**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 March 31,
                2006****OR** ̈
            **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 600Raleigh,
                North Carolina 27601(919)
                807-5600**(Address,
                including zip code, and telephone number (including area code)
                of****Registrant’s
                principal executive offices)**





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





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





Large
      Accelerated Filer  ̈ Accelerated
      Filer  ̈ Non-Accelerated
      Filer þ




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





The
      number of shares outstanding of the Registrant’s common stock, par value $.001
      per share, as of May 10, 2006 was 13,519,704.












**OASYS
      MOBILE, INC.**




**FORM
      10-Q**




**FOR
      THE QUARTERLY PERIOD ENDED MARCH 31, 2006**




**TABLE
      OF CONTENTS**




**Page
                  No.****PART
                  I**
              
              **FINANCIAL
                  INFORMATION**Item
                  1.
              
              Financial
                  Statements (Unaudited)BalanceSheets as of March 31, 2006and December 31, 2005
              
              **3**Statementsof
                  Operations for the Three-MonthPeriods Ended March 31, 2006 and 2005
              
              **4**Statementof
                  Stockholders’ Equity for theThree-Month Period Ended March 31, 2006
              
              **5**Statementsof
                  Cash Flows for the Three-MonthPeriods Ended March 31, 2006 and 2005
              
              **7**Notesto
                  Financial Statements
              
              **8**Item
                  2.
              
              Management's
                  Discussion and Analysisof
                  Financial Conditionand Results of Operations
              
              **19**Item
                  3.
              
              Quantitative
                  and Qualitative DisclosuresAbout
                  MarketRisk
              
              **31**Item
                  4.
              
              Controls
                  and Procedures
              
              **31****PART
                  II**
              
              **OTHER
                  INFORMATION**Item
                  1A.
              
              Risk
                  Factors
              
              **32**Item
                  4.
              
              Submissions
                  of Matters to a Vote of Securities Holders
              
              **32**Item
                5.
              
              Other
                  Information
              
              **33**Item
                  6.
              
              Exhibits
              
              **34**







2







**PART
                I.**
              **FINANCIAL
                INFORMATION****Item
                1.*****Financial
                Statements*****OASYS
                MOBILE, INC.**
              **BALANCE****SHEETS (UNAUDITED)**





**March
                  31,**
                **2006**
            
            **December
                  31,**
                **2005****Assets**Current
                assets:Cash
            
            $
            6,393,089
            
            $
            8,985,158Accounts
                receivable
            
            
            1,851,979
            
            
            1,072,615Prepaids
                and other current assets
            
            
            155,508
            
            
            36,172Total
                current assets
            
            
            8,400,576
            
            
            10,093,945Equipment,
                software and furniture, net
            
            
            132,658
            
            
            125,839Total
                assets
            
            $
            8,533,234
            
            $
            10,219,784**Liabilities
                and stockholders’ equity**Current
                liabilities:Accounts
                payable
            
            $
            2,333,020
            
            $
            2,319,754Accrued
                salaries and related costs
            
            
            202,001
            
            
            205,076Accrued
                interest
            
            
            276,417
            
            
            151,500Current
                portion of notes payable
            
            
            77,500
            
            
            77,500Total
                current liabilities
            
            
            2,888,938
            
            
            2,753,830Long-term
                liabilities:Convertible
                notes payable
            
            
            8,000,000
            
            
            8,000,000Discount
                on convertible notes payable
            
            
            (6,193,549
            )
            
            (7,415,960
            )Total
                liabilities
            
            
            4,695,389
            
            
            3,337,870Stockholders’
                equity:Series
                A convertible preferred stock, $0.001 par value;
              10,000
                shares designated, 2,407 shares
              issued
                and outstanding at March 31, 2006 and
              December
                31, 2005 (liquidation preference of
              $2,711,887
                as of March 31, 2006)
            
            
            2,407,295
            
            
            2,407,295Common
                stock, $.001 par value, 185,000,000 shares authorized;
              13,523,554
                issued and 13,519,704 outstanding at March
              31,
                2006 and December 31, 2005
            
            
            13,520
            
            
            13,520Additional
                paid-in capital
            
            
            65,600,097
            
            
            65,369,259Deferred
                compensation
            
            
            -
            
            
            (85,578
            )Accumulated
                deficit
            
            
            (63,955,448
            )
            
            (60,594,963
            )Treasury
                stock, at cost (3,850 shares)
            
            
            (227,619
            )
            
            (227,619
            )Total
                stockholders’ equity
            
            
            3,837,845
            
            
            6,881,914Total
                liabilities and stockholders’ equity
            
            $
            8,533,234
            
            $
            10,219,784






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







3






**OASYS
      MOBILE, INC.**




**STATEMENTS
      OF** **OPERATIONS****(UNAUDITED)**








**Three-Month
                Period****Ended****March
                31, 2006**
            
            
            **March
                31, 2005**Revenues:Wireless applications and contracts
            
            $
            2,096,515
            
            $
            1,986,347Wireless license fees
            
            
            20,650
            
            
            3,700Total revenues
            
            
            2,117,165
            
            
            1,990,047Cost
                of revenues:Wireless applications and contracts
            
            
            1,110,790
            
            
            956,187Total cost of revenues
            
            
            1,110,790
            
            
            956,187Gross
                profit
            
            
            1,006,375
            
            
            1,033,860Operating
                expenses:General
                and administrative
            
            
            817,272
            
            
            727,103Research and development
            
            
            817,878
            
            
            644,576Sales and marketing
            
            
            1,150,560
            
            
            283,299Non-cash compensation
            
            
            316,416
            
            
            11,068Non-cash consulting expense
            
            
            -
            
            
            5,202Non-cash settlements
            
            
            -
            
            
            58,750Total operating
                expenses
            
            
            3,102,126
            
            
            1,729,998Loss from
                operations
            
            
            (2,095,751
            )
            
            (696,138
            )Interest
                expense
            
            
            (42,323
            )
            
            (43,337
            )Amortization
                of discount on debt and beneficial
              conversion feature
            
            
            (1,222,411
            )
            
            (851,332
            )Net
                loss
            
            $
            (3,360,485
            )
            $
            (1,590,807
            )Net
                loss applicable to common stockholders:Net loss
            
            $
            (3,360,485
            )
            $
            (1,590,807
            )Preferred stock dividends
            
            
            (48,140
            )
            
            (48,140
            )Net
                loss applicable to common stockholders
            
            $
            (3,408,625
            )
            $
            (1,638,947
            )Per
                share amounts (basic and diluted)
            
            $
            (0.25
            )
            $
            (0.13
            )Weighted
                average shares of common stock outstanding
            
            
            13,519,704
            
            
            12,751,276




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







4







**OASYS
      MOBILE, INC.**




**STATEMENT
      OF STOCKHOLDERS'** **EQUITY****(UNAUDITED)**




**Preferred
                Stock**
            
            
            **Additional****Series
                A**
            **Common
                Stock**
            **Paid-In****Shares**
            **Amount**
            **Shares**
            **Amount**
            **Capital****Balance
                at December 31, 2005**
            2,407
            $  2,407,295
            13,519,704
            $ 
                13,520
            $
                65,369,259Reversal
                of deferred
              compensation
                to additional
              paid-in
                capital
            -
            -
            -
            -
            (85,578)Stock-based
                compensation
            -
            -
            -
            -
            316,416Net
                loss for the period
            -
            -
            -
            -
            -**Balance
                at March 31, 2006**
            2,407
            $  2,407,295
            13,519,704
            $  
                13,520
            $
                65,600,097




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





5





**OASYS
      MOBILE, INC.**




**STATEMENT
      OF STOCKHOLDERS' EQUITY (UNAUDITED)**






**Deferred****Compensation**
            
            **Accumulated****Deficit**
            
            **Treasury**
              **Stock**
            
            **Total**
              **Stockholders’**
              **Equity****Balance
                at December 31, 2005**
            
            $
            (85,578
            )
            $
            (60,594,963
            )
            $
            (227,619
            )
            $
            6,881,914Reversal
                of deferred
              compensation
                to additional
              paid-in
                capital
            
            
            85,578
            
            
            -
            
            
            -
            
            
            -Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            316,416Net
                loss for the period
            
            
            -
            
            
            (3,360,485
            )
            
            -
            
            
            (3,360,485
            )**Balance
                at March 31, 2006**
            
            $
            -
            
            $
            (63,955,448
            )
            $
            (227,619
            )
            $
            3,837,845








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







6







**OASYS
      MOBILE, INC.**




**STATEMENTS
      OF** **CASH
      FLOWS****(UNAUDITED)**




**Three-Month
                Period Ended****March
                31, 2006**
            
            **March
                31, 2005****Operating
                activities**Net
                loss
            
            $
            (3,360,485
            )
            $
            (1,590,807
            )Adjustments
                to reconcile net loss to net cash used in operatingactivities:Depreciation and amortization
            
            
            12,528
            
            
            11,550Stock-based compensation
            
            
            316,416
            
            
            11,068Common stock options and warrants issued for services
            
            
            —
            
            
            5,202Amortization of discount on debt and beneficial conversion
                feature
            
            
            1,222,411
            
            
            851,332Non-cash settlements
            
            
            —
            
            
            58,750Changes
                in operating assets and liabilities:Accounts receivable
            
            
            (779,364
            )
            
            (202,848
            )Prepaid and other assets
            
            
            (119,336
            )
            
            16,004Accounts payable and other accrued expenses
            
            
            138,183
            
            
            199,033Accrued salaries and related costs
            
            
            (3,075
            )
            
            (5,940
            )Net
                cash used in operating activities
            
            
            (2,572,722
            )
            
            (646,656
            )**Investing
                activities**Purchases
                of equipment, software and furniture
            
            
            (19,347
            )
            
            (10,199
            )Net
                cash used in investing activities
            
            
            (19,347
            )
            
            (10,199
            )**Financing
                activities**Proceeds
                from exercise of stock options and warrants
            
            
            —
            
            
            4,330,363Proceeds
                from issuance of convertible debt
            
            
            —
            
            
            215,000Payments
                of convertible debt
            
            
            —
            
            
            (1,640,000
            )Principal
                payments on notes payable and short-term borrowings
            
            
            —
            
            
            (36,641
            )Net
                cash provided by financing activities
            
            
            —
            
            
            2,868,722Net
                (decrease) increase in cash
            
            
            (2,592,069
            )
            
            2,211,867Cash
                at beginning of period
            
            
            8,985,158
            
            
            1,405,788Cash
                at end of period
            
            $
            6,393,089
            
            $
            3,617,655**Supplemental
                disclosures of cash flow information**Cash
                paid for interest
            
            $
            —
            
            $
            46,912




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







7







**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 America Online, Fujifilm, Mattel, The
      Associated Press, The Wall Street Journal, Phil Hellmuth, Howard Lederer, Golf
      Digest, Hooters, The Grateful Dead and others.





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





Oasys
      Mobile builds end-user applications for most major mobile platforms, including
      QUALCOMM’s Binary Runtime Environment for 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 Canada, Latin America,
      Australia, Israel, the U.K and China.





We
      have
      completed the development and deployment of more than thirty-three (33) wireless
      applications on a total of forty-eight (48) 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 ended March 31, 2006,
      the
      Company incurred a net loss of $3,360,485 and experienced negative cash flows
      from operations. The Company’s operations are dependent on its ability to
      generate sufficient cash flow to meet its obligations on a timely basis, to
      obtain additional financing, and ultimately to attain profitability. The Company
      is actively promoting and expanding its product line. Management expects to
      be
      able to attract additional capital, if necessary, to expand operations and
      also
      expects that increased revenues will reduce its operating losses in future
      periods. However, there can be no assurance that management’s plan will be
      executed as anticipated.







8





**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 March 31, 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.






9





**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
      three-month periods ended March 31, 2006 and 2005, as the license fee revenue
      related to technology that had been previously developed by the Company, and
      there were no costs for installation, delivery or customization, or other
      related costs.




Contracts
      and license fees




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




*Segments*




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




*Equipment,
      Software and Furniture*




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




*Software
      Development Costs*




Capitalization
      of software development costs begins with the establishment of technological
      feasibility of new or enhanced software products. Technological feasibility
      of a
      computer software product is established when the Company has completed all
      planning, designing, coding and testing that is necessary to establish that
      the
      software product can be produced to meet design specifications including
      functions, features and technical performance requirements. All costs incurred
      prior to establishing technological feasibility of a software product are
      charged to research and development expense as incurred. No capitalized software
      development costs were incurred during the three-month periods ended March
      31,
      2006 and 2005.





10





**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. For awards with performance or market conditions granted subsequent
      to
      our adoption of SFAS No. 123(R), we intend to recognize compensation cost
      based on the graded-vesting method.




The
      adoption of SFAS No. 123(R) had a material impact on our results of
      operations. Our statement of operations for the three months ended
      March 31, 2006 included stock-based compensation expense of $316,416.




Unrecognized
      stock-based compensation expense expected to be recognized over an estimated
      weighted-average amortization period of 1.23 years was approximately $2.1
      million at March 31, 2006. Unrecognized stock-based compensation expense
      expected to be recognized over the period ending December 31, 2006 was
      approximately $848,000 at March 31, 2006.






11





**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 ended March 31, 2006 are shown in the following table:




Expected
                volatility
            
            
            96.89
            %Expected
                dividends
            
            
            0
            %Expected
                terms
            
            
            5.77
                Years forEmployees
              and
                10Years
                for DirectorsRisk-free
                interest rate
            
            
            4.31
                - 4.69
            %





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
      months ended March 31, 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 March 31, 2006, and changes during the
      three months ended March 31, 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
            
            
            97,600
            
            
            2.09Forfeited
                or expired
            
            
            4,800
            
            
            3.22Outstanding
                at March 31, 2006
            
            
            1,929,015
            
            $
            6.32
            
            
            7.65
            
            $
            171,092Exercisable
                at March 31, 2006
            
            
            1,183,342
            
            $
            8.68
            
            
            6.69
            
            $
            77,172







12








**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 three months ended March 31, 2006 was equal to the market price
      of the underlying common stock on the grant date.




First
      Quarter Fiscal 2005




The
      following table illustrates the effect on net loss and net loss per share for
      the three months ended March 31, 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****March
                31, 2005****(Unaudited)**Net
                loss applicable to common stockholders
            
            $
            (1,638,947
            )Non-cash
                compensation charges included in net loss applicable
                tocommon
                stockholders
            
            
            11,068Stock-based
                employee compensation cost that would have beenincluded
                in net loss applicable to common stockholders under
                thefair
                value method
            
            
            (126,493
            )Adjusted
                net loss applicable to common stockholders
            
            $
            (1,754,372
            )Basic
                and diluted loss per share:Reported
                net loss applicable to common stockholders
            
            $
            (0.13
            )Non-cash
                compensation charges included in net loss applicable tocommon
                stockholders
            
            
            0.00Stock-based
                employee compensation cost that would have beenincluded
                in net loss applicable to common stockholders under thefair
                value method
            
            
            (0.01
            )Adjusted
                net loss applicable to common stockholders
            
            $
            (0.14
            )




For
      the
      purpose of the above table, the fair value of each option grant was estimated
      as
      of the date of grant by using the Black-Scholes option pricing model with the
      following weighted-average assumptions used for grants in the first quarter
      of
      fiscal 2005: dividend yield of 0%; volatility of 1.2936; risk-free interest
      rate
      ranging from 3.64% to 3.72%; 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 first quarter of fiscal 2005 was $4.80.






13





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




*Net
      Loss Per Share*




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




*New
      Accounting Pronouncements*




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




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





14




**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
      $1,222,411 for the three-month period ended March 31, 2006.





The
      principal balance of the Senior Secured Debentures is $8,000,000 as of March
      31,
      2006 and matures on June 30, 2007. The discount related to the Senior Secured
      Debentures is $6,193,549 as of March 31, 2006, and is shown as a
      contra-liability on the balance sheet.







15





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




*December
      2004 and January 2005 Convertible Notes Payable*




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





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





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





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





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





The
      discount on the debt of $904,681 related to the warrants was being amortized
      to
      interest expense over the term of the Senior Notes beginning on the date of
      issuance. Amortization of the discount of the Senior Notes was $851,332 in
      the
      three-month period ended March 31, 2005. The discount was fully amortized in
      2005.







16




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




As
      of
      March 31, 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
            
            
            19,044Outstanding
                common stock warrants
            
            
            7,804,214Outstanding
                stock options
            
            
            1,929,015Possible
                future issuance under stock option plans
            
            
            907,679Total
            
            
            14,659,952




**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 March 31, 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 March 31, 2006 were $304,887.




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.





17




**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.





18




**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, wirelesssoftware developers, semiconductor and device designers, mobile and
                wireless device manufacturers and contentproviders;


·
            timely
                deployment by wireless service providers, semiconductor and device
                designers, and wireless devicemanufacturers
                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 ornoncompetitive;


·
            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.





19




**Overview**




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




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





·
            OasysMobile.com
                - Our Mobile Lifestyle Portal.


·
            Branded
                Mobile Applications.


·
            White
                Label Services.




*OasysMobile.com*





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





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





*Branded
      Mobile Applications*





Oasys
      Mobile is a leading provider of premium mobile media content, products and
      services that are distributed through top-tier wireless carriers in the United
      States and abroad, as well as through our OasysMobile.com portal. We develop,
      publish and distribute more than 33 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 Canada, Latin America, Australia, Israel, the
      United Kingdom, Ireland, Italy and China.





In
      2005,
      Oasys Mobile announced nine new products, thirteen new carriers or distribution
      partners and six new content partnerships. Oasys Mobile's partner and product
      portfolio includes such household names as Fujifilm, AOL, Mattel, Churchill
      Downs, Golf Digest, Phil Hellmuth, The Wall Street Journal, Howard Lederer
      and
      The Associated Press. Mobile media applications based on these brands, and
      other
      popular consumer applications, are deployed across 48 major wireless carriers
      and distribution partners in the United States and abroad.








20




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





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




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.




21





**Results
      of Operations**




**Three-Month
      Period Ended March 31, 2006 Compared to Three-Month Period Ended March 31,
      2005**




*Revenues*




**Three
                Months Ended March 31****%
                of Total**
            
            
            
            **%
                of Total****2006**
            
            **Revenues**
            
            **2005**
            
            **Revenues**
            
            **$
                Change**
            
            **%
                Change**Revenues
                by category:Wireless
                applicationsand contracts
            
            $
            2,096,515
            
            
            99.0
            %
            $
            1,986,347
            
            
            99.8
            %
            $
            110,168
            
            
            5.5
            %Wireless
                license fees
            
            
            20,650
            
            
            1.0
            
            
            3,700
            
            
            0.2
            
            
            16,950
            
            
            458.1
            %Total
                revenues
            
            $
            2,117,165
            
            
            100.0
            %
            $
            1,990,047
            
            
            100.0
            %
            $
            127,118
            
            
            6.4
            %




*Wireless
      Applications and Contracts.* Revenue
      from wireless applications and contracts increased $110,168 to $2,096,515 in
      the
      three-month period ended March 31, 2006, up 5.5% from $1,986,347 in the
      three-month period ended March 31, 2005. The increase in revenue from wireless
      applications and contracts resulted from the increase in sales of existing
      wireless applications and additional wireless applications developed by Oasys
      Mobile, launched by several wireless carriers and purchased by end-users. We
      continue to increase our subscriber base as well as expanding to new carriers.
      The Company recently released several products, including Mattel’s UNO®
Challenge and Mobile Graffiti, which both have shown strong growth. Excluding
      non-recurring revenues, our revenues from wireless subscriptions and downloads
      in the three-month period ended March 31, 2006 increased 16% over the
      three-month period ended March 31, 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 $20,650 and $3,700 in the three-month
      periods ended March 31, 2006 and 2005, respectively.







22





*Costs
      of Revenues*




**Three
                    Months Ended March 31****2006**
                
                **2005**
                
                **$
                    Change**
                
                **%
                    Change**Cost
                      of revenues by category:Wireless applications and contracts
                
                $
                1,110,790
                
                $
                956,187
                
                $
                154,603
                
                
                16.2
                %Total
                      cost of revenues
                
                $
                1,110,790
                
                $
                956,187
                
                $
                154,603
                
                
                16.2
                %




*Wireless
      Applications and Contracts.* Costs
      of
      wireless applications and contracts increased $154,603 to $1,110,790 in the
      three-month period ended March 31, 2006, up 16.2% from $956,187 in the
      three-month period ended March 31, 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
      March 31, 2006. Certain content partner arrangements have minimum payment
      requirements regardless of revenues. 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. **




*Gross
      Profit*




**Three
                  Months Ended March 31****2006**
              
              **2005**
              
              **$
                  Change**
              
              **%
                  Change**Gross
                  profit by category:Wireless applications and contracts
              
              $
              985,725
              
              $
              1,030,160
              
              $
              (44,435
              )
              
              (4.3
              )%Wireless license fees
              
              
              20,650
              
              
              3,700
              
              
              16,950
              
              
              458.1
              %Total
                  gross profit
              
              $
              1,006,375
              
              $
              1,033,860
              
              $
              (27,485
              )
              
              (2.7
              )%




*Wireless
      Applications and Contracts.* Gross
      profit resulting from the development and deployment of wireless applications
      decreased $44,435 to $985,725 for the three-month period ended March 31, 2006,
      a
      decrease of 4.3% over the gross profit for the three-month period ended March
      31, 2005 of $1,030,160. The decrease in gross profit resulting from these
      activities is due primarily to certain new content partner arrangements with
      fixed royalty payments. The costs for these revenues include costs that are
      primarily fixed in nature, consisting mostly of third-party hosting fees and
      content information provided by certain of our content providers, and costs
      that
      are primarily variable in nature, consisting mostly of third-party content
      information.




*Wireless
      License Fees.* Gross
      profit resulting from wireless license fees totaled $20,650 and $3,700 for
      the
      three-month periods ended March 31, 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.





23




*General
      and Administrative Expenses*




**Three
                Months Ended March 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**General
                and administrative
            
            $
            817,272
            
            $
            727,103
            
            $
            90,169
            
            
            12.4
            %




General
      and administrative expenses consist primarily of salaries, consulting fees,
      office operations, administrative and general management activities, including
      legal, accounting, investor relations and other professional fees. General
      and
      administrative expenses for the three-month period ended March 31, 2006 were
      $817,272, compared to $727,103 for three-month period ended March 31, 2005.
      The
      increase in general and administrative expenses during the current period as
      compared to the prior period reflect an increase in several expense categories,
      namely salaries, third-party consulting fees, investor relations, travel and
      general office administration costs.




Res *earch
      and Development Expenses*




**Three
                Months Ended March 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Research
                and development
            
            $
            817,878
            
            $
            644,576
            
            $
            173,302
            
            
            26.9
            %




Research
      and development expenses for the three-month period ended March 31, 2006 were
      $817,878 compared to $644,576 for the three-month period ended March 31, 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 and specific investments in certain technologies in the three-month
      period ended March 31, 2006. We currently have several new products in
      development. In addition, the new 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 March 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Sales
                and marketing
            
            $
            1,150,560
            
            $
            283,299
            
            $
            867,261
            
            
            306.1
            %




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 March 31, 2006 were
      $1,150,560 compared to $283,299 for the three-month period ended March 31,
      2005.
      The increase in sales and marketing expenses during the current period as
      compared to the prior period was primarily due to the launch of the new Oasys
      Mobile portal and developing a marketing plan for the portal. The increase
      in
      sales and marketing expenses reflects our focus to deploy and market new
      products in order to continue increasing revenues.







24





*Non-Cash
      Compensation Expenses*




**Three
                Months Ended March 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                compensation
            
            $
            316,416
            
            $
            11,068
            
            $
            305,348
            
            
            2,758.8
            %




Non-cash
      compensation for the three-month period ended March 31, 2006 was $316,416
      compared to $11,068 for the three-month period ended March 31, 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 March 31, 2006 reflects the fair value of
      employee stock options earned during the period. Non-cash compensation for
      the
      three-month period ended March 31, 2005 reflects the amortization for three
      months of deferred compensation resulting from stock options granted in prior
      years, at prices below the fair value of the underlying common stock.




*Non-Cash
      Consulting Expenses*




**Three
                Months Ended March 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                consulting expense
            
            $
            -
            
            $
            5,202
            
            $
            (5,202
            )
            
            (100.0
            )%




Non-cash
      consulting expense for the three-month period ended March 31, 2005, in the
      amount of $5,202 is attributable to 1,118 stock warrants granted to consultants
      for services, valued using the Black-Scholes option-pricing model.




There
      was
      no non-cash consulting expense for the three-month period ended March 31,
      2006.




*Non-cash
      Settlements*




**Three
                Months Ended March 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                settlements
            
            $
            -
            
            $
            58,750
            
            $
            (58,750
            )
            
            (100.0
            )%




Non-cash
      settlements totaling $58,750 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 Summus’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 Summus’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 legal settlements during the three-month period
      ended March 31, 2006.







25





*Interest
      Expense, net*




**Three
                Months Ended March 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Interest,
                net
            
            $
            42,323
            
            $
            43,337
            
            $
            (1,014
            )
            
            (2.3
            )%




Interest
      expense, net, for the three-month period ended March 31 2006, was $42,323
      compared to interest expense of $43,337 for three-month period ended March
      31,
      2005. Interest expense for each of the three-month periods related to interest
      costs associated with convertible notes and other note payable agreements.
      The
      interest expense for the three-month period ended March 31, 2006 is net of
      interest income earned on cash.




*Amortization
      of discount on debt and beneficial conversion feature*




**Three
                Months Ended March 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Amortization
                of discount on debt andbeneficial
                conversion feature
            
            $
            1,222,411
            
            $
            851,332
            
            $
            371,079
            
            
            43.6
            %




Amortization
      of discount on debt and beneficial conversion feature for the three-month period
      ended March 31, 2006 was $1,222,411. 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 three-month period
      ended March 31, 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 three-month period ended March 31, 2005.




*Net
      Loss*




**Three
                Months Ended March 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Net
                loss
            
            $
            3,360,485
            
            $
            1,590,807
            
            $
            1,769,678
            
            
            111.2
            %




As
      a
      result of the factors discussed above, the net losses for the three-month
      periods ended March 31, 2006 and 2005 were $3,360,485 and $1,590,807,
      respectively.




26




**Liquidity
      and Capital Resources**




As
      of
      March 31, 2006 we had $6,393,089 of cash on hand, working capital of $5,511,638,
      and approximately $2.89 million in current liabilities.




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.




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 Oasys Mobile’s common stock and a warrant
      to purchase 4/10 of a share of Oasys Mobile’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 Oasys Mobile’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
      five years from the date of issuance for an additional 1,355,392 shares of
      Oasys
      Mobile’s common stock and have an exercise price of $3.54 per share. The C-2
      Warrants have substantially the same terms and conditions as the C-1 Warrants.




*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 and beyond. 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 those applications to lay the foundation of future
                substantial revenue generation; and


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







27




*Cash
      Flow Information*




**Three
                Months Ended****March 31****2006**
            
            
            **2005**Cash
                used in operating activities
            
            $
            (2,572,722
            )
            $
            (646,656
            )Cash
                used in investing activities
            
            $
            (19,347
            )
            $
            (10,199
            )Cash
                provided by financing activities
            
            $
            -
            
            $
            2,868,722




*Cash
      Flow used in Operating Activities.*Net
      cash
      used in operating activities was $2,572,722 in the three-month period ended
      March 31, 2006, compared to $646,656 in the corresponding period of the prior
      year. The increase in net cash used in operating activities was due to the
      following: We incurred significant marketing expenses in the first quarter
      of
      2006 related to the launch of the Oasys Mobile portal.  In addition, we
      ended our participation in the Qualcomm Quick Pay Program and therefore will
      be
      on the regular payment cycle with Qualcomm. Therefore, there was a two-month
      lag
      on payments from Qualcomm. Also, we made investments in the development and
      marketing planning for the new Oasys Mobile portal launched in the first quarter
      of 2006. There were increases in payments to these service providers in the
      first quarter in preparation for the launch of the portal.




*Cash
      Flow used in Investing Activities.* Net
      cash
      used in investing activities was $19,347 and $10,199 in the three-month periods
      ended March 31, 2006 and 2005, respectively, representing computer equipment
      purchases.




*Cash
      Flow provided by Financing Activities.* There
      was
      no cash flow from financing activities in the three-month period ended March
      31,
      2006. Net cash provided by financing activities was $2,868,722 in the
      three-month period ended March 31, 2005 and consisted of the
      following:




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


·
            proceeds
                from the exercise of 1,263,246 stock warrants and 58,560 stock options
                of
                $4,330,363.


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


·
            principal
                payments on note payable obligations of
                ($36,641).




**Contractual
      Obligations**




At
      March
      31, 2006, we did not have any material commitments for capital expenses. Our
      principal commitments consisted of obligations under operating leases, notes
      payable and content partner arrangements.




The
      following table summarizes our contractual obligations at March 31, 2006 and
      the
      effect these obligations are expected to have on our liquidity and cash flows
      in
      future periods.




**Operating**
            
            **Notes**
            
            **Purchase****Total**
            
            **Leases**
            
            **Payable**
            
            **Obligations**Nine
                months ending December 31, 2006
            
            $
            347,513
            
            $
            144,013
            
            $
            77,500
            
            $
            126,000Year
                ending December 31, 2007
            
            
            8,172,716
            
            
            4,716
            
            
            8,000,000
            
            
            168,000Year
                ending December 31, 2008
            
            
            4,716
            
            
            4,716
            
            
            -
            
            
            -Year
                ending December 31, 2009
            
            
            1,965
            
            
            1,965
            
            
            -
            
            
            -Total
                contractual obligations
            
            $
            8,526,910
            
            $
            155,410
            
            $
            8,077,500
            
            $
            294,000





28





**New
      Accounting Pronouncements**




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




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





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




During
      the quarter ended March 31, 2006, we recognized stock-based compensation
      expense related to employee stock options of approximately $304,000. As of
      March 31, 2006, we had unrecognized stock-based compensation of $2.1
      million related to non-vested employee stock options awards, which is expected
      to be recognized over an estimated weighted average period of 1.23
      years.





In
      May
      2005, the FASB issued SFAS No. 154, “ *Accounting
      Changes and Error Corrections”* (“SFAS
      No. 154”), a replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154
      requires retrospective application to prior periods’ financial statements of a
      voluntary change in accounting principles unless it is impracticable. APB
      Opinion No. 20, “ *Accounting
      Changes”* ,
      previously required that most voluntary





29





**Description
      of Critical Accounting Policies**




changes
      in accounting principle be recognized by including in net income of the period
      of the change the cumulative effect of changing to the new accounting principle.
      This statement was effective beginning on January 1, 2006. The adoption of
      SFAS
      No. 154 did not have a material impact on our financial statements.




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.




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
      three months ended March 31, 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.





30




Contracts
      and license fees




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




*Valuation
      of Equity Instruments*




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




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




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




**Item
      4.** ***Controls******and Procedures***




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





31




**PART
      II.**




**OTHER
      INFORMATION**




**Item
      1A.** ***Risk
      Factors***




The
      following Risk Factor is being added to those set forth in “Item 1A. Risk
      Factors” as set forth in our Annual Report on Form 10-K for the fiscal year
      ended December 31, 2005:




**Inaccuracies
      in reporting of our revenue by wireless carriers for the billing and revenue
      collection of our applications distributed on the carrier decks could result
      in
      under-reporting of our revenues.**




Wireless carriers generally control the billing and revenue collection for
      our
      applications distributed on their distribution decks, either directly or through
      third party service providers.  If our wireless carriers or their third
      party service providers make material inaccuracies in providing billing and
      collection services to us, our revenues may be under-reported by us in our
      financial statements.  If such instances were to occur, it may result in
      adjustments to our financial statements.




**Item
      4.** ***Submissions
      of Matters to a Vote of Securities Holders*** **.** ******




On January 30, 2006, Oasys Mobile held its 2006 Special Meeting of Stockholders.
      The following items were presented to a vote of the holders (the “Stockholders”)
      of our issued and outstanding Common Stock.




(1)
            The
                election of Gary E. Ban, Stephen M. Finn, J. Winder Hughes, Scott
                W.
                Hamilton, Richard B. Ruben, Bernard Stolar, and James A. Taylor to
                the
                Oasys Mobile Board of Directors, whose terms expire at our next annual
                meeting of stockholders.(2)
            Amendment
                to the Oasys Mobile Certificate of Incorporation to change our name
                from
                Summus, Inc. to Oasys Mobile,
                Inc.







32





The
      number of votes cast for each of the above is summarized in the table below.
      All
      numbers in the table below represent shares of Common Stock.




Item
                  Submitted to Stockholders
              
              
              For
              
              Against
              
              Abstain
              
              Broker
                  Non-
                Votes(1)
                  Election of DirectorsElection
                  of Gary E. Ban
              
              
              11,455,329
              
              
              135,605
              
              
              56,239
              
              
              0Election
                  of Stephen M. Finn
              
              
              11,589,259
              
              
              1,675
              
              
              56,239
              
              
              0Election
                  of J. Winder Hughes
              
              
              11,589,259
              
              
              1,675
              
              
              56,239
              
              
              0Election
                  of Scott W. Hamilton
              
              
              11,588,999
              
              
              1,935
              
              
              56,239
              
              
              0Election
                  of Richard B. Ruben
              
              
              11,588,779
              
              
              2,155
              
              
              56,239
              
              
              0Election
                  of Bernard Stolar
              
              
              11,588,979
              
              
              1,955
              
              
              56,239
              
              
              0Election
                  of James A. Taylor
              
              
              11,588,999
              
              
              1,935
              
              
              56,239
              
              
              0(2)
                  Amendment of Certificate of Incorporation to change the name of
                  the
                  company to Oasys Mobile, Inc.
              
              
              11,386,030
              
              
              131,143
              
              
              130,000
              
              
              N/A




**Item
      5.** ***Other
      Information.***




On
        May 8,
        2006, Jonathan Ressler was appointed as our Chief Marketing Officer, and
        on May
        9, 2006, Oasys Mobile entered into an employment agreement with him. All
        defined
        terms used in this description of Mr. Ressler’s employment agreement shall have
        the meanings as set forth in such agreement, which is filed as an Exhibit
        10.1
        to this Quarterly Report on Form 10-Q. In Mr. Ressler’s employment agreement
        Oasys Mobile agreed to pay him an annual salary of $195,000 and grant him
        options (the “Option Grant”) to purchase 200,000 shares of Oasys Mobile common
        stock at an exercise price of $1.40 per share. This Option Grant vests at
        a rate
        of 5,556 options per month over the period June 8, 2006 to May 8, 2009.
 
 Mr.
        Ressler is also eligible to receive up to 100% of his annual salary as a
        Bonus
        based on specified company and individual performance goals as set by him
        and
        the Chief Executive Officer and approved by the Board of Directors on an
        annual
        basis. These goals for the 2006 fiscal year shall be set by June 9, 2006.
 
 If
        Mr.
        Ressler is terminated by the Company with out Cause, he shall
        receive:
 
 ·
            a
                cash lump sum payment equivalent to one (1) month of Executive’s then
                current base salary for every three (3) months Executive has served
                under
                this Agreement, up to a maximum of one (1) year of Executive’s then
                current Base Salary; and 
 ·
            a
                cash lump sum payment of the pro rata Bonus applicable to the calendar
                year in which such termination occurs; this cash lump sum payment
                shall be
                payable within ten (10) days after the determination that the annual
                objectives, as set by the Board of Directors pursuant to Section
                5.2 of
                this Agreement, have been met. 
 Upon
        a
        Termination Upon a Change of Control, Mr. Ressler would receive:
 
 ·
            a
                cash lump sum payment of the pro rata Bonus applicable to the calendar
                year in which such termination occurs; this cash lump sum payment
                shall be
                payable within ten (10) days after the determination that the annual
                objectives, as set by the Board of Directors pursuant to Section
                5.2 of
                the Agreement, have been met; 
 ·
            a
                cash lump sum payment equivalent to six (6) months of Executive’s then
                current Base Salary; 
 ·
            acceleration
                of the vesting of one hundred percent (100%) of the unvested portion
                of
                Executive’s stock options or other stock-based awards, together with the
                right to exercise such stock options or awards for a period equal
                to the
                remaining term for exercising such options or awards under the applicable
                agreement and/or plan; and 
 ·
            continuation
                of the insurance provided by the Company for a period equivalent
                to six
                months.





33




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




(a)
      Exhibits:




Exhibit
                10.1
            
            Employment
                Agreement dated as of May 9, 2006, by and between Oasys Mobile, Inc.
                and
                Jonathan Ressler, as Chief Marketing OfficerExhibit
                31.1
            
            Rule
                13a-14(a)/15a-14(a) Certification of Gary E. Ban, Chief Executive
                OfficerExhibit
                31.2
            
            Rule
                13a-14(a)/15a-14(a) Certification of Tracy T. Jackson, Chief Financial
                OfficerExhibit
                32.1
            
            Section
                1350 Certification of Gary E. Ban, Chief Executive
                OfficerExhibit
                32.2
            
            Section
                1350 Certification of Tracy T. Jackson, Chief Financial
                Officer






**SIGNATURES******




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




OASYS
              MOBILE,
              INC.Date: May
              15,
              2006
            By:
            /s/ GARY
              E.
              BANGary
              E. Ban*Chief
              Executive Officer*




Date: May
              15,
              2006
            By:
            /s/ TRACY
              T.
              JACKSONTracy
              T. Jackson*Chief
              Financial Officer*




34