**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**





þ
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d)**
              **OF
                THE SECURITIES EXCHANGE ACT OF 1934****For
                the Quarterly Period Ended September 30, 2006****OR**o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d)**
              **OF
                THE SECURITIES EXCHANGE ACT OF 1934****For
                the Transition Period from _______ to
                _________**




**Commission
      File Number: 0-29625**





**OASYS
      MOBILE, INC.**


**(Exact
      name of Registrant as Specified in its Charter)**





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





434
      Fayetteville Street, Suite 600


Raleigh,
      North Carolina 27601


(919)
      807-5600


**(Address,
      including zip code, and telephone number (including area code)
      of**


**Registrant’s
      principal executive offices)**




Indicate
      by checkmark whether the Registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes þNo o





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 oAccelerated
      Filer oNon-Accelerated Filer 
þ




Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes oNo  þ





The
      number of shares outstanding of the Registrant’s common stock, par value $.001
      per share, as of November 17, 2006 was 13,643,038.














**OASYS
      MOBILE, INC.**




**FORM
      10-Q**




**FOR
      THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006**




**TABLE
      OF CONTENTS**




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




2


Table
        of Contents




**PART
      I.**


**FINANCIAL
      INFORMATION**




**Item
      1.** ***Financial
      Statements***




**OASYS
      MOBILE, INC.**


**BALANCE****SHEETS (UNAUDITED)**




**September
                  30,****2006**
            
            **December
                  31,****2005****Assets**Current
                assets:Cash
            
            $
            2,961,728
            
            $
            8,985,158Accounts
                receivable
            
            
            1,835,740
            
            
            1,072,615Prepaids
                and other current assets
            
            
            489,796
            
            
            36,172Total
                current assets
            
            
            5,287,264
            
            
            10,093,945Equipment,
                software and furniture, net
            
            
            156,625
            
            
            125,839Total
                assets
            
            $
            5,443,889
            
            $
            10,219,784**Liabilities
                and stockholders’ equity**Current
                liabilities:Accounts
                payable
            
            $
            2,686,516
            
            $
            2,319,754Accrued
                salaries and related costs
            
            
            207,066
            
            
            205,076Accrued
                interest
            
            
            481,584
            
            
            151,500Notes
                payable
            
            
            77,500
            
            
            77,500Current
                portion of capital lease obligations
            
            
            14,337
            
            
            —Convertible
                notes payable
            
            
            8,000,000
            
            
            —Discount
                on convertible notes payable
            
            
            (3,707,980
            )
            
            —Total
                current liabilities
            
            
            7,759,023
            
            
            2,753,830Long-term
                liabilities:Capital
                lease obligations
            
            
            22,640
            
            
            —Convertible
                notes payable
            
            
            —
            
            
            8,000,000Discount
                on convertible notes payable
            
            
            —
            
            
            (7,415,960
            )Total
                liabilities
            
            
            7,781,663
            
            
            3,337,870Stockholders’
                equity (deficit):Series
                A convertible preferred stock, $0.001 par value; 10,000shares
                designated, 2,407 shares issued and outstanding atSeptember
                30, 2006 and December 31, 2005 (liquidationpreference
                of $2,808,167 as of September 30, 2006)
            
            
            2,407,295
            
            
            2,407,295Common
                stock, $.001 par value, 185,000,000 shares authorized;13,646,888
                issued and 13,643,038 outstanding at September30,
                2006 and 13,523,554 issued and 13,519,704 outstanding at December
                31,
                2005
            
            
            13,643
            
            
            13,520Additional
                paid-in capital
            
            
            67,792,070
            
            
            65,369,259Deferred
                compensation
            
            
            —
            
            
            (85,578
            )Unamortized
                restricted stock
            
            
            (60,000
            )
            
            —Accumulated
                deficit
            
            
            (72,263,163
            )
            
            (60,594,963
            )Treasury
                stock, at cost (3,850 shares)
            
            
            (227,619
            )
            
            (227,619
            )Total
                stockholders’ equity (deficit)
            
            
            (2,337,774
            )
            
            6,881,914Total
                liabilities and stockholders’ equity (deficit)
            
            $
            5,443,889
            
            $
            10,219,784




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




3


Table
        of Contents


**OASYS
        MOBILE, INC.**
  **STATEMENTS
        OF** **OPERATIONS****(UNAUDITED)**
  **Three-Month
                    Period Ended****September
                    30,2006**
                
                **September
                    30,2005**Revenues:Wireless applications and contracts
                
                $
                2,116,360
                
                $
                2,054,744Wireless license fees
                
                
                2,000
                
                
                3,500Total revenues
                
                
                2,118,360
                
                
                2,058,244Cost
                    of revenues:Wireless applications and contracts
                
                
                1,289,890
                
                
                1,008,937Total cost of revenues
                
                
                1,289,890
                
                
                1,008,937Gross
                    profit
                
                
                828,470
                
                
                1,049,307Operating
                    expenses:General and administrative
                
                
                848,408
                
                
                659,831Research and development
                
                
                1,006,250
                
                
                916,284Sales and marketing
                
                
                1,128,856
                
                
                503,932Non-cash compensation ($116,375 general and administrative, $48,306
                    research and development,  and $94,810 sales and
                    marketing)
                
                
                259,491
                
                
                6,995Modification
                    of warrants in conjunction with the
                    Securities Purchase Agreement
                
                
                1,478,585
                
                
                —Non-cash consulting expense
                
                
                20,000
                
                
                5,207Total operating
                    expenses
                
                
                4,741,590
                
                
                2,092,249Loss from
                    operations
                
                
                (3,913,120
                )
                
                (1,042,942
                )Interest
                    expense
                
                
                (73,663
                )
                
                (653
                )Amortization
                    of discount on debt and beneficialconversion
                    feature
                
                
                (1,249,576
                )
                
                —Net
                    loss
                
                $
                (5,236,359
                )
                $
                (1,043,595
                )Net
                    loss applicable to common stockholders:Net loss
                
                $
                (5,236,359
                )
                $
                (1,043,595
                )Preferred stock dividends
                
                
                (48,140
                )
                
                (48,140
                )Net
                    loss applicable to common stockholders
                
                $
                (5,284,499
                )
                $
                (1,091,735
                )Per
                    share amounts (basic and diluted)
                
                $
                (0.39
                )
                $
                (0.08
                )Weighted
                    average shares of common stock outstanding
                
                
                13,544,125
                
                
                13,503,786
  *The
        accompanying notes constitute an integral part of these financial
        statements.*


4





Table
        of Contents


**OASYS
        MOBILE, INC.**
  **STATEMENTS
        OF OPERATIONS (UNAUDITED)**
  **Nine-Month
                    Period Ended****September
                    30,**
                  **2006**
                
                **September
                    30,**
                  **2005**Revenues:Wireless applications and contracts
                
                $
                6,019,251
                
                $
                5,833,777Wireless license fees
                
                
                24,750
                
                
                8,700Total revenues
                
                
                6,044,001
                
                
                5,842,477Cost
                    of revenues:Wireless applications and contracts
                
                
                3,367,298
                
                
                2,848,552Total cost of revenues
                
                
                3,367,298
                
                
                2,848,552Gross
                    profit
                
                
                2,676,703
                
                
                2,993,925Operating
                    expenses:General and administrative
                
                
                2,278,915
                
                
                2,095,090Research and development
                
                
                2,726,776
                
                
                2,237,974Sales and marketing
                
                
                3,039,366
                
                
                1,143,196Non-cash compensation ($540,096 general and administrative, $108,846
                    research and development,  and $268,318 sales and
                    marketing)
                
                
                917,260
                
                
                27,729Modification of warrants in conjunction with the Securities Purchase
                    Agreement
                
                
                1,478,585
                
                
                —Non-cash consulting expense
                
                
                20,000
                
                
                15,608Non-cash settlements
                
                
                —
                
                
                58,750Total operating
                    expenses
                
                
                10,460,902
                
                
                5,578,347Loss from
                    operations
                
                
                (7,784,199
                )
                
                (2,584,422
                )Interest
                    expense
                
                
                (176,021
                )
                
                (45,482
                )Amortization
                    of discount on debt and beneficialconversion
                    feature
                
                
                (3,707,980
                )
                
                (851,332
                )Net
                    loss
                
                $
                (11,668,200
                )
                $
                (3,481,236
                )Net
                    loss applicable to common stockholders:Net loss
                
                $
                (11,668,200
                )
                $
                (3,481,236
                )Preferred stock dividends
                
                
                (144,420
                )
                
                (144,420
                )Net
                    loss applicable to common stockholders
                
                $
                (11,812,620
                )
                $
                (3,625,656
                )Per
                    share amounts (basic and diluted)
                
                $
                (0.87
                )
                $
                (0.27
                )Weighted
                    average shares of common stock outstanding
                
                
                13,533,660
                
                
                13,249,293
  *The
        accompanying notes constitute an integral part of these financial
        statements.*


5


Table
        of Contents


**OASYS
        MOBILE, INC.**
  **STATEMENT
        OF STOCKHOLDERS’** **EQUITY****(DEFICIT) (UNAUDITED)**
  **Preferred
                  Stock**
              
              
              
              
              
              **Additional****Series
                  A**
              
              **Common
                  Stock**
              
              **Paid-In****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital****Balance
                  at December 31, 2005**
              
              
              2,407
              
              $
              2,407,295
              
              
              13,519,704
              
              $
              13,520
              
              $
              65,369,259Reversal
                  of deferredcompensation
                  to additionalpaid-in
                  capital
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (85,578
              )Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              917,260Modification
                  of warrants in conjunction with the Securities Purchase
                  Agreement
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,478,585Common
                  stock issued for accruedexpenses
              
              
              —
              
              
              —
              
              
              23,334
              
              
              23
              
              
              32,644Restricted
                  stock issued
              
              
              —
              
              
              —
              
              
              100,000
              
              
              100
              
              
              79,900Amortization
                  of restricted stock
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  loss for the period
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —**Balance
                  at September 30, 2006**
              
              
              2,407
              
              $
              2,407,295
              
              
              13,643,038
              
              $
              13,643
              
              $
              67,792,070
  *The
        accompanying notes constitute an integral part of these financial
        statements.*


6


Table
        of Contents


**OASYS
        MOBILE, INC.**
  **STATEMENT
        OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)**
  **Unamortized**
              
              
              
              
              
              **Total****Deferred**
              
              **Restricted**
              
              **Accumulated**
              
              **Treasury**
              
              **Stockholders’****Compensation**
              
              **Stock**
              
              **Deficit**
              
              **Stock**
              
              **Equity
                  (Deficit)****Balance
                  at December 31, 2005**
              
              $
              (85,578
              )
              $
              —
              
              $
              (60,594,963
              )
              $
              (227,619
              )
              $
              6,881,914Reversal
                  of deferredcompensation
                  to additionalpaid-in
                  capital
              
              
              85,578
              
              
              —
              
              
              —
              
              
              —
              
              
              —Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              917,260Modification
                  of warrants in conjunction with the Securities Purchase
                  Agreement
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,478,585Common
                  stock issued for accrued expenses
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              32,667Restricted
                  stock issued
              
              
              —
              
              
              (80,000
              )
              
              —
              
              
              —
              
              
              —Amortization
                  of restricted stock
              
              
              —
              
              
              20,000
              
              
              —
              
              
              —
              
              
              20,000Net
                  loss for the period
              
              
              —
              
              
              —
              
              
              (11,668,200
              )
              
              —
              
              
              (11,668,200
              )**Balance
                  at September 30, 2006**
              
              $
              —
              
              $
              (60,000
              )
              $
              (72,263,163
              )
              $
              (227,619
              )
              $
              (2,337,774
              )
  *The
        accompanying notes constitute an integral part of these financial
        statements.*


7


Table
        of Contents


**OASYS
        MOBILE, INC.**
  **STATEMENTS
        OF** **CASH
        FLOWS****(UNAUDITED)**
  **Nine-Month
                  Period Ended****September
                  30, 2006**
              
              **September
                  30, 2005****Operating
                  activities**Net
                  loss
              
              $
              (11,668,200
              )
              $
              (3,481,236
              )Adjustments
                  to reconcile net loss to net cash used in operatingactivities:Depreciation and amortization
              
              
              46,830
              
              
              35,294Stock-based compensation
              
              
              917,260
              
              
              27,729Common stock, options and warrants issued for services
              
              
              —
              
              
              161,446Amortization of discount on debt and beneficial conversion
                  feature
              
              
              3,707,980
              
              
              851,332Modification
                  of warrants in conjunction with the Securities Purchase
                  Agreement
              
              
              1,478,585
              
              
              —Amortization
                  of restricted stock
              
              
              20,000
              
              
              —Non-cash settlements
              
              
              —
              
              
              58,750Changes
                  in operating assets and liabilities:Accounts receivable
              
              
              (763,125
              )
              
              (378,636
              )Prepaid and other assets
              
              
              (453,624
              )
              
              25,545Accounts payable and other accrued expenses
              
              
              399,429
              
              
              764,595Accrued
                  interest
              
              
              330,084
              
              
              —Accrued salaries and related costs
              
              
              1,990
              
              
              6,393Net
                  cash used in operating activities
              
              
              (5,982,791
              )
              
              (1,928,788
              )**Investing
                  activities**Purchases
                  of equipment, software and furniture
              
              
              (31,277
              )
              
              (60,837
              )Net
                  cash used in investing activities
              
              
              (31,277
              )
              
              (60,837
              )**Financing
                  activities**Proceeds
                  from exercise of stock options and warrants
              
              
              —
              
              
              4,332,878Proceeds
                  from issuance of convertible debt
              
              
              —
              
              
              215,000Payments
                  of convertible debt
              
              
              —
              
              
              (1,640,000
              )Principal
                  payments on capital lease obligations
              
              
              (9,362
              )
              
              —Principal
                  payments on notes payable and short-term borrowings
              
              
              —
              
              
              (85,042
              )Net
                  cash (used in) provided by financing activities
              
              
              (9,362
              )
              
              2,822,836Net
                  (decrease) increase in cash
              
              
              (6,023,430
              )
              
              833,211Cash
                  at beginning of period
              
              
              8,985,158
              
              
              1,405,788Cash
                  at end of period
              
              $
              2,961,728
              
              $
              2,238,999**Supplemental
                  disclosures of cash flow information**Cash
                  paid for interest
              
              $
              41,173
              
              $
              47,527
  *The
        accompanying notes constitute an integral part of these financial
        statements.*


8




Table
        of Contents




**Oasys
      Mobile, Inc.**




**Notes****to Financial Statements**




**1.**  **Business
      and Basis of Presentation**




*Business*




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





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





Oasys
      Mobile builds end-user applications for most major mobile platforms, including
      QUALCOMM’s Binary Runtime Environment for WirelessTM (BREWTM), JavaTM 2 Platform,
      Micro Edition (J2METM), SymbianTM 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, and Israel.





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





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





*Future
      Operations*





As
      shown
      in the financial statements for the three-month period and nine-month period
      ended September 30, 2006, the Company incurred a net loss of $5 ,236,359
      and $11,668,200, 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.




The
      Company's convertible debt of $8,000,000 is due on June 30, 2007. 
Therefore, the Company is actively seeking additional equity capital or other
      strategic transactions to refinance its debt and provide liquidity to expand
      operations.  The Company also expects that increased revenues and cost
      reductions will reduce its operating losses in future periods.  There can
      be no assurance that management's plan will be executed as
      anticipated.





9


Table
        of Contents




**1.**  **Business
      and Basis of Presentation (continued)**




*Basis
      of Presentation*




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




**2.**  **Summary
      of Significant Accounting Policies**




*Estimates*




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenue and expenses during the reporting
      period. Actual results could differ from those estimates.




*Revenue
      Recognition and Related Costs*




Wireless
      applications and contracts




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





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




10




Table
      of Contents





**2.**  **Summary
      of Significant Accounting Policies (continued)**




Wireless
      License Fees





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




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




Contracts
      and license fees




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




*Segments*




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




*Equipment,
      Software and Furniture*




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




*Software
      Development Costs*




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




11




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      of Contents





**2.**  **Summary
      of Significant Accounting Policies (continued)**




*Income
      Taxes*




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




S *tock-Based
      Compensation*




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





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




The
      adoption of SFAS No. 123(R) had a material impact on our results of
      operations. Our statement of operations for the three months and nine months
      ended September 30, 2006 included stock-based compensation expense of $259,491
      and $917,260, respectively.




Unrecognized
      stock-based compensation expense expected to be recognized over an estimated
      weighted-average amortization period of 1.06 years was approximately $1.4
      million at September 30, 2006. Unrecognized stock-based compensation expense
      expected to be recognized over the quarter ending December 31, 2006 was
      approximately $234,000 at September 30, 2006.




12




Table
      of Contents




**2.**  **Summary
      of Significant Accounting Policies (continued)**




Stock
      Plan




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




Time-Based
      Stock Awards




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




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





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




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




**Shares**
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**
            
            **Average**
              **Remaining**
              **Contractual**
              **Term**
              **(years)**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at January 1, 2006
            
            
            1,836,215
            
            $
            6.53Granted
            
            
            871,500
            
            
            1.40Forfeited
                or expired
            
            
            (129,411
            )
            
            10.42Outstanding
                at September 30, 2006
            
            
            2,578,304
            
            $
            4.40
            
            
            6.87
            
            $
            —Exercisable
                at September 30, 2006
            
            
            1,602,186
            
            $
            6.05
            
            
            5.63
            
            $
            —


13


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          of Contents


**2.**  **Summary
      of Significant Accounting Policies (continued)**




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




Second
      Quarter Fiscal 2005




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




**Three-Month**
              **Period
                Ended**
              **September
                30**
              **(Unaudited)**
            
            **Nine-Month**
              **Period
                Ended**
              **September
                30**
              **(Unaudited)****2005**
            
            **2005**Net
                loss applicable to common shareholders
            
            $
            (1,091,735
            )
            $
            (3,625,656
            )Non-cash
                compensation charges included in net loss applicable to common
                shareholders
            
            
            6,995
            
            
            27,729Stock-based
                employee compensation cost that would have been included in net loss
                applicable to common stockholders under the fair value
                method
            
            
            (246,897
            )
            
            (476,898
            )Adjusted
                net loss applicable to common stockholders
            
            $
            (1,331,637
            )
            $
            (4,074,825
            )Basic
                and diluted loss per share:Reported
                net loss applicable to common stockholders
            
            $
            (0.08
            )
            $
            (0.27
            )Non-cash
                compensation charges included in net loss applicable to common
                stockholders
            
            
            0.00
            
            
            0.00Stock-based
                employee compensation cost that would have been included in net loss
                applicable to common stockholders under the fair value
                method
            
            
            (0.02
            )
            
            (0.04
            )Adjusted
                net loss applicable to common stockholders
            
            $
            (0.10
            )
            $
            (0.31
            )




For
      the
      purpose of the above table, the fair value of each option grant was estimated
      as
      of the date of grant by using the Black-Scholes option pricing model with the
      following weighted-average assumptions used for grants in the first nine months
      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 nine months ended September 30, 2005 was
      $2.90.




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        of Contents


**2.**  **Summary
      of Significant Accounting Policies (continued)**




*Net
      Loss Per Share*




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




*New
      Accounting Pronouncements*




In
      June
      2006, the Financial Accounting Standards Board (FASB) issued Interpretation
      (“FIN”) No. 48, *Accounting
      for Uncertainty in Income Taxes* .
      FIN
      No. 48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN No. 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN No. 48 is effective for the
      Company’s first fiscal year beginning after December 15, 2006. The Company
      is currently evaluating the provisions of FIN No. 48 to determine what
      effect its adoption on January 1, 2007 will have on the Company’s financial
      position, cash flows, and results of operations.




In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* .
      SAB No. 108 provides interpretive guidance on how the effects of prior-year
      uncorrected misstatements should be considered when quantifying misstatements
      in
      the current year financial statements. SAB No. 108 requires registrants to
      quantify misstatements using both an income statement (“rollover”) and balance
      sheet (“iron curtain”) approach and evaluate whether either approach results in
      a misstatement that, when all relevant quantitative and qualitative factors
      are
      considered, is material. If prior year errors that had been previously
      considered immaterial now are considered material based on either approach,
      no
      restatement is required so long as management properly applied its previous
      approach and all relevant facts and circumstances were considered. If prior
      years are not restated, the cumulative effect adjustment is recorded in opening
      accumulated deficit as of the beginning of the fiscal year of implementation.
      SAB No. 108 is effective for fiscal years ending on or after
      November 15, 2006, with earlier implementation encouraged. The Company does
      not believe that its implementation of SAB No. 108 will have an effect on
      the Company’s financial position, cash flows, or results of operations.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      SFAS No. 157 defines fair value, establishes a framework for measuring fair
      value and expands disclosure of fair value measurements. SFAS No. 157
      applies under other accounting pronouncements that require or permit fair value
      measurements and accordingly, does not require any new fair value measurements.
      SFAS No. 157 is effective for financial statements issued for fiscal years
      beginning after November 15, 2007. The Company is currently evaluating the
      provisions of SFAS No. 157 to determine what effect its adoption on
      January 1, 2008 will have on the Company’s financial position, cash flows,
      and results of operations.


15


Table
        of Contents




**3. Convertible
      Notes Payable**




*November
      2005 Convertible Notes Payable*




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





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





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




The
          discount on the debt is being amortized to interest expense over the term
          of the
          Senior Secured
          Debentures beginning on the date of issuance. Amortization of the discount of the
          Senior Secured  Debentures was
          $1,249,576 and $3,707,980 for the three-month and nine-month periods ended
          September 30, 2006, respectively.
 
 The
          principal balance of the Senior Secured Debentures is $8,000,000 as of
          September
          30, 2006 and matures on June 30, 2007. The discount related to the Senior
          Secured Debentures is $3,707,980 as of September 30, 2006, and is shown
          as a
          contra-liability on the balance sheet.




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




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




16


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          of Contents
 **3.**  **Convertible
        Notes Payable (continued)**




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




The
      Company recorded an additional expense on the
      statement of operations for the three and nine month periods ended September
      30,
      2006 of $1,478,585 in conjunction with the amended A Warrants issued in
      conjunction with the July 27, 2006 Modification Agreement related to the
      Securities Purchase Agreement.




*December
      2004 and January 2005 Convertible Notes Payable*




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





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





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





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





The
      Company allocated the $1,640,000 of proceeds received in connection with the
      financing in December 2004 and January 2005 between the Senior Notes and the
      warrants on a relative fair value basis. Accordingly, the Company allocated
      $735,319 to the Senior Notes and $904,681 to the warrants issued.




17


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        of Contents


**3.**  **Convertible
      Notes Payable (continued)**




Since
      the
      Senior Notes were issued at a discount to the principal balance, which is the
      basis for the optional conversion, the effective conversion price of the Senior
      Notes was less than the fair value of the Company’s common stock on the date of
      issuance. In accordance with EITF 98-5, " *Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios* ,"
      a
      beneficial conversion feature of $735,319 was measured at the date of issuance
      and would have been recognized and recorded as a discount on debt and a
      corresponding credit to additional paid-in capital if the Senior Notes had
      not
      been repaid prior to or on the Maturity Date.





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




**4.**  **Common
      Stock and Warrants**




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




Conversion
                of convertible debt
            
            
            4,000,000Series
                A convertible preferred stock and related dividends
            
            
            19,720Outstanding
                common stock warrants
            
            
            8,273,450Outstanding
                stock options
            
            
            2,578,304Possible
                future issuance under stock option plans
            
            
            258,390Total
            
            
            15,129,864




The
      Company issued 100,000 shares of restricted stock on September 29, 2006 to
      a
      director of the Company for consulting services. Of the shares, 25,000 vested
      immediately and the remaining vest monthly over 1 year. The restricted stock
      was
      valued at $80,000, and $20,000 was expensed immediately as non-cash consulting
      expense during the three and nine months ended September 30, 2006.




**5.**  **Preferred
      Stock**




***Series
      A Convertible Preferred Stock***




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




The
      holders of the Series A preferred stock are entitled to receive cumulative
      cash
      dividends at a rate of 8% per annum of the initial liquidation preference of
      $1,000 per share. The Company, at its election, can provide for the payment
      of
      dividends on the Series A preferred stock through the issuance of additional
      shares of Series A preferred stock having an aggregate initial liquidation
      preference equal to the amount of cash dividends otherwise payable. Dividends
      are cumulative from the date of issuance and are payable, when, as and if
      declared by the Board of Directors. The Company is restricted from paying
      dividends on common stock until dividends are paid on Series A preferred in
      full. No dividends have been paid in 2005 or 2006. Cumulative unpaid dividends
      at September 30, 2006 were $401,167.




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        of Contents


**5.**  **Preferred
      Stock (continued)**




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




**6.**  **Commitments
      and Contingencies**




***Cancellation
      of warrants***




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




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




19




Table
        of Contents


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




***Forward-Looking
      Statements***




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




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


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


·
            our
                future revenue opportunities;


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


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


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


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


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


·
            the
                future growth of our customer base;


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


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


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


·
            evolving
                technology trends.




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




20


Table
        of Contents


**Overview**




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




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





·
            Branded
                Mobile Games and Applications.


·
            White
                Label Services.


·
            OasysMobile.com –
                Our Mobile
                Lifestyle Portal.




*Branded
      Mobile Games and Applications*





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





·
            Games;


·
            Messaging;


·
            Personalization;
                and


·
            Entertainment.





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





Oasys
      Mobile’s partner and product portfolio includes such household names as Alex
      Rodriquez, Sony BMG, Mattel, Churchill Downs, Golf Digest, Phil Hellmuth, The
      Wall Street Journal, Hooters, Howard Lederer and The Associated Press. Mobile
      media applications based on these brands, and other popular consumer
      applications, are deployed across 75 major wireless carriers and distribution
      partners in the United States and abroad.




21




Table
        of Contents


Oasys
      Mobile builds its consumer applications for most major mobile platforms,
      including QUALCOMM’s Binary Runtime Environment for WirelessTM (BREWTM), JavaTM 2
      Platform, Micro Edition (J2METM), SymbianTM OS and Wireless Application Protocol
      (WAP). We currently distribute our branded applications primarily through major
      wireless carriers who make our products available to their customers on their
      distribution decks. Users typically purchase and download our applications
      through a wireless carrier’s branded mobile data service accessed directly from
      their mobile handsets, which are enabled by technologies such as BREW, J2ME,
      Symbian and WAP. These wireless carrier services include, among others, Verizon
      Wireless’ *Get
      It Now* ,
      Cingular’s *Media
      Mall* ,
      Sprint’s PCS *Vision,* Alltel’s *Axcess,* US
      Cellular’s *Easy
      Edge* and
      T-Mobile’s *t-zones* .





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




*White
      Label Services*





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





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





*OasysMobile.com*





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





Through
      OasysMobile.com, we can distribute our own proprietary mobile content and third
      party mobile content and offer creative pricing and bundling of content and
      services directly to mobile consumers. By leveraging our experience in the
      mobile media space, Oasys Mobile is able to offer a comprehensive suite of
      services that add value to the mobile data consumer.





*Other
      Matters*




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




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Table
        of Contents




**Results
      of Operations**




**Three-Month
      Period Ended September 30, 2006 Compared to Three-Month Period Ended September
      30, 2005**




*Revenues*




**Three
                Months Ended September 30****%
                of Total**
            
            
            
            **%
                of Total****2006**
            
            **Revenues**
            
            **2005**
            
            **Revenues**
            
            **$
                Change**
            
            **%
                Change**Revenues
                by category:Wireless
                applicationsand contracts
            
            $
            2,116,360
            
            
            99.9
            %
            $
            2,054,744
            
            
            99.8
            %
            $
            61,616
            
            
            3.0
            %Wireless
                license fees
            
            
            2,000
            
            
            0.1
            
            
            3,500
            
            
            0.2
            
            
            (1,500
            )
            
            (42.9)
            %Total
                revenues
            
            $
            2,118,360
            
            
            100.0
            %
            $
            2,058,244
            
            
            100.0
            %
            $
            60,116
            
            
            2.9
            %




*Wireless
      Applications and Contracts.* Revenue
      from wireless applications and contracts increased $61,616 to $2,116,360 in
      the
      three-month period ended September 30, 2006, up 3.0% from $2,054,744 in the
      three-month period ended September 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’s products, including Mattel’s UNO® Challenge and College
      and Greek Logos both have shown strong growth during the three months ended
      September 30, 2006. In addition, the Company launched UNO® Free Fall during the
      period. 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 September 30, 2006
      increased 29.1% over the three-month period ended September 30,
      2005.




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




*Wireless
      License Fees.* Revenue
      earned from wireless license fees totaled $2,000 and $3,500 in the three-month
      periods ended September 30, 2006 and 2005, respectively.




*Costs
      of Revenues*




**Three
                  Months Ended September 30****2006**
              
              **2005**
              
              **$
                  Change**
              
              **%
                  Change**Cost
                  of revenues by category:Wireless applications and contracts
              
              $
              1,289,890
              
              $
              1,008,937
              
              $
              280,953
              
              
              27.8
              %Total
                  cost of revenues
              
              $
              1,289,890
              
              $
              1,008,937
              
              $
              280,953
              
              
              27.8
              %




23




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      of
      Contents




*Wireless
      Applications and Contracts.* Costs
      of
      wireless applications and contracts increased $280,953 to $1,289,890 in the
      three-month period ended September 30, 2006, up 27.8% from $1,008,937 in the
      three-month period ended September 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
      September 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 mix of products sold in a given period.




In
      addition, the Company was selected by Sprint during the three-month period
      ended
      September 30, 2006 to be one of two mobile content aggregators for
      personalization content. The Company receives a fixed percentage of all mobile
      personalization content that is distributed through this relationship. **




*Gross
      Profit*




**Three
                  Months Ended September 30****2006**
              
              **2005**
              
              **$
                  Change**
              
              **%
                  Change**Gross
                  profit by category:Wireless applications and contracts
              
              $
              826,470
              
              $
              1,045,807
              
              $
              (219,337
              )
              
              (21.0)
              %Wireless license fees
              
              
              2,000
              
              
              3,500
              
              
              (1,500
              )
              
              (42.9)
              %Total
                  gross profit
              
              $
              828,470
              
              $
              1,049,307
              
              $
              (220,837
              )
              
              (21.0)
              %




*Wireless
      Applications and Contracts.* Gross
      profit resulting from the development and deployment of wireless applications
      decreased $219,337 to $826,470 for the three-month period ended September 30,
      2006, a decrease of 21.0% over the gross profit for the three-month period
      ended
      September 30, 2005 of $1,045,807. The decrease in gross profit resulting from
      these activities is due primarily to certain new content partner arrangements
      with higher royalty payments. Our contracts with our content partners have
      various cost structures. Certain content partner arrangements have minimum
      payment requirements regardless of revenues. Therefore, our gross profit could
      vary depending on the mix of products sold in a given period. The costs for
      these revenues include costs that are primarily fixed in nature, consisting
      mostly of third-party hosting fees and content information provided by certain
      of our content providers, and costs that are primarily variable in nature,
      consisting mostly of third-party content information.




In
      addition, the Company was selected by Sprint during the three-month period
      ended
      September 30, 2006 to be one of two mobile content aggregators for
      personalization content. The Company receives a fixed percentage of all mobile
      personalization content that is distributed through this relationship. The
      level
      of revenues that are earned from this arrangement as compared to other wireless
      application revenues could impact gross profit. **




*Wireless
      License Fees.* Gross
      profit resulting from wireless license fees totaled $2,000 and $3,500 for the
      three-month periods ended September 30, 2006 and 2005, respectively. The Company
      did not incur any specific direct costs associated with the sale, delivery,
      or
      installation of the software underlying the license agreements consummated
      during the period. Additionally, the Company does not expect to incur any future
      obligations relating to these license fees.




24




Table
      of Contents




*General
      and Administrative Expenses*




**Three
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**General
                and administrative
            
            $
            848,408
            
            $
            659,831
            
            $
            188,577
            
            
            28.6
            %




General
      and administrative expenses consist primarily of salaries, consulting fees,
      office operations, administrative and general management activities, including
      legal, accounting, investor relations and other professional fees. General
      and
      administrative expenses for the three-month period ended September 30, 2006
      were
      $848,408, compared to $659,831 for the three-month period ended September 30,
      2005. The increase in general and administrative expenses was the net effect
      of
      an increase of approximately $220,000 related to severance as provided in an
      agreement with the former Chief Executive Officer of the Company and decreases
      due to fees associated with the Qualcomm QuickPay program during the three-month
      period ended September 30, 2005, as well as decreases in general office
      expenses. The Company terminated its participation in the Qualcomm QuickPay
      program in early 2006.




Res *earch
      and Development Expenses*




**Three
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Research
                and development
            
            $
            1,006,250
            
            $
            916,284
            
            $
            89,966
            
            
            9.8
            %




Research
      and development expenses for the three-month period ended September 30, 2006
      were $1,006,250 compared to $916,284 for the three-month period ended September
      30, 2005. The increase in research and development expenses is due to the
      increase in the number of applications that the Company is developing for future
      revenue generation, as well as the development for modifications to the Oasys
      Mobile portal. We currently have several new products in development. The Oasys
      Mobile portal launched during the first quarter of 2006 and we are continuing
      to
      add new functionality. We are focusing our resources on the development of
      new
      products for rapid deployment.




*Sales
      and Marketing Expenses*




**Three
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Sales
                and marketing
            
            $
            1,128,856
            
            $
            503,932
            
            $
            624,924
            
            
            124.0
            %




Sales
      and
      marketing expenses consist primarily of salaries, consulting fees, marketing
      agency fees, marketing programs, collateral and other professional fees. Sales
      and marketing expenses for the three-month period ended September 30, 2006
      were
      $1,128,856 compared to $503,932 for the three-month period ended September
      30,
      2005. The increase in sales and marketing expenses during the current period
      as
      compared to the prior period was primarily due to the event-related marketing,
      partner marketing arrangements and search marketing for the Oasys Mobile portal
      and certain carrier campaigns. The increase in sales and marketing expenses
      reflects our focus to deploy and market new products in order to continue
      increasing revenues in a cost effective manner.




25




Table
      of Contents




*Non-Cash
      Compensation Expenses*




**Three
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                compensation
            
            $
            259,491
            
            $
            6,995
            
            $
            252,496
            
            
            3,609.7
            %




Non-cash
      compensation for the three-month period ended September 30, 2006 was $370,810
      compared to $6,995 for the three-month period ended September 30, 2005. The
      increase in non-cash compensation expense was due to new accounting requirements
      for the expensing of stock options issued to employees. Non-cash compensation
      for the three-month period ended September 30, 2006 reflects the fair value
      of
      employee stock options earned during the period. Non-cash compensation for
      the
      three-month period ended September 30, 2005 reflects the amortization for three
      months of deferred compensation resulting from stock options granted in prior
      years, at prices below the fair value of the underlying common stock.


*Modification
          of warrants in conjuntion with the Securities Purchase
          Agreement*
  **Three
                    Months Ended September 30****2006**
                
                **2005**
                
                **$
                    Change**
                
                **%
                    Change**Modification
                    of warrants in conjuntion with the Securities Purchase
                    Agreement
                
                $
                1,478,585
                
                $
                —
                
                $
                1,478,585
                
                
                100.0
                %
  Modification
          of warrants in conjunction with the Securities Purchase Agreement for the
          three-months ended September 30, 2006 was 1,478,585.  This related to a
          modification on the warrants and the Securities Purchase Agreement associated
          with the convertible notes entered into in November 2005.  The modification
          was made on July 27, 2006.  There were no similar transactions in the
          three-month period ended September 30, 2005.


*Non-Cash
      Consulting Expenses*




**Three
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                consulting expense
            
            $
            20,000
            
            $
            5,207
            
            $
            14,793
            
            
            284.1
            %




Non-cash
      consulting expense for the three-month period ended September 30, 2006, in
      the
      amount of $20,000 is related to the amortization of restricted stock. The
      Company issued 100,000 shares of restricted stock on September 29, 2006 to
      a
      director of the Company for consulting services. Of the shares, 25,000 vested
      immediately and the remaining vest monthly over 1 year. The restricted stock
      was
      valued at $80,000, and $20,000 was expensed immediately.




Non-cash
      consulting expense for the three-month period ended September 30, 2005, in
      the
      amount of $5,207 is attributable to 1,946 stock warrants granted to consultants
      for services, valued using the Black-Scholes option-pricing model.




*Interest
      Expense, net*




**Three
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Interest,
                net
            
            $
            73,663
            
            $
            653
            
            $
            73,010
            
            
            11,180.7
            %




Interest
      expense, net, for the three-month period ended September 30 2006, was $73,663
      compared to interest expense of $653 for three-month period ended September
      30,
      2005. Interest expense for the three-month period ended September 30, 2006
      primarily related to interest costs associated with convertible notes. There
      were no convertible notes outstanding during the three-month period ended
      September 30, 2005. The interest expense for the three-month period ended
      September 30, 2006 is net of interest income earned on cash.


26




Table
      of Contents




*Amortization
      of discount on debt and beneficial conversion feature*




**Three
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Amortization
                of discount on debt andbeneficial
                conversion
              feature
            
            $
            1,249,576
            
            $
            —
            
            $
            1,249,576
            
            
            100.0
            %




Amortization
      of discount on debt and beneficial conversion feature for the three-month period
      ended September 30, 2006 was $1,249,576. This related to amortization of the
      discounts on the convertible notes payable entered into in November 2005. There
      were no convertible notes outstanding during the three-month period ended
      September 30, 2005.




*Net
      Loss*




**Three
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Net
                loss
            
            $
            5,236,359
            
            $
            1,043,595
            
            $
            4,192,764
            
            
            401.8
            %




As
      a
      result of the factors discussed above, the net losses for the three-month
      periods ended September 30, 2006 and 2005 were $5,236,359 and $1,043,595,
      respectively.




**Nine-Month
      Period Ended September 30, 2006 Compared to Nine-Month Period Ended September
      30, 2005**




*Revenues*




**Nine
                Months Ended September 30****%
                of Total**
            
            
            
            **%
                of Total****2006**
            
            **Revenues**
            
            **2005**
            
            **Revenues**
            
            **$
                Change**
            
            **%
                Change**Revenues
                by category:Wireless
                applicationsand contracts
            
            $
            6,019,251
            
            
            99.6
            %
            $
            5,833,777
            
            
            99.9
            %
            $
            185,474
            
            
            3.2
            %Wireless
                license fees
            
            
            24,750
            
            
            0.4
            
            
            8,700
            
            
            0.1
            
            
            16,050
            
            
            184.5
            %Total
                revenues
            
            $
            6,044,001
            
            
            100.0
            %
            $
            5,842,477
            
            
            100.0
            %
            $
            201,524
            
            
            3.4
            %




*Wireless
      Applications and Contracts.* Revenue
      from wireless applications and contracts increased $185,474 to $6,019,251 in
      the
      nine-month period ended September 30, 2006, up 3.2% from $5,833,777 in the
      nine-month period ended September 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’s products, including Mattel’s UNO® Challenge, Mobile
      Graffiti, and College and Greek Logos both have shown strong growth during
      the
      nine months ended September 30, 2006. In addition, the Company launched UNO®
Free Fall during the period. Our contract with Sports Illustrated expired March
      14, 2006. Excluding revenues generated from Sports Illustrated, our revenues
      from wireless subscriptions and downloads in the nine-month period ended
      September 30, 2006 increased 28.5% over the nine-month period ended September
      30, 2005.




27


Table
        of Contents




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




*Wireless
      License Fees.* Revenue
      earned from wireless license fees totaled $24,750 and $8,700 in the nine-month
      periods ended September 30, 2006 and 2005, respectively.




*Costs
      of Revenues*


**Nine
                  Months Ended September 30****2006**
              
              **2005**
              
              **$
                  Change**
              
              **%
                  Change**Cost
                  of revenues by category:Wireless applications and contracts
              
              $
              3,367,298
              
              $
              2,848,552
              
              $
              518,746
              
              
              18.2
              %Total
                  cost of revenues
              
              $
              3,367,298
              
              $
              2,848,552
              
              $
              518,746
              
              
              18.2
              %




*Wireless
      Applications and Contracts.* Costs
      of
      wireless applications and contracts increased $518,746 to $3,367,298 in the
      nine-month period ended September 30, 2006, up 18.2% from $2,848,552 in the
      nine-month period ended September 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 nine-month period ended
      September 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 mix of products sold in a given period. **




In
      addition, the Company was selected by Sprint during the nine-month period ended
      September 30, 2006 to be one of two mobile content aggregators for
      personalization content. The Company receives a fixed percentage of all mobile
      personalization content that is distributed through this relationship. **




*Gross
      Profit*


**Nine
                  Months Ended September 30****2006**
              
              **2005**
              
              **$
                  Change**
              
              **%
                  Change**Gross
                  profit by category:Wireless applications and contracts
              
              $
              2,651,953
              
              $
              2,985,225
              
              $
              (333,272
              )
              
              (11.2)
              %Wireless license fees
              
              
              24,750
              
              
              8,700
              
              
              16,050
              
              
              184.5
              %Total
                  gross profit
              
              $
              2,676,703
              
              $
              2,993,925
              
              $
              (317,222
              )
              
              (10.6)
              %




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*Wireless
      Applications and Contracts.* Gross
      profit resulting from the development and deployment of wireless applications
      decreased $333,272 to $2,651,953 for the nine-month period ended September
      30,
      2006, a decrease of 11.2% over the gross profit for the nine-month period ended
      September 30, 2005 of $2,985,225. The decrease in gross profit resulting from
      these activities is due primarily to certain new content partner arrangements
      with higher royalty payments. Our contracts with our content partners have
      various cost structures. Certain content partner arrangements have minimum
      payment requirements regardless of revenues. Therefore, our gross profit could
      vary depending on the mix of products sold in a given period. The costs for
      these revenues include costs that are primarily fixed in nature, consisting
      mostly of third-party hosting fees and content information provided by certain
      of our content providers, and costs that are primarily variable in nature,
      consisting mostly of third-party content information.




In
      addition, the Company was selected by Sprint during the nine-month period ended
      September 30, 2006 to be one of two mobile content aggregators for
      personalization content. The Company receives a fixed percentage of all mobile
      personalization content that is distributed through this relationship. The
      level
      of revenues that are earned from this arrangement as compared to other wireless
      application revenues could impact gross profit. **




*Wireless
      License Fees.* Gross
      profit resulting from wireless license fees totaled $24,750 and $8,700 for
      the
      nine-month periods ended September 30, 2006 and 2005, respectively. The Company
      did not incur any specific direct costs associated with the sale, delivery,
      or
      installation of the software underlying the license agreements consummated
      during the period. Additionally, the Company does not expect to incur any future
      obligations relating to these license fees.




*General
      and Administrative Expenses*




**Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**General
                and administrative
            
            $
            2,278,915
            
            $
            2,095,090
            
            $
            183,825
            
            
            8.8
            %




General
      and administrative expenses consist primarily of salaries, consulting fees,
      office operations, administrative and general management activities, including
      legal, accounting, investor relations and other professional fees. General
      and
      administrative expenses for the nine-month period ended September 30, 2006
      were
      $2,278,915, compared to $2,095,090 for the nine-month period ended September
      30,
      2005.  The increase in general and administrative expenses was primarily
      due to approximately $220,000 related to severance as provided in an agreement
      with the former Chief Executive Officer of the Company.




*Re* s *earch
      and Development Expenses*




**Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Research
                and development
            
            $
            2,726,776
            
            $
            2,237,974
            
            $
            488,802
            
            
            21.8
            %




Research
      and development expenses for the nine-month period ended September 30, 2006
      were
      $2,726,776 compared to $2,237,974 for the nine-month period ended September
      30,
      2005. The increase in research and development expenses is due to the increase
      in the number of applications that the Company is developing for future revenue
      generation, as well as the development for the Oasys Mobile portal. We currently
      have several new products in development. The Oasys Mobile portal launched
      during the first quarter of 2006 and we are continuing to add new functionality.
      We are focusing our resources on the development of new products for rapid
      deployment.




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Table
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*Sales
      and Marketing Expenses*




**Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Sales
                and marketing
            
            $
            3,039,366
            
            $
            1,143,196
            
            $
            1,896,170
            
            
            165.9
            %




Sales
      and
      marketing expenses consist primarily of salaries, consulting fees, marketing
      agency fees, marketing programs, collateral and other professional fees. Sales
      and marketing expenses for the nine-month period ended September 30, 2006 were
      $3,180,783 compared to $1,143,196 for the nine-month period ended September
      30,
      2005. The increase in sales and marketing expenses during the current period
      as
      compared to the prior period was primarily due to the event-related marketing,
      partner marketing arrangements and search marketing for the Oasys Mobile portal
      and certain carrier campaigns. The increase in sales and marketing expenses
      reflects our focus to deploy and market new products in order to continue
      increasing revenues in a cost effective manner.




*Non-Cash
      Compensation Expenses*




**Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                compensation
            
            $
            917,260
            
            $
            27,729
            
            $
            889,531
            
            
            3,207.9
            %




Non-cash
      compensation for the nine-month period ended September 30, 2006 was $917,260
      compared to $27,729 for the nine-month period ended September 30, 2005. The
      increase in non-cash compensation expense was due to new accounting requirements
      for the expensing of stock options issued to employees. Non-cash compensation
      for the nine-month period ended September 30, 2006 reflects the fair value
      of
      employee stock options earned during the period. Non-cash compensation for
      the
      nine-month period ended September 30, 2005 reflects the amortization for nine
      months of deferred compensation resulting from stock options granted in prior
      years, at prices below the fair value of the underlying common stock.




*Modification
        of warrants in conjuntion with the Securities Purchase
        Agreement*
  **Nine
                  Months Ended September 30****2006**
              
              **2005**
              
              **$
                  Change**
              
              **%
                  Change**Modification
                  of warrants in conjuntion with the Securities Purchase
                  Agreement
              
              $
              1,478,585
              
              $
              —
              
              $
              1,478,585
              
              
              100.0
              %
  Modification
        of warrants in conjunction with the Securities Purchase Agreement for the
        nine-months ended September 30, 2006 was 1,478,585.  This related to a
        modification on the warrants and the Securities Purchase Agreement associated
        with the convertible notes entered into in November 2005.  The modification
        was made on July 27, 2006.  There were no similar transactions in the
        nine-month period ended September 30, 2005.




*Non-Cash
      Consulting Expenses*




**Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                consulting expense
            
            $
            20,000
            
            $
            15,608
            
            $
            4,392
            
            
            28.1
            %




Non-cash
      consulting expense for the nine-month period ended September 30, 2006, in the
      amount of $20,000 is related to the amortization of restricted stock. The
      Company issued 100,000 shares of restricted stock on September 29, 2006 to
      a
      director of the Company for consulting services. Of the shares, 25,000 vested
      immediately and the remaining vest monthly over 1 year. The restricted stock
      was
      valued at $80,000, and $20,000 was expensed immediately.




Non-cash
      consulting expense for the nine-month period ended September 30, 2005, in the
      amount of $15,608 is attributable to 4,713 stock warrants granted to consultants
      for services, valued using the Black-Scholes option-pricing model.




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*Non-Cash
      Settlements*




**Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                settlements
            
            $
            —
            
            $
            58,750
            
            $
            (58,750
            )
            
            (100.0
            )%




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




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




*Interest
      Expense, net*




**Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Interest,
                net
            
            $
            176,021
            
            $
            45,482
            
            $
            130,539
            
            
            287.0
            %




Interest
      expense, net, for the nine-month period ended September 30, 2006, was $176,021
      compared to interest expense of $45,482 for nine-month period ended September
      30, 2005. Interest expense for the nine-month periods ended September 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 nine-month period ended September 30, 2006 is net of interest
      income earned on cash.




*Amortization
      of discount on debt and beneficial conversion feature*




**Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Amortization
                of discount on debt and
              beneficial
                conversion feature
            
            $
            3,707,980
            
            $
            851,332
            
            $
            2,856,648
            
            
            335.6
            %




Amortization
      of discount on debt and beneficial conversion feature for the nine-month period
      ended September 30, 2006 was $3,707,980. This related to amortization of the
      discounts on the convertible notes payable entered into in November 2005.




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


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*Net
      Loss*




**Nine
                Months Ended September 30****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Net
                loss
            
            $
            11,668,200
            
            $
            3,481,236
            
            $
            8,186,964
            
            
            235.2
            %




As
      a
      result of the factors discussed above, the net losses for the nine-month periods
      ended September 30, 2006 and 2005 were $11,668,200 and $3,481,236, respectively.




**Liquidity
      and Capital Resources**




As
      of
      September 30, 2006 we had $2,961,728 of cash on hand, a working capital deficit
      of $2,471,759, and approximately $7.8 million in current liabilities, including
      $4.3 million in convertible notes payable.




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




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




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




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




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Table
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*Other
      Matters*




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




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




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


·
            securing
                top-tier brands;


·
            the
                development and delivery of new wireless
                applications;


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




*Cash
      Flow Information*




**Nine
                  Months Ended September 30****2006**
              
              **2005**Cash
                  used in operating activities
              
              $
              (5,982,791
              )
              $
              (1,928,788
              )Cash
                  used in investing activities
              
              $
              (31,277
              )
              $
              (60,837
              )Cash
                  (used in) provided by financing activities
              
              $
              (9,362
              )
              $
              2,822,836




*Cash
      Flow used in Operating Activities.*Net
      cash
      used in operating activities was $5,982,791 in the nine-month period ended
      September 30, 2006, compared to $1,928,788 in the corresponding period of the
      prior year. The increase in net cash used in operating activities was due to
      the
      following:




·
            increase
                in net loss due to investments in the development and marketing planning
                for the new Oasys Mobile portal launched in the first quarter of
                2006, and
                marketing
                  expenses related to several carrier and portal marketing campaigns,
                  including event-based marketing and partner marketing
                  arrangements;


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


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


·
            payment
                of approximately $220,000 made in September 2006 related to severance
                as
                provided in an agreement with the former Chief Executive Officer
                of the
                Company.




*Cash
      Flow used in Investing Activities.* Net
      cash
      used in investing activities was $31,277 and $60,837 in the nine-month periods
      ended September 30, 2006 and 2005, respectively, representing computer equipment
      purchases.


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Table
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*Cash
      Flow (used in) provided by Financing Activities.* Cash
      flow
      used in financing activities in the nine-month period ended September 30, 2006
      related to payments on capital lease obligations. Net cash provided by financing
      activities was $2,822,836 in the nine-month period ended September 30, 2005
      and
      consisted of the following:




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


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


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


·
            principal
                payments on note payable obligations of
                ($85,042).




**Contractual
      Obligations**




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




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




**Total**
            ****
            **Operating****Leases**
            ****
            **Notes****Payable**
            ****
            **Purchase****Obligations**
            ****
            **Capital****Leases**Three
                months ending December 31, 2006
            
            $
            185,663
            
            $
            61,384
            
            $
            77,500
            
            $
            42,000
            
            $
            4,779Year
                ending December 31, 2007
            
            
            8,191,834
            
            
            4,716
            
            
            8,000,000
            
            
            168,000
            
            
            19,118Year
                ending December 31, 2008
            
            
            23,711
            
            
            4,716
            
            
            —
            
            
            —
            
            
            18,995Year
                ending December 31, 2009
            
            
            3,323
            
            
            1,965
            
            
            —
            
            
            —
            
            
            1,358Total
                contractual obligations
            
            $
            8,404,531
            
            $
            72,781
            
            $
            8,077,500
            
            $
            210,000
            
            $
            44,250




**New
      Accounting Pronouncements**




In
      June
      2006, the Financial Accounting Standards Board (FASB) issued Interpretation
      (“FIN”) No. 48, *Accounting
      for Uncertainty in Income Taxes* .
      FIN
      No. 48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN No. 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN No. 48 is effective for the
      Company’s first fiscal year beginning after December 15, 2006. We are
      currently evaluating the provisions of FIN No. 48 to determine what effect
      its adoption on January 1, 2007 will have on our financial position, cash
      flows, and results of operations.




In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* .
      SAB No. 108 provides interpretive guidance on how the effects of prior-year
      uncorrected misstatements should be considered when quantifying misstatements
      in
      the current year financial statements. SAB No. 108 requires registrants to
      quantify misstatements using both an income statement (“rollover”) and balance
      sheet (“iron curtain”) approach and evaluate whether either approach results in
      a misstatement that, when all relevant quantitative and qualitative factors
      are
      considered, is material. If prior year errors that had been previously
      considered immaterial now are considered material based on either approach,
      no
      restatement is required so long as management properly applied its previous
      approach and all relevant facts and circumstances were considered. If prior
      years are not restated, the cumulative effect adjustment is recorded in opening
      accumulated deficit as of the beginning of the fiscal year of implementation.
      SAB No. 108 is effective for fiscal years ending on or after
      November 15, 2006, with earlier implementation encouraged. We do not
      believe that our implementation of SAB No. 108 will have an effect on our
      financial position, cash flows, or results of operations.




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Table
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In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      SFAS No. 157 defines fair value, establishes a framework for measuring fair
      value and expands disclosure of fair value measurements. SFAS No. 157
      applies under other accounting pronouncements that require or permit fair value
      measurements and accordingly, does not require any new fair value measurements.
      SFAS No. 157 is effective for financial statements issued for fiscal years
      beginning after November 15, 2007. We are currently evaluating the
      provisions of SFAS No. 157 to determine what effect its adoption on
      January 1, 2008 will have on our financial position, cash flows, and
      results of operations.




**Description
      of Critical Accounting Policies**




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




*Revenue
      Recognition and Related Costs*




Wireless
      applications and contracts




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




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.




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Table
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Wireless
      License Fees




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




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




Contracts
      and license fees




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




*Valuation
      of Equity Instruments*




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




**Item
      3.** ***Quantitative******and Qualitative Disclosures About Market Risk***




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




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Table
      of Contents




**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 Executive Vice-President of Corporate Development
      ("EVP") and Chief Financial Officer ("CFO"), of the effectiveness of our
      disclosure controls and procedures. Based on that evaluation, the EVP and CFO
      have concluded that the Company’s disclosure controls and procedures are
      effective to ensure that information required to be disclosed by the Company
      in
      reports that it files or submits under the Securities Exchange Act of 1934
      is
      recorded, processed, summarized and reported within the time periods specified
      in Securities and Exchange Commission rules and forms. Subsequent to the date
      of
      their evaluation, there were no significant changes in the Company’s internal
      controls or in other factors that could significantly affect the disclosure
      controls, including any corrective actions with regard to significant
      deficiencies and material weaknesses.




**PART
      II.**




**OTHER
      INFORMATION**




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




(a)
      Exhibits:




Exhibit
                31.1
            
            Rule
                13a-14(a)/15a-14(a) Certification of Donald T. Locke, Executive
                Vice-President of Corporate Development (principal executive
                officer)Exhibit
                31.2
            
            Rule
                13a-14(a)/15a-14(a) Certification of Tracy T. Jackson, Chief Financial
                Officer (principal financial and chief accounting
                officer)Exhibit
                32.1
            
            Section
                1350 Certification of Donald T. Locke, Executive Vice-President of
                Corporate Development (principal executive
                officer)Exhibit
                32.2
            
            Section
                1350 Certification of Tracy T. Jackson, Chief Financial
                Officer (principal financial and chief accounting
                officer)




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Table
      of Contents




**SIGNATURES** ****




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




OASYS
                  MOBILE, INC.Date:
                  November 17, 2006
              
              By:
              /s/       
                        DONALD T. LOCKEDonald
                  T. Locke
                *Executive
                  Vice-President of Corporate Development (principal executive
                  officer)*Date:
                  November 17, 2006
              
              By:
              /s/               
                  TRACY T. JACKSONTracy
                  T. Jackson
                *Chief
                  Financial Officer (principal financial and chief accounting
                  officer)*




38