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**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

_______________

**FORM 10-Q**

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

**For the quarterly period ended September 30, 2004**

or

 ̈**   Transition Report Pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934**

_______________

**Commission File Number: 0-29625**

_______________

**Summus, Inc. (USA)*********(Exact Name of Registrant as Specified in its Charter)***

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

_______________

**434 Fayetteville Street, Suite 600Raleigh, North Carolina 27601(919) 807-5600*****(Address, Including Zip Code, and Telephone Number, Including Area Codeof Registrant's Principal Executive Offices)***

_______________

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act).  Yes ̈ Noþ    

As of November 10, 2004 , the registrant had 104,147,494 shares of its Common Stock, parvalue $.001 per share, issued and outstanding.

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Table ofContents

**SUMMUS, INC. (USA)**

**FORM 10-Q**

**FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004**

  **TABLE OFCONTENTS** 

|          |   |                                                                                                  |   | Page No. |
|---------------|--------|-------------------------------------------------------------------------------------------------------|--------|----------|
| PART I   |   | CONSOLIDATED FINANCIAL INFORMATION                                                               |   |     |
|          |
| Item 1.  |   |  Consolidated Financial Statements (Unaudited)                                                   |   |     |
|          |
|          |   |      Consolidated BalanceSheets as of September 30, 2004                     |   |     |
|          |   |          (Unaudited) and December 31,2003                     |   | 3   |
|          |
|          |   |      Consolidated Statementsof Operations for the Three-Month                |   |     |
|          |   |          Period Ended September  30, 2004 and 2003(Unaudited) |   | 4   |
|          |   |                                                                                                       |   |     |
|          |   |     Consolidated Statements of Operations for theNine-Month                       |   |     |
|          |   |         Period Ended September 30, 2004 and 2003(Unaudited)        |   | 5   |
|          |   |                                                                                                       |   |     |
|          |   |      Consolidated Statement ofShareholders' (Deficit) Equity for the              |   |     |
|          |   |          Nine-Month Period Ended September 30, 2004(Unaudited)     |   | 6   |
|          |
|          |   |      Consolidated Statementsof Cash Flows for the Nine-Month                 |   |     |
|          |   |          Period Ended September 30, 2004 and 2003(Unaudited)       |   | 9   |
|          |
|          |   |      Notes toConsolidated Financial Statements (Unaudited)                        |   | 10  |
|          |
| Item 2.  |   | Management's Discussion andAnalysis of Financial Condition                                       |   |     |
|          |   |      and Results of Operations                                                    |   | 22  |
|          |
| Item 3.  |   | Quantitative and QualitativeDisclosures About Market                                                  |   |     |
|          |   |      Risk                                                                         |   | 37  |
|          |
| Item 4.  |   | Controls andProcedures                                                                                |   | 37  |
|          |
| PART II  |   | OTHER INFORMATION                                                                                     |   |     |
|          |
| Item 1.       |        | LegalProceedings                                                                                      |        | 38  |
|          |
| Item 2.       |        | Unregistered Sales of Equity Securities and Use of Proceeds                                           |        | 38  |
|          |        |                                                                                                       |        |          |
| Item 5.  |   | Other Information                                                                                     |   | 39  |
|          |
| Item 6.  |   | Exhibits                                                                                              |   | 39  |

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Table of Contents

**PART I.****FINANCIAL INFORMATION**

**Item 1. *Financial Statements***

**SUMMUS, INC. (USA)****CONSOLIDATED BALANCE SHEETS**

|                                                                             |   | **September 30, 2004**      | **          ** | **December 31, 2003** |
|----------------------------------------------------------------------------------|--------|-----------------------------|------------------------------------------------------------------|-----------------------|
|                                                                             |   | **(Unaudited)**             |                                                             |                  |
| **Assets**                                                                  |   |                        |                                                             |                  |
| Current assets:                                                             |   |                        |                                                             |                  |
|    Cash                                                           |   | $   191,553  |                                                             | $ 2,188,645      |
|    Accounts receivable                                            |   | 1,317,809              |                                                             | 480,494          |
|    Prepaids and other current assets                              |   | 76,983                 |                                                             | 15,800           |
| Total current assets                                                        |   | 1,586,345              |                                                             | 2,684,939        |
| Equipment, software and furniture, net                                      |   | 118,006                |                                                             | 195,999          |
| Total assets                                                                |   | $ 1,704,351            |                                                             | $ 2,880,938      |
|                                                                             |
| **Liabilities and shareholders’ (deficit)** **equity**                |   |                        |                                                             |                  |
| Current liabilities:                                                        |   |                        |                                                             |                  |
|    Accounts payable                                               |   | $ 1,461,660            |                                                             | $ 1,350,940      |
|    Accrued salaries and related costs                             |   | 207,054                |                                                             | 439,595          |
|    Accrued interest                                               |   | 89,967                 |                                                             | 82,812           |
|    Current portion of notes payable                               |   | 302,939                |                                                             | 270,195          |
|    Capital lease obligations, current portion                     |   | -                      |                                                             | 17,296           |
|    Preferred stock dividends payable                              |   | 13,855                 |                                                             | 218,143          |
|    Deferred revenue                                               |   | 11,000                 |                                                             | -                |
| Total current liabilities                                                   |   | 2,086,475              |                                                             | 2,378,981        |
| Notes payable, less current portion                                         |   | 95,008                 |                                                             | 215,932          |
| Convertible notes payable, net of discount of $345,790                      |   | 54,210                 |                                                             | -                |
| Total liabilities                                                                |        | 2,235,693              |                                                                  | 2,594,913        |
|                                                                             |        |                             |                                                                  |                       |
| Shareholders’ (deficit) equity :                                      |   |                             |                                                             |                  |
| Series A convertible preferred stock, $0.001 par value;                     |   |                             |                                                             |                  |
|    10,000 shares designated, 2,407 and 2,078 shares issued and    |   |                             |                                                             |                  |
|    outstanding at September 30, 2004 and December 31,             |   |                             |                                                             |                  |
|    2003, respectively (liquidation preference of $2,421,150 asof  |   |                             |                                                             |                  |
|    September 30, 2004)                                            |   | 2,407,295              |                                                             | 2,078,312        |
| Series C convertible preferred stock, $0.001 par value;                     |   |                             |                                                             |                  |
|    3,000 shares designated, zero and 1,310 shares issued and      |   |                             |                                                             |                  |
|    outstanding at September 30, 2004 and December 31, 2003        |   |                             |                                                             |                  |
|    respectively                                                        |   | -                      |                                                             | 365,566          |
| Series D convertible preferred stock, $0.001 par value;                     |   |                             |                                                             |                  |
|    4,000 shares designated, 2,275 and 2,900 shares issued         |   |                             |                                                             |                  |
|    and outstanding at September 30, 2004 and December 31, 2003,   |   |                             |                                                             |                  |
|    respectively (liquidation preference of $2,275,000 as of       |   |                             |                                                             |                  |
|    September 30, 2004)                                            |   | 1,581,206              |                                                             | 2,015,604        |
|                                                                             |   |                        |                                                             |                  |
| Series E convertible preferred stock, $0.001 par value;                     |   |                             |                                                             |                  |
|    200 shares designated, zero and 170 shares issued and          |   |                             |                                                             |                  |
|    outstanding at September 30, 2004 and December 31, 2003,       |   |                             |                                                             |                  |
|    respectively                                                   |   | -                      |                                                             | 119,460          |
| Common stock, $0.001 par value, 185,000,000 shares                          |   |                             |                                                             |                  |
|    authorized; 102,859,753 and 69,408,639 shares issued           |   |                             |                                                             |                  |
|    and 102,821,253 and 69,370,139 shares outstanding at           |   |                             |                                                             |                  |
|    September 30, 2004 and December 31, 2003, respectively         |   | 102,821                |                                                             | 69,370           |
| Additional paid-in capital                                                  |   | 49,339,928             |                                                             | 46,315,321       |
| Deferred compensation                                                       |   | (13,750)                    |                                                             | (53,427)              |
| Accumulated deficit                                                              |   | (53,721,223)                |                                                             | (50,396,562)          |
| Treasury stock, at cost (38,500 shares)                                          |   | (227,619)                   |                                                             | (227,619)             |
| Total shareholders’ (deficit) equity                                       |   | (531,342)                   |                                                             | 286,025          |
| Total liabilities and shareholders’ (deficit) equity                       |   | $ 1,704,351            |                                                             | $ 2,880,938      |

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

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**SUMMUS, INC. (USA)**

**CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)**

|                                                                            |  **Three-Month Period****Ended** |
|---------------------------------------------------------------------------------|---------------------------------------|
|                                                                            |                                  | **September 30,2004** |   |         | **September 30, 2003** |
| Revenues:                                                                  |                                  |   |   |   |   |   |
|     Wireless applications and contracts                          |  $                               | 1,466,448  |   |   | $  |  331,433  |
|    Contracts and license fees                                    |                                  | 30,000  |   |   |   |  –  |
|    Wireless license fees                                         |                                  | 4,250  |   |   |   | 1,000  |
|              Total revenues             |                                  | 1,500,698  |   |   |   | 332,433  |
| Cost of revenues:                                                          |                                  |   |   |   |   |   |
|    Wireless applications and contracts                           |                                  | 723,988  |   |   |   |  258,675  |
|    Contracts and license fees                                    |                                  |  4,038  |   |   |   |  –  |
|    Wireless license fees                                         |                                  |  –  |   |   |   |  –  |
|              Total cost of revenues     |                                  | 728,026  |   |   |   |  258,675  |
| Gross profit                                                               |                                  | 772,672  |   |   |   | 73,758  |
| Operating expenses:                                                             |                                  |   |   |   |   |   |
|    Selling, general and administrative expenses             |                                  | 749,930  |   |   |   |  1,232,317  |
|    Non-cash compensation                                    |                                  | 2,475  |   |   |   |    44,148  |
|    Research and development                                 |                                  | 436,830  |   |   |   |  280,236  |
|    Non-cash consulting expense                              |                                  | 41,415  |   |   |   | 5,454  |
|    Non-cash settlements                                     |                                  | (126,373) |   |   |   | (69,741) |
| Total operating expenses                                                        |                                       | 1,104,277 |  |  |  | 1,492,414  |
| Loss from operations                                                            |                                       | (331,605) |  |  |  | (1,418,656) |
| Interest expense                                                           |                                  | 13,830  |   |   |   | 27,334  |
| Amortization of discount on debt and beneficial conversion feature              |                                       | 611,653 |  |  |  |                                     –  |
| Net loss                                                                   |  $                               |  (957,088) |   |   | $  | (1,445,990) |
|                                                                            |
| Net loss applicable to common shareholders:                                |                                  |   |   |   |   |   |
|    Net loss                                                      |  $                               |  (957,088) |   |   | $  |  (1,445,990) |
|    Accretion of beneficial conversion feature on preferredstock  |                                  |   –  |   |   |   | (579,324) |
|    Preferred stock dividends                                     |                                  |  (41,565) |   |   |   |  (47,952) |
| Net loss applicable to common shareholders                                 |  $                               |  (998,653) |   |   | $  |   (2,073,266) |
| Per share amounts (basic and diluted)                                      |  $                               |  (0.01) |   |   | $  |   (0.03) |
| Weighted average shares of common stock outstanding                        |                                  | 93,053,692  |   |   |   |  62,681,297  |

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

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**SUMMUS, INC. (USA)**

**CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

|                                                                            |  **Nine-Month Period****Ended** |
|---------------------------------------------------------------------------------|--------------------------------------|
|                                                                            | **September 30, 2004**               |         | **September 30, 2003** |
| Revenues:                                                                  |                                 |   |   |   |   |   |
|     Wireless applications and contracts                          |                                 | $ | 3,448,658  |   | $  |  893,857  |
|    Contracts and license fees                                    |                                 |   | 43,889  |   |   |  –  |
|    Wireless license fees                                         |                                 |   | 5,000  |   |   | 248,201  |
|              Total revenues             |                                 |   | 3,497,547  |   |   | 1,142,058  |
| Cost of revenues:                                                          |                                 |   |  |   |   |   |
|    Wireless applications and contracts                           |                                 |   | 1,747,756  |   |   |  701,688  |
|    Contracts and license fees                                    |                                 |   | 7,237  |   |   |  –  |
|    Wireless license fees                                         |                                 |   |  –  |   |   |  –  |
|              Total cost of revenues     |                                 |   | 1,754,993  |   |   |  701,688  |
| Gross profit                                                               |                                 |   | 1,742,554  |   |   | 440,370  |
| Operating expenses:                                                             |                                      |  |  |  |  |  |
|     Selling, general and administrative expenses            |                                 |   | 2,536,462  |   |   |  3,712,981  |
|     Non-cash compensation                                   |                                 |   | 56,177  |   |   |  132,442  |
|     Research and development                                |                                 |   | 1,410,149  |   |   |  809,207  |
|     Non-cash consulting expense                             |                                 |   | 70,432  |   |   | 110,192  |
|     Non-cash settlements                                    |                                 |   | (126,373) |   |   |  (1,409,031) |
| Total operating expenses                                                        |                                      |  | 3,946,847  |  |  | 3,355,791 |
| Loss from operations                                                            |                                      |  | (2,204,293) |  |  | (2,915,421) |
| Interest expense                                                           |                                 |   | 48,019  |   |   | 51,775  |
| Amortization of discount on debt and beneficial conversion feature              |                                      |  | 654,210  |  |  |  –  |
| Net loss                                                                   |                                 | $  | (2,906,522) |   | $  | (2,967,196) |
|                                                                            |
| Net loss applicable to common shareholders:                                |                                 |   |   |   |   |   |
|    Net loss                                                      |                                 | $  | (2,906,522) |   | $  |  (2,967,196) |
|    Accretion of beneficial conversion feature on preferredstock  |                                 |   | (293,444) |   |   | (579,324) |
|    Preferred stock dividends                                     |                                 |   | (124,695) |   |   |  (141,144) |
| Net loss applicable to common shareholders                                 |                                 | $  | (3,324,661) |   | $  |   (3,687,664) |
| Per share amounts (basic and diluted)                                      |                                 | $  | (0.04) |   | $  |   (0.06) |
| Weighted average shares of common stock outstanding                        |                                 |   | 82,823,325  |   |   |  59,862,164  |

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

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**SUMMUS, INC. (USA)**

**CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY (UNAUDITED)**

|                                                   | **Convertible Preferred Stock** |
|--------------------------------------------------------|---------------------------------|
|                                                   | **Series A**                    | **      ** | **Series C** | **      ** | **Series D** |
|                                                   |                            | **Shares**  |        | **Amount**  |   | **Shares** |        | **Amount**  |   | **Shares** |        | **Amount** |
|                                                   |
| **Balance at December 31, 2003**                  |                            | 2,078  | $ |   2,078,312 |   | 1,310  |  $ | 365,566  |   | 2,900 |  $ |  2,015,604 |
| Accretion of beneficial conversion                |                            |   |   |   |   |   |   |   |   |   |   |   |
|    feature of Series C preferred stock  |                            | -  |   | - |   | -  |   | 293,444  |   | -  |   | -  |
| Issuance of common stock in conjunction                |                                 |  |  |  |  |  |  |  |  |  |  |  |
|    with issuance of convertible debt    |                            | -  |   | - |   | -  |   | -  |   | -  |   | -  |
| Beneficial conversion feature related                  |                                 |  |  |  |  |  |  |  |  |  |  |  |
|    to issuance of convertible debt      |                            | -  |   | - |   | -  |   | -  |   | -  |   | -  |
| Common stock, options and warrants                |                            |   |   |   |   |   |   |   |   |   |   |   |
|    issued for services                  |                            | -  |   | - |   | -  |   | -  |   | -  |   | -  |
| Common stock issued for cash                      |                            | -  |   | - |   | -  |   | -  |   | -  |   | -  |
| Common stock issued for accrued payroll                |                            | -  |   | - |   | -  |   | -  |   | -  |   | -  |
| Preferred stock dividends                         |                            | -  |   | - |   | -  |   | -  |   | -  |   | -  |
| Deferred compensation related to             |                            |   |   |   |   |   |   |   |   |   |   |   |
|    issuance of stock options            |                            | -  |   | - |   | -  |   | -  |   | -  |   | -  |
| Amortization of deferred                          |                            |   |   |   |   |   |   |   |   |   |   |   |
|    compensation                         |                            | -  |   | - |   | -  |   | -  |   | -  |   | -  |
| Conversion of Series C, D and E                   |                            |   |   |   |   |   |   |   |   |   |   |   |
|    preferred stock                      |                            | -  |   | - |   | (1,310) |   | (659,010) |   | (625) |   | (434,398) |
| Payment of Series A preferred stock                    |                                 |  |  |  |  |  |  |  |  |  |  |  |
|    dividends with additional shares of       |                                 |  |  |  |  |  |  |  |  |  |  |  |
|    Series A preferred stock                  |                                 | 329  |  | 328,983 |  | -  |  | -  |  | -  |  | -  |
| Conversion of convertible debt                         |                                 | -  |  | - |  | -  |  | -  |  | -  |  | -  |
| Net loss for the period                           |                            | -  |   | - |   | -  |   | -  |   | -  |   | -  |
| **Balance at September 30, 2004**                 |                            | 2,407  | $ |   2,407,295 |   | -  |  $ |      -  |   | 2,275 |  $ | 1,581,206 |

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

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**SUMMUS, INC. (USA)**

**CONSOLIDATED STATEMENT OF SHAREHOLDERS'  (DEFICIT) EQUITY(UNAUDITED)**

|                                                             |        | **Convertible Preferred Stock** |               |            |                        |            |                   |                         |                                          |
|-------------------------------------------------------------|--------|---------------------------------|---------------|------------|------------------------|------------|-------------------|-------------------------|------------------------------------------|
|                                                        |   |                            |          |       |                   |       |              |                    |                                     |   |   | **Additional** |
|                                                        |   | **Series E**                    | ** **    | ** ** | **Common Stock ** | ** ** | **Paid-In ** |
|                                                        |   | **Shares**                      | ** **    | ** ** | **Amount**             | ** ** | ** **        | **Shares **        | **      ** | **Amount ** | **      ** | **Capital ** |
|                                                        |
| **Balance at December 31, 2003**                       |   | 170                             |          |  $    |  119,460          |       |              | 69,370,139         |  $                                  |  69,370  |  $ | 46,315,321  |
| Accretion of beneficial conversion                     |   |                            |          |       |                   |       |              |                    |                                     |   |   |   |
|    feature of Series C preferred stock  |   | -                     |          |       | -            |       |              |  -       |                                     |  -   |   |  -   |
| Issuance of common stock in conjunction                     |   |                            |          |       |                   |       |              |                    |                                     |   |   |   |
|    with issuance of convertible debt         |   | -                     |          |       | -            |       |              |  14,286,000   |                                     |  14,286  |   |  485,714  |
| Beneficial conversion feature related                       |   |                            |          |       |                   |       |              |                    |                                     |   |   |   |
|    to issuance of convertible debt           |   | -                     |          |       | -            |       |              |  -       |                                     |  -   |   |  500,000  |
| Common stock, options and warrants                     |   |                            |          |       |                   |       |              |                    |                                     |   |   |   |
|    issued for services                       |   |   -              |          |       | -            |       |              |  300,000      |                                     |  300  |   |  124,132  |
| Common stock issued for cash                           |   |   -              |          |       | -            |       |              |  431,034      |                                     |  431  |   |  19,655  |
| Common stock issued for accrued payroll                     |   |   -              |          |       | -            |       |              |  647,480      |                                     |  647  |   |  83,525  |
| Preferred stock dividends                              |   |   -              |          |       |  -      |       |              |  -       |                                     |  -   |   |  -   |
| Deferred compensation related to                       |   |                            |          |       |                   |       |              |                    |                                     |   |   |   |
|   issuance of stock options                       |   |   -              |          |       | -            |       |              |  -       |                                     |  -   |   |  16,500  |
| Amortization of deferred                               |   |                            |          |       |                   |       |              |                    |                                     |   |   |   |
|   compensation                                    |   |   -              |          |       | -            |       |              |  -       |                                     |  -   |   |  -   |
| Conversion of Series C, D and E                        |   |                            |          |       |                   |       |              |                    |                                     |   |   |   |
|   preferred stock                                 |   |   (170)               |     |       |  (119,460)        |       |              |  9,215,000    |                                     |  9,215  |   |  1,203,653  |
| Payment of Series A preferred stock                         |        |                                 |               |            |                        |            |                   |                         |                                          |  |  |  |
|    dividends with additional shares of            |        |                                 |               |            |                        |            |                   |                         |                                          |  |  |  |
|    Series A preferred stock                       |        | -                     |               |            | -            |            |                   | -             |                                          | -   |  | -   |
| Conversion of convertible debt                              |        | -                     |               |            | -            |            |                   | 8,571,600          |                                          | 8,572  |  | 591,428  |
| Net loss for the period                                |   |   -              |          |       | -            |       |              |  -       |                                     |  -   |   |  -   |
| **Balance at September 30, 2004**                      |   |  -               |          |  $    |   -     |       |              |  102,821,253  |  $                                  |  102,821  |  $ | 49,339,928  |

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

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**SUMMUS, INC. (USA)**

**CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY(UNAUDITED)**

|                                                 |   |                  |   |   |                       |   |                           |                |   |   | ** Total**                                |   |
|------------------------------------------------------|--------|-----------------------|--------|--------|----------------------------|--------|--------------------------------|---------------------|--------|--------|------------------------------------------------|--------|
|                                                 |   | **Deferred**          |   |   | **Accumulated**            |   |                           | **Treasury**        |   |   | **Shareholders’**                        |   |
|                                                 |   | **Compensation**      |   |   | **Deficit**                |   |                           | **Stock**           |   |   | **(Deficit)**  **Equity**                 |   |
|                                                 |
| **Balance at December 31, 2003**                |   | $ (53,427             | )      |   | $  (50,396,562        | )      |       |  $ (227,619    | )      |   | $       286,025  |   |
| Accretion of beneficial conversion              |   |                  |   |   |                       |   |                           |                |   |   |                                           |   |
|  feature of Series C preferred stock       |   |  -     |   |   |  (293,444             | )      |                           |  -   |   |   | -                                    |        |
| Issuance of common stock in conjunction              |   |                  |   |   |                       |   |                           |                |   |   |                                           |   |
|    with issuance of convertible debt  |   |  -     |   |   |  -          |   |                           |  -   |   |   |  500,000                                  |   |
| Beneficial conversion feature related                |   |                  |   |   |                       |   |                           |                |   |   |                                           |   |
|    to issuance of convertible debt    |   |  -     |   |   |  -          |   |                           |  -   |   |   |  500,000                                  |   |
| Common stock, options and warrants              |   |                  |   |   |                       |   |                           |                |   |   |                                           |   |
|    issued for services                |   |  -     |   |   | -                |   |                           |  -   |   |   |  124,432                                  |   |
| Common stock issued for cash                    |   |  -     |   |   | -                |   |                           |  -   |   |   |  20,086                                   |   |
| Common stock issued for accrued payroll              |   |  -     |   |   |  -          |   |                           |  -   |   |   |  84,172                                   |   |
| Preferred stock dividends                       |   |  -     |   |   |   (124,695       | )      |                           |  -   |   |   |  (124,695                                 | )      |
| Deferred compensation related to                |   |                  |   |   |                       |   |                           |                |   |   |                                           |   |
|    issuance of stock options          |   |  (16,500         | )      |   |  -          |   |                           |  -   |   |   |  -                              |   |
| Amortization of deferred                        |   |                  |   |   |                       |   |                           |                |   |   |                                           |   |
|    compensation                       |   | 56,177                |   |   |  -          |   |                           |  -   |   |   |  56,177                                   |   |
| Conversion of Series C, D and E                 |   |                  |   |   |                       |   |                           |                |   |   |                                           |   |
|    preferred stock                    |   |  -     |   |   |  -          |   |                           |  -   |   |   |  -                              |   |
| Payment of Series A preferred stock                  |        |                       |        |        |                            |        |                                |                     |        |        |                                                |        |
|    dividends with additional shares of     |        |                       |        |        |                            |        |                                |                     |        |        |                                                |        |
|    Series A preferred stock                |        | -           |        |        | -                |        |                                | -         |        |        | 328,983                                        |        |
| Conversion of convertible debt                       |        | -           |        |        | -                |        |                                | -         |        |        | 600,000                                        |        |
| Net loss for the period                         |   |  -     |   |   |  (2,906,522           | )      |                           |  -   |   |   |  (2,906,522                               | )      |
| **Balance at September 30, 2004**                    |   |  $  (13,750 | )      |   |  $   (53,721,223 | )      |                           |  $ (227,619    | )      |   |  $      (531,342 | )      |

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

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**SUMMUS, INC. (USA)**

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

|                                                                                                                |         | **Nine-Month Period Ended** |
|---------------------------------------------------------------------------------------------------------------------|--------------|-----------------------------|
|                                                                                                                |         | **September 30, 2004**      |       |   | **September 30, 2003** |
|                                                                                                                |
| **Operating activities**                                                                                       |         |                        |   |   |   |
| Net loss                                                                                                            | $            | (2,906,522)                 |   | $ |   (2,967,196) |
| Adjustments to reconcile net loss to net cash used in operating                                                |         |                             |   |   |   |
|  activities:                                                                                              |    |                             |   |   |   |
|    Depreciation and amortization                                                                     |         | 116,362                |   |   |  211,087  |
|    Non-cash compensation                                                                             |         | 56,177                 |   |   |    132,442  |
|    Common stock, options and warrants issued for services                                            |         | 124,432                |   |   |  110,192  |
|    Loss on disposal of fixed assets                                                                       |              | –                |  |  | 12,671  |
|    Amortization of discount on debt and beneficial conversion       feature |              | 654,210                |  |  | –  |
|    Non-cash settlements                                                                              |         | (126,373)                   |   |   | (1,409,031) |
| Changes in operating assets and liabilities:                                                                   |         |                             |   |   |   |
|    Accounts receivable                                                                               |         | (837,315)                   |   |   | (238,166) |
|    Prepaid and other assets                                                                          |         | (61,183)                    |   |   | (3,898) |
|    Accounts payable and other accrued expenses                                                       |         | 268,248                |   |   | 293,561  |
|    Accrued salaries and related costs                                                                |         | (172,369)                   |   |   | 353,901  |
|    Deferred revenue                                                                                  |         | 11,000                 |   |   | (7,285) |
| Net cash used in operating activities                                                                          |         | (2,873,333)                 |   |   |  (3,511,722) |
|                                                                                                                |         |                             |   |   |   |
| **Investing activities**                                                                                       |         |                             |   |   |     |
| Purchases of equipment and furniture                                                                           |         | (38,369)                    |   |   | (11,721) |
| Net cash used in investing activities                                                                          |         | (38,369)                    |   |   |   (11,721) |
| **Financing activities**                                                                                       |         |                             |   |   |    |
| Proceeds from sale of common stock and warrants                                                                     |         | 20,086                 |   |   |  1,326,607  |
| Proceeds from issuance of convertible debt                                                                          |              | 1,000,000              |  |  | –  |
| Proceeds from issuance of convertible preferred stock                                                               |              | –                |  |  | 1,864,737  |
| Proceeds from exercise of warrants                                                                             |         | –                |   |   |  779,355  |
| Principal payments on capital lease obligations                                                                |         | (17,296)                    |   |   |   (86,134) |
| Principal payments on notes payable and short-term borrowings                                                  |         | (88,180)                    |   |   | –  |
| Net cash provided by financing activities                                                                      |         | 914,610                |   |   |  3,884,565  |
| Net (decrease) increase in cash                                                                                |         | (1,997,092)                 |   |   | 361,122  |
| Cash at beginning of period                                                                                    |         | 2,188,645              |   |   | 25,990  |
| Cash at end of period                                                                                          | $            | 191,553                |   | $ | 387,112  |
| **Supplemental disclosure of cash flow information**                                                           |         |                             |   |   |   |
| Cash paid for interest                                                                                         | $            | 40,864                 |   | $ | 16,705  |

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

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**SUMMUS,INC. (USA)**

**NOTES****TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)**

**1.** **Business, Organization and Basis ofPresentation**

*Business*

Summus, Inc. (USA) ("Summus” or the "Company") is engaged primarily in thedevelopment of applications that optimize the consumer wireless experience.  The core of the Company's business plan is tofocus on the emerging wireless and mobile market and partner with leading content brands to bring branded products to mobilephones.  Our major content brands include Sports Illustrated, The Associated Press, Fuji Film and Phil Hellmuth.  ThroughSeptember 30, 2004, we have executed contracts with a variety of content providers to build applications for  the distributionof their content.  

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

Summus builds end-user applications for all major mobile platforms, includingQUALCOMM’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 whomake our products available to their customers. Summus currently has relationships with carriers that account for 98% of all U.S.wireless subscribers. We also have relationships with international carriers covering Canada, Latin America, Australia, Israel andthe U.K. 

We have completed development of and launched twenty-eight (28) wireless applications.Twelve (12) wireless carriers in the United States and ten (10) international wireless carriers currently deploy at least one or acombination of the twenty-eight (28) wireless applications that have been completed by the Company.  Summus launched its firstwireless application during the second quarter of 2002.  These applications can be purchased by the end-user as a one-timepurchase, 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 plannedfuture applications, have been developed by the Company through a process that involves securing agreements with content providersand carriers, and developing and launching the applications. The Company outsources the infrastructure needed to host and deliverthe transactions for its application end-users.

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

 *Basis of Presentation*

The consolidated financial statements of the Company included in this quarterly report onForm 10-Q are unaudited. In the opinion of management, such financial statements contain all adjustments (consisting of normalrecurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2004; the results ofoperations for the three and nine-month periods ended September 30, 2004 and 2003; shareholders' (deficit) equity as of September30, 2004; and cash flows for the nine-month periods ended September 30, 2004 and 2003.

The accompanying unaudited consolidated financial statements as of and for the three andnine-month periods ended September 30, 2004 and 2003, have been prepared in accordance with U.S. generally accepted accountingprinciples for interim financial information and in accordance with Article 10 of Regulation S-X. Certain information and notedisclosures normally included in the Company's annual financial statements prepared in accordance withU.S. generally acceptedaccounting principles have been condensed or omitted. These unaudited consolidated financial statements should be read inconjunction with the financial statements and accompanying notes included in the Company’s audited financial statements forthe year ended December 31, 2003, which were filed with the Securities and Exchange Commission on March 31, 2004, in the Company'sannual report on Form 10-K for the fiscal year ended December 31, 2003. The Form 10-K is available through the Internet in theSEC's EDGAR website at www.sec.gov, on the Company’s website at www.summus.com or from theCompany upon request.

The accompanying unaudited consolidated financial statements have been prepared as if theCompany will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in thenormal course of business. As shown in the financial statements at September 30, 2004, the Company incurred a net loss for thequarter of $957,088, has negative working capital of $500,130 at September 30, 2004, and experienced negative cash flows fromoperations. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flow tomeet its obligations on a timely basis, to obtain additional financing, and ultimately to attain profitability. The Company isactively promoting and expanding its product line and pursuing additional financing for capital to expand its operations. Management expects to be able to attract additional capital to continue to fund and expand operations and also expects thatincreased revenues will reduce its operating losses in future periods. However, there can be no assurance that management’splan will be executed as anticipated. The financial statements presented herein do not include any adjustments relating to therecoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as agoing concern.

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**2.** **Summary of Significant AccountingPolicies**

*Estimates*

The preparation of financial statements in conformity with U.S. generally acceptedaccounting principles requires management to make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting period. Actual results could differ from those estimates.

*Revenue Recognition and Related Costs*

Change in Revenue Recognition Policy

After a careful review of the Company’s revenue recognition policies and givingconsideration to guidance provided for in Emerging Issues Task Force No. 99-19 *Reporting Revenue Gross as a Principal versus Netas an Agent* (“EITF 99-19”), the Company changed certain revenue recognition policies affecting revenues earned bywireless applications and contracts during the 4th quarter of 2003.  Prior to 4th quarter 2003, theCompany reported revenues earned by wireless applications and contracts and cost of revenues for wireless applications andcontracts net of certain third-party costs in the statement of operations. These transactions have been reclassified to reflect agross revenue presentation with no effect on gross profit or net loss. The amount by which revenues and costs of revenues have beenreclassified for the three and nine-month periods ended September 30, 2004, is $149,042 and $363,936, respectively.

Wireless applications and contracts

Commencing during the second quarter of 2002, our resources were dedicated to thedevelopment of solutions for the mobile and wireless markets. Revenues earned from wireless applications are recognized upondelivery and acceptance by the end-user either as a one-time purchase or a monthly subscription. For content delivery partnerarrangements, 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 contentproviders as a cost of revenues. Wireless applications and contracts cost of revenues include all third-party hosting, testingand/or carrier distribution fees. These costs are incurred on a monthly basis and are primarily fixed in nature regardless of therevenue generated by the related applications.

Periodically, we enter into non-recurring engineering arrangements with our contentpartners. Generally, under the terms of these agreements, we receive funding upfront to complete projects. The funding we receiveupfront is recorded as deferred revenue and is recognized as revenue under the terms of the individual arrangements. Deferredrevenue 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 accordancewith the provisions of AICPA Statement of Position 97-2, “Software Revenue Recognition”, as amended by AICPA Statementof 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 feeis fixed or determinable, no significant vendor obligations or uncertainties surrounding customer acceptance remain, and collectionof the resulting receivable is deemed probable.

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

There were no costs related to the wireless license fee revenue generated during the threeand nine months ended September 30, 2004, as the license fee revenue related to technology that had been previously developed bythe 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 governmentalagencies and the commercial licensing of our technology. We recognize revenue on these contracts at the time services are renderedbased upon the terms of individual contracts. Regarding the commercial licensing of our technology, we follow the provisions ofAICPA 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 softwarelicense fees is generally recognized upon delivery provided that a contract has been executed, the vendor fee is fixed ordeterminable, no significant vendor obligations or uncertainties surrounding customer acceptance remain, and collection of theresulting receivable is deemed probable.

*Segments*

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

*Equipment and Furniture*

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

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

*Income Taxes*

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

S*tock-Based Compensation*

The Company has stock-based compensation plans for employees, consultants and directors.The Company accounts for those plans under the intrinsic value method prescribed by APB Opinion No. 25, *Accounting for StockIssued to Employees (“APB 25”)* and related interpretations. For options granted under those plans with an exerciseprice equal to the market value of the stock on the date of grant, no compensation cost is recognized in net operations as reportedin the consolidated statement of operations. Compensation cost is recognized in net earnings/loss for awards granted under thoseplans with an exercise price less than the market value of the underlying common stock on the date of grant. Such costs arerecognized ratably over the vesting period. The Company recorded non-cash compensation related to the issuance of fully-vestedstock options with exercise prices below the fair market value of the underlying stock plus the amortization of deferredcompensation arising from stock option issuances subject to vesting totaling $56,177 and $132,442 for the nine months endedSeptember 30, 2004 and 2003, respectively, and $2,475 and $44,148 for the three months ended September 30, 2004 and 2003,respectively.

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

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

|                                                                                                                                                                                                                                                                                                      | **Three-MonthPeriod Ended September 30**                                  | **Nine-MonthPeriod Ended September 30**                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|---------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                      | **2004**                                                                  | **2003**                                                                  | **2004** | **2003** |
|                                                                                                                                                                                                                                                                                                 | **(Unaudited)**                                                           | **(Unaudited)**                                                           |
|                                                                                                                                                                                                                                                                                                      |                                                                           |                                                                           |  |  |
| Net loss applicable to common      shareholders                                                                                                                                                                                                                             | $   (998,653)                                              | $   (2,073,266)                                            | $  (3,324,661) | $  (3,687,664) |
| Non-cash employee compensation chargesincluded     in net loss applicable to common shareholders                                                                                                                                                                            | 2,475                                                                | 44,148                                                               | 56,177  | 132,442  |
| Stock-based employee compensation cost that      would have been included in net      loss applicable to common      shareholders under the fair value      method                               | (278,654)                                                                 | (71,765)                                                                  | (969,973) | (242,203) |
|                                                                                                                                                                                                                                                                                                      |                                                                           |                                                                           |  |  |
| Adjusted net loss applicable to      common shareholders                                                                                                                                                                                                                    | $   (1,274,832)                                            | $   (2,100,883)                                            | $  (4,238,457) | $   (3,797,425) |
|                                                                                                                                                                                                                                                                                                      |                                                                           |                                                                           |  |  |
| Basic and diluted loss per share:                                                                                                                                                                                                                                                                    |                                                                           |                                                                           |  |  |
| Reported net loss applicable to      common shareholders                                                                                                                                                                                                                    | $           (0.01) | $           (0.03) | $          (0.04) | $          (0.06) |
| Non-cash employee compensation charges      included in net loss applicable to      common shareholders                                                                                                                                            | 0.00                                                                 | 0.00                                                                 | 0.00  | 0.00  |
| Stock-based employee      compensation cost that would      have been included in net loss      applicable to common      shareholders under the fair value      method | (0.00)                                                                    | (0.00)                                                                    | (0.01) | (0.00) |
|                                                                                                                                                                                                                                                                                                      |                                                                           |                                                                           |  |  |
| Adjusted net loss applicable to      common shareholders                                                                                                                                                                                                                    | $           (0.01) | $           (0.03) | $          (0.05) | $          (0.06) |

The Company accounts for stock-based compensation to non-employees of the Company,primarily consultants and advisors, at the fair value of the equity instrument in accordance with the provisions of SFAS No.123.  Non-cash consulting expense related to such stock based compensation was $70,432 and $110,192 for the nine-month periodsended September 30, 2004 and 2003, respectively, and $41,415 and $5,454 for the three-month periods ended September 30, 2004 and2003, respectively.

*Net Loss Per Share*

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

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

*New Accounting Pronouncements*

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

**3.** **Convertible Notes Payable**

In May 2004, the Company entered into senior convertible debt agreements with certaininvestors to provide up to $2,000,000 of financing in the form of convertible notes payable (the "Notes"). The Notes do not bearinterest and are convertible into shares of the Company’s common stock at the option of the holder. The Notes mature threeyears from the date of issuance. Once the Notes mature, the Company has the sole right to pay off the debt or require conversion bythe holders of any unconverted portion thereof into shares of the Company’s common stock.  At the closing of the seniorconvertible debt agreements, each investor received 7,143 shares of the Company’s common stock for each $1,000 invested, fora total of 14,286,000 shares of the Company’s common stock. Upon the conversion of each $1,000 of senior convertible debtissued and outstanding, the holder shall receive an additional 14,286 shares of the Company’s common stock. 

Upon closing, the Company received $1,000,000 in cash and the remaining $1,000,000 ofproceeds received were placed in an escrow account with American Stock Transfer Company (the “Escrow Agent”). TheCompany was not to have access to this escrowed $1,000,000 until it achieved positive EBITDA, as defined in the senior convertibledebt agreements, for a one-month period.  Summus achieved positive EBITDA  for the month of August 2004 and sent theEscrow Agent a certificate of its Chief Financial Officer notifying it of such, which gives the Company access to the escrowedfunds.  There can be no assurances that the Company willachieve positive EBITDA in succeeding months.  The Company is not required to access these escrowed funds, and as of the dateof this quarterly report, Summus has not drawn down any of these funds.  Any of the escrowed funds not drawn down by Summusby  March 31, 2005, shall be released by the Escrow Agent to the holders of the Notes on a pro rata basis. Any of the escrowedfunds not released by the Escrow Agent to the Company shall have no conversion rights into the Company’s common stock asset forth above.

The Company allocated the $1,000,000 of proceeds received in connection with the financingin May 2004 between the Notes and the 14,286,000 shares of common stock issued on a relative fair value basis.  Accordingly,the Company allocated $500,000 to the Notes and $500,000 to the common stock issued.  Since the Notes were issued at adiscount to the principal balance, which is the basis for conversion, the effective conversion price of the Notes was less than thefair value of the Company's common stock on the date of issuance.  Accordingly, a beneficial conversion feature of $500,000was recorded as a discount to the Notes and a corresponding credit to additional paid-in capital on the date of issuance. Since theNotes have a term of three years, the aggregate discount of $1,000,000 will be amortized to interest expense over a thirty-sixmonth period commencing on the date of issuance.  In September 2004, notes totaling $600,000 were converted into 8,571,600shares of common stock.  The remaining discount on these Notes was fully amortized to interest expense in the three monthsended September 30, 2004.  Amortization of the discount of the Notes for the three and nine months ended September 30, 2004was $611,653 and $654,210, respectively.

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**4.** **Common Stock, Options and Warrants**

***Common Stock Reserved for Future Issuance***

As of September 30, 2004, the Company had reserved shares of its authorized 185,000,000shares of common stock for future issuance as follows:

|                                                             |   |       |
|------------------------------------------------------------------|--------|------------|
| Series A convertible preferred stock and related dividends  |   | 170,004    |
| Series D convertible preferred stock                             |   | 11,375,000 |
| Outstanding common stock warrants                                |   | 44,688,449 |
| Outstanding stock options                                        |   | 8,027,174  |
| Possible future issuance under stock option plans                |   | 6,607,982  |
| Convertible notes payable                                        |   | 5,714,400  |
| Total                                                            |   | 76,583,009 |

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

***Series A Convertible Preferred Stock***

The Company has 2,407 shares of Series A convertible preferred stock (“Series Apreferred stock”) outstanding as of September 30, 2004. These shares are valued based upon the liquidation preference ofSeries A preferred stock of $1,000 per share.  Shares of the Series A preferred stock rank on parity with Summus’ SeriesC, Series D and Series E convertible preferred stock as to liquidation preference upon dissolution, liquidation or the winding upof Summus.

The holders of the Series A preferred stock are entitled to receive cumulative cashdividends at a rate of 8% per annum of the initial liquidation preference of $1,000 per share. These dividends are accrued monthly.The Company, at its election, can provide for the payment of dividends on the Series A preferred stock through the issuance ofadditional shares of Series A preferred stock having an aggregate initial liquidation preference equal to the amount of cashdividends otherwise payable. Dividends are cumulative from the date of issuance and are payable, when, as and if declared by theBoard of Directors, on March 31 and September 30 of each year. The Company is restricted from paying dividends on common stockuntil dividends are paid on Series A preferred in full. The Company recorded preferred stock dividends of $41,565 and $124,695 forthe three and nine months ended September 30, 2004, respectively.  On August 26, 2004, the Company issued 329 shares of SeriesA preferred stock as consideration for accrued dividends of $328,983.  As of September 30, 2004, the Company had recorded$13,855 in accrued dividends, which is reflected in current liabilities in the accompanying consolidated balance sheet.

The holders of the outstanding shares of Series A preferred stock are not entitled to voteon matters submitted to the Company’s shareholders for voting, except as may be required by Florida law.  However,approval of holders of a majority of the outstanding shares of Series A preferred stock is required prior to the issuance of a newseries of preferred stock that ranks senior to the Series A preferred stock. Each share of the Series A preferred stock isconvertible at the option of the holder, at any time after the date of issuance, into shares of common stock equal to theLiquidation Preference divided by the initial conversion price of $14.24. The conversion price is subject to adjustment inaccordance with the Company’s articles of incorporation.  At the Company’s election, it has the right to redeemany outstanding shares of the Series A preferred stock at the liquidation preference of $1,000 per share.

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

***Series C Convertible Preferred Stock***

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

- no voting rights except with respect to (i) the amendment or alteration of the statementof rights and preferences applicable to the Series C preferred stock, and (ii) any matters for which voting rights are providedunder Florida law;
- shares of the Series C preferred stock shall rank on a parity with Summus’ SeriesA, Series D and Series E convertible preferred stock as to liquidation preference upon dissolution, liquidation or the winding upof Summus;
- a liquidation preference, subject to adjustment for any combinations, consolidations,stock distributions or stock dividends with respect to the Series C preferred stock, of $1,000 per share payable in the event ofany liquidation, dissolution or winding up of Summus; and
- the right to convert each share of Series C preferred stock into shares of our commonstock at any time, at the option of the Series C preferred stockholder, after nine (9) months from the date of its issuance. Eachshare of Series C preferred stock shall be convertible into 4,000 fully paid and non assessable shares of the Company’scommon stock.

During the three and nine month periods ended September 30, 2004, certain holders of theSeries C preferred stock converted 60 and 1,310 shares of Series C preferred stock into 240,000 and 5,240,000 shares of theCompany’s common stock, respectively.

All shares of the Series C preferred stock have been converted into shares of theCompany’s common stock as of September 30, 2004.

***Series D Convertible Preferred Stock***

In September 2003, the Company amended its articles of incorporation to establish itsSeries D convertible preferred stock (“Series D preferred stock”). The newly established Series D preferred stock hasan issue price of $1,000 per share and has the following rights and privileges:

- no voting rights except with respect to (i) the amendment or alteration of the statementof rights and preferences applicable to the Series D preferred stock, and (ii) any matters for which voting rights are providedunder Florida law;
- shares of the Series D preferred stock shall rank on a parity with Summus’ SeriesA, Series C and Series E preferred stock as to liquidation preference upon dissolution, liquidation or the winding up ofSummus;
- a liquidation preference, subject to adjustment for any combinations, consolidations,stock distributions or stock dividends with respect to the Series D preferred stock, of $1,000 per share payable in the event ofany liquidation, dissolution or winding up of Summus, Inc.; and
- the right to convert each share of Series D preferred stock into shares of our commonstock at any time, at the option of the Series D preferred stockholder. Each share of Series D preferred stock shall be convertibleinto 5,000 fully paid and nonassessable shares of the Company’s common stock.

During the three and nine month periods ended September 30, 2004, certain holders of theSeries D preferred stock converted 250 and 625 shares of Series D preferred stock into 1,250,000 and 3,125,000 shares of theCompany’s common stock, respectively.  As of September 30, 2004, 2,275 shares of Summus’ Series D preferred stockare issued and outstanding. 

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

***Series E Convertible Preferred Stock***

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

- no voting rights except with respect to (i) the amendment or alteration of the statementof rights and preferences applicable to the Series E preferred stock, and (ii) any matters for which voting rights are providedunder Florida law;
- shares of the Series E preferred stock shall rank on a parity with Summus’ SeriesA, Series C and Series D preferred stock as to liquidation preference upon dissolution, liquidation or the winding up ofSummus;
- a liquidation preference, subject to adjustment for any combinations, consolidations,stock distributions or stock dividends with respect to the Series E preferred stock, of $1,000 per share payable in the event ofany liquidation, dissolution or winding up of Summus; and
- the right to convert each share of Series E preferred stock into shares of our commonstock at any time, at the option of the Series E preferred stockholder. Each share of Series E preferred stock shall be convertibleinto 5,000 fully paid and nonassessable shares of the Company’s common stock.

All shares of Series E preferred stock have been converted into shares of theCompany’s common stock as of September 30, 2004.

The accounting treatment for the Series C, D and E preferred stock (the “PreferredStock”) involved allocating the value of the principal amount received from the Preferred Stock offerings between thePreferred Stock, the associated warrants and a beneficial conversion feature (“BCF”) associated with the PreferredStock. A BCF existed because the effective conversion rate of the Preferred Stock was below the traded value of the Company’scommon stock on the date the Preferred Stock was issued. The BCF for the Preferred Stock totaling $3,579,695 was recorded as adiscount to the Preferred Stock and additional paid-in capital on the date the Preferred Stock was issued. Since the Series Cpreferred stock became convertible at any time after nine months from its issuance, the value of its BCF totaling $659,010 wasamortized to retained deficit over a nine-month period commencing with its issuance through April 2004. Amortization of the SeriesC preferred stock BCF for the three and nine months ended September 30, 2004 was $0 and $293,444, respectively. Since the Series Dand E preferred stock was convertible immediately, the value of its beneficial conversion feature totaling $2,920,685 was fullyamortized to retained deficit on the date of issuance during the year ended December 31, 2003.

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

***Dr. Bjorn Jawerth’s Employment Agreement***

The Company entered into a three-year employment agreement with Dr. Bjorn Jawerth, whichexpired on February 16, 2004, and was not renewed by the Board of Directors. His employment agreement provided for an initial basesalary of $350,000, with annual increases of 10%. 

The difference between the increased salary amounts of $385,000 and $423,500,respectively, in the second and third years of his employment agreement, and his original base salary of $350,000 was deferred andaccrued by the Company, at Dr. Jawerth’s election, until the Board of Directors and Dr. Jawerth determine when and how thesedeferred and accrued amounts may be paid. Dr. Jawerth’s deferred salary amount of $81,106 is recorded as accrued salaries inthe Company’s balance sheet as of September 30, 2004.

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**6.** **Commitments and Contingencies(continued)**

Under the terms of the recapitalization transaction, Summus agreed to use reasonablecommercial efforts to assist Dr. Jawerth in the private sale of up to 1,666,667 shares of Summus common stock held by Dr. Jawerth at a per share price of not less than $1.50 per share (representing $2.5 million in value). Under the terms of Dr.Jawerth's employment agreement, the Company was obligated to issue to Dr. Jawerth options, with an exercise price of $1.50 pershare, exercisable for three times the number of shares of common stock sold in the private sale as described above. No sharessubject to this agreement have been sold. The Company has no further obligations regarding this sale of shares.

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

***Inventions Awards Plan***

The Company established its Inventions Awards Plan, effective October 30, 2000, to provideincentives to certain eligible employees by providing them with opportunities to receive additional compensation as a result oftheir development of enhancements or new methods that generate revenue for the Company.

Under the terms of this plan, the Company was obligated to reserve 5% of the grossrevenues derived from the licensing or sale of “New Technology”, as defined in the agreement, for distribution amongeligible employees. If the Company sold the rights to New Technology, eligible employees would have been entitled to an award of10% of the gross proceeds.

In addition, the Company could, at its option, initiate a spin-off company to develop NewTechnology.  If the eligible employee were to accept a position in the spin-off company, his or her rights to awards under theplan would have been surrendered for 25% of the founders’ equity in the spin-off company.

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

***Cancellation of warrants***

On July 19, 2002, the Company entered into an irrevocable common stock equity line thatwas intended to provide funding to the Company in amounts up to $10.0 million. The Company filed a registration statement on FormS-1 with the Securities and Exchange Commission (“SEC”) on July 31, 2002, relating to this common stock equity lineagreement. Based on comments received from the Securities and Exchange Commission and related communications with the SEC, theCompany understood that the terms of the equity line financing arrangement were such that it would not be able to resolve thestaff’s comments in a timely manner and seek effectiveness of the registration statement in a timely manner. Due to thesedevelopments, the length of time involved in completing the transaction, and other factors, the Company determined that it was inits 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 thecommon stock equity line.

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**6.** **Commitments and Contingencies(continued)**

In connection with the cancellation of the agreements associated with the common stockequity line, Talisman, the intended purchaser under the equity line, indicated to the Company its intention to retain ownership ofthe warrants to purchase 500,000 shares of the Company’s unregistered common stock at an exercise price of $0.47 per sharethat were issued to Talisman upon the execution of the equity line agreements. It is management’s position, with the adviceof legal counsel, that the cancellation of these warrants became effective with the cancellation of the equity line agreements andthat no loss contingency exists. Therefore, the Company has not recorded the issuance of these 500,000 warrants in its consolidatedfinancial statements nor disclosed them as part of outstanding warrants. The Company has sent correspondence to Talisman statingits position that the warrants have been cancelled. To date, the Company has not received correspondence back from Talismanindicating their concurrence.

**7.** **Non-cash Settlements**

***Bowne Litigation***

On February 25, 2003, Bowne of New York City, LLC (“Bowne”), a financialprinting firm, filed a civil summons in the Supreme Court of County of New York in the State of New York, claiming that it wasentitled payment in the amount of $276,373, plus accrued interest, for past services rendered to the Company.

In August 2004, the Company and Bowne settled the claim between them, whereby both partiesagreed to reduce the total amount owed by the Company to Bowne to $150,000.  The parties also agreed that this amount would bepaid by (i) an initial payment of $10,000, (ii) monthly installments of $6,000 per month from November 1, 2004 through September 1,2006 and (iii) a final payment of $2,000 on October 1, 2006 by Summus.  The settlement gain resulting from this transactionwas $126,373.  The balance owed as of September 30, 2004, was $140,000, which is included in accounts payable.

**8.  Acceleration of Receivables from Qualcomm**

On September 23, 2004, Summus entered into an amendment to its BREW developer agreementwith QUALCOMM in which it agreed to participate in QUALCOMM’s Quick Pay program, which provides for the acceleration ofpayments for amounts owed to Summus by QUALCOMM.  Summus entered into this program to reduce its account receivables positionwith QUALCOMM and convert these receivables into cash.   Summus beganreceiving payments under this program in October 2004.  Under the terms of the amendment, Summus shall pay QUALCOMM fivepercent (5%) of the developer application or wholesale price set by Summus for each of its BREW applications for which it is owedpayment.  QUALCOMM shall pay amounts owed to Summus within thirty (30) days of the last day of each calendar month regardlessof whether QUALCOMM has received payment from the carriers or not.  All amounts received by Summus from QUALCOMM under thisprogram are on a non-recourse basis.  Summus may terminate its participation in the QUALCOMM Quick Pay program upon thirty(30) days written notice to QUALCOMM. 

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**Item 2. *Management's Discussion and Analysis**of FinancialCondition and Results of Operations***

***Forward-Looking Statements***

This Form 10-Q contains certain forward-looking statements that we believe are within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended tobe covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical factmay be deemed to be forward-looking statements, including the statements under "Management's Discussion and Analysis of FinancialCondition and Results of Operations" regarding our strategy, future operations, future expectations or future estimates, financialposition 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 suchidentifying 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 andother risks and uncertainties. The most important factors that could prevent us from achieving our stated goals include, but arenot limited to, the following:

- a lack of sufficient financial resources to implement the Company's business plan, whichhas resulted in the Company's receiving a "going concern" opinion from its independent auditors with respect to its auditedfinancial statements as of and for the year ended December 31, 2003;
- our ability to generate sufficient working capital to meet our operatingrequirements;
- our ability to develop and enter into strategic relationships with wireless serviceproviders, wireless software developers, semiconductor and device designers, wireless device manufacturers and contentproviders;
- timely deployment by wireless service providers, semiconductor and device designers, andwireless device manufacturers of our software in their products;
- the continued growth in demand for wireless and mobile usage;
- new product development and acceleration of commercial deployment of suchproducts;
- technological competition, which creates the risk of the Company's technology beingrendered obsolete or noncompetitive;
- the lack of patent protection with respect to the Company's technology; and
- potential infringement of the patent rights of third parties.

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

**Change in Revenue Recognition Policy**

After a careful review of the Company’s revenue recognition policies and givingconsideration to guidance provided for in Emerging Issues Task Force No. 99-19 *Reporting Revenue Gross as a Principal versus Netas an Agent* (“EITF 99-19”), the Company changed certain revenue recognition policies affecting revenues earned bywireless applications and contracts during the 4th quarter of 2003.  Prior to the 4th quarter of 2003,the Company reported revenues earned by wireless applications and contracts and cost of revenues for wireless applications andcontracts net of certain third-party costs in the statement of operations. These transactions have been reclassified to reflect agross revenue presentation with no effect on gross profit or net loss. The amount by which revenues and costs of revenues have beenreclassified for the three and nine-month periods ended September 30, 2003 is $149,042 and $363,936, respectively.

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**Overview**

Summus is primarily engaged in the development of applications that optimize the consumerwireless experience.  The core of the Company's business plan is to focus on the emerging wireless and mobile market andpartner with leading content brands to bring branded products to mobile phones.  Our major content brands include SportsIllustrated, The Associated Press, Fuji Film and Phil Hellmuth.  Through September 30, 2004, we have executed contracts with avariety of content providers to build applications for  the distribution of their content.  

Summus has developed software, technology and applications to enable informationprocessing and resource management to include, but not be limited to, the creation, transmission, playing and management of contentover wireless networks.  We currently offer products in various categories, including games, personalization, photo services,and news/information.  The Company's technology, which provides the foundation for its current products, is designed toaddress the usability constraints of the existing wireless network infrastructure. This technology will enable more efficient useof existing and future bandwidth allocations, resulting in a perceived bandwidth increase by the mobile end-user.

Summus builds end-user applications for all major mobile platforms, includingQUALCOMM’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 whomake our products available to their customers. Summus currently has relationships with carriers that account for 98% of all U.S.wireless subscribers. We also have relationships with international carriers covering Canada, Latin America, Australia, Israel andthe U.K. 

We have completed development of and launched twenty-eight (28) wireless applications.Twelve (12) wireless carriers in the United States and ten (10) international wireless carriers currently deploy at least one or acombination of the twenty-eight (28) wireless applications that have been completed by the Company.  Summus launched its firstwireless application during the second quarter of 2002.  These applications can be purchased by the end-user as a one-timepurchase, 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 plannedfuture applications, have been developed by the Company through a process that involves securing agreements with content providersand carriers, and developing and launching the applications. The Company outsources the infrastructure needed to host and deliverthe transactions for its application end-users.

To date, the Company has experienced significant operating losses as we have madeinvestments in research and development of our underlying technology and application development. We expect to continue to makeinvestments in those areas; however, the Company is more focused on the development and delivery of applications and the marketingof those applications to make substantial progress in revenue generation. We plan to expand our market presence by partnering withadditional wireless carriers as well as increasing subscriber adoption of our applications. Our ability to generate profits andpositive cash flow from operations will depend primarily on increasing revenues as well ascontinuing  cost reductionmeasures.

**Acceleration of Receivables fromQualcomm**

In September 2004, Summus entered into an amendment to its BREW developer agreement withQUALCOMM in which it agreed to participate in QUALCOMM’s Quick Pay program, which provides for the acceleration of paymentsfor amounts owed to Summus by QUALCOMM.  Summus entered into this program to reduce its account receivables position withQUALCOMM and convert these receivables into cash.  Summus began receiving payments under this program in October 2004. Under the terms of the amendment, Summus shall pay QUALCOMM five percent (5%) of the developer application or wholesale price setby Summus for each of its BREW applications for which it is owed payment.  QUALCOMM shall pay amounts owed to Summus withinthirty (30) days of the last day of each calendar month regardless of whether QUALCOMM has received payment from the carriers ornot.  All amounts received by Summus from QUALCOMM under this program are on a non-recourse basis.  Summus may terminateits participation in the QUALCOMM Quick Pay program upon thirty days written notice to QUALCOMM****

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**Results of Operations**

**Three-Month Period Ended September 30, 2004 Compared to Three-Month Period EndedSeptember 30, 2003**

*Revenues*

|                                   |   |                                |   |           |   |   |            |   |           |   |   |               |   |         |   |
|----------------------------------------|--------|-------------------------------------|--------|----------------|--------|--------|-----------------|--------|----------------|--------|--------|--------------------|--------|--------------|--------|
|                                   |   | **Three Months Ended September 30** |
|                                   |   |                                |   | **% of Total** |   |   |            |   | **% of Total** |   |   |               |   |         |   |
|                                   |   | **2004**                       |   | **Revenues**   |   |   | **2003**   |   | **Revenues**   |   |   | **$ Change**  |   | **% Change** |   |
|                              |
| Revenues by category:             |   |                                |   |           |   |   |            |   |           |   |   |               |   |         |   |
|  Wireless applications and   |   |                                |   |           |   |   |            |   |           |   |   |               |   |         |   |
|    contracts            |   | $ 1,466,448                         |   | 97.7           | %      |   | $ 331,433  |   | 99.7           | %      |   | $ 1,135,015        |        | 342.5        | %      |
|  Contracts and license fees  |   | 30,000                              |   | 2.0            |   |   | -          |   | -         |   |   | 30,000             |        | -            |   |
|  Wireless license fees       |   | 4,250                               |   | 0.3            |   |   | 1,000      |   | 0.3            |   |   | 3,250              |        | 325.0        | %      |
| Total revenues                    |   | $ 1,500,698                         |   | 100.0          | %      |   | $ 332,433  |   | 100.0          | %      |   | $ 1,168,265        |        | 351.4        | %      |

*Wireless Applications and Contracts.*Revenue from wirelessapplications and contracts increased $1,135,015 to $1,466,448 in the three-month period ended September 30, 2004, up 342.5% from$331,433 in the three-month period ended September 30, 2003. The increase in revenue from wireless applications and contractsresulted from the increase in sales of existing wireless applications and additional wireless applications developed by theCompany, launched by several wireless carriers and purchased by end-users. The Company launched its Sports Illustrated SwimsuitCollection wallpaper and screen saver application in March 2004 and launched its multi-player Texas Hold’em poker gameapplication in May 2004.  The Company has continued to increase its subscriber base as well as expanding to newcarriers.

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

*Contracts and License Fees.* Revenue from contracts and licensefees was $30,000 in the three-month period ended September 30, 2004 and was generated from providing governmental contractservices.  There was no revenue earned from contracts and license fees during the three-month period ended September 30,2003.

*Wireless License Fees.* Revenue from wireless license feesincreased $3,250 to $4,250 in the three-month period ended September 30, 2004, up 325.0% from $1,000 in the three-month periodended September 30, 2003.  During the second half of 2003, the Company changed its focus from the commercial licensing of itstechnology to developing wireless applications.

*Costs of Revenues*

|                                             | **Three Months Ended September 30** |
|--------------------------------------------------|-------------------------------------|
|                                             | **  2004**                     | ** ** | **  2003** | ** ** | ** $ Change** | ** ** | **% Change** |   |
| Cost of revenues by category:                    |                                |   |   |   |   |   |   |   |   |   |   |   |
|    Wireless applications and contracts | $                                   | 723,988 |   | $ | 258,675 |   | $ | 465,313 |   |   | 179.9 | % |
|    Contracts and license fees          |                                | 4,038 |   |   | - |   |   | 4,038 |   |   | - |   |
|    Wireless license fees               |                                | - |   |   | - |   |   | - |   |   | - |   |
| Total cost of revenues                           | $                                   | 728,026 |   | $ | 258,675 |   | $ | 469,351 |   |   | 181.4 | % |

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*Wireless Applications and Contracts.* Costs of wirelessapplications and contracts increased $465,313 to $723,988 in the three-month period ended September 30, 2004, up 179.9% from$258,675 in the three-month period ended September 30, 2003. The increase in costs of wireless applications and contracts resultedfrom 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 anddelivery of wireless applications and primarily consist of third-party hosting fees, carrier distribution and fees associated withcontent information provided by our content providers for wireless applications which were deployed during the three-month periodended September 30, 2004. The costs related to third-party hosting and carrier distribution are incurred on a monthly basis and areprimarily fixed in nature regardless of the revenue generated by the related applications.

*Contracts and License Fees.* Costs of contracts and licensefees were $4,038 in the three-month period ended September 30, 2004.  Costs of contracts and license fees consisted primarilyof salaries and other related costs of providing governmental contract services.  There was no revenue earned from contractsand license fees during the three-month period ended September 30, 2003.

*Wireless License Fees.* There were no costs of revenuesregarding wireless license fees during the three-month periods ended September 30, 2004 and 2003, since the license fee agreementsconsummated during this period related to technology that had been previously developed by the Company.

*Gross Profit*

|                                                   |   | **Three Months Ended September 30** |
|--------------------------------------------------------|--------|-------------------------------------|
|                                                   |   | **2004**                            |   | **2003** |   | **$ Change** |   | **% Change** |
|                                                   |
| Gross profit by category:                         |   |                                |       |   |       |   |       |   |   |
|    Wireless applications and contracts  |   | $                                   | 742,460 |   | $ | 72,758 |   | $ | 669,702 |   | 920.5 | % |
|    Contracts and license fees           |   |                                | 25,962 |   |   -    |   | 25,962 |   | - |   |
|    Wireless license fees                |   |                                | 4,250 |   |    1,000 |   | 3,250 |   | 325.0 | %  |
| Total gross profit                                     |   | $                                   | 772,672 |   | $ | 73,758 |   | $ | 698,914 |   | 947.6 | % |

*Wireless Applications and Contracts.*Gross profit resultingfrom the development and deployment of wireless applications increased $669,702 to $742,460 for the three-month period endedSeptember 30, 2004, an increase of 920.5% over the gross profit for the three-month period ended September 30, 2003 of$72,758.  The increase in gross profit resulting from these activities corresponds with the increase in revenues from wirelessapplications and contracts.  The costs for these revenues include costs that are primarily fixed in nature, consisting mostlyof third-party hosting fees and content information provided by certain of our content providers, and costs that are primarilyvariable in nature, consisting mostly of third-party content information.

*Contracts and License Fees.*Gross profit resulting fromgovernment contract services during the three-month period ended September 30, 2004 totaled $25,962.  The gross profit fromthese services resulted from deducting primarily salaries and other related costs from the related earned revenue.  During thethree-month period ended September 30, 2003, the Company did not generate any revenue, costs of revenue or gross profit related tocontracts and license fees.

*Wireless License Fees.*Gross profit from wireless license feesincreased $3,250 to $4,250 in the three-month period ended September 30, 2004, up 325.0% from $1,000 in the three-month periodended September 30, 2003.   During the second half of 2003, the Company changed its focus from the commercial licensingof its technology to developing wireless applications.  The Company did not incur any specific direct costs associated withthe 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. 

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*Selling, General and Administrative Expenses*

|                                |   | **Three Months Ended September 30** |
|-------------------------------------|--------|-------------------------------------|
|                                |   | **2004**                       |   | **2003**  |   | **$ Change** |   | **% Change** |
|                                |
| Selling, general and administrative |   | $ 749,930                      |   |   $1,232,317 |   | $ (482,387) |  | (39.1%) |  |

Selling, general and administrative expenses consist primarily of salaries, consultingfees, office operations, administrative and general management activities, including legal, accounting and other professional fees.Selling, general and administrative expenses for the three-month period ended September 30, 2004 were $749,930, compared to$1,232,317 for three-month period ended September 30, 2003. The decrease in selling, general and administrative expenses during thecurrent period as compared to the prior period reflects a reduction in several expense categories, namely salaries, third-partyconsulting fees, travel and general office administration costs. The reductions in these categories reflect continued costreduction efforts implemented by management.

*Non-Cash Compensation Expenses*

|                  |   | **Three Months Ended September 30** |
|-----------------------|--------|-------------------------------------|
|                  |   | **2004**                       |   | **2003**  |   | **$ Change** |   | **% Change** |
|                  |
| Non-cash compensation |   | $2,475                              |   |   $44,148 |   | $(41,673) |   | (94.4%) |

Non-cash compensation for the three-month period ended September 30, 2004 was $2,475compared to $44,148 for the three-month period ended September 30, 2003. Non-cash compensation for the three-month period endedSeptember 30, 2003 resulted from the amortization for three months of deferred compensation resulting from stock options granted inprior years, at prices below the fair value of the underlying common stock. The decrease in the amount recorded in the currentperiod as compared to the prior period reflects that prior years’ deferred compensation was fully amortized in2004.

Res*earch and Development Expenses*

|                     |   | **Three Months Ended September 30** |
|--------------------------|--------|-------------------------------------|
|                     |   | **2004**                       |   | **2003**  |   | **$ Change** |   | **% Change** |
|                     |
| Research and development |   | $436,830                            |   |   $280,236 |   | $156,594 |   | 55.9% |

Research and development expenses for the three-month period ended September 30, 2004,were $436,830 compared to $280,236 for the three-month period ended September 30, 2003. The increase in research and developmentexpenses is a result of the increased number of wireless applications the Company has in development.  The Company is focusingits resources on the development of new products for rapid deployment.

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*Non-Cash Consulting Expenses*

|                        |   | **Three Months Ended September 30** |
|-----------------------------|--------|-------------------------------------|
|                        |   | **2004**                       |   | **2003**  |   | **$ Change** |   | **% Change** |
|                        |
| Non-cash consulting expense |   | $41,415                             |   |   $5,454 |   | $35,961 |   |   | 659.4% |

Non-cash consulting expense for the three-month period ended September 30, 2004, in theamount of $41,415 is attributable to 180,842 stock options and 40,899 stock warrants granted to consultants for services, valuedusing the Black-Scholes option-pricing model.

Non-cash consulting expense for the three-month period ended September 30, 2003 in theamount of $5,454 is attributable to: (1) 15,100 stock options granted to consultants for services valued at $2,896, such value wasdetermined by using the Black-Scholes option-pricing model; and (2) $2,558, representing the fair value, as determined using theBlack-Scholes option-pricing model, of the vested portion of 33,333 options granted to a member on the Company’s advisoryboard.

*Non-cash Settlements*

|                 |   | **Three Months Ended September 30** |
|----------------------|--------|-------------------------------------|
|                 |   | **2004**                            |   | **2003**  |   | **$ Change** |   | **% Change** |
|                 |
| Non-cash settlements |   | $(126,373)                          |   |   $(69,741)  |   | $(56,632) |  | (81.2%) |

On August 31, 2004, the Company signed and executed an agreement pertaining to payment forprior printing services provided to the Company valued at $276,373 with Bowne of New York City, LLC.  The aggregate settlementgain resulting from this transaction totaled $126,373.

Non-cash settlements totaling $69,741, resulted from the settlement of unpaid amounts fromtwo of the Company’s creditors during the three-month period ended September 30, 2003.  On August29, 2003, the Company signed and executed an agreement pertaining to the payment of amounts owed to a current serviceprovider.  The aggregate settlement gain resulting from this transaction totaled $14,500. OnSeptember 30, 2003, the Company signed and executed an agreement pertaining to a promissory note with Raytheon Company.  Theaggregate settlement gain resulting from this transaction totaled $55,241. 

These non-cash settlements have been recorded as a reduction to the Company’saccounts payable and a credit in the statement of operations.

*Interest Expense*

|     |   | **Three Months Ended September 30** |
|----------|--------|-------------------------------------|
|     |   | **2004**                       |   | **2003**  |   | **$ Change** |   | **% Change** |
|     |
| Interest |   | $13,830                             |   |   $27,334     |   | $(13,504) |  | (49.4) % |

Interest expense for the three-month period ended September 30, 2004, was $13,830,compared to interest expense of $27,334 for the three-month period ended September 30, 2003.  Interest expense for each of thethree-month periods includes interest expense related to interest costs associated with capital lease obligations and note payableagreements.  The decrease in interest expense is due primarily to the decrease in principal on capital lease obligations andnotes payable.

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*Amortization of discount on debt and beneficial conversion feature*

|                                                                                                 |   | **Three Months Ended September 30** |
|------------------------------------------------------------------------------------------------------|--------|-------------------------------------|
|                                                                                                 |   | **2004**                       |   | **2003**  |   | **$ Change** |   | **% Change** |
|                                                                                                 |
| Amortization of discount on   debt and beneficial conversion   feature |   | $611,653                            |   |   $        -     |   | $611,653 |  | -  % |

Amortization of discount on debt and beneficial conversion feature for the three-monthperiod ended September 30, 2004 was $611,653.  This related to amortization of the discounts on the convertible notes payableentered into in May 2004.  In September 2004, investors converted $600,000 of convertible notes payable.  The remainingdiscount on these notes was fully amortized as interest expense in the three-month period ended September 30, 2004.  There wasno amortization of discount on debt and beneficial conversion feature for the three-month period ended September 30, 2003. 

*Net Loss*

|     |   | **Three Months Ended September 30** |
|----------|--------|-------------------------------------|
|     |   | **2004**                       |   | **2003**  |   | **$ Change** |   | **% Change** |
|     |
| Net loss |   | $957,088                            |   |   $1,445,990 |   | $(488,902) |  | (33.8%) |

As a result of the factors discussed above, the net losses for the three-month periodended September 30, 2004 and 2003, were $957,088 and $1,445,990, respectively.

**Nine-Month Period Ended September 30, 2004 Compared to Nine-Month Period EndedSeptember 30, 2003**

*Revenues*

|                                   |   |                               |   |           |   |   |                             |   |           |   |   |               |   |         |   |
|----------------------------------------|--------|------------------------------------|--------|----------------|--------|--------|----------------------------------|--------|----------------|--------|--------|--------------------|--------|--------------|--------|
|                                   |   | **Nine Months Ended September 30** |
|                                   |   |                               |   | **% of Total** |   |   |                             |   | **% of Total** |   |   |               |   |         |   |
|                                   |   | **2004**       |   | **Revenues**   |   |   | **2003**     |   | **Revenues**   |   |   | **$ Change**  |   | **% Change** |   |
|                              |
| Revenues by category:             |   |                               |   |           |   |   |                             |   |           |   |   |               |   |         |   |
|  Wireless applications and   |   |                               |   |           |   |   |                             |   |           |   |   |               |   |         |   |
|    contracts            |   | $ 3,448,658                        |   | 98.6           | %      |   | $ 893,857                   |   | 78.3           | %      |   | $ 2,554,801   |   | 285.8%       |   |
|  Contracts and license fees  |   | 43,889                             |   | 1.3            |   |   | -                           |   | -         |   |   | 43,889        |   | -       |   |
|  Wireless license fees       |   | 5,000                              |   | 0.1            |   |   | 248,201                     |   | 21.7           |   |   | (243,201)          |   | (98.0%)      |   |
| Total revenues                    |   | $ 3,497,547                        |   | 100.0          | %      |   | $ 1,142,058                 |   | 100.0          | %      |   | 2,355,489     |   | 206.2%       |   |

*Wireless Applications and Contracts. *Revenue fromwireless applications and contracts increased $2,554,801 to $3,448,658 in the nine-month period ended September 30, 2004, up 285.8%from $893,857 in the nine-month period ended September 30, 2003. The increase in revenue from wireless applications and contractsresulted from the increase in sales of existing wireless applications and additional wireless applications developed by theCompany, launched by several wireless carriers and purchased by end-users. The Company launched its Sports Illustrated SwimsuitCollection wallpaper and screen saver application in March 2004 and launched its multi-player Texas Hold’em game applicationin May 2004.  The Company has continued to increase its subscriber base as well as expanding to new carriers.

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

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*Contracts and License Fees.*Revenue from contracts and licensefees was $43,889 in the nine-month period ended September 30, 2004 and was generated from providing governmental contractservices.  There was no revenue earned from contracts and license fees during the nine-month period ended September 30,2003.

*Wireless License Fees.* Revenue earned from wireless licensefees totaled $5,000 in the nine-month period ended September 30, 2004.  Revenue earned from wireless license fees totaled$248,201 in the nine-month period ended September 30, 2003.  During this period, the Company had sold and delivered existingimage software for use in wireless transmission applications.  During the second half of 2003, the Company changed its focusfrom the commercial licensing of its technology to developing wireless applications.

*Costs of Revenues*

|                                             | **Nine Months Ended September 30** |
|--------------------------------------------------|------------------------------------|
|                                             | **  2004**                    | ** ** | **  2003** | ** ** | ** $ Change** | ** ** | **% Change** |   |
| Cost of revenues by category:                    |                               |   |   |   |   |   |   |   |   |   |   |   |
|    Wireless applications and contracts | $                                  | 1,747,756      |   | $ | 701,688     |   | $ | 1,046,068    |   |   | 149.1 | % |
|    Contracts and license fees          |                               | 7,237      |   |   | -     |   |   | 7,237    |   |   | - |   |
|    Wireless license fees               |                               | -      |   |   | -     |   |   | -    |   |   | - |   |
| Total cost of revenues                           | $                                  | 1,754,993      |   | $ | 701,688     |   | $ | 1,053,305    |   |   | 150.1 | % |

*Wireless Applications and Contracts.* Costs of wirelessapplications and contracts increased $1,046,068 to $1,747,756 in the nine -month period ended September 30, 2004, up 149.1% from$701,688 in the nine-month period ended September 30, 2003. The increase in costs of wireless applications and contracts resultedfrom 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 anddelivery of wireless applications and primarily consist of third-party hosting fees, carrier distribution and fees associated withcontent information provided by our content providers for wireless applications which were deployed during the nine-month periodended September 30, 2004. The costs related to third-party hosting and carrier distribution are incurred on a monthly basis and areprimarily fixed in nature regardless of the revenue generated by the related applications.

*Contracts and License Fees .*Costs of contracts and licensefees were $7,237 in the nine-month period ended September 30, 2004.  Costs of contracts and license fees consisted primarilyof salaries and other related costs of providing governmental contract services.  There was no revenue earned from contractsand license fees during the nine-month period ended September 30, 2003.

*Wireless License Fees. *There were no costs of revenuesregarding wireless license fees during the nine-month periods ended September 30, 2004 and 2003, since the license fee agreementsconsummated during this period related to technology that had been previously developed by the Company.

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*Gross Profit*

|                                                   |   | **Nine Months Ended September 30** |
|--------------------------------------------------------|--------|------------------------------------|
|                                                   |   | **2004**                           |   | **2003** |   | **$ Change** |   | **% Change** |
|                                                   |
| Gross profit by category:                         |   |                               |   |   |   |   |   |   |   |
|    Wireless applications and contracts  |   | $                             | 1,700,902 |   | $   | 192,169 |   | $   | 1,508,733 |   | 785.1 | % |
|    Contracts and license fees           |   |                               | 36,652 |   |   -    |   | 36,652 |   | - |   |
|    Wireless license fees                |   |                               | 5,000 |   |    248,201 |   | (243,201 | ) | (98.0 | )  |
| Total gross profit                                     |   | $                             | 1,742,554 |   | $   | 440,370 |   | $ | 1,302,184 |   | 295.7 | % |

*Wireless Applications and Contracts.*Gross profit resultingfrom the development and deployment of wireless applications increased $1,508,733 to $1,700,902 for the nine-month period endedSeptember 30, 2004, an increase of 785.1% over the gross profit for the nine-month period ended September 30, 2003 of$192,169.  The increase in gross profit resulting from these activities corresponds with the increase in revenues fromwireless applications and contracts. The costs for these revenues include costs that are primarily fixed in nature, consistingmostly of third-party hosting fees and content information provided by certain of our content providers, and costs that areprimarily variable in nature, consisting mostly of third-party content information.

*Contracts and License Fees.* Gross profit resulting fromgovernment contract services during the nine-month period ended September 30, 2004 totaled $36,652.  The gross profit fromthese services resulted from deducting primarily salaries and other related costs from the related earned revenue.  During thenine-month period ended September 30, 2003, the Company did not generate any revenue, costs of revenue or gross profit related tocontracts and license fees.

*Wireless License Fees.*Gross profit resulting from wirelesslicense fees totaled $5,000 and $248,201 for the nine-month periods ended September 30, 2004 and 2003, respectively.  TheCompany did not incur any specific direct costs associated with the sale, delivery, or installation of the software underlying thelicense agreements consummated during the period.  During the second half of 2003, the Company changed its focus from thecommercial licensing of its technology to developing wireless applications.  Additionally, the Company does not expect toincur any future obligations relating to these license fees. 

*Selling, General and Administrative Expenses*

|                                |   | **Nine Months Ended September 30** |
|-------------------------------------|--------|------------------------------------|
|                                |   | **2004**                      |   | **2003**  |   | **$ Change** |   | **% Change** |
|                                |
| Selling, general and administrative |   | $2,536,462                         |   |   $3,712,981 |   | $(1,176,519) |   | (31.7%) |

Selling, general and administrative expenses consist primarily of salaries, consultingfees, office operations, administrative and general management activities, including legal, accounting and other professional fees.Selling, general and administrative expenses for the nine-month period ended September 30, 2004 were $2,536,462, compared to$3,712,981 for nine-month period ended September 30, 2003.  The decrease in selling, general and administrative expensesduring the current period as compared to the prior period reflects a reduction in several expense categories, namely salaries,third-party consulting fees, travel and general office administration costs. The reductions in these categories reflect continuedcost reduction efforts implemented by management.

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*Non-Cash Compensation Expenses*

|                  |   | **Nine Months Ended September 30** |
|-----------------------|--------|------------------------------------|
|                  |   | **2004**                      |   | **2003**  |   | **$ Change** |   | **% Change** |
|                  |
| Non-cash compensation |   | $56,177                            |   |   $132,442 |   | $(76,265) |   | (57.6%) |

               Non-cash compensation for the nine-month period ended September 30, 2004 was $56,177 compared to $132,442 for the nine-month periodended September 30, 2003. Non-cash compensation for the nine-month period ended September 30, 2003 resulted from the amortizationfor nine months of deferred compensation resulting from stock options granted in prior years, at prices below the fair value of theunderlying common stock. The decrease in the amount recorded in the current period as compared to the prior period reflects thatprior years’ deferred compensation was fully amortized in the nine-month period ended September 30, 2004.

*Research and Development Expenses*

|                     |   | **Nine Months Ended September 30** |
|--------------------------|--------|------------------------------------|
|                     |   | **2004**                      |   | **2003**  |   | **$ Change** |   | **% Change** |
|                     |
| Research and development |   | $1,410,149                         |   |   $809,207 |   | $600,942 |  | 74.3% |

Research and development expenses for the nine-month period ended September 30, 2004, were$1,410,149 compared to $809,207 for the nine-month period ended September 30, 2003. The increase in research and developmentexpenses is a result of the increased number of wireless applications the Company has in development.  The Company is focusingits resources on the development of new products for rapid deployment.

*Non-Cash Consulting Expenses*

|                        |   | **Nine Months Ended September 30** |
|-----------------------------|--------|------------------------------------|
|                        |   | **2004**                      |   | **2003**  |   | **$ Change** |   | **% Change** |
|                        |   |                               |   |   |   |   |   |   |
| Non-cash consulting expense |   | $70,432                            |   | $110,192 |   | $(39,760) |   | (36.1%) |

Non-cash consulting expense for the nine-month period ended September 30, 2004, in theamount of $70,432 is attributable to 365,342 stock options and 138,947 stock warrants granted to consultants for services, valuedusing the Black-Scholes option-pricing model.

Non-cash consulting expense for the nine-month period ended September 30, 2003 in theamount of $110,192 is attributable to: (1) the issuance of 219,266 shares of restricted common stock issued to consultants forservices valued at $78,595; (2) 56,800 stock options granted to consultants for services valued at $11,976, such value wasdetermined by using the Black-Scholes option-pricing model; (3) $15,000 of amortization of a deferred expense recorded in 2002relating to the issuance of 55,555 shares of restricted common stock valued at $22,500, for consulting services to be rendered overa 4.5 month period;  and (4) $4,621, representing the fair value, as determined using the Black-Scholes option-pricing model,of the vested portion of 33,333 options granted to a member on the Company’s advisory board.

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*Non-cash Settlements*

|                 |   | **Nine Months Ended September 30** |
|----------------------|--------|------------------------------------|
|                 |   | **2004**                           |   | **2003**  |   | **$ Change** |   | **% Change** |
|                 |
| Non-cash settlements |   | $(126,373)                         |   |   $(1,409,031)  |   | $1,282,658 |   | (91.0%) |

On August 31, 2004, the Company signed and executed an agreement pertaining to payment forprior printing services provided to the Company valued at $276,373 with Bowne of New York City, LLC.  The aggregate settlementgain resulting from this transaction totaled $126,373.

Non-cash settlements totaling $1,409,031, resulted from the settlement of unpaid amountsfrom six of the Company’s creditors during the nine-month period ended September 30, 2003, as listed below: 

- The first non-cash settlement was in connection with a settlement of a civil law suit byHolland & Knight LLP (“H&K”), a creditor of the Company, seeking payment for prior legal services provided tothe Company valued at $867,268.  The aggregate settlement gain resulting from this transaction totaled$351,047. 
- On June 5, 2003, the Company signed and executed an agreement pertaining to the paymentof amounts owed to a current service provider.  The aggregate settlement loss resulting from this transaction totaled$17,097. 
- In February 2003, the Company signed and executed a mutual release of all claims with aformer law firm that had provided legal services to the Company.  Under the terms of the mutual release, all fees owed to theformer law firm, totaling $886,557 were cancelled in full.
- In March 2003, the Company settled a claim filed against it by AT&T CORP. for paymentof past services rendered to the Company.  Under the terms of the settlement, all amounts owed by the Company to AT&TCORP. were reduced by $118,783 to $120,000.
- On August 29, 2003, the Company signed and executed an agreement pertaining to thepayment of amounts owed to a current service provider.  The aggregate settlement gain resulting from this transaction totaled$14,500. 
- On September 30, 2003, the Company signed and executed an agreement pertaining to apromissory note with Raytheon Company.  The aggregate settlement gain resulting from this transaction totaled$55,241. 

These non-cash settlements have been recorded as a reduction to the Company’saccounts payable and a credit in the statement of operations.

*Interest Expense*

|     |   | **Nine Months Ended September 30** |
|----------|--------|------------------------------------|
|     |   | **2004**                      |   | **2003**  |   | **$ Change** |   | **% Change** |
|     |
| Interest |   | $48,019                            |   |   $51,775     |   | $(3,756) |   | (7.3) % |

Interest expense for the nine-month period ended September 30, 2004, was $48,019, comparedto interest expense of $51,775 for the nine-month period ended September 30, 2003.  Interest expense for each of thenine-month periods includes interest expense related to interest costs associated with capital lease obligations and note payableagreements.  The decrease in interest expense is due primarily to the decrease in principal on capital lease obligations andnotes payable.

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*Amortization of discount on debt and beneficial conversion feature*

|                                                                                                 |   | **Nine Months Ended September 30** |
|------------------------------------------------------------------------------------------------------|--------|------------------------------------|
|                                                                                                 |   | **2004**                      |   | **2003**  |   | **$ Change** |   | **% Change** |
|                                                                                                 |
| Amortization of discount on   debt and beneficial conversion   feature |   | $654,210                           |   |   $ -     |   | $654,210 |   | -  % |

Amortization of discount on debt andbeneficial conversion feature for the nine-month period ended September 30, 2004was $654,210.  This related to amortization of the discounts on theconvertible notes payable entered into in May 2004.  In September 2004,investors converted $600,000 of convertible notes payable.  The remainingdiscount on these notes was fully amortized as interest expense in thenine-month period ended September 30, 2004.  There was no amortization ofdiscount on debt and beneficial conversion feature for the nine-month periodended September 30, 2003.

 *Net Loss*

|     |   | **Nine Months Ended September 30** |
|----------|--------|------------------------------------|
|     |   | **2004**                      |   | **2003**  |   | **$ Change** |   | **% Change** |
|     |
| Net loss |   | $2,906,522                         |   |   $2,967,196 |   | $(60,674) |   | (2.0%) |

As a result of the factors discussed above, the net losses for the nine-month period endedSeptember 30, 2004 and 2003 were $2,906,522 and $2,967,196, respectively.

**Liquidity and Capital Resources**

As of September 30, 2004 we had $191,553 of cash on hand, negative working capital of$500,130, and approximately $2.1 million in current liabilities.

In May 2004, the Company entered into senior convertible debt agreements withcertain investors that provide up to $2,000,000 in financing through the issuance of convertible notes payable (the "Notes"). TheseNotes do not bear interest and are convertible into shares of the Company’s common stock at the option of the holder. These Notes mature three years from the date of issuance.   Upon closing of the Notes, the Company received $1,000,000 incash and $1,000,000 of the proceeds received in this financing were placed in an escrow account with American Stock TransferCompany (the “Escrow Agent”). The Company was not to have access to this escrowed $1,000,000 until it achieved positive EBITDA, as defined in the senior convertible debt agreements, for a one-month period.  Summus achieved positive EBITDA for themonth of August 2004 and sent the Escrow Agent a certificate of its Chief Financial Officer notifying it of such, which gives theCompany access to the escrowed funds.  There canbe no assurances that the Company will achieve positive EBITDA in succeeding months.  The Company is not required to access theseescrowed funds, and as of the date of this quarterly report, Summus has not drawn down any of these funds.  Any of theescrowed funds not drawn down by Summus by  March 31, 2005, shall be released by the Escrow Agent to the holders of the Noteson a pro rata basis. Any of the escrowed funds not released by the Escrow Agent to the Company shall have no conversionrights into the Company’s common stock. 

We anticipate that the sale of our debt and equity securities will continue to representthe primary source of our liquidity until we are able to generate positive cash flow from operations. If we have to raiseadditional funding, we cannot guarantee that we will be able to raise the necessary capital or that, if we do so, it will be onfavorable terms. We may have to sell equity at below market rates, and any future sales of our capital stock to finance ourbusiness plan will dilute our existing shareholders' ownership.  Our continuation as a going concern depends on our ability togenerate sufficient cash flow to meet our obligations on a timely basis, to obtain additional financing as may be required andultimately to attain profitability. In light of our financial condition and operating losses, our auditors have included in theirreport on our audited consolidated financial statements an explanatory paragraph which expresses substantial doubt about ourability to continue as a going concern. 

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We have entered into settlement agreements or arrangements with several of our vendorsunder which such vendors have agreed to our payment of less than the amounts due, the extension of payment terms by between 9-36months and/or the satisfaction of the amounts due through a combination of cash and stock.  As of the date of this filing, wehave been able to make all of the required payments established under settlement agreements previously arranged with certainvendors. We continue to communicate with our vendors to keep them informed of our situation and discuss payment arrangementsamiable to both parties under the current circumstances.  Additionally, as of September 30, 2004, we had approximately $1.5million in accounts payable, of which approximately $0.4 million were greater than 90 days old.

The Company is actively promoting and expanding its product line and pursuing additionalfinancing for capital to expand its operations.

Subject to our liquidity constraints (including our need to dedicate cash flow to meet ourobligations 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; and
- the marketing of those applications to lay the foundation of future substantial revenue generation.

|                                                                                                                        |               | **Nine Months Ended September 30** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |               |                               |   | **2004** |   |   |   | **2003** |
| Cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |               |                               |  $ | (2,873,333) |   |   | $  | (3,511,722) |
| Cash used in investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |     |                               |   $ | (38,369) |   |   | $  | (11,721) |
| Cash provided by financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     |                               |   $ | 914,610  |   |   | $  | 3,884,565  |

*Cash Flow used in Operating Activities.*Net cash used inoperating activities was $2,873,333 in the nine-month period ended September 30, 2004, compared to $3,511,722 in the correspondingperiod of the prior year.  The decrease in net cash used in operating activities was primarily due to increases in cashcollections from customers consistent with the increase in wireless application revenues, and to cost reductions in several expensecategories, primarily salaries, third-party consulting fees, travel, and general office administration costs during the nine-monthperiod ended September 30, 2004.  The Company restructured its organization in February 2004 as part of its focus to reducefuture operating expenses and focus on revenue generation.

*Cash Flow used in Investing Activities.* Net cash used ininvesting activities was $38,369 in the nine-month period ended September 30, 2004, representing computer equipmentpurchases.  Net cash used in investing activities in the nine-month period ended September 30, 2003 totaled$11,721.

*Cash Flow provided by Financing Activities.*Net cash providedby financing activities of $914,610 in the nine-month period ended September 30, 2004 related to:

- proceeds from issuance of convertible notes payable and common stock of$1,000,000.
- the sale of  431,034 shares of the Company's common stock for cash proceeds of$20,086.
- principal payments on capital lease obligations of ($17,296).
- principal payments on note payable obligations of ($88,180).

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Net cash provided by financing activities of $3,884,565 in the nine-monthperiod ended September 30, 2003 related to:

- the sale of  2,703,903 shares of the Company's common stock, along with warrants topurchase an additional 316,000 shares of common stock, at exercises prices ranging from $1.50 to $1.60 per share and the repricingof 4,242,261 of previously issued warrants. Total cash proceeds from the sale of the shares and issuance of the new warrants were$1,326,607.
- the sale of 1,250 shares of Series C convertible preferred stock along with warrants topurchase an additional 5.0 million shares of common stock for net proceeds of $1,214,737.
- the sale of 650 shares of Series D convertible preferred stock along with warrants topurchase an additional 1,625,000 shares of common stock for net proceeds of $650,000.
- the issuance of 2,776,975 shares of common stock upon the exercise of warrants withexercise prices ranging from $0.25 to $0.47 per share. Of the 2,776,975 warrants exercised, 2,767,075 were exercised in connectionwith the repricing of the exercise price of the warrants as described above. The exercise of these warrants generated grossproceeds of $779,355.
- principal payments on capital lease obligations of ($86,134).

**Contractual Obligations**

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

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

|                                                               |   |            |          |                |   |                    |   |              |    |                            |
|--------------------------------------------------------------------|--------|-----------------|---------------|---------------------|--------|-------------------------|--------|-------------------|---------|---------------------------------|
|                                                               |   |            |          | **Operating**  |   | **Convertible**    |   | **Notes**    |    |    **Purchase**  |
|                                                               |   | **Total**  |          | **Leases**     |   | **Notes Payable**  |   | **Payable**  |    | **Obligations**            |
| Three months ended December 31, 2004                          |   | $               |  244,539 |                | $      | 63,455                  |   | $                 | -       |                            | $ | 139,084 |   |    $ | 42,000 |
| Year ending December 31, 2005                                 |   |            |  502,703 |                |   | 252,851                 |   |              | -       |                            |   | 221,852 |   |   | 28,000 |
| Year ending December 31, 2006                                 |   |            | 305,226       |                |   | 200,682                 |   |              | -       |                            |   | 104,544 |   |   | - |
| Year ending December 31, 2007                                 |   |            | 400,000       |                |   | -                       |   |              | 400,000 |                            |   | - |   |   | - |
|       Total contractual obligations  |   | $               | 1,452,468     |                | $      | 516,988                 |   | $                 | 400,000 |                            | $ | 465,480 |   | $ | 70,000 |
|                                                               |   |            |          |                |   |                    |   |              |    |                            |   |   |   |   |   |

**New Accounting Pronouncements**

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

**Description of Critical Accounting Policies**

The preparation of our financial statements in conformity with U.S. generally acceptedaccounting principles 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 andjudgments used in the preparation of our financial statements. On an ongoing basis, we evaluate our estimates, including thoserelated to the matters described below. These estimates are based on the information that is currently available to us and onvarious other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimatesunder different assumptions or conditions.

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*Revenue Recognition and Related Costs*

Change in Revenue Recognition Policy

After a careful review of the Company’s revenue recognition policies and givingconsideration to guidance provided for in Emerging Issues Task Force No. 99-19 *Reporting Revenue Gross as a Principal versus Netas an Agent* (“EITF 99-19”), the Company changed certain revenue recognition policies affecting revenues earned bywireless applications and contracts during the 4th quarter of 2003.  Prior to the 4th quarter 2003, theCompany reported revenues earned by wireless applications and contracts and cost of revenues for wireless applications andcontracts net of certain third-party costs in the statement of operations. These transactions have been reclassified to reflect agross revenue presentation with no effect on gross profit or net loss. The amount by which revenues and costs of revenues have beenreclassified for the three and nine-month periods ended September 30, 2003 is $149,042 and $363,936, respectively.

Wireless applications and contracts

Commencing during the second quarter of 2002, our resources were dedicated to thedevelopment of solutions for the mobile and wireless markets. Revenues earned from wireless applications are recognized upondelivery and acceptance by the end-user either as a one-time purchase or a monthly subscription. For content delivery partnerarrangements, 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 tothe content providers as a cost of revenues. Wireless applications and contracts cost of revenues includes all third-party hosting,testing and/or carrier distribution fees. These costs are incurred on a monthly basis and are primarily fixed in nature regardlessof the revenue generated by the related applications.

Periodically, we enter into non-recurring engineering arrangements with our contentpartners. Generally, under the terms of these agreements, we receive funding upfront to complete projects. The funding we receiveupfront is recorded as deferred revenue and is recognized as revenue under the terms of the individual arrangements. Deferredrevenue 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 accordancewith the provisions of AICPA Statement of Position 97-2, “Software Revenue Recognition”, as amended by AICPA Statementof Position 98-9 “Modification of SOP No. 97-2 Software Revenue Recognition with Respect to CertainTransactions.”  Revenue from software license fees is generally recognized upon delivery provided that a contract hasbeen executed, the vendor fee is fixed or determinable, no significant vendor obligations or uncertainties surrounding customeracceptance remain, and collection of the resulting receivable is deemed probable.

There were no costs related to the wireless license fee revenue generated during the ninemonths ended September 30, 2004 and 2003 as the license fee revenue related to technology that had been previously developed by theCompany, and there were no costs for installation, delivery or customization, or other related costs.

Contracts and license fees

            We derive certainrevenues primarily from research and development contracts for governmental agencies and the commercial licensing of ourtechnology. 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, “SoftwareRevenue Recognition”, as amended by AICPA Statement of Position 98-9 “Modification of SOP No. 97-2 Software RevenueRecognition with Respect to Certain Transactions.” Revenue from software license fees is generally recognized upon deliveryprovided that a contract has been executed, the vendor fee is fixed or determinable, no significant vendor obligations oruncertainties surrounding customer acceptance remain, and collection of the resulting receivable is deemed probable.

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*Valuation of Equity Instruments*

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

**Item 3. *Quantitative**and Qualitative DisclosuresAbout Market Risk***

 We do not use any derivative financial instruments for hedging, speculative ortrading 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 outunder the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") andChief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEOand CFO have concluded that the Company's disclosure controls and procedures are effective to ensure that information required tobe 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 thedate of their evaluation, there were no significant changes in the Company's internal controls or in other factors that couldsignificantly affect the disclosure controls, including any corrective actions with regard to significant deficiencies and materialweaknesses.

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**PART II.****OTHER INFORMATION**

**Item 1.  Legal Proceedings**

On February 25, 2003, Bowne of New York City, LLC filed a civil lawsuit in the SupremeCourt of the State of New York in the County of New York against Summus.  In this suit, Bowne claimed that it was entitled to$276,374, plus interest, for services rendered to Summus.  Summus disputed this amount.  In August 2004, the Summus andBowne settled the claim between them, whereby both parties agreed to reduce the total amount owed by Summus to Bowne to$150,000.  The parties also agreed that this amount would be paid by (i) an initial payment of $10,000, (ii) monthlyinstallments of $6,000 per month from November 1, 2004 through September 1, 2006 and (iii) a final payment of $2,000 on October 1,2006. 

**Item 2.  *Changes in Securities and Use ofProceeds***

During the three-month period ended September 30, 2004, the Company issued an aggregate of10,061,600 shares of its common stock to 6 persons and entities.  These securities were not registered under the SecuritiesAct of 1933.  Except as noted below, the securities described below were issued in transactions deemed to be exempt fromregistration under Section 4(2) of the Securities Act and Rule 506, as promulgated pursuant to the Securities Act of 1933 astransactions by an issuer not involving any public offering.  All of such securities are deemed to be "restricted securities"as defined in Rule 144(a)(3) under the Securities Act.  No commissions were paid in connection with any of theissuances.

**Stock Issuances Underlying Convertible Securities**

In July 2004, a holder of Series C preferred stock converted 60 shares of Series Cpreferred stock into 240,000 shares of Summus’ common stock.

In September 2004, a holder of Series D preferred stock converted 250 shares of Series Dpreferred stock into 1,250,000 shares of Summus’ common stock.

In September 2004, holders of convertible notes payable converted $600,000 of convertiblenotes payable into 8,571,600 shares of Summus’ common stock.

**Preferred Stock Issuance for Preferred Stock Dividends**

In August 2004, the Company issued 329 shares of Series A preferred stock in payment of$328,983 of accrued dividends for Series A preferred stock holders.

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**Item 5. *Other Information***

***Acceleration of Receivables fromQualcomm***

In September 2004, Summus entered into an amendment to its BREW developer agreement withQUALCOMM in which it agreed to participate in QUALCOMM’s Quick Pay program, which provides for the acceleration of paymentsfor amounts owed to Summus by QUALCOMM.  Summus entered into this program to reduce its account receivables position withQUALCOMM and convert these receivables into cash.  Summus began receiving payments under this program in October 2004. Under the terms of the amendment, Summus shall pay QUALCOMM five percent (5%) of the developer application or wholesale price setby Summus for each of its BREW applications for which it is owed payment.  QUALCOMM shall pay amounts owed to Summus withinthirty (30) days of the last day of each calendar month regardless of whether QUALCOMM has received payment from the carriers ornot.  All amounts received by Summus from QUALCOMM under this program are on a non-recourse basis.  Summus may terminateits participation in the QUALCOMM Quick Pay program upon thirty days written notice toQUALCOMM.  

  **Item 6. *Exhibits***

| Exhibit 31.1 |   | Rule 13a-14(a)/15a-14(a) Certification of Gary E. Ban, Chief Executive Officer    |
|--------------|--------|-----------------------------------------------------------------------------------|
| Exhibit 31.2 |   | Rule 13a-14(a)/15a-14(a) Certification of Donald T. Locke, Chief FinancialOfficer |
| Exhibit 32.1 |   | Section 1350 Certification of Gary E. Ban, Chief Executive Officer                |
| Exhibit 32.2 |   | Section 1350 Certification of Donald T. Locke, Chief Financial Officer       |

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**SIGNATURES**

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

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