**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




_______________




**FORM
      10-Q**




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




**For
      the quarterly period ended September 30, 2005**




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




_______________




**Commission
      File Number: 0-29625**


_______________




**Summus,
      Inc.**


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




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




______________




**434
      Fayetteville Street, Suite 600**


**Raleigh,
      North Carolina 27601**


**(919)
      807-5600**


***(Address,
      Including Zip Code, and Telephone Number, Including Area
      Code***


***of
      Registrant's Principal Executive Offices)***


_______________




Indicate
      by 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 check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).




Yes  ̈  No 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




As
      of
      November 10, 2005, the registrant had 13,493,106 shares of its Common Stock,
      par
      value $.001 per share, issued and outstanding.  Table
            of Contents




**SUMMUS,
      INC.**




**FORM
      10-Q**




**FOR
      THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005**




**TABLEOF
      CONTENTS**




**Page
                    No.****PART
                    I**
                
                **FINANCIAL
                    INFORMATION**Item
                    1.
                
                Financial
                    Statements (Unaudited)BalanceSheets as of September 30, 2005
                  and
                      December 31, 2004
                
                **1**Statementsof
                    Operations for the Three-Month
                  Periods
                    Ended September 30, 2005 and
                    2004
                
                **2**Statementsof
                    Operations for the Nine-Month
                  Periods
                    Ended September 30, 2005 and
                    2004
                
                **3**Statementof
                    Stockholders’ Equity (Deficit) for the Nine-Month
                  Period
                      Ended September 30,
                      2005
                
                **4**Statementsof
                    Cash Flows for the Nine-Month
                  Periods
                      Ended September 30, 2005 and
                      2004
                
                **6**Notesto
                    Financial Statements
                
                **7**Item
                    2.
                
                Management's
                    Discussion and Analysisof
                    Financial Condition
                  and
                      Results of Operations
                
                **18**Item
                    3.
                
                Quantitative
                    and Qualitative DisclosuresAbout
                    Market
                  Risk
                
                **37**Item
                    4.
                
                Controls
                    and Procedures
                
                **37****PART
                    II**
                
                **OTHER
                    INFORMATION**Item
                    2.
                
                Unregistered
                    Sales of Equity Securities and Use
                    of Proceeds
                
                **37**Item
                    6.
                
                Exhibits
                
                **37**


Table
          of Contents







**PART
                I.**
              **FINANCIALINFORMATION****Item
                1.*****FinancialStatements*****SUMMUS,
                INC.**
              **BALANCE****SHEETS
                (UNAUDITED)**





**September
                30,**
              **2005**
            
            **December
                31,**
              **2004****Assets**Current
                assets:Cash
            
            $
            2,238,999
            
            $
            1,405,788Accounts receivable
            
            
            1,180,334
            
            
            801,698Prepaids and other current assets
            
            
            75,770
            
            
            101,315Total
                current assets
            
            
            3,495,103
            
            
            2,308,801Equipment,
                software and furniture, net
            
            
            122,548
            
            
            97,005Total
                assets
            
            $
            3,617,651
            
            $
            2,405,806**Liabilities
                and stockholders’ equity (deficit)**Current
                liabilities:Accounts payable
            
            $
            1,933,899
            
            $
            1,167,259Accrued salaries and related costs
            
            
            193,422
            
            
            187,029Accrued interest
            
            
            94,023
            
            
            96,068Current portion of notes payable
            
            
            91,937
            
            
            307,668Convertible notes payable, net of discount of $743,715
              at December 31, 2004
            
            
            —
            
            
            681,285Total
                current liabilities
            
            
            2,313,281
            
            
            2,439,309Notes
                payable, less current portion
            
            
            —
            
            
            53,693Stockholders’
                equity (deficit):Series
                A convertible preferred stock, $0.001 par value;10,000 shares designated, 2,407 shares issued
                andoutstanding at September 30, 2005 and December
                31,2004 (liquidation preference of $2,615,607 as
                ofSeptember 30, 2005)
            
            
            2,407,295
            
            
            2,407,295Common
                stock, $0.001 par value, 185,000,000 sharesauthorized; 13,522,854 and 12,105,257 shares
                issuedand 13,519,004 and 12,101,407 shares outstanding
                atSeptember 30, 2005 and December 31, 2004,
                respectively
            
            
            13,519
            
            
            12,101Additional
                paid-in capital
            
            
            57,309,425
            
            
            52,485,043Deferred
                compensation
            
            
            (43,361
            )
            
            (90,363
            )Accumulated
                deficit
            
            
            (58,154,889
            )
            
            (54,673,653
            )Treasury
                stock, at cost (3,850 shares)
            
            
            (227,619
            )
            
            (227,619
            )Total
                stockholders’ equity (deficit)
            
            
            1,304,370
            
            
            (87,196
            )Total
                liabilities and stockholders’ equity (deficit )
            
            $
            3,617,651
            
            $
            2,405,806




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




1  Table
            of Contents




**SUMMUS,
      INC.**




**STATEMENTSOF** **OPERATIONS** **(UNAUDITED)**




**Three-Month
                Period****Ended****September
                30, 2005**
            
            **September
                30, 2004**Revenues:Wireless applications and contracts
            $
            2,054,744
            
            $
            1,466,448Contracts and license fees
            
            —
            
            
            30,000Wireless license fees
            
            3,500
            
            
            4,250Total revenues
            
            2,058,244
            
            
            1,500,698Cost
                of revenues:Wireless applications and contracts
            
            1,008,937
            
            
            723,988Contracts and license fees
            
            —
            
            
            4,038Wireless license fees
            
            —
            
            
            —Total cost of revenues
            
            1,008,937
            
            
            728,026Gross
                profit
            
            1,049,307
            
            
            772,672Operating
                expenses:General
                and administrative expenses
            
            659,831
            
            
            521,959Research and development
            
            916,284
            
            
            436,830Sales and marketing
            
            503,932
            
            
            227,971Non-cash compensation
            
            6,995
            
            
            2,475Non-cash consulting expense
            
            5,207
            
            
            41,415Non-cash settlements
            
            —
            
            
            (126,373
            )Total operating
                expenses
            
            2,092,249
            
            
            1,104,277Loss from
                operations
            
            (1,042,942
            )
            
            (331,605
            )Interest
                expense
            
            (653
            )
            
            (13,830
            )Amortization
                of discount on debt and beneficial
              conversion feature
            
            —
            
            
            (611,653
            )Net
                loss
            $
            (1,043,595
            )
            $
            (957,088
            )Net
                loss applicable to common stockholders:Net loss
            $
            (1,043,595
            )
            $
            (957,088
            )Preferred stock dividends
            
            (48,140
            )
            
            (41,565
            )Net
                loss applicable to common stockholders
            $
            (1,091,735
            )
            $
            (998,653
            )Per
                share amounts (basic and diluted)
            $
            (0.08
            )
            $
            (0.11
            )Weighted
                average shares of common stock outstanding
            
            13,503,786
            
            
            9,305,370




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




2  Table
            of Contents




**SUMMUS,
      INC.**




**STATEMENTSOF
      OPERATIONS (UNAUDITED)**




**Nine-Month
                Period****Ended****September
                30, 2005**
            
            **September
                30, 2004**Revenues:Wireless applications and contracts
            
            $
            5,833,777
            
            $
            3,448,658Contracts and license fees
            
            
            —
            
            
            43,889Wireless license fees
            
            
            8,700
            
            
            5,000Total revenues
            
            
            5,842,477
            
            
            3,497,547Cost
                of revenues:Wireless applications and contracts
            
            
            2,848,552
            
            
            1,747,756Contracts and license fees
            
            
            —
            
            
            7,237Wireless license fees
            
            
            —
            
            
            —Total cost of revenues
            
            
            2,848,552
            
            
            1,754,993Gross
                profit
            
            
            2,993,925
            
            
            1,742,554Operating
                expenses:General
                and administrative expenses
            
            
            2,095,090
            
            
            2,072,443Research and development
            
            
            2,237,974
            
            
            1,410,149Sales and marketing
            
            
            1,143,196
            
            
            464,019Non-cash compensation
            
            
            27,729
            
            
            56,177Non-cash consulting expense
            
            
            15,608
            
            
            70,432Non-cash settlements
            
            
            58,750
            
            
            (126,373
            )Total operating
                expenses
            
            
            5,578,347
            
            
            3,946,847Loss from
                operations
            
            
            (2,584,422
            )
            
            (2,204,293
            )Interest
                expense
            
            
            (45,482
            )
            
            (48,019
            )Amortization
                of discount on debt and beneficial
              conversion feature
            
            
            (851,332
            )
            
            (654,210
            )Net
                loss
            
            $
            (3,481,236
            )
            $
            (2,906,522
            )Net
                loss applicable to common stockholders:Net loss
            
            $
            (3,481,236
            )
            $
            (2,906,522
            )Accretion of beneficial conversion feature on preferred stock
            
            
            —
            
            
            (293,444
            )Preferred stock dividends
            
            
            (144,420
            )
            
            (124,695
            )Net
                loss applicable to common stockholders
            
            $
            (3,625,656
            )
            $
            (3,324,661
            )Per
                share amounts (basic and diluted)
            
            $
            (0.27
            )
            $
            (0.40
            )Weighted
                average shares of common stock outstanding
            
            
            13,249,293
            
            
            8,282,333




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






3




Table
          of Contents





**SUMMUS,
      INC.**




**STATEMENTOF
      STOCKHOLDERS'** **EQUITY** **(DEFICIT) (UNAUDITED)**




**Preferred
                Stock**
            
            
            
            
            
            **Additional****Series
                A**
            
            **Common
                Stock**
            
            **Paid-In****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital****Balance
                at December 31, 2004**
            
            
            2,407
            
            $
            2,407,295
            
            
            12,101,407
            
            $
            12,101
            
            $
            52,485,043Common
                stock and warrants
              issued
                for services
            
            
            —
            
            
            —
            
            
            46,668
            
            
            47
            
            
            161,399Warrants
                issued with
              convertible
                debt
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            107,617Common
                stock issued in
              settlement
                of note payable
            
            
            —
            
            
            —
            
            
            47,673
            
            
            48
            
            
            243,084Exercise
                of warrants
            
            
            —
            
            
            —
            
            
            1,264,296
            
            
            1,264
            
            
            4,112,865Exercise
                of options
            
            
            —
            
            
            —
            
            
            58,960
            
            
            59
            
            
            218,690Adjustment
                of deferred
              compensation
                related to
              issuance
                of stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (19,273
            )Amortization
                of deferred
              compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                loss for the period
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Balance
                at September 30, 2005**
            
            
            2,407
            
            $
            2,407,295
            
            
            13,519,004
            
            $
            13,519
            
            $
            57,309,425




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






4




Table
          of Contents


**SUMMUS,
      INC.**




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




**Total****Deferred**
            
            **Accumulated**
            
            **Treasury**
            
            **Stockholders’****Compensation**
            
            **Deficit**
            
            **Stock**
            
            **Equity
                (Deficit)****Balance
                at December 31, 2004**
            
            $
            (90,363
            )
            $
            (54,673,653
            )
            $
            (227,619
            )
            $
            (87,196
            )Common
                stock and warrants
              issued
                for services
            
            
            —
            
            
            —
            
            
            —
            
            
            161,446Warrants
                issued with
              convertible
                debt
            
            
            —
            
            
            —
            
            
            —
            
            
            107,617Common
                stock issued in
              settlement
                of note payable
            
            
            —
            
            
            —
            
            
            —
            
            
            243,132Exercise
                of warrants
            
            
            —
            
            
            —
            
            
            —
            
            
            4,114,129Exercise
                of options
            
            
            —
            
            
            —
            
            
            —
            
            
            218,749Adjustment
                of deferred
              compensation
                related to
              issuance
                of stock options
            
            
            19,273
            
            
            —
            
            
            —
            
            
            —Amortization
                of deferred
              compensation
            
            
            27,729
            
            
            —
            
            
            —
            
            
            27,729Net
                loss for the period
            
            
            —
            
            
            (3,481,236
            )
            
            —
            
            
            (3,481,236
            )**Balance
                at September 30, 2005**
            
            $
            (43,361
            )
            $
            (58,154,889
            )
            $
            (227,619
            )
            $
            1,304,370








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






5




Table
          of Contents





**SUMMUS,
      INC.**




**STATEMENTSOF** **CASH
      FLOWS** **(UNAUDITED)**




**Nine-Month
                Period Ended****September
                30,**
              **2005**
            
            **September
                30,**
              **2004****Operating
                activities**Net
                loss
            
            $
            (3,481,236
            )
            $
            (2,906,522
            )Adjustments
                to reconcile net loss to net cash used in operatingactivities:Depreciation and amortization
            
            
            35,294
            
            
            116,362Non-cash compensation
            
            
            27,729
            
            
            56,177Common stock, options and warrants issued for services
            
            
            161,446
            
            
            124,432Amortization of discount on debt and beneficial conversion
                feature
            
            
            851,332
            
            
            654,210Non-cash settlements
            
            
            58,750
            
            
            (126,373
            )Changes
                in operating assets and liabilities:Accounts receivable
            
            
            (378,636
            )
            
            (837,315
            )Prepaid and other assets
            
            
            25,545
            
            
            (61,183
            )Accounts payable and other accrued expenses
            
            
            764,595
            
            
            268,248Accrued salaries and related costs
            
            
            6,393
            
            
            (172,369
            )Deferred revenue
            
            
            —
            
            
            11,000Net
                cash used in operating activities
            
            
            (1,928,788
            )
            
            (2,873,333
            )**Investing
                activities**Purchases
                of equipment, software and furniture
            
            
            (60,837
            )
            
            (38,369
            )Net
                cash used in investing activities
            
            
            (60,837
            )
            
            (38,369
            )**Financing
                activities**Proceeds
                from exercise of stock options and warrants
            
            
            4,332,878
            
            
            20,086Proceeds
                from issuance of convertible debt
            
            
            215,000
            
            
            1,000,000Payments
                of convertible debt
            
            
            (1,640,000
            )
            
            —Principal
                payments on capital lease obligations
            
            
            —
            
            
            (17,296
            )Principal
                payments on notes payable and short-term borrowings
            
            
            (85,042
            )
            
            (88,180
            )Net
                cash provided by financing activities
            
            
            2,822,836
            
            
            914,610Net
                increase (decrease) in cash
            
            
            833,211
            
            
            (1,997,092
            )Cash
                at beginning of period
            
            
            1,405,788
            
            
            2,188,645Cash
                at end of period
            
            $
            2,238,999
            
            $
            191,553**Supplemental
                disclosures of cash flow information**Cash
                paid for interest
            
            $
            47,527
            
            $
            40,864




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






6




Table
          of Contents





**Summus,
      Inc.**




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






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




*Business*




Summus,
      Inc. ("Summus” 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 Sports Illustrated, America Online,
      Fujifilm, Mattel, The Associated Press, The Wall Street Journal, Phil Hellmuth,
      Howard Lederer, Golf Digest, Hooters, The Grateful Dead and others.




Summus
      has developed software, technology and applications to enable information
      processing and resource management to include, but not be limited to, the
      creation, transmission, playing and management of content over wireless
      networks.  We currently offer products in various categories, including
      games, personalization, photo messaging, and news/information. 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.




Summus
      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. Summus currently has
      relationships with carriers that account for 98% of all U.S. wireless
      subscribers. We also have relationships with international carriers covering
      Canada, Latin America, Australia, Israel, the U.K., and
      China.




We
      have
      completed the development and deployment of at least one or a combination of
      thirty-two (32) wireless applications on a total of forty-five (45) wireless
      carriers and distribution partners, seventeen (17) of which are domestic and
      twenty-eight (28) of which are international. Some of our United States based
      wireless carriers include Alltel, Cingular, Sprint PCS, T-Mobile, US Cellular
      and Verizon Wireless. These applications can be purchased by the end-user as
      a
      one-time purchase, or a monthly subscription, depending on content, product
      function, and/or carrier preferences.




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






7




Table
          of Contents




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




*Future
      Operations*




As
      shown
      in the financial statements for the three months and nine months ended September
      30, 2005, the Company incurred net losses of $1,043,595 and $3,481,236,
      respectively, and experienced negative cash flows from operations.  The
      Company’s operations are dependent on its ability to generate sufficient cash
      flow to meet its obligations on a timely basis, to obtain additional financing,
      and ultimately to attain profitability.  The Company is actively promoting
      and expanding its product line. Management expects to be able to attract
      additional capital, if necessary, to expand operations and also expects that
      increased revenues will reduce its operating losses in future periods. However,
      there can be no assurance that management’s plan will be executed as
      anticipated.




*Basis
      of Presentation*




The
      accompanying unaudited financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States for interim
      financial information and with the instructions to Form 10-Q and Article 10
      of
      Regulation S-X. Accordingly, these financial statements do not include all
      of
      the information and notes required by accounting principles generally accepted
      in the United States. In the opinion of management, all adjustments (consisting
      of normal recurring accruals) considered necessary for a fair presentation
      of
      financial condition and results of operations have been included. Operating
      results for the nine-month period ended September 30, 2005 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, 2004.




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




*Estimates*




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




*Reverse
      Stock Split*




On
      March
      11, 2005, the Company effected a one-for-ten reverse stock split. Accordingly,
      all share and per share amounts have been retroactively adjusted to give effect
      to this event.




*Reclassifications*





Certain
      reclassifications have been made to the 2004 financial statements to conform
      to
      classifications used in the current year. These reclassifications had no impact
      on net loss or stockholders’ equity (deficit).











8




Table
          of Contents





**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 on a gross basis in accordance with Emerging
      Issues Task Force No. 99-19 “Reporting Revenue Gross as a Principal versus Net
      as an Agent”(“EITF 99-19”) .
      The
      Company recognizes the cost of payments to the content providers as a cost
      of
      revenues. Wireless applications and contracts cost of revenues include all
      third-party hosting, testing and/or carrier distribution fees. These costs
      are
      incurred on a monthly basis and are primarily fixed in nature regardless of
      the
      revenue generated by the related applications.




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




Contracts
      and license fees




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






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          of Contents






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




*Segments*




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




*Equipment,
      Software and Furniture*




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




*Software
      Development Costs*




Capitalization
      of software development costs begins with the establishment of technological
      feasibility of new or enhanced software products. Technological feasibility
      of a
      computer software product is established when the Company has completed all
      planning, designing, coding and testing that is necessary to establish that
      the
      software product can be produced to meet design specifications including
      functions, features and technical performance requirements. All costs incurred
      prior to establishing technological feasibility of a software product are
      charged to research and development expense as incurred. No capitalized software
      development costs were incurred during the nine-month periods ended September
      30, 2005 and 2004.




*Income
      Taxes*




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













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          of Contents







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




S *tock-Based
      Compensation*




The
      Company has stock-based compensation plans for employees, consultants and
      directors. The Company accounts for those plans under the intrinsic value method
      prescribed by APB Opinion No. 25, *Accounting
      for Stock Issued to Employees (“APB 25”)* and
      related interpretations. For options granted under those plans with an exercise
      price equal to the market value of the stock on the date of grant, no
      compensation cost is recognized in net operations as reported in the statement
      of operations. Compensation cost is recognized in net earnings/loss for awards
      granted under those plans with an exercise price less than the market value
      of
      the underlying common stock on the date of grant. Such costs are recognized
      ratably over the vesting period. The Company recorded non-cash compensation
      related to the issuance of fully-vested stock options with exercise prices
      below
      the fair market value of the underlying stock plus the amortization of deferred
      compensation arising from stock option issuances subject to vesting totaling
      $27,729 and $56,177 for the nine months ended September 30, 2005 and 2004,
      respectively, and $6,995 and $2,475 for the three months ended September 30,
      2005 and 2004, respectively.




The
      following table illustrates the effect on net loss and net loss per share if
      the
      Company had applied the fair value recognition provision of Statement of
      Financial Accounting Standards No. 123, *Accounting
      for Stock-Based Compensation (“SFAS 123”).* In
      accordance with SFAS 123, the fair value of each option grant was determined
      by
      using the Black-Scholes option pricing model with the following weighted average
      assumptions for the three and nine-month periods ended September 30, 2005 and
      2004: dividend yield of 0%; volatility ranging from 1.218 to 1.789; risk-free
      interest rate ranging from 2.75% to 5.00%; and expected option lives of 5 years
      for employees and 10 years for Board members.





































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          of Contents




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




**Three-Month
                Period Ended**
              **September
                30**
              **(Unaudited)**
            
            **Nine-Month
                Period Ended**
              **September
                30**
              **(Unaudited)****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                loss applicable to common shareholders
            
            $
            (1,091,735
            )
            $
            (998,653
            )
            $
            (3,625,656
            )
            $
            (3,324,661
            )Non-cash
                compensation charges included in net loss applicable to common
                shareholders
            
            
            6,995
            
            
            2,475
            
            
            27,729
            
            
            56,177Stock-based
                compensation cost that would have been included in net loss applicable
                to
                common stockholders under the fair value method
            
            
            (246,897
            )
            
            (278,654
            )
            
            (476,898
            )
            
            (969,973
            )Adjusted
                net loss applicable to common stockholders
            
            $
            (1,331,637
            )
            $
            (1,274,832
            )
            $
            (4,074,825
            )
            $
            (4,238,457
            )Basic
                and diluted loss per share:Reported
                net loss applicable to common stockholders
            
            $
            (0.08
            )
            $
            (0.11
            )
            $
            (0.27
            )
            $
            (0.40
            )Non-cash
                compensation charges included in net loss applicable to common
                stockholders
            
            
            0.00
            
            
            0.00
            
            
            0.00
            
            
            0.01Stock-based
                employee compensation cost that would have been included in net loss
                applicable to common stockholders under the fair value
                method
            
            
            (0.02
            )
            
            (0.03
            )
            
            (0.04
            )
            
            (0.12
            )Adjusted
                net loss applicable to common stockholders
            
            $
            (0.10
            )
            $
            (0.14
            )
            $
            (0.31
            )
            $
            (0.51
            )




The
      Company accounts for stock-based compensation to non-employees of the Company,
      primarily consultants and advisors, at the fair value of the equity instrument
      in accordance with the provisions of SFAS No. 123. Non-cash consulting expense
      related to such stock based compensation was $15,608 and $70,432 for the
      nine-month periods ended September 30, 2005 and 2004, respectively, and $5,207
      and $41,415 for the three-month periods ended September 30, 2005 and 2004,
      respectively.






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




*Net
      Loss Per Share*




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




*New
      Accounting Pronouncements*




In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), “ *Share-Based
      Payment* ”
(“SFAS
      No. 123 (R)”). SFAS No. 123(R), a revision of SFAS No. 123, “ *Accounting
      for Stock-Based Compensation* ”,
      supersedes APB Opinion No. 25, “ *Accounting
      for Stock Issued to Employees* ”,
      and
      amends SFAS No. 95, “ *Statement
      of Cash Flows* .”
SFAS
      No. 123(R) requires all share-based payments to employees, including grants
      of
      employee stock options, to be recognized in the financial statements based
      on
      their fair values. SFAS No. 123(R) is effective for the beginning of the first
      annual period beginning after June 15, 2005. Therefore the Company plans to
      adopt SFAS No. 123(R) on January 1, 2006. The adoption of the SFAS No. 123(R)
      fair value method will have a significant impact on the Company’s results of
      operations, although it will have no impact on financial position. The impact
      of
      adoption of SFAS No. 123(R) cannot be predicted at this time because it will
      depend on levels of share-based payments granted in the future. The Company
      is
      currently evaluating the two fair value pricing methods permitted by SFAS No.
      123(R) and has not selected a final fair value pricing model.





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




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




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




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




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




Due
      to
      the financing received by the Company in February and March 2005 as discussed
      in
      Note 5, the maturity of the 12% Senior Notes accelerated from the original
      maturity date of May 15, 2005. The Company repaid the principal balance of
      $1,640,000 of the Senior Notes, plus interest at the rate of 12% per annum.
      Since the Senior Notes were paid off in accordance with their terms, they will
      have no rights of conversion into the Company’s common stock.




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




The
      discount on the debt of $904,681 related to the warrants was being amortized
      to
      interest expense over the term of the Senior Notes beginning on the date of
      issuance.  The remaining discount on the Senior Notes was fully amortized
      in 2005.






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**4. Notes
      Payable**




On
      January 31, 2005, the Company entered into a modified settlement agreement
      with
      Holland & Knight LLP (“H&K”). The remaining amount of the recorded
      liability due to H&K of $184,382 was satisfied through the issuance to
      H&K of 47,673 shares of the Company’s common stock. The fair value of the
      47,673 shares of common stock was estimated at $243,132, based on the traded
      value of the Company’s common stock on the date of the settlement
      agreement.  The difference between the estimated fair value of the 47,673
      common shares and the recorded value of the liability of $184,382, totaling
      $58,750, was recorded as settlement loss. H&K has contractually agreed to
      sell no more than 1,800 shares in any one (1) business day.




**5.**  **Common
      Stock and Warrants**




*Issuance
      of Common Stock for Services*




In
      May
      2005, the Company issued 23,334 shares of common stock pursuant to a marketing
      agreement valued at $75,836.




In
      August
      2005, the Company issued 23,334 shares of common stock pursuant to a marketing
      agreement valued at $70,002.




*Exercise
      of Warrants*




In
      May
      2005, the Company received $1,995 from the exercise of 1,050 warrants to
      purchase shares of the Company’s common stock.




During
      February and March 2005, the Company received $4,112,134 from the exercise
      of
      1,263,246 warrants to purchase shares of the Company’s common stock. These
      warrants were originally issued in connection with private placements of the
      Company’s preferred stock and common stock. The Company agreed to reprice most
      of these warrants, which originally had exercise prices ranging from $3.50
      to
      $7.50 per share, to exercise prices ranging from $2.50 to $3.50 per share in
      consideration for their immediate exercise.




*Exercise
      of Stock Options*





In
      April
      2005, the Company received $520 from the exercise of 400 options to purchase
      shares of the Company’s common stock.





In
      January and February 2005, the Company issued 58,560 shares in connection with
      the exercise of stock options at their original exercise prices ranging from
      $1.60 to $5.10 per share. The total received by the Company from these exercises
      was $218,229.




15




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          of Contents




**5.** **Common
      Stock and Warrants (continued)**




*Common
      Stock Reserved for Future Issuance*




As
      of
      September 30, 2005, the Company had reserved shares of its authorized 6,245,865
      shares of common stock for future issuance as follows:




Series
                A convertible preferred stock and related dividends
            
            
            18,368Outstanding
                common stock warrants
            
            
            3,390,103Outstanding
                stock options
            
            
            1,775,915Possible
                future issuance under stock option plans
            
            
            1,061,479Total
            
            
            6,245,865




**6.** **Preferred
      Stock**




***Series
      A Convertible Preferred Stock***




The
      Company has 2,407 shares of Series A convertible preferred stock (“Series A
      preferred stock”) outstanding as of September 30, 2005. These shares are valued
      based upon the liquidation preference (the “Liquidation Preference”) of Series A
      preferred stock of $1,000 per share.




The
      holders of the Series A preferred stock are entitled to receive cumulative
      cash
      dividends at a rate of 8% per annum of the initial liquidation preference of
      $1,000 per share. The Company, at its election, can provide for the payment
      of
      dividends on the Series A preferred stock through the issuance of additional
      shares of Series A preferred stock having an aggregate initial liquidation
      preference equal to the amount of cash dividends otherwise payable. Dividends
      are cumulative from the date of issuance and are payable, when, as and if
      declared by the Board of Directors. The Company is restricted from paying
      dividends on common stock until dividends are paid on Series A preferred in
      full. No dividends have been paid in 2005. Cumulative unpaid dividends at
      September 30, 2005 were $208,312.




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.






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**7.** **Commitments
      and Contingencies**




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




In
      2001,
      the Company entered into a three-year employment agreement with Dr. Bjorn
      Jawerth,which expired on February 16, 2004, and was not renewed by the Board
      of
      Directors. His employment agreement provided for an initial base salary of
      $350,000, with annual increases of 10%.




The
      difference between the increased salary amounts of $385,000 and $423,500,
      respectively, in the second and third years of his employment agreement, and
      his
      original base salary of $350,000, was deferred and accrued by the Company,
      at
      Dr. Jawerth’s election, until the Board of Directors and Dr. Jawerth determine
      when and how these deferred and accrued amounts may be paid. The 10% annual
      increases provided for in Dr. Jawerth’s employment contract have been recorded
      as accrued salaries in the Company’s balance sheet as of September 30, 2005.




***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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**Item
      2.** ***Management'sDiscussion
      and Analysis*** ***of Financial Condition and Results of Operations***




***Forward-Looking
      Statements***




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




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




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




·
            our
                future revenue opportunities;




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




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




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




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




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




·
            the
                future growth of our customer base;




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




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




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




·
            evolving
                technology trends.






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






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**Overview**




Summus’
      predecessor company, High Speed Net Solutions, Inc., was founded in 1984.
      Summus, Ltd. was merged into High Speed in February 2001. 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.




Summus
      is
      primarily engaged in the development of mobile media applications that optimize
      the consumer wireless experience.  The core of our business 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 Sports
      Illustrated, America Online, Fujifilm, Mattel, The Associated Press, The Wall
      Street Journal, Phil Hellmuth, Howard Lederer, Golf Digest, Hooters, The
      Grateful Dead and others.




Summus
      has developed wireless applications and tools for the creation, transmission,
      playing and management of content by consumers over wireless networks.  We
      currently offer applications in four major business areas:





·
            Personalization;


·
            Gaming;


·
            Photo
                messaging; and


·
            News/Information.




Summus
      builds 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 distribute our applications through major wireless carriers who
      make our products available to their customers. Summus currently has
      relationships with carriers that account for 98% of all U.S. wireless
      subscribers. We also have relationships with international carriers covering
      Canada, Latin America, Australia, Israel, the U.K., and
      China.




We
      have
      completed the development and deployment of at least one or a combination of
      thirty-two (32) wireless applications on a total of forty-five (45) wireless
      carriers and distribution partners , seventeen (17) of which are domestic and
      twenty-eight (28) of which are international. Some of our U.S. based wireless
      carriers include, Alltel, Cingular, Sprint PCS, T-Mobile, US Cellular and
      Verizon Wireless.




The
      majority of the applications developed and deployed by Summus, as well as future
      applications, have been developed by us through a process that involves securing
      agreements with content providers and carriers, and developing and launching
      the
      applications. We outsource the infrastructure needed to host and deliver the
      transactions for our applications.





Our
      goal
      is to be the leading developer of wireless applications and mobile media content
      in the four areas listed above for mobile phones, smart phones, personal digital
      assistants (PDA’s) and other handheld wireless devices.  Our technology
      works over existing second generation (2G) wireless networks, as well as 2.5G
      and 3G networks, and is not generally limited by the wireless network. Our
      wireless applications are designed to take advantage of multimedia enhancements
      in the latest generation of mobile phones, including high-resolution color
      display camera capabilities, increased processing power and improved audio
      capabilities.




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Our
      customers typically purchase and download our applications through a wireless
      carrier's branded e-commerce service accessed directly from their mobile phones,
      which must be enabled by technologies such as BREW, J2ME, Symbian and WAP.
      These
      wireless carrier services include, among others, Verizon Wireless' *Get
      It Now* ,
      Sprint’s PCS *Vision,* Alltel’s *Axcess* and US
      Cellular’s *Easy
      Edge* .
      Our
      customers are charged a one-time or monthly subscription fee for the application
      which appears 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 part of this amount. The wireless distribution of
      our
      applications eliminates traditional publishing complexities, including physical
      production, packaging, shipping, inventory management and return
      processing.




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 reduction measures.


























20




Table
          of Contents








**Results
      of Operations**




**Three-Month
      Period Ended September 30, 2005 Compared to Three-Month Period Ended September
      30, 2004**




*Revenues*




**Three
                Months Ended September 30****%
                of Total**
            
            
            
            **%
                of Total****2005**
            
            **Revenues**
            
            **2004**
            
            **Revenues**
            
            **$
                Change**
            
            **%
                Change**Revenues
                by
              category:Wireless
                applicationsand contracts
            
            $
            2,054,744
            
            
            99.8
            %
            $
            1,466,448
            
            
            97.7
            %
            $
            588,296
            
            
            40.1
            %Contracts
                and license
              fees
            
            
            -
            
            
            -
            
            
            30,000
            
            
            2.0
            
            
            (30,000
            )
            
            (100.0
            )%Wireless
                license
              fees
            
            
            3,500
            
            
            0.2
            
            
            4,250
            
            
            0.3
            
            
            (750
            )
            
            (17.6
            )%Total
                revenues
            
            $
            2,058,244
            
            
            100.0
            %
            $
            1,500,698
            
            
            100.0
            %
            $
            557,546
            
            
            37.2
            %




*Wireless
      Applications and Contracts.* Revenue
      from wireless applications and contracts increased $588,296 to $2,054,744 in
      the
      three-month period ended September 30, 2005, up 40.1% from $1,466,448 in the
      three-month period ended September 30, 2004. 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
      Summus, launched by several wireless carriers and purchased by end-users. We
      continue to increase our subscriber base as well as expanding to new
      carriers.




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.




*Contracts
      and License Fees.* There
      was
      no revenue earned from contracts and license fees during the three-month period
      ended September 30, 2005. Revenue from contracts and license fees was $30,000
      in
      the three-month period ended September 30, 2004 and was generated from providing
      governmental contract services. This government contract commenced in 2003
      and
      was completed in March 2004.




*Wireless
      License Fees.* Revenue
      earned from wireless license fees totaled $3,500 and $4,250 in the three-month
      periods ended September 30, 2005 and 2004, respectively.






21




Table
          of Contents







*Costs
      of Revenues*




**Three
                    Months Ended September 30****2005**
                
                
                **2004**
                
                
                **$
                    Change**
                
                
                **%
                    Change**Cost
                    of revenues by category:Wireless applications and contracts
                
                $
                1,008,937
                
                $
                723,988
                
                $
                284,949
                
                
                39.4
                %Contracts and license fees
                
                
                -
                
                
                4,038
                
                
                (4,038
                )
                
                (100.0
                )%Wireless license fees
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                %Total
                    cost of revenues
                
                $
                1,008,937
                
                $
                728,026
                
                $
                280,911
                
                
                38.6
                %




*Wireless
      Applications and Contracts.* Costs
      of
      wireless applications and contracts increased $284,949 to $1,008,937 in the
      three-month period ended September 30, 2005, up 39.4% from $723,988 in the
      three-month period ended September 30, 2004. 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, carrier
      distribution and fees associated with content information provided by our
      content providers for wireless applications which were deployed during the
      three-month period ended September 30, 2005. The costs related to third-party
      hosting and carrier distribution are incurred on a monthly basis and are
      primarily fixed in nature regardless of the revenue generated by the related
      applications.




*Contracts
      and License Fees.* There
      was no revenue earned from contracts and license fees during the three-month
      period ended September 30, 2005, therefore the Company did not record any costs
      of revenues *.* Costs
      of
      contracts and license fees were $4,038 in the three-month period ended September
      30, 2004, and were incurred as part of providing services under a government
      contract that commenced in 2003 and was completed in March 2004. Costs of
      contracts and license fees consisted primarily of salaries and other related
      costs of providing governmental contract services.




*Wireless
      License Fees.* There
      were no costs of revenues regarding wireless license fees during the three-month
      periods ended September 30, 2005 and 2004, since the license fee agreements
      consummated during this period related to technology that had been previously
      developed and expensed by the Company.






22




Table
          of Contents





*Gross
      Profit*


**Three
                  Months Ended September 30****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Gross
                  profit by category:Wireless applications and contracts
              
              $
              1,045,807
              
              $
              742,460
              
              $
              303,347
              
              
              40.9
              %Contracts and license fees
              
              
              -
              
              
              25,962
              
              
              (25,962
              )
              
              (100.0
              )%Wireless license fees
              
              
              3,500
              
              
              4,250
              
              
              (750
              )
              
              (17.6
              )%Total
                  gross profit
              
              $
              1,049,307
              
              $
              772,672
              
              $
              276,635
              
              
              35.8
              %




*Wireless
      Applications and Contracts.* Gross
      profit resulting from the development and deployment of wireless applications
      increased $303,347 to $1,045,807 for the three-month period ended September
      30,
      2005, an increase of 40.9% over the gross profit for the three-month period
      ended September 30, 2004 of $742,460. The increase in gross profit resulting
      from these activities corresponds with the increase in revenues from wireless
      applications and contracts. The costs for these revenues include costs that
      are
      primarily fixed in nature, consisting mostly of third-party hosting fees and
      content information provided by certain of our content providers, and costs
      that
      are primarily variable in nature, consisting mostly of third-party content
      information.




*Contracts
      and License Fees.* During
      the three-month period ended September 30, 2005, the Company did not generate
      any revenue, costs of revenue or gross profit related to contracts and license
      fees. Gross profit resulting from the government contract services during the
      three-month period ended September 30, 2004 totaled $25,962. The gross profit
      from these services resulted from deducting primarily salaries and other related
      costs from the related earned revenue.




*Wireless
      License Fees.* Gross
      profit resulting from wireless license fees totaled $3,500 and $4,250 for the
      three-month periods ended September 30, 2005 and 2004, respectively. The Company
      did not incur any specific direct costs associated with the sale, delivery,
      or
      installation of the software underlying the license agreements consummated
      during the period. Additionally, the Company does not expect to incur any future
      obligations relating to these license fees.




*General
      and Administrative Expenses*




**Three
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**General
                and administrative
            
            $
            659,831
            
            $
            521,959
            
            $
            137,872
            
            
            26.4
            %




General
      and administrative expenses consist primarily of salaries, consulting fees,
      office operations, administrative and general management activities, including
      legal, accounting and other professional fees. General and administrative
      expenses for the three-month period ended September 30, 2005 were $659,831,
      compared to $521,959 for the three-month period ended September 30, 2004. The
      increase in general and administrative expenses during the current period as
      compared to the prior period reflect increases in several expense categories,
      including salaries, travel, fees related to the Qualcomm Quick-Pay program,
      and
      general office administration costs.






23




Table
          of Contents







Res *earch
      and Development Expenses*




**Three
                  Months Ended September 30****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Research
                  and development
              
              $
              916,284
              
              $
              436,830
              
              $
              479,454
              
              
              109.8
              %




Research
      and development expenses for the three-month period ended September 30, 2005,
      were $916,284 compared to $436,830 for the three-month period ended September
      30, 2004. The increase in research and development expenses is due to the
      increase in application development for the number of applications that the
      Company is developing for future revenue generation and specific investments
      in
      certain technologies in the three-month period ended September 30, 2005. We
      are
      focusing our resources on the development of new products for rapid deployment.




*Sales
      and Marketing Expenses*




**Three
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Sales
                and marketing
            
            $
            503,932
            
            $
            227,971
            
            $
            275,961
            
            
            121.1
            %




Sales
      and
      marketing expenses consist primarily of salaries, consulting fees, advertising
      fees and other professional fees. Sales and marketing expenses for the
      three-month period ended September 30, 2005 were $503,932, compared to $227,971
      for the three-month period ended September 30, 2004. The increase in sales
      and
      marketing expenses during the current period as compared to the prior period
      reflects a focus to deploy and market new products in order to continue
      increasing revenues. The Company incurred various expenses during the
      three-month period ended September 30, 2005 related to various print, mail
      and
      web-based advertising campaigns.




*Non-Cash
      Compensation Expenses*




**Three
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                compensation
            
            $
            6,995
            
            $
            2,475
            
            $
            4,520
            
            
            182.6
            %




Non-cash
      compensation for the three-month period ended September 30, 2005 was $6,995
      compared to $2,475 for the three-month period ended September 30, 2004. Non-cash
      compensation for each of the three-month periods reflects the amortization
      for
      three months of deferred compensation resulting from stock options granted
      in
      prior years, at prices below the fair value of the underlying common stock.






24




Table
          of Contents





*Non-Cash
      Consulting Expenses*




**Three
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                consulting expense
            
            $
            5,207
            
            $
            41,415
            
            $
            (36,208
            )
            
            (87.4
            )%




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




Non-cash
      consulting expense for the three-month period ended September 30, 2004, in
      the
      amount of $41,415 is attributable to 18,085 stock options and 4,090 stock
      warrants granted to consultants for services, valued using the Black-Scholes
      option-pricing model.




*Non-Cash
      Settlements*




**Three
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                settlements
            
            $
            -
            
            $
            (126,373
            )
            $
            126,373
            
            
            100.0
            %




The
      Company did not enter into any legal settlements during the three-month period
      ended September 30, 2005.




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




*Interest
      Expense*




**Three
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Interest
            
            $
            653
            
            $
            13,830
            
            $
            (13,177
            )
            
            (95.3
            )%




Interest
      expense for the three-month period ended September 30 2005, was $653 compared
      to
      interest expense of $13,830 for three-month period ended September 30, 2004.
      Interest expense for each of the three-month periods related to interest costs
      associated with capital lease obligations and note payable agreements. The
      decrease in interest expense is due primarily to certain note and lease
      obligations being fully paid in 2004.






25




Table
          of Contents







*Amortization
      of discount on debt and beneficial conversion feature*




**Three
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Amortization
                of discount on debt and
              beneficial
                conversion feature
            
            $
            -
            
            $
            611,653
            
            $
            (611,653
            )
            
            (100.0
            )%




There
      was
      no amortization of discount on debt and beneficial conversion feature for the
      three-month period ended September 30, 2005. Amortization of discount on debt
      and beneficial conversion feature for the three-month period ended September
      30,
      2004 was $611,653. This related to amortization of the discounts on the
      convertible notes payable entered into in May 2004. These notes were converted
      to common stock in 2004.




*Net
      Loss*




**Three
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Net
                loss
            
            $
            1,043,595
            
            $
            957,088
            
            $
            86,507
            
            
            9.0
            %




As
      a
      result of the factors discussed above, the net losses for the three-month period
      ended September 30, 2005 and 2004 were $1,043,595 and $957,088, respectively.






**Nine-Month
      Period Ended September 30, 2005 Compared to Nine-Month Period Ended September
      30, 2004**




*Revenues*




**Nine
                Months Ended September 30****%
                of Total**
            
            
            
            **%
                of Total****2005**
            
            **Revenues**
            
            **2004**
            
            **Revenues**
            
            **$
                Change**
            
            **%
                Change**Revenues
                by
              category:Wireless
                applicationsand contracts
            
            $
            5,833,777
            
            
            99.9
            %
            $
            3,448,658
            
            
            98.6
            %
            $
            2,385,119
            
            
            69.2
            %Contracts
                and license
              fees
            
            
            -
            
            
            -
            
            
            43,889
            
            
            1.3
            
            
            (43,889
            )
            
            (100.0
            )%Wireless
                license
              fees
            
            
            8,700
            
            
            0.1
            
            
            5,000
            
            
            0.1
            
            
            3,700
            
            
            74.0
            %Total
                revenues
            
            $
            5,842,477
            
            
            100.0
            %
            $
            3,497,547
            
            
            100.0
            %
            $
            2,344,930
            
            
            67.0
            %











26




Table
          of Contents







*Wireless
      Applications and Contracts.* Revenue
      from wireless applications and contracts increased $2,385,119 to $5,833,777
      in
      the nine month period ended September 30, 2005, up 69.2% from $3,448,658 in
      the
      nine-month period ended September 30, 2004. 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
      Summus, launched by several wireless carriers and purchased by end-users. We
      continue to increase our subscriber base as well as expanding to new
      carriers.




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.




*Contracts
      and License Fees.* There
      was
      no revenue earned from contracts and license fees during the nine-month period
      ended September 30, 2005. Revenue from contracts and license fees was $43,889
      in
      the nine-month period ended September 30, 2004 and was generated from providing
      governmental contract services. This government contract commenced in 2003
      and
      was completed in March 2004.




*Wireless
      License Fees.* Revenue
      earned from wireless license fees totaled $8,700 and $5,000 in the nine-month
      periods ended September 30, 2005 and 2004, respectively.




*Costs
      of Revenues*




**Nine
                Months Ended September 30****2005**
            
            
            **2004**
            
            
            **$
                Change**
            
            
            **%
                Change**Cost
                of revenues by category:Wireless applications and contracts
            
            $
            2,848,552
            
            $
            1,747,756
            
            $
            1,100,796
            
            
            63.0
            %Contracts and license fees
            
            
            -
            
            
            7,237
            
            
            (7,237
            )
            
            (100.0
            )%Wireless license fees
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            %Total
                cost of revenues
            
            $
            2,848,552
            
            $
            1,754,993
            
            $
            1,093,559
            
            
            62.3
            %




*Wireless
      Applications and Contracts.* Costs
      of
      wireless applications and contracts increased $1,100,796 to $2,848,552 in the
      nine-month period ended September 30, 2005, up 63.0% from $1,747,756 in the
      nine-month period ended September 30, 2004. 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, carrier
      distribution and fees associated with content information provided by our
      content providers for wireless applications which were deployed during the
      nine-month period ended September 30, 2005. The costs related to third-party
      hosting and carrier distribution are incurred on a monthly basis and are
      primarily fixed in nature regardless of the revenue generated by the related
      applications.




*Contracts
      and License Fees.* There
      was no revenue earned from contracts and license fees during the nine-month
      period ended September 30, 2005, therefore the Company did not record any costs
      of revenues *.* Costs
      of
      contracts and license fees were $7,237 in the nine-month period ended September
      30, 2004, and were incurred as part of providing services under a government
      contract that commenced in 2003 and was completed in March 2004. Costs of
      contracts and license fees consisted primarily of salaries and other related
      costs of providing governmental contract services.






27




Table
          of Contents





*Wireless
      License Fees.* There
      were no costs of revenues regarding wireless license fees during the nine-month
      periods ended September 30, 2005 and 2004, since the license fee agreements
      consummated during this period related to technology that had been previously
      developed and expensed by the Company.




*Gross
      Profit*




**Nine
                    Months Ended September 30****2005**
                
                
                **2004**
                
                
                **$
                    Change**
                
                
                **%
                    Change**Gross
                    profit by category:Wireless applications and contracts
                
                $
                2,985,225
                
                $
                1,700,902
                
                $
                1,284,323
                
                
                75.5
                %Contracts and license fees
                
                
                -
                
                
                36,652
                
                
                (36,652
                )
                
                (100.0
                )%Wireless license fees
                
                
                8,700
                
                
                5,000
                
                
                3,700
                
                
                74.0
                %Total
                    gross profit
                
                $
                2,993,925
                
                $
                1,742,554
                
                $
                1,251,371
                
                
                71.8
                %




*Wireless
      Applications and Contracts.* Gross
      profit resulting from the development and deployment of wireless applications
      increased $1,284,323 to $2,985,225 for the nine-month period ended September
      30,
      2005, an increase of 75.5% over the gross profit for the nine-month period
      ended
      September 30, 2004 of $1,700,902. The increase in gross profit resulting from
      these activities corresponds with the increase in revenues from wireless
      applications and contracts. The costs for these revenues include costs that
      are
      primarily fixed in nature, consisting mostly of third-party hosting fees and
      content information provided by certain of our content providers, and costs
      that
      are primarily variable in nature, consisting mostly of third-party content
      information.




*Contracts
      and License Fees.* During
      the nine-month period ended September 30, 2005, the Company did not generate
      any
      revenue, costs of revenue or gross profit related to contracts and license
      fees.
      Gross profit resulting from the government contract services during the
      nine-month period ended September 30, 2004 totaled $36,652. The gross profit
      from these services resulted from deducting primarily salaries and other related
      costs from the related earned revenue.




*Wireless
      License Fees.* Gross
      profit resulting from wireless license fees totaled $8,700 and $5,000 for the
      nine-month periods ended September 30, 2005 and 2004, respectively. The Company
      did not incur any specific direct costs associated with the sale, delivery,
      or
      installation of the software underlying the license agreements consummated
      during the period. Additionally, the Company does not expect to incur any future
      obligations relating to these license fees.




*General
      and Administrative Expenses*




**Nine
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**General
                and administrative
            
            $
            2,095,090
            
            $
            2,072,443
            
            $
            22,647
            
            
            1.1
            %




28




Table
          of Contents




General
      and administrative expenses consist primarily of salaries, consulting fees,
      office operations, administrative and general management activities, including
      legal, accounting and other professional fees. General and administrative
      expenses for the nine-month period ended September 30, 2005 were $2,095,090,
      compared to $2,072,443 for nine-month period ended September 30, 2004.
      Management implemented certain cost-reduction programs during the second quarter
      of 2004. Those cost-reduction programs have been offset by increases in several
      expense categories, including salaries, travel, fees related to the Qualcomm
      Quick-Pay program, and general office administration costs.




*Research
      and Development Expenses*




**Nine
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Research
                and development
            
            $
            2,237,974
            
            $
            1,410,149
            
            $
            827,825
            
            
            58.7
            %




Research
      and development expenses for the nine-month period ended September 30, 2005,
      were $2,237,974 compared to $1,410,149 for the nine-month period ended September
      30, 2004. The increase in research and development expenses is due to the
      increase in application development for the number of applications that the
      Company is developing for future revenue generation and specific investments
      in
      certain technologies in the nine-month period ended September 30, 2005. We
      are
      focusing our resources on the development of new products for rapid deployment.






*Sales
      and Marketing Expenses*




**Nine
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Sales
                and marketing
            
            $
            1,143,196
            
            $
            464,019
            
            $
            679,177
            
            
            146.4
            %




Sales
      and
      marketing expenses consist primarily of salaries, consulting fees, advertising
      fees and other professional fees. Sales and marketing expenses for the
      nine-month period ended September 30, 2005 were $1,143,196, compared to $464,019
      for the nine-month period ended September 30, 2004. The increase in sales and
      marketing expenses during the current period as compared to the prior period
      reflects a focus to deploy and market new products in order to continue
      increasing revenues. The Company incurred various expenses during the nine-month
      period ended September 30, 2005 related to various print, mail and web-based
      advertising campaigns.




*Non-Cash
      Compensation Expenses*




**Nine
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                compensation
            
            $
            27,729
            
            $
            56,177
            
            $
            (28,448
            )
            
            (50.6
            )%








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Non-cash
      compensation for the nine-month period ended September 30, 2005 was $27,729
      compared to $56,177 for the nine-month period ended September 30, 2004. Non-cash
      compensation for each of the nine-month periods reflects the amortization for
      nine months of deferred compensation resulting from stock options granted in
      prior years, at prices below the fair value of the underlying common stock.




*Non-Cash
      Consulting Expenses*




**Nine
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                consulting expense
            
            $
            15,608
            
            $
            70,432
            
            $
            (54,824
            )
            
            (77.8
            )%




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




Non-cash
      consulting expense for the nine-month period ended September 30, 2004, in the
      amount of $70,432 is attributable to 36,533 stock options and 13,895 stock
      warrants granted to consultants for services, valued using the Black-Scholes
      option-pricing model.




*Non-cash
      Settlements*




**Nine
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                settlements
            
            $
            58,750
            
            $
            (126,373
            )
            $
            185,123
            
            
            146.5
            %




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




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




*Interest
      Expense*




**Nine
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Interest
            
            $
            45,482
            
            $
            48,019
            
            $
            (2,537
            )
            
            (5.3
            )%








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Interest
      expense for the nine-month period ended September 30, 2005, was $45,482 compared
      to interest expense of $48,019 for nine-month period ended September 30, 2004.
      Interest expense for each of the nine-month periods related to interest costs
      associated with capital lease obligations and note payable agreements. The
      increase in interest expense is due primarily to interest incurred on principal
      on Senior Notes in 2005. These Senior Notes were repaid in March
      2005.




*Amortization
      of discount on debt and beneficial conversion feature*




**Nine
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Amortization
                of discount on debt and
              beneficial
                conversion feature
            
            $
            851,332
            
            $
            654,210
            
            $
            197,122
            
            
            30.1
            %




Amortization
      of discount on debt and beneficial conversion feature for the nine-month period
      ended September 30, 2005 was $851,332 This related to amortization of the
      discounts on the convertible notes payable entered into in December 2004. These
      notes were repaid in March 2005 and the discount was fully amortized as interest
      expense in the nine-month period ended September 30, 2005. Amortization of
      discount on debt and beneficial conversion feature for the nine-month period
      ended September 30, 2004 was $654,210. This related to amortization of the
      discounts on the convertible notes payable entered into in May 2004. These
      notes
      were converted to common stock in 2004.




*Net
      Loss*




**Nine
                Months Ended September 30****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Net
                loss
            
            $
            3,481,236
            
            $
            2,906,522
            
            $
            574,714
            
            
            19.8
            %




As
      a
      result of the factors discussed above, the net losses for the nine-month periods
      ended September 30, 2005 and 2004 were $3,481,236 and $2,906,522, respectively.




**Liquidity
      and Capital Resources**




As
      of
      September 30, 2005 we had $2,238,999 of cash on hand, working capital of
      $1,181,822, and approximately $2.3 million in current liabilities.




*Funding
      Events*





In
      January 2005, Summus received an additional investment of $215,000 of 12% Senior
      Notes, on the same terms as the December 2004 Senior Notes Financing. Summus
      originally received $1,425,000 in the initial closing of the Senior Notes in
      late December 2004. The holder was also granted warrants to purchase a total
      of
      42,157 shares of Summus’s common stock. The warrants are exercisable upon
      issuance, have a term of five years and have an exercise price of $5.60 per
      share.







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During
      February and March 2005, Summus received $4,112,134 from the exercise of
      1,263,246 warrants to purchase shares of Summus’s common stock. These warrants
      were originally issued in connection with private placements of Summus’s
      preferred stock and common stock. Summus agreed to reprice most of these
      warrants, which originally had exercise prices ranging from $3.50 to $7.50
      per
      share, to exercise prices ranging from $2.50 to $3.50 per share in consideration
      for their immediate exercise.





In
      January and February 2005, Summus issued 58,560 shares in connection with the
      exercise of stock options at their original exercise prices ranging from $1.60
      to $5.10 per share. The total received by Summus from these exercises was
      $218,229.





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





*Other
      Matters*





From
      inception through our 2004 fiscal year, our primary source of funding for our
      operations came from the issuance of shares of our common stock in private
      placements to investors. We believe that we have enough working capital to
      fund
      and sustain our business operations through 2005 and beyond. However, business
      opportunities, such as product or geographic expansion, or the acquisition
      of
      product lines or companies may present themselves. If we were to pursue these
      opportunities, they may require that we raise additional capital through the
      issuance of our equity securities or that we issue shares of our common stock
      or
      other equity securities in connection with acquisitions. If we have to raise
      additional funding, we cannot guarantee that we will be able to raise the
      necessary capital or that, if we do so, it will be on favorable terms. We may
      have to sell equity at below market rates, and any future sales of our capital
      stock to finance our business plan will dilute our existing stockholders'
      ownership.





Summus
      is
      actively promoting and expanding its product line and pursuing additional
      financing for capital to expand its operations.





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





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


·
            securing
                top-tier brands;


·
            the
                development and delivery of new wireless applications;
                and


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




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*Cash
      Flow Information*




**Nine
                  Months Ended****September 30****2005**
              
              
              **2004**Cash
                  used in operating activities
              
              $
              (1,928,788
              )
              $
              (2,873,333
              )Cash
                  used in investing activities
              
              $
              (60,837
              )
              $
              (38,369
              )Cash
                  provided by financing activities
              
              $
              2,822,836
              
              $
              914,610




*Cash
      Flow used in Operating Activities.* Net
      cash
      used in operating activities was $1,928,788 in the nine-month period ended
      September 30, 2005, compared to $2,873,333 in the corresponding period of the
      prior year. The decrease in net cash used in operating activities was primarily
      due to increases in cash collections from customers consistent with the increase
      in wireless application revenues, and to cost reductions in several expense
      categories, primarily salaries, third-party consulting fees, travel, and general
      office administration costs in the nine-month period ended September 30, 2005.
      Summus restructured its organization in February 2004 as part of its focus
      to
      reduce future operating expenses and focus on revenue generation.




*Cash
      Flow used in Investing Activities.* Net
      cash
      used in investing activities was $60,837 and $38,369 in the nine-month periods
      ended September 30, 2005 and 2004, respectively, representing equipment
      purchases.




*Cash
      Flow provided by Financing Activities.* Net
      cash
      provided by financing activities was $2,822,836 in the nine-month period ended
      September 30, 2005 and consisted of the following:




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


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


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


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




Net
      cash
      provided by financing activities was $914,610 in the nine-month period ended
      September 30, 2004 and consisted of the following:




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


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


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


·
            principal
                payments on note payable obligations of
                ($88,180).




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Table
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**Contractual
      Obligations**




At
      September 30, 2005, we did not have any material commitments for capital
      expenses. Our principal commitments consisted of obligations under operating
      leases, notes payable, and content partner arrangements.




The
      following table summarizes our contractual obligations at September 30, 2005
      and
      the effect these obligations are expected to have on our liquidity and cash
      flows in future periods.






**Total**
              
              
              **Operating**
                **Leases**
              
              
              **Notes**
                **Payable**
              
              
              **Purchase**
                **Obligations**Three
                  months ended December 31, 2005
              
              $
              203,408
              
              $
              61,408
              
              $
              100,000
              
              $
              42,000Year
                  ending December 31, 2006
              
              $
              454,642
              
              $
              200,682
              
              $
              85,960
              
              $
              168,000Year
                ending December 31, 2007
              
              $
              168,000
              
              $
              -
              
              $
              -
              
              $
              168,000Total
                Contractual Obligations
              
              $
              826,050
              
              $
              262,090
              
              $
              185,960
              
              $
              378,000






**New
      Accounting Pronouncements**




In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), “ *Share-Based
      Payment* ”
(“SFAS
      No. 123 (R)”). SFAS No. 123(R), a revision of SFAS No. 123, “ *Accounting
      for Stock-Based Compensation* ”,
      supersedes APB Opinion No. 25, “ *Accounting
      for Stock Issued to Employees* ”,
      and
      amends SFAS No. 95, “ *Statement
      of Cash Flows* .”
SFAS
      No. 123(R) requires all share-based payments to employees, including grants
      of
      employee stock options, to be recognized in the financial statements based
      on
      their fair values. SFAS No. 123(R) is effective for the beginning of the first
      annual period beginning after June 15, 2005. Therefore the Company plans to
      adopt SFAS No. 123(R) on January 1, 2006. The adoption of the SFAS No. 123(R)
      fair value method will have a significant impact on the Company’s results of
      operations, although it will have no impact on financial position. The impact
      of
      adoption of SFAS No. 123(R) cannot be predicted at this time because it will
      depend on levels of share-based payments granted in the future. The Company
      is
      currently evaluating the two fair value pricing methods permitted by SFAS No.
      123(R) and has not selected a final fair value pricing model.





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







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**Description
      of Critical Accounting Policies**




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




*Revenue
      Recognition and Related Costs*




Wireless
      applications and contracts




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




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




Wireless
      License Fees




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




There
      were no costs related to the wireless license fee revenue generated during
      the
      nine months ended September 30, 2005 and 2004 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.










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Contracts
      and license fees




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




*Valuation
      of Equity Instruments*




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












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




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




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




*Evaluation
        of Disclosure Controls and Procedures.* Based
        on
        their evaluation, as of the end of the period covered by this Quarterly Report
        on Form 10-Q, of the effectiveness of the Company’s disclosure controls and
        procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
        Securities Exchange Act of 1934) the principal executive officer and principal
        financial officer of the Company have each concluded that such disclosure
        controls and procedures are effective and sufficient 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’s rules and forms and that information required to be disclosed by
        the Company in the reports that it files or submits under the Exchange Act
        is
        accumulated and communicated to the Company’s management, including its
        principal executive and principal financial officers, as appropriate to allow
        timely decisions regarding required disclosure.
  *Changes
        in Internal Control Over Financial Reporting.* There
        have not been any changes in the Company’s internal control over financial
        reporting that occurred during the Company’s most recent fiscal quarter that has
        materially affected, or is reasonably likely to materially affect, the Company’s
        internal control over financial reporting.






**PARTII.**


**OTHER
      INFORMATION**






**Item
      2.** ***UnregisteredSales
      of Equity Securities and Use of
      Proceeds***




*Issuance
      of Common Stock for Services*




In
      August
      2005, the Company issued 23,334 shares of common stock pursuant to a marketing
      agreement valued at $70,002.




**Item
      6.** ***Exhibit******s***




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




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**SIGNATURES** ****






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




Date:
                November 14, 2005
            SUMMUS,
                INC.
              
              By:/s/            
                GARY E. BAN
              Gary
                E. Ban
              *Chief
                Executive Officer*Date:
                November 14, 2005
            By:/s/               
                DONALD T.
                LOCKE
              Donald
                T. Locke
              *Chief
                Financial Officer*











38