Table
      of Contents


**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





þ
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR
                15(d)**
              **OF
                THE SECURITIES EXCHANGE ACT OF
                1934**
              **For
                the Quarterly Period Ended March 31,
                2007****OR** ̈
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR
                15(d)**
              **OF
                THE SECURITIES EXCHANGE ACT OF
                1934**





**For
      the Transition Period from _______ to _________**





**Commission
      File Number: 0-29625**





**OASYS
      MOBILE, INC.**


(Exact
      name of Registrant as Specified in its Charter)





Delaware
            65-0185306**(State
                of incorporation)**
            **(I.R.S.
                Employer Identification No.)**5400
                Trinity Road, Suite 208Raleigh,
                North Carolina 27607(919)
                807-5600**(Address,
                including zip code, and telephone number (including area code)
                of****Registrant’s
                principal executive offices)**





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





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





Large
      Accelerated Filer  ̈ Accelerated
      Filer  ̈ Non-Accelerated
      Filer þ




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





The
      number of shares outstanding of the Registrant’s common stock, par value $.001
      per share, as of May 10, 2007 was 13,775,336.







Table
          of Contents







**OASYS
      MOBILE, INC.**




**FORM
      10-Q**




**FOR
      THE QUARTERLY PERIOD ENDED MARCH 31, 2007**




**TABLE
      OF CONTENTS**




**Page
                No.****PART
                I**
            
            **FINANCIAL
                INFORMATION**Item
                1.
            
            Financial
                Statements (Unaudited)BalanceSheets as of March 31, 2007and December 31, 2006
            
            **3**Statementsof
                Operations for the Three-MonthPeriods Ended March 31, 2007 and 2006
            
            **4**Statementof
                Stockholders’ Deficit for theThree-Month Period Ended March 31, 2007
            
            **5**Statementsof
                Cash Flows for the Three-MonthPeriods Ended March 31, 2007 and 2006
            
            **7**Notesto
                Financial Statements
            
            **8**Item
                2.
            
            Management's
                Discussion and Analysisof
                Financial Conditionand Results of Operations
            
            **19**Item
                3.
            
            Quantitative
                and Qualitative DisclosuresAbout
                MarketRisk
            
            **33**Item
                4.
            
            Controls
                and Procedures
            
            **33****PART
                II**
            
            **OTHER
                INFORMATION**Item
                1.
            
            Legal
                Proceedings
            
            **34**Item
                5.
            
            Other
                Information
            
            **34**Item
                6.
            
            Exhibits
            
            **35**









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





**March
                31,**
            
            **December
                31,****2007**
            
            **2006****Assets**Current
                assets:Cash
            
            $
            773,241
            
            $
            1,451,498Accounts
                receivable
            
            
            2,060,394
            
            
            2,354,553Prepaids
                and other current assets
            
            
            196,414
            
            
            146,702Total
                current assets
            
            
            3,030,049
            
            
            3,952,753Equipment,
                software and furniture, net
            
            
            128,326
            
            
            152,987Total
                assets
            
            $
            3,158,375
            
            $
            4,105,740**Liabilities
                and stockholders’ deficit**Current
                liabilities:Accounts
                payable
            
            $
            2,689,895
            
            $
            2,699,201Accrued
                salaries and related costs
            
            
            238,500
            
            
            311,554Accrued
                interest
            
            
            671,751
            
            
            574,251Current
                portion of notes payable
            
            
            77,500
            
            
            77,500Current
                portion of capital lease obligations
            
            
            15,486
            
            
            14,900Convertible
                notes payable
            
            
            8,000,000
            
            
            8,000,000Discount
                on convertible notes payable
            
            
            (1,235,993
            )
            
            (2,458,404
            )Total
                current liabilities
            
            
            10,457,139
            
            
            9,219,002Long-term
                liabilities:Capital
                lease obligations
            
            
            14,479
            
            
            18,697Total
                liabilities
            
            
            10,471,618
            
            
            9,237,699Stockholders’
                deficit:Series
                A convertible preferred stock, $0.001 par value; 10,000 shares designated,
                2,407 shares issued and outstanding at March 31, 2007 and December
                31,
                2006 (liquidation preference of $2,904,447 as of March 31,
                2007)
            
            
            2,407,295
            
            
            2,407,295Common
                stock, $.001 par value, 185,000,000 shares authorized; 13,779,186
                and
                13,752,686 issued and 13,775,336 and 13,748,836 outstanding at March
                31,
                2007 and December 31, 2006, respectively
            
            
            13,775
            
            
            13,749Additional
                paid-in capital
            
            
            67,981,003
            
            
            67,839,964Accumulated
                deficit
            
            
            (77,487,697
            )
            
            (75,165,348
            )Treasury
                stock, at cost (3,850 shares)
            
            
            (227,619
            )
            
            (227,619
            )Total
                stockholders’ deficit
            
            
            (7,313,243
            )
            
            (5,131,959
            )Total
                liabilities and stockholders’ deficit
            
            $
            3,158,375
            
            $
            4,105,740










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




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          of Contents







**OASYS
      MOBILE, INC.**


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




**Three-Month
                Period Ended****March
                31, 2007**
            
            **March
                31,
                2006**Revenues:Wireless applications and contracts
            
            $
            2,514,194
            
            $
            2,096,515Wireless license fees
            
            
            -
            
            
            20,650Total revenues
            
            
            2,514,194
            
            
            2,117,165Cost
                of revenues:Wireless applications and contracts
            
            
            1,529,401
            
            
            1,110,790Total cost of revenues
            
            
            1,529,401
            
            
            1,110,790Gross
                profit
            
            
            984,793
            
            
            1,006,375Operating
                expenses:General and administrative
            
            
            847,259
            
            
            1,030,451Research and development
            
            
            892,017
            
            
            841,873Sales and marketing
            
            
            220,208
            
            
            1,229,802Non-cash consulting expense
            
            
            15,000
            
            
            -Total operating
                expenses
            
            
            1,974,484
            
            
            3,102,126Loss from
                operations
            
            
            (989,691
            )
            
            (2,095,751
            )Interest
                expense
            
            
            (110,247
            )
            
            (42,323
            )Amortization
                of discount on debt and beneficial
              conversion feature
            
            
            (1,222,411
            )
            
            (1,222,411
            )Net
                loss
            
            $
            (2,322,349
            )
            $
            (3,360,485
            )Net
                loss applicable to common stockholders:Net loss
            
            $
            (2,322,349
            )
            $
            (3,360,485
            )Preferred stock dividends
            
            
            (48,140
            )
            
            (48,140
            )Net
                loss applicable to common stockholders
            
            $
            (2,370,489
            )
            $
            (3,408,625
            )Per
                share amounts (basic and diluted)
            
            $
            (0.17
            )
            $
            (0.25
            )Weighted
                average shares of common stock outstanding
            
            
            13,959,364
            
            
            13,519,704







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




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          of Contents







**OASYS
      MOBILE, INC.**


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




**Preferred
                Stock**
            
            
            
            
            
            **Additional****Series
                A**
            
            **Common
                Stock**
            
            **Paid-In****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital****Balance
                at December 31, 2006**
            
            
            2,407
            
            $
            2,407,295
            
            
            13,748,836
            
            $
            13,749
            
            $
            67,839,964Common
                stock issued for
              accrued
                expenses
            
            
            -
            
            
            -
            
            
            24,000
            
            
            24
            
            
            10,536Common
                stock issued for services
            
            
            -
            
            
            -
            
            
            2,500
            
            
            2
            
            
            1,098Non-cash
                consulting expense
              related
                to the vesting of
              restricted
                stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            15,000Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            114,405Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Balance
                at March 31, 2007**
            
            
            2,407
            
            $
            2,407,295
            
            
            13,775,336
            
            $
            13,775
            
            $
            67,981,003




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




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**OASYS
      MOBILE, INC.**






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




**Total****Accumulated**
            
            **Treasury**
            
            **Stockholders’****Deficit**
            
            **Stock**
            
            **Deficit****Balance
                at December 31, 2006**
            
            $
            (75,165,348
            )
            $
            (227,619
            )
            $
            (5,131,959
            )Common
                stock issued for
              accrued
                expenses
            
            
            -
            
            
            -
            
            
            10,560Common
                stock issued for services
            
            
            -
            
            
            -
            
            
            1,100Non-cash
                consulting expense
              related
                to the vesting of
              restricted
                stock
            
            
            -
            
            
            -
            
            
            15,000Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            114,405Net
                loss for the period
            
            
            (2,322,349
            )
            
            -
            
            
            (2,322,349
            )**Balance
                at March 31, 2007**
            
            $
            (77,487,697
            )
            $
            (227,619
            )
            $
            (7,313,243
            )




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




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**OASYS
      MOBILE, INC.**




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




**Three-Month
                Period Ended****March
                31, 2007**
            
            **March
                31, 2006****Operating
                activities**Net
                loss
            
            $
            (2,322,349
            )
            $
            (3,360,485
            )Adjustments
                to reconcile net loss to net cash used in operatingactivities:Depreciation
                and amortization
            
            
            15,705
            
            
            12,528Stock-based
                compensation
            
            
            164,715
            
            
            316,416Gain
                on disposal of furniture
            
            
            (344
            )
            
            —Common
                stock options and warrants issued for services
            
            
            1,100
            
            
            —Amortization
                of restricted stock
            
            
            15,000
            
            
            —Amortization
                of discount on debt and beneficial conversion feature
            
            
            1,222,411
            
            
            1,222,411Allowance
                for doubtful accounts
            
            
            5,000
            
            
            —Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            289,159
            
            
            (779,364
            )Prepaid
                and other assets
            
            
            (49,712
            )
            
            (119,336
            )Accounts
                payable and other accrued expenses
            
            
            (49,056
            )
            
            13,266Accrued
                interest
            
            
            97,500
            
            
            124,917Accrued
                salaries and related costs
            
            
            (73,054
            )
            
            (3,075
            )Net
                cash used in operating activities
            
            
            (683,925
            )
            
            (2,572,722
            )**Investing
                activities**Proceeds
                from sale of furniture
            
            
            9,300
            
            
            —Purchases
                of equipment, software and furniture
            
            
            —
            
            
            (19,347
            )Net
                cash provided by (used in) investing activities
            
            
            9,300
            
            
            (19,347
            )**Financing
                activities**Principal
                payments on capital lease obligations
            
            
            (3,632
            )
            
            —Net
                cash used in financing activities
            
            
            (3,632
            )
            
            —Net
                decrease in cash
            
            
            (678,257
            )
            
            (2,592,069
            )Cash
                at beginning of period
            
            
            1,451,498
            
            
            8,985,158Cash
                at end of period
            
            $
            773,241
            
            $
            6,393,089**Supplemental
                disclosures of cash flow information**Cash
                paid for interest
            
            $
            23,767
            
            $
            —







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




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          of Contents







**Oasys
      Mobile, Inc.**




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






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




*Basis
      of Presentation*





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. As
      shown
      in the financial statements for the three-month period ended March 31, 2007,
      the
      Company incurred a net loss of $2,322,349 and experienced negative cash flows
      from operations. The Company’s continuation
      as a going concern is dependent
      on its ability to generate sufficient cash flow to meet its obligations on
      a
      timely basis, to obtain additional financing, and ultimately to attain
      profitability. The Company is actively promoting and expanding its product
      line.
      The Company expects that increased revenues and cost reductions will reduce
      its
      operating losses in future periods.





The
      Company’s convertible debt of $8,000,000 is due on June 30, 2007. The Company
      does not have the funds to pay the principal and interest due on the convertible
      debt, and does not expect to generate such funds from operations prior to its
      maturity on June 30, 2007. The Company has engaged an investment banker to
      assist the Company in obtaining an equity investment or debt issuance to pay
      the
      principal and interest on the convertible debt at its maturity, plus raise
      additional working capital. Alternatively, or in addition thereof, the
      investment banker is assisting the Company in evaluating certain strategic
      alternatives, including investments from strategic partners or business
      combinations, including the sale of the business. There are no assurances that
      the Company will be successful in obtaining funds that would allow it to pay
      the
      principal and interest due on its convertible debt at the June 30, 2007 maturity
      date, or to raise additional working capital necessary to continue the
      operations of the business.





The
      financial statements presented herein do not include any adjustments relating
      to
      the recoverability of assets and classification of liabilities that might be
      necessary should the Company be unable to continue as a going
      concern.





The
      accompanying unaudited financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States for interim
      financial information and with the instructions to Form 10-Q and Article 10
      of
      Regulation S-X. Accordingly, these financial statements do not include all
      of
      the information and notes required by accounting principles generally accepted
      in the United States. In the opinion of management, all adjustments (consisting
      of normal recurring accruals) considered necessary for a fair presentation
      of
      financial condition and results of operations have been included. Operating
      results for the three-month period ended March 31, 2007, are not necessarily
      indicative of the results that may be attained for the entire year. For further
      information, refer to the financial statements and notes thereto included in
      the
      Company’s Form 10-K for the year ended December 31, 2006.





*Business*





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





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




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





Oasys
      Mobile builds end-user applications for most major mobile platforms, including
      QUALCOMM’s Binary Runtime Environment for WirelessTM (BREWTM), JavaTM 2 Platform,
      Micro Edition (J2METM), SymbianTM OS and Wireless Application Protocol (WAP). We
      distribute our applications through major wireless carriers who make our
      products available to their customers. Oasys Mobile currently has relationships
      with carriers that account for 97% of all U.S. wireless subscribers. We also
      have relationships with international carriers covering Europe, Canada, Latin
      America, Asia, Australia and Israel.





We
      have
      completed the development and deployment of more than thirty-five (35) wireless
      applications on a total of seventy-five (75) wireless carriers and distribution
      partners. Some of our United States based wireless carriers include Alltel,
      Cingular, Sprint Nextel, T-Mobile, US Cellular and Verizon Wireless. These
      applications can be purchased by the end-user as a one-time purchase, or a
      monthly subscription, depending on content, product function, and/or carrier
      preferences.





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




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




*Estimates*




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





*Reclassifications*





Certain
      2006 amounts in the accompanying financial statements have been reclassified
      to
      conform to the 2007 presentation. These reclassifications had no effect on
      previously reported net loss or stockholders’ deficit.


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




*Revenue
      Recognition and Related Costs*




Wireless
      applications and contracts




Revenues
      earned from wireless applications are recognized upon delivery and acceptance
      by
      the end-user either as a one-time purchase or a monthly subscription. For
      content delivery partner arrangements, whereby the Company remits a portion
      of
      the revenues earned through the sale of the Company’s applications, revenue is
      recorded in accordance with Emerging Issues Task Force (“EITF”) 99-19,
“ *Reporting
      Revenues Gross as a Principal Versus Net as an Agent.”* The
      Company recognizes the cost of payments to the content providers as a cost
      of
      revenues. Wireless applications and contracts cost of revenues includes all
      third-party hosting and carrier distribution fees. These costs are incurred
      on a
      monthly basis and are primarily fixed in nature regardless of the revenue
      generated by the related applications.





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





Wireless
      License Fees





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





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




*Segments*




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







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




*Equipment,
      Software and Furniture*




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




*Software
      Development Costs*




Capitalization
      of software development costs begins with the establishment of technological
      feasibility of new or enhanced software products. Technological feasibility
      of a
      computer software product is established when the Company has completed all
      planning, designing, coding and testing that is necessary to establish that
      the
      software product can be produced to meet design specifications including
      functions, features and technical performance requirements. All costs incurred
      prior to establishing technological feasibility of a software product are
      charged to research and development expense as incurred.




No
      capitalized software development costs were incurred during the three-month
      periods ended March 31, 2007 and 2006.




*Income
      Taxes*




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




S *tock-Based
      Compensation*




On
      January 1, 2006, the Company adopted SFAS No. 123(R), “ *Share-Based
      Payment* ,”
which
      requires us to account for share-based payment transactions using a fair
      value-based method and recognize the related expense in our results of
      operations. SFAS No. 123(R) allows companies to choose one of two
      transition methods: the modified prospective transition method or the modified
      retrospective transition method. We chose to use the modified prospective
      transition methodology. Under this transition method, our compensation cost
      recognized includes compensation costs for all share-based payments granted
      prior to, but not yet vested as of, January 1, 2006 based on the grant date
      fair value estimated in accordance with the original provisions of SFAS
      No. 123, and compensation cost for all share-based payments granted
      subsequent to January 1, 2006 based on the grant date fair value estimated
      in accordance with the provisions of SFAS No. 123(R). Accordingly, we did
      not restate our financial results for prior periods.





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





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




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 and EITF 96-18, “ *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction With Selling, Goods or Services.”* EITF
      96-18 requires that compensation be measured at the end of each reporting period
      for changes in the fair value of the Company’s stock until the options are
      vested.





Refer
      to
      Footnote 6 (“Stock-Based Compensation”) for a further discussion of stock-based
      compensation.




*Net
      Loss Per Share*




Loss
      per
      share has been calculated in accordance with SFAS No. 128, *“Earnings
      Per Share.”* Basic
      loss per share was computed by dividing the net loss for each period presented
      by the weighted average number of shares of common stock outstanding for such
      period. Although the Company has potential common stock equivalents related
      to
      its outstanding stock options, warrants, preferred stock and convertible debt,
      these potential common stock equivalents were not included in diluted loss
      per
      share for each period presented because the effect would have been
      antidilutive.  The weighted average number of shares includes the effect of
      shares granted to executive management and a consultant in February
      2007.




*New
      Accounting Pronouncements*




In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      (“FIN”) No. 48, “ *Accounting
      for Uncertainty in Income Taxes* .”
FIN
      No. 48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN No. 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN No. 48 was effective for the
      Company’s first fiscal year beginning after December 15, 2006. The
      January 1, 2007 adoption of FIN No. 48 did not have a material effect on
      the Company’s financial statements.





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





In
      February 2007, the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* .”
      SFAS No. 159 permits companies to choose to measure at fair value, on
      an instrument-by-instrument basis, many financial instruments and certain other
      assets and liabilities at fair value that are not currently required to be
      measured. SFAS No. 159 is effective as of the beginning of a fiscal year
      that begins after November 15, 2007. The Company is currently in the
      process of evaluating the impact that the adoption of SFAS No. 159
      will have on its financial position, results of operations and cash flows.





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**3. Convertible
      Notes Payable**




*November
      2005 Convertible Notes Payable*




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





At
      the
      closing of the Senior Secured Debentures, the investors received certain A
      Warrants, B Warrants and C-1 Warrants. The A Warrants provide the right to
      purchase an aggregate of 2,000,000 units at an exercise price of $2.00 per
      unit,
      each unit consisting of one share of the Company’s common stock and a warrant to
      purchase 4/10 of a share of the Company’s common stock (the “C-2 Warrant”). The
      A Warrants were exercisable at any time until June 29, 2006. The B Warrants
      are
      exercisable at any time until November 18, 2007 for 1,355,392 shares of the
      Company’s common stock and have an exercise price of $2.71 per share. The C-1
      Warrants are exercisable at any time until November 18, 2010 for an additional
      1,355,392 shares of the Company’s common stock and have an exercise price of
      $3.54 per share. The C-2 Warrant has substantially the same terms and conditions
      as the C-1 Warrant.





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





The
      discount on the debt is being amortized to interest expense over the term of
      the
      Senior Secured  Debentures beginning on the date of issuance. Amortization of the discount of the
      Senior  Secured  Debentures was
      $1,222,411 for the three-month periods ended March 31, 2007 and 2006,
      respectively.





The
      principal balance of the Senior Secured Debentures is $8,000,000 as of March
      31,
      2007, and matures on June 30, 2007. The discount related to the Senior Secured
      Debentures is $1,235,993 as of March 31, 2007, and is shown as a
      contra-liability on the balance sheet.





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





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




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





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





The
      Company recorded an additional expense on the statement of operations for the
      year ended December 31, 2006 of $1,478,585 in conjunction with the Amended
      A
      Warrants issued in conjunction with the July 27, 2006 Modification Agreement
      related to the Securities Purchase Agreement.




**4.**  **Common
      Stock**




As
      of
      March 31, 2007, the Company had reserved shares of its authorized 185,000,000
      shares of common stock for future issuance as follows:




Conversion
                of convertible debt
            
            
            4,000,000Series
                A convertible preferred stock and related dividends
            
            
            20,396Outstanding
                common stock warrants
            
            
            7,602,340Outstanding
                stock options
            
            
            2,214,904Possible
                future issuance under stock option plans
            
            
            421,790Total
            
            
            14,259,430





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




***Series
      A Convertible Preferred Stock***




The
      Company has 2,407 shares of Series A convertible preferred stock (“Series A
      preferred stock”) outstanding as of March 31, 2007. These shares are valued
      based upon the liquidation preference (the “Liquidation Preference”) of Series A
      preferred stock of $1,000 per share.




The
      holders of the Series A preferred stock are entitled to receive cumulative
      cash
      dividends at a rate of 8% per annum of the initial liquidation preference of
      $1,000 per share. The Company, at its election, can provide for the payment
      of
      dividends on the Series A preferred stock through the issuance of additional
      shares of Series A preferred stock having an aggregate initial liquidation
      preference equal to the amount of cash dividends otherwise payable. Dividends
      are cumulative from the date of issuance and are payable, when, as and if
      declared by the Board of Directors. The Company is restricted from paying
      dividends on common stock until dividends are paid on Series A preferred in
      full. No dividends have been paid in 2006 or 2007. Cumulative unpaid dividends
      at March 31, 2007 were $497,447.




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




**6.**  **Stock-Based
      Compensation**




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





The
      adoption of SFAS No. 123(R) had a material impact on our results of
      operations. Our statements of operations for the three-months ended March 31,
      2007 and 2006 include the following stock-based compensation
      expense:




Three
                months ended
              March
                31, 2007
            
            Three
                months ended
              March
                31, 2006General
                and administrative
            
            $
            134,508
            
            $
            213,179Research
                and development
            
            
            24,066
            
            
            23,995Sales
                and marketing
            
            
            6,141
            
            
            79,242$
            164,715
            
            $
            316,416





Unrecognized
      stock-based compensation expense expected to be recognized over an estimated
      weighted-average amortization period of 0.84 years was approximately $418,000
      at
      March 31, 2007.





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**6.**  **Stock-Based
      Compensation (continued)**




Time-Based
      Stock Awards





The
      fair
      value of each time-based award is estimated on the date of grant using the
      Black-Scholes option valuation model, which uses the assumptions described
      below. Our weighted-average assumptions used in the Black-Scholes valuation
      model for equity awards with time-based vesting provisions granted during the
      three months ended March 31, 2007 and 2006 are shown in the following table:





Three
                months ended
              March
                31, 2007
            
            Three
                months ended
              March
                31, 2006Expected
                volatility
            
            
            95.63
            %
            
            96.89
            %Expected
                dividends
            
            
            0
            %
            
            0
            %Expected
                terms
            
            
            5.77
                Years for Employees
              and
                10 Years for Directors
            
            
            5.77
                Years for Employees
              and
                10 Years for DirectorsRisk-free
                interest rate
            
            
            4.44
                - 4.82
            %
            
            4.31
                - 4.69
            %





The
      weighted average fair value of options granted during the three months ended
      March 31, 2007 and 2006 was $0.33 and $1.74, respectively.





The
      expected volatility rate was estimated based on historical volatility of the
      Company’s common stock over approximately a five year period. The expected term
      for employees was estimated based on a simplified method, as allowed under
      SEC
      Staff Accounting Bulletin No. 107, averaging the vesting term and original
      contractual term. The expected term for directors was estimated based on
      historical experience and specific terms in the option agreements. The risk-free
      interest rate for periods within the contractual life of the option is based
      on
      U.S. Treasury securities. The pre-vesting forfeiture rate used for 2007 and
      2006
      was based on historical rates. As required under SFAS No. 123(R), we will
      adjust the estimated forfeiture rate to our actual experience. Management will
      continue to assess the assumptions and methodologies used to calculate estimated
      fair value of share-based compensation. Circumstances may change and additional
      data may become available over time, which could result in changes to these
      assumptions and methodologies, and thereby materially impact our fair value
      determination.





A
      summary
      of the Company’s stock option activity is as follows:





**Shares**
            
            **Weighted**
              **Average**
              **Exercise
                Price**
            
            **Average**
              **Remaining**
              **Contractual**
              **Term
                (years)**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                - December 31, 2006
            
            
            2,294,646
            
            $
            4.26Granted
            
            
            10,800
            
            
            0.43Exercised
            
            
            -
            
            
            -Forfeited
            
            
            (90,542
            )
            
            11.62Outstanding
                - March 31, 2007
            
            
            2,214,904
            
            $
            3.89
            
            
            5.49
            
            $
            54Exercisable
                - March 31, 2007
            
            
            1,907,291
            
            $
            4.23
            
            
            4.91
            
            $
            1





The
      aggregate intrinsic value represents the pretax value (the period’s closing
      market price, less the exercise price, times the number of in-the-money options)
      that would have been received by all option holders had they exercised their
      options at the end of the period. The exercise price of stock options granted
      during the three-months ended March 31, 2007 was equal to the market price
      of
      the underlying common stock on the grant date.





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**6.**  **Stock-Based
      Compensation (continued)**




Restricted
      Stock





During
      2006, the Company granted 100,000 shares of restricted common stock to a Board
      member for consulting services. The grant-date fair value of these shares was
      $0.80 per share. These shares are vesting monthly over the period of one year.
      As of March 31, 2007, there were 37,500 unvested shares and unamortized
      compensation expense related to the unvested shares under this award of $30,000.
      Expense of $15,000 is recorded as non-cash consulting expense in the statement
      of operations for the three months ended March 31, 2007.





During
      2006, the Company accrued amounts relating to restricted stock payable to
      directors as compensation for services in 2006 as directors of the Company.
      In
      January 2007, the Company issued 24,000 of these shares to a former board
      member. Amounts accrued at March 31, 2007 are for 120,000 shares of restricted
      stock and total $39,600. These shares were not issued as of March 31,
      2007.





During
      2007, the Company accrued amounts relating to restricted stock payable to
      directors as compensation for services in 2007 as directors of the Company.
      Amounts accrued at March 31, 2007 are for 30,000 shares of restricted stock
      and
      total $9,900, based on the fair value of the underlying stock as of March 31,
      2007. These shares were not issued as of March 31, 2007.





During
      2007, the Company accrued amounts relating to restricted stock payable to
      certain executive management and a consultant as compensation for services.
      These shares vested immediately, and therefore the expense was recorded in
      the
      three months ended March 31, 2007. Amounts accrued at March 31, 2007 are for
      315,000 shares of restricted stock and total $91,350, based on the fair value
      of
      the underlying stock on the grant date. These shares were not issued as of
      March
      31, 2007.





During
      2007, there were also additional restricted stock grants made to the executive
      officers, under which the restrictions would lapse based on stock price
      performance. The Compensation Committee of the Company has revoked these grants
      and each executive officer as agreed to such revocation. These shares were
      never
      issued and no expense was recorded in the statement of operations in the three
      months ended March 31, 2007.





A
      summary
      of the Company’s nonvested restricted stock activity is as follows:





**Shares**
            
            **Weighted**
              **Average
                Grant**
              **Date
                Fair**
              **Value**Outstanding
                - December 31, 2006
            
            
            56,250
            
            $
            0.80Granted
            
            
            -
            
            
            -Vested
            
            
            18,750
            
            
            0.80Forfeited
            
            
            -
            
            
            -Outstanding
                - March 31, 2007
            
            
            37,500
            
            $
            0.80





During
      the three months ended March 31, 2007, 18,750 shares of restricted stock vested,
      with a fair value of $15,000.


17
 Table
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**7.**  **Commitments
      and Contingencies**




***Lawsuit
      filed by Dr. Bjorn Jawerth, former Chief Executive Officer of the
      Company***





In
      March
      2007, Bjorn Jawerth, the Company’s former Chief Executive Officer, filed a
      lawsuit against the Company in the General Court of Justice, Superior Court
      Division, in Wake County in the State of North Carolina. In this action, Dr.
      Jawerth alleges (i) that the Company failed to pay him $108,500 in back wages
      attributable to unpaid wages, the payment of which was deferred by agreement
      between the Company and Dr. Jawerth, (ii) that the Company owes Dr. Jawerth
      certain five percent (5%) royalties from Oasys Mobile’s gross revenue arising
      under Oasys Mobile’s Inventions Awards Plan, (iii) that the Company failed to
      assist Dr. Jawerth with the private sale of up to 1,666,667 shares of his common
      stock at a price per share of not less than $1.50 per share (this number of
      shares and price set forth in Dr. Jawerth’s suit do not reflect the one (1)-for
      ten (10) reverse stock split of the Company that took place on March 11, 2005)
      and (iv) that the Company failed to issue Dr. Jawerth stock options in Oasys
      Mobile following the private sale of his stock, to replenish his ownership
      in
      Oasys Mobile to a position substantially equivalent to his pre-sale level.





Oasys
      Mobile has accrued $81,106 in deferred wages owed to Dr. Jawerth, which were
      deferred with Dr. Jawerth’s agreement. Dr. Jawerth’s deferred salary amount of
      $81,106 is recorded as accrued salaries in the Company’s balance sheet as of
      March 31, 2007 and December 31, 2006.





Oasys
      Mobile maintains that it has no obligations to Dr. Jawerth related to the
      private sale of Dr. Jawerth’s shares, the 5% royalty claimed by Dr. Jawerth or
      the replenishment of his ownership in Oasys Mobile.





On
      May 7,
      2007, Oasys Mobile filed a motion to dismiss all counts as set forth in the
      Dr.
      Jawerth’s suit. The court has not scheduled when Oasys Mobile’s motion will be
      heard.




***Cancellation
      of warrants***




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




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




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




***Forward-Looking
      Statements***




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




·
            our
                ability to raise capital to pay our 6% Senior Secured Convertible
                Debentures balance of $8,000,000, plus accrued interest, due June
                30,
                2007;




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




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




·
            our
                future revenue opportunities;




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




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




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




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




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




·
            the
                future growth of our customer base;




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




·
            the
                lack of patent protection with respect to our technology;




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




·
            evolving
                technology trends.






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




19
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          of Contents





**Overview**





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





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





·  Branded
      Mobile Applications;


·  Aggregation;
      and


·  White
      Label Services.




*Branded
      Mobile Applications*





Oasys
      Mobile is a leading provider of premium mobile media content, products and
      services that are distributed through top-tier wireless carriers in the United
      States and abroad. We develop, publish and distribute more than 35 branded
      mobile applications in four major categories:





·  Games;


·  Messaging;


·  Personalization;
      and


·  Entertainment.





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





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





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





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




*Aggregation*





During
      the third quarter of 2006, Oasys Mobile was selected by Sprint Nextel to be
      an
      aggregator of personalization content across its wireless network. Oasys Mobile
      is one of two designated companies to facilitate the sale of personalization
      content on the carrier deck for Sprint Nextel and has expanded the distribution
      to include the Boost distribution deck. Oasys Mobile manages the aggregation
      of
      Sprint PCS personalization content offered by Sprint Nextel through its PCS
      Vision service. The offerings via Sprint’s PCS Vision Service includes the
      "Ringers" category (ringtones, video ringtones), and "Screensavers" category
      that includes static, animated, and video wallpapers.





Oasys
      Mobile has partnered with 9-Squared, Zingy, Corbis, SmartPhones, and The Orchard
      to launch their personalization content on the Sprint Nextel
      network.





Oasys
      Mobile is currently in discussions with other wireless carriers to further
      grow
      its aggregation business. In addition, the Company continues to seek out and
      establish relationships with new content partners for its aggregation
      platform.





*White
      Label Services*





In
      January 2006, we launched OasysMobile.com, a mobile lifestyle portal that was
      directed at the teen and young adult market that allowed users to access content
      outside of the distribution decks of the wireless carriers. Oasys Mobile entered
      into agreements with several third-party providers for the distribution of
      these
      providers’ content through the OasysMobile.com portal. Through OasysMobile.com,
      we offer a catalogue of unique content, including ringtones, truetones,
      wallpapers and games. All users of the OasysMobile.com portal can safely store
      any purchased content in a virtual “locker” that can be accessed anytime,
      anywhere by a user. These password-protected lockers provide secure, online
      storage for a user’s mobile content should they upgrade, lose or break their
      mobile device. In most wireless systems, when a user’s handset is lost, stolen
      or upgraded, all of the valuable content that has already been purchased by
      that
      user is also lost and must be repurchased. Our virtual locker allows consumers
      to eliminate this concern and keep the wireless content they have previously
      purchased. We have filed a patent application and have a patent pending on
      this
      virtual locker technology and mechanism.





Because
      of low traffic flow and low margins in our off-deck, direct-to-consumer
      business, Oasys Mobile recently reassessed the portal operations and redirected
      its resources in an effort to monetize the technology investment in the
      OasysMobile.com portal through its White-Label efforts.





The
      Oasys
      White-Label products and services leverage the same content and functionality
      as
      OasysMobile.com and the WAP portal and give wireless carriers and content
      providers access to alternate distribution channels, which allows them to offer
      their mobile applications outside of the wireless carriers’ distribution decks
      and reach more customers. Oasys Mobile’s White-Label portal services can be
      customized for any carrier or content partner to create their own branded mobile
      content storefront to distribute products while maintaining a consistent brand
      identity. These portals would also utilize Oasys Mobile’s patent pending locker
      technology.





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





*Other
      Matters*





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





*Revenues*




We
      generate the vast majority of our revenues from wireless carriers that market
      and distribute our mobile applications and games. These carriers generally
      charge a one-time purchase fee or a monthly subscription fee on their
      subscribers’ phone bills when the subscribers download our applications and
      games to their mobile phones. The carriers perform the billing and collection
      functions and generally remit to us a contractual fee or a contractual
      percentage of their collected fee for each game. We recognize as revenues the
      percentage of the fees due to us from the carrier. End users may also initiate
      the purchase of our applications and games through various Internet portal
      sites
      or through other delivery mechanisms, with carriers generally continuing to
      be
      responsible for billing, collecting and remitting to us a portion of their
      fees.




*Cost
      of Revenues*




Our
      cost
      of revenues consists primarily of royalties that we pay to content partners
      from
      whom we license brands and content. We recognize royalties in cost of revenues
      based upon the revenues derived from the relevant application or game multiplied
      by the applicable royalty rate.





*Gross
      Profit*




Our
      gross
      margin is determined principally by the mix of applications and games that
      we
      license. Our applications and games based on licensed intellectual property
      require us to pay royalties to the licensor and the royalty rates in our
      licenses vary significantly. Our original games, which are based on our own
      intellectual property, require no royalty payments to licensors. There are
      multiple internal and external factors that affect the mix of revenues from
      licensed games and original games, including the overall number of licensed
      games and original games available for sale during a particular period, the
      extent of our and our carriers’ marketing efforts for each game, and the deck
      placement of each game on our carriers’ mobile handsets. In addition, we realize
      a lower fixed gross margin on our aggregation business. If our product mix
      shifts more to licensed games or games with higher royalty rates and/or
      aggregation, our gross margin would decline.




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*Operating
      Expenses*




Our
      operating expenses primarily include research and development expenses, sales
      and marketing expenses and general and administrative expenses.




·
            *Research
                and Development.*Our
                research and development expenses consist primarily of salaries and
                benefits for employees working on creating, developing, porting,
                quality
                assurance, carrier certification and deployment of our games, on
                technologies related to interoperating with our various wireless
                carriers
                and on our internal platforms, and payments to third parties for
                developing and porting of our games. We devote substantial resources
                to
                the development, porting and quality assurance of our games and expect
                this to continue in the future.





·
            *Sales
                and Marketing.*Our
                sales and marketing expenses consist primarily of salaries, benefits
                and
                incentive compensation for sales and marketing personnel, expenses
                for
                advertising, trade shows, public relations and other promotional
                and
                marketing activities, expenses for general business development
                activities, and travel and entertainment expenses.





·
            *General
                and Administrative.*Our
                general and administrative expenses consist primarily of salaries
                and
                benefits for general and administrative personnel, consulting fees,
                legal,
                accounting and other professional fees, information technology costs
                and
                facilities costs.




Based
      on
      our current revenue and expense projections, we expect that our various
      operating expense categories will decline as a percentage of revenues. We could
      fail to increase our revenues as anticipated, and we could decide to increase
      expenses in one or more categories to respond to competitive pressures or for
      other reasons. In these cases and others, it is possible that one or more of
      our
      operating expense categories would not decline as a percentage of revenues.




*Interest
      Expense, Net*




Interest
      expense, net, includes interest expense on capital leases, notes payable and
      convertible notes payable and interest income earned.





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**Results
      of Operations**




**Three-Month
      Period Ended March 31, 2007 Compared to Three-Month Period Ended March 31,
      2006**




*Revenues*




**Three
                Months Ended March 31****%
                of Total**
            
            
            
            **%
                of Total****2007**
            
            **Revenues**
            
            **2006**
            
            **Revenues**
            
            **$
                Change**
            
            **%
                Change**Revenues
                by category:Wireless
                applications and
              contracts
            
            $
            2,514,194
            
            
            100.0
            %
            $
            2,096,515
            
            
            99.0
            %
            $
            417,679
            
            
            19.9
            %Wireless
                license fees
            
            
            -
            
            
            -
            
            
            20,650
            
            
            1.0
            
            
            (20,650
            )
            
            (100.0
            )Total
                revenues
            
            $
            2,514,194
            
            
            100.0
            %
            $
            2,117,165
            
            
            100.0
            %
            $
            397,029
            
            
            18.8
            %




*Wireless
      Applications and Contracts.* Revenue
      from wireless applications and contracts increased $417,679 to $2,514,194 in
      the
      three-month period ended March 31, 2007, up 19.9% from $2,096,515 in the
      three-month period ended March 31, 2006. The increase in revenue from wireless
      applications and contracts resulted from the increase in sales of existing
      wireless applications and additional wireless applications developed by Oasys
      Mobile, launched by several wireless carriers and purchased by end-users. We
      continue to increase our subscriber base as well as expanding to new carriers.
      The Company entered into a contract with Sprint in 2006 to be one of two mobile
      content aggregators for personalization content. The Company receives a fixed
      percentage of all mobile personalization content that is distributed through
      this relationship.  In
      addition, the Company launched several new products during 2006 that were not
      available during the three-month period ended March 31, 2006, including UNO®
Freefall, Rock’em Sock’em TM ,
      Karpov
      Chess and Crazy Eights. The Company also expanded distribution during the last
      quarter of 2006 of the Hooters Calendar and College and Greek Logos
      applications.




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




*Wireless
      License Fees.* Revenue
      earned from wireless license fees totaled $20,650 in the three-month period
      ended March 31, 2006. There was no revenue from license fees in the three-month
      period ended March 31, 2007.




*Costs
      of Revenues*




**Three
                Months Ended March 31****2007**
            
            **2006**
            
            **$
                Change**
            
            **%
                Change**Cost
                of revenues by category:Wireless applications and contracts
            
            $
            1,529,401
            
            $
            1,110,790
            
            $
            418,611
            
            
            37.7
            %Total
                cost of revenues
            
            $
            1,529,401
            
            $
            1,110,790
            
            $
            418,611
            
            
            37.7
            %


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*Wireless
      Applications and Contracts.*Costs
      of
      wireless applications and contracts increased $418,611 to $1,529,401 in the
      three-month period ended March 31, 2007, up 37.7% from $1,110,790 in the
      three-month period ended March 31, 2006. The increase in costs of wireless
      applications and contracts resulted from the increase in sales of existing
      wireless applications and additional wireless applications developed by the
      Company, launched by several wireless carriers and purchased by end-users.
      These
      costs are direct costs associated with the sale and delivery of wireless
      applications and primarily consist of third-party hosting fees and fees
      associated with content information provided by our content providers for
      wireless applications which were deployed during 2006. The costs related to
      third-party hosting are incurred on a monthly basis and are primarily fixed
      in
      nature regardless of the revenue generated by the related applications. Our
      contracts with our content partners have various cost structures. Certain
      content partner arrangements have minimum payment requirements regardless of
      revenues. Therefore, our costs of revenues could vary depending on the mix
      of
      products sold in a given period.




In
      addition, the Company was selected by Sprint during 2006 to be one of two mobile
      content aggregators for personalization content. The Company receives a fixed
      percentage of all mobile personalization content that is distributed through
      this relationship. This percentage is significantly less than other content
      partner arrangements, under which the Company develops games and
      applications. **




*Gross
      Profit*




**Three
                Months Ended March
                31****2007**
            
            **2006**
            
            **$
                Change**
            
            **%
                Change**Gross
                profit by category:Wireless applications and contracts
            
            $
            984,793
            
            $
            985,725
            
            $
            (932
            )
            
            (0.1
            )%Wireless
              license
              fees
            
            
            
            
            
            20,650
            
            
            (20,650
            )
            
            (100.0
            )%Total
                gross profit
            
            $
            984,793
            
            $
            1,006,375
            
            $
            (21,582
            )
            
            (2.1
            )%




*Wireless
      Applications and Contracts.* Gross
      profit resulting from the development and deployment of wireless applications
      decreased $932 to $984,793 for the three-month period ended March 31, 2007,
      a
      decrease of 0.1% over the gross profit for the three-month period ended March
      31, 2006 of $985,725. The decrease in gross profit resulting from these
      activities is due primarily to certain new content partner arrangements with
      higher royalty payments. Our contracts with our content partners have various
      cost structures. Certain content partner arrangements have minimum payment
      requirements regardless of revenues. Therefore, our gross profit could vary
      depending on the mix of products sold in a given period. The costs for these
      revenues include costs that are primarily fixed in nature, consisting mostly
      of
      third-party hosting fees and content information provided by certain of our
      content providers, and costs that are primarily variable in nature, consisting
      mostly of third-party content information.




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




*Wireless
      License Fees.* Gross
      profit resulting from wireless license fees totaled $20,650 for the three-month
      period ended March 31, 2006. The Company did not incur any specific direct
      costs
      associated with the sale, delivery, or installation of the software underlying
      the license agreements consummated during the period. Additionally, the Company
      does not expect to incur any future obligations relating to these license fees.
      The Company did not record any revenues, cost of revenues or gross profit from
      wireless license fees for the three-month period ended March 31,
      2007.




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*General
      and Administrative Expenses*




**Three
                Months Ended March 31****2007**
            
            **2006**
            
            **$
                Change**
            
            **%
                Change**General
                and administrative
            
            $
            847,259
            
            $
            1,030,451
            
            $
            (183,192
            )
            
            (17.8
            )%




General
      and administrative expenses consist primarily of salaries, consulting fees,
      office operations, administrative and general management activities, including
      legal, accounting, investor relations and other professional fees. General
      and
      administrative expenses for the three-month period ended March 31, 2007 were
      $847,259, compared to $1,030,451 for three-month period ended March 31, 2006.
      The decrease in general and administrative expenses during the current period
      as
      compared to the prior period reflect decreases in several expense categories,
      namely salaries, third-party consulting fees, investor relations, travel and
      general office administration costs. The Company implemented several cost
      reduction programs in several categories during the fourth quarter of 2006
      and
      the first three months of 2007.






Res *earch
      and Development Expenses*




**Three
                Months Ended March 31****2007**
            
            **2006**
            
            **$
                Change**
            
            **%
                Change**Research
                and development
            
            $
            892,017
            
            $
            841,873
            
            $
            50,144
            
            
            6.0
            %




Research
      and development expenses for the three-month period ended March 31, 2007 were
      $892,017 compared to $841,873 for the three-month period ended March 31, 2006.
      The increase in research and development expenses is due to the increase in
      the
      number of applications that the Company is currently developing for future
      revenue generation. In addition, the Company has expanded its porting
      development and quality assurance teams to expedite deployment of products
      to
      the carriers. We are focusing our resources on the development of new products
      for rapid deployment.






*Sales
      and Marketing Expenses*




**Three
                Months Ended March 31****2007**
            
            **2006**
            
            **$
                Change**
            
            **%
                Change**Sales
                and marketing
            
            $
            220,208
            
            $
            1,229,802
            
            $
            (1,009,594
            )
            
            (82.1
            )%




Sales
      and
      marketing expenses consist primarily of salaries, consulting fees, marketing
      agency fees, marketing programs, collateral and other professional fees. Sales
      and marketing expenses for the three-month period ended March 31, 2007 were
      $220,208 compared to $1,229,802 for the three-month period ended March 31,
      2006.
      The decrease in sales and marketing expenses during the current period as
      compared to the prior period was primarily due to marketing expenses incurred
      during the first three months of 2006 related to the launch of the new Oasys
      Mobile portal. The Company has focused the Oasys Mobile portal as a white-label
      solution and ceased all direct marketing related to the portal during the last
      quarter of 2006.




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*Non-Cash
      Consulting Expenses*




**Three
                Months Ended March 31****2007**
            
            **2006**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                consulting expense
            
            $
            15,000
            
            $
            -
            
            $
            15,000
            
            
            100.0
            %




Non-cash
      consulting expense for the three-month period ended March 31, 2007 in the amount
      of $15,000 is related to the amortization of restricted stock. The Company
      issued 100,000 shares of restricted stock on September 29, 2006 to a director
      of
      the Company for consulting services. Of the shares, 25,000 vested immediately
      and the remaining vest monthly over 1 year.




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




*Interest
      Expense, net*




**Three
                Months Ended March 31****2007**
            
            **2006**
            
            **$
                Change**
            
            **%
                Change**Interest,
                net
            
            $
            110,247
            
            $
            42,323
            
            $
            (67,924
            )
            
            (160.5
            )%




Interest
      expense, net, for the three-month period ended March 31 2007, was $110,247
      compared to interest expense of $42,323 for three-month period ended March
      31,
      2006. Interest expense for each of the three-month periods related to interest
      costs associated with convertible notes and other note payable agreements.
      The
      interest expense is net of interest income earned on cash. The increase in
      interest expense, net for the three-month period ended March 31, 2007 as
      compared to the prior year period is due to decreases in interest income on
      the
      outstanding cash balance.






*Amortization
      of discount on debt and beneficial conversion feature*




**Three
                Months Ended March 31****2007**
            
            **2006**
            
            **$
                Change**
            
            **%
                Change**Amortization
                of discount on debt and
              beneficial
                conversion feature
            
            $
            1,222,411
            
            $
            1,222,411
            
            $
            -
            
            
            -
            %




Amortization
      of discount on debt and beneficial conversion feature for the three-month
      periods ended March 31, 2007 and 2006 was $1,222,411. This related to
      amortization of the discounts on the convertible notes payable entered into
      in
      November 2005.






*Net
      Loss*




**Three
                Months Ended March 31****2007**
            
            **2006**
            
            **$
                Change**
            
            **%
                Change**Net
                loss
            
            $
            2,322,349
            
            $
            3,360,485
            
            $
            (1,038,136
            )
            
            (30.9
            )%




As
      a
      result of the factors discussed above, the net losses for the three-month
      periods ended March 31, 2007 and 2006 were $2,322,349 and $3,360,485,
      respectively.




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**Liquidity
      and Capital Resources**




As
      of
      March 31, 2007 we had $ 773,241 of
      cash
      on hand, a working capital deficit of $7,427,090, and approximately $10.5
      million in current liabilities, including $6.8 million in convertible notes
      payable.




*Convertible
      Notes Payable*





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





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





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





*Capital
      Needs*




From
      inception through our 2006 fiscal year, our primary source of funding for our
      operations came from the issuance of shares of our common stock in private
      placements to investors and proceeds from convertible notes payable. We believe
      that we have enough working capital to fund and sustain our business operations
      through June 2007. In order to continue our operations beyond that date, we
      will
      have to raise additional funds. There are no assurances that we can raise
      sufficient capital to pay off the maturing debt and accrued interest, plus
      additional working capital, or that we can negotiate terms for such capital
      that
      will be favorable to us. If we are successful in raising additional capital
      through the issuance of our equity securities or debt convertible into our
      equity securities, existing stockholders could experience substantial dilution
      of their ownership interests in Oasys Mobile. In addition, the new equity
      securities may have rights, preferences or privileges senior to those of
      existing holders of shares of our common stock.





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As
      of the date of this filing, Oasys Mobile does not have the funds to pay the
      principal and interest due on its convertible notes payable, and we do not
      expect to generate such funds from our operations prior to their maturity on
      June 30, 2007. We have engaged investment bankers to assist Oasys Mobile in
      obtaining an equity investment or debt issuance to allow us to pay the principal
      and interest on the convertible notes payable at their maturity plus raise
      additional working capital. Alternatively or in addition thereto, the investment
      bankers are also assisting Oasys Mobile in evaluating certain strategic
      alternatives, including investments from strategic partners or business
      combinations, including the sale of the business. There are no assurances that
      Oasys Mobile will be successful in obtaining funds that would allow us to pay
      the principal and interest due on its convertible notes payable at the June
      30,
      2007 maturity date, or to raise additional working capital necessary to continue
      the operations of our business.




*Cash
      Flow Information*




**Three
                Months Ended March 31****2007**
            
            
            **2006**Cash
                used in operating activities
            
            $
            (683,925
            )
            $
            (2,572,722
            )Cash
                provided by (used in) investing activities
            
            $
            9,300
            
            $
            (19,347
            )Cash
                used in financing activities
            
            $
            (3,632
            )
            $
            -




*Cash
      Flow used in Operating Activities.*Net
      cash
      used in operating activities was $683,925 in the three-month period ended March
      31, 2007, compared to $2,572,722 in the corresponding period of the prior year.
      The decrease in net cash used in operating activities was due to the following:
      In the first three-months of 2006, we ended our participation in the Qualcomm
      Quick Pay Program. Therefore, there was a two-month lag on payments from
      Qualcomm. Also, during the same period, we made investments in the development
      and marketing planning for the new Oasys Mobile portal launched in the first
      quarter of 2006. There were increases in payments to these service providers
      in
      the first quarter in preparation for the launch of the portal.




Revenues
      from the portal as a “direct-to-consumer” portal were not material in 2006.
      Therefore, during the last quarter of 2006, we repositioned the portal as a
      white-label solution and ceased all marketing on the portal. In addition, we
      reduced the development staff that was dedicated solely to the portal. We have
      refocused our business over the past two quarters to our core games and
      application business distributed through our carrier channels. In addition,
      the
      Company has implemented programs to reduce operating expenses. The Company
      reduced its staff by over 30% over the last quarter of 2006 and the first
      quarter of 2007.




*Cash
      Flow used in Investing Activities.* Net cash
      provided by investing activities was $9,300 in the three-month period ended
      March 31, 2007, representing proceeds from sale of furniture. Net cash used
      in
      investing activities was $19,347 in the three-month period ended March 31,
      2006,
      representing computer equipment purchases.




*Cash
      Flow used in Financing Activities.* Net
      cash
      used in financing activities was $3,632 in the three-month period ended March
      31, 2007, representing payments on capital leases. There was no cash flow from
      financing activities in the three-month period ended March 31,
      2006.


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**Contractual
      Obligations**




At
      March
      31, 2007, we did not have any material commitments for capital expenses. Our
      principal commitments consisted of obligations under operating and capital
      leases, notes payable and content partner arrangements.




The
      following table summarizes our contractual obligations at March 31, 2007 and
      the
      effect these obligations are expected to have on our liquidity and cash flows
      in
      future periods.




**Notes**
            
            **Purchase****Total**
            
            **Leases**
            
            **Payable**
            
            **Obligations**Nine
                months ending December 31, 2007
            
            $
            8,292,934
            
            $
            89,434
            
            $
            8,077,500
            
            $
            126,000Year
                ending December 31, 2008
            
            
            39,613
            
            
            39,613
            
            
            -
            
            
            -Year
                ending December 31, 2009
            
            
            3,441
            
            
            3,441
            
            
            -
            
            
            -Total
                contractual obligations
            
            $
            8,335,988
            
            $
            132,488
            
            $
            8,077,500
            
            $
            126,000




**New
      Accounting Pronouncements**




In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      (“FIN”) No. 48, “ *Accounting
      for Uncertainty in Income Taxes* .”
FIN
      No. 48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN No. 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN No. 48 was effective for the
      Company’s first fiscal year beginning after December 15, 2006. The
      January 1, 2007 adoption of FIN No. 48 did not have a material effect on
      our financial statements.





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





In
      February 2007, the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* .”
      SFAS No. 159 permits companies to choose to measure at fair value, on
      an instrument-by-instrument basis, many financial instruments and certain other
      assets and liabilities at fair value that are not currently required to be
      measured. SFAS No. 159 is effective as of the beginning of a fiscal year
      that begins after November 15, 2007. We are currently in the process of
      evaluating the impact that the adoption of SFAS No. 159 will have on
      our financial position, results of operations and cash flows.





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**Description
      of Critical Accounting Policies**




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





*Revenue
      Recognition and Related Costs*





Wireless
      applications and contracts





Revenues
      earned from wireless applications are recognized upon delivery and acceptance
      by
      the end-user either as a one-time purchase or a monthly subscription. For
      content delivery partner arrangements, whereby Oasys Mobile remits a portion
      of
      the revenues earned through the sale of our applications, revenue is recorded
      in
      accordance with Emerging Issues Task Force (“EITF”) 99-19, *“Reporting
      Revenue Gross as a Principal Versus Net as an Agent.”* .
      Oasys
      Mobile recognizes the cost of payments to the content providers as a cost of
      revenues. Wireless applications and contracts cost of revenues includes all
      third-party hosting, testing and/or carrier distribution fees. These costs
      are
      incurred on a monthly basis and are primarily fixed in nature regardless of
      the
      revenue generated by the related applications.





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





Wireless
      License Fees





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





There
      were no costs related to the wireless license fee revenue generated during
      the
      three years ended December 31, 2006 as the license fee revenue related to
      technology that had been previously developed by us, and there were no costs
      for
      installation, delivery or customization, or other related costs.





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*Stock-Based
      Compensation*





On
      January 1, 2006, we adopted SFAS No. 123(R), “ *Share-Based
      Payment* ,”
which
      requires us to account for share-based payment transactions using a fair
      value-based method and recognize the related expense in our results of
      operations. SFAS No. 123(R) allows companies to choose one of two
      transition methods: the modified prospective transition method or the modified
      retrospective transition method. We chose to use the modified prospective
      transition methodology. Under this transition method, our compensation cost
      recognized includes compensation costs for all share-based payments granted
      prior to, but not yet vested as of, January 1, 2006 based on the grant date
      fair value estimated in accordance with the original provisions of SFAS
      No. 123, and compensation cost for all share-based payments granted
      subsequent to January 1, 2006 based on the grant date fair value estimated
      in accordance with the provisions of SFAS No. 123(R). Accordingly, we did
      not restate our financial results for prior periods.





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





Determining
      the appropriate fair value model and related assumptions requires judgment,
      including estimating stock price volatility, forfeiture rates, and expected
      terms. Our expected volatility rate was estimated based on historical volatility
      of our common stock over approximately a five year period. The expected term
      for
      employees was estimated based on a simplified method as allowed under SEC Staff
      Bulletin No. 107 “ *Share-Based
      Payment,”* averaging the vesting term and original contractual term. The expected term
      for
      directors was estimated based on historical experience and specific terms in
      the
      option agreements. The risk-free interest rate for periods within the
      contractual life of the option is based on U.S. Treasury securities. The
      pre-vesting forfeiture rate used for the year ended December 31, 2006 was based
      on actual historical rates.





We
      account 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 and EITF 96-18, “ *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction With Selling, Goods or Services.”* EITF
      96-18 requires that compensation be measured at the end of each reporting period
      for changes in the fair value of our stock until the options are vested.


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




***Interest
      Rate and Credit Risk***





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





As
      of
      December 31, 2006 and 2005, our cash balances were maintained by financial
      institutions in the United States and our current deposits are in excess of
      insured limits. We believe that the financial institutions that hold our
      investments are financially sound and, accordingly, minimal credit risk exists
      with respect to these investments.





Our
      accounts receivable primarily relate to revenues earned from domestic and
      international wireless carriers. We perform ongoing credit evaluations of our
      carriers’ financial condition but generally require no collateral from them.





***Foreign
      Currency Risk***





Historically,
      there has not been a significant portion of our business denominated in
      functional currencies other than the USD. Our revenues are usually denominated
      in the functional currency of the carrier. In the future, we may experience
      foreign currency exchange losses on our accounts receivable as our international
      business grows. Foreign currency exchange losses in the future could have a
      material adverse effect on our business, operating results and financial
      condition.





***Inflation***





We
      do not
      believe that inflation has had a material effect on our business, financial
      condition or results of operations. If our costs were to become subject to
      significant inflationary pressures, we might not be able to offset these higher
      costs fully through price increases. Our inability or failure to do so could
      harm our business, operating results and financial condition.




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




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




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**PART
      II.**


**OTHER
      INFORMATION**






**Item
      1.** ***Legal
      Proceedings***




In
      March
      2007, Bjorn Jawerth, our former Chief Executive Officer, filed a lawsuit against
      us in the General Court of Justice, Superior Court Division, in Wake County
      in
      the State of North Carolina. In this action, Dr. Jawerth alleges (i) that Oasys
      Mobile (as successor-in-interest to High Speed Net Solutions, Inc., Summus,
      Inc.
      (USA) and Summus, Inc.) has failed to pay him $108,500 in back wages
      attributable to unpaid wages, the payment of which was deferred by agreement
      between Oasys Mobile and Dr. Jawerth, (ii) that Oasys Mobile owes Dr. Jawerth
      certain five percent (5%) royalties from Oasys Mobile’s gross revenue arising
      under Oasys Mobile’s Inventions Awards Plan, (iii) that Oasys Mobile failed to
      assist Dr. Jawerth with the private sale of up to 1,666,667 shares of his common
      stock at a price per share of not less than $1.50 per share (this number of
      shares and price set forth in Dr. Jawerth’s suit do not reflect the one (1)-for
      ten (10) reverse stock split of Oasys Mobile that took place on March 11, 2005)
      and (iv) that Oasys Mobile failed to issue Dr. Jawerth stock options in Oasys
      Mobile following the private sale of his stock, to replenish his ownership
      in
      Oasys Mobile to a position substantially equivalent to his pre-sale level.





We
      disagree with Dr. Jawerth as to the amount of deferred wages. Oasys Mobile
      has
      accrued $81,106 in deferred wages owed to Dr. Jawerth, which were deferred
      with
      Dr. Jawerth’s agreement. The parties also agreed that these deferred and accrued
      amounts would not be paid until the Board of Directors of Oasys Mobile and
      Dr.
      Jawerth determined when and how they would be paid. There were some initial
      discussions by email between Dr. Jawerth and company counsel relating to this
      issue shortly after Dr. Jawerth’s employment with Oasys Mobile ceased on
      February 18, 2004, but no resolution was reached. Dr. Jawerth never offered
      to
      meet with the Board to determine these issues. Shortly thereafter, Oasys Mobile
      ceased receiving any other communication on this issue until it received the
      lawsuit filed in March 2007.





Oasys
      Mobile also maintains that it has no obligations to Dr. Jawerth related to
      the
      private sale of Dr. Jawerth’s shares, the 5% royalty claimed by Dr. Jawerth or
      the replenishment of his ownership in Oasys Mobile.





On
      May 7,
      2007, Oasys Mobile filed a motion to dismiss all counts as set for the in Dr.
      Jawerth’s suit. The court has not scheduled when Oasys Mobile’s motion will be
      heard.





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





On
      February 6, 2007 (the “Grant Date”), the Compensation Committee of the Board of
      Directors of Oasys Mobile, Inc. approved grants of restricted stock to each
      of
      Doug Dyer, Don Locke and Tracy Jackson, its executive officers. Mr. Dyer and
      Mr.
      Locke were each granted 400,000 shares of restricted stock; the restrictions
      on
      100,000 shares to each of Mr. Dyer and Mr. Locke were deemed to have lapsed
      on
      the Grant Date and the restrictions on the remaining 300,000 shares granted
      to
      each of them would lapse at the rate of 60,000 shares each upon the common
      stock
      of Oasys Mobile achieving a five (5) consecutive day closing price of $1.00,
      $1.25, $1.50, $1.75 and $2.00, respectively. Ms Jackson was granted 240,000
      shares of restricted stock; the restrictions on 65,000 shares to Ms. Jackson
      were deemed to have lapsed on the Grant Date and the restrictions on the
      remaining 175,000 shares to her would lapse at the rate of 35,000 shares each
      upon the common stock of Oasys Mobile achieving a five (5) consecutive day
      closing price of $1.00, $1.25, $1.50, $1.75 and $2.00,
      respectively.





The
      Compensation Committee has decided to revoke, and each executive officer has
      agreed to such revocation of, the part of the restricted stock grant to each
      of
      Mr. Dyer, Mr. Locke and Ms. Jackson that the restrictions have not lapsed to
      (300,000 shares each in the case of Mr. Dyer and Mr. Locke and 175,000 in the
      case of Ms. Jackson).





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**Item
      6.** ***Exhibits*********




Exhibit
                31.1
            
            Rule
                13a-14(a)/15a-14(a) Certification of Douglas B.Dyer, Chief Executive
                OfficerExhibit
                31.2
            
            Rule
                13a-14(a)/15a-14(a) Certification of Tracy T. Jackson, Chief Financial
                OfficerExhibit
                32.1
            
            Section
                1350 Certification of Douglas B. Dyer, Chief Executive
                OfficerExhibit
                32.2
            
            Section
                1350 Certification of Tracy T. Jackson, Chief Financial
                Officer









**SIGNATURES******






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




Date:
                May 15, 2007
            OASYS
                MOBILE, INC.
              
              
              By:/s/       
                  DOUGLAS B.
                DYER
              Douglas
                B. Dyer
              *Chief
                Executive Officer*Date:
                May 15, 2007
            By:/s/               
                TRACY T.
                JACKSON
              Tracy
                T. Jackson
              *Chief
                Financial Officer*