net loss	$	(6,431,841	)	$	(2,437,641	)

Net loss applicable to common stockholders:
Net loss	$	(6,431,841	)	$	(2,437,641	)
Preferred stock dividends		(96,280	)		(96,280	)
Net loss applicable to common stockholders	$	(6,528,121	)	$	(2,533,921	)

Per share amounts (basic and diluted)	$	(0.48	)	$	(0.19	)

Weighted average shares of common stock outstanding		13,528,341			13,119,890

The accompanying notes constitute an integral part of these financial statements.

OASYS MOBILE, INC.

STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

	Preferred Stock								Additional
	Series A				Common Stock				Paid-In
	Shares		Amount		Shares		Amount		Capital

Balance at December 31, 2005		2,407	$	2,407,295		13,519,704	$	13,520	$	65,369,259
Reversal of deferred compensation to additional paid-in capital		-		-		-		-		(85,578	)
Stock-based compensation		-		-		-		-		657,769
Common stock issued for accrued expenses		-		-		23,334		23		32,644
Net loss for the period		-		-		-		-		-

Balance at June 30, 2006		2,407	$	2,407,295		13,543,038	$	13,543	$	65,974,094

The accompanying notes constitute an integral part of these financial statements.

OASYS MOBILE, INC.

STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

	Deferred Compensation			Accumulated Deficit			Treasury Stock			Total Stockholders’ Equity

Balance at December 31, 2005	$	(85,578	)	$	(60,594,963	)	$	(227,619	)	$	6,881,914
Reversal of deferred compensation to additional paid-in capital		85,578			-			-			-
Stock-based compensation		-			-			-			657,769
Common stock issued for accrued expenses		-			-			-			32,667
Net loss for the period		-			(6,431,841	)		-			(6,431,841	)

Balance at June 30, 2006	$	-		$	(67,026,804	)	$	(227,619	)	$	1,140,509

The accompanying notes constitute an integral part of these financial statements.

OASYS MOBILE, INC.

STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six-Month Period Ended
	June 30, 2006			June 30, 2005

Operating activities
Net loss	$	(6,431,841	)	$	(2,437,641	)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization		30,561			22,703
Stock-based compensation		657,769			20,734
Common stock, options and warrants issued for services		-			86,237
Amortization of discount on debt and beneficial conversion feature		2,458,404			851,332
Non-cash settlements		-			58,750
Changes in operating assets and liabilities:
Accounts receivable		(410,059	)		(111,372	)
Prepaid and other assets		(183,387	)		17,940
Accounts payable and other accrued expenses		(121,707	)		424,867
Accrued interest		229,916			-
Accrued salaries and related costs		17,963			10,390
Net cash used in operating activities		(3,752,381	)		(1,056,060	)

Investing activities
Purchases of equipment, software and furniture		(28,007	)		(31,717	)
Net cash used in investing activities		(28,007	)		(31,717	)

Financing activities
Proceeds from exercise of stock options and warrants		-			4,332,878
Proceeds from issuance of convertible debt		-			215,000
Payments of convertible debt		-			(1,640,000	)
Principal payments on capital lease obligations		(6,000	)		-
Principal payments on notes payable and short-term borrowings		-			(59,084	)
Net cash (used in) provided by financing activities		(6,000	)		2,848,794

Net (decrease) increase in cash		(3,786,388	)		1,761,017
Cash at beginning of period		8,985,158			1,405,788
Cash at end of period	$	5,198,770		$	3,166,805

Supplemental disclosures of cash flow information
Cash paid for interest	$	17,064		$	47,469

The accompanying notes constitute an integral part of these financial statements.

Oasys Mobile, Inc.

Notes to Financial Statements

1. Business and Basis of Presentation

Business

Oasys Mobile, Inc. ("Oasys Mobile” or the "Company") is engaged primarily in the development of applications that optimize the consumer wireless experience. The core of the Company's business plan is to focus on the emerging wireless market and partner with leading content brands to bring branded products to mobile phones. Our content brands include Mattel, Sony BMG, The Associated Press, The Wall Street Journal, Phil Hellmuth, Howard Lederer, Golf Digest, Hooters, The Grateful Dead and others.

Oasys Mobile has developed software, technology and applications to enable information processing and resource management to include, but not be limited to, the creation, transmission, playing and management of content over wireless networks. We currently offer products in various categories, including games, messaging, personalization and entertainment. The Company's technology, which provides the foundation for its current products, is designed to address the usability constraints of the existing wireless network infrastructure. This technology will enable more efficient use of existing and future bandwidth allocations, resulting in a perceived bandwidth increase by the mobile end-user.

Oasys Mobile builds end-user applications for most major mobile platforms, including QUALCOMM’s Binary Runtime Environment for Wireless™ (BREW™), Java™ 2 Platform, Micro Edition (J2ME™), Symbian™ OS and Wireless Application Protocol (WAP). We distribute our applications through major wireless carriers who make our products available to their customers. Oasys Mobile currently has relationships with carriers that account for 97% of all U.S. wireless subscribers. We also have relationships with international carriers covering Europe, Asia, Canada, Latin America, Australia, Israel, the U.K and China.

We have completed the development and deployment of more than thirty-four (34) wireless applications on a total of seventy-five (75) wireless carriers and distribution partners. Some of our United States based wireless carriers include Alltel, Cingular, Sprint PCS, T-Mobile, US Cellular and Verizon Wireless. These applications can be purchased by the end-user as a one-time purchase, or a monthly subscription, depending on content, product function, and/or carrier preferences.

The majority of the applications completed and deployed by the Company, as well as planned future applications, have been developed by the Company through a process that involves securing agreements with content providers and carriers, and developing and launching the applications. The Company outsources the infrastructure needed to host and deliver the transactions for its application end-users.

Future Operations

As shown in the financial statements for the three-month period and six-month period ended June 30, 2006, the Company incurred a net loss of $3,071,356 and $6,431,841, respectively and experienced negative cash flows from operations. The Company’s operations are dependent on its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing, and ultimately to attain profitability. The Company is actively promoting and expanding its product line. Management expects to be able to attract additional capital, if necessary, to expand operations and also expects that increased revenues will reduce its operating losses in future periods. However, there can be no assurance that management’s plan will be executed as anticipated.

1. Business and Basis of Presentation (continued)

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial condition and results of operations have been included. Operating results for the three-month period ended June 30, 2006, are not necessarily indicative of the results that may be attained for the entire year. For further information, refer to the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2005.

2. Summary of Significant Accounting Policies

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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition and Related Costs

Wireless applications and contracts

Revenues earned from wireless applications are recognized upon delivery and acceptance by the end-user either as a one-time purchase or a monthly subscription. For content delivery partner arrangements, whereby the Company remits a portion of the revenues earned through the sale of the Company’s applications, revenue is recorded on a gross basis in accordance with EITF 99-19. The Company recognizes the cost of payments to the content providers as a cost of revenues. Wireless applications and contracts cost of revenues also includes all third-party hosting fees. These costs are incurred on a monthly basis and are primarily fixed in nature regardless of the revenue generated by the related applications.

Periodically, we enter into non-recurring engineering arrangements with our content partners. Generally, under the terms of these agreements, we receive funding upfront to complete projects. The funding we receive upfront is recorded as deferred revenue and is recognized as revenue under the terms of the individual arrangements. Deferred revenue represents amounts received for which the Company has not yet completed its contractual obligations.

2. Summary of Significant Accounting Policies (continued)

Wireless License Fees

We recognize revenue from licensee fees for wireless software applications in accordance with the provisions of AICPA Statement of Position 97-2, “Software Revenue Recognition”, as amended by AICPA Statement of Position 98-9 “Modification of SOP No. 97-2 Software Revenue Recognition with Respect to Certain Transactions.” Revenue from software license fees is generally recognized upon delivery provided that a contract has been executed, the vendor fee is fixed or determinable, no significant vendor obligations or uncertainties surrounding customer acceptance remain, and collection of the resulting receivable is deemed probable.

There were no costs related to the wireless license fee revenue generated during the six-month periods ended June 30, 2006 and 2005, as the license fee revenue related to technology that had been previously developed by the Company, and there were no costs for installation, delivery or customization, or other related costs.

Contracts and license fees

We derive certain revenues from research and development contracts for governmental agencies and the commercial licensing of our technology. We recognize revenue on these contracts at the time services are rendered based upon the terms of individual contracts. Regarding the commercial licensing of our technology, we follow the provisions of AICPA Statement of Position 97-2, “Software Revenue Recognition”, as amended by AICPA Statement of Position 98-9 “Modification of SOP No. 97-2 Software Revenue Recognition with Respect to Certain Transactions.” Revenue from software license fees is generally recognized upon delivery provided that a contract has been executed, the vendor fee is fixed or determinable, no significant vendor obligations or uncertainties surrounding customer acceptance remain, and collection of the resulting receivable is deemed probable.

Segments

Management has structured the Company's internal organization as one business segment from which all operating decisions are made and all operating results are evaluated.

Equipment, Software and Furniture

Equipment, software and furniture is stated at cost. Depreciation is computed over the estimated useful lives of the assets (generally three to seven years) using the straight-line method. Amortization of capital lease assets is included in depreciation expense.

Software Development Costs

Capitalization of software development costs begins with the establishment of technological feasibility of new or enhanced software products. Technological feasibility of a computer software product is established when the Company has completed all planning, designing, coding and testing that is necessary to establish that the software product can be produced to meet design specifications including functions, features and technical performance requirements. All costs incurred prior to establishing technological feasibility of a software product are charged to research and development expense as incurred. No capitalized software development costs were incurred during the six-month periods ended June 30, 2006 and 2005.

2. Summary of Significant Accounting Policies (continued)

Income Taxes

Income taxes are accounted for using the liability method in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS 109, deferred tax assets or liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability from period to period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance would be included in the provision for deferred income taxes in the period of change.

Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which requires us to account for share-based payment transactions using a fair value-based method and recognize the related expense in our results of operations. Prior to our adoption of SFAS No. 123(R), as permitted by SFAS No. 123, we accounted for share-based payments to employees using the Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees, intrinsic value method. Accordingly, prior to January 1, 2006 we generally did not recognize compensation cost for employee stock options, as all such options had an exercise price equal to the market value of the underlying common stock on the date of the grant. SFAS No. 123(R) allows companies to choose one of two transition methods: the modified prospective transition method or the modified retrospective transition method. We chose to use the modified prospective transition methodology. Under this transition method, our compensation cost recognized includes compensation costs for all share-based payments granted prior to, but not yet vested as of, January 1, 2006 based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and compensation cost for all share-based payments granted subsequent to January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). Accordingly, we have not restated our financial results for prior periods.

Under the fair value recognition provisions of SFAS No. 123(R), stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. Consistent with the valuation method we used for disclosure-only purposes under the provisions of SFAS No. 123, we use the Black-Scholes model to value option awards under SFAS No. 123(R). The Company currently has awards outstanding with only service conditions and graded-vesting features. We recognize compensation cost on a straight-line basis over the requisite service period.

The adoption of SFAS No. 123(R) had a material impact on our results of operations. Our statement of operations for the three months and six months ended June 30, 2006 included stock-based compensation expense of $341,353 and $657,769, respectively.

Unrecognized stock-based compensation expense expected to be recognized over an estimated weighted-average amortization period of 1.12 years was approximately $2.1 million at June 30, 2006. Unrecognized stock-based compensation expense expected to be recognized over the period ending December 31, 2006 was approximately $612,000 at June 30, 2006.

2. Summary of Significant Accounting Policies (continued)

Stock Plan

During 2000, the Company established a stock option plan to provide for the issuance of stock options to employees and directors. The plan provides for the issuance of stock options to employees, directors, advisors and consultants of the Company. Options granted generally have a ten-year term and vest over three years from the date of grant. Certain of the stock options granted under the Plan have been granted pursuant to various stock option agreements. Each stock option agreement contains specific terms. On May 23, 2005, the Board of Directors authorized an increase in the number of options available for grant under the Plan to 3,000,000.

Time-Based Stock Awards

The fair value of each time-based award is estimated on the date of grant using the Black-Scholes option valuation model, which uses the assumptions described below. Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the three months and six months ended June 30, 2006 are shown in the following table:

Expected volatility	96.89	%
Expected dividends	0	%
Expected terms	5.77 Years for Employees and 10 Years for Directors
Risk-free interest rate	4.31 – 5.23	%

The expected volatility rate was estimated based on historical volatility of the Company’s common stock over approximately a five year period. The expected term for employees was estimated based on a simplified method, as allowed under SEC Staff Accounting Bulletin No. 107, averaging the vesting term and original contractual term. The expected term for directors was estimated based on historical experience and specific terms in the option agreements. The risk-free interest rate for periods within the contractual life of the option is based on U.S. Treasury securities. The pre-vesting forfeiture rate used for the three and six months ended June 30, 2006 was based on historical rates. As required under SFAS No. 123(R), we will adjust the estimated forfeiture rate to our actual experience. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination.

A summary of the time-based stock awards as of June 30, 2006, and changes during the six months ended June 30, 2006, is as follows:

	Shares			Weighted- Average Exercise Price		Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2006		1,836,215		$	6.53
Granted		428,200			1.55
Forfeited or expired		(87,673	)		12.27
Outstanding at June 30, 2006		2,176,742		$	5.08		7.98	$	973
Exercisable at June 30, 2006		1,272,043		$	7.19		7.08	$	758

2. Summary of Significant Accounting Policies (continued)

The aggregate intrinsic value represents the pretax value (the period’s closing market price, less the exercise price, times the number of in-the-money options) that would have been received by all option holders had they exercised their options at the end of the period. The exercise price of stock options granted during the six months ended June 30, 2006 was equal to the market price of the underlying common stock on the grant date.

Second Quarter Fiscal 2005

The following table illustrates the effect on net loss and net loss per share for the three months and six months ended June 30, 2005, if we had accounted for all employee stock-based compensation during that period based on the fair value method as prescribed by SFAS No. 123(R).

	Three-Month Period Ended June 30 (Unaudited)			Six-Month Period Ended June 30 (Unaudited)
	2005			2005

Net loss applicable to common shareholders	$	(894,974	)	$	(2,533,921	)
Non-cash compensation charges included in net loss applicable to common shareholders		9,666			20,734
Stock-based employee compensation cost that would have been included in net loss applicable to common stockholders under the fair value method		(103,508	)		(230,001	)

Adjusted net loss applicable to common stockholders	$	(988,816	)	$	(2,743,188	)

Basic and diluted loss per share:
Reported net loss applicable to common stockholders	$	(0.07	)	$	(0.19	)
Non-cash compensation charges included in net loss applicable to common stockholders		0.00			0.00
Stock-based employee compensation cost that would have been included in net loss applicable to common stockholders under the fair value method		(0.00	)		(0.02	)

Adjusted net loss applicable to common stockholders	$	(0.07	)	$	(0.21	)

For the purpose of the above table, the fair value of each option grant was estimated as of the date of grant by using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in the first quarter of fiscal 2005: dividend yield of 0%; volatility of 1.2936; risk-free interest rate ranging from 3.64% to 4.46%; and expected option lives of 5 years for employees and 10 years for Board members. The weighted-average fair value of options granted in the six months ended June 30, 2005 was $2.91.

2. Summary of Significant Accounting Policies (continued)

Net Loss Per Share

Loss per share has been calculated in accordance with SFAS No. 128, "Earnings Per Share." Basic loss per share was computed by dividing the net loss for each period presented by the weighted average number of shares of common stock outstanding for such period, as adjusted for the recapitalization. Although the Company has potential common stock equivalents related to its outstanding stock options, warrants and preferred stock, these potential common stock equivalents were not included in diluted loss per share for each period presented because the effect would have been antidilutive.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based Payment, which is a revision of SFAS Statement No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). SFAS No. 123(R) supersedes ABP No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company adopted SFAS No. 123(R) on January, 2006. SFAS No. 123(R) requires us to account for share-based payment transactions using a fair value-based method and recognize the related expense in our results of operations. Prior to our adoption of SFAS No. 123(R), as permitted by SFAS No. 123, we accounted for share-based payments to employees using the APB 25 intrinsic value method and, therefore we generally recognized compensation expense for restricted stock awards and did not recognize compensation cost for employee stock options as such options had an exercise price equal to the market price of the underlying common stock on the date of grant. SFAS No. 123(R) allows companies to choose one of two transition methods: the modified prospective transition method or the modified retrospective transition method. We chose to use the modified prospective transition methodology. We have not restated our financial results from prior periods as a result of our adoption of SFAS No. 123(R).

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”), a replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principles unless it is impracticable. APB Opinion No. 20, “Accounting Changes”, previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This statement was effective beginning on January 1, 2006. The adoption of SFAS No. 154 did not have a material impact on the Company’s financial statements.

3. Convertible Notes Payable

November 2005 Convertible Notes Payable

In November 2005, the Company entered into senior debt agreements with certain investors for $8,000,000 of financing in the form of notes payable (the "Senior Secured Debentures"). The Senior Secured Debentures bear interest at 6% and mature on June 30, 2007 (“Maturity Date”). The Senior Secured Debentures are convertible into shares of the Company’s common stock at the option of the holder at a conversion price of $2.00 per share. The Senior Secured Debentures are also subject to automatic conversion if the Company meets certain revenue or trading stock price milestones. The Senior Secured Debentures are secured by all of the assets of the Company.

At the closing of the Senior Secured Debentures, the investors received certain A Warrants, B Warrants and C-1 Warrants. The A Warrants provide the right to purchase an aggregate of 2,000,000 units at an exercise price of $2.00 per unit, each unit consisting of one share of the Company’s common stock and a warrant to purchase 4/10 of a share of the Company’s common stock (the “C-2 Warrant”). The A Warrants are exercisable at any time until June 29, 2006. The B Warrants are exercisable at any time for a period of two years from the date of issuance for 1,355,392 shares of the Company’s common stock and have an exercise price of $2.71 per share. The C-1 Warrants are exercisable at any time for a period of 5 years from the date of issuance for an additional 1,355,392 shares of the Company’s common stock and have an exercise price of $3.54 per share. The C-2 Warrant has substantially the same terms and conditions as the C-1 Warrant.

The Company allocated the $8,000,000 of proceeds received in connection with the financing between the Senior Secured Debentures and the warrants on a relative fair value basis. Accordingly, the Company allocated $4,307,906 to the Senior Secured Debentures and $3,692,094 to the warrants issued. Since the Senior Secured Debentures were issued at a discount to the principal balance, the effective conversion price of the Senior Secured Debentures was less than the fair value of the Company's common stock on the date of issuance. In accordance with EITF 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios," a beneficial conversion feature of $4,307,906 was recorded as a discount to the debt and a corresponding credit to additional paid-in capital on the date of issuance.

The discount on the debt is being amortized to interest expense over the term of the Senior Secured Debentures beginning on the date of issuance. Amortization of the discount of the Senior Secured Debentures was $1,235,993 and $2,458,404 for the three-month and six-month periods ended June 30, 2006, respectively.

The principal balance of the Senior Secured Debentures is $8,000,000 as of June 30, 2006 and matures on June 30, 2007. The discount related to the Senior Secured Debentures is $4,957,556 as of June 30, 2006, and is shown as a contra-liability on the balance sheet.

On July 27, 2006, the Company entered into a Modification and Waiver Agreement (the "Modification Agreement") in which the investors agreed to waive certain of their rights under the documents and instruments entered into in connection with the Senior Secured Debentures. See Note 7 for a discussion of this Modification Agreement.

3. Convertible Notes Payable (continued)

December 2004 and January 2005 Convertible Notes Payable

In December 2004, the Company entered into senior debt agreements with certain investors for $1,425,000 of financing in the form of notes payable (the "Senior Notes"). The Senior Notes bore interest at 12% and were to mature on the earlier of when the Company closed on at least $3,000,000 in financing or May 15, 2005 (“Maturity Date”). The Senior Notes had an optional conversion feature in that the Senior Notes were convertible into shares of the Company’s common stock at the option of the holder, in the event the Senior Notes were not repaid prior to or on the Maturity Date. The conversion price was to be the lower of 90% of the closing price of the Company’s common stock on the Maturity Date or 90% of the average closing prices of the Company’s common stock for the five days prior to optional conversion.

At the closing of the Senior Notes, the investors received warrants to purchase 279,413 shares of the Company’s common stock. The warrants were exercisable upon issuance, have a term of five years and have an exercise price of $5.60 per share.

In January 2005, the Company received an additional investment of $215,000 of Senior Notes, on the same terms as those sold by the Company in the December 2004 Senior Notes Financing. The holder was granted warrants to purchase a total of 42,157 shares of the Company’s common stock on the same terms as the warrants issued in the December 2004 Senior Notes Financing.

Due to the financing received by the Company in February and March 2005, the maturity of the 12% Senior Notes accelerated from the original maturity date of May 15, 2005. The Company repaid the principal balance of $1,640,000 of the Senior Notes, plus interest at the rate of 12% per annum. Since the Senior Notes were paid off in accordance with their terms, they have no rights of conversion into the Company’s common stock.

The Company allocated the $1,640,000 of proceeds received in connection with the financing in December 2004 and January 2005 between the Senior Notes and the warrants on a relative fair value basis. Accordingly, the Company allocated $735,319 to the Senior Notes and $904,681 to the warrants issued. Since the Senior Notes were issued at a discount to the principal balance, which is the basis for the optional conversion, the effective conversion price of the Senior Notes was less than the fair value of the Company's common stock on the date of issuance. In accordance with EITF 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios," a beneficial conversion feature of $735,319 was measured at the date of issuance and would have been recognized and recorded as a discount on debt and a corresponding credit to additional paid-in capital if the Senior Notes had not been repaid prior to or on the Maturity Date.

The discount on the debt of $904,681 related to the warrants was being amortized to interest expense over the term of the Senior Notes beginning on the date of issuance. Amortization of the discount of the Senior Notes was $0 and $851,332 in the three-month and six-month periods ended June 30, 2005, respectively. The discount was fully amortized in 2005.

4. Common Stock and Warrants

As of June 30, 2006, the Company had reserved shares of its authorized 185,000,000 shares of common stock for future issuance as follows:

Conversion of convertible debt			4,000,000
Series A convertible preferred stock and related dividends			19,382
Outstanding common stock warrants			7,682,926
Outstanding stock options			2,176,742
Possible future issuance under stock option plans			659,952
Total			14,539,002

5. Preferred Stock

Series A Convertible Preferred Stock

The Company has 2,407 shares of Series A convertible preferred stock (“Series A preferred stock”) outstanding as of June 30, 2006. These shares are valued based upon the liquidation preference (the “Liquidation Preference”) of Series A preferred stock of $1,000 per share.

The holders of the Series A preferred stock are entitled to receive cumulative cash dividends at a rate of 8% per annum of the initial liquidation preference of $1,000 per share. The Company, at its election, can provide for the payment of dividends on the Series A preferred stock through the issuance of additional shares of Series A preferred stock having an aggregate initial liquidation preference equal to the amount of cash dividends otherwise payable. Dividends are cumulative from the date of issuance and are payable, when, as and if declared by the Board of Directors. The Company is restricted from paying dividends on common stock until dividends are paid on Series A preferred in full. No dividends have been paid in 2005 or 2006. Cumulative unpaid dividends at June 30, 2006 were $353,027.

The holders of the outstanding shares of Series A preferred stock are not entitled to vote on matters submitted to the Company’s stockholders for voting. However, approval of holders of a majority of the outstanding shares of Series A preferred stock is required prior to the issuance of a new series of preferred stock that ranks senior to the Series A preferred stock. Each share of the Series A preferred stock is convertible at the option of the holder, at any time after the date of issuance, into shares of common stock equal to the Liquidation Preference divided by the initial conversion price of $142.40. The conversion price is subject to adjustment in accordance with the Company’s articles of incorporation. At the Company’s election, it has the right to redeem any outstanding shares of the Series A preferred stock at the Liquidation Preference of $1,000 per share.

6. Commitments and Contingencies

Cancellation of warrants

On July 19, 2002, the Company entered into an irrevocable common stock equity line that was intended to provide funding to the Company in amounts up to $10.0 million. The Company filed a registration statement on Form S-1 with the Securities and Exchange Commission (“SEC”) on July 31, 2002 relating to this common stock equity line agreement. Based on comments received from the Securities and Exchange Commission and related communications with the SEC, the Company understood that the terms of the equity line financing arrangement were such that it would not be able to resolve the staff’s comments in a timely manner and seek effectiveness of the registration statement in a timely manner. Due to these developments, the length of time involved in completing the transaction, and other factors, the Company determined that it was in its best interest to withdraw the registration statement and not proceed with the equity line. Accordingly, on September 17, 2002, the Company submitted to the SEC a request to withdraw the registration statement and cancelled all agreements associated with the common stock equity line.

In connection with the cancellation of the agreements associated with the common stock equity line, Talisman, the intended purchaser under the equity line, indicated to the Company its intention to retain ownership of the warrants to purchase 50,000 shares of the Company’s unregistered common stock at an exercise price of $4.70 per share that were issued to Talisman upon the execution of the equity line agreements. It is management’s position, with the advice of legal counsel, that the cancellation of these warrants became effective with the cancellation of the equity line agreements and that no loss contingency exists. Therefore, the Company has not recorded the issuance of these 50,000 warrants in its financial statements nor disclosed them as part of outstanding warrants. The Company has sent correspondence to Talisman stating its position that the warrants have been cancelled. To date, the Company has not received correspondence back from Talisman indicating their concurrence.

7. Subsequent Event

On July 27, 2006, the Company entered into a Modification Agreement with certain investors in which the investors agreed to waive certain of their rights under the Securities Purchase Agreement, dated as of November 18, 2005 (the "Purchase Agreement"), and all of the other documents and instruments entered into in connection with the Purchase Agreement.

In consideration for entering into the Modification Agreement, each of the investors was issued amended A Warrants (the "Amended A Warrants"). The Amended A Warrants, which expire on June 30, 2007, subject to extension under certain circumstances, (i) decreased the purchase price of the original A Warrants (the "Original A Warrants") issued in connection with the Purchase Agreement from $2.00 per Unit to $1.10 per Unit, and (ii) increased the number of Units underlying the Amended A Warrants to a total of 2,800,000 Units from 2,000,000 Units underlying the Original A Warrants. Although the number of Units increased, the shares issuable upon the exercise of the C-2 Warrants underlying such Units remained unchanged at 800,000 shares in the aggregate. The investors agreed to waive their right to cause the Company to redeem the 6% Senior Secured Debentures issued in connection with the Purchase Agreement in the event that the Company engages in a financing transaction or a series of related transactions in which 50% or more of the voting power of the Company is disposed of.

Beginning on July 31, 2006, for each twenty (20) consecutive trading day period in which (i) the daily volume weighted average price of the Company’s common stock equals or exceeds $1.65 per share and (ii) the daily volume of the Company’s common stock traded equals or exceeds 150,000 shares, then the total number of Units issuable upon exercise of the Amended A Warrants shall be reduced by twenty-five percent (25%), subject to extension as set forth in the Amended A Warrant.

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

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements that we believe are within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements, including the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our strategy, future operations, future expectations or future estimates, financial position and objectives of management. Those statements in this Form 10-Q containing the words "believes," "anticipates," "plans," "expects" and similar expressions constitute forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and are subject to a number of risks, uncertainties and assumptions relating to our operations, results of operations, competitive factors, shifts in market demand and other risks and uncertainties. The most important factors that could prevent us from achieving our stated goals include, but are not limited to, the following:

·	our ability to generate sufficient working capital to meet our operating requirements;

·	our future expense levels (including cost of revenues, research and development, sales and marketing, and general and administrative expenses);

·	our future revenue opportunities;

·	our ability to develop and enter into strategic relationships with wireless service providers, wireless software developers, semiconductor and device designers, mobile and wireless device manufacturers and content providers;

·	timely deployment by wireless service providers, semiconductor and device designers, and wireless device manufacturers of our wireless applications in their networks and mobile information devices;

·	the continued growth in demand for wireless and mobile usage;

·	our new product development and acceleration of commercial deployment of such products;

·	the future adoption of our current and future products, services and technologies;

·	the future growth of our customer base;

·	technological competition, which creates the risk of our technology being rendered obsolete or noncompetitive;

·	the lack of patent protection with respect to the Company's technology;

·	potential infringement of the patent rights of third parties; and

·	evolving technology trends.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and actual results may differ from those indicated by the forward-looking statements included in this Form 10-Q. In light of the significant uncertainties inherent in the forward-looking statements included in this Form 10-Q, you should not consider the inclusion of such information as a representation by us or anyone else that we will achieve such results. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Overview

Oasys’ predecessor company, High Speed Net Solutions, Inc., was founded in 1984. Summus, Ltd. was merged into High Speed in February 2001 and High Speed changed its name in February 2002 to Summus, Inc. (USA). On March 11, 2005, Summus, Inc. (USA) was reincorporated into the State of Delaware as Summus, Inc. On January 30, 2006, we amended our Certificate of Incorporation to change our corporate name to Oasys Mobile, Inc.

Oasys Mobile does business in three key areas in the mobile media applications market:

·	OasysMobile.com - Our Mobile Lifestyle Portal.

·	Branded Mobile Applications.

·	White Label Services.

OasysMobile.com

In January 2006, we launched our new web portal OasysMobile.com, a leading-edge mobile lifestyle portal that is directed at the teen and young adult market that allows users to access content outside of the distribution decks of the wireless carriers. OasysMobile.com also allows consumers to buy, own, and keep their mobile content beyond the life of their cell phone.

Through OasysMobile.com, we can distribute our own proprietary mobile content and vast amounts of third party mobile content and offer creative pricing and bundling of content and services directly to mobile consumers. Oasys Mobile built its mobile portal after seeing the opportunity to create additional distribution channels. By leveraging our experience in the mobile media space, Oasys Mobile is able to offer a comprehensive suite of services that add tremendous value to the mobile data consumer.

Branded Mobile Applications

Oasys Mobile is a leading provider of premium mobile media content, products and services that are distributed through top-tier wireless carriers in the United States and abroad, as well as through our OasysMobile.com portal. We develop, publish and distribute more than 34 branded mobile applications in four major categories:

Games;

·	Messaging;

·	Personalization; and

·	Entertainment.

We currently have relationships with wireless carriers that account for 97% of all wireless subscribers in the United States. We also have relationships with international carriers covering Europe, Asia, Canada, Latin America, Australia, Israel, the United Kingdom, Ireland, Italy and China.

In 2005, Oasys Mobile announced nine new products, thirteen new carriers or distribution partners and six new content partnerships. Oasys Mobile's partner and product portfolio includes such household names as Sony BMG, Mattel, Churchill Downs, Golf Digest, Phil Hellmuth, The Wall Street Journal, Howard Lederer and The Associated Press. Mobile media applications based on these brands, and other popular consumer applications, are deployed across 75 major wireless carriers and distribution partners in the United States and abroad.

Oasys Mobile builds its consumer applications for most major mobile platforms, including QUALCOMM’s Binary Runtime Environment for Wireless™ (BREW™), Java™ 2 Platform, Micro Edition (J2ME™), Symbian™ OS and Wireless Application Protocol (WAP). We currently distribute our branded applications primarily through major wireless carriers who make our products available to their customers on their distribution decks. Users typically purchase and download our applications through a wireless carrier's branded mobile data service accessed directly from their mobile handsets, which are enabled by technologies such as BREW, J2ME, Symbian and WAP. These wireless carrier services include, among others, Verizon Wireless' Get It Now, Cingular’s Media Mall, Sprint’s PCS Vision, Alltel’s Axcess, US Cellular’s Easy Edge and T-Mobile’s t-zones.

Users are charged a one-time or monthly subscription fee for the application which is billed to them on their mobile phone bills. The wireless carriers retain a percentage of the fee and remit the balance to us. We then pay the entities from which we license content a portion of this amount. The wireless distribution of our applications eliminates traditional publishing complexities, including physical production, packaging, shipping, inventory management and return processing.

White Label Services

The new Oasys Mobile white label products and services leverage the same content and functionality as OasysMobile.com and gives wireless carriers and content providers access to alternate distribution channels which allows them to offer their mobile offerings outside of the wireless carriers’ distribution decks and reach more customers. For maximum impact, our web and WAP portals can be branded under a white-label partner’s brand, creating an outsourced mobile storefront or additional content source.

In addition, Oasys Mobile can quickly and easily provide a content brand or carrier its own back-end photo-sharing platform. The photo platform has a user-friendly interface that makes it easy for subscribers to save and share photos and order prints of all their camera and online album pictures right from their camera phone. Oasys Mobile has created back-end photo-sharing platforms for Boost Mobile and Sprint/Nextel, which are currently both available.

Other Matters

To date, the Company has experienced significant operating losses as we have made investments in application development. The Company is focused on the development and delivery of applications and the marketing of those applications to make substantial progress in revenue generation. We plan to expand our market presence by partnering with additional wireless carriers as well as increasing subscriber adoption of our applications. Our ability to generate profits and positive cash flow from operations will depend primarily on increasing revenues as well as continuing cost control measures.

Results of Operations

Three-Month Period Ended June 30, 2006 Compared to Three-Month Period Ended June 30, 2005

Revenues

	*Three Months Ended June 30*
	2006		% of Total Revenues			2005		% of Total Revenues			$ Change		% Change

Revenues by category:
Wireless applications
and contracts	$	1,806,376		99.9	%	$	1,792,686		99.9	%	$	13,690		0.8	%
Wireless license fees		2,100		0.1			1,500		0.1			600		40.0	%
Total revenues	$	1,808,476		100.0	%	$	1,794,186		100.0	%	$	14,290		0.8	%

Wireless Applications and Contracts. Revenue from wireless applications and contracts increased $13,690 to $1,806,376 in the three-month period ended June 30, 2006, up 0.8% from $1,792,686 in the three-month period ended June 30, 2005. The increase in revenue from wireless applications and contracts resulted from the increase in sales of existing wireless applications and additional wireless applications developed by Oasys Mobile, launched by several wireless carriers and purchased by end-users. We continue to increase our subscriber base as well as expanding to new carriers. The Company recently released several products, including Mattel’s UNO® Challenge and Mobile Graffiti, which both have shown strong growth. Our contract with Sports Illustrated expired March 14, 2006. Excluding revenues generated from Sports Illustrated, our revenues from wireless subscriptions and downloads in the three-month period ended June 30, 2006 increased 32.1% over the three-month period ended June 30, 2005.

Revenue earned from wireless applications is recognized upon delivery and acceptance by the end-user either as a one-time purchase or a monthly subscription.

Wireless License Fees. Revenue earned from wireless license fees totaled $2,100 and $1,500 in the three-month periods ended June 30, 2006 and 2005, respectively.

Costs of Revenues

	Three Months Ended June 30
	2006		2005		$ Change		% Change
Cost of revenues by category:
Wireless applications and contracts	$	966,618	$	883,428	$	83,190		9.4	%
Total cost of revenues	$	966,618	$	883,428	$	83,190		9.4	%

Wireless Applications and Contracts. Costs of wireless applications and contracts increased $83,190 to $966,618 in the three-month period ended June 30, 2006, up 9.4% from $883,428 in the three-month period ended June 30, 2005. The increase in costs of wireless applications and contracts resulted from the increase in sales of existing wireless applications and additional wireless applications developed by the Company, launched by several wireless carriers and purchased by end-users. These costs are direct costs associated with the sale and delivery of wireless applications and primarily consist of third-party hosting fees and fees associated with content information provided by our content providers for wireless applications which were deployed during the three-month period ended June 30, 2006. The costs related to third-party hosting are incurred on a monthly basis and are primarily fixed in nature regardless of the revenue generated by the related applications. Our contracts with our content partners have various cost structures. Certain content partner arrangements have minimum payment requirements regardless of revenues. Therefore, our costs of revenues could vary depending on the products sold in a given period.

Gross Profit

	Three Months Ended June 30
	2006		2005		$ Change			% Change
Gross profit by category:
Wireless applications and contracts	$	839,758	$	909,258	$	(69,500	)		(7.6	)%
Wireless license fees		2,100		1,500		600			40.0	%
Total gross profit	$	841,858	$	910,758	$	(68,900	)		(7.6	)%

Wireless Applications and Contracts. Gross profit resulting from the development and deployment of wireless applications decreased $69,500 to $839,758 for the three-month period ended June 30, 2006, a decrease of 7.6% over the gross profit for the three-month period ended June 30, 2005 of $909,258. The decrease in gross profit resulting from these activities is due primarily to certain new content partner arrangements with fixed royalty payments. Our contracts with our content partners have various cost structures. Certain content partner arrangements have minimum payment requirements regardless of revenues. Therefore, our gross profit could vary depending on the products sold in a given period. The costs for these revenues include costs that are primarily fixed in nature, consisting mostly of third-party hosting fees and content information provided by certain of our content providers, and costs that are primarily variable in nature, consisting mostly of third-party content information.

Wireless License Fees. Gross profit resulting from wireless license fees totaled $2,100 and $1,500 for the three-month periods ended June 30, 2006 and 2005, respectively. The Company did not incur any specific direct costs associated with the sale, delivery, or installation of the software underlying the license agreements consummated during the period. Additionally, the Company does not expect to incur any future obligations relating to these license fees.

General and Administrative Expenses

	Three Months Ended June 30
	2006	2005	$ Change	% Change

General and administrative	$613,235	$708,156	$(94,921)		(13.4)%

General and administrative expenses consist primarily of salaries, consulting fees, office operations, administrative and general management activities, including legal, accounting, investor relations and other professional fees. General and administrative expenses for the three-month period ended June 30, 2006 were $613,235, compared to $708,156 for three-month period ended June 30, 2005. The decrease in general and administrative expenses was due to fees associated with the Qualcomm QuickPay program during the three-month period ended June 30, 2005, as well as decreases in general office expenses. The Company terminated its participation in the Qualcomm QuickPay program in early 2006.

Research and Development Expenses

	Three Months Ended June 30
	2006	2005	$ Change	% Change

Research and development	$902,648	$677,114	$225,534	33.3%

Research and development expenses for the three-month period ended June 30, 2006 were $902,648 compared to $677,114 for the three-month period ended June 30, 2005. The increase in research and development expenses is due to the increase in the number of applications that the Company is developing for future revenue generation, as well as continual development for the Oasys Mobile portal. We currently have several new products in development. The Oasys Mobile portal launched during the first quarter of 2006 and we are continuing to add new functionality. We are focusing our resources on the development of new products for rapid deployment.

Sales and Marketing Expenses

	Three Months Ended June 30
	2006	2005	$ Change	% Change

Sales and marketing	$759,950	$355,965	$403,985	113.5%

Sales and marketing expenses consist primarily of salaries, consulting fees, marketing agency fees, marketing programs, collateral and other professional fees. Sales and marketing expenses for the three-month period ended June 30, 2006 were $759,950 compared to $355,965 for the three-month period ended June 30, 2005. The increase in sales and marketing expenses during the current period as compared to the prior period was primarily due to the launch of the new Oasys Mobile portal in 2006 and certain carrier and portal marketing campaigns. The increase in sales and marketing expenses reflects our focus to deploy and market new products in order to continue increasing revenues in a cost effective manner.

Non-Cash Compensation Expenses

	Three Months Ended June 30
	2006	2005	$ Change	% Change

Non-cash compensation	$341,353	$9,666	$331,687	3,431.5%

Non-cash compensation for the three-month period ended June 30, 2006 was $341,353 compared to $9,666 for the three-month period ended June 30, 2005. The increase in non-cash compensation expense was due to new accounting requirements for the expensing of stock options issued to employees. Non-cash compensation for the three-month period ended June 30, 2006 reflects the fair value of employee stock options earned during the period. Non-cash compensation for the three-month period ended June 30, 2005 reflects the amortization for three months of deferred compensation resulting from stock options granted in prior years, at prices below the fair value of the underlying common stock.

Non-Cash Consulting Expenses

	Three Months Ended June 30
	2006	2005	$ Change	% Change

Non-cash consulting expense	$ -	$5,199	$(5,199)	(100.0)%

Non-cash consulting expense for the three-month period ended June 30, 2005, in the amount of $5,199 is attributable to 1,649 stock warrants granted to consultants for services, valued using the Black-Scholes option-pricing model.

There was no non-cash consulting expense for the three-month period ended June 30, 2006.

Interest Expense, net

	Three Months Ended June 30
	2006	2005	$ Change	% Change

Interest, net	$60,035	$1,492	$58,543	3,923.8%

Interest expense, net, for the three-month period ended June 30 2006, was $60,035 compared to interest expense of $1,492 for three-month period ended June 30, 2005. Interest expense for the three-month period ended June 30, 2006 primarily related to interest costs associated with convertible notes. There were no convertible notes outstanding during the three-month period ended June 30, 2005. The interest expense for the three-month period ended June 30, 2006 is net of interest income earned on cash.

Amortization of discount on debt and beneficial conversion feature

	Three Months Ended June 30
	2006	2005	$ Change	% Change

Amortization of discount on debt and beneficial conversion feature	$1,235,993	$ -	$1,235,993	100.0%

Amortization of discount on debt and beneficial conversion feature for the three-month period ended June 30, 2006 was $1,235,993. This related to amortization of the discounts on the convertible notes payable entered into in November 2005. There were no convertible notes outstanding during the three-month period ended June 30, 2005.

Net Loss

	Three Months Ended June 30
	2006	2005	$ Change	% Change

Net loss	$3,071,356	$846,834	$2,224,522	262.7%

As a result of the factors discussed above, the net losses for the three-month periods ended June 30, 2006 and 2005 were $3,071,356 and $846,834, respectively.

Six-Month Period Ended June 30, 2006 Compared to Six-Month Period Ended June 30, 2005

Revenues

	Six Months Ended June 30
	2006		% of Total Revenues			2005		% of Total Revenues			$ Change		% Change

Revenues by category:
Wireless applications
and contracts	$	3,902,891		99.4	%	$	3,779,033		99.9	%	$	123,858		3.3	%
Wireless license fees		22,750		0.6			5,200		0.1			17,550		337.5	%
Total revenues	$	3,925,641		100.0	%	$	3,784,233		100.0	%	$	141,408		3.7	%

Wireless Applications and Contracts. Revenue from wireless applications and contracts increased $123,858 to $3,902,891 in the six-month period ended June 30, 2006, up 3.3% from $3,779,033 in the six-month period ended June 30, 2005. The increase in revenue from wireless applications and contracts resulted from the increase in sales of existing wireless applications and additional wireless applications developed by Oasys Mobile, launched by several wireless carriers and purchased by end-users. We continue to increase our subscriber base as well as expanding to new carriers. The Company recently released several products, including Mattel’s UNO® Challenge and Mobile Graffiti, which both have shown strong growth. Our contract with Sports Illustrated expired March 14, 2006. Excluding revenues generated from Sports Illustrated, our revenues from wireless subscriptions and downloads in the six-month period ended June 30, 2006 increased 28.8% over the six-month period ended June 30, 2005.

Revenue earned from wireless applications is recognized upon delivery and acceptance by the end-user either as a one-time purchase or a monthly subscription.

Wireless License Fees. Revenue earned from wireless license fees totaled $22,750 and $5,200 in the six-month periods ended June 30, 2006 and 2005, respectively.

Costs of Revenues

	Six Months Ended June 30
	2006		2005		$ Change		% Change
Cost of revenues by category:
Wireless applications and contracts	$	2,077,408	$	1,839,615	$	237,793		12.9
Total cost of revenues	$	2,077,408	$	1,839,615	$	237,793		12.9

Wireless Applications and Contracts. Costs of wireless applications and contracts increased $237,793 to $2,077,408 in the six-month period ended June 30, 2006, up 12.9% from $1,839,615 in the six-month period ended June 30, 2005. The increase in costs of wireless applications and contracts resulted from the increase in sales of existing wireless applications and additional wireless applications developed by the Company, launched by several wireless carriers and purchased by end-users. These costs are direct costs associated with the sale and delivery of wireless applications and primarily consist of third-party hosting fees and fees associated with content information provided by our content providers for wireless applications which were deployed during the six-month period ended June 30, 2006. The costs related to third-party hosting are incurred on a monthly basis and are primarily fixed in nature regardless of the revenue generated by the related applications. Our contracts with our content partners have various cost structures. Certain content partner arrangements have minimum payment requirements regardless of revenues. Therefore, our costs of revenues could vary depending on the products sold in a given period.

Gross Profit

		Six Months Ended June 30
		2006		2005		$ Change		% Change
Gross profit by category:
Wireless applications and contracts	$	1,825,483	$	1,939,418	$	(113,935	)	(5.9	)%
Wireless license fees		22,750		5,200		17,550		337.5	%
Total gross profit	$	1,848,233	$	1,944,618	$	(96,385	)	(5.0	)%

Wireless Applications and Contracts. Gross profit resulting from the development and deployment of wireless applications decreased $113,935 to $1,825,483 for the six-month period ended June 30, 2006, a decrease of 5.9% over the gross profit for the six-month period ended June 30, 2005 of $1,939,418. The decrease in gross profit resulting from these activities is due primarily to certain new content partner arrangements with fixed royalty payments. Our contracts with our content partners have various cost structures. Certain content partner arrangements have minimum payment requirements regardless of revenues. Therefore, our gross profit could vary depending on the products sold in a given period. The costs for these revenues include costs that are primarily fixed in nature, consisting mostly of third-party hosting fees and content information provided by certain of our content providers, and costs that are primarily variable in nature, consisting mostly of third-party content information.

Wireless License Fees. Gross profit resulting from wireless license fees totaled $22,750 and $5,200 for the six-month periods ended June 30, 2006 and 2005, respectively. The Company did not incur any specific direct costs associated with the sale, delivery, or installation of the software underlying the license agreements consummated during the period. Additionally, the Company does not expect to incur any future obligations relating to these license fees.

General and Administrative Expenses

	Six Months Ended June 30
	2006	2005	$ Change	% Change

General and administrative	$1,430,507	$1,435,259	$(4,752)	(0.3)%

Research and Development Expenses

	Six Months Ended June 30
	2006	2005	$ Change	% Change

Research and development	$1,720,526	$1,321,690	$398,836	30.2%

Research and development expenses for the six-month period ended June 30, 2006 were $1,720,526 compared to $1,321,690 for the six-month period ended June 30, 2005. The increase in research and development expenses is due to the increase in the number of applications that the Company is developing for future revenue generation, as well as continual development for the Oasys Mobile portal. We currently have several new products in development. The Oasys Mobile portal launched during the first quarter of 2006 and we are continuing to add new functionality. We are focusing our resources on the development of new products for rapid deployment.

Sales and Marketing Expenses

	Six Months Ended June 30
	2006	2005	$ Change	% Change

Sales and marketing	$1,910,510	$639,264	$1,271,246	198.9%

Sales and marketing expenses consist primarily of salaries, consulting fees, marketing agency fees, marketing programs, collateral and other professional fees. Sales and marketing expenses for the six-month period ended June 30, 2006 were $1,910,510 compared to $639,264 for the six-month period ended June 30, 2005. The increase in sales and marketing expenses during the current period as compared to the prior period was primarily due to the launch of the new Oasys Mobile portal in 2006 and certain carrier and portal marketing campaigns. The increase in sales and marketing expenses reflects our focus to deploy and market new products in order to continue increasing revenues in a cost effective manner.

Non-Cash Compensation Expenses

	Six Months Ended June 30
	2006	2005	$ Change	% Change

Non-cash compensation	$657,769	$20,734	$637,035	3,072.4%

Non-cash compensation for the six-month period ended June 30, 2006 was $657,769 compared to $20,734 for the six-month period ended June 30, 2005. The increase in non-cash compensation expense was due to new accounting requirements for the expensing of stock options issued to employees. Non-cash compensation for the six-month period ended June 30, 2006 reflects the fair value of employee stock options earned during the period. Non-cash compensation for the six-month period ended June 30, 2005 reflects the amortization for six months of deferred compensation resulting from stock options granted in prior years, at prices below the fair value of the underlying common stock.

Non-Cash Consulting Expenses

	Six Months Ended June 30
	2006	2005	$ Change	% Change

Non-cash consulting expense	$ -	$10,401	$(10,401)	(100.0)%

Non-cash consulting expense for the six-month period ended June 30, 2005, in the amount of $10,401 is attributable to 2,767 stock warrants granted to consultants for services, valued using the Black-Scholes option-pricing model.

There was no non-cash consulting expense for the six-month period ended June 30, 2006.

Non-Cash Settlements

	Six Months Ended June 30
	2006	2005	$ Change	% Change

Non-cash settlements	$ -	$58,750	$(58,750)	(100.0)%

Non-cash settlements totaling $58,750 for the six months ended June 30, 2005 resulted from the settlement of the remaining amount of a note payable with Holland & Knight LLP (“H&K”) of $184,382 with the issuance to H&K of 47,673 shares of the Company’s common stock. The fair value of the 47,673 shares of common stock was estimated at $243,132, based on the traded value of the Company’s common stock on the date of the settlement agreement. The difference between the estimated fair value of the 47,673 common shares and the recorded value of the liability of $184,382, totaling $58,750, was recorded as settlement loss.

The Company did not enter into any non-cash settlements during the six-month period ended June 30, 2006.

Interest Expense, net

	Six Months Ended June 30
	2006	2005	$ Change	% Change

Interest, net	$102,358	$44,829	$57,529	128.3%

Interest expense, net, for the six-month period ended June 30 2006, was $102,358 compared to interest expense of $44,829 for six-month period ended June 30, 2005. Interest expense for the six-month periods ended June 30, 2006 and 2005 primarily related to interest costs associated with convertible notes. The Senior Notes outstanding in 2005 were repaid in March 2005. The interest expense for the six-month period ended June 30, 2006 is net of interest income earned on cash.

Amortization of discount on debt and beneficial conversion feature

	Six Months Ended June 30
	2006	2005	$ Change	% Change

Amortization of discount on debt and beneficial conversion feature	$2,458,404	$851,332	$1,607,072	188.8%

Amortization of discount on debt and beneficial conversion feature for the six-month period ended June 30, 2006 was $2,458,404. This related to amortization of the discounts on the convertible notes payable entered into in November 2005.

Amortization of discount on debt and beneficial conversion feature for the six-month period ended June 30, 2005 was $851,332. This related to amortization of the discounts on the convertible notes payable entered into in December 2004. These notes were repaid in March 2005 and the discount was fully amortized as interest expense in the six-month period ended June 30, 2005.

Net Loss

	Six Months Ended June 30
	2006	2005	$ Change	% Change

Net loss	$6,431,841	$2,437,641	$3,994,200	163.9%

As a result of the factors discussed above, the net losses for the six-month periods ended June 30, 2006 and 2005 were $6,431,841 and $2,437,641, respectively.

Liquidity and Capital Resources

As of June 30, 2006 we had $5,198,770 of cash on hand, working capital of $998,913, and approximately $5.9 million in current liabilities, including $3.04 million in convertible notes payable.

In November 2005, Oasys Mobile entered into senior debt agreements with certain investors for $8,000,000 of financing in the form of notes payable (the "Senior Secured Debentures"). The Senior Secured Debentures bear interest at 6% and mature on June 30, 2007 (“Maturity Date”). The Senior Secured Debentures are convertible into shares of Oasys Mobile’s common stock at the option of the holder at a conversion price of $2.00 per share. The Senior Secured Debentures are also subject to automatic conversion if Oasys Mobile meets certain revenue or trading stock price milestones. The Senior Secured Debentures are secured by all of the assets of Oasys Mobile.

On July 27, 2006, the Company entered into a Modification Agreement in which the investors agreed to waive certain of their rights under the documents and instruments entered into in connection with the Senior Secured Debentures.

In consideration for entering into the Modification Agreement, each of the investors was issued Amended A Warrants. The Amended A Warrants, which expire on June 30, 2007, subject to extension under certain circumstances, (i) decreased the purchase price of the Original A Warrants issued in connection with the Purchase Agreement from $2.00 per Unit to $1.10 per Unit, and (ii) increased the number of Units underlying the Amended A Warrants to a total of 2,800,000 Units from 2,000,000 Units underlying the Original A Warrants. Although the number of Units increased, the shares issuable upon the exercise of the C-2 Warrants underlying such Units remained unchanged at 800,000 shares in the aggregate. The investors agreed to waive their right to cause the Company to redeem the Senior Secured Debentures issued in connection with the Purchase Agreement in the event that the Company engages in a financing transaction or a series of related transactions in which 50% or more of the voting power of the Company is disposed of.

Other Matters

From inception through our 2005 fiscal year, our primary source of funding for our operations came from the issuance of shares of our common stock in private placements to investors. We believe that we have enough working capital to fund and sustain our business operations through 2006. However, business opportunities, such as product or geographic expansion, or the acquisition of product lines or companies may present themselves. If we were to pursue these opportunities, they may require that we raise additional capital through the issuance of our equity securities or that we issue shares of our common stock or other equity securities in connection with acquisitions. If we have to raise additional funding, we cannot guarantee that we will be able to raise the necessary capital or that, if we do so, it will be on favorable terms. We may have to sell equity at below market rates, and any future sales of our capital stock to finance our business plan will dilute our existing stockholders' ownership.

Subject to our liquidity constraints (including our need to dedicate cash flow to meet our obligations on a timely basis), we intend to invest a larger portion of our working capital on:

·	increasing subscriber adoption of our applications through marketing and promotions;

·	securing top-tier brands;

·	the development and delivery of new wireless applications;

·	the marketing of applications to lay the foundation of future substantial revenue generation; and

·	the marketing of our Oasys Mobile portal to build and retain subscriber base.

Cash Flow Information

	Six Months Ended June 30
	2006			2005
Cash used in operating activities	$	(3,752,381	)	$	(1,056,060	)
Cash used in investing activities	$	(28,007	)	$	(31,717	)
Cash (used in) provided by financing activities	$	(6,000	)	$	2,848,794

Cash Flow used in Operating Activities. Net cash used in operating activities was $3,752,381 in the six-month period ended June 30, 2006, compared to $1,056,060 in the corresponding period of the prior year. The increase in net cash used in operating activities was due to the following:

·	investments in the development and marketing planning for the new Oasys Mobile portal launched in the first quarter of 2006; and

·	marketing expenses related to several carrier and portal marketing campaigns;

·	a two-month lag on payments from Qualcomm due to our ending our participation in the Qualcomm Quick Pay Program early in 2006;

·	increases in payments to service providers in preparation for the launch of the portal.

Cash Flow used in Investing Activities. Net cash used in investing activities was $28,007 and $31,717 in the six-month periods ended June 30, 2006 and 2005, respectively, representing computer equipment purchases.

Cash Flow (used in) provided by Financing Activities. Cash flow used in financing activities in the six-month period ended June 30, 2006 related to payments on capital lease obligations. Net cash provided by financing activities was $2,848,794 in the six-month period ended June 30, 2005 and consisted of the following:

·	proceeds from issuance of Senior Notes of $215,000.

·	proceeds from the exercise of 1,264,296 stock warrants and 58,960 stock options of $4,332,878.

·	principal payments on Senior Notes of ($1,640,000).

·	principal payments on note payable obligations of ($59,084).

Contractual Obligations

At June 30, 2006, we did not have any material commitments for capital expenses. Our principal commitments consisted of obligations under operating leases, notes payable and content partner arrangements.

The following table summarizes our contractual obligations at June 30, 2006 and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Total		Operating Leases		Notes Payable		Purchase Obligations		Capital Leases
Six months ending December 31, 2006	$	292,673	$	122,767	$	77,500	$	84,000	$	8,406
Year ending December 31, 2007		8,189,528		4,716		8,000,000		168,000		16,812
Year ending December 31, 2008		21,405		4,716		-		-		16,689
Year ending December 31, 2009		2,362		1,965		-		-		397

Total contractual obligations	$	8,505,968	$	134,164	$	8,077,500	$	252,000	$	42,304

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based Payment, which is a revision of SFAS Statement No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). SFAS No. 123(R) supersedes APB No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. We adopted SFAS No. 123(R) on January, 2006. SFAS No. 123(R) requires us to account for share-based payment transactions using a fair value-based method and recognize the related expense in our results of operations. Prior to our adoption of SFAS No. 123(R), as permitted by SFAS No. 123, we accounted for share-based payments to employees using the APB 25 intrinsic value method and, therefore we generally recognized compensation expense for restricted stock awards and did not recognize compensation cost for employee stock options as such options had an exercise price equal to the market price of the underlying common stock on the date of grant. SFAS No. 123(R) allows companies to choose one of two transition methods: the modified prospective transition method or the modified retrospective transition method. We chose to use the modified prospective transition methodology. We have not restated our financial results from prior periods as a result of our adoption of SFAS No. 123(R).

Under the fair value recognition provisions of SFAS No. 123(R), stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. The fair value of restricted stock awards is determined by reference to the fair market value of our common stock on the date of grant. Consistent with the valuation method we used for disclosure-only purposes under the provisions of SFAS No. 123, we use the Black-Scholes model to value service condition and performance condition option awards under SFAS No. 123(R). For awards with only service conditions and graded-vesting features, we recognize compensation cost on a straight-line basis over the requisite service period.

Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates, and expected terms. The expected volatility rates are estimated based on historical volatilities of our common stock. The expected term represents the average time that options that vest are expected to be outstanding based on the vesting provisions and our historical exercise, cancellation and expiration patterns. We estimate pre-vesting forfeitures when recognizing compensation expense based on historical rates. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination.

During the quarter ended June 30, 2006, we recognized stock-based compensation expense related to employee stock options of approximately $341,000. As of June 30, 2006, we had unrecognized stock-based compensation of $2.1 million related to non-vested employee stock options awards, which is expected to be recognized over an estimated weighted average period of 1.12 years.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”), a replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principles unless it is impracticable. APB Opinion No. 20, “Accounting Changes”, previously required that most voluntarychanges in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This statement was effective beginning on January 1, 2006. The adoption of SFAS No. 154 did not have a material impact on our financial statements.

Description of Critical Accounting Policies

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses. We have identified the following critical accounting policies that affect the more significant estimates and judgments used in the preparation of our financial statements. On an ongoing basis, we evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.

Revenue Recognition and Related Costs

Wireless applications and contracts

Revenues earned from wireless applications are recognized upon delivery and acceptance by the end-user either as a one-time purchase or a monthly subscription. For content delivery partner arrangements, whereby the Company remits a portion of the revenues earned through the sale of the Company’s applications, revenue is recorded on a gross basis in accordance with EITF 99-19. The Company recognizes the cost of revenue share payments to the content providers as a cost of revenues. Wireless applications and contracts cost of revenues also includes all third-party hosting fees. These costs are incurred on a monthly basis and are primarily fixed in nature regardless of the revenue generated by the related applications.

Wireless License Fees

We recognize revenue from licensee fees for wireless software applications in accordance with the provisions of AICPA Statement of Position 97-2, “Software Revenue Recognition”, as amended by AICPA Statement of Position 98-9 “Modification of SOP No. 97-2 Software Revenue Recognition with Respect to Certain Transactions.” Revenue from software license fees is generally recognized upon delivery provided that a contract has been executed, the vendor fee is fixed or determinable, no significant vendor obligations or uncertainties surrounding customer acceptance remain, and collection of the resulting receivable is deemed probable.

There were no costs related to the wireless license fee revenue generated during the six months ended June 30, 2006 and 2005 as the license fee revenue related to technology that had been previously developed by the Company, and there were no costs for installation, delivery or customization, or other related costs.

Contracts and license fees

We derive certain revenues primarily from research and development contracts for governmental agencies and the commercial licensing of our technology. We recognize revenue on these contracts at the time services are rendered based upon the terms of individual contracts. Regarding the commercial licensing of our technology, we follow the provisions of AICPA Statement of Position 97-2, “Software Revenue Recognition”, as amended by AICPA Statement of Position 98-9 “Modification of SOP No. 97-2 Software Revenue Recognition with Respect to Certain Transactions.” Revenue from software license fees is generally recognized upon delivery provided that a contract has been executed, the vendor fee is fixed or determinable, no significant vendor obligations or uncertainties surrounding customer acceptance remain, and collection of the resulting receivable is deemed probable.

Valuation of Equity Instruments

We have utilized our equity securities, including unregistered common stock and options/warrants to purchase unregistered common stock, to pay for services and to settle obligations owed to or claimed by creditors. The issuance of equity instruments as payment for services rendered to Oasys results in the recording of non-cash compensation or consulting expense as the services are performed. We utilize the Black-Scholes option-pricing model to determine the value of options or warrants issued as payment for services. Underlying the Black-Scholes option-pricing model are several assumptions that are evaluated by management and include: (1) a dividend yield; (2) a common stock volatility factor; (3) the risk-free interest rate; and (4) the expected life of the option or warrant. Management evaluates each of these assumptions on a periodic basis in order to determine the value of the equity instruments used as payment for services as well as to record the associated expense. As conditions change, our evaluation of the assumptions underlying the Black-Scholes option-pricing model may change resulting in differing values of equity instruments issued for services between reporting periods.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We do not use any derivative financial instruments for hedging, speculative or trading purposes. Our exposure to market risk is currently immaterial.

Item 4. Controls and Procedures

Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in the Company's internal controls or in other factors that could significantly affect the disclosure controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II.

OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit 31.1		Rule 13a-14(a)/15a-14(a) Certification of Gary E. Ban, Chief Executive Officer
Exhibit 31.2		Rule 13a-14(a)/15a-14(a) Certification of Tracy T. Jackson, Chief Financial Officer

Exhibit 32.1		Section 1350 Certification of Gary E. Ban, Chief Executive Officer
Exhibit 32.2		Section 1350 Certification of Tracy T. Jackson, Chief Financial Officer

SIGNATURES

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


	OASYS MOBILE, INC.

Date: August 14, 2006	By:	/s/ GARY E. BAN
		Gary E. Ban Chief Executive Officer


Date: August 14, 2006	By:	/s/ TRACY T. JACKSON
		Tracy T. Jackson Chief Financial Officer

Oasys Mobile, Inc. 10-Q