UNITED ~~STATES~~ ~~SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549~~ STATES

~~_______________~~SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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 ~~quarterly~~transition period ~~ended June 30, 2004~~ from to

~~¨ Transition~~Commission file ~~Report~~number: ~~Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~0-29625

~~_______________~~OASYS MOBILE, INC.

~~Commission~~(Exact name ~~File~~of ~~Number:~~Registrant ~~0-29625~~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)

~~Summus,~~Indicate by ~~Inc.~~checkmark whether the Registrant: (~~USA~~1) has filed all reports required to be filed by Section 13 or 15(~~Exact~~d) ~~Name~~of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant aswas ~~Specified~~required to infile ~~its~~such ~~Charter~~reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Florida	7370, 5045	65-0185306
(State or other Jurisdiction of	(Primary Standard	(I.R.S. Employer
Incorporation or Organization)	Industrial Classification Codes)	Identification Number)

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

~~434 Fayetteville Street, Suite 600~~Indicate ~~Raleigh,~~ by ~~North~~check ~~Carolina~~mark ~~27601 (919)~~whether ~~807-5600 (Address,~~the ~~Including~~Registrant ~~Zip~~is ~~Code,~~a ~~and~~shell ~~Telephone~~company ~~Number,~~(as ~~Including~~defined ~~Area~~in ~~Code~~Rule 12b-2 of ~~Registrant's~~the ~~Principal~~Exchange ~~Executive Offices~~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.

~~Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the~~ OASYS ~~Securities~~ MOBILE, ~~Exchange~~INC. 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 check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes ¨ No þ

As of August 5, 2004, the registrant had 92,860,405 shares of its Common Stock, par value $.001 per share, issued and outstanding.

SUMMUS, INC. (USA)

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, ~~2004~~2006

TABLE OF CONTENTS

		Page No.	~~Page No.~~
PART I	FINANCIAL INFORMATION	~~CONSOLIDATED FINANCIAL INFORMATION~~
Item 1.	Financial Statements (Unaudited)	~~Consolidated Financial Statements (Unaudited)~~
		Consolidated Balance Sheets as of June 30, 2004
	Balance Sheets as of June 30, 2006 and December 31, 2005	3
		(Unaudited) and December 31, 2003	3
	Statements of Operations for the Three-Month Periods Ended June 30, 2006 and 2005	4
		Consolidated Statements of Operations for the Three-Month
	Statements of Operations for the Six-Month Periods Ended June 30, 2006 and 2005	5
		Period Ended June 30, 2004 and 2003 (Unaudited)	4
	Statement of Stockholders’ Equity for the Six-Month Period Ended June 30, 2006	6
		Consolidated Statements of Operations for the Six-Month
	Statements of Cash Flows for the Six-Month Periods Ended June 30, 2006 and 2005	8
		Period Ended June 30, 2004 and 2003 (Unaudited)	5
	Notes to Financial Statements	9
		Consolidated Statement of Shareholders' (Deficit) Equity for the
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
		Six-Month Period Ended June 30, 2004 (Unaudited)	6
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
		Consolidated Statements of Cash Flows for the Six-Month
Item 4.	Controls and Procedures	37
		Period Ended June 30, 2004 and 2003 (Unaudited)	9
PART II	OTHER INFORMATION
		Notes to Consolidated Financial Statements (Unaudited)	10
Item 6.	Exhibits	37
Item 2.		Management's Discussion and Analysis of Financial Condition
		and Results of Operations	22
Item 3.		Quantitative and Qualitative Disclosures About Market
		Risk	39
Item 4.		Controls and Procedures	39
PART II		OTHER INFORMATION
Item 2		Changes in Securities and Use of Proceeds	40
Item 5.		Other Information	41
Item 6.		Exhibits and Reports on Form 8 –K	44

~~Table~~PART I. ~~of Contents~~

~~PART I.~~ FINANCIAL INFORMATION

Item 1. Financial Statements

~~SUMMUS~~OASYS MOBILE, INC. ~~(USA) CONSOLIDATED BALANCE SHEETS~~

	June 30, 2004	December 31, 2003
	(Unaudited)
Assets
Current assets:
Cash	$ 748,356	$ 2,188,645
Accounts receivable	922,024	480,494
Prepaids and other current assets	145,569	15,800
Total current assets	1,815,949	2,684,939
Equipment, software and furniture, net	147,374	195,999
Total assets	$ 1,963,323	$ 2,880,938
Liabilities and shareholders’ (deficit) equity
Current liabilities:
Accounts payable	$ 1,380,391	$ 1,350,940
Accrued salaries and related costs	201,080	439,595
Accrued interest	88,010	82,812
Current portion of notes payable	287,869	270,195
Capital lease obligations, current portion	-	17,296
Preferred stock dividends payable	301,273	218,143
Deferred revenue	35,000	-
Total current liabilities	2,293,623	2,378,981
Notes payable, less current portion	132,705	215,932
Convertible notes payable, net of discount of $957,443	42,557	-
Total liabilities	2,468,885	2,594,913
Shareholders’ (deficit) equity :
Series A convertible preferred stock, $0.001 par value;
10,000 shares designated, 2,078 shares issued and
outstanding at June 30, 2004 and December 31,
2003 (liquidation preference of $2,379,273 as of
June 30, 2004)	2,078,312	2,078,312
Series C convertible preferred stock, $0.001 par value;
3,000 shares designated, 1,310 and 60 shares issued and
outstanding at June 30, 2004 and December 31, 2003
respectively (liquidation preference of $60,000 as of
June 30, 2004)	30,184	365,566
Series D convertible preferred stock, $0.001 par value;
4,000 shares designated, 2,525 and 2,900 shares issued
and outstanding at June 30, 2004 and December 31, 2003,
respectively (liquidation preference of $2,525,000 as of
June 30, 2004)	1,754,965	2,015,604
Series E convertible preferred stock, $0.001 par value;
200 shares designated, zero and 170 shares issued and
outstanding at June 30, 2004 and December 31, 2003,
respectively	-	119,460
Common stock, $0.001 par value, 185,000,000 shares
authorized; 92,798,153 and 69,408,639 shares issued
and 92,759,653 and 69,370,139 shares outstanding at
June 30, 2004 and December 31, 2003, respectively	92,759	69,370
Additional paid-in capital	48,498,032	46,315,321
Deferred compensation	(9,625)	(53,427)
Accumulated deficit	(52,722,570)	(50,396,562)
Treasury stock, at cost (38,500 shares)	(227,619)	(227,619)
Total shareholders’ (deficit) equity	(505,562)	286,025
Total liabilities and shareholders’ (deficit) equity	$ 1,963,323	$ 2,880,938

BALANCE SHEETS (UNAUDITED)

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

	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

3The accompanying notes constitute an integral part of these financial statements.

~~Table of Contents~~3

~~SUMMUS~~OASYS MOBILE, INC. ~~(USA)~~

~~CONSOLIDATED~~ STATEMENTS OF OPERATIONS (UNAUDITED)

	~~Three-Month Period Ended~~	Three-Month Period Ended
		June 30, 2004				June 30, 2003
		June 30, 2006			June 30, 2005
Revenues:
Wireless applications and contracts		$	1,~~208~~806,~~880~~376		$	$1,792,686	~~332,989~~
Contracts and license fees			–				–
Wireless license fees			2,100			1,500
Wireless license fees			–				247,201
Total revenues			1,808,476			1,794,186
Total revenues			1,208,880				580,190
Cost of revenues:
Cost of revenues:
Wireless applications and contracts			966,618			883,428
Wireless applications and contracts			627,431				228,419
Total cost of revenues			966,618			883,428
Contracts and license fees			–				–
Gross profit			841,858			910,758
Wireless license fees			–				–
Operating expenses:
Total cost of revenues			627,431				228,419
General and administrative			613,235			708,156
Gross profit			581,449				351,771
Research and development			902,648			677,114
Selling, general and administrative expenses			752,078				1,134,532
Sales and marketing			759,950			355,965
Non-cash compensation			6341,~~666~~353			9,666	~~44,148~~
Research and development			453,097				263,631
Non-cash consulting expense			-			5,199
Non-cash consulting expense			22,673				36,470
Total operating expenses			2,617,186			1,756,100
Non-cash settlements			–				(333,950)
Loss from operations			(1,775,328	)		(845,342	)
Interest expense			55(60,~~898~~035	)		(1,492	~~14,222~~)
Net loss		$	(708,963)			$	(807,282)
Amortization of discount on debt and beneficial conversion feature			(1,235,993	)		-
Net loss applicable to common shareholders:
Net loss		$	(3,071,356	)	$	(846,834	)
Net loss		$	(708,963)			$	(807,282)
Net loss applicable to common stockholders:
Accretion of beneficial conversion feature on preferred stock			(84,922)				–
Net loss		$	(3,071,356	)	$	(846,834	)
Preferred stock dividends			(4148,~~565)~~140	)		(48,140	~~(47,032~~)
Net loss applicable to common shareholders		$	(835,450)			$	(854,314)
Net loss applicable to common stockholders		$	(3,119,496	)	$	(894,974	)
Per share amounts (basic and diluted)		$	(0.~~01)~~23	)	$	$(0.07	~~(0.01~~)
Weighted average shares of common stock outstanding			8413,~~362~~536,~~293~~884			13,484,362	~~60,533,019~~

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

~~Table~~OASYS MOBILE, ofINC. ~~Contents~~

~~SUMMUS,~~STATEMENTS OF OPERATIONS ~~INC.~~ (~~USA~~UNAUDITED)

CONSOLIDATED 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

	Six-Month Period Ended
	June 30, 2004			June 30, 2003
Revenues:
Wireless applications and contracts		$	1,982,210	$	562,424
Contracts and license fees			13,889		–
Wireless license fees			750		247,201
Total revenues			1,996,849		809,625
Cost of revenues:
Wireless applications and contracts			1,023,768		443,013
Contracts and license fees			3,199		–
Wireless license fees			–		–
Total cost of revenues			1,026,967		443,013
Gross profit			969,882		366,612
Selling, general and administrative expenses			1,786,532		2,490,694
Non-cash compensation			53,702		88,294
Research and development			973,319		528,971
Non-cash consulting expense			29,017		94,706
Non-cash settlements			–		(1,339,290)
Interest expense			76,746		24,441
Net loss		$	(1,949,434)	$	(1,521,204)
Net loss applicable to common shareholders:
Net loss		$	(1,949,434)	$	(1,521,204)
Accretion of beneficial conversion feature on preferred stock			(293,444)		–
Preferred stock dividends			(83,130)		(93,192)
Net loss applicable to common shareholders		$	(2,326,008)	$	(1,614,396)
Per share amounts (basic and diluted)		$	(0.03)	$	(0.03)
Weighted average shares of common stock outstanding			77,651,930		58,429,235

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

~~The accompanying notes constitute an integral part of these consolidated financial statements.~~5

5OASYS MOBILE, INC.

~~Table~~STATEMENT OF STOCKHOLDERS' ~~of Contents~~EQUITY (UNAUDITED)

SUMMUS, INC. (USA)

	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

~~CONSOLIDATED~~The accompanying ~~STATEMENT~~notes OFconstitute ~~SHAREHOLDERS'~~an ~~(DEFICIT)~~integral ~~EQUITY~~part ~~(UNAUDITED)~~of these financial statements.

	Convertible Preferred Stock
	Series A			Series C		Series D
		Shares	Amount	Shares	Amount	Shares	Amount
Balance at December 31, 2003		2,078	$ 2,078,312	1,310	$ 365,566	2,900	$ 2,015,604
Accretion of beneficial conversion
feature of Series C preferred stock		-	-	-	293,444	-	-
Issuance of common stock in conjunction
with issuance of convertible debt		-	-	-	-	-	-
Beneficial conversion feature related
to issuance of convertible debt		-	-	-	-	-	-
Common stock, options and warrants
issued for services		-	-	-	-	-	-
Common stock issued for cash		-	-	-	-	-	-
Common stock issued for accrued payroll		-	-	-	-	-	-
Preferred stock dividends		-	-	-	-	-	-
Deferred compensation related to
issuance of stock options		-	-	-	-	-	-
Amortization of deferred
compensation		-	-	-	-	-	-
Conversion of Series C, D and E
preferred stock		-	-	(1,250)	(628,826)	(375)	(260,639)
Net loss for the period		-	-	-	-	-	-
Balance at June 30, 2004		2,078	$ 2,078,312	60	$ 30,184	2,525	$ 1,754,965

~~The~~OASYS MOBILE, ~~accompanying notes constitute an integral part of these consolidated financial statements~~INC.

6STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

Table of Contents

	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

~~SUMMUS,~~The accompanying ~~INC.~~notes ~~(USA)~~constitute an integral part of these financial statements.

~~CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY (UNAUDITED)~~7

OASYS Additional Series E Common Stock Paid-In Shares Amount Shares Amount Capital Balance at December 31 MOBILE, ~~2003 170 $~~INC. 119,460 69,370,139 $ 69,370 $ 46,315,321 Accretion of beneficial conversion feature of Series C preferred stock - - - - - Issuance of common stock in conjunction with issuance of convertible debt - - 14,286,000 14,286 485,714 Beneficial conversion feature related to issuance of convertible debt - - - - 500,000 Common stock, options and warrants issued for services - - 300,000 300 82,717 Common stock issued for cash - - 431,034 431 19,655 Common stock issued for accrued payroll - - 647,480 647 83,525 Preferred stock dividends - - - - - Deferred compensation related to issuance of stock options - - - - 9,900 Amortization of deferred compensation - - - - - Conversion of Series C, D and E preferred stock (170) (119,460) 7,725,000 7,725 1,001,200 Net loss for the period - - - - - Balance at June 30, 2004 - $ - 92,759,653 $ 92,759 $ 48,498,032

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

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

~~SUMMUS, INC. (USA)~~8

~~CONSOLIDATED~~Oasys Mobile, ~~STATEMENT~~Inc. ~~OF SHAREHOLDERS' (DEFICIT) EQUITY (UNAUDITED)~~

							Total
	Deferred		Accumulated		Treasury		Shareholders’
	Compensation		Deficit		Stock		(Deficit) Equity
Balance at December 31, 2003	$ (53,427	)	$ (50,396,562	)	$ (227,619	)	$ 286,025
Accretion of beneficial conversion
feature of Series C preferred stock	-		(293,444	)	-		-
Issuance of common stock in conjunction
with issuance of convertible debt	-		-		-		500,000
Beneficial conversion feature related
to issuance of convertible debt	-		-		-		500,000
Common stock, options and warrants
issued for services	-		-		-		83,017
Common stock issued for cash	-		-		-		20,086
Common stock issued for accrued payroll	-		-		-		84,172
Preferred stock dividends	-		(83,130	)	-		(83,130	)
Deferred compensation related to
issuance of stock options	(9,900	)	-		-		-
Amortization of deferred
compensation	53,702		-		-		53,702
Conversion of Series C, D and E
preferred stock	-		-		-		-
Net loss for the period	-		(1,949,434	)	-		(1,949,434	)
Balance at June 30, 2004	$ (9,625	)	$ (52,722,570	)	$ (227,619	)	$ (505,562	)

Notes to Financial Statements

~~The~~1. Business and ~~accompanying~~Basis ~~notes constitute an integral part~~ of ~~these consolidated financial statements.~~Presentation

8Business

Oasys ~~Table~~ Mobile, Inc. ("Oasys Mobile” or the "Company") is engaged primarily in the development of ~~Contents~~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.

~~SUMMUS~~Oasys Mobile has developed software, ~~INC~~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. ~~(USA)~~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.

~~CONSOLIDATED~~Oasys Mobile ~~STATEMENTS~~builds OFend-user ~~CASH~~applications ~~FLOWS~~for most major mobile platforms, including QUALCOMM’s Binary Runtime Environment for Wireless™ (~~UNAUDITED~~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.

		Six-Month Period Ended
		June 30, 2004		June 30, 2003
Operating activities
Net loss	$	(1,949,434)	$	(1,521,204)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization		80,313		152,347
Non-cash compensation		53,702		88,294
Common stock, options and warrants issued for services		83,017		94,706
Amortization of discount on debt and beneficial conversion feature		42,557		–
Non-cash settlements		–		(1,339,290)
Changes in operating assets and liabilities:
Accounts receivable		(441,530)		(170,439)
Prepaid and other assets		(129,769)		(75,233)
Accounts payable and other accrued expenses		58,649		342,610
Accrued salaries and related costs		(178,343)		358,436
Deferred revenue		35,000		(7,285)
Net cash used in operating activities		(2,345,838)		(2,077,058)
Investing activities
Purchases of equipment and furniture		(31,688)		–
Net cash used in investing activities		(31,688)		–
Financing activities
Proceeds from sale of common stock and warrants		520,086		1,326,607
Proceeds from issuance of convertible debt		500,000		–
Proceeds from exercise of warrants		–		779,355
Principal payments on capital lease obligations		(17,296)		(54,894)
Principal payments on notes payable and short-term borrowings		(65,553)		–
Net cash provided by financing activities		937,237		2,051,068
Net decrease in cash		(1,440,289)		(25,990)
Cash at beginning of period		2,188,645		25,990
Cash at end of period	$	748,356	$	–
Supplemental disclosure of cash flow information
Cash paid for interest	$	8,143	$	4,847

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 ~~accompanying~~of ~~notes~~the ~~constitute~~applications ancompleted ~~integral~~and ~~part~~deployed ofby ~~these~~the ~~consolidated~~Company, ~~financial~~as ~~statements~~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.

9Future Operations

~~Table~~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 ~~Contents~~$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.

~~Summus, Inc. (USA)~~9

~~Notes~~1. Business and toBasis ~~Consolidated~~of ~~Financial~~Presentation ~~Statements~~ (~~Unaudited~~continued)

~~1. Business, Organization and~~ Basis of Presentation

~~Business~~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.

~~Summus, Inc~~2. ~~(USA) ("Summus” or the "Company") is engaged primarily in the development of applications that optimize the~~ Summary ~~consumer wireless experience. The core~~ of ~~the~~Significant ~~Company's~~Accounting business plan is to focus on the emerging wireless and mobile market and partner with leading content brands to bring branded products to mobile phones. Summus 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, personalization, photo services, news/information and entertainment. The Company's technology, which provides the foundation for its current services, 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. One of our main objectives is to create a superior mobile end-user experience, which will impact devices, wireless carrier infrastructure and mobile applications.Policies

~~Summus builds products for all major mobile platforms, including QUALCOMM’s Binary Runtime Environment for Wireless™~~Estimates (BREW™), Java™ 2 Platform, Micro Edition (J2ME™), Symbian OS and WAP. We distribute our applications through major wireless carriers who make our products available to their customers. Summus currently has relationships with carriers that account for 92% of all U.S. wireless subscribers. We also have relationships with international carriers covering Canada, Latin America, Australia, Israel and the U.K.

The preparation ~~Company has completed development~~ of ~~and~~financial ~~has~~statements ~~launched~~in ~~twenty-seven~~conformity ~~(27)~~with ~~wireless~~accounting ~~applications. Twelve (12) wireless~~principles ~~carriers~~ generally accepted in the United States ~~and~~requires ~~ten~~management ~~(10)~~to ~~international~~make ~~wireless~~estimates and ~~carriers~~assumptions ~~currently~~that ~~deploy~~affect atthe ~~least~~reported ~~one~~amounts orof aassets ~~combination~~and ~~of the~~liabilities ~~twenty-seven~~ and disclosure ~~(27)~~of ~~wireless~~contingent ~~applications~~assets ~~that~~and ~~have~~liabilities ~~been~~at ~~completed by~~ the ~~Company. Summus~~date ~~launched~~of ~~its~~the ~~first wireless~~financial ~~application~~ statements ~~during~~and the ~~second~~reported ~~quarter~~amounts of ~~2002. These~~revenue ~~applications~~and ~~can~~expenses beduring ~~purchased by~~ the ~~end-user as a one-time purchase, or~~reporting a period. ~~monthly~~Actual ~~subscription,~~results ~~depending~~could ondiffer ~~content,~~from ~~product~~those ~~function, and/or carrier preferences~~estimates.

~~The majority of the applications completed and deployed by~~Revenue ~~the~~ Recognition ~~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,~~Related ~~and developing and launching the applications. The Company outsources the infrastructure needed to host and deliver the transactions for its application end-users.~~Costs

10Wireless applications and contracts

~~Table~~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 ~~Contents~~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.

1Periodically, we enter into non-recurring engineering arrangements with our content partners. ~~Business~~ Generally, ~~Organization~~under the terms of these agreements, we receive funding upfront to complete projects. The funding we receive upfront is recorded as deferred revenue and ~~Basis~~is recognized as revenue under the terms of ~~Presentation~~the ~~(continued)~~individual arrangements. Deferred revenue represents amounts received for which the Company has not yet completed its contractual obligations.

~~Basis of Presentation~~10

~~The consolidated financial statements of the Company included in this quarterly report on Form 10-Q are unaudited~~2. ~~In the opinion~~ Summary of ~~management,~~Significant ~~such~~Accounting ~~financial~~Policies ~~statements contain all adjustments~~ (~~consisting of normal recurring adjustments~~continued) necessary to present fairly the financial position of the Company as of June 30, 2004; the results of operations for the three and six-month periods ended June 30, 2004 and 2003; shareholders' deficit as of June 30, 2004; and cash flows for the six-month periods ended June 30, 2004 and 2003.

~~The accompanying unaudited consolidated financial~~Wireless ~~statements~~ License asFees of and for the three and six-month periods ended June 30, 2004, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with Article 10 of Regulation S-X. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited consolidated financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s audited financial statements for the year ended December 31, 2003, which were filed with the Securities and Exchange Commission on March 31, 2004, in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2003. The Form 10-K is available through the Internet in the SEC's EDGAR database at www.sec.gov or from the Company upon request.

~~The accompanying unaudited~~We ~~consolidated~~ recognize ~~financial~~revenue ~~statements~~from ~~have~~licensee ~~been~~fees ~~prepared as~~for ifwireless ~~the~~software ~~Company~~applications ~~will continue as a~~in ~~going~~ accordance ~~concern,~~with ~~which contemplates~~ the ~~realization~~provisions of ~~assets~~AICPA ~~and~~Statement ~~the satisfaction~~ of ~~liabilities~~Position ~~in the normal course of~~97-2, ~~business.~~“Software Revenue ~~As shown in the financial statements at June 30~~Recognition”, as amended ~~2004,~~by ~~the~~AICPA ~~Company~~Statement ~~incurred a net loss for the quarter~~ of ~~approximately $708,963,~~Position ~~has~~98-9 ~~negative working capital~~ “Modification of ~~$477,674~~SOP atNo. ~~June~~97-2 ~~30,~~Software ~~2004,~~Revenue ~~and~~Recognition ~~experienced~~with ~~negative~~Respect ~~cash~~to ~~flows from operations~~Certain Transactions. ~~The~~” ~~Company’s~~ Revenue ~~continuation~~from assoftware alicense ~~going~~fees ~~concern~~ is ~~dependent~~generally onrecognized ~~its~~upon ~~ability to generate sufficient cash flow to meet its~~delivery ~~obligations~~ provided onthat a ~~timely~~contract ~~basis,~~has tobeen ~~obtain additional financing~~executed, ~~and~~the ~~ultimately~~vendor tofee ~~attain profitability. The Company~~ is ~~actively promoting~~fixed ~~and expanding its product line and pursuing additional financing from existing shareholders and other institutional~~or investors. Management expects to be able to attract additional capital to continue to fund and expand operations and also expects that increased revenues will reduce its operating losses in future periods. However determinable, ~~there can be~~ no ~~assurance~~significant ~~that management’s~~vendor ~~plan~~obligations ~~will~~or beuncertainties ~~executed as anticipated. The financial statements presented herein do not include any adjustments~~surrounding ~~relating~~ customer toacceptance ~~the~~remain, ~~recoverability of assets~~ and ~~classification~~collection of ~~liabilities that might be necessary should~~ the ~~Company~~resulting bereceivable ~~unable~~is todeemed ~~continue as a going concern~~ probable.

11There 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.

~~Table~~Contracts and oflicense ~~Contents~~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. ~~Summary~~ 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 ~~Significant~~the ~~Accounting~~resulting ~~Policies~~receivable is deemed probable.

~~Estimates~~Segments

~~The preparation of financial statements in conformity~~Management ~~with~~ has ~~accounting~~structured ~~principles generally accepted in~~ the ~~United~~Company's ~~States~~internal ~~requires~~organization ~~management~~as toone ~~make~~business ~~estimates and assumptions that~~segment ~~affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the~~ from ~~financial~~ which ~~statements~~all ~~and~~operating ~~the~~decisions ~~reported~~are ~~amounts~~made ~~of revenue~~ and ~~expenses~~all ~~during~~operating ~~the reporting period. Actual~~ results ~~could differ from~~are ~~those estimates~~ evaluated.

~~Revenue~~Equipment, Software ~~Recognition~~ and ~~Related~~Furniture ~~Costs~~

~~Change~~Equipment, software inand ~~Revenue~~furniture ~~Recognition~~is ~~Policy~~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.

~~After a careful review of the Company’s revenue~~Software ~~recognition~~ Development policies and giving consideration to guidance provided for in Emerging Issues Task Force No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent (“EITF 99-19”), the Company has changed certain revenue recognition policies affecting revenues earned by wireless applications and contracts. Prior to 4th quarter 2003, the Company reported revenues earned by wireless applications and contracts and cost of revenues for wireless applications and contracts net of certain third-party costs in the statement of operations. These transactions have been reclassified to reflect a gross revenue presentation with no effect on gross profit or net loss. The amount by which revenues and costs of revenues have been reclassified for the three and six-month periods ended June 30, 2003, is $115,679 and $214,894, respectively.Costs

~~Wireless~~Capitalization of ~~applications~~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 ~~contracts~~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.

Commencing during the second quarter of 2002, our resources were dedicated to the development of solutions for the mobile and wireless markets. 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 include all third-party hosting, testing and/or carrier distribution fees. These costs are incurred on a monthly basis and are primarily fixed in nature regardless of the revenue generated by the related applications.11

~~Periodically, we enter into non-recurring engineering arrangements with our content partners~~2. ~~Generally, under the terms of these agreements, we receive funding upfront to complete~~ Summary ~~projects. The funding we receive upfront is recorded as deferred revenue and is recognized as revenue under the terms~~ of ~~the individual~~Significant ~~arrangements.~~Accounting ~~Deferred~~Policies ~~revenue represents amounts received for which the Company has not yet completed its contractual obligations.~~(continued)

~~Wireless License Fees~~Income Taxes

WeIncome taxes ~~recognize~~are ~~revenue~~accounted ~~from~~for ~~licensee~~using ~~fees~~the ~~for~~liability ~~wireless~~method ~~software applications~~ in accordance with ~~the provisions~~ Statement of ~~AICPA~~Financial ~~Statement~~Accounting ofStandards ~~Position~~("SFAS") ~~97-2~~No. 109, ~~“Software~~"Accounting for ~~Revenue~~Income ~~Recognition”~~Taxes." Under SFAS 109, asdeferred tax assets or liabilities are computed based upon the ~~amended~~ difference bybetween ~~AICPA~~the ~~Statement~~financial ofstatement ~~Position~~and ~~98-9~~income ~~“Modification~~tax basis of ~~SOP~~assets ~~No.~~and liabilities ~~97-2~~using ~~Software~~the ~~Revenue~~enacted ~~Recognition~~marginal ~~with~~tax ~~Respect~~rate toapplicable when the related ~~Certain~~ asset ~~Transactions~~or liability is expected to be realized or settled.” ~~Revenue~~Deferred ~~from~~income ~~software~~tax expenses ~~license~~or ~~fees~~benefits isare ~~generally~~based ~~recognized~~on ~~upon~~the ~~delivery~~changes ~~provided~~in the asset or liability from period to period. If available evidence suggests that ait ~~contract~~is ~~has~~more likely than ~~been~~ not that ~~executed~~some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the ~~vendor~~deferred ~~fee~~tax assets to the amount that is ~~fixed~~more orlikely ~~determinable,~~than nonot ~~significant~~to ~~vendor~~be ~~obligations~~realized. orFuture ~~uncertainties~~changes ~~surrounding~~in ~~customer~~such valuation ~~acceptance~~ allowance ~~remain,~~would ~~and~~be ~~collection~~included ofin the ~~resulting~~provision ~~receivable~~for isdeferred ~~deemed~~income ~~probable~~taxes in the period of change.

12Stock-Based Compensation

~~Table~~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. ~~Contents~~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.

2Under the fair value recognition provisions of SFAS No. ~~Summary~~123(R), stock-based compensation cost is estimated at the grant date based on the fair value of the award ~~Significant~~and ~~Accounting~~is ~~Policies~~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(~~continued~~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.

~~There~~The adoption ~~were~~of noSFAS ~~costs~~No. 123(R) ~~related~~had toa ~~the~~material ~~wireless~~impact ~~license~~on ~~fee revenue~~our ~~generated~~results ~~during~~of operations. ~~the~~Our ~~six~~statement ~~months~~of ~~ended~~operations ~~June~~for ~~30, 2004, as~~ the ~~license~~three ~~fee~~months ~~revenue~~and ~~related~~six ~~to technology that had been~~months ~~previously~~ ended ~~developed~~June ~~by the Company~~30, ~~and~~2006 ~~there~~included ~~were~~stock-based nocompensation ~~costs~~expense ~~for~~of ~~installation~~$341,353 ~~delivery or customization~~and $657,769, ~~or other related costs~~respectively.

~~Contracts~~Unrecognized stock-based ~~and~~compensation ~~license~~expense ~~fees~~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.

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.12

~~Segments~~2. Summary of Significant Accounting Policies (continued)

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

~~Equipment~~During 2000, the Company established a stock option plan to provide for the issuance of stock options to employees and ~~Furniture~~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.

~~Equipment 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~~Time-~~line method.~~Based ~~Amortization~~ Stock ~~of capital lease assets is included in depreciation expense.~~Awards

~~Software~~The fair value ~~Development~~of ~~Costs~~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:

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 software development costs were capitalized during the three and six-month periods ended June 30, 2004 and 2003.

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	%

~~Upon~~The expected ~~capitalization~~volatility rate was estimated based on historical volatility of ~~software~~the ~~development~~ Company’s ~~costs,~~common ~~the~~stock ~~Company~~over ~~will~~approximately ~~amortize~~a ~~capitalized~~five ~~software~~year ~~development~~period. ~~costs~~The expected term for employees was estimated based on a ~~product-by-product~~simplified ~~basis~~method, atas allowed under SEC Staff Accounting Bulletin No. 107, averaging the ~~greater~~vesting ofterm and original ~~the~~ contractual ~~amount~~term. ~~computed~~The ~~using~~expected ~~(a)~~term for directors was estimated based on historical experience and specific terms in the ~~ratio~~option ofagreements. ~~current~~The ~~gross~~risk-free interest ~~revenues~~rate for aperiods ~~product~~within to the ~~total~~contractual life of ~~current~~the ~~and~~option ~~anticipated~~is ~~future~~based ~~gross~~ on U.S. ~~revenues~~Treasury orsecurities. ~~(b)~~The pre-vesting forfeiture rate used for the ~~straight-line~~three and six ~~method~~months ~~over~~ended June 30, 2006 was based on historical rates. As required under SFAS No. 123(R), we will adjust the estimated ~~remaining~~forfeiture ~~economic~~rate ~~life~~to ofour actual experience. Management will continue to assess the ~~products,~~assumptions ~~generally~~and ~~three~~methodologies used ~~years~~to calculate estimated fair value of share-based compensation. ~~Amortization~~ Circumstances ~~begins~~may ~~when~~change ~~the~~and ~~product~~additional isdata may become available ~~for~~over ~~general~~time, which ~~release~~could result in changes to ~~customers~~these assumptions and methodologies, and thereby materially impact our fair value determination.

13A 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:

Table of Contents

	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)~~13

~~Income~~2. Summary of ~~Taxes~~Significant Accounting Policies (continued)

~~Income~~The aggregate ~~taxes~~intrinsic ~~are~~value ~~accounted~~represents ~~for using~~ the ~~liability~~pretax ~~method~~value ~~in accordance with Statement of Financial Accounting Standards~~ (~~"SFAS")~~the ~~No.~~period’s ~~109~~closing market price, ~~"Accounting~~less ~~for~~the ~~Income~~exercise ~~Taxes." Under SFAS 109~~price, ~~deferred~~ ~~tax~~times ~~assets or liabilities are computed based upon~~ the ~~difference~~number ~~between~~of in-the-money ~~financial statement and income tax basis of~~options) ~~assets~~ that ~~and~~would ~~liabilities~~have ~~using~~been ~~the~~received ~~enacted~~by ~~marginal~~all ~~tax~~option ~~rate~~holders ~~applicable~~had ~~when~~they ~~the~~exercised ~~related asset or liability is expected to be~~their ~~realized~~ options orat ~~settled. Deferred income tax expenses or benefits are based on~~ the ~~changes~~end inof the ~~asset or liability from~~ period ~~to period~~. IfThe ~~available~~exercise ~~evidence~~price ~~suggests~~of ~~that~~stock itoptions isgranted during ~~more likely than not that some portion or all of~~ the ~~deferred~~six ~~tax~~months ~~assets~~ended ~~will~~June ~~not be realized~~30, a2006 ~~valuation~~was ~~allowance~~equal ~~is required~~ to ~~reduce~~ the ~~deferred~~market ~~tax~~price ~~assets to~~ of the ~~amount that is more likely than not to be~~ ~~realized.~~ underlying ~~Future~~common ~~changes~~stock inon ~~such valuation allowance would be included in~~ the ~~provision~~grant ~~for deferred income taxes in the period of change~~date.

~~Stock-Based~~Second Quarter ~~Compensation~~Fiscal 2005

The ~~Company has stock-based compensation plans for employees,~~ ~~consultants~~ following ~~and~~table ~~directors.~~illustrates ~~The Company accounts for those plans under~~ the ~~intrinsic~~effect ~~value~~on ~~method~~net ~~prescribed~~loss ~~by APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”)~~ and ~~related~~net ~~interpretations.~~loss ~~For~~per ~~options~~share ~~granted under those~~for ~~plans with an exercise price equal to~~ the ~~market~~three ~~value~~months ofand ~~the~~six ~~stock~~months onended ~~the~~June ~~date~~30, ~~of grant~~2005, noif ~~compensation~~we ~~cost~~had isaccounted ~~recognized in net operations as reported in the consolidated statement of operations. Compensation cost is recognized in net earnings/loss~~ for ~~awards~~ ~~granted under those plans with an exercise price less than the market value of the underlying common stock on the date of grant.~~ all ~~Such~~ employee ~~costs are recognized ratably over the vesting period. The Company recorded non~~stock-~~cash~~based compensation ~~related~~during tothat ~~the~~period ~~issuance~~based ~~of fully-vested~~on ~~stock options with exercise prices below~~ the fair ~~market~~ value ~~of the underlying stock plus the amortization of~~ ~~deferred~~ method ~~compensation~~as ~~arising~~prescribed ~~from~~by ~~stock~~SFAS option issuances subject to vesting totaling $53,702 and $88,294 for the six months ended June 30, 2004 and 2003, respectively, and $6,666 and $44,148 for the three months ended June 30, 2004 and 2003, respectivelyNo. 123(R).

The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provision of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). In accordance with SFAS 123, the fair value of each option grant was determined by using the Black-Scholes option pricing model with the following weighted average assumptions for the three and six-month periods ended June 30, 2004 and 2003: dividend yield of 0%; volatility ranging from 1.218 to 1.789; risk-free interest rate ranging from 2.75% to 5.00%; and expected option lives of 5 years for employees and 10 years for Board members.

	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	)

14For 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.

~~Table of Contents~~14

2. Summary of Significant Accounting Policies (continued)

~~Three-Month Period Ended June 30 Six-Month Period Ended June 30 2004 2003 2004 2003 (Unaudited) (Unaudited)~~ Net ~~loss applicable to common~~ ~~shareholders $ (835,450) $ (854,314) $ (2,326,008) $ (1,614,396) Non-cash~~ Loss ~~compensation~~Per charges included in net loss applicable to common shareholders 6,666 44,148 53,702 88,294 Stock-based compensation cost that would have been included in net loss applicable to common shareholders under the fair value method (333,291) (91,373) (691,319) (170,438) Adjusted net loss applicable to common shareholders $ (1,162,075) $ (901,539) $ (2,963,625) $ (1,696,540) Basic and diluted loss per share: Reported net loss applicable to common shareholders $ (0.01) $ (0.01) $ (0.03) $ (0.03) Non-cash compensation charges included in net loss applicable to common shareholders 0.00 0.00 0.00 0.00 Stock-based employee compensation cost that would have been included in net loss applicable to common shareholders under the fair value method (0.00) (0.00) (0.01) (0.00) Adjusted net loss applicable to common shareholders $ (0.01) $ (0.01) $ (0.04) $ (0.03) Share

~~The~~Loss per share ~~Company~~has ~~accounts~~been ~~for~~calculated ~~stock-based~~in ~~compensation~~accordance ~~to non-employees~~with ofSFAS ~~the~~No. ~~Company~~128, ~~primarily~~"Earnings Per ~~consultants~~Share." ~~and~~Basic loss ~~advisors,~~per atshare ~~the~~was ~~fair~~computed ~~value~~by ofdividing the ~~equity~~net ~~instrument~~loss infor ~~accordance~~each ~~with~~period ~~the~~presented ~~provisions~~ by ofthe ~~SFAS~~weighted ~~No.~~average ~~123. Non-cash~~number ~~consulting~~of ~~expense~~shares ~~related~~of tocommon ~~such~~ stock ~~based~~outstanding ~~compensation~~for ~~was $29~~such period,~~017~~ ~~and~~as ~~$94,706~~adjusted for the ~~six-month~~recapitalization. ~~periods~~Although ~~ended~~the ~~June~~Company ~~30,~~has ~~2004~~potential common ~~and~~stock ~~2003,~~equivalents ~~respectively,~~related ~~and~~to ~~$22~~its outstanding stock options,~~673~~ warrants and preferred ~~$36~~stock,~~470~~ ~~for~~these ~~the~~potential ~~three-month~~common ~~periods~~stock ~~ended~~equivalents ~~June~~were not included ~~30,~~ in diluted ~~2004~~loss ~~and~~per ~~2003,~~share ~~respectively~~for each period presented because the effect would have been antidilutive.

~~Net~~New Accounting ~~Loss Per Share~~Pronouncements

~~Loss~~In December ~~per~~2004, ~~share~~the ~~has~~Financial ~~been~~Accounting ~~calculated~~Standards inBoard ~~accordance~~(FASB) ~~with~~issued SFAS ~~Statement~~ No. 123(R), Share-Based Payment, which is a revision of ~~Financial~~SFAS Statement No. 123, Accounting for ~~Standards~~Stock-Based Compensation ("“SFAS" No. 123”). SFAS No. 123(R) ~~128~~supersedes ABP No. 25, ~~"Earnings~~Accounting for ~~Per~~Stock ~~Share~~Issued to Employees, and amends FASB Statement No." 95, ~~Basic~~Statement of ~~loss~~Cash ~~per~~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 ~~was~~payments ~~computed~~to byemployees, including grants of employee stock options, ~~dividing~~ to be recognized in the ~~net~~income ~~loss~~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 ~~each~~share-based payment ~~period~~transactions ~~presented~~using bya fair value-based method and recognize the ~~weighted~~related expense ~~average~~in ~~number~~our results of ~~shares~~operations. ofPrior ~~common~~to ~~stock~~our ~~outstanding~~adoption ~~for~~of ~~such~~SFAS ~~period~~ No. 123(R), as ~~adjusted~~permitted ~~for~~by ~~the~~SFAS ~~recapitalization~~No. 123, ~~Although~~we accounted for share-based payments to employees using the ~~Company~~APB ~~has~~25 ~~potential~~intrinsic ~~common~~value ~~stock~~method ~~equivalents~~and, ~~related~~therefore we generally torecognized ~~its~~compensation expense for restricted stock awards and did ~~outstanding~~ not recognize compensation cost for employee stock options, ~~warrants~~as ~~and~~such ~~preferred~~options had an ~~stock,~~exercise ~~these~~price ~~potential~~equal to the market price of the underlying common stock on the ~~equivalents~~date ~~were~~of ~~not~~grant. ~~included~~SFAS inNo. 123(R) ~~diluted~~allows ~~loss~~companies to choose one of two ~~per~~ transition ~~share~~methods: ~~for~~the ~~each~~modified ~~period~~prospective ~~presented~~transition ~~because~~method or the ~~effect~~modified retrospective ~~would~~transition method. We chose to use the modified prospective transition methodology. We have ~~been~~not ~~antidilutive~~restated our financial results from prior periods as a result of our adoption of SFAS No. 123(R).

15In 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.

~~Table of Contents~~15

23. ~~Summary~~Convertible Notes ~~of Significant Accounting Policies (continued)~~Payable

~~New~~November 2005 ~~Accounting~~Convertible ~~Pronouncements~~Notes Payable

In November ~~January 2003~~2005, the ~~FASB~~Company ~~issued~~entered ~~Interpretation~~into ~~No.~~senior ~~46,~~debt agreements with certain ~~"Consolidation~~ investors for $8,000,000 of ~~Variable~~financing ~~Interest~~in ~~Entities"~~the form of notes payable (the "~~Interpretation~~Senior Secured Debentures"),. ~~which~~The ~~addresses~~Senior ~~the~~Secured ~~consolidation~~Debentures bybear ~~business~~interest ~~enterprises~~at of6% ~~variable~~and ~~interest~~ mature ~~entities~~on asJune ~~defined~~30, in2007 ~~the~~(“Maturity ~~Interpretation~~Date”). The ~~Interpretation~~Senior ~~applies~~Secured ~~immediately~~Debentures toare convertible ~~variable~~into ~~interests~~shares inof ~~variable interest~~the ~~entities~~Company’s ~~created~~common ~~after~~stock ~~January~~at ~~31,~~the ~~2003. The~~option ~~Interpretation~~of the ~~becomes~~ holder ~~effective~~at ~~for~~a ~~entities~~conversion ~~created~~price ~~before~~of ~~February~~$2.00 1,per ~~2003, at~~share. ~~the beginning~~The ofSenior ~~the~~Secured ~~first~~Debentures are ~~interim~~also ~~period~~subject ~~ending~~to ~~after~~automatic ~~March~~conversion ~~31,~~if ~~2004. The~~the ~~adoption~~Company ofmeets ~~the~~certain ~~provisions~~revenue or trading ofstock ~~the~~price ~~Interpretation~~milestones. ~~did~~The ~~not~~Senior ~~have~~Secured aDebentures ~~material~~are ~~impact~~secured onby all of the ~~Company's~~assets ~~financial~~of ~~statements~~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. ~~Convertible~~54 ~~Notes~~per ~~Payable~~share. The C-2 Warrant has substantially the same terms and conditions as the C-1 Warrant.

InThe Company ~~May~~allocated ~~2004,~~ the ~~Company entered into senior convertible debt agreements with certain investors to provide up to~~ $28,000,000 of ~~financing~~proceeds received in ~~the~~connection ~~form~~with ofthe financing ~~convertible~~between ~~notes payable (~~the ~~"Notes").~~Senior ~~The~~Secured Debentures ~~Notes~~ and dothe warrants ~~not~~on ~~bear~~a ~~interest~~relative ~~and~~fair ~~are~~value ~~convertible~~basis. ~~into~~Accordingly, ~~shares of~~ the Company’s allocated ~~common~~ $4,307,906 ~~stock~~to at the ~~option~~Senior ofSecured Debentures and $3,692,094 to the ~~holder~~warrants issued. ~~The~~Since ~~Notes mature three years from~~ the ~~date~~Senior ofSecured Debentures were issued ~~issuance.~~at ~~Once~~a ~~the Notes~~discount ~~mature,~~to the ~~Company~~principal ~~has~~balance, the ~~sole~~effective ~~right~~conversion ~~to pay off~~ price of the ~~debt~~Senior orSecured Debentures was ~~require~~less ~~conversion~~ than by the ~~holders~~fair ofvalue ~~any unconverted portion thereof into shares~~ of the Company’'s common stock~~. At~~ on the ~~closing~~date of ~~the senior~~issuance. ~~convertible~~ In accordance ~~debt~~with ~~agreements~~EITF 98-5, ~~each~~"Accounting for ~~investor~~Convertible ~~received~~Securities ~~7,143~~with ~~shares~~Beneficial ofConversion ~~the~~Features ~~Company’s~~or ~~common~~Contingently ~~stock~~ Adjustable ~~for~~Conversion ~~each $1~~Ratios,~~000 invested, for~~ " a beneficial ~~total~~conversion feature of 14$4,~~286~~307,~~000~~906 ~~shares~~was ofrecorded ~~the Company’s~~as ~~common~~a ~~stock.~~discount ~~Upon~~to the ~~conversion of each $1,000 of senior convertible~~ debt, and ~~the~~a corresponding ~~holder~~credit ~~shall~~to ~~receive an~~ additional ~~14,286~~paid-in ~~shares~~capital ofon the ~~Company’s common~~date ~~stock~~of issuance.

Upon closing, the Company received $1,000,000 in cash and the remaining $1,000,000 of proceeds received have been placed in an escrow account with American Stock Transfer Company (the “Escrow Agent”). The ~~Company shall not have~~ ~~access~~ discount ~~to this escrowed amount until it has achieved positive EBITDA, as defined,~~ on ~~a monthly basis. When~~ the ~~Company~~debt ~~achieves~~is ~~this~~being ~~milestone, the~~amortized ~~escrowed funds may be delivered~~ to ~~the~~interest ~~Company~~expense ~~upon~~over the ~~receipt~~term ~~by the Escrow Agent~~ of ~~a certificate from an officer of~~ the ~~Company~~ Senior ~~that~~Secured Debentures beginning ~~such~~on ~~financial~~the ~~milestone~~date ~~has~~of ~~been achieved~~issuance. ~~The~~Amortization ~~Company~~of ~~is not required to access these funds. If~~ the ~~Company~~discount ~~has~~of ~~not~~the ~~achieved positive EBITDA~~ Senior Secured Debentures was $1, ~~as defined~~235,993 ~~by March 31, 2005~~ and ~~had the escrowed funds released to it~~$2,458,404 ~~the~~for ~~Escrow Agent shall release~~ the ~~escrowed amounts~~three-month toand ~~the~~six-month ~~holders~~periods ofended ~~the Notes on a pro rata basis. If the escrowed amount is not released by the Escrow~~June ~~Agent~~ 30, ~~to the Company~~2006, ~~the escrowed amount shall have no conversion rights into the Company’s common stock as set forth above~~respectively.

The principal ~~Company~~balance ~~allocated the $1,000,000~~ of ~~proceeds received in connection with~~ the ~~financing~~Senior inSecured ~~May~~Debentures ~~2004~~is ~~between the Notes and the 14~~$8,~~286~~000,000 ~~shares~~as of ~~common stock issued on a relative fair value basis.~~ June ~~Accordingly~~ 30, 2006 ~~the~~and ~~Company~~matures ~~allocated~~on ~~$500,000~~June ~~to the Notes and $500~~30,~~000~~ ~~to the common stock issued~~2007. ~~Since~~ ~~the~~The ~~Notes were issued at a~~ discount related to the ~~principal~~Senior ~~balance,~~Secured Debentures ~~which~~ is ~~the basis for conversion~~$4,957,556 ~~the~~as ~~effective conversion price~~ of ~~the~~June ~~Notes was less than the fair value of the Company's common stock on the date of issuance. Accordingly~~30, ~~a beneficial conversion feature of $500~~2006,~~000~~ ~~was~~and ~~recorded~~is shown as a ~~discount~~ ~~to the Notes and a corresponding credit to additional paid~~contra-~~in capital~~liability on the ~~date~~balance ~~of issuance~~sheet. Since the Notes have a term of three years, the aggregate discount of $1,000,000 will be amortized to interest expense over a thirty-six month period commencing on the date of issuance. Amortization of the discount of the Notes for the three months ended June 30, 2004 was $42,557.

16On 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.

~~Table of Contents~~16

43. ~~Common Stock,~~Convertible ~~Options~~ Notes ~~and~~Payable ~~Warrants~~(continued)

~~Issuance~~December 2004 ofand ~~Common~~January ~~Stock~~2005 ~~for~~Convertible ~~Services~~Notes Payable

~~During the~~In December ~~three months ended June 30,~~ 2004, the Company entered into a ~~marketing agreement~~senior ~~under~~debt ~~which~~agreements ~~the~~with ~~Company~~certain investors ~~issued~~for ~~300~~$1,425,000 ~~shares~~of financing in the form of ~~restricted~~notes ~~common~~payable (the "Senior ~~stock~~ Notes"). ~~valued~~The Senior Notes bore interest at 12% and were to mature on the earlier of when the Company closed on at least $543,000,000 ~~for~~in ~~marketing services,~~financing ~~which~~or ~~has~~May ~~been~~15, ~~reflected~~2005 ~~within~~ (“Maturity ~~selling,~~Date”). ~~general~~The ~~and~~Senior ~~administrative~~Notes ~~expenses~~had an optional conversion feature in that the ~~accompanying~~Senior Notes were convertible into shares of the Company’s common stock at ~~statement~~ the option of ~~operations~~the holder, in the event the Senior Notes were not repaid prior to or on the Maturity Date. The ~~agreement~~conversion ~~also~~price ~~provides for~~was ~~future~~to ~~issuances~~be the lower of ~~shares~~90% of the closing price of the Company’s common stock ~~and~~on ~~cash~~the ~~payments~~Maturity ~~for~~Date ~~marketing services~~or ~~based~~90% onof the average ~~achievement~~closing prices of ~~download~~the ~~milestones~~Company’s ofcommon astock ~~specific~~for ~~wireless~~the ~~application~~five days prior to optional conversion.

~~Equity~~At the closing ~~Compensation~~of ~~Plan~~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.

OnIn January ~~June 24~~2005, ~~2004,~~ the ~~Board~~Company received an additional investment of ~~Directors~~ ~~authorized~~$215,000 anof Senior ~~increase~~Notes, inon the ~~number~~same ofterms ~~options~~as ~~available~~those ~~for~~sold ~~grant under~~by the ~~Corporation’s~~Company ~~Second~~in ~~Amended~~the ~~and~~December 2004 ~~Restated~~Senior ~~2000~~Notes ~~Equity~~Financing. ~~Compensation Plan~~The ~~from~~holder ~~8,500,000~~was granted warrants to 15purchase a total of 42,~~000,000~~157 toshares beof ~~used~~the asCompany’s ~~incentives~~common tostock ~~all~~on ~~employees,~~the same terms as the warrants ~~management~~ issued ~~and~~in the ~~Board~~December of2004 ~~Directors~~Senior Notes Financing.

~~Common~~Due to the ~~Stock~~financing ~~Reserved~~received ~~for~~by ~~Future~~the ~~Issuance~~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.

AsThe Company ofallocated ~~June~~the 30$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 ~~had~~allocated ~~reserved~~ $735,319 ~~shares~~to ofthe ~~its~~Senior ~~authorized~~Notes ~~185~~and $904,~~000~~681 to the warrants issued. Since the Senior Notes were issued at a discount to the principal balance,~~000~~ ~~shares~~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 ~~future~~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 ~~follows:~~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.

Series A convertible preferred stock and related dividends		167,084
Series C convertible preferred stock		240,000
Series D convertible preferred stock		12,625,000
Outstanding common stock warrants		44,647,550
Outstanding stock options		6,965,725
Possible future issuance under stock option plans		6,669,431
Convertible notes payable		14,286,000
Total		86,600,790

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.

~~5. Preferred Stock~~17

~~Series~~4. Common Stock Aand ~~Convertible~~Warrants ~~Preferred Stock~~

~~The Company has 2,078 shares of Series~~As ~~A convertible preferred stock (“Series A preferred stock”) outstanding as~~ of June 30, ~~2004.~~2006, ~~These~~the ~~shares~~Company ~~are~~had ~~valued~~reserved ~~based~~shares ~~upon~~of ~~the~~its ~~liquidation~~authorized ~~preference~~185,000,000 ~~(the~~ shares ~~“Liquidation Preference”)~~ of ~~Series~~common Astock ~~preferred~~for ~~stock~~future ofissuance ~~$1,000~~as ~~per~~follows: ~~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. These dividends are accrued monthly. 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, on March 31 and September 30 of each year. The Company is restricted from paying dividends on common stock until dividends are paid on Series A preferred in full. The Company recorded preferred stock dividends of $41,565 and $83,130 for the three and six months ended June 30, 2004, respectively. As of June 30, 2004, the Company had recorded $301,273 in accrued dividends, which is reflected in current liabilities in the accompanying consolidated balance sheet.

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

~~The holders of the outstanding shares of Series A preferred stock are not entitled to vote on matters submitted to the Company’s shareholders for voting~~5. ~~However, approval of holders of a majority of~~ Preferred 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 $14.24. 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. Stock

17Series A Convertible Preferred Stock

~~Table~~The Company has 2,407 shares of ~~Contents~~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.

5The 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. ~~Preferred~~ ~~Stock~~The ~~(continued)~~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 CA ~~Convertible~~preferred ~~Preferred~~stock ~~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.

In June 2003, the Company amended its articles of incorporation to establish its Series C convertible preferred stock (“Series C preferred stock”). The Series C preferred stock has an issue price of $1,000 per share and has the following rights and privileges:18

~~no voting rights except with respect to (i) the amendment or alteration of the statement of rights and preferences applicable to~~6. Commitments ~~the Series C preferred stock,~~ and ~~(ii) any matters for which voting rights are provided under Florida law;~~Contingencies

~~shares of the Series C preferred stock shall rank on a parity with Summus’ Series A, Series D and Series E convertible~~Cancellation ~~preferred stock as to liquidation preference upon dissolution, liquidation or the winding up~~ of ~~Summus;~~warrants

aOn July 19, ~~liquidation preference~~2002, ~~subject~~the Company entered into an irrevocable common stock equity line that was intended to ~~adjustment~~provide ~~for~~funding ~~any~~to ~~combinations,~~the ~~consolidations~~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, ~~stock~~2002 ~~distributions~~relating orto this common stock equity ~~dividends~~line agreement. Based on comments received from the Securities and Exchange Commission and related communications with ~~respect~~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 ~~Series~~staff’s Ccomments ~~preferred~~in ~~stock~~a timely manner and seek effectiveness of the registration statement in a timely manner. Due to these developments, the length of $1time involved in completing the transaction,~~000~~ and ~~per~~other ~~share~~factors, ~~payable~~the Company determined that it was in its best interest to withdraw the ~~event~~registration ofstatement ~~any~~and ~~liquidation,~~not ~~dissolution~~proceed orwith ~~winding~~the equity line. up Accordingly, ofon ~~Summus~~September 17, ~~Inc.;~~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 ~~right~~cancellation of the agreements associated with the common stock equity line, Talisman, the intended purchaser under the equity line, indicated to ~~convert~~the ~~each~~Company ~~share~~its ofintention ~~Series~~to Cretain ~~preferred~~ownership ~~stock~~of ~~into~~the warrants to purchase 50,000 shares of ~~our~~the Company’s unregistered common stock at ~~any~~an ~~time,~~exercise price atof $4.70 per share that were issued to Talisman upon the ~~option~~execution of the ~~Series~~ equity Cline ~~preferred~~agreements. ~~stockholder~~It is management’s position, ~~after~~with ~~nine~~the ~~(9)~~advice ~~months~~of ~~from~~legal counsel, that the ~~date~~cancellation of ~~its~~these ~~issuance.~~warrants ~~Each~~became ~~share~~effective with the cancellation of ~~Series~~the Cequity ~~preferred~~line ~~stock~~agreements ~~shall~~and that no loss contingency exists. be Therefore, ~~convertible~~the ~~into~~Company 4has not recorded the issuance of these 50,000 ~~fully~~warrants in its ~~paid~~financial ~~and~~statements ~~non~~nor ~~assessable~~disclosed ~~shares~~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’s ~~common~~has ~~stock~~not received correspondence back from Talisman indicating their concurrence.

During the three and six month periods ended June 30, 2004, certain holders of the Series C preferred stock converted 1,250 shares of Series C preferred stock into 5,000,000 shares of the Company’s unregistered common stock7. Subsequent Event

~~Series~~On July 27, D2006, ~~Convertible~~the ~~Preferred~~Company ~~Stock~~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 ~~September~~for ~~2003~~entering into the Modification Agreement, each of the investors ~~Company~~was issued amended A Warrants (the "Amended A Warrants"). The Amended ~~its~~ A ~~articles~~Warrants, ofwhich ~~incorporation~~expire toon ~~establish~~June ~~its~~30, ~~Series~~2007, Dsubject ~~convertible~~to ~~preferred~~extension under certain ~~stock~~ circumstances, (~~“Series~~i) Ddecreased ~~preferred~~the ~~stock”~~purchase price of the original A Warrants (the "Original A Warrants") issued in connection with the Purchase Agreement from $2.00 ~~The~~per ~~newly~~Unit ~~established~~to ~~Series~~$1.10 Dper ~~preferred~~Unit, and (ii) increased the number of Units ~~stock~~ underlying ~~has~~the anAmended ~~issue~~A ~~price~~Warrants to a total of $12,800,000 ~~per~~Units ~~share~~from ~~and~~2,000,000 Units ~~has~~underlying the ~~following~~Original ~~rights~~A ~~and~~Warrants. Although the number of Units ~~privileges:~~ 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.

noBeginning on ~~voting~~July ~~rights~~31, ~~except~~2006, ~~with~~for ~~respect~~each totwenty (20) consecutive trading day period in which (i) the ~~amendment~~daily orvolume ~~alteration~~weighted average price of the ~~statement~~Company’s ofcommon ~~rights~~stock ~~and~~equals or ~~preferences~~exceeds ~~applicable~~$1.65 to per share and (ii) the ~~Series~~daily Dvolume ~~preferred~~of the Company’s common stock traded equals or exceeds 150,000 ~~and~~shares, then the total number of Units issuable upon exercise of the Amended A Warrants shall be reduced by twenty-five percent (ii25%), ~~any~~subject ~~matters~~to ~~for~~extension ~~which~~as ~~voting~~set ~~rights~~forth ~~are~~in ~~provided~~the ~~under~~Amended ~~Florida~~A ~~law;~~Warrant.

shares of the Series D preferred stock shall rank on a parity with Summus’ Series A, Series C and Series E preferred stock as to liquidation preference upon dissolution, liquidation or the winding up of Summus;19

aItem 2. ~~liquidation preference, subject to adjustment for any combinations, consolidations, stock distributions or stock dividends~~Management's ~~with~~Discussion and ~~respect to the Series D preferred stock,~~ Analysis of ~~$1,000~~Financial ~~per~~Condition ~~share~~and ~~payable~~Results ~~in the event~~ of ~~any liquidation, dissolution or winding up of Summus, Inc.; and~~Operations

~~the right to convert each share of Series D preferred stock into shares of our common stock at any time, at the option of the~~Forward-Looking ~~Series D preferred stockholder. Each share of Series D preferred stock shall be convertible into 5,000 fully paid and nonassessable shares of the Company’s common stock.~~ Statements

18 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:

~~Table~~· ofour ~~Contents~~ability to generate sufficient working capital to meet our operating requirements;

~~5. Preferred~~· ~~Stock~~our future expense levels (~~continued~~including cost of revenues, research and development, sales and marketing, and general and administrative expenses);

~~Series~~· Eour ~~Convertible~~future ~~Preferred~~revenue ~~Stock~~opportunities;

In· ~~November~~our ~~2003,~~ability ~~the Company amended its articles of incorporation~~ to ~~establish~~develop ~~its~~and ~~Series~~enter Einto ~~convertible~~strategic ~~preferred stock~~relationships ~~(“Series~~with Ewireless ~~preferred~~service ~~stock”).~~providers, ~~The~~wireless ~~Series~~software Edevelopers, ~~preferred~~semiconductor ~~stock~~and ~~has~~device ~~an issue price of $1~~designers,~~000~~ ~~per~~mobile ~~share~~ and ~~has~~wireless ~~the~~device ~~following~~manufacturers ~~rights~~ and ~~privileges:~~content providers;

no· ~~voting~~timely ~~rights~~deployment ~~except~~by ~~with~~wireless ~~respect~~service toproviders, ~~(i)~~semiconductor ~~the~~and ~~amendment~~device ordesigners, ~~alteration~~and ofwireless ~~the~~device ~~statement~~manufacturers of ~~rights~~our ~~and~~wireless ~~preferences~~applications ~~applicable~~in ~~to the~~their ~~Series~~networks ~~E preferred stock,~~ and ~~(ii)~~mobile ~~any~~information ~~matters for which voting rights are provided under Florida law~~devices;

~~shares~~· of the ~~Series~~continued Egrowth ~~preferred~~in ~~stock~~demand ~~shall~~for ~~rank~~wireless ~~on a parity with Summus’ Series A, Series C~~ and ~~Series~~mobile ~~D preferred stock as to liquidation preference upon dissolution, liquidation or the winding up of Summus~~usage;

a· ~~liquidation~~our ~~preference,~~new ~~subject~~product todevelopment ~~adjustment~~and ~~for~~acceleration ~~any combinations, consolidations, stock distributions or stock dividends with respect to the Series E preferred stock,~~ of ~~$1,000~~commercial ~~per~~deployment ~~share payable in the event~~ of ~~any~~such ~~liquidation, dissolution or winding up of Summus, Inc.~~products; ~~and~~

· the ~~right~~future toadoption ~~convert each share~~ of ~~Series E preferred stock into shares of~~ our ~~common~~current ~~stock~~and atfuture ~~any time~~products, atservices ~~the option of the Series E preferred stockholder. Each share of Series E preferred stock shall be convertible into 5,000 fully paid~~ and ~~nonassessable shares of the Company’s common stock.~~technologies;

~~All~~· ~~shares~~the offuture ~~Series~~growth ~~E preferred stock have been converted into shares~~ of ~~the~~our ~~Company’s~~customer ~~unregistered common stock.~~base;

~~The~~· ~~accounting~~technological ~~treatment for the Series C~~competition, Dwhich ~~and~~creates ~~E preferred stock (~~the ~~“Preferred~~risk ~~Stock”) involved allocating the value~~ of ~~the~~our ~~principal~~technology ~~amount~~being ~~received~~rendered ~~from~~obsolete ~~the~~or Preferred Stock offerings between the Preferred Stock, the associated warrants and a beneficial conversion feature (“BCF”) associated with the Preferred Stock. A BCF existed because the effective conversion rate of the Preferred Stock was below the traded value of the Company’s common stock on the date the Preferred Stock was issued. The BCF for the Preferred Stock totaling $3,579,695 was recorded as a discount to the Preferred Stock and additional paid-in capital on the date the Preferred Stock was issued. Since the Series C preferred stock becomes convertible at any time after nine months from its issuance, the value of its BCF totaling $659,010 will be amortized to retained deficit over a nine-month period commencing with its issuance. Amortization of the Series C preferred stock BCF for the three months ended June 30, 2004 was $84,922. Since the Series D and E preferred stock was convertible immediately, the value of its beneficial conversion feature totaling $2,920,685 was fully amortized to retained deficit on the date of issuance.noncompetitive;

~~6. Commitments~~· ~~and~~the ~~Contingencies~~lack of patent protection with respect to the Company's technology;

~~Dr.~~· ~~Bjorn~~potential ~~Jawerth’s~~infringement ~~Employment~~of ~~Agreement~~the patent rights of third parties; and

~~The~~· ~~Company~~evolving ~~entered~~technology ~~into a three-year employment agreement with Dr~~trends. Bjorn Jawerth, which expired on February 16, 2004, and was not renewed by the Board of Directors. His employment agreement provided for an initial base salary of $350,000, with annual increases of 10%.

~~The~~ Although ~~difference~~we ~~between~~believe that the ~~increased salary~~assumptions ~~amounts~~underlying ofour ~~$423,500~~forward-looking statements ~~and~~are ~~$385~~reasonable,~~000,~~ ~~respectively,~~any inof the ~~second~~assumptions ~~and~~could ~~third~~be ~~years~~inaccurate ofand ~~his~~actual results ~~employment~~may ~~agreement,~~differ ~~and~~from ~~his~~those indicated by the forward-looking statements ~~original~~ included ~~base~~in ~~salary~~this ofForm ~~$350,000~~10-Q. ~~was~~In ~~deferred~~light ~~and~~of ~~accrued~~the bysignificant uncertainties inherent in the ~~Company,~~forward-looking atstatements ~~Dr.~~included ~~Jawerth’s~~in ~~election~~this Form 10-Q, ~~until~~you should not consider the ~~Board~~inclusion of ~~Directors~~ ~~and~~such ~~Dr.~~information ~~Jawerth~~as ~~determine~~a ~~when~~representation ~~and~~by ~~how~~us ~~these~~or ~~deferred~~anyone else ~~and~~that ~~accrued~~we ~~amounts~~will ~~may~~achieve besuch ~~paid~~results. ~~These~~Moreover, ~~amounts~~we ~~have~~assume ~~been~~no ~~recorded~~obligation to as update ~~accrued~~these ~~salaries~~forward-looking statements to reflect actual results, changes in assumptions ~~the~~or ~~Company’s~~changes ~~balance~~in ~~sheet~~other asfactors ofaffecting ~~June 30,~~such ~~2004~~forward-looking statements.

1920

~~Table of Contents~~Overview

6Oasys’ predecessor company, High Speed Net Solutions, Inc. ~~Commitments~~, was founded in 1984. Summus, Ltd. was merged into High Speed in February 2001 and ~~Contingencies~~High Speed changed its name in February 2002 to Summus, Inc. (~~continued~~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.

~~Under the terms of the recapitalization transaction, Summus, Inc. agreed to use reasonable commercial efforts to assist Dr.~~Oasys ~~Jawerth~~ Mobile indoes ~~the~~business ~~private sale of up to 1,666,667 shares of Summus, Inc. common stock held by Dr. Jawerth at a per share price of not less than $1.50 per share (representing $2.5 million~~ in ~~value). Under the terms of Dr. Jawerth's employment agreement, the Company was obligated to issue to Dr. Jawerth options, with an exercise price of $1.50 per share, exercisable for~~ three ~~times~~key ~~the~~areas ~~number of shares of common stock sold~~ in the ~~private~~mobile ~~sale~~media ~~as described above. No shares subject to this agreement have been sold. The Company~~applications ~~believes it has no further obligations regarding this sale of shares.~~ market:

~~Pursuant~~· ~~to the terms of his employment agreement and in accordance with corporate policy, all intellectual property developed by Dr~~OasysMobile.com ~~Jawerth in connection with his employment by the Company is the exclusive property of the Company. Dr. Jawerth’s employment agreement granted him a personal, non~~-~~exclusive, non-transferable,~~ ~~world-wide~~Our ~~license,~~Mobile ~~without~~Lifestyle ~~right to sublicense, to make and use New Technology (as defined in the Inventions Award Plan) that was developed during the twelve months following the closing of the recapitalization transaction~~Portal. ~~Pursuant to the terms of Dr. Jawerth’s employment agreement, the Company terminated Dr. Jawerth’s license on February 4, 2004.~~

~~Cancellation~~· ofBranded ~~warrants~~Mobile Applications.

On· ~~July~~White ~~19,~~Label ~~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~~Services.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 500,000 shares of the Company’s unregistered common stock at an exercise price of $0.47 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 500,000 warrants in its consolidated 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.

~~Inventions Awards Plan~~OasysMobile.com

~~The~~In January ~~Company~~2006, ~~established~~we ~~the~~launched ~~Inventions Awards~~our ~~Plan~~new ~~(“the~~web ~~Plan”)~~portal OasysMobile.com, ~~effective~~a ~~October~~leading-edge mobile ~~30,~~lifestyle ~~2000,~~portal tothat ~~provide~~is ~~incentives~~directed ~~to certain~~at ~~eligible~~the ~~employees~~teen byand ~~providing~~young ~~them~~adult ~~with~~market that allows ~~opportunities~~users to ~~receive additional~~access ~~compensation~~content asoutside aof ~~result~~the distribution decks of ~~their~~the ~~development~~wireless carriers. ofOasysMobile.com ~~enhancements~~also orallows ~~new methods~~consumers ~~that~~to ~~generate~~buy, ~~revenue~~own, ~~for~~and keep their mobile content beyond the ~~Company~~life of their cell phone.

~~Under~~Through OasysMobile.com, ~~the~~we ~~terms~~can ofdistribute ~~the~~our ~~plan,~~own ~~the Company~~proprietary ismobile ~~obligated~~content toand ~~reserve~~vast amounts 5% of ~~the~~third ~~gross~~party ~~revenues~~mobile ~~derived~~content ~~from~~and ~~the licensing~~offer orcreative ~~sale~~pricing and bundling of content ~~“New~~and ~~Technology”,~~services asdirectly ~~defined~~to inmobile ~~the~~consumers. ~~agreement,~~Oasys ~~for distribution~~Mobile ~~among~~built ~~eligible~~its ~~employees.~~mobile portal Ifafter seeing the ~~Company~~opportunity ~~sells~~to ~~the~~create ~~rights~~additional todistribution ~~New~~channels. ~~Technology,~~ By ~~eligible~~leveraging ~~employees~~our ~~shall~~experience bein ~~entitled~~the mobile media space, Oasys Mobile is able to offer ana ~~award~~comprehensive suite of ~~10%~~services ofthat add tremendous value to the ~~gross~~mobile ~~proceeds~~ data consumer.

20Branded Mobile Applications

~~Table~~Oasys Mobile is a leading provider of ~~Contents~~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:

~~6. Commitments~~· ~~and Contingencies (continued)~~Games;

In· addition, the Company may, at its option, initiate a spin-off company to develop New Technology. If the eligible employee accepts a position in the spin-off company, his or her rights to awards under the plan are to be surrendered for 25% of the founders’ equity in the spin-off company.Messaging;

~~Dr.~~· ~~Jawerth~~Personalization; ~~sent correspondence to the Company on February 17, 2004, seeking payment for certain inventions under the Plan. Management~~ and the Board of Directors of the Company have evaluated these assertions and determined that no amounts are due Dr. Jawerth or other employees under the provisions of the Plan. In addition, the Board of Directors terminated the Plan effective March 10, 2004. If litigation is pursued by Dr. Jawerth for any payments under the Plan and he is successful in such litigation, there may be a material adverse impact to the Company.

~~7. Outstanding~~· ~~Litigation~~Entertainment.

~~Bowne~~We currently ~~Litigation~~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.

~~On February 25~~In 2005, Oasys ~~2003,~~Mobile ~~Bowne~~announced ofnine ~~New~~new ~~York City~~products, ~~LLC (“Bowne”),~~thirteen anew ~~financial~~carriers ~~printing~~or ~~firm,~~distribution partners ~~filed~~and asix ~~civil~~new ~~summons~~content inpartnerships. ~~the~~Oasys ~~Supreme~~Mobile's ~~Court~~partner ofand ~~County~~product portfolio ofincludes ~~New~~such ~~York~~household innames ~~the~~as Sony ~~State~~BMG, ~~of New~~Mattel, ~~York~~Churchill Downs, ~~claiming~~Golf ~~that it is entitled payment in the amount of $276~~Digest,~~374,~~ ~~plus~~Phil ~~accrued interest~~Hellmuth, ~~for~~The ~~past~~Wall ~~services~~Street ~~rendered~~Journal, toHoward ~~the~~Lederer ~~Company.~~ and The ~~Company~~Associated ~~disputes the total amount Bowne claims the Company owes~~Press. ~~The~~Mobile ~~Company~~media ~~has~~applications ~~recorded~~based aon ~~liability~~these ~~of $276~~brands,~~374~~ and ~~relating~~ other popular toconsumer ~~this~~applications, ~~claim~~are asdeployed ofacross ~~June~~75 ~~30,~~major ~~2004~~wireless carriers and ~~2003.~~distribution ~~The~~partners ~~Company is~~ in the ~~process~~United ofStates ~~attempting~~and ~~to negotiate a settlement to this claim~~abroad.

~~Table~~Oasys Mobile ofbuilds ~~Contents~~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.

~~Item~~Users are charged 2a one-time or monthly subscription fee for the application which is billed to them on their mobile phone bills. ~~Management's~~The ~~Discussion~~wireless ~~and~~carriers ~~Analysis~~retain a percentage of ~~Financial~~the ~~Condition~~fee and ~~Results~~remit the balance to us. We then pay the entities from which we license content a portion of ~~Operations~~this amount. The wireless distribution of our applications eliminates traditional publishing complexities, including physical production, packaging, shipping, inventory management and return processing.

~~Forward-Looking~~White Label ~~Statements~~Services

~~This Form 10-Q contains certain~~The ~~forward-looking statements that we believe are within the meaning of Section 27A~~ new of Oasys ~~the~~Mobile ~~Securities~~white ~~Act~~label ofproducts ~~1933~~ and ~~Section~~services ~~21E~~leverage of the ~~Securities~~same ~~Exchange~~content ~~Act of~~and ~~1934,~~ functionality ~~which~~as ~~are intended to be covered by the safe harbors created by such acts~~OasysMobile. ~~For~~com ~~this~~and ~~purpose,~~gives ~~any~~wireless ~~statements~~carriers ~~that~~and ~~are not statements of historical fact may~~content be providers ~~deemed~~access to bealternate ~~forward-looking~~distribution ~~statements,~~channels ~~including~~which ~~the~~allows ~~statements~~them ~~under "Management's~~to ~~Discussion and Analysis of Financial Condition and Results of~~offer ~~Operations"~~ their ~~regarding~~mobile ~~our~~offerings ~~strategy,~~outside ~~future operations, future expectations or future estimates, financial position and objectives~~ of ~~management. Those statements in this Form 10-Q containing~~ the ~~words~~wireless ~~"believes,"~~carriers’ ~~"anticipates," "plans,"~~distribution ~~"expects"~~decks and ~~similar expressions constitute forward-looking~~ ~~statements,~~ reach ~~although~~more ~~not all forward-looking statements contain such identifying words~~customers. ~~These~~For ~~forward-looking~~maximum ~~statements~~impact, ~~are based on~~ our ~~current~~web ~~expectations~~ and ~~are~~WAP ~~subject~~portals tocan abe ~~number of risks, uncertainties and assumptions relating to~~branded ~~our~~ under ~~operations,~~a ~~results~~white-label ofpartner’s ~~operations~~brand, ~~competitive~~creating ~~factors,~~an ~~shifts~~outsourced inmobile ~~market demand~~storefront ~~and other risks and uncertainties. The most important factors that could~~or ~~prevent~~ additional uscontent ~~from achieving our stated goals include, but are not limited to, the following:~~source.

aIn addition, ~~lack~~Oasys ofMobile ~~sufficient~~can ~~financial~~quickly ~~resources~~and toeasily ~~implement~~provide ~~the~~a ~~Company's~~content ~~business~~brand ~~plan,~~or ~~which~~carrier its ~~has~~own ~~resulted~~back-end inphoto-sharing ~~the~~platform. ~~Company's~~The ~~receiving a~~photo ~~"going~~platform ~~concern"~~has ~~opinion~~a ~~from~~user-friendly interface ~~its~~that ~~independent~~makes ~~auditors~~it ~~with~~easy ~~respect~~for subscribers to ~~its~~save ~~audited~~and ~~financial~~share ~~statements~~photos asand order prints of all their camera and ~~for~~online ~~the~~album ~~year~~pictures right from their camera ~~ended~~ phone. ~~December~~Oasys 31Mobile has created back-end photo-sharing platforms for Boost Mobile and Sprint/Nextel, ~~2003;~~which are currently both available.

~~our ability to generate sufficient working capital to meet our operating requirements;~~Other Matters

~~our~~To date, the ~~ability~~Company tohas ~~develop~~experienced significant operating losses as we have made investments in application development. The Company is focused on the development and ~~enter~~delivery ~~into~~of ~~strategic~~applications ~~relationships~~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 ~~service~~carriers ~~providers,~~as ~~wireless~~well ~~software~~as ~~developers,~~increasing ~~semiconductor~~ subscriber ~~and~~adoption ~~device~~of ~~designers,~~our ~~wireless~~applications. ~~device~~Our ~~manufacturers~~ability to generate profits and positive ~~content~~cash ~~providers;~~flow from operations will depend primarily on increasing revenues as well as continuing cost control measures.

~~timely deployment by wireless service providers, semiconductor and device designers, and wireless device manufacturers of our software in their products;~~22

~~the~~Results of ~~continued growth in demand for wireless and mobile usage;~~Operations

~~new~~Three-Month Period ~~product~~Ended ~~development~~June ~~and~~30, ~~acceleration~~2006 ofCompared ~~commercial~~to ~~deployment~~Three-Month ofPeriod ~~such~~Ended ~~products;~~June 30, 2005

~~technological competition, which creates the risk of the Company's technology being rendered obsolete or noncompetitive;~~Revenues

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

	*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	%

~~potential~~Wireless Applications ~~infringement~~and ofContracts. Revenue from wireless applications and contracts increased $13,690 to $1,806,376 in the three-month ~~patent~~period ~~rights~~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 ~~third~~existing wireless ~~parties~~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.

~~Although we believe that the~~Revenue ~~assumptions~~ earned ~~underlying~~from ~~our~~wireless ~~forward-looking~~applications ~~statements~~is ~~are~~recognized ~~reasonable,~~upon ~~any~~delivery ~~of the assumptions could be inaccurate~~ and ~~actual results may differ from those~~acceptance ~~indicated~~ by ~~the forward-looking statements included in this Form 10-Q. In light~~ of the ~~significant uncertainties inherent in the forward~~end-~~looking~~user ~~statements included~~either ~~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~~one-~~looking statements~~time topurchase ~~reflect actual results, changes in assumptions~~ or ~~changes~~a ~~in other~~monthly ~~factors affecting such forward-looking statements~~ subscription.

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

After a careful review of the Company’s revenue recognition policies and giving consideration to guidance provided for in Emerging Issues Task Force No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent (“EITF 99-19”), the Company has changed certain revenue recognition policies affecting revenues earned by wireless applications and contracts. Prior to 4th quarter of 2003, the Company reported revenues earned by wireless applications and contracts and cost of revenues for wireless applications and contracts net of certain third-party costs in the statement of operations. These transactions have been reclassified to reflect a gross revenue presentation with no effect on gross profit or net loss. The amount by which revenues and costs of revenues have been reclassified for the three and six-month periods ended June 30, 2003 is $115,679 and $214,894, respectively.23

22Costs of Revenues

Table of Contents

	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	%

~~Overview~~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.

~~Summus was founded in 1984. Summus is primarily engaged in the development of applications that optimize the~~Gross consumer wireless experience. The core of the Company's business plan is to focus on the emerging wireless and mobile market and partner with leading content brands to bring branded products to mobile phones. Summus 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, personalization, photo services, news/information and entertainment. The Company's technology, which provides the foundation for its current services, 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. One of our main objectives is to create a superior mobile end-user experience, which will impact devices, wireless carrier infrastructure and mobile applications. Profit

Summus builds products for all major mobile platforms, including QUALCOMM’s Binary Runtime Environment for Wireless™ (BREW™), Java™ 2 Platform, Micro Edition (J2ME™), Symbian OS and WAP. We distribute our applications through major wireless carriers who make our products available to their customers. Summus currently has relationships with carriers that account for 92% of all U.S. wireless subscribers. We also have relationships with international carriers covering Canada, Latin America, Australia, Israel and the U.K.

	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	)%

WeWireless Applications ~~have~~and ~~completed~~Contracts. ~~development~~Gross profit ofresulting from the development and ~~launched~~ ~~twenty-seven~~deployment ~~(27)~~of wireless applications. decreased ~~Twelve~~$69,500 ~~(12)~~to ~~wireless~~$839,758 ~~carriers in~~for the ~~United~~three-month ~~States~~period ~~and~~ended ~~ten~~June ~~(10)~~30, ~~international~~2006, a decrease ~~wireless~~of ~~carriers~~7.6% ~~currently~~over ~~deploy~~the atgross ~~least~~profit ~~one~~for orthe athree-month ~~combination~~period ended June 30, 2005 of ~~the~~$909,258. The decrease in gross profit resulting from these activities ~~twenty-seven~~ is ~~(27)~~due ~~wireless~~primarily ~~applications~~to ~~that~~certain ~~have~~new ~~been~~content ~~completed~~partner byarrangements ~~the~~with ~~Company~~fixed royalty payments. ~~Summus~~ ~~launched~~Our ~~its~~contracts ~~first~~with ~~wireless~~our content partners have various cost structures. ~~application~~ Certain ~~during~~content ~~the~~partner ~~second~~arrangements ~~quarter~~have minimum payment requirements regardless of ~~2002~~revenues. ~~These~~ ~~applications~~Therefore, ~~can~~our begross ~~purchased~~profit bycould vary depending on the products ~~end-user~~sold asin a ~~one-time~~given ~~purchase,~~period. orThe costs for these revenues include costs a that are ~~monthly~~primarily ~~subscription~~fixed in nature, ~~depending~~consisting onmostly of third-party hosting fees and content, ~~product~~information ~~function~~provided by certain of our content providers, and~~/or~~ ~~carrier~~costs that are ~~preferences~~primarily variable in nature, consisting mostly of third-party content information.

~~The~~Wireless License ~~majority~~Fees. ofGross profit ~~the~~resulting ~~applications~~from ~~completed~~wireless ~~and~~license ~~deployed~~fees ~~by the~~totaled ~~Company~~$2,100 asand ~~well~~$1,500 asfor ~~planned~~the three-month ~~future~~periods ~~applications~~ended June 30, ~~have~~2006 ~~been~~and ~~developed~~2005, byrespectively. ~~the~~The Company did not ~~through~~incur aany ~~process~~specific ~~that~~direct ~~involves~~costs ~~securing agreements~~associated with ~~content~~the ~~providers~~sale, ~~and carriers~~delivery, ~~and~~or installation ~~developing~~of ~~and~~the ~~launching~~software underlying the ~~applications~~license agreements consummated during the period. ~~The~~Additionally, the Company ~~outsources~~does ~~the infrastructure~~not ~~needed~~expect to ~~host~~incur ~~and~~any ~~deliver~~future obligations ~~the~~relating ~~transactions~~to ~~for~~these ~~its~~license ~~application end-users~~fees.

To date, the Company has experienced significant operating losses as we have made investments in research and development of our underlying technology and application development. We expect to continue to make investments in those areas; however, the Company is more 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 implementing cost reduction measures.24

23General and Administrative Expenses

Table of Contents

	Three Months Ended June 30
	2006	2005	$ Change	% Change

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

~~Key~~General and ~~Developments~~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 ~~2004~~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.

~~Focus on Mobile~~ Research and ~~Wireless~~Development ~~Market~~Expenses

Summus is continuing to develop applications and information processing tools that optimize the wireless multimedia experience. Our applications are developed to enable the evolution of mobile and wireless devices for dynamically interacting with information resources. Our vision is to enable mobile end-users to experience an entirely new mobile environment, one that frees an individual from location and time dependence and opens new possibilities as to how mobile devices are used.

	Three Months Ended June 30
	2006	2005	$ Change	% Change

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

~~Summus~~Research and isdevelopment ~~focused~~expenses onfor ~~delivering~~the ~~compelling~~three-month ~~end~~period ended June 30, 2006 were $902,648 compared to $677,114 for the three-~~user~~month period ended June 30, 2005. ~~applications~~ The ~~across~~increase ~~multiple~~in ~~mobile~~research ~~operating~~and ~~systems~~development ~~for~~expenses ~~remote~~is ~~access~~due to ~~and~~the ~~processing~~increase in the number of ~~information~~applications ~~via~~that ~~handheld~~the Company is developing for future revenue ~~devices. Our~~ generation, ~~strategy~~as ~~incorporates~~well as continual development for the ~~release~~Oasys ~~and~~Mobile ~~distribution~~portal. ofWe currently ~~revenue-generating~~have several new products, ~~each~~in ~~building~~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 ~~Company’s~~ for ~~vision~~rapid deployment.

~~Relationships with Content Providers~~ Sales and ~~New~~Marketing ~~Application Development~~Expenses

Summus continues to position itself as a supplier of solutions that can run on multiple wireless platforms supporting the mobile and wireless marketplace. Summus has developed, and continues to develop, wireless applications designed for efficient and easy interaction with information in the mobile environment. Our technology supports applications and services on the BREW™, Java™ 2 Micro Edition (J2ME ™), Symbian™ OS, PocketPC, Palm OS and Wireless Application Protocol (WAP) wireless operating systems or platforms.

	Three Months Ended June 30
	2006	2005	$ Change	% Change

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

~~Our~~Sales and marketing ~~business~~expenses ~~development~~consist ~~activities continue~~primarily toof ~~expand~~salaries, ~~with~~consulting ~~major~~fees, ~~content~~marketing agency ~~brands~~fees, ~~such~~marketing asprograms, ~~Sports~~collateral ~~Illustrated~~and other professional fees. Sales and marketing expenses for the three-month period ended June 30, ~~The~~2006 were ~~Associated~~ $759,950 ~~Press~~compared to $355,965 ~~and~~for ~~Fuji~~the ~~Film.~~three-month ~~Through~~period ended June 30, ~~2004,~~2005. The weincrease ~~have~~in ~~executed~~sales and marketing expenses during the current period as ~~contracts~~ compared ~~with~~to athe ~~variety~~prior period was primarily due to the launch of ~~content~~the ~~providers~~new Oasys Mobile portal in 2006 and certain carrier and portal marketing campaigns. The increase in sales and marketing expenses reflects our focus to ~~build~~deploy ~~applications~~and ~~for~~ market ~~the~~ new ~~distribution~~products ofin ~~their~~order ~~content~~to continue increasing revenues in a cost effective manner.

~~Sponsorship Relationship with Phil Hellmuth for Texas Hold’em~~25

~~In the second quarter of 2004, Summus signed an exclusive agreement with professional poker player Phil Hellmuth to brand~~Non-Cash ~~Summus’~~ Compensation Texas Hold'em mobile game. Phil Hellmuth is a World Poker Champion with nine World Series of Poker (“WSOP”) wins and is the leader on the WSOP money list with over $3.5 million in earnings. Summus is using Mr. Hellmuth's name to brand its multiplayer poker game that debuted in May 2004 on several carriers.Expenses

Collaboration Agreement with Fujifilm USA

	Three Months Ended June 30
	2006	2005	$ Change	% Change

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

InNon-cash compensation ~~early~~for ~~2004,~~the ~~Summus~~three-month ~~and~~period ~~Fujifilm~~ended ~~expanded~~June ~~their~~30, 2006 was $341,353 ~~relationship~~ compared to ~~develop~~$9,666 afor ~~broad~~the ~~range~~three-month ofperiod ~~mobile~~ended ~~imaging~~June ~~solutions~~30, ~~that~~2005. ~~will~~The ~~enable~~increase in ~~consumers~~non-cash tocompensation ~~capture,~~expense ~~store,~~was ~~share~~due ~~and~~to ~~print~~new ~~all of~~accounting ~~their~~requirements ~~digital~~for the expensing ~~images~~of instock aoptions ~~suite~~issued ~~of easy-~~to~~-use~~ ~~mobile applications~~employees. ~~Summus~~Non-cash ~~will~~compensation ~~integrate~~for ~~Fujifilm's Get~~ the ~~Picture Online~~ ~~service,~~ three-month anperiod ~~extensive~~ended ~~print~~June ~~network~~30, ~~that~~2006 ~~connects~~reflects ~~picture-takers~~the tofair ~~retail~~value ~~photofinishers,~~of ~~with~~employee stock options ~~mobile~~earned ~~data~~during ~~services~~the period. ~~This solution~~ ~~will~~Non-cash ~~give~~compensation ~~consumers~~for the ~~option~~three-month period toended ~~choose~~June a30, ~~local~~2005 ~~retail~~reflects ~~location~~the ~~via~~amortization ~~their~~for ~~mobile~~three ~~devices~~months ~~and~~of deferred ~~send~~compensation ~~their~~resulting ~~digital~~from ~~images~~stock ~~to the~~options ~~selected~~granted ~~retailer~~in ~~for~~prior ~~printing. The~~years, at prices ~~application~~below ~~was~~the ~~launched~~fair onvalue ~~BREW™,~~of ~~J2ME™~~the ~~and~~underlying ~~WAP~~common stock.

~~Content~~Non-Cash Consulting ~~Distribution Agreement with Sports Illustrated~~Expenses

In early 2004, Summus also announced an exclusive agreement with Sports Illustrated, in which Summus is the provider of mobile wallpaper and screen savers in the United States and Canada featuring content from the Sports Illustrated Swimsuit Collection. Summus also has a non-exclusive right to provide this mobile wallpaper and screen savers outside of the United States and Canada. The application, Sports Illustrated Swimsuit 2004, debuted in March 2004 on several carriers and further carrier deployment is continuing.

	Three Months Ended June 30
	2006	2005	$ Change	% Change

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

24Non-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.

~~Table~~There was no ofnon-cash ~~Contents~~consulting expense for the three-month period ended June 30, 2006.

~~Convertible~~Interest Expense, ~~Debt Funding~~net

In May 2004, the Company entered into senior convertible debt agreements with certain investors to provide up to $2,000,000 of financing in the form of Convertible Notes Payable (the "Notes"). These Notes do not bear interest and are convertible into shares of the Company’s common stock at the option of the holder. The Notes mature three years from the date of issuance. Once the Notes mature, the Company has the sole right to pay off the debt or require conversion by the holders of any unconverted portion thereof into shares of the Company’s common stock. At the closing of the senior convertible debt agreements, each investor received 7,143 shares of the Company’s common stock for each $1,000 invested, for a total of 14,286,000 shares of the Company’s common stock. Upon the conversion of each $1,000 of senior convertible debt, the holder shall receive an additional 14,286 shares of the Company’s common stock.

	Three Months Ended June 30
	2006	2005	$ Change	% Change

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

~~Upon~~Interest expense, ~~closing~~net, for the ~~Company~~three-month ~~received $1,000,000~~period inended ~~cash~~June ~~and~~30 ~~the~~2006, ~~remaining~~was $160,~~000,000 of proceeds received have~~035 ~~been~~ compared ~~placed in an escrow account with American Stock Transfer Company (the “Escrow Agent”). The Company shall not have access~~ to ~~this~~interest ~~escrowed~~expense ~~amount~~of ~~until it has achieved positive EBITDA~~$1,492 ~~as defined, on~~for athree-month ~~monthly~~period ~~basis.~~ended ~~When~~June ~~the Company achieves this milestone~~30, ~~the~~ 2005. ~~escrowed~~Interest ~~funds~~expense ~~may~~for ~~be delivered to~~ the ~~Company~~three-month ~~upon~~period ~~the~~ended ~~receipt~~June by30, ~~the~~2006 ~~Escrow Agent of a certificate from an officer of the~~primarily ~~Company~~ related ~~that~~to ~~such~~interest ~~financial~~costs ~~milestone~~associated ~~has~~with ~~been~~convertible ~~achieved~~notes. ~~The~~There ~~Company~~were isno convertible ~~not~~notes ~~required~~outstanding toduring ~~access these funds. If~~ the ~~Company~~three-month ~~has~~period ~~not achieved~~ended ~~positive~~June ~~EBITDA~~30, ~~as defined, by March 31,~~ 2005. The ~~and~~interest ~~had~~expense for the ~~escrowed~~three-month ~~funds~~period ~~released~~ended toJune it30, ~~the~~2006 ~~Escrow~~is ~~Agent shall release the escrowed~~net ~~amounts to the holders~~ of interest ~~the~~income ~~Notes~~earned on ~~a pro rata basis~~cash. ~~If the escrowed amount is not released by the Escrow Agent to the Company, the escrowed amount shall have no conversion rights into the Company’s common stock as set forth above.~~

The Company allocated the $1,000,000 of proceeds received in connection with the financing in May 2004 between the Notes and the 14,286,000 shares of common stock issued on a relative fair value basis. Accordingly, the Company allocated $500,000 to the Notes and $500,00 to the common stock issued. Since the Notes were issued at a discount to the principal balance, which is the basis for conversion, the effective conversion price of the Notes was less than the fair value of the Company's common stock on the date of issuance. Accordingly, a beneficial conversion feature of $500,000 was recorded as a discount to the Notes and a corresponding credit to additional paid-in capital on the date of issuance. Since the Notes have a term of three years, the aggregate discount of $1,000,000 will be amortized to interest expense over a thirty-six month period commencing on the date of issuance. Amortization of the discount of the Notes for the three months ended June 30, 2004 was $42,557.26

Amortization 25 of discount on debt and beneficial conversion feature

Table of Contents

	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%

~~Results~~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 ~~Operations~~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.

~~Three-Month Period Ended June 30, 2004 Compared to Three-Month Period Ended June 30, 2003~~Net Loss

Revenues

	Three Months Ended June 30
	2006	2005	$ Change	% Change

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

	Three Months Ended June 30
		% of Total			% of Total
	2004	Revenues		2003	Revenues		$ Change	% Change
Revenues by category:
Wireless applications and
contracts	$ 1,208,880	100.0	%	$ 332,989	57.4	%	$ 875,891	263.0	%
Contracts and license fees	-	-		-	-		-	-
Wireless license fees	-	-		247,201	42.6		(247,201)	(100.0)
Total revenues	$ 1,208,880	100.0	%	$ 580,190	100.0	%	$ 628,690	108.4	%

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.

~~Wireless Applications and Contracts. Revenue from~~Six-Month ~~wireless~~ Period ~~applications~~Ended ~~and contracts increased $875,891 to $1,208,880 in the three-month period ended~~ June 30, ~~2004,~~2006 upCompared ~~263.0%~~to ~~from $332,989 in the three~~Six-~~month~~Month ~~period~~Period ~~ended~~Ended June 30, ~~2003. 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 the Company, launched by several wireless carriers and purchased by end-users. The Company launched its Sports Illustrated Swimsuit Collection wallpaper and screen saver application in March 2004 and launched its multi-player Texas Hold’em game application in May 2004. 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.~~Revenues

Wireless License Fees. During the three-month period ended June 30, 2004, the Company did not generate any revenue from wireless license fees. During the second half of 2003, the Company changed its focus from the commercial licensing of its technology to developing wireless applications. Revenue earned from wireless license fees totaled $247,201 in the three-month period ended June 30, 2003. During this period, the Company had sold and delivered existing image software for use in wireless transmission applications.

	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 26 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.

~~Table of Contents~~27

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

Wireless ~~Three~~ License ~~Months~~Fees. ~~Ended June 30~~Revenue ~~2004 2003 $~~ earned ~~Change %~~from ~~Change Cost~~wireless oflicense ~~revenues~~fees bytotaled ~~category Wireless~~$22,750 ~~applications~~ and ~~contracts~~ $ ~~627~~5,~~431 $ 228,419 $ 399,012 174.7 % Contracts~~200 ~~and~~in ~~license~~the ~~fees~~ six-month ~~- - - Wireless~~ periods ~~license~~ended ~~fees - - - - Total~~June ~~cost~~30, of2006 ~~revenues $ 627~~and 2005,~~431 $ 228,419 $ 399,012 174~~ respectively.~~7 %~~

~~Wireless Applications and Contracts.~~ Costs ~~of wireless~~ ~~applications and contracts increased $399,012 to $627,431 in the three-month period ended June 30, 2004, up 174.7% from $228,419 in the three-month period ended June 30, 2003. The increase in costs~~ of ~~wireless~~Revenues 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, carrier distribution 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, 2004. The costs related to third-party hosting and carrier distribution are incurred on a monthly basis and are primarily fixed in nature regardless of the revenue generated by the related applications.

Wireless License Fees. There was no revenue from wireless license fees during the three-month period ended June 30, 2004; therefore the Company did not record any costs of revenues. During the second half of 2003, the Company changed its focus from the commercial licensing of its technology to developing wireless applications. There were no costs of revenues regarding wireless license fees during the three-month period ended June 30, 2003, since the license fee agreements consummated during this period related to technology that had been previously developed by the Company.

	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

~~Gross~~Wireless Applications ~~Profit~~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.

	Three Months Ended June 30
	2004		2003		$ Change		% Change
Gross profit by category:
Wireless applications and contracts	$	581,449	$	104,570	$	476,879	456.0	%
Contracts and license fees		-	-		-		-
Wireless license fees		-	247,201		(247,201)		(100.0)
Total gross profit	$	581,449	$	351,771	$	229,678	65.3	%

Gross Profit

Wireless Applications and Contracts. Gross profit resulting from the development and deployment of wireless applications increased $476,879 to $581,449 for the three-month period ended June 30, 2004, an increase of 456.0% over the gross profit for the three-month period ended June 30, 2003 of $104,570. The increase in gross profit resulting from these activities corresponds with the increase in revenues from wireless applications and contracts. 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.

		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 ~~License~~and ~~Fees~~Contracts. ~~During~~Gross profit resulting from the ~~three~~development and deployment of wireless applications decreased $113,935 to $1,825,483 for the six-month period ended June 30, ~~2004~~2006, a decrease of 5.9% over the ~~Company~~gross ~~did~~profit ~~not~~for ~~generate~~the ~~any~~six-month ~~revenue,~~period ~~costs~~ended June 30, 2005 of ~~revenue~~$1,939,418. orThe decrease in gross profit ~~related~~resulting tofrom ~~wireless~~these ~~license~~activities ~~fees. During~~ is ~~the~~due ~~second~~primarily ~~half~~to ofcertain ~~2003,~~new ~~the~~content ~~Company~~partner ~~changed~~arrangements ~~its~~with ~~focus~~fixed royalty ~~from~~ payments. ~~the~~Our ~~commercial~~contracts ~~licensing~~with ofour ~~its~~content ~~technology~~partners tohave ~~developing~~various ~~wireless applications~~cost structures. ~~Gross~~ Certain ~~profit~~content ~~resulting~~partner ~~from~~arrangements ~~wireless~~have ~~license~~minimum ~~fees~~payment ~~totaled~~requirements regardless ~~$247~~of revenues. Therefore,~~201~~ ~~for~~our ~~the~~gross ~~three-month~~profit ~~period~~could ~~ended~~vary ~~June~~depending ~~30,~~on ~~2003. The~~ the products ~~Company~~sold ~~did~~in ~~not~~a ~~incur~~given ~~any~~period. ~~specific~~The ~~direct~~ costs ~~associated~~for ~~with~~these ~~the~~revenues ~~sale,~~include ~~delivery,~~costs that are orprimarily ~~installation~~fixed ofin ~~the~~nature, ~~software underlying~~consisting ~~the~~mostly ~~license~~of ~~agreements~~third-party ~~consummated~~hosting ~~during~~fees and content ~~the~~information ~~period. Additionally,~~provided ~~the~~by ~~Company~~certain ~~does~~of ~~not~~our ~~expect~~content toproviders, ~~incur~~and ~~any~~costs ~~future~~ that are ~~obligations~~primarily ~~relating~~variable toin ~~these~~nature, ~~license~~consisting ~~fees~~mostly of third-party content information.

2728

~~Table~~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 ~~Contents~~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.

~~Selling,~~ General and Administrative Expenses

Three Months Ended June 30 2004 2003 $ Change % Change Selling, General and administrative $752,078 $1,134,532 $(382,454) (33.7) %

	Six Months Ended June 30
	2006	2005	$ Change	% Change

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

~~Selling, general~~ 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. ~~Selling, general~~ General and administrative expenses for the ~~three~~six-month period ended June 30, ~~2004~~2006 were $~~752~~1,~~078~~430,507, compared to $1,~~134~~435,~~532~~ 259 for ~~three~~six-month period ended June 30, ~~2003. The decrease in selling, general and~~ administrative expenses during the current period as compared to the prior period reflect a reduction in several expense categories, namely salaries, third-party consulting fees, travel and general office administration costs 2005. ~~The reductions in these categories reflect continued cost reduction efforts implemented by management.~~

~~Non-Cash~~Research and ~~Compensation~~Development Expenses

Three Months Ended June 30 2004 2003 $ Change % Change Non-cash compensation $6,666 $44,148 $(37,482) (84.9) %

	Six Months Ended June 30
	2006	2005	$ Change	% Change

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

~~Non-cash~~Research and ~~compensation~~development expenses for the ~~three~~ six-month period ended June 30, ~~2004~~2006 ~~was~~ were $61,~~666~~720,526 compared to $441,~~148~~321,690 for the ~~three~~ six-month period ended June 30, ~~2003~~2005. The ~~Non-cash~~increase ~~compensation~~in ~~for~~research ~~each~~and ofdevelopment ~~the three-month~~expenses ~~periods~~is ~~reflects~~due to the ~~amortization~~increase ~~for~~in the number ~~three months~~ of ~~deferred compensation~~applications ~~resulting~~that ~~from~~the ~~stock~~Company ~~options~~is ~~granted~~developing infor ~~prior~~future ~~years~~revenue generation, atas ~~prices below~~well ~~the~~as ~~fair~~continual ~~value~~development offor the ~~underlying~~Oasys ~~common~~Mobile ~~stock~~portal. ~~The~~We currently ~~decrease~~have several new products in ~~the~~development. ~~amount~~The Oasys Mobile portal ~~recorded~~ launched induring the ~~current~~first ~~period~~quarter asof ~~compared~~2006 toand ~~the~~we ~~prior~~are ~~period~~continuing ~~reflects~~to ~~that~~add new ~~prior~~ functionality. ~~years’~~We ~~deferred~~are ~~compensation~~focusing ~~was~~our ~~fully~~resources ~~amortized~~on in the ~~three-month~~development ~~period ended~~of ~~June~~new ~~30,~~products for ~~2004~~rapid deployment.

~~Research~~ Sales and ~~Development~~Marketing Expenses

Three Months Ended June 30 2004 2003 $ Change % Change Research and development $453,097 $263,631 $189,466 71.9 %

	Six Months Ended June 30
	2006	2005	$ Change	% Change

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

~~Research~~Sales and marketing expenses consist primarily of salaries, consulting fees, marketing agency fees, marketing programs, collateral and ~~development~~other professional fees. Sales and marketing expenses for the ~~three~~six-month period ended June 30, ~~2004,~~2006 were $~~453~~1,~~097~~910,510 compared to $~~263~~639,~~631~~ 264 for the ~~three~~six-month period ended June 30, ~~2003~~2005. The increase in ~~research~~sales and ~~development~~ marketing expenses isduring athe ~~result~~current ofperiod as compared to the ~~increased~~prior ~~number~~period ofwas ~~wireless applications~~primarily due to the ~~Company~~launch ~~has~~of the new Oasys Mobile portal in ~~development~~2006 and certain carrier and portal marketing campaigns. The increase ~~Company~~in issales ~~focusing~~and ~~its resources~~marketing onexpenses ~~the~~reflects ~~development~~our offocus to deploy and market new products ~~for~~in ~~rapid~~order ~~deployment~~to continue increasing revenues in a cost effective manner.

2829

~~Table~~Non-Cash Compensation ~~of Contents~~Expenses

Non-Cash Consulting Expenses

	Six Months Ended June 30
	2006	2005	$ Change	% Change

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

Non-cash ~~Three~~ compensation ~~Months~~for ~~Ended~~the six-month period ended June 30, 2006 was $657,769 compared ~~2004 2003~~ to $20,734 ~~Change~~for the six-month period ended June 30, 2005. The increase in % non-cash ~~Change~~ compensation expense was due to new accounting requirements for the expensing of stock options issued to employees. Non-cash ~~consulting~~compensation ~~expense~~for the ~~$22~~ six-month period ended June 30,~~673~~ 2006 reflects the fair value of employee stock options earned during the period. Non-cash compensation for the six-month period ~~$36~~ ended June 30,~~470~~ 2005 reflects the amortization for six months of deferred ~~$(13~~ compensation resulting from stock options granted in prior years,~~797)~~ at prices ~~(37~~ below the fair value of the underlying common stock.~~8) %~~

Non-~~cash consulting expense for the three-month period ended~~Cash ~~June~~ Consulting ~~30, 2004, in the amount of $22,673 is attributable to 90,000 stock options and 54,034 stock warrants granted to consultants for services, valued using the Black-Scholes option-pricing model.~~Expenses

Non-cash consulting expense for the three-month period ended June 30, 2003 in the amount of $36,470 is attributable to: (1) the issuance of 81,869 shares of restricted common stock issued to consultants for services valued at $27,835; (2) 18,600 stock options granted to consultants for services valued at $6,572, such value was determined by using the Black-Scholes option-pricing model; and (3) $2,063, representing the fair value, as determined using the Black-Scholes option-pricing model, of the vested portion of 33,333 options granted to a member on the Company’s advisory board.

	Six Months Ended June 30
	2006	2005	$ Change	% Change

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

Non-cash consulting ~~Settlements~~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 ~~Three~~ no ~~Months~~non-cash ~~Ended~~consulting ~~June~~expense ~~30 2004 2003 $~~for ~~Change %~~the ~~Change Non~~six-~~cash~~month ~~settlements $ - $(333~~period ended June 30,~~950)~~ 2006. ~~$333,950 100%~~

~~The Company did not enter into any legal settlements during the three~~Non-~~month period ended June 30, 2004.~~Cash Settlements

Non-cash settlements totaling $333,950, resulted from the settlement of unpaid amounts from two of the Company’s creditors during the three-month period ended June 30, 2003.

	Six Months Ended June 30
	2006	2005	$ Change	% Change

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

~~The first non~~Non-cash settlements ~~settlement~~totaling ~~was~~$58,750 infor ~~connection~~the ~~with~~six amonths ended June 30, 2005 resulted from the settlement of athe ~~civil~~remaining ~~law~~amount ~~suit~~of bya ~~Holland~~note &payable with Holland & Knight LLP (“H&K”) of $184,382 awith ~~creditor~~the issuance to H&K of 47,673 shares of the Company,’s ~~seeking~~common ~~payment~~stock. ~~for~~The ~~prior~~fair ~~legal~~value ~~services~~of ~~provided~~the to47,673 ~~the~~shares ~~Company~~of ~~valued~~common stock was estimated at $~~867~~243,~~268~~132, based on the traded value of the Company’s common stock on the date of the settlement agreement. The ~~aggregate~~difference ~~settlement~~between the estimated ~~gain~~fair ~~resulting~~value ~~from~~of ~~this~~the ~~transaction~~47,673 ~~totaled~~common shares and the recorded value of the liability of $~~351~~184,~~047~~382, totaling $58,750, was recorded as settlement loss.

~~On June 5, 2003, the~~ The Company ~~signed~~did ~~and~~not ~~executed~~enter aninto ~~agreement~~any ~~pertaining~~non-cash tosettlements during the ~~payment~~six-month ~~of amounts owed to a current service~~period ~~provider. The~~ ended ~~aggregate~~June ~~settlement loss resulting from this transaction totaled $17~~30,~~097~~ 2006.

~~Interest Expense~~30

~~Three Months Ended June 30 2004 2003 $ Change % Change~~ Interest ~~$55~~ Expense,~~898 $14,222 $41,676 23.0%~~ net

Interest expense for the three-month period ended June 30, 2004, was $55,898, compared to interest expense of $14,222 for the three-month period ended June 30, 2003. Interest expense for each of the three-month periods includes interest expense related to interest costs associated with capital lease obligations and note payable agreements. In addition, interest expense for the three-month period ended June 30, 2004 includes $42,557 of interest expense related to amortization of the discounts on the convertible notes payable entered into in May 2004.

	Six Months Ended June 30
	2006	2005	$ Change	% Change

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

Interest 29 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.

~~Table~~ Amortization of ~~Contents~~discount on debt and beneficial conversion feature

Net Loss

	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 ~~Three~~ of ~~Months~~discount ~~Ended~~on debt and beneficial conversion feature for the six-month period ended June 30 ~~2004 2003 $~~, ~~Change %~~2006 ~~Change Net~~was ~~loss~~ $~~708~~2,~~963 $807~~458,~~282~~404. This related to amortization of the ~~$98,319 12~~ discounts on the convertible notes payable entered into in November 2005.2%

~~As a result~~ Amortization of ~~the~~discount ~~factors~~on ~~discussed above,~~debt ~~the~~and ~~net~~beneficial ~~losses~~conversion feature for the ~~three~~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. ~~and~~These ~~2003~~notes were repaid ~~$708,963~~in March 2005 and ~~$807~~the discount was fully amortized as interest expense in the six-month period ended June 30,~~282,~~ ~~respectively~~2005.

~~Six-Month Period Ended June 30, 2004 Compared to Six-Month Period Ended June 30, 2003~~Net Loss

Revenues

	Six Months Ended June 30
	2006	2005	$ Change	% Change

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

	Six Months Ended June 30
		% of Total			% of Total
	2004	Revenues		2003	Revenues		$ Change	% Change
Revenues by category:
Wireless applications and
contracts	$ 1,982,210	99.3	%	$ 562,424	69.5	%	$ 1,419,786	252.4	%
Contracts and license fees	13,889	0.7		-	-		13,889	-
Wireless license fees	750	0.0		247,201	30.5		(246,451)	(99.7)
Total revenues	$ 1,996,849	100.0	%	$ 809,625	100.0	%	$ 1,187,224	146.6	%

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.

Wireless Applications and Contracts. Revenue from wireless applications and contracts increased $1,419,786 to $1,982,210 in the six-month period ended June 30, 2004, up 252.4% from $562,424 in the six-month period ended June 30, 2003. 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 the Company, launched by several wireless carriers and purchased by end-users. The Company launched its Sports Illustrated Swimsuit Collection wallpaper and screen saver application in March 2004 and launched its multi-player Texas Hold’em game application in May 2004.31

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

As of June ~~Contracts~~30, ~~and~~2006 ~~License~~we ~~Fees.~~had ~~Revenue from contracts and license fees was~~ $135,~~889~~198,770 inof ~~the~~cash ~~six-month~~on ~~period~~hand, ~~ended~~working ~~June~~capital ~~30,~~of ~~2004~~ $998,913, and ~~was~~approximately ~~generated from providing governmental contract services~~$5. ~~This~~9 ~~government~~million ~~contract commenced~~ in ~~2003~~current ~~and~~liabilities, ~~was~~including ~~completed in March 2004~~$3. ~~There~~04 ~~was no revenue earned from~~million ~~contracts~~ in ~~and~~convertible ~~license~~notes ~~fees during the six-month period ended June 30, 2003~~payable.

In November ~~Wireless~~2005, ~~License~~Oasys ~~Fees.~~Mobile ~~Revenue~~entered ~~earned~~into ~~from~~senior ~~wireless license~~debt ~~fees~~agreements ~~totaled~~with certain investors for $~~750~~8,000,000 of financing in the ~~six-month~~form ~~period~~of ~~ended~~notes ~~June~~payable ~~30,~~(the ~~2004~~"Senior Secured Debentures"). ~~Revenue~~ ~~earned~~The ~~from~~Senior ~~wireless~~Secured ~~license~~Debentures ~~fees~~bear ~~totaled $247,201~~interest inat ~~the~~6% ~~six-month~~and mature ~~period~~on ~~ended~~ June 30, ~~2003~~2007 (“Maturity Date”). ~~During~~ ~~this~~The ~~period,~~Senior ~~the~~Secured ~~Company~~Debentures ~~had~~are convertible ~~sold~~into ~~and~~shares ~~delivered~~of ~~existing~~Oasys ~~image software~~Mobile’s ~~for~~common ~~use~~stock inat ~~wireless~~the ~~transmission~~option ~~applications. During~~of the holder ~~second~~at ~~half~~a conversion price of ~~2003,~~$2.00 ~~the~~per ~~Company~~share. ~~changed~~The ~~its~~Senior ~~focus~~Secured ~~from~~Debentures ~~the~~ are ~~commercial~~also ~~licensing~~subject ofto ~~its~~automatic ~~technology~~conversion toif ~~developing~~Oasys ~~wireless~~Mobile ~~applications~~meets certain revenue or trading stock price milestones. The Senior Secured Debentures are secured by all of the assets of Oasys Mobile.

On 30 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.

~~Table~~In consideration for entering into the Modification Agreement, each of ~~Contents~~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.

~~Costs~~Beginning on July 31, 2006, for each twenty (20) consecutive trading day period in which (i) the daily volume weighted average price of ~~Revenues~~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.

Other Six Months Ended June 30 2004 2003 $ Change % Change Cost of revenues by category Wireless applications and contracts $ 1,023,768 $ 443,013 $ 580,755 131.1 % Contracts and license fees 3,199 - 3,199 - Wireless license fees - - - - Total cost of revenues $ 1,026,967 $ 443,013 $ 583,954 131.8 % Matters

From inception ~~Wireless~~through ~~Applications~~our ~~and~~2005 ~~Contracts.~~fiscal ~~Costs~~year, our primary source of ~~wireless~~funding for our ~~applications~~ operations ~~and~~came ~~contracts~~from ~~increased~~the ~~$580,755~~issuance toof ~~$1,023,768~~shares of our common stock in ~~the~~private placements ~~six-month~~to ~~period~~investors. ~~ended~~We ~~June~~believe ~~30,~~that ~~2004,~~we uphave ~~131.1%~~enough ~~from~~working ~~$443,013~~capital into ~~the~~ fund and ~~six-month~~sustain ~~period~~our ~~ended~~business ~~June~~operations ~~30,~~through ~~2003~~2006. ~~The~~However, ~~increase~~business opportunities, insuch ~~costs~~as ofproduct ~~wireless~~or ~~applications~~geographic ~~and~~expansion, ~~contracts~~or ~~resulted from~~ the ~~increase~~acquisition ~~in sales~~ of product ~~existing~~lines ~~wireless~~or ~~applications~~companies ~~and~~may ~~additional~~present ~~wireless~~themselves. ~~applications~~If ~~developed~~we bywere ~~the~~to ~~Company~~pursue these opportunities, ~~launched~~they bymay ~~several wireless~~require ~~carriers~~that ~~and~~we ~~purchased~~raise byadditional ~~end-users. These~~capital ~~costs~~through ~~are~~the issuance ~~direct~~of ~~costs~~our ~~associated~~equity ~~with~~securities ~~the~~or ~~sale~~that ~~and~~we ~~delivery~~issue shares of ~~wireless applications~~our ~~and~~common ~~primarily~~stock or other ~~consist~~equity ofsecurities ~~third-party~~in ~~hosting~~connection ~~fees,~~with ~~carrier~~acquisitions. ~~distribution~~If ~~and~~we ~~fees~~have ~~associated~~to ~~with content information~~raise ~~provided~~ additional byfunding, ~~our~~we ~~content~~cannot ~~providers~~guarantee ~~for~~that ~~wireless~~we ~~applications~~will ~~which~~be ~~were~~able ~~deployed~~to ~~during~~raise the necessary ~~six-month~~capital ~~period~~or ~~ended~~that, ~~June~~if 30we do so, ~~2004. The~~it ~~costs~~will ~~related~~be toon ~~third-party~~favorable ~~hosting~~terms. ~~and~~We ~~carrier~~may have ~~distribution~~to ~~are~~sell ~~incurred~~equity onat abelow ~~monthly~~market ~~basis~~rates, and ~~are~~any ~~primarily~~future ~~fixed~~sales inof ~~nature~~our capital ~~regardless~~ stock ofto ~~the~~finance ~~revenue~~our ~~generated~~business byplan ~~the~~will ~~related~~dilute ~~applications~~our existing stockholders' ownership.

Contracts and License Fees. Costs of contracts and license fees were $3,199 in the six-month period ended June 30, 2004, and were incurred as part of providing services under a government contract that commenced in 2003 and was completed in March 2004. Costs and of contracts and license fees consisted primarily of salaries and other related costs of providing governmental contract services. There was no revenue earned from contracts and license fees during the six-month period ended June 30, 2003.32

~~Wireless~~Subject to ~~License~~our ~~Fees. There~~liquidity ~~were~~constraints no(including ~~costs~~our ofneed ~~revenues~~to ~~regarding~~dedicate ~~wireless~~cash ~~license~~flow ~~fees~~to ~~during the six-month periods~~meet ~~ended~~ our ~~June~~obligations ~~30,~~on ~~2004~~a ~~and~~timely ~~2003~~basis), ~~since~~we ~~the~~intend ~~license fee agreements consummated during this period related~~ to ~~technology~~invest ~~that~~a ~~had~~larger ~~been~~portion of ~~previously~~ our working ~~developed~~capital ~~by the Company.~~on:

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

	Six Months Ended June 30
	2004		2003		$ Change		% Change
Gross profit by category:
Wireless applications and contracts	$	958,442	$	119,411	$	839,031	702.6	%
Contracts and license fees		10,690	-		10,690		-
Wireless license fees		750	247,201		(246,451)		(99.7)
Total gross profit	$	969,882	$	366,612	$	603,270	164.6	%

·	securing top-tier brands;

~~Wireless~~· ~~Applications and Contracts. Gross profit resulting from~~ the development and ~~deployment~~delivery of ~~wireless~~new applications increased $839,031 to $958,442 for the six-month period ended June 30, 2004, an increase of 702.6% over the gross profit for the six-month period ended June 30, 2003 of $119,411. The increase in gross profit resulting from these activities corresponds with the increase in revenues from wireless applications and contracts. 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.;

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

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

~~Contracts and License Fees. Gross profit resulting~~Cash ~~from~~ Flow government contract services during the six-month period ended June 30, 2004 totaled $10,690. The gross profit from these services resulted from deducting primarily salaries and other related costs from the related earned revenue. During the six-month period ended June 30, 2003, the Company did not generate any revenue, costs of revenue or gross profit related to contracts and license fees.Information

Wireless License Fees. During the six-month period ended June 30, 2004, the Company did not generate any revenue, costs of revenue or gross profit related to wireless license fees. Gross profit resulting from wireless license fees totaled $750 and $247,201 for the six-month periods ended June 30, 2004 and 2003, 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. During the second half of 2003, the Company changed its focus from the commercial licensing of its technology to developing wireless applications. Additionally, the Company does not expect to incur any future obligations relating to these license fees.

	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

~~Selling~~Cash Flow used in Operating Activities. Net cash used in operating activities was $3,752,381 ~~general~~in ~~and~~the ~~Administrative~~six-month ~~Expenses~~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:

~~Six~~· ~~Months~~investments ~~Ended~~in ~~June~~the ~~30 2004 2003 $~~development ~~Change %~~and ~~Change Selling,~~marketing ~~General~~planning ~~and~~for ~~administrative $1,786,532 $2,490,694 $(704,162) (28.3)%~~ the new Oasys Mobile portal launched in the first quarter of 2006; and

~~Selling,~~· ~~general~~marketing ~~and administrative~~ expenses ~~consist~~related primarily of salaries, consulting fees, office operations, administrative and general management activities, including legal, accounting and other professional fees. Selling, general and administrative expenses for the six-month period ended June 30, 2004 were $1,786,532, compared to ~~$2,490,694 for six-month period ended June 30, 2003. The decrease in selling, general and administrative expenses during the current period as compared to the prior period reflect a reduction in~~ several ~~expense~~carrier ~~categories, namely salaries, third-party consulting fees, travel~~ and ~~general~~portal ~~office~~marketing ~~administration costs. The reductions in these categories reflect continued cost reduction efforts implemented by management.~~campaigns;

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

~~Six~~· ~~Months~~increases ~~Ended~~in ~~June~~payments ~~30 2004 2003 $~~to ~~Change %~~service ~~Change Non-cash~~providers ~~compensation $53,702 $88,294 $(34,592) (39~~in preparation for the launch of the portal.~~2)%~~

~~Non-cash~~Cash Flow ~~compensation~~used ~~for~~in ~~the~~Investing ~~six-month~~Activities. Net ~~period~~ cash used ~~ended~~in ~~June~~investing ~~30,~~activities ~~2004~~ was $5328,~~702~~007 ~~compared~~and to $8831,~~294~~717 ~~for~~in the six-month ~~period~~ periods ended June 30, ~~2003.~~2006 ~~Non-cash~~and ~~compensation~~2005, ~~for each of the six-month periods reflects the amortization for six months of deferred compensation resulting from stock options granted in prior years~~respectively, atrepresenting ~~prices~~computer ~~below the fair value of the underlying common stock. The decrease in the amount recorded in the~~equipment ~~current period as compared to the prior period reflects that prior years’ deferred compensation was fully amortized in the six-month period ended June 30, 2004~~ purchases.

Cash 32 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:

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

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

~~Six~~· ~~Months~~principal ~~Ended~~payments ~~June~~on ~~30 2004 2003 $~~Senior ~~Change %~~Notes ~~Change Research~~of ~~and development~~ ($~~973~~1,~~319 $528~~640,~~971 $444,348 84~~000).0%

~~Research~~· ~~and~~principal ~~development~~payments ~~expenses~~on ~~for the~~note ~~six-month~~payable ~~period~~obligations ~~ended~~of ~~June 30, 2004, were~~ ($~~973~~59,~~319 compared to $528,971 for the six-month period ended June 30, 2003~~084). The increase in research and development expenses is a result of the increased number of wireless applications the Company has in development. The Company is focusing its resources on the development of new products for rapid deployment.

~~Non-Cash Consulting Expenses~~Contractual Obligations

At June ~~Six~~ 30, ~~Months~~2006, ~~Ended~~we ~~June~~did ~~30 2004 2003 $~~not ~~Change %~~have ~~Change Non-cash~~any ~~consulting~~material ~~expense~~commitments for capital expenses. Our ~~$29~~ principal commitments consisted of obligations under operating leases,~~017~~ notes ~~$94,706 $(65,689) (69~~ payable and content partner arrangements.~~4)%~~

Non-cash consulting expense for the six-month period ended June 30, 2004, in the amount of $29,017 is attributable to 94,500 stock options and 98,048 stock warrants granted to consultants for services, valued using the Black-Scholes option-pricing model.33

~~Non-cash~~The following ~~consulting~~table ~~expense~~summarizes ~~for~~our ~~the~~contractual ~~six-month~~obligations ~~period~~at ~~ended~~ June 30, ~~2003~~2006 in and the ~~amount of $94,706 is attributable to: (1) the issuance of 219,266 shares of restricted common stock issued to~~ ~~consultants~~ effect ~~for~~these ~~services~~obligations ~~valued~~are atexpected ~~$68,563; (2) 41,700 stock options granted~~ to ~~consultants~~have ~~for~~on ~~services~~our ~~valued~~liquidity atand ~~$9,080,~~cash ~~such~~flows ~~value was determined by using the Black-Scholes option-pricing model; (3) $15,000 of amortization of a deferred expense recorded~~ in ~~2002~~ future ~~relating to the issuance of 55,555 shares of restricted common stock valued at $22,500, for consulting services to be rendered over a 4~~periods.5 month period; and (4) $2,063, representing the fair value, as determined using the Black-Scholes option-pricing model, of the vested portion of 33,333 options granted to a member on the Company’s advisory board.

	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

~~Table~~New Accounting ~~of Contents~~Pronouncements

~~Non~~In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-~~cash~~Based Payment, which is ~~Settlements~~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 ~~Six~~ award ~~Months~~and ~~Ended~~is ~~June~~recognized 30as expense over the requisite service period of the ~~2004 2003 $~~ award. ~~Change~~The fair value of restricted stock awards is determined by reference to % the ~~Change~~fair market value of our common stock on the date of grant. Consistent with ~~Non~~ the valuation method we used for disclosure-~~cash~~only ~~settlements~~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(~~1,339,290~~R) . For awards $1 with only service conditions and graded-vesting features,~~339,290~~ we recognize compensation cost on a straight-line basis over the requisite service period. ~~100%~~

Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates, and expected terms. The ~~Company~~expected ~~did~~volatility ~~not~~rates ~~enter~~are ~~into~~estimated ~~any~~based on historical ~~legal~~ volatilities ~~settlements~~of ~~during~~our common stock. The expected term represents the ~~six~~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-~~month~~vesting ~~period~~forfeitures ~~ended~~when ~~June~~recognizing 30compensation 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, ~~2004~~which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination.

~~Non-cash settlements totaling $1,339,290, resulted from the settlement of unpaid amounts from four of the Company’s creditors during the six-month period ended June 30, 2003.~~ 34

~~The~~During the ~~first~~quarter ~~non-cash~~ended ~~settlement~~June ~~was~~30, in2006, ~~connection~~we ~~with~~recognized astock-based ~~settlement~~compensation ofexpense related ato ~~civil~~employee ~~law~~stock ~~suit~~options byof ~~Holland~~approximately ~~& Knight LLP (“H&K”)~~$341,000. aAs ~~creditor~~ of ~~the~~June ~~Company~~30, 2006, ~~seeking~~we ~~payment~~had ~~for~~unrecognized ~~prior~~stock-based ~~legal~~compensation ~~services~~of ~~provided~~$2.1 million related to non-vested ~~the~~employee ~~Company~~stock ~~valued~~options ~~at $867~~awards,~~268. The~~ ~~aggregate~~which ~~settlement~~is ~~gain~~expected ~~resulting~~to ~~from~~be ~~this~~recognized over ~~transaction~~an ~~totaled~~estimated ~~$351,047~~weighted average period of 1. 12 years.

OnIn May 2005, ~~June~~the 5FASB issued SFAS No. 154, ~~2003~~“Accounting Changes and Error Corrections” (“SFAS No. 154”), ~~the~~a ~~Company~~replacement ~~signed~~of APB Opinion No. 20 and ~~executed~~SFAS anNo. ~~agreement~~3. ~~pertaining~~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 ~~payment~~period of ~~amounts~~the ~~owed~~change the cumulative effect of changing to athe ~~current~~new ~~service~~accounting principle. This statement was effective ~~provider~~ beginning on January 1, 2006. The ~~aggregate~~adoption ~~settlement~~of ~~loss~~SFAS ~~resulting~~No. ~~from~~154 ~~this~~did ~~transaction~~not ~~totaled~~have ~~$17,097~~a material impact on our financial statements.

~~In February 2003, the Company signed and executed a mutual release of all claims with a former law firm that had provided legal~~Description ~~services to the Company. Under the terms~~ of ~~the~~Critical ~~mutual~~Accounting ~~release, all fees owed to the former law firm, totaling $886,557 were cancelled in full.~~Policies

InThe preparation ~~March~~of ~~2003,~~our financial statements in conformity with accounting principles generally accepted in the ~~Company~~United ~~settled~~States arequires ~~claim~~us ~~filed~~to ~~against~~make itestimates byand judgments ~~AT&T~~that ~~CORP.~~affect ~~for~~our ~~payment~~reported amounts of ~~past~~assets ~~services~~and ~~rendered~~liabilities, torevenues and expenses. We have identified the following critical accounting policies ~~Company. Under~~ that affect the ~~terms~~more ofsignificant estimates and judgments used in the ~~settlement~~preparation of our financial statements. On an ongoing basis, ~~all~~we ~~amounts~~evaluate ~~owed~~our byestimates, including ~~the~~those ~~Company~~related to ~~AT&T~~the ~~CORP~~matters described below. ~~were~~These ~~reduced~~estimates byare based ~~$118,783~~on the information that is currently available to us and on various other ~~$120,000~~ assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.

~~Interest~~Revenue Recognition ~~Expense~~and Related Costs

Wireless ~~Six~~ applications ~~Months~~and ~~Ended June 30 2004 2003 $ Change % Change Interest $76,746 $24,441 $52,305 214.0%~~ contracts

~~Interest~~Revenues earned ~~expense~~from ~~for~~wireless applications are recognized upon delivery and acceptance by the ~~six~~end-~~month period~~user ~~ended~~either ~~June~~as ~~30,~~a ~~2004,~~one-time ~~was~~purchase ~~$76,746,~~or ~~compared~~a tomonthly ~~interest~~subscription. ~~expense~~For content ofdelivery ~~$24~~partner arrangements,~~441 for~~ ~~six-month~~whereby ~~period~~the ~~ended~~Company ~~June~~remits ~~30,~~a ~~2003. Interest~~portion of the ~~expense~~revenues ~~for~~earned ~~each~~through the sale of the ~~six-month~~ ~~periods~~Company’s ~~includes~~applications, ~~interest~~revenue ~~expense~~is recorded ~~related~~on toa ~~interest~~gross ~~costs~~basis ~~associated~~ in accordance with ~~capital~~EITF ~~lease~~99-19. ~~obligations~~The ~~and~~Company ~~note~~recognizes the ~~payable~~cost ~~agreements. In~~of ~~addition, interest~~revenue ~~expense~~share ~~for~~payments to the ~~six-month~~content ~~period~~providers ~~ended~~as ~~June~~a ~~30,~~cost ~~2004~~of revenues. ~~includes~~Wireless ~~$42,557~~ applications and contracts cost of ~~interest~~revenues ~~expense~~also ~~related~~includes all third-party tohosting ~~amortization~~fees. ofThese ~~the~~costs ~~discounts~~are incurred on ~~the~~a ~~convertible~~monthly ~~notes payable~~basis ~~entered~~and ~~into~~are primarily fixed in ~~May~~nature ~~2004~~regardless of the revenue generated by the related applications.

~~Net~~Periodically, we ~~Loss~~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.

~~Six Months Ended June 30 2004 2003 $ Change % Change Net loss $1,949,434 $1,521,204 $428,230 28.2%~~ 35

~~As a result of the factors discussed~~Wireless ~~above,~~ License ~~the net losses for the six-month period ended June 30, 2004 and 2003 were $1,949,434 and $1,521,204, respectively.~~Fees

We 34 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.

~~Table~~There were ofno ~~Contents~~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.

~~Liquidity~~ Contracts and ~~Capital~~license ~~Resources~~fees

AsWe derive certain ofrevenues ~~June~~primarily ~~30,~~from ~~2004~~research weand ~~had~~development ~~$748,356~~contracts for governmental agencies and the commercial licensing of our technology. We ~~cash~~ recognize revenue on ~~hand~~these contracts at the time services are rendered based upon the terms of individual contracts. Regarding the commercial licensing of our technology, ~~negative~~we ~~working~~follow ~~capital~~the provisions of ~~$477~~AICPA Statement of Position 97-2,~~674~~ “Software Revenue Recognition”, ~~and~~as ~~approximately~~amended $by AICPA Statement of Position 98-9 “Modification of SOP No. 97-2 Software Revenue Recognition with Respect to Certain Transactions.3” Revenue from software license fees is generally ~~million~~ recognized inupon ~~current~~delivery ~~liabilities~~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.

~~In May 2004, the Company entered into senior convertible debt~~Valuation ~~agreements with certain investors that provides up to $2,000,000 in financing through the issuance~~ of ~~convertible~~Equity notes payable (the "Notes"). These Notes do not bear interest and are convertible into shares of the Company’s common stock. These Notes mature three years from the date of issuance. Upon closing of the Notes, the Company received $1,000,000 in cash and $1,000,000 of the proceeds received in this financing have been placed in an escrow account with American Stock Transfer Company (the “Escrow Agent”). The Company shall not have access to this escrowed amount until it has achieved positive EBITDA on a monthly basis. The Company is not required to access these funds. If the Company has not achieved positive EBITDA by March 31, 2005, the Escrow Agent shall release the escrowed amounts to the holders of the senior convertible debt on a pro rata basis.Instruments

We have utilized ~~anticipate that the sale of~~ our ~~debt~~ ~~and~~ equity securities, ~~will~~including ~~continue~~unregistered tocommon ~~represent~~stock ~~the~~and options/warrants ~~primary~~to ~~source~~purchase ofunregistered ~~our liquidity~~common ~~until~~stock, weto ~~are~~pay ~~able~~for services and to ~~generate~~settle ~~positive~~obligations ~~cash~~owed ~~flow~~to ~~from~~or ~~operations.~~claimed ~~If we~~by ~~have~~creditors. toThe ~~raise~~issuance ~~additional~~of ~~funding,~~equity instruments weas ~~cannot~~payment ~~guarantee~~for ~~that~~services werendered ~~will~~to beOasys ~~able~~results ~~to raise~~in the ~~necessary~~recording of ~~capital~~non-cash compensation or ~~that,~~consulting ifexpense weas dothe ~~so,~~services itare ~~will be on favorable terms~~performed. We utilize ~~may~~the ~~have~~Black-Scholes option-pricing model to ~~sell~~determine ~~equity~~the atvalue ~~below~~of ~~market~~options or ~~rates,~~warrants ~~and~~issued ~~any~~as ~~future~~payment ~~sales~~for ofservices. ~~our capital~~Underlying ~~stock~~the toBlack-Scholes option-pricing ~~finance~~model ~~our~~are ~~business~~several ~~plan~~assumptions ~~will~~that ~~dilute~~are ~~our~~evaluated ~~existing~~by management ~~shareholders'~~ and ~~ownership. Our~~include: ~~continuation~~(1) asa dividend yield; (2) a ~~going~~common ~~concern~~stock ~~depends~~volatility onfactor; (3) ~~our~~ the risk-free ~~ability~~interest torate; ~~generate~~and ~~sufficient~~(4) ~~cash~~the ~~flow~~expected tolife ~~meet~~of ~~our~~the ~~obligations~~option onor ~~a timely~~warrant. ~~basis,~~ Management toevaluates ~~obtain~~each ~~additional~~of ~~financing~~these asassumptions ~~may~~on bea ~~required~~periodic ~~and~~basis ~~ultimately~~in order to ~~attain~~ determine ~~profitability.~~the Invalue ~~light~~ of ~~our~~the ~~financial~~equity ~~condition~~instruments ~~and~~used ~~operating~~as ~~losses,~~payment for services ~~our~~ as well ~~auditors~~as ~~have~~to ~~included~~record inthe ~~their~~associated ~~report~~expense. onAs ~~our~~conditions ~~audited~~change, ~~consolidated~~our ~~financial~~evaluation ~~statements~~ of anthe ~~explanatory~~assumptions ~~paragraph~~underlying ~~which~~the ~~expresses~~Black-Scholes ~~substantial~~option-pricing ~~doubt~~model ~~about~~may ~~our~~change ~~ability~~ resulting toin ~~continue~~differing asvalues aof ~~going~~equity ~~concern~~instruments issued for services between reporting periods.

~~Through the end of 2003, we had~~Item entered into settlement agreements or arrangements with several of our vendors under which such vendors have agreed to our payment of less than the amounts due, the extension of payment terms by between 9-36 months and/or the satisfaction of the amounts due through a combination of cash and stock 3. As of the date of this filing, we have been able to make all of the required payments established under settlement agreements previously arranged with certain vendors. We continue to communicate with our vendors to keep them informed of our situation Quantitative and ~~discuss payment arrangements amiable to both~~ ~~parties~~ Qualitative ~~under~~Disclosures ~~the~~About ~~current~~Market ~~circumstances. Additionally, as of June 30,~~Risk ~~2004, we had approximately $1.4 million in accounts payable, of which approximately $0.7 million were greater than 90 days old.~~

As We do ~~of the date of this report, we are a party to one~~not ~~unsettled~~ use ~~lawsuit,~~any ~~whereby~~derivative ~~the~~financial ~~claimant~~instruments ~~has sued us~~ for ~~non-payment of services provided to the Company. The aggregate value of this claim is $276~~hedging,~~374,~~ ~~which~~speculative isor ~~included in accounts payable~~trading purposes. ~~Summus~~ ~~has~~Our ~~disputed~~exposure ~~the~~to ~~total~~market ~~amount~~risk ~~claimed and~~ is incurrently ~~the process of attempting to negotiate a settlement with the creditor~~immaterial.

The success and growth of our business is dependent in large part on our ability to partner and develop relationships within the wireless industry. In order for us to execute on our business plan, we anticipate that it will require approximately $1.0 to $2.0 million in working capital within the next 12 months to achieve positive cash flow, bring additional applications to market and continue the rollout of our operations.36

~~Subject to our liquidity constraints~~Item ~~(including~~ 4. ~~our need to dedicate cash flow to meet our obligations on a timely~~Controls and ~~basis),~~ Procedures ~~we intend to invest a larger portion of our working capital on:~~

~~increasing~~ Within ~~subscriber~~the ~~adoption~~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 ~~applications~~disclosure ~~through~~controls ~~marketing~~and procedures. Based on that evaluation, the CEO and ~~promotions;~~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.

~~securing top-tier brands;~~PART II.

~~the development and delivery of new wireless applications; and~~OTHER INFORMATION

Item 35 6. Exhibits and Reports on Form 8-K

~~Table of Contents~~(a) Exhibits:

the marketing of those applications to lay the foundation of future substantial revenue generation.

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 Six Months Ended June 30 2004 2003 Cash used in operating activities $ (2,345,838) $ (2,077,058) Cash provided by investing activities $ (31,688) $ - Cash provided by financing activities $ 937,237 $ 2,051,068

~~Cash Flow used in Operating Activities. Net cash used~~ in Pursuant ~~operating activities was $2,077,058 in the six-month period ended June 30, 2004, compared~~ to ~~$2,077,058 in~~ the ~~corresponding period~~requirements of the ~~prior~~Securities ~~year. The increase in net cash used in operating activities was primarily due to additional payments made to reduce accrued salaries~~ and ~~accounts~~Exchange ~~payable~~Act ~~for outstanding vendor obligations during the six-month period ended June 30, 2004. In addition, the Company restructured its organization in February 2004 as part~~ of ~~its focus to reduce future operating expenses and focus on revenue generation. During the six-month period ended June 30~~1934, ~~2003,~~ the ~~Company was deferring payment of certain accounts~~ ~~payable~~ registrant ~~and~~has ~~payroll~~duly ~~obligations~~caused inthis ~~efforts~~report to ~~conserve~~be ~~cash~~signed ~~while~~on ~~raising~~its ~~the Series~~behalf Cby ~~Preferred funding. During~~ the ~~six-month period ended June 30,~~ ~~2004,~~ undersigned ~~the~~thereunto ~~Company~~duly ~~was not deferring these payments~~authorized.

Cash Flow provided by Investing Activities. Net cash used in investing activities was $31,688 in the six-month period ended June 30, 2004, representing computer equipment purchases. No cash was used in investing activities in the six-month period ended June 30, 2003.


	OASYS MOBILE, INC.

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

Cash Flow provided by (used in) Financing Activities. Net cash provided by financing activities of $937,237 in the six-month period ended June 30, 2004 related to:


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

~~proceeds from issuance of convertible notes payable and common stock of $1,000,000.~~37

the sale of 431,034 shares of the Company's common stock for cash proceeds of $20,086.

principal payments on capital lease obligations of ($17,296).

principal payments on note payable obligations of ($65,553).

Table of Contents

Net cash provided by financing activities of $2,051,068 in the six-month period ended June 30, 2003 related to:

the sale of 2,703,903 shares of the Company's common stock, along with warrants to purchase an additional 316,000 shares of common stock, at exercises prices ranging from $1.50 to $1.60 per share and the repricing of 4,242,261 of previously issued warrants. These transactions were in two forms. The first form involved purchases of common stock at prices which were above the traded value and allowed these investors to reduce the exercise price of a certain number of their previously purchased warrants, typically allowing them to reprice 2 warrants for every share purchased. The other form allowed warrant holders to reduce the exercise price of previously purchased warrants if the holder exercised those repriced warrants immediately. The original exercise prices of the repriced warrants ranged between $0.60 and $5.25 per share. The repriced exercise prices ranged between $0.25 and $1.69 per share. Total cash proceeds from the sale of the shares and issuance of the new warrants were $1,326,607.

the issuance of 2,776,975 shares of unregistered common stock upon the exercise of warrants with exercise prices ranging from $0.25 to $0.47 per share. Of the 2,776,975 warrants exercised, 2,767,075 were exercised in connection with the repricing of the exercise price of the warrants as described above. The initial exercise prices of the warrants ranged between $0.60 and $5.25. The repriced exercise prices ranged between $0.25 and $1.69. The exercise of these warrants generated gross proceeds of $779,355.

principal payments on capital lease obligations of ($54,894).

Contractual Obligations

At June 30, 2004, we did not have any material commitments for capital expenses. Our principal commitments consisted of obligations under capital and operating leases and notes payable.

The following table summarizes our contractual obligations at June 30, 2004 and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

Operating Convertible Notes Purchase Total Leases Notes Payable Payable Obligations Six months ended December 31, 2004 $ 417,859 $ 126,191 $ - $ 200,668 $ 91,000 Year ending December 31, 2005 502,703 252,851 - 221,852 28,000 Year ending December 31, 2006 303,269 200,682 - 102,587 - Year ending December 31, 2007 1,000,000 - 1,000,000 - - Total contractual obligations $ 2,223,831 $ 579,724 $ 1,000,000 $ 525,107 $ 119,000

New Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities", (the "Interpretation") which addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003. The Interpretation becomes effective for entities created before February 1, 2003 at the beginning of the first interim period ending after March 31, 2004. The adoption of the provisions of the Interpretation did not have a material impact on the Company's financial statements.

Table of Contents

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

Change in Revenue Recognition Policy

After a careful review of the Company’s revenue recognition policies and giving consideration to guidance provided for in Emerging Issues Task Force No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent (“EITF 99-19”), the Company has changed certain revenue recognition policies affecting revenues earned by wireless applications and contracts. Prior to 4th quarter 2003, the Company reported revenues earned by wireless applications and contracts and cost of revenues for wireless applications and contracts net of certain third-party costs in the statement of operations. These transactions have been reclassified to reflect a gross revenue presentation with no effect on gross profit or net loss. The amount by which revenues and costs of revenues have been reclassified for the three and six-month periods ended June 30, 2003 is $115,679 and $214,894, respectively.

Wireless applications and contracts

Commencing during the second quarter of 2002, our resources were dedicated to the development of solutions for the mobile and wireless markets. 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 includes all third-party hosting, testing and/or carrier distribution 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.

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.

Table of Contents

There were no costs related to the wireless license fee revenue generated during the six months ended June 30, 2004 and 2003 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 Summus 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.

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PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

During the three-month period ended June 30, 2004, the Company issued an aggregate of 20,664,514 shares of its common stock to 19 persons and entities. These securities were not registered under the Securities Act of 1933. Except as noted below, the securities described below were issued in transactions deemed to be exempt from registration under Section 4(2) of the Securities Act and Rule 506, as promulgated pursuant to the Securities Act of 1933 as transactions by an issuer not involving any public offering. All of such securities are deemed to be "restricted securities" as defined in Rule 144(a)(3) under the Securities Act. No commissions were paid in connection with any of the issuances.

Stock Issuances for Cash

From April 1, 2004 to June 30, 2004, the Company issued an aggregate of 431,034 shares of unregistered common stock to 1 accredited investor, who is unaffiliated with the Company, for aggregate proceeds of $20,086.

Name of Purchaser	Number of Shares
Palisades Equity Fund LP	431,034

Stock Issuances Underlying Convertible Securities

In May 2004, holders of Series C preferred stock converted 1,250 shares of Series C preferred stock into 5,000,000 shares of Summus, Inc. common stock.

In May 2004, a holder of Series E preferred stock converted 80 shares of Series E preferred stock into 400,000 shares of Summus, Inc. common stock.

Stock Issuances in conjunction with Convertible Notes Payable

In May 2004, the Company issued an aggregate of 14,286,000 shares of unregistered common stock to 6 accredited investors in conjunction with the convertible notes payable financing.

Name of Purchaser	Number of Shares
Empire Capital Partners LP	3,571,500
Donald Hammett	1,428,600
The Focus Fund LP	2,142,900
Rodney D. Baber Jr.	357,150
JDS Capital LP	5,357,250
John A. Williams	1,428,600

Stock Issuances for Services

In May 2004, Summus issued 300,000 shares of restricted common stock to Phil Hellmuth Productions LLC in connection with a marketing agreement.

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Stock Issuances for Accrued Payroll

In June 2004, Summus issued 647,480 shares of unregistered common stock to employees in lieu of accrued payroll.

Name of Purchaser	Number of Shares
Gary E. Ban	184,654
Do Hyun Chung	48,655
Lang Gao	32,702
Clark Jackson	35,526
Yuwei Liao	40,020
Donald T. Locke	184,616
Leonard Mygatt	85,134
Jiangying Zhou	36,173

Item 5. Other Information

Employment Agreements

On July 28, 2004, Summus entered into employment agreements with each of Gary E. Ban, Andrew L. Fox and Donald T. Locke. All defined terms used in this description of these employment agreements shall have the meanings as set forth in the agreements, copies of which are attached as exhibits to this quarterly report. The employment agreements name Mr. Ban as Chief Executive Officer; Mr. Fox as Executive Vice-President of Business Development and Sales; and Mr. Locke as Chief Financial Officer and General Counsel. The current annual base salaries for each of these officers is as follows:

Name of Executive Initial Annual Base Salary

Gary E. Ban $175,000

Andrew L. Fox $120,000

Donald T. Locke $144,000

Under the terms of each of the employment agreements, the Board of Directors will, on an annual basis, review each executive’s base salary in light of the base salaries paid to other executives of Summus and each executive’s performance. It may, in its discretion, increase the executive’s annual base salary by an amount deemed appropriate by the Board.

Under the terms of the agreements of Messrs. Ban and Locke, their annual base salaries shall also automatically be increased to 1.5 times their initial base salary once Summus achieves a fiscal year gross revenue of $10,000,000 and to 2.0 times their initial annual base salary once Summus achieves a fiscal year gross revenue of $20,000,000 and it has net income for each such fiscal year period. Under the terms of Mr. Fox’s agreement, his annual base salary shall automatically be increased to $140,000 once Summus achieves positive cash flow for a fiscal quarter.

In addition to the annual base salary, the Board, in its discretion, may pay each executive a bonus commensurate with other bonuses paid to employees of Summus and take into account the total compensation paid to executives of other companies which would be competitive for the executive’s services. Messrs. Ban and Locke shall receive a bonus of 100% of their annual base salary upon the achievement of Summus’ annual objectives as set by the Board of Directors.

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Mr. Fox shall receive an annual bonus for the fiscal year ending December 31, 2004, equal to 15% of his annual base salary upon the achievement by Summus of its annual objectives as set by the Board of Directors. Mr. Fox shall also receive (i) a commission bonus of $10,000 for each transaction brought to Summus by him that Summus receives a gross profit of $250,000 from; (ii) a three percent (3%) commission bonus of the gross profit received by Summus from all transactions brought to the Company by him; and (iii) a one percent (1%) commission bonus of the gross profit received by the Company from all other transactions of Summus brought by personnel under Mr. Fox’s supervision. No funds under these bonus provisions of Mr. Fox’s agreement shall be payable to him until funds are received by Summus. Mr. Fox shall receive the commission bonuses set forth in items (ii) and (iii) of this paragraph for a period of eighteen (18) months from the launch of each such product related to these transactions arranged by him or by personnel under his supervision, as the case may be. After such eighteen (18) month period has expired, the commission bonuses payable to Mr. Fox for a particular transaction shall expire and no longer be payable to him.

Any bonus earned by Messrs. Ban, Fox and Locke pursuant to the provisions of their employment agreements shall not be paid to them unless and until Summus has achieved a cash flow positive position, which will be certified to the Board of Directors by an executive officer of the Company.

The Company shall grant to Messrs. Ban, Fox and Locke options to purchase 1,250,000, 1,000,000 and 1,000,000 shares of the Company’s common stock, respectively. These options shall vest in equal monthly installments over the thirty-six (36) month period beginning February 18, 2004. Messrs. Ban and Locke shall also receive options to purchase an additional 250,000 and 100,000 shares, respectively, of Summus’ common stock if it achieves cash flow positive at any time during the 2004 fiscal year. This grant of options, if achieved, shall be priced as of the date of the achievement of such milestone, as certified by an executive officer of the Company and shall be vested in full as of such date.

All options and/or warrants previously granted to each of Messrs. Ban, Fox and Locke in lieu of cash compensation forgone by them shall have a life of ten (10) years from the date of each such respective grant while the executive is employed by Summus or a life of three years from the date of termination of the executive’s employment.

The employment agreements with Messrs. Ban, Fox and Locke each have a term of one (1) year, which shall be automatically extended (without further action of Summus or the Board of Directors) each day for an additional day so that the remaining term shall continue to be one (1) year; provided that either party may at any time, by written notice to the other party, fix the term to a finite term of one (1) year, without automatic extension, commencing with the date of such notice.

Each executive’s employment under their respective Agreements shall be terminated immediately on his death and may be terminated by the Board:

at any time after the Permanent Disability of executive;

at any time without Cause prior to a Change of Control;

at any time without Cause upon a Change of Control; or

at any time for Cause.

If an executive’s employment is terminated by death, his estate or designated beneficiaries shall be entitled to receive:

any accrued but unpaid salary;

a cash lump sum payment in respect of accrued but unused vacation;

life insurance benefits pursuant to any life insurance policy purchased by Summus on the executive;

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a pro rata portion of the bonus applicable to the calendar year in which such termination occurs, payable when and as such bonus is determined under the Agreement; and

all stock option grants that have vested as of the executive’s date of death.

If an executive’s employment is terminated by Summus for Permanent Disability, he shall be entitled to receive

severance compensation equal to his Base Salary for a period of six (6) months, minus any amounts payable under any short-term disability insurance policy provided by Summus or purchased by executive.

a pro rata portion of the bonus applicable to the calendar year in which such termination occurs, payable when and as such bonus is determined under the Agreement;

continuation of the insurance provided by Summus for 12 months; and

all stock option grants that have vested as of the executive’s date of termination for the remainder of the term of such option grants.

If the executive’s employment is terminated by Summus without Cause prior to a Change of Control, the executive shall be entitled to receive:

accrued but unpaid Base Salary to the date of such termination;

a cash lump sum payment in respect of accrued but unused vacation days;

a pro rata portion of the bonus applicable to the calendar year in which such termination occurs, payable when and as such bonus is determined under the Agreement;

acceleration of the vesting of one hundred percent (100%) of the unvested portion of executive’s stock options or other stock-based awards, together with the right to exercise such stock options or awards for a period equal to the remaining term for exercising such options or awards under the applicable agreement and/or plan; and

continuation of the insurance provided by Summus for 12 months.

If executive’s employment is terminated by the Company without Cause upon a Change of Control or by Executive for Good Reason at any time, executive shall be entitled to receive:

severance compensation equal to his then-current Base Salary for the remaining Term of this Agreement; provided, however, that the executive’s severance compensation shall not be less than one (1) year of his then-current Base Salary

a cash lump sum payment in respect of accrued but unused vacation days;

the full amount of any bonus applicable to the calendar year in which such termination occurs, payable when and as such bonus is determined under the Agreement;

continuation of the insurance provided by Summus for 12 months.

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If executive’s employment is terminated by Summus for Cause or by the executive without Good Reason upon a Change of Control (other than as a result of executive’s Permanent Disability or death), the Company shall not have any other or further obligations to executive under this Agreement, except:

as may be provided in accordance with the terms of retirement and other benefit plans of Summus;

as to that portion of any unpaid Base Salary and other benefits accrued and earned under this Agreement through the date of such termination;

all stock option grants that have vested as of the Executive’s date of termination for the remainder of the term of such option grants; and

as to benefits, if any, provided by any insurance policies in accordance with their terms.

If executive’s employment is terminated by Summus for Cause at any time during the Term, Executive shall immediately forfeit any and all unvested stock rights, stock options and other such unvested incentives or awards previously granted to him by the Company and any Bonus earned by him but not paid pursuant to the Agreement.

Each of the employment agreements also contains customary covenants with respect to the non-disclosure of confidential or proprietary information regarding our business, prospects, finances, operations and trade secrets that have no finite duration.

Increase in Number of Options Available under Equity Compensation Plan

On June 24, 2004, the Board of Directors authorized an increase in the number of options available for grant under the Corporation’s Second Amended and Restated 2000 Equity Compensation Plan from 8,500,000 to 15,000,000 to be used as incentives to all employees, management and the Board of Directors.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit 10.1		Employment Agreement by and between Gary E. Ban and Summus dated as of July 28, 2004
Exhibit 10.2		Employment Agreement by and between Andrew L. Fox and Summus dated as of July 28, 2004
Exhibit 10.3		Employment Agreement by and between Donald T. Locke and Summus dated as of July 28, 2004
Exhibit 10.4		Third Amended and Restated 2000 Equity Compensation Plan
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 Donald T. Locke, Chief Financial Officer
Exhibit 32.1		Section 1350 Certification of Gary E. Ban, Chief Executive Officer
Exhibit 32.2		Section 1350 Certification of Donald T. Locke, Chief Financial Officer

(b)	Reports on Form 8-K:
	(1)	Current Report on Form 8-K filed on May 10, 2004 (Item 7)
	(2)	Current Report on Form 8-K filed on July 1, 2004 (Items 7 and 12)

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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.

Date: August 12, 2004	By: /s/ GARY E. BAN Gary E. Ban Chief Executive Officer
Date: August 12, 2004	By: /s/ DONALD T. LOCKE Donald T. Locke Chief Financial Officer

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