**UNITED
      STATES**


**SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-K**
 
 þ
              **ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR
                  15(d)**
                **OF
                  THE SECURITIES EXCHANGE ACT OF
                  1934**
                **For
                  the Fiscal Year Ended December 31,
                  2005****OR** ̈
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR
                  15(d)**
                **OF
                  THE SECURITIES EXCHANGE ACT OF
                  1934**
 
 **For
        the Transition Period from _______ to _________**
 
 **Commission
        File Number: 0-29625**
 
 **OASYS
        MOBILE, INC.**
 (Exact
        name of Registrant as Specified in its Charter)
 
 Delaware
              65-0185306**(State
                  of incorporation)**
              **(I.R.S.
                  Employer Identification No.)**434
                  Fayetteville Street, Suite 600Raleigh,
                  North Carolina 27601(919)
                  807-5600**(Address,
                  including zip code, and telephone number (including area code)
                  of****Registrant’s
                  principal executive offices)**Securities
                  registered pursuant to Section 12(b) of the Act: NoneSecurities
                  registered pursuant to Section 12(g) of the Act:Common
                  Stock, par value $.001 per share(Title
                  of Class)
 
 Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act.  Yes  ̈No
þ
 
 Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or 15(d) of the Act. Yes  ̈ No
þ
 
 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 if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein, and will not be contained, to the
        best
        of registrant’s knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K.  ̈
 
 Indicate
        by checkmark whether the Registrant is a large accelerated filer, an accelerated
        filer or a non-accelerated filer. See definition of “accelerated filer” and
“large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
 Large
        Accelerated Filer  ̈ Accelerated
        Filer  ̈ Non-Accelerated
        Filer þ
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes  ̈ No þ
 
 The
        aggregate market value of the shares of common stock held by non-affiliates
        of
        the Registrant as of June 30, 2005, was approximately $28,266,702 based on
        the
        average of the bid and asked price of the stock reported for such date. For
        the
        purpose of the foregoing calculation, the shares of common stock held by
        each
        officer and director and by each person who owns 5% or more of the outstanding
        common stock have been excluded in that such persons may be deemed to be
        affiliates.
 
 The
        number of shares outstanding of the Registrant’s common stock, par value $.001
        per share, as of March 28, 2006 was 13,519,704.
  1
  **OASYS
        MOBILE, INC.**
 **FORM
        10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005**
 **TABLE
        OF CONTENTS**
 
 ***PAGE*****PART
                  I****ITEM
                  1**
              BUSINESS
              5**ITEM
                  1A**
              RISK
                  FACTORS
              15**ITEM
                  1B**
              UNRESOLVED
                  STAFF COMMENTS28**ITEM
                  2**
              PROPERTIES**ITEM
                  3**
              LEGAL
                  PROCEEDINGS
              28**ITEM4**
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITIES HOLDERS
              28**ITEM
                  5**
              MARKET
                  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                  PURCHASES OF EQUITY SECURITIES
              29**ITEM
                  6**
              SELECTED
                  FINANCIAL DATA
              30**ITEM
                  7**
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION
                  AND RESULTS OF OPERATIONS
              32**ITEM
                  7A**
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT
                MARKET
                  RISK
              45**ITEM
                  8**
              FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY DATA
              45**ITEM
                  9**
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS
                ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE
              45**ITEM
                  9A**
              CONTROLS
                  AND PROCEDURES
              45**ITEM
                  9B**
              OTHER
                  INFORMATION
              45**PART
                  III**
              
              46**ITEM
                  10**
              DIRECTORS
                  AND EXECUTIVE OFFICERS OF
                THE
                  REGISTRANT
              46**ITEM
                  11**
              EXECUTIVE
                  COMPENSATION
              49**ITEM
                  12**
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                AND
                  MANAGEMENT AND RELATED STOCKHOLDER MATTERS
              56**ITEM
                  13**
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              58**ITEM
                  14**
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              58**PART
                  IV**
              
              59**ITEM
                  15**
              EXHIBITS
                  AND FINANCIAL STATEMENT SCHEDULES
              59
 
 
 
 
  2
  
 **EXPLANATORY
        NOTE**
 
 ***Reverse
        Stock Split***
 
 On
        March
        11, 2005, we amended our Amended and Restated Articles of Incorporation as
        a
        Florida corporation to effect a reverse split of our common stock in which
        every
        ten (10) shares of such common stock, par value $.001 per share, issued and
        outstanding as of such date was automatically reclassified and converted
        into
        one (1) share of common stock, par value $.001 per share. Accordingly, all
        share
        and per share amounts in this Annual Report on Form 10-K for the fiscal year
        ended December 31, 2005, have been retroactively adjusted to give effect
        to this
        event. On March 11, 2005, we were reincorporated into the State of Delaware,
        and
        on January 30, 2006, we amended our Certificate of Incorporation to change
        our
        corporate name to Oasys Mobile, Inc.
 
 **FORWARD-LOOKING
        STATEMENTS**
 
 This
        annual report on Form 10-K 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 made in the section
        of this
        annual report under the caption “Item 7. 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 annual report containing
        the
        words “believes,” “anticipates,” “plans,” “should,” “expects”, “intends” 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. Some of 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, semiconductor and device designers, mobile and
                wireless
                device manufacturers and content
                providers; 
 ·
            timely
                deployment by wireless service providers, semiconductor and device
                designers, and wireless device manufacturers of our wireless applications
                in their networks and mobile information
                devices; 
 ·
            the
                continued growth in demand for wireless and mobile
                usage; 
 ·
            our
                new product development and acceleration of commercial deployment
                of such
                products; 
 ·
            the
                future adoption of our current and future products, services, and
                technologies; 
 ·
            the
                future growth of our customer base; 
 ·
            technological
                competition, which creates the risk of our technology being rendered
                obsolete or noncompetitive; 
 ·
            the
                lack of patent protection with respect to our
                technology; 
 ·
            potential
                infringement of the patent rights of third parties;
                and 
 ·
            evolving
                technology trends. 
  3
  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
        annual report. In light of the significant uncertainties inherent in the
        forward-looking statements included in this annual report, you should not
        consider the inclusion of such information as a representation by us or anyone
        else that we will achieve such results. We undertake no obligation to publicly
        update any forward-looking statements, whether as the result of new information,
        future events, or otherwise. You are advised, however, to consult any further
        disclosures we make in our subsequent quarterly reports on Form 10-Q, current
        reports on Form 8-K, annual reports on Form 10-K, and other reports filed
        with
        the SEC. Also note that we provide the following cautionary discussion of
        risks,
        uncertainties, and assumptions relevant to our business in “Item 1A - Risk
        Factors” of this annual report. These are factors that we think could cause our
        actual results to differ materially from expected and historical results.
        Other
        factors besides those listed there could also adversely affect us.
 
     
  4
  **ITEM1.** **BUSINESS**
 
 The
        predecessor company to Oasys Mobile, Inc. was originally founded in 1984.
        The
        company was reincorporated as a Delaware corporation on March 11, 2005, and
        on
        January 31, 2006, the company changed its name to Oasys Mobile, Inc., to
        reflect
        its increased focus on the distribution of wireless content and services
        directly to the youth market through our own portal, www.OasysMobile.com .
        Except
        where otherwise indicated, the terms “Oasys Mobile”, “we,” “us” and “our”
refer to Oasys Mobile, Inc. Our executive offices are located at 434
        Fayetteville Street, Suite 600, Raleigh, NC 27601, and our telephone number
        is
        (919) 807-5600.  Our corporate Internet website address is
        www.oasysmobileinc.com.
  We
        make
        available free of charge on our website our annual, quarterly and current
        reports, including amendments to such reports, as soon as practicable after
        we
        electronically file such material with, or furnish such material to, the
        United
        States Securities and Exchange Commission (“SEC”). Our filings can also be
        obtained from the SEC website at www.sec.gov or by calling the SEC Office
        of
        Public Reference toll free at (800) 942-8090. However, the information
        found on our website or the SEC website is not part of this annual report
        on
        Form 10-K.
  **Corporate
        Overview**
 
 Oasys
        Mobile does business in three key areas in the mobile media applications
        market:
 
 ·
            OasysMobile.com
                - Our Mobile Lifestyle Portal. ·
            Branded
                Mobile Applications. ·
            White
                Label Services.  *OasysMobile.com*
 
 ** In
        January 2006, we launched our new web portal OasysMobile.com, a leading-edge
        mobile lifestyle portal that is directed at the teen and young adult market
        that
        allows users to access content outside of the distribution decks of the wireless
        carriers. OasysMobile.com also allows consumers to buy, own, and keep their
        mobile content beyond the life of their cell phone.
 
 Through
        OasysMobile.com, we can distribute our own proprietary mobile content and
        vast
        amounts of third party mobile content and offer creative pricing and bundling
        of
        content and services directly to mobile consumers. Oasys Mobile built its
        mobile
        portal after seeing the opportunity to create additional distribution channels.
        By leveraging our experience in the mobile media space, Oasys Mobile is able
        to
        offer a comprehensive suite of services that add tremendous value to the
        mobile
        data consumer.
 
 Designed
        primarily for young people whose daily lifestyles rely on their mobile handset,
        OasysMobile.com is a unique mobile lifestyle portal where consumers can purchase
        the latest mobile content - including ringtones, truetones, games, wallpaper
        and
        more - and safely store it in a virtual "locker" that can be accessed anytime,
        anywhere by the user. These password-protected lockers provide secure, online
        storage for a user’s mobile content should they upgrade, lose or break their
        mobile device. Our research shows that 14-24 year olds go through as many
        as two
        to three mobile handsets per year. Whether these handsets are lost, stolen
        or
        upgraded, all of the valuable content that has already been purchased by
        the
        consumer is also lost and must be re-purchased. Our virtual locker allows
        consumers to eliminate this concern and keep the wireless content they have
        previously purchased. We have filed a provisional patent and have a patent
        pending on our virtual locker concept.
 
 OasysMobile.com
        is dedicated to creating an optimal user experience by offering additional
        features, including:
 
 ·
            A
                la carte mobile content purchases with no subscriptions
                required. 
 ·
            A
                premium monthly subscription option that gives users access to their
                virtual locker and significant cost savings on bundled mobile content
                and
                services. 
 ·
            A
                live chat support feature for personal assistance throughout the
                content
                buying process. 
 ·
            Mobile
                games including Oasys Mobile's premium games, such as UNO® Challenge,
                Texas Hold'em by Phil Hellmuth and Secrets of Hold'em with Howard
                Lederer,
                plus other popular games, including Son of the Mask, SuperDoku, The
                Mummy
                and many more, from third party game developers, with which Oasys
                Mobile
                contracts for the distribution of their content.  5
  
 ·
            Popular
                ringtones and truetones, including tracks from music distributor,
                The
                Orchard, college fight songs and thousands of other ringtones and
                truetones from third-party providers. 
 ·
            Personalized
                wallpapers including university logos, Grateful Dead imagery, Hooters
                Calendar Girls and other popular images from Corbis in addition to
                other
                third-party content providers. 
 ·
            A
                phone book sync application called reFresh that is available initially
                on
                select handsets, to give users a safe place to store contact
                information. 
 ·
            An
                available WAP interface allowing users to purchase content and access
                their locker directly from their cell phone. Customers can access
                the WAP
                site at wap.oasysmobile.com. 
 *Branded
        Mobile Applications*
 
 Oasys
        Mobile is a leading provider of premium mobile media content, products and
        services that are distributed through top-tier wireless carriers in the United
        States and abroad, as well as through our OasysMobile.com portal. We develop,
        publish and distribute more than 30 branded mobile applications in four major
        categories:
 
 ·
            Games; ·
            Messaging; ·
            Personalization;
                and ·
            Entertainment. 
 We
        currently have relationships with wireless carriers that account for 97%
        of all
        wireless subscribers in the United States. We also have relationships with
        international carriers covering Canada, Latin America, Australia, Israel,
        the
        United Kingdom, Ireland, Italy and China.
 
 In
        2005,
        Oasys Mobile announced nine new products, thirteen new carriers or distribution
        partners and six new content partnerships. Oasys Mobile's partner and product
        portfolio includes such household names as Fujifilm, AOL, Mattel, Churchill
        Downs, Golf Digest, Phil Hellmuth, The Wall Street Journal, Howard Lederer
        and
        The Associated Press. Mobile media applications based on these brands, and
        other
        popular consumer applications, are deployed across 48 major wireless carriers
        and distribution partners in the United States and abroad.
 
 Oasys
        Mobile builds its consumer applications for most major mobile platforms,
        including QUALCOMM’s Binary Runtime Environment for WirelessTM (BREWTM), JavaTM 2
        Platform, Micro Edition (J2METM), SymbianTM OS and Wireless Application Protocol
        (WAP). We currently distribute our branded applications primarily through
        major
        wireless carriers who make our products available to their customers on their
        distribution decks. Users typically purchase and download our applications
        through a wireless carrier's branded mobile data service accessed directly
        from
        their mobile handsets, which are enabled by technologies such as BREW, J2ME,
        Symbian and WAP. These wireless carrier services include, among others, Verizon
        Wireless' *Get
        It Now* ,
        Cingular’s *Media
        Mall* ,
        Sprint’s PCS *Vision,* Alltel’s *Axcess,* US
        Cellular’s *Easy
        Edge* and
        T-Mobile’s *t-zones* .
 
 Users
        are
        charged a one-time or monthly subscription fee for the application which
        is
        billed to them on their mobile phone bills. The wireless carriers retain
        a
        percentage of the fee and remit the balance to us. We then pay the entities
        from
        which we license content a portion of this amount. The wireless distribution
        of
        our applications eliminates traditional publishing complexities, including
        physical production, packaging, shipping, inventory management and return
        processing.
 
 *White
        Label Services*
 
 The
        new
        Oasys Mobile white label products and services leverage the same content
        and
        functionality as OasysMobile.com and give wireless carriers and content
        providers access to alternate distribution channels which allows them to
        offer
        their mobile offerings outside of the wireless carriers’ distribution decks and
        reach more customers. For maximum impact, our web and WAP portals can be
        branded
        under a white-label partner’s brand, creating an outsourced mobile storefront or
        additional content source.
 
 In
        addition, Oasys Mobile can quickly and easily provide a content brand or
        carrier
        its own back-end photo-sharing platform. The photo platform has a user-friendly
        interface that makes it easy for subscribers to save and share photos and
        order
        prints of all their camera and online album pictures right from their camera
        phone. Oasys Mobile has created back-end photo-sharing platforms for Boost
        Mobile and Sprint/Nextel, which are currently both available.
 
  6
  *Revenue*
 
 The
        majority of our revenue currently comes from the distribution of our branded
        mobile applications and content in the United States and Canada, but we do
        expect more revenue from the distribution of our applications in other parts
        of
        the world and from our OasysMobile.com portal in 2006. Verizon, Cingular,
        Sprint
        and Alltel, our largest wireless carrier relationships, accounted for
        approximately 45%, 13%, 9% and 9% of our total revenues, respectively, during
        the fiscal year ended December 31, 2005.
 
 *Branded
        Application Content Agreements*
 
 The
        majority of the branded mobile applications developed and deployed by Oasys
        Mobile, 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 for the hosting and delivery of our branded applications.
 
 *Contracts
        for Distribution of Third-Party Content Through OasysMobile.com*
 
 O asys
        Mobile has entered into agreements with several third-party providers for
        the
        distribution of these providers’ content though our OasysMobile.com portal.
        Currently, we offer a growing catalogue of over 8,000 pieces of unique content,
        including ringtones, truetones wallpapers and games. We are currently
        negotiating with several major media brands for the distribution of their
        content through OasysMobile.com.
 
 *Our
        Technology*
 
 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 handsets, including
        high-resolution color display camera capabilities, increased processing power,
        improved graphics and improved audio capabilities.
 
 **The
        Mobile Media Applications Market**
  The
        mobile media applications market has emerged as a result of the rapid growth
        and
        significant technological advancement in the wireless communications industry.
        Wireless carriers are deploying new data services, including downloadable
        games,
        applications, wallpaper, screensavers, ringtones and images, to drive revenues
        and take advantage of advanced wireless networks and next-generation mobile
        handsets.
  We
        believe that growth in the wireless applications market has been positively
        influenced by a number of key factors and trends that we expect to continue
        in
        the near future, including:
  *Growth
        in Wireless Subscribers.* According
        to the Insight Research Corporation, the number of global wireless subscribers
        will grow from approximately 1.8 billion in 2005 to just over
        3.1 billion by 2011, with much of this growth occurring in markets outside
        the United States, Western Europe and Japan.
  *Deployment
        of Advanced Wireless Networks.* Wireless
        carriers are deploying high-speed, next-generation digital networks to enhance
        wireless voice and data transmission. These advanced networks have enabled
        the
        provisioning and billing of data applications and have increased the ability
        of
        wireless subscribers to quickly download large amounts of data, including
        games
        and other applications, to their mobile handsets.
  *Availability
        of Mobile Handsets with Multimedia Capabilities.* Annual
        mobile phone sales were 810 million units in 2005 and are expected to grow
        to
        1 billion units in 2009, according to research firm Gartner Inc. In recent
        years, the mobile handset has evolved from a voice-only device to a personal
        data and voice communications device that enables access to wireless content
        and
        data services. Mobile handset manufacturers are competing for consumers by
        designing next-generation mobile handsets with enhanced features, including
        built-in digital cameras, color screens, music, data connectivity and video. Worldwide
        sales of camera phones will reach 295.5 million in 2005, representing 38%
        of
        total worldwide mobile phone sales, according to Gartner Inc. Info Trends
        ex pects
        this to grow to 903 million camera phones sales by 2010, which represents
        87% of
        all cellular phones shipped. We believe that the availability of these
        next-generation mobile handsets is driving demand for wireless applications
        that take advantage of these advanced multimedia capabilities.
   7
  *Demand
        for Wireless Applications.* Wireless
        carriers are increasingly launching and promoting wireless applications to
        differentiate their services and drive revenues. The delivery of games,
        ringtones, truetones, images, applications and other content to subscribers
        enables wireless carriers to leverage both the increasing installed base
        of
        next-generation mobile handsets and their investment in high-bandwidth wireless
        networks. Consumers are downloading and paying for wireless content offered
        by
        the carriers and other distributors. Strategy Analytics predicts that revenue
        from mobile media content and applications will be $189 billion globally
        by
        2009.
 
 **Challenges
        for Wireless Applications Developers and Distributors**
  We
        believe the major challenges faced by wireless application developers, like
        us,
        include:
 **
 *Limited
        awareness of off-deck purchases.* The
        majority of consumers today who download content to their mobile phone do
        so
        through their wireless carrier’s download catalog or deck. Currently, only 10%
        of consumers have purchased content from off-portal websites in the United
        States, whereas in Europe, 72% of mobile content purchases are made in
        off-carrier transactions. Increasing the level of awareness by consumers
        in the
        United States as to the availability of content through such off-portal websites
        is critical in growing our OasysMobile.com portal and our White-Label services.
 
 *Dependence
        on Wireless Carriers.* Currently,
        wireless application developers are highly reliant on wireless carriers for
        the
        successful delivery of their applications and for billing and collecting
        the
        fees for such applications. Many factors outside our control could impair
        our
        ability to deliver our applications through wireless carriers, including
        the
        carriers' preference for our competitors' applications or the carriers' decision
        to discontinue altogether the sale of applications such as ours. Cultivating
        strong relationships with wireless carriers is critical to the success of
        our
        business.
  *Need
        to Create Compelling Content.* Customers
        are demanding increasingly sophisticated and compelling applications. Developers
        must be able to develop or license content that can satisfy ever-changing
        customer needs. To meet these demands for new and compelling content, developers
        must license or acquire externally developed applications, including brand
        names, or if they have the necessary resources, invest in research and
        development in order to enhance their current offerings and internally develop
        new applications internally.
  *Rapidly
        Evolving Market.* The
        wireless applications market is evolving rapidly and developers must have
        the
        management and technical expertise to respond adequately to the increasing
        technological sophistication and complexity of mobile handsets and wireless
        networks. To succeed, developers must possess not only technological skills
        but
        also the ability to manage large, technically complex application development,
        testing, deployment and distribution efforts.
  *Intense
        Competition.* It
        is critical to a developer's ability to effectively compete in the wireless
        market that it establish recognition for its products and develop differentiated
        applications through research and development, marketing and knowledge of
        customer and wireless carrier preferences.
  *Sales,*  *Marketing
        and Support Requirements.* The
        size and complexity of the global wireless applications market requires
        developers to have sophisticated sales, marketing and support organizations.
        To
        succeed in this market, developers must develop and maintain strong
        relationships with wireless carriers. The developer's sales and marketing
        forces
        must have the resources to track and understand customers and competitors,
        and
        successfully reach a large customer base. Developers must also have effective
        quality assurance capabilities to deliver high quality products and ensure
        customer satisfaction, and the resources and skilled personnel necessary
        to
        efficiently deploy their applications across numerous mobile phone models
        and
        carrier networks. In addition, developers will have to assume an increasing
        share of the costs of marketing wireless applications to consumers rather
        than
        relying on wireless carrier co-marketing programs in the future.
  **Our
        Competitive Strengths**
  ** *OasysMobile.com.* Our
        OasysMobile.com portal targets the rapidly growing 14-24 year old consumer
        segment of mobile media with its over 8000 pieces of mobile content across
        ringtones, wallpapers, games, and applications. Also, as we contract with
        more
        third-party providers, consumers will have access to thousands of other popular
        and unique ringtones, games, wallpapers, and other services through our portal.
        One of our main market differentiators is our password-protected virtual
        locker.
        At OasysMobile.com, not only can consumers purchase mobile content, but they
        can
        protect this mobile content beyond the life of their mobile device. Users
        can
        switch carriers, break their handsets, or upgrade their mobile device and
        still
        be able to re-download the mobile content they have already purchased to
        their
        new device. Our locker concept fundamentally changes the way users perceive
        mobile media and allows them to actually create a library of mobile content
        rather than simply buying (and possible losing) this content.
  8
  
  In
        addition, we are launching two additional components that add to the value
        proposition of users “managing their mobile lifestyle.” The first is the ability
        for users to rate, review, and recommend mobile content to their friends.
        Young
        consumers are powerfully motivated by the opinions of their peers, and less
        affected by what “corporate marketing” pushes at them. As such, we are creating
        the tool kit to let consumers push the content that they think is “cool” to
        their friends and thereby create new customers for our OasysMobile.com portal.
 
 The
        second is our mobile community or “O-mobb” (Oasys Mobile Blog). This section of
        our OasysMobile.com site is focused on the desire for our target demographic
        to
        constantly stay in touch with their peer group. Our mobile community
        functionality allows users to post pictures and messages directly from their
        mobile device to their personal online space “My O-mobb” where their friends can
        view them. One powerful aspect of this is that there is no additional software
        required on the phone; thus any phone in North America can post to this
        service.
 
 Our
        ever
        growing suite of content and content partners on the OasysMobile.com site,
        combined with the value of the locker and our mobile community, plus our
        youthful, edgy brand, uniquely positions us to be successful in this
        space.
  *Applications
        Development Expertise.* We
        develop our branded applications with an emphasis on innovation and quality.
        Our
        applications have consistently received high rankings from industry critics.
        We
        believe these high-quality, innovative applications build brand loyalty among
        our customers.
  *Diverse
        Portfolio of Properties.* We
        develop and distribute a diverse portfolio of branded wireless applications.
        Our
        applications span multiple categories and are based on intellectual properties
        that we have created and own and from major consumer brands that we license
        from
        third parties. Our licensors include America Online, Fujifilm, Mattel, The
        Associated Press, The Wall Street Journal, Sony, Phil Hellmuth, Maxim, Howard
        Lederer, Golf Digest, Hooters, The Grateful Dead and others.
  *Proven
        Revenue-Generating Catalog.* Many
        of our applications have lasting appeal and continue to generate revenue
        long
        after their initial release due to their high quality and broad availability.
        In
        addition to introducing new applications, we continuously update our existing
        applications to take advantage of enhanced functionality of new mobile phone
        models which extends the useful life of our applications. The market data
        we
        collect from sales and usage of our applications has provided us with valuable
        insight into carrier and customer preferences which we are applying to our
        future branded application development.
  *Multiple
        Carrier Relationships.* Currently,
        wireless carriers are the primary distributors of our applications. We have
        established agreements to distribute our applications through 48 wireless
        carriers and distribution partners. We believe we have been able to build
        our
        carrier distribution channels as a result of our early commitment to the
        market,
        our focus on service to the wireless carriers, the consistent high quality
        of
        our applications and our ability to deploy those applications on a broad
        range
        of mobile devices. We believe that the time and difficulty involved in building
        a global wireless distribution channel represents a significant barrier to
        entry
        for our potential competitors.
  *Proprietary
        Technology and Commitment to Research and Development.* We
        invest aggressively in research and development to create applications that
        leverage the advanced capabilities of next-generation mobile handsets and
        wireless networks. We have created proprietary technologies that enable us
        to
        develop and deploy innovative applications to more than 330 mobile phone
        models.
        Our proprietary technologies reduce our reliance on third-party technology
        platforms and enable us to adapt quickly to rapid advances in wireless network
        and mobile phone technologies. In addition, these technologies allow us to
        remain neutral to the technology choices made by wireless carriers and mobile
        phone manufacturers, and enable us to reach the broadest number of wireless
        subscribers possible.
  *Experienced
        Management Team.* Our
        executive team and key employees have significant experience in the wireless
        applications and wireless communications industries. This broad expertise
        allows
        us to design, develop and deliver increasingly advanced applications that
        satisfy the demands of all the key constituents in our market, including
        wireless carriers, mobile phone manufacturers, brand licensors and our
        customers. In addition, our chief executive officer, executive vice-president
        of
        business development, chief financial officer and most of our key employees
        have
        all been with us since 2001 or earlier. We believe our management team's
        expertise and continuity is a significant competitive advantage in the
        increasingly complex wireless applications market.
   9
  **Our
        Strategy**
  Our
        goal
        is to be the leading
        provider of premium mobile media content, products and services. To
        achieve this goal, we plan to:
  *Enhance
        Our Distribution Channels.* Strengthening
        and expanding our distribution channels is critical to our business. We will
        continue to:
 
 ·
            *Expand
                Use of Alternative Sales and Marketing Channels*.
                Through OasysMobile.com, we are establishing an alternative channel
                to
                market and sell our applications and the content and applications
                of
                third-party providers directly to mobile users. We also have the
                opportunity to leverage this alternative method of distribution by
“white
                labeling” our underlying infrastructure to host and manage mobile media
                portals or communities for other major consumer brands. Our breadth
                of
                experience in building sophisticated handset applications and our
                strong
                carrier relationships, combined with our consumer portal business
                makes us
                a powerful partner for companies looking to create value from mobile
                customers. 
 ·
            *Increase
                Our Deployment Capability*.    We
                customize our applications for use on numerous mobile phone models
                and
                carrier networks. Deploying wireless applications is a complex process
                that is resource intensive, requires skilled personnel and uses advanced
                technologies. We believe that the time and difficulty involved in
                building
                and organizing our deployment capabilities represents a significant
                barrier to entry to our potential competitors. 
 ·
            *Strengthen
                Our Wireless Carrier Relationships*.    We
                plan to strengthen our existing relationships with wireless carriers
                by
                continuing to support their strategic needs and by launching new,
                high-quality, branded and innovative applications. We also intend
                to build
                relationships with additional wireless carriers to reach a larger
                subscriber base. We will continue to build our presence in international
                markets where we are already beginning to generate revenue. We plan
                to
                establish carrier relationships in certain emerging markets as wireless
                infrastructure improves and the availability of next-generation mobile
                handsets increases. Where appropriate, we intend to enter new markets
                to
                leverage and distribute our branded application portfolio. 
 *Develop
        High-Quality Branded Wireless Applications* *.* We
        believe that developing a diversified portfolio of the highest quality, most
        innovative wireless applications is critical to our business. We intend to:
 
 ·
            *Develop
                Innovative Applications.*We
                will continue to devote significant resources to the development
                of
                high-quality, innovative applications to establish Oasys Mobile as
                a
                leading developer of mobile media applications in the wireless market.
                As
                the wireless landscape has rapidly and continuously evolved, we have
                designed wireless applications that have leveraged advancements in
                wireless network and mobile phone
                technology. 
 ·
            *License
                World-Class Brands*.  We
                will continue to license well-known, third-party brands and collaborate
                with brand holders to introduce third-party branded applications.
                We
                believe that familiar titles facilitate the adoption of our applications
                by wireless subscribers and wireless carriers, and create strong
                marketing
                opportunities. 
 *Expand
        Our Presence* *.* We
        will continue to expand organically as well as pursue attractive acquisition
        candidates, including other wireless application providers or related companies,
        both in the United States and abroad, to access compelling applications,
        brands,
        technology and talent. Although we have no current agreements to acquire
        any
        companies, we believe that attractive acquisition opportunities exist in
        our
        current environment.
 
 **Our
        Applications**
 
 We
        design our applications to be innovative. We believe application quality
        and
        diversity, customer and carrier support, and brand recognition are some of
        the
        key components to a developer’s success and not the number of applications
        offered. We focus on selectively increasing our application portfolio with
        high-quality, innovative applications.
 
 We
        currently offer more than 30 wireless applications deployed through 48 wireless
        carriers. Retail fees for our wireless applications generally range from
        $1.99
        to $6.49 for a one time purchases and from $1.99 to $3.99 for monthly
        subscriptions.
 
  10
  *Primary
        Business Areas.* Oasys
        Mobile focuses on developing wireless applications in four primary areas.
        These
        areas and some of our wireless applications in each are:
 
 ·
            *Games*.
                In March 2005, Oasys Mobile signed a partnership with Mattel, Inc.
                to
                develop and distribute mobile versions of classic games to carriers
                in
                North America. In early 2006, Oasys Mobile expanded its agreement
                with
                Mattel to include Europe, Canada, Latin America, Australia and New
                Zealand. The deals include mobile games based on Mattel's UNO® brand, as
                well as the classic games Rock'em Sock'em RobotsTM, Kerplunk!® and Toss
                AcrossTM. Our UNO® Challenge game was launched on Cingular Wireless in
                November 2005, as well as eight other carriers, and the other Mattel
                games
                are expected to launch on United States carriers beginning in Q2
                2006. 
 In
        May
        2004, Oasys Mobile launched the industry’s first true multiplayer mobile phone
        game, *Texas
        Hold’Em by Phil Hellmuth.* Today,
        this game is currently available on over 16 carriers supporting over 100
        handsets across multiple operating environments. The game not only continues
        to
        see more carrier distribution, but surpassed the 750,000 user mark in December
        2005.
 
 In
        an
        effort to expand its casino game category, Oasys Mobile announced a partnership
        with poker legend, Howard Lederer, also known as “The Professor of Poker” and
        launched Secrets of Hold ‘em with Howard Lederer. This tournament-style Texas
        Hold’em game for the mobile phone has a unique tutorial component to educate the
        player and improve his or her poker skills, along with visually compelling
        graphics for a realistic poker experience. The game is currently available
        on
        eight wireless carriers.
 
 ·
            *Messaging*.
                Poker superstar Howard Lederer has extended his collaboration with
                Oasys
                Mobile beyond his award-winning tutorial poker game for the mobile
                phone
                to include Howard Lederer’s Mobile Poker Tips. Each week, subscribers
                receive a new poker tip in the form of a text message from Howard
                Lederer
                to sharpen their game and learn to play like the Professor of Poker
                himself. 
 Fujifilm,
        the #1 imaging brand in the world, has teamed up with Oasys Mobile to create
        a
        mobile version of their popular Get the Picture service. Get the Picture
        Mobile
        was one of the first photo-messaging applications that enabled users to order
        prints directly from their mobile phone and pick them up at one of Fujifilm’s
        3,100 retailers.
 
 Fujifilm’s
        Mobile Postcard application lets user send personalized photo greetings to
        a
        loved ones mailbox through the United States Postal Service.
 
 AOL's
        You've Got Pictures® service is one of the leading online photo services,
        offering consumers the most options for storing, organizing, printing and
        sharing digital photos with anyone on the Internet. More than 200 million
        photos
        are currently stored on the You've Got Pictures service with over 2 million
        pictures being uploaded each week. The mobile You've Got Pictures® application,
        built by Oasys Mobile, offers many of the same features that AOL members
        currently enjoy online, including the ability to store, organize, print and
        share their digital photos.
 
 Sony
        Electronics is teaming up with Oasys Mobile to provide a comprehensive suite
        of
        photo services associated with Sony’s Imagestation photo platform. Sony
        Imagestation is a leading platform for photo sharing, photo blogging and
        postcard printing.
 
 ·
            *Personalization**.*In
                today’s wireless world, each user has a strong desire to personalize their
                mobile phones. We enable this personalization through wallpaper,
                screensavers, ringtones, truetones, photos and other personalized
                tools
                that let the user customize his or her mobile device. Oasys Mobile
                offers
                wallpaper and ringtone applications based on content that is popular
                and
                relevant today.Oasys
                Mobile has**launched
                such personalization products as*College
                & Greek Logos*,*Hooters
                Calendar*,*Grateful
                Dead Wallpaper and Video Screensavers*,
                and*Golf
                Digest Mobile.*Oasys
                Mobile continues to expand its portfolio of marquee personalization
                content to include wallpapers, video screensavers, ringtones and
                truetones.  Given
          the
          success and growth of personalization applications, Oasys Mobile has launched
          OasysMobile.com. This innovative website, not only opens new opportunities
          to
          gain broader distribution and to market Oasys Mobile’s premium content and
          applications, but it also serves as a substantial distribution point for
          many
          other content partners in the areas of wallpaper, screensavers, ringtones,
          truetones, photos and other personalization tools.
 11
  
 ·
            *Entertainment**.*Oasys
                Mobile has launched a number of unique entertainment products. For
                instance, the world’s largest golf publishing company, Golf Digest, has
                again partnered with Oasys Mobile to expand its realm of mobile products
                with*Golf
                Digest's Breaking 100, 90, 80*,
                a
                popular editorial franchise in the magazine.*Breaking
                100, 90, 80*is
                a complete game-improvement resource featuring instructional tips
                from the
                game's best teachers, and is now available for access anytime,
                anywhere. 
 The
        world’s leading business publication, The Wall Street Journal, and its flagship
        electronic publication, The Wall Street Journal Online, have partnered with
        Oasys Mobile to bring its must-read financial and financial-related content
        to
        mobile handsets. Through its collaboration with Oasys Mobile, users can
        customize this application to have news, market updates, stock quotes, charts
        and personal portfolio information sent directly to their mobile device.
 
 Oasys
        Mobile has partnered with The Associated Press (AP), one of the leading global
        news organizations, to launch AP Photos, News & Sports to keep users up to
        date with the latest news and sports information. This application is essential
        for those who wish to stay abreast of significant news and multimedia
        information while on the go. The latest news headlines, photos and full stories
        from The Associated Press can be viewed directly through the user’s mobile
        device.
 
 A
        complete list of all our commercial wireless applications can be found on
        our
        website at www.oasysmobileinc.com .
 
 
 **Distribution
        Channels**
 
 We
        currently distribute our wireless applications primarily through wireless
        carriers to their subscribers. We have agreements to distribute our applications
        through 48 carriers and distribution partners in 29 countries. Our customers
        download our applications to their mobile handsets, and their wireless carrier
        bills them a one-time fee or monthly subscription fee. Our carrier distribution
        agreements establish the fees to be retained by the carrier for distributing
        our
        applications. Our carrier agreements are not exclusive and generally have
        a
        limited term of one or two years, with evergreen, or automatic renewal,
        provisions upon expiration of the initial term. The agreements generally
        do not
        obligate the carriers to market or distribute any of our applications. In
        addition, the carriers can terminate these agreements early and, in some
        instances, without cause.
 **
 In
        addition to our carrier distribution channels, we also have launched
        OasysMobile.com and are in the process of launching our White Label Services.
        We
        are also exploring the possibility of having our wireless applications embedded
        directly into mobile handsets.
 
 **Development
        of Branded Applications**
 
 *Development.* We
        believe that developing high-quality, innovative and marketable applications
        is
        critical to our success. We primarily use internal resources and personnel
        to
        develop our applications. In addition, we contract with third-party developers
        to create some of our applications, and we assign personnel from Oasys Mobile
        to
        coordinate production based on specifications we provide. We believe that
        we can
        control costs, diversify risk and maintain access to talent by using both
        internal and third-party development resources.
 
 Our
        applications undergo a complete development process. Executives and personnel
        from our sales, marketing, development and deployment areas all participate
        in
        this process. As part of this process, we evaluate every application in
        development at major milestones from concept to application release. We believe
        that this process contributes to the quality of our applications by allowing
        us
        to address consumer, carrier and other market needs during product development.
 
 **  *Deployment.* Once
        an application is completed, it is deployed as broadly as we determine is
        commercially viable based on our internal analysis of an application's
        marketability and technical feasibility. Specifically, we customize and localize
        the application for each mobile phone model on which a particular carrier
        intends to distribute the application to its subscribers. In this process,
        we
        seek to customize the application for the screen size, sound capabilities,
        memory footprint, local execution environment, operating system and other
        characteristics of a particular mobile phone model. As a result of the diverse
        markets served by our carriers, we have developed a decentralized deployment
        capability that can customize applications based on local languages, wireless
        and mobile phone technologies, application platforms, including BREW, J2ME,
        Symbian or WAP, and customer preferences. As part of the deployment process,
        we
        also subject our applications to a formal quality assurance process to ensure
        that each application meets our quality standards for each mobile phone model
        for each carrier on which we distribute, as well as meeting the certification
        requirements of the respective carrier.
 
  12
  **Sales
        and Marketing**
 
 Our
        sales
        and marketing organization works closely with wireless carriers to create
        merchandising and marketing opportunities for our applications. Through ongoing
        communications with carrier sales and marketing organizations, we match our
        application portfolio with the strategic needs of the carrier and the
        preferences of their subscribers. Our sales and marketing organization is
        also
        responsible for managing our own marketing efforts. We market our branded
        applications through:
 
 ·
            online
                advertising; ·
            search
                marketing; ·
            sweepstakes
                and other promotions; ·
            direct
                marketing; ·
            industry
                trade shows and other events; ·
            sponsorships; ·
            public
                relations; ·
            wireless
                carriers’ advertising and promotions; ·
            carrier’s
                websites; ·
            content
                partner’s websites; ·
            our
                website; and ·
            carrier
                sales training. 
 In
        addition, we have retained an advertising agency and a public relations firm
        to
        help build the awareness of our OasysMobile.com portal. We are communicating
        about OasysMobile.com in three important ways:
 
 ·
            Traditional
                media such as PR, banner ads, TV spots,
                etc. ·
            Working
                with carriers and our branded partners to reach their
                consumers ·
            Aggressive
                viral and grass roots marketing campaigns to reach a younger audience
                that
                doesn’t always respond well to traditional
                marketing. 
 **Competition**
 
 The
        wireless applications market is highly competitive and characterized by frequent
        product introductions, evolving wireless platforms and new technologies.
        As
        demand for applications continues to increase, we expect new competitors
        to
        enter the market and existing competitors to allocate more resources to develop
        and market applications. As a result, we expect competition in the wireless
        market to intensify .
  Our
        primary competition with respect to OasysMobile.com is as follows:
 
 ·
            Mobile
                Content Portals: Mobizzo (owned by News Corp.), Jamster (owned by
                Verisign), Blinko (owned by Buongiorno S.p.A.), and MonsterMob. ·
            Carrier-owned
                decks: Cingular’s*Media
                Mall*,
                Verizon’s*Get
                It Now*,
                Sprint’s PCS*Vision,*Alltel’s*Axcess,*and
                US Cellular’s*Easy
                Edge*. 
 OasysMobile.com
        also competes with wireless content aggregators who pool applications from
        multiple developers and offer them through wireless content portals. We compete
        with aggregators in that OasysMobile also sells content from other providers.
        However, we differ from pure-play aggregators in that many aggregators do
        not
        fund development, provide design input or provide quality assurance for their
        own applications. Additionally, OasysMobile.com is unique in that it offers
        a
        virtual "locker" that can be accessed anytime, anywhere. These
        password-protected lockers provide secure, online storage for mobile content
        should consumers upgrade, lose or break their handsets.
 
 Our
        primary competitors with respect to our branded applications business are
        as
        follows:
 
 ·
            Gaming
                - Electronic Arts, Glu, THQ, Gameloft, Digital Chocolate and Mforma ·
            Personalization
                - Airborne Entertainment, Verisign, Mforma, Dijji, InfoSpace and
                Moderati ·
            Messaging
                - Verisign, Kodak and dot Photo ·
            Entertainment-
                Airborne Entertainment, Zingy/Vindigo Studios, Verisign,
                Infospace   13
  
 The
        current and potential competition in the mobile media market includes major
        media companies, traditional video game publishing companies, wireless carriers,
        and wireless software providers. Larger, more established companies are
        increasingly focused on developing and distributing wireless applications
        that
        directly compete with us. Many of these companies have partnered with large,
        well-known brands that have strong distributor outlets and are well funded.
 
 **Intellectual
        Property**
 
 Our
        intellectual property is an essential element of our business. We use a
        combination of trademark, patent, copyright, trade secret and other intellectual
        property laws, confidentiality agreements and license agreements to protect
        our
        intellectual property. Our employees and independent contractors are required
        to
        sign agreements acknowledging that all inventions, trade secrets, works of
        authorship, developments and other processes generated by them on our behalf
        are
        our property, and assigning to us any ownership that they may claim in those
        works.
 
 Currently,
        we have not been awarded any patents. We have filed for five (5) patents.
        We
        cannot be sure that the continued prosecution of these patents will lead
        to the
        issuance of U. S. patents. In addition to patents, we rely on copyright and
        trademark laws, trade secrets, confidentiality provisions and other contractual
        provisions to protect our proprietary rights. These measures, which require
        the
        expenditure of substantial resources, afford our intellectual property only
        limited protection because our competitors and third parties independently
        may
        develop similar technologies or may infringe our intellectual property.
        Infringement is difficult to detect and costly to prevent. With respect to
        the
        protection of our proprietary rights internationally, the laws of some foreign
        countries may not protect our proprietary rights adequately. In addition,
        we
        will not have patent protection in countries where we do not file patent
        applications. Thus, the measures we are taking to protect our proprietary
        rights
        in the United States and abroad may not be adequate and our business may
        be
        harmed as a result.
  Effective
        trademark, service mark, copyright, trade secret and patent protection may
        not
        be available in every country in which our products may be distributed and
        policing unauthorized use of our proprietary information will be difficult,
        if
        not impossible.
 
 From
        time
        to time, we may encounter disputes over rights and obligations concerning
        intellectual property. While we believe that our product and service offerings
        do not infringe the intellectual property rights of any third party, we cannot
        assure you that we will prevail in any intellectual property dispute. If
        we do
        not prevail in such disputes, we may lose some or all of our intellectual
        property protection, be enjoined from further sales of the applications
        determined to infringe the rights of others, and/or be forced to pay substantial
        royalties to a third party. As of the date of this annual report on Form
        10-K,
        we do not have any intellectual property infringement claims or suits against
        us
        of any kind. However, we may be party to litigation in the future. Any
        third-party claims, with or without merit, could be time-consuming to defend,
        result in costly litigation, divert management's attention and resources
        or
        require us to enter into royalty or licensing agreements. Such royalty or
        licensing agreements, if required, may not be available on terms acceptable
        to
        us, if at all. A successful claim of infringement against us could harm our
        future competitiveness and profitability.
 
 **Government
        Regulation**
  We are not currently subject to direct federal, state, or local government
        regulation, other than regulations that apply to businesses generally. The
        telecommunications industry is subject to regulation by federal and state
        agencies, including the Federal Communications Commission (FCC), and various
        state public utility and service commissions. While such regulation does
        not
        necessarily affect us directly, the effects of these regulations on the wireless
        network operators with whom we develop relationships may, in turn, negatively
        affect our business. FCC regulatory policies affecting the availability and
        licensing of bandwidth and other terms on which service providers conduct
        their
        business may impede our plans for the deployment of our technology.
  **Employees**
  As of March 28, 2006, we had 47 full-time employees, including 8 in marketing
        and sales, 32 in product development, 3 in project management and 4 in corporate
        operations and administration. We also have engaged 12 consultants, all of
        which
        are in product development. We are not subject to any collective bargaining
        agreements and believe that our relationship with our employees is good.
        Our
        success depends to a significant extent upon the performance of our executive
        officers and other key personnel.
 
 
  14
  **ITEM1A.**  **RISK
        FACTORS**
  *An
        investment in our common stock involves a high degree of risk. You should
        carefully consider the risks described below, together with all of the other
        information set forth in this annual report on Form 10-K, including our
        financial statements and the related notes, before making a decision to invest
        in our common stock. If any of the following risks actually occur, our business,
        operating results and financial condition could suffer. The trading price
        of our
        common stock could decline due to any of these risks and you may lose all
        or
        part of your investment in our common stock.*
 
 **Risks
        Related to Our Business**
 
 Ø
              **Our
                  past and potential future issuances of equity securities have diluted
                  and
                  may continue to materially dilute the interests of holders of our
                  common
                  stock.**
 
 Because
        of severe liquidity constraints, we have issued equity securities in several
        instances in lieu of effecting payment in cash of amounts due (or alleged
        to be
        due) vendors, consultants, current and former officers and directors, and
        stockholders.
 
 In
        addition, we have the ability to issue options and other stock-based awards
        under our Third Amended and Restated 2000 Equity Compensation Plan to directors,
        officers, employees and consultants, and have reserved up to 3,000,000 shares
        of
        our common stock under this plan, 1,872,215 of which have been granted as
        of
        March 28, 2006. We also have outstanding warrants for 7,836,158 shares of
        our
        common stock as of March 28, 2006.
 
 Issuances
        of certain shares of our common stock or other equity interests have been
        at (or
        are exercisable for) a price that represents a discount to the then traded
        value
        of our common stock. In any event, past and anticipated future issuances
        of
        additional shares of our common stock or other equity interests have and
        will
        continue to dilute the proportional ownership interests of existing
        stockholders.
 
 Ø
              **If
                  we raise additional capital through the issuance of equity securities
                  or
                  use equity instruments for acquisitions, our stockholders may experience
                  substantial dilution.**
 
 From
        inception through our 2005 fiscal year, our primary source of funding for
        our
        operations came from the issuance of shares of our common stock in private
        placements to investors. We believe that we have enough working capital to
        fund
        and sustain our business operations through the 2006 fiscal year 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.
 
 Oasys
        Mobile currently has 185,000,000 shares of common stock authorized for issuance.
        As of March 28, 2006, we have approximately 28,374,850 shares of common stock
        either issued and outstanding or reserved for issuance as follows:
 
 ·
            13,519,704
                shares are issued and outstanding; 
 ·
            4,000,000
                are reserved for conversion of our 6% Senior Secured Convertible
                Debentures; 
 ·
            7,836,158
                are reserved for the issuance of shares underlying
                warrants; 
 ·
            18,988
                are reserved for the conversion of 2,407 shares of our Series A Stock,
                plus related dividends; and 
 ·
            3,000,000
                are reserved for issuance in connection with the outstanding options
                granted under the our Third Amended and Restated 2000 Equity Compensation
                Plan (of which 1,872,215 options have been
                granted). 
 If
        we
        decide to pursue any such expansions or acquisitions that require additional
        capital raising or the issuance of equity securities, and we are successful
        in
        such efforts, existing stockholders will experience dilution of their percentage
        ownership interests in Oasys Mobile. In addition, the new equity securities
        may
        have rights, preferences or privileges senior to those of existing holders
        of
        shares of our common stock.
 
  15
  
 Ø
              **Our
                  6% Senior Secured Convertible Debentures mature on June 30, 2007.**
 
 In
        November 2005, Oasys Mobile entered into agreements with certain investors
        for
        the issuance of $8,000,000 of its 6% Senior Secured Convertible Debentures.
        These Debentures mature on June 30, 2007 and are convertible into shares
        of
        Oasys Mobile’s common stock at the option of the holders at a conversion price
        of $2.00 per share. These Debentures are also subject to automatic conversion
        into shares of our common stock upon the achievement of certain revenue and
        share price thresholds.  The Debentures are secured by all of the assets of
        Oasys Mobile. If the Debentures are not converted prior to the June 30, 2007
        maturity date, there can be no assurances that working capital will be
        sufficient at June 30, 2007 to repay these Debentures.
 
 Ø
              **We
                  have incurred substantial losses in the past and may incur net
                  losses in
                  the future.**
 
 We
        have
        generated operating losses and negative cash flow in the past. We had net
        losses, including non-cash charges for stock-based employee compensation,
        non-cash consulting expenses and amortization of discount on debt and beneficial
        conversion features, of approximately $5,921,310 and $3,872,807 for the fiscal
        year periods ended December 31, 2005 and December 31, 2004, respectively.
        As of
        December 31, 2005, we had an accumulated deficit of $60,594,963 and working
        capital of $7,340,115. We may generate operating losses and negative cash
        flow
        in the future.
 Ø
              **We
                  have a limited operating history and have achieved limited revenues
                  from
                  our operations, which may make it difficult to evaluate our
                  business.**
 
 We
        have a
        limited history of generating revenues, and the future revenues and income
        potential of our business is uncertain. As a result of our short operating
        history, we have limited financial data that you can use to evaluate our
        business. Any evaluation of our business and our prospects must be considered
        in
        light of the risks, expenses and difficulties frequently encountered by growing
        companies in new and rapidly evolving markets. Some of these risks and
        uncertainties relate to our ability to do the following:
 
 ·
            maintain
                our current, and develop new, wireless carrier relationships upon
                which
                our business currently depends; 
 ·
            deploy
                our applications; 
 ·
            respond
                effectively to competition; 
 ·
            attract
                and retain qualified management and
                employees; 
 ·
            generate
                significant revenue from the sale of our wireless
                applications; 
 ·
            establish
                and maintain broad market acceptance for our products and then increase
                our market share based upon the timing, strength and success of our
                sales
                efforts and our ability to enter into strategic and commercial
                alliances; 
 ·
            develop
                effective marketing and other promotional activities to penetrate
                our
                target customer base; 
 ·
            generate
                and sustain substantial revenue growth while maintaining reasonable
                expense levels; and 
 ·
            continue
                to timely and successfully develop new products, product features
                and
                services; and increase the functionality and features of existing
                products
                and services. 
 If
        we are
        unable to address these risks, our operating results may not meet the
        expectations of investors, which would likely cause the price of our common
        stock to decline.
 
 If
        our
        revenues grow more slowly than anticipated or if operating expenses increase
        more than expected, or are not reduced sufficiently, we may never achieve
        profitability. If we achieve profitability, we cannot be certain that we
        will be
        able to sustain or increase that profitability in the future.
  16
  
 Ø
              **Our
                  operating results are likely to fluctuate significantly, which
                  may cause
                  our stock price to
                  fluctuate.**
 
 As
        a
        result of our relatively brief operating history and the rapidly changing
        and
        uncertain nature of the markets in which we compete, our quarterly and annual
        revenues and operating results are likely to fluctuate from period to period,
        and period to period comparisons are not likely to be meaningful. These
        fluctuations are caused by a number of factors, many of which are beyond
        our
        control. Our future operating results could fall below the expectations of
        public market analysts or investors, which could significantly reduce the
        market
        price of our common stock. Fluctuations in our operating results will likely
        increase the volatility of our stock price. Our research and development
        and
        sales and marketing efforts, and other business expenditures generally, are
        partially based on predictions regarding certain developments for wireless
        handset availability and carrier deployment of data services. To the extent
        that
        these predictions prove inaccurate, our revenues may not be sufficient to
        offset
        our expenditures, and our operating results may be harmed.
 
 Ø
              **We
                  currently rely on wireless carriers, in particular, Verizon, to
                  generate
                  our revenues. The loss of any of these relationships, or a material
                  change
                  in any of them, could materially harm our
                  business.**
 
 For
        the
        fiscal year ended December 31, 2005, we earned approximately 45% of our revenues
        from subscribers of Verizon Wireless. We will continue to generate a significant
        portion of our revenues through a limited number of carriers for the foreseeable
        future, but we do expect the concentration of our revenues to lessen over
        time
        as more and more carriers launch our wireless applications.
 
 Our
        carrier agreements are not exclusive and generally have a limited term of
        one or
        two years with evergreen, or automatic renewal, provisions upon expiration
        of
        the initial term. These agreements set out the terms of our distribution
        relationships with the carriers but generally do not obligate the carriers
        to
        market or distribute any of our applications. In addition, the carriers can
        terminate these agreements early, and in some instances, at any time, without
        cause.
 
 Many
        other factors outside our control could impair our ability to generate revenue
        through wireless carriers generally, including the following:
 
 ·
            a
                carrier's preference for the applications of our competitors over
                our
                applications; 
 ·
            a
                carrier's decision to offer its own competing wireless
                applications; 
 ·
            a
                carrier's decision to discontinue the sale of our applications, or
                altogether discontinue sales of applications such as
                ours; 
 ·
            a
                carrier's decision to offer wireless applications to its subscribers
                for
                free; 
 ·
            a
                carrier's network encountering technical problems that disrupt the
                delivery of or billing for our
                applications; 
 ·
            a
                carrier's decision to restrict or alter subscription or other terms
                for
                purchasing our applications; 
 ·
            a
                carrier's decision to increase the fees it charges to market and
                distribute our applications, thereby increasing its own revenues
                and
                decreasing our share of revenues; or 
 ·
            consolidation
                among wireless carriers. 
 If
        any
        carrier for which we are dependent for a material amount of our revenue decides
        not to market or distribute our applications or decides to terminate or not
        renew its agreement with us or if there is consolidation among carriers
        generally, we may be unable to replace the affected agreements with acceptable
        alternatives, causing us to lose access to subscribers, which could materially
        harm our business, operating results and financial performance.
 
  17
  
 Ø
              **The
                  success of our business will greatly depend on our ability to develop
                  and
                  enter into strategic relationships with wireless service providers,
                  wireless software developers, semiconductor and device designers,
                  wireless
                  device manufacturers and content
                  providers.**
 
 Our
        business will depend on our ability to develop relationships and enter into
        agreements with companies in key industry groups, including:
 
 ·
            wireless
                service providers that we expect will deploy our wireless applications
                to
                deliver multimedia content and services to their
                subscribers; 
 ·
            semiconductor
                and device designers and manufacturers that we expect will embed
                our
                wireless applications in their products;
                and ·
            content
                providers that we expect will rely on our technology and products
                to
                deliver multimedia content over wireless
                networks. 
 We
        will
        need to enter into contractually binding agreements with wireless service
        providers, device manufacturers, and content providers in order to generate
        any
        significant revenues from our technology and product applications. If we
        are
        unable to establish a sufficient number of strategic relationships and enter
        into contractual arrangements on terms commercially favorable to us, our
        business, revenue, and prospects are likely to be adversely
        affected.
 
 Ø
              **Our
                  business will depend on wireless service providers deploying our
                  software
                  and related applications, and on their subscribers' demand for
                  such
                  applications.**
 
 Our
        success will depend heavily on timely deployment by wireless service providers
        of our applications using our technology in their networks. Wireless service
        providers may not deploy, or may be slow in deploying, our software due to
        a
        number of factors including the availability of competing products, lack
        of
        subscriber demand, as well as interoperability, implementation, support or
        maintenance concerns. In addition, if our current applications with wireless
        service providers are unsatisfactory, they may not deploy our software or
        may
        require costly or time-consuming modifications to our software before
        deployment.
 
 Even
        if
        wireless service providers offer content services based on our software,
        their
        subscribers may not be willing to buy these services. Subscribers are accustomed
        to viewing content on the comparatively large displays of television screens
        and
        PC monitors and may not be willing to use mobile information devices, which
        typically have smaller screen sizes, to view content. Additionally, subscribers
        may not be willing to pay to view content on mobile information devices because
        this content can be viewed at a lower cost using other connections, such
        as
        satellite and wireline connections. Moreover, subscribers may not be willing
        to
        purchase new devices or upgrade their existing devices to include multimedia
        content viewing capability.
 
 Ø
              **We
                  may not successfully develop new products and
                  services.**
 
 Our
        growth depends on our ability to continue to develop leading edge wireless
        delivery and distribution products and services. Our business and operating
        results would be harmed if we fail to develop products and services that
        achieve
        widespread market acceptance or that fail to generate significant revenues
        or
        gross profits to offset our development and operating costs. We may not timely
        and successfully identify, develop and market new product and service
        opportunities. If we introduce new products and services, they may not attain
        broad market acceptance or contribute meaningfully to our revenues or
        profitability. In addition, competitive or technological developments may
        require us to make substantial, unanticipated investments in new products
        and
        technologies, and we may not have sufficient resources to make these
        investments.
 
 Ø
              **We
                  have in the past experienced delays in carrier testing and deployment
                  and
                  product releases, and we may similarly experience delays in the
                  release of
                  products and upgrades in the
                  future.**
 
 We
        will
        need to continue to introduce, on a timely basis, new products and product
        upgrades to add new features, functionality and technology that our target
        customer base desires. No assurances can be provided that we will be able
        to
        successfully complete the development of currently planned or future products
        in
        a timely and efficient manner. Due to the complexity of these products, internal
        quality assurance testing and customer testing of pre-commercial releases
        may
        reveal product performance issues or desirable feature enhancements that
        could
        lead us to postpone the release of products or product upgrades. In addition,
        the reallocation of resources associated with any such postponement would
        likely
        cause delays in the development and release of other future products or
        enhancements to our currently available products. This could have a material
        adverse effect on our results of operations.
  18
  
 Ø
              **The
                  markets in which we operate are highly competitive and many of
                  our
                  competitors have greater resources than we
                  do.**
 
 The
        development, distribution and sale of wireless applications is a highly
        competitive business. We compete primarily on the basis of quality of
        applications, brand, carrier and customer service and distribution breadth.
        We
        also compete for experienced and talented employees.
 
 Currently,
        we compete with several other companies that develop wireless applications
        for
        one or more of our four primary business areas. In the future, likely
        competitors may include other major media companies, content aggregators,
        wireless software providers and other pure-play wireless application publishers.
        Wireless carriers may also decide to develop and distribute their own wireless
        applications. If carriers enter the wireless applications market, they might
        refuse to distribute some or all of our applications or may deny us access
        to
        all or part of their networks.
 
 Some
        of
        our competitors' advantages over us include the following:
 
 ·
            substantially
                greater revenues and financial resources; 
 ·
            the
                capacity to leverage their marketing expenditures across a broader
                portfolio of wireless and non-wireless
                products; 
 ·
            pre-existing
                relationships with brand holders; 
 ·
            more
                resources to make acquisitions; 
 ·
            lower
                labor and development costs; and 
 ·
            broader
                geographic presence. 
 We
        face
        different market dynamics and competition outside the United States. In some
        international markets, our competitors have greater brand recognition and
        broader distribution than we have. We may not be as successful as our
        competitors in generating revenues in international markets due to our inability
        to provide applications that are attractive to the local market, the lack
        of
        recognition of our brand or other factors. Developing user interfaces that
        are
        compatible with other languages or cultures could be expensive. As a result,
        our
        international expansion efforts may be more costly and less profitable than
        we
        expect.
 
 If
        we are
        not as successful as our competitors in our target markets, our sales could
        decline, our margins could be negatively impacted and we could lose market
        share, any of which could materially harm our business.
 
 Ø
              **If
                  we fail to develop and introduce new applications and content that
                  achieve
                  market acceptance, our sales could
                  suffer.**
  Our
        business depends on providing applications and content that wireless subscribers
        want to buy. We must continue to invest significant resources in research
        and
        development to enhance our offering of wireless applications and introduce
        new
        applications. Our operating results would suffer if our applications are
        not
        responsive to the preferences of our customers or are not effectively brought
        to
        market.
 
 The
        planned timing or introduction of new applications and content is subject
        to
        risks and uncertainties. Unexpected technical, operational, deployment,
        distribution or other problems could delay or prevent the introduction of
        new
        applications and content, which could result in a loss of, or delay in, revenues
        or damage to our reputation and brand. If any of our applications or content
        is
        introduced with defects, errors or failures, we could experience decreased
        sales, loss of customers and damage to our reputation and brand. In addition,
        new applications and content may not achieve sufficient market acceptance
        to
        offset the costs of development. Our success depends, in part, on unpredictable
        and volatile factors beyond our control, including customer preferences,
        competing applications and content and the availability of other entertainment
        activities. A shift in mobile phone usage or the preferences of our customers
        could cause a decline in our application and content popularity that could
        materially reduce our revenues and harm our business.
 
  19
  We
        continuously develop and introduce new applications for use on next-generation
        mobile phones. We must make product development decisions and commit significant
        resources well in advance of the anticipated introduction of a new mobile
        phone
        model. New mobile phone models for which we are developing applications may
        be
        delayed, may not be commercially successful, may have a shorter life cycle
        than
        anticipated or may not be adequately promoted by wireless carriers or the
        mobile
        phone manufacturer. If the mobile phone models for which we are developing
        applications are not released when expected or do not achieve broad market
        penetration, our potential revenues will be limited and our business will
        suffer.
 
 Ø
              **If
                  we are unsuccessful in establishing and increasing awareness of
                  and
                  recognition of our applications and products, or if we incur excessive
                  expenses promoting and maintaining our applications and products,
                  our
                  business could be harmed.**
 
 We
        believe that establishing and maintaining our applications and products is
        critical to retaining and expanding our customer base. This will depend largely
        on our success in providing high-quality wireless applications and content
        to
        consumers through the wireless carriers’ distribution decks and our own
        OasysMoble.com portal. However, such success will depend, in part, on the
        services and efforts of third parties, over which we have little or no control.
        For instance, if our wireless carriers fail to provide quality service, our
        customers' ability to access our applications may be interrupted, which may
        adversely affect our applications. If our customers and carriers do not perceive
        our existing products and services as high quality, or if we introduce new
        applications or content that is not favorably received by our customers and
        carriers, then we may be unsuccessful in building recognition and loyalty
        in the
        marketplace. In addition, globalizing and extending our applications may
        be
        costly. It will also involve extensive management time to execute successfully.
        Further, the markets in which we operate are highly competitive and many
        of our
        competitors already have substantially more brand recognition than we do.
        If we
        fail to successfully increase the awareness and consumer recognition of our
        applications, products and content, our potential revenues could be limited,
        our
        costs could increase and our business could suffer.
 
 Ø
              **We
                  depended on our Sports Illustrated and Phil Hellmuth Texas Hold’em
                  applications for a significant portion of our revenues in
                  2005.**
 
 In
        fiscal
        2005, we generated approximately 22.9% and 37.3% of our revenues from our
        Sports
        Illustrated Swimsuit and Texas Hold’em by Phil Hellmuth wireless applications,
        respectively. Our contract with Sports Illustrated expired on March 14, 2006,
        but we do expect the revenue impact of the expiration of this contract to
        be
        absorbed by the launch of new products and services. We do expect the percentage
        of total revenue provided by Texas Hold’em by Phil Hellmuth to decrease as we
        launch other applications and services. If we are unable to develop new
        applications and services that are as successful, our future revenues could
        be
        limited and our business could suffer.
 
 Ø
              **Failure
                  to renew our existing licenses or to obtain additional licenses
                  could harm
                  our business.**
 
 Many
        of
        our applications are based on or incorporate intellectual properties that
        we
        license from third parties. We have both exclusive and non-exclusive licenses
        to
        use these properties for terms that range from one to two years, with automatic
        renewal clauses, which may be terminated. We may be unable to renew these
        licenses on terms favorable to us, or at all, and we may be unable to secure
        alternatives in a timely manner. We expect that licenses we obtain in the
        future
        may impose development, distribution and marketing obligations on us. If
        we
        breach our obligations, our licensors may have the right to terminate the
        license.
 
 Competition
        for licenses may also increase the advances, guarantees and royalties that
        we
        must pay to the licensor, which could significantly increase our costs. Failure
        to maintain our existing licenses or obtain additional licenses with significant
        commercial value could impair our ability to introduce new applications or
        continue our current applications, which could materially harm our
        business.
 
 Ø
              **System
                  or network failures could reduce our sales, increase costs or result
                  in a
                  loss of customers.**
 
 We
        rely
        on our carriers' networks to deliver our applications to our customers and
        on
        their billing systems to track and account for the downloading of our
        applications. In certain circumstances, we also rely on our servers to deliver
        applications on demand to our customers through their wireless carriers'
        networks. Any failure of, or technical problem with, the carriers' or our
        billing and delivery systems, information systems or communications networks
        could result in the inability of our customers to download our applications
        or
        prevent the completion of billing for an application. If any of these systems
        fails, there is an interruption in the supply of power, an earthquake, fire,
        flood or other natural disaster, or an act of war or terrorism, our customers
        may be unable to access our applications. Any failure of, or technical problem
        with, the carriers' or our systems could cause us to lose customers or revenues
        or incur substantial repair costs and distract management from operating
        our
        business.
 
  20
  
 Ø
              **The
                  acquisition of other companies, businesses or technologies could
                  result in
                  operating difficulties, dilution and other
                  consequences.**
 
 We
        may
        selectively pursue strategic acquisitions, any of which could be material
        to our
        business, operating results and financial condition. Entering into an
        acquisition entails many risks which could harm our business,
        including:
 
 ·
            diversion
                of management's attention from operating our
                business; 
 ·
            unforeseen
                operating difficulties from integrating an acquired company, business
                or
                technology; 
 ·
            expenditures
                associated with integrating employees from the acquired company into
                our
                organization and integrating each company's accounting, management
                information, human resources and other administrative systems to
                permit
                effective management; 
 ·
            failure
                to motivate, or loss of, key employees from either our existing business
                or the acquired business; 
 ·
            inability
                to incorporate acquired technology into our
                software; 
 ·
            potential
                impairment of relationships with our employees and companies with
                whom we
                have strategic relationships; 
 ·
            additional
                operating expenses not offset by additional
                revenue; 
 ·
            incurrence
                of significant non-recurring charges; and 
 The
        anticipated benefits of potential future acquisitions may not materialize.
        Future acquisitions could also result in potentially dilutive issuances of
        our
        equity securities, including our common stock, the incurrence of debt,
        contingent liabilities or amortization expenses, or write-offs of goodwill,
        any
        of which could harm our financial condition. Future acquisitions may also
        require us to obtain additional financing, which may not be available on
        favorable terms or at all.
 
 Ø
              **Expansion
                  into international markets is important to our long-term strategy,
                  and as
                  we expand internationally, we face added business, political, regulatory,
                  operational, financial and economic risks, any of which could increase
                  our
                  costs and hinder our
                  growth.**
 
 An
        important element of our business strategy is the expansion of our international
        sales by targeting markets, such as Europe and Asia, where we believe acceptance
        of our applications is likely. Risks affecting our international operations
        include:
 
 ·
            challenges
                caused by distance, language and cultural
                differences; 
 ·
            multiple,
                conflicting and changing laws and regulations, including complications
                due
                to unexpected changes in regulatory requirements, foreign laws, tax
                schemes, international import and export legislation, trading and
                investment policies, foreign currency fluctuations, exchange controls
                and
                tariff and other trade barriers; 
 ·
            difficulties
                in enforcing intellectual property rights in countries other than
                the
                United States; 
 ·
            the
                burdens of complying with a wide variety of foreign laws and
                regulations; 
 ·
            protectionist
                laws and business practices that favor local businesses in some
                countries; 
 ·
            foreign
                tax consequences; 
 ·
            foreign
                exchange controls that might prevent us from repatriating income
                earned in
                countries outside the United States; 
 ·
            price
                controls;  21
  
 ·
            imposition
                of public sector controls; 
 ·
            political,
                economic and social instability; 
 ·
            higher
                costs associated with doing business
                internationally; 
 ·
            restrictions
                on the export or import of technology; 
 ·
            difficulties
                in staffing and managing international
                operations; 
 ·
            trade
                and tariff restrictions; 
 ·
            variations
                in tariffs, quotas, taxes and other market barriers;
                and 
 ·
            greater
                fluctuations in sales to customers in developing countries, including
                longer payment cycles and greater difficulty collecting accounts
                receivable. 
 Ø
              **We
                  face risks associated with currency exchange rate
                  fluctuations.**
 
 Although
        we currently transact business primarily in U.S. dollars, a larger portion
        of
        our revenues may be denominated in foreign currencies as we expand our
        international operations. Conducting business in currencies other than U.S.
        dollars subjects us to fluctuations in currency exchange rates that could
        have a
        negative impact on our reported operating results. Fluctuations in the value
        of
        the U.S. dollar relative to other currencies impact our revenues, cost of
        revenues and operating margins and result in foreign currency translation
        gains
        and losses. Historically, we have not engaged in exchange rate hedging
        activities. Although we may implement hedging strategies to mitigate this
        risk,
        these strategies may not eliminate our exposure to foreign exchange rate
        fluctuations and involve costs and risks of their own, such as ongoing
        management time and expertise, external costs to implement the strategy and
        potential accounting implications.
 
 Ø
              **Growth
                  may place significant demands on our management and our
                  infrastructure.**
 
 We
        have
        experienced, and may continue to experience, growth in our business through
        acquisitions and internal growth. This growth has placed, and may continue
        to
        place, significant demands on our management and our operational and financial
        infrastructure. In particular, continued growth could strain our ability
        to:
 
 ·
            Recruit,
                train and retain highly skilled
                personnel; 
 ·
            Maintain
                our quality standards; 
 ·
            Develop
                and improve our operational, financial and management
                controls; 
 ·
            Enhance
                our reporting systems and procedures; and 
 ·
            Maintain
                customer satisfaction. 
 The
        improvements required to manage our growth will require significant expenditures
        and allocation of valuable management resources. If we fail to maintain the
        efficiency of our organization as it grows, our profit margins could decline
        and
        our earnings could be materially diminished.
 
  22
  
 Ø
              **We
                  face intense competition as an application developer in the wireless
                  telecommunications
                  industry.**
 
 The
        wireless communications market is highly competitive. Our failure to establish
        a
        customer base as a wireless applications developer to this industry will
        adversely affect operating results. The competition with other applications
        providers to form alliances with wireless service providers and Internet
        service
        providers is significant. The loyalty of wireless industry customers we may
        obtain could be easily influenced by a competitor's new offerings, especially
        if
        those offerings provide cost savings or new technology applicable to wireless
        communications. We will face significant competition from traditional
        telecommunications companies, virtually all of which have greater market
        share
        and financial resources than we do. These traditional telecommunications
        companies are better positioned to finance research and development activities
        relating to the wireless applications area. They are also able to provide
        a
        wider range of products and services for a greater spectrum of media and
        have
        greater resources with which to purchase additional technologies or acquire
        other companies.
 
 Ø
              **If
                  we are unable to compete effectively with existing or new competitors,
                  our
                  resulting loss of competitive position could result in price reductions,
                  fewer customer orders, reduced margins and loss of market share,
                  and our
                  results of operations and financial condition would
                  suffer.**
 
 We
        compete in the wireless applications market. The markets for our products
        and
        services are highly competitive, and we expect competition to increase in
        the
        future. Some of our competitors or potential competitors have significantly
        greater financial, technical and marketing resources than we do. These
        competitors may be able to respond more rapidly than Oasys Mobile to new
        or
        emerging technologies or changes in customer requirements. They may also
        devote
        greater resources to the development, promotion and sale of their
        products.
 
 Certain
        competitors may have longer and closer relationships with the senior management
        of enterprise customers who decide which products and technologies will be
        deployed in their enterprises. Moreover, these competitors may have larger
        and
        more established sales forces calling upon potential enterprise customers
        and
        therefore could contact a greater number of potential customers with more
        frequency. Consequently, these competitors could have a better competitive
        position than we do, which could result in potential enterprise customers
        deciding not to choose our products and services, which would adversely impact
        our business, results of operations and financial condition.
 
 Ø
              **The
                  complexity and incompatibilities among next-generation mobile phones
                  and
                  wireless technologies may require us to use additional resources
                  for the
                  development of our
                  applications.**
 
 To
        reach
        large numbers of wireless subscribers, wireless application developers like
        ourselves must support numerous mobile phone models and technologies. However,
        keeping pace with the rapid innovation of mobile phone technologies together
        with the continuous introduction of new, and often incompatible, mobile phone
        models by wireless carriers requires us to make significant investments in
        research and development, including personnel, technologies and equipment.
        In
        the future, we may be required to make substantial, additional investments
        in
        our development if the number of different types of mobile phone models
        continues to proliferate.
 
 Ø
              **Our
                  business depends on the growth and maintenance of wireless communications
                  infrastructure.**
 
 Our
        success will depend on the continued growth and maintenance of wireless
        communications infrastructure in the United States and around the world.
        This
        includes deployment and maintenance of reliable next-generation digital networks
        with the necessary speed, data capacity and security for providing reliable
        wireless communications services. Wireless communications infrastructure
        may be
        unable to support the demands placed on it if the number of customers continues
        to increase, or if existing or future customers increase their bandwidth
        requirements. In addition, viruses, worms and similar break-ins and disruptions
        from illicit code or unauthorized tampering may harm the performance of wireless
        communications. If a well-publicized breach of security were to occur, general
        mobile phone usage could decline, which could reduce the demand for and use
        of
        our applications. Wireless communications experience a variety of outages
        and
        other delays as a result of infrastructure and equipment failures, and could
        face outages and delays in the future. These outages and delays could reduce
        the
        level of wireless communications usage as well as our ability to distribute
        our
        applications successfully.
 
  23
  
 Ø
              **Our
                  wireless applications are complex, and we may not be able to prevent
                  defects that could decrease their market acceptance, result in
                  product
                  liability or harm our
                  reputation.**
 
 Our
        wireless applications are complex, and the steps we take to ensure that all
        of
        our products are free of errors or defects, particularly when first introduced
        or when new versions or enhancements are released, may not be successful.
        We
        cannot guarantee that current or enhanced versions of our wireless applications
        will be free of significant software defects or bugs. Despite our testing,
        and
        testing by third parties, current or future products may contain serious
        defects. Serious defects or errors could result in lost revenue or delay
        in
        market acceptance of our products and could seriously harm our credibility
        and
        materially affect the market acceptance and sales of our products. The
        occurrence of these types of problems could materially adversely affect our
        business, results of operations and financial condition.
 
 Errors
        in
        our products may also be caused by defects in third-party hardware or software
        incorporated into our products. If so, we may be unable to fix these defects
        without the cooperation of third-party providers. Because these defects may
        not
        be as significant to these providers as they are to us, we may not receive
        the
        rapid cooperation that may be required to avoid serious harm to our business
        and
        operating results. Errors, defects or other performance problems with our
        products could also harm our customers' businesses or result in potential
        product liability claims. Even if unsuccessful, a product liability claim
        brought against us would likely be time-consuming, costly and harmful to
        our
        reputation.
 
 Ø
              **We
                  may be unable to adequately protect the intellectual property used
                  in our
                  software.**
 
 Currently,
        we have not been awarded any patents. We have filed for five (5) patents.
        These
        patent applications may not be granted or, if granted, the resulting patents
        may
        be challenged or invalidated. In addition to patents, we rely on copyright
        and
        trademark laws, trade secrets, confidentiality provisions and other contractual
        provisions to protect our proprietary rights. These measures, which require
        the
        expenditure of substantial resources, afford our intellectual property only
        limited protection because our competitors and third parties independently
        may
        develop similar technologies or may infringe our intellectual property.
        Infringement
 is
        difficult to detect and costly to prevent. With respect to the protection
        of our
        proprietary rights internationally, the laws of some foreign countries may
        not
        protect our proprietary rights adequately. In addition, we will not have
        patent
        protection in countries where we do not file patent applications. Thus, the
        measures we are taking to protect our proprietary rights in the United States
        and abroad may not be adequate and our business may be harmed as a
        result.
 
 Ø
              **We
                  may be sued by third parties for infringement of their intellectual
                  property.**
 
 The
        wireless equipment and software industries are subject to frequent intellectual
        property litigation. As the number of entrants into our target market increases,
        the likelihood of infringement claims also increases. We may unknowingly
        be
        infringing the intellectual property of others. In addition, because patent
        applications can take many years to be approved, there may be one or more
        patent
        applications now pending that could lead to infringement actions against
        us if
        issued in the future. If we are unable to successfully defend against a product
        infringement claim, we may be precluded from using the intellectual property
        or
        may have to license it on commercially disadvantageous terms, either of which
        could harm our business. Even if we successfully defend against an infringement
        claim, we may have to devote significant time and resources to litigation,
        which
        could also harm our business.
 
 Ø
              **We
                  depend on the services of key personnel to operate our business
                  and
                  implement our strategy. If we lose the services of our key personnel
                  or
                  are unable to attract other qualified personnel, we may be unable
                  to
                  implement our strategy.**
 
 We
        depend
        on the continued contributions of our senior management. The loss of the
        services of any of our executive officers or other key employees could harm
        our
        business. Our future success also depends, in part, on our ability to identify,
        hire and retain qualified employees. We have employment contracts in place
        with
        Gary E. Ban, Donald T. Locke and Andrew L. Fox. We do not currently maintain
        any
        "key person" life insurance policies on any members of management or any
        other
        employees. Competition for qualified personnel is intense. If we are
        unsuccessful in attracting new personnel or retaining and motivating our
        current
        personnel, our business could be adversely affected. For information on our
        key
        personnel, please see “Item 10 - Directors and Executive Officers of the
        Registrant” in this annual report on Form 10-K.
 
  24
  
 Ø
              **Our
                  failure to attract, train or retain highly qualified personnel
                  could harm
                  our business.**
 
 Our
        success also depends on our ability to attract, train and retain qualified
        personnel in all areas, especially those with management and product development
        skills. In particular, we must hire additional experienced management personnel
        to help us continue to grow and manage our business, and skilled software
        engineers to further our research and development efforts. At times, we have
        experienced difficulties in hiring personnel with the proper training or
        experience, particularly in technical and media areas. Competition for qualified
        personnel is intense, particularly in high-technology centers such as the
        Research Triangle, where our corporate headquarters are located. If we do
        not
        succeed in attracting new personnel or in retaining and motivating our current
        personnel, our business could be harmed.
 
 In
        making
        employment decisions, particularly in the high-technology industries, our
        current employees and prospective job candidates often consider the value
        of
        stock options they hold or that they may receive in connection with their
        employment. As a result of recent volatility in our stock price, we may be
        disadvantaged in competing with companies that have not experienced similar
        volatility or that have not yet sold their stock publicly.
 
 **Risks
        Relating to Our Industry**
 
 Ø
              **Wireless
                  carriers generally control the price charged for our applications
                  either
                  by approving the price of our applications or by establishing the
                  price
                  charged to their wireless subscribers. The carriers' control over
                  the
                  pricing of our applications could adversely affect market acceptance
                  of
                  our applications and our
                  revenues.**
 
 We
        must
        obtain approval from our wireless carriers for the pricing of the applications
        that we propose to offer to their subscribers. These approvals may not be
        granted in a timely manner or at all. Some of our carrier agreements may
        also
        restrict our ability to change prices. In addition, our carriers generally
        have
        the ability to set the price charged to their wireless subscribers. Failure
        to
        obtain, or a delay in obtaining, these approvals, or the price the carriers
        charge for our applications could adversely affect market acceptance of our
        applications.
 
 Ø
              **The
                  mobile and wireless multimedia industry is new and rapidly evolving,
                  and
                  we may not be able to accurately predict its size, needs, development
                  or
                  rate of growth.**
 
 The
        market for our products is new and rapidly evolving. Wireless service providers
        are only beginning to offer commercial services that could result in utilization
        of our wireless applications. As a result, we cannot assess current or future
        demand for remote management of resources, the creation and interaction with
        multimedia content via cellular handsets and other mobile devices, and enhanced
        quality of remote communications. We also do not know whether this market
        will
        be large enough to sustain our business. We may not be able to develop and
        introduce wireless applications or services that respond to market demands,
        technology developments, increased competition or industry standards on a
        timely
        basis, or at all. If this market does not evolve in the manner or in the
        timeframe that we anticipate, or if we are unable to respond to new market
        developments promptly, our business and prospects may suffer.
 
 Ø
              **Wireless
                  communications technology is changing rapidly, and we may not be
                  successful in working with these new
                  technologies.**
 
 Wireless
        network and mobile phone technologies are undergoing rapid innovation. New
        mobile phones with more advanced processors and supporting advanced programming
        languages continue to be introduced in the market. We have no control over
        the
        demand for, or success of, these products. However, if we fail to anticipate
        and
        adapt to these and other technological changes, our market share and our
        operating results may suffer. Our future success will depend on our ability
        to
        adapt to rapidly changing technologies, develop applications to accommodate
        evolving industry standards and improve the performance and reliability of
        our
        applications. In addition, the widespread adoption of networking or
        telecommunications technologies or other technological changes could require
        substantial expenditures to modify or adapt our entertainment
        applications.
 
 The
        markets for our applications are also characterized by frequent new mobile
        phone
        model introductions and shortening mobile phone model life cycles. The
        development of new, technologically advanced applications to match the
        advancements in mobile phone technology is a complex process requiring
        significant research and development expense, as well as the accurate
        anticipation of technological and market trends. As the life cycle of mobile
        phone models and other wireless devices shortens, we will be required to
        develop
        and adapt our existing applications and create new applications more quickly.
        These efforts may not be successful. Any failure or delay in anticipating
        technological advances or developing and marketing new applications that
        respond
        to any significant change in technology or customer demand could limit the
        available channels for our applications and limit or reduce our
        sales.
  25
  
 Ø
              **If
                  wireless subscribers do not continue to use their mobile phones
                  to access
                  wireless applications, our business may be adversely
                  affected.**
 
 We
        operate in a developing industry. Our success depends on growth in the number
        of
        wireless subscribers who use their mobile phones to access data services
        and, in
        particular, entertainment applications. If this market does not continue
        to grow
        or we are unable to acquire new customers, our business growth and future
        revenues could be limited.
 
 Ø
              **The
                  popularity of wireless applications is dependent on the availability
                  and
                  market penetration of mobile handsets enabled with advanced technologies
                  such as BREW and Java, the availability and adoption of which is
                  beyond
                  our control.**
 
 Our
        customers must have a mobile phone with multimedia capabilities enabled by
        technologies such as BREW and Java to download and use our applications.
        Currently, only a limited number of wireless subscribers have these mobile
        phones. Handsets enabled with advanced technologies, such as BREW and Java,
        may
        be significantly more expensive than handsets without such technologies.
        As
        such, we cannot be certain whether existing wireless subscribers will be
        willing
        to purchase mobile phones with these technologies. If one or more of these
        technologies, such as BREW or Java, falls out of favor with mobile phone
        manufacturers and wireless carriers or fails to gain widespread market
        acceptance among wireless subscribers, the sales of our applications could
        suffer.
 
 Ø
              **Next-generation
                  mobile phones may significantly reduce or eliminate the wireless
                  carriers'
                  control over delivery of our applications, and force us to further
                  rely on
                  alternative sales channels which, if not successful, could require
                  us to
                  significantly increase our sales and marketing
                  expenses.**
 
 A
        significant portion of our applications are currently sold through the branded
        mobile media decks of wireless carriers. We have invested significant resources
        developing this sales channel. However, many carriers are opening up their
        mobile data delivery to allow consumers to download content directly from
        third
        party providers. Increased use by consumers of third party content distribution
        methods, which bypass wireless carrier mobile media decks, could reduce the
        market power of wireless carriers and force us to further rely on alternative
        sales channels. This may require us to significantly increase our sales and
        marketing expenses.
 
 Ø
              **Actual
                  or perceived security vulnerabilities in mobile phones could adversely
                  affect our revenues.**
 
 Maintaining
        the security of mobile phones and wireless networks is critical for our
        business. There are individuals and groups who develop and deploy viruses,
        worms
        and other malicious software programs that may attack wireless networks and
        mobile phones. Future threats could lead some customers to seek to return
        our
        applications, reduce or delay future purchases or reduce or delay the use
        of
        their mobile phones. Wireless carriers and mobile phone manufacturers may
        also
        increase their expenditures on protecting their wireless networks and mobile
        phone products from attack, which could delay adoption of new mobile phone
        models. Any of these activities could adversely affect our
        revenues.
 
 Ø
              **Changes
                  in government regulation of the media and wireless communications
                  industries may adversely affect our
                  business.**
 
 It
        is
        possible that a number of laws and regulations may be adopted in the United
        States and elsewhere which could restrict the media and wireless communications
        industries, including customer privacy, taxation, content suitability,
        copyright, distribution and antitrust. Furthermore, the growth and development
        of the market for electronic commerce may prompt calls for more stringent
        consumer protection laws that may impose additional burdens on companies
        such as
        ours conducting through wireless carriers. We anticipate that regulation
        of our
        industry will increase, and we will be required to devote legal and other
        resources to addressing such regulation. Changes in current laws or regulations
        or the imposition of new laws and regulations in the United States or elsewhere
        regarding the media and wireless communications industries may lessen the
        growth
        of wireless communications services and may materially reduce our ability
        to
        increase or maintain sales of our applications.
 
  26
  
 Ø
              **A
                  decline in, or limitation on, the use of mobile phones would negatively
                  impact our business.**
 
 A
        number
        of public and private entities have begun to restrict the use of mobile phones
        on their premises. For example, many places of worship, restaurants, hospitals,
        medical offices, libraries, museums, concert halls and other private and
        public
        businesses restrict the use of mobile phones due to privacy concerns, the
        inconvenience caused by mobile phone users to other patrons and the disruption
        mobile phones may cause to other electronic equipment at these
        locations.
 
 Legislation
        has also been proposed in the U.S. Congress and by many states and
        municipalities to restrict or prohibit the use of mobile phones while driving
        motor vehicles. Some states and municipalities in the United States have
        already
        passed laws restricting the use of mobile phones while driving, and similar
        laws
        have been enacted in other countries. These laws and other potential laws
        prohibiting or restricting the use of mobile phones could reduce demand for
        mobile phones generally and, accordingly, the demand for our applications,
        which
        could reduce our ability to increase or maintain sales of our
        applications.
 
 A
        number
        of studies have examined the health effects of mobile phone use and the results
        of some of the studies have been interpreted as evidence that mobile phone
        use
        causes adverse health effects. The establishment of a link between the use
        of
        mobile phone services and health problems, and any media reports suggesting
        such
        a link, could reduce demand for mobile phones and, accordingly, the demand
        for
        our applications.
 
 Ø
              **Regulations
                  governing the wireless communications industry may indirectly adversely
                  affect our business.**
 
 The
        wireless communications industry is subject to regulation by the Federal
        Communications Commission and various state regulatory agencies. From time
        to
        time, legislation and regulations could be adopted that could adversely affect
        this industry.
 
 Changes
        in regulatory environments governing the wireless telecommunication industry
        could negatively affect our plans to offer products and services. The licensing,
        ownership and operation of wireless communications systems and the grant,
        maintenance or renewal of applicable licenses and radio frequency allocations
        are all subject to significant government regulation. Government regulation
        may
        have an adverse effect on the wireless telecommunications companies to which
        we
        plan to market and sell our products and services under development. Delays
        in
        receiving required regulatory approvals and licenses or the enactment of
        new and
        adverse regulatory requirements may adversely affect our ability to offer
        our
        technology and other new products and services. In addition, legislative,
        judicial and regulatory agency actions could negatively affect our ability
        to
        offer new technologies to wireless telecommunications companies.
 
 **Other
        Risk Factors**
 
 Ø
              **The
                  price of our common stock has been and may continue to be
                  volatile.**
 
 The
        trading price of our common stock has been and is likely to continue to be
        highly volatile. Our stock price could be subject to wide fluctuations in
        response to factors such as:
 
 ·
            actual
                or anticipated variations in quarterly operating
                results; 
 ·
            announcements
                of technological innovations, new products or services by us or our
                competitors; 
 ·
            changes
                in financial estimates or recommendations by securities
                analysts; 
 ·
            the
                addition or loss of strategic relationships or relationships with
                our key
                customers; 
 ·
            conditions
                or trends in the wireless markets; 
 ·
            announcements
                by us or our competitors of significant acquisitions, strategic
                partnerships, joint ventures or capital commitments or of significant
                new
                product developments or changes in business
                strategy; 
 ·
            legal,
                regulatory or political developments; 
 ·
            additions
                or departures of key personnel; and 
 ·
            general
                market conditions. 
 In
        addition, the stock market in general, and the OTC Bulletin Board and the
        market
        for wireless, wireless-related and technology companies in particular, have
        experienced extreme price and volume fluctuations that have often been unrelated
        or disproportionate to the operating performance of these companies. These
        broad
        market and industry factors have in the past and may in the future reduce
        our
        stock price, regardless of our operating performance .
 
 Ø
              **The
                  sale of a large number of shares of our common stock could depress
                  our
                  stock price.**
 
 Of
        the
        13,519,704 shares of our common stock outstanding as of March 28, 2006, an
        aggregate of 7,422,114 shares are freely tradable without restriction in
        the
        public market unless the shares are held by "affiliates," as that term is
        defined in Rule 144(a)(1) under the Securities Act of 1933.
 
 In
        addition, as of March 28, 2006, there were:
 
 ·
            $8,000,000
                of our 6% Senior Secured Convertible Debentures, which are convertible
                into 4,000,000 shares of our common
                stock; 
 ·
            outstanding
                warrants to purchase 7,836,158 shares of our common
                stock; 
 ·
            options
                to purchase 1,872,215 shares of our common stock, 1,142,206 of which
                were
                fully vested; and 
 ·
            2,407
                outstanding shares of our Series A Stock, plus related dividends,
                which
                are convertible into 18,988 shares of Oasys Mobile’s common
                stock. 
 The
        market price of our common stock could decline as a result of sales of a
        large
        number of shares of our common stock in the market, or the perception that
        such
        sales could occur. These sales might also make it more difficult for us to
        sell
        equity securities in the future at a price that we think is appropriate,
        if at
        all. A large volume of sales by the selling stockholders could have a
        significant adverse impact on the market price of our common stock.
 
 Ø
              **Changes
                  to financial accounting standards and new exchange rules could
                  make it
                  more expensive to issue stock options to employees, which would
                  increase
                  compensation costs and may cause us to change our business
                  practices.**
 
 We
        prepare our financial statements to conform with generally accepted accounting
        principles, or GAAP, in the United States. These accounting principles are
        subject to interpretation by the Public Company Accounting Oversight Board,
        the
        SEC and various other bodies. A change in those policies could have a
        significant effect on our reported results and may affect our reporting of
        transactions completed before a change is announced. For example, we have
        used
        stock options and other long-term equity incentives as a fundamental component
        of our employee compensation packages. We believe that stock options and
        other
        long-term equity incentives directly motivate our employees to maximize
        long-term stockholder value and, through the use of vesting, encourage employees
        to remain with our company. Several regulatory agencies have passed new rules
        that could make it more difficult or expensive for us to grant stock options
        to
        employees. For example, the Financial Accounting Standards Board has announced
        changes to GAAP that will require us to record a charge to earnings for employee
        stock option grants.
 
 In
        addition, if we are able to begin trading on other exchanges, they have
        regulations which generally require stockholder approval for all stock option
        plans, which could make it more difficult or expensive for us to grant stock
        options to employees. We may, as a result of these changes, incur increased
        compensation costs, change our equity compensation strategy or find it difficult
        to attract, retain and motivate employees, each of which could materially
        and
        adversely affect our business, operating results and financial
        condition.
 
  27
  
 Ø
              **Our
                  Directors and Executive Officers beneficially own approximately
                  11.51% of
                  our stock; their interests could conflict with yours; significant
                  sales of
                  stock held by them could have a negative effect on our stock price;
                  stockholders may be unable to exercise
                  control.**
 
 As
        of
        March 28, 2006, our executive officers, directors and affiliated persons
        beneficially owned approximately 11.51% of our common stock. As a result,
        our
        executive officers, directors and affiliated persons will have significant
        influence to:
 
 ·
            elect
                or defeat the election of our directors; 
 ·
            amend
                or prevent amendment of our articles of incorporation or
                bylaws; 
 ·
            effect
                or prevent a merger, sale of assets or other corporate transaction;
                and 
 ·
            control
                the outcome of any other matter submitted to the stockholders for
                vote. 
 Management’s
        stock ownership may discourage a potential acquirer from making a tender
        offer
        or otherwise attempting to obtain control of Oasys Mobile, which in turn
        could
        reduce our stock price or prevent our stockholders from realizing a premium
        over
        our stock price.
 
 **ITEM1B.** **UNRESOLVED
        STAFF COMMENTS.**
 
 None.
 
 **ITEM2.** **PROPERTIES.**
 
 Our
        principal executive offices are located at Two Hannover Square, 434 Fayetteville
        Street, Suite 600, Raleigh, North Carolina 27601. We occupy 11,984 square
        feet
        of leased space at such location. Our lease for this space, representing
        our
        principal executive offices, expires October 31, 2006. The base rent for
        January
        1, 2006 through October 31, 2006 is $200,682.
 
 **ITEM3.** **LEGAL
        PROCEEDINGS.**
 
 None.
 
 
 **ITEM4.** **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
 
 There
        were no matters submitted to a vote of the stockholders during the quarter
        ended
        December 31, 2005.
 
 
  28
  **PARTII**
 
 **ITEM5.** **MARKET
        FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER
        MATTERS**
 
 **Market
        Information**
 
 Our
        common stock, par value $.001 per share, currently trades on the
        Over-the-Counter Bulletin Board®. The following table provides information about
        the high and low bid per share quotations of our common stock for each full
        quarterly period during the two years ended December 31, 2004 and 2005, and
        for
        the first quarter of 2006 through March 29, 2006, on the OTC Bulletin Board®, as
        provided by the National Quotation Bureau, Inc. These quotations reflect
        inter-dealer prices without markup, markdown or commissions and may not
        necessarily represent actual transactions. On March 11, 2005, Oasys Mobile
        effected a reverse split of its common stock in which every ten (10) shares
        of
        such common stock was automatically reclassified and converted into one (1)
        share of common stock. Accordingly, all share prices in the following table
        prior to that date have been retroactively adjusted to give effect to this
        event.
 
 **2004**
              
              **Low**
              
              **High**First
                  Quarter
              
              $
              1.05
              
              $
              1.95Second
                  Quarter
              
              $
              0.85
              
              $
              2.00Third
                  Quarter
              
              $
              1.55
              
              $
              3.30Fourth
                  Quarter
              
              $
              3.10
              
              $
              6.95**2005**
              
              
              **Low**
              
              
              **High**First
                  Quarter
              
              $
              4.60
              
              $
              6.90Second
                  Quarter
              
              $
              2.85
              
              $
              4.75Third
                  Quarter
              
              $
              2.85
              
              $
              3.57Fourth
                  Quarter
              
              $
              1.95
              
              $
              2.90**2006**
              
              
              **Low**
              
              
              **High**First
                  Quarter
                (through
                  March 28, 2006)
              
              $
              1.42
              
              $
              2.44
 
 On
        March
        29, 2006, the closing sale price for our common stock as reported on the
        OTC
        Bulletin Board® was $1.42 per share. As of March 29, 2006, we had approximately
        13,519,704 shares of common stock outstanding and approximately 569 stockholders
        of record. We also have approximately 6,000 beneficial stockholders who hold
        shares in brokerage accounts or “street name”.
 
 We
        have
        never declared or paid any cash dividends on our common stock and do not
        anticipate paying any cash dividends in the foreseeable future. We anticipate
        that we will retain earnings, if any, to finance the growth and development
        of
        our business. Therefore, we do not expect to pay cash dividends on our common
        stock for the foreseeable future. Any future determination to pay cash dividends
        will be at the discretion of our Board of Directors and will depend upon
        our
        financial condition, operating results, capital requirements, plans for
        expansion, restrictions imposed by any financing arrangements and whatever
        other
        factors that our Board of Directors determines are relevant.
 
 Oasys
        Mobile’s 8% Series A convertible preferred stock accrues semi-annual dividends
        at a rate of 8% per annum of the initial liquidation price of $1,000 per
        share
        on each of April 1 and October 1. These dividends are cumulative from the
        date
        of original issue, which was February 28, 2000, and shall be payable when,
        as,
        and if declared by our Board of Directors. Any dividends payable on the Series
        A
        preferred stock may be paid in additional shares of Series A preferred stock
        at
        our option.
 
  29
  **Penny
        Stock**
 
 Our
        common stock is subject to the provisions of Section 15(g) and Rule 15g-9
        of the
        Securities Exchange Act of 1934 (the “Exchange Act”), commonly referred to as
        the “penny stock rule.” Section 15(g) sets forth certain requirements for
        transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition
        of
        penny stock that is found in Rule 3a51-1 of the Exchange Act.
 
 The
        SEC
        generally defines penny stock to be any equity security that has a market
        price
        less than $5.00 per share, subject to certain exceptions. If our common stock
        is
        deemed to be a penny stock, trading in the shares will be subject to additional
        sales practice requirements on broker-dealers who sell penny stocks to persons
        other than established customers and “accredited investors” (generally, an
        individual with a net worth in excess of $1,000,000 or an annual income
        exceeding $200,000 or $300,000 together with his or her spouse). For
        transactions covered by this rule, a broker-dealer must make a special
        suitability determination for the purchaser and have received the purchaser’s
        written consent to the transaction prior to sale. The rule also requires
        the
        delivery, prior to the transaction, of a risk disclosure document mandated
        by
        the SEC relating to the penny stock market. The broker-dealer must also disclose
        the commissions payable for the transaction, current quotations for the stock,
        and, if applicable, the fact that it is the sole market maker in the stock.
        Consequently, the rule may adversely affect the ability of broker-dealers
        to
        sell our securities and may adversely affect the ability of stockholders
        to sell
        their shares in the secondary market.
 
 **ITEM6.** **SELECTED
        FINANCIAL DATA** .
 
 On
        February 16, 2001, Oasys Mobile (formerly High Speed Net Solutions, Inc.)
        acquired all the assets and operations of Summus, Ltd. under the terms of
        an
        asset purchase agreement, dated October 30, 2000, as subsequently amended.
        In
        legal form, the transaction was effected by Oasys Mobile issuing shares of
        its
        common and Series B convertible preferred stock, and other equity interests,
        in
        exchange for the net assets of Summus, Ltd. This transaction was accounted
        for
        as a capital transaction of Summus, Ltd., accompanied by a recapitalization.
        As
        a result of the transaction, the historical financial statements of Summus,
        Ltd.
        are, for accounting purposes, deemed to be those of Oasys Mobile.
 
 The
        following selected historical annual financial data has been derived from
        the
        financial statements of Oasys Mobile (notwithstanding that such selected
        historical annual financial data has been labeled as that of Summus, Ltd.).
        The
        financial statements for each of the three years ended December 31, 2005,
        2004
        and 2003, have been audited by Ernst & Young LLP, independent registered
        public accountants, as indicated in their report included elsewhere in this
        annual report on Form 10-K.
 
 The
        financial data set forth below should be read in conjunction with “Item 7.
        Management’s Discussion and Analysis of Financial Condition and Results of
        Operations” and our audited financial statements and notes, which are contained
        elsewhere in this annual report.
 
 On
        March
        11, 2005, Oasys Mobile 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.
 
 
 
  30
  **OASYS
        MOBILE, INC.**
 
 **SELECTED
        FINANCIAL DATA**
 
 **2001**
              
              
              
              **2002**
              
              
              
              **2003**
              
              
              **2004**
              
              
              **2005****Statement
                  of Operations Data:**Revenues
              
              $
              749,758
              
              
              $
              406,952
              
              
              $
              1,699,274
              
              $
              5,171,440
              
              $
              7,794,941Costs
                  of revenues
              
              
              299,554
              
              
              
              182,109
              
              
              
              1,074,239
              
              
              2,604,060
              
              
              3,893,776Selling,
                  general and administrative expenses
              
              
              7,740,867
              
              
              
              6,155,416
              
              
              
              4,597,036
              
              
              3,407,440
              
              
              5,022,427Non-cash
                  compensation and consulting
              
              
              956,321
              
              
              
              1,251,992
              
              
              
              304,885
              
              
              221,229
              
              
              60,044Research
                  and development
              
              
              952,605
              
              
              
              918,948
              
              
              
              1,056,770
              
              
              1,822,023
              
              
              3,168,620Non-cash
                  settlements
              
              
              1,132,352
              
              
              
              —
              
              
              
              (1,525,698
              )
              
              (126,373
              )
              
              58,750Loss
                  from operations
              
              
              (10,331,941
              )
              
              
              (8,101,513
              )
              
              
              (3,807,958
              )
              
              (2,756,939
              )
              
              (4,408,676
              )Interest
                  income (expense), net
              
              
              (56,570
              )
              
              
              (469,571
              )
              
              
              (69,343
              )
              
              (62,519
              )
              
              (77,262
              )Amortization
                  of discount on debt andBeneficial
                  conversion feature
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              (1,053,349
              )
              
              (1,435,372
              )Loss
                  from continuing operations
              
              
              (10,388,511
              )
              
              
              (8,571,084
              )
              
              
              (3,877,301
              )
              
              (3,872,807
              )
              
              (5,921,310
              )Loss
                  from operations of discontinuedRich
                  Media Direct business(1)
              
              
              (135,798
              )
              
              
              —
              
              
              
              —
              
              
              —
              
              
              —Loss
                  on disposal of Rich Media Direct business(1)
              
              
              (215,500
              )
              
              
              —
              
              
              
              —
              
              
              —
              
              
              —Net
                  loss
              
              $
              (10,739,809
              )
              
              $
              (8,571,084
              )
              
              $
              (3,877,301
              )
              $
              (3,872,807
              )
              $
              (5,921,310
              )Net
                  loss applicable to common stockholders:Net
                  loss
              
              $
              (10,739,809
              )
              
              $
              (8,571,084
              )
              
              $
              (3,877,301
              )
              $
              (3,872,807
              )
              $
              (5,921,310
              )Accretion
                  of beneficial conversionfeatureofpreferred
                  stock
              
              
              —
              
              
              
              —
              
              
              
              (3,286,251
              )
              
              (293,444
              )
              
              —Preferred
                  stock dividends
              
              
              (153,700
              )
              
              
              (183,039
              )
              
              
              (171,265
              )
              
              (175,035
              )
              
              (192,552
              )Net
                  loss applicable to common stockholders
              
              $
              (10,893,509
              )
              
              $
              (8,754,123
              )
              
              $
              (7,334,817
              )
              $
              (4,341,286
              )
              $
              (6,113,862
              )Per
                  share amounts (basic and diluted):Loss
                  applicable to common stockholders from continuing
                  operations
              
              $
              (3.04
              )
              
              $
              (1.86
              )
              
              $
              (1.19
              )
              $
              (0.49
              )
              $
              (0.46
              )Loss
                  applicable to common stockholders from discontinued
                  operations
              
              
              (0.10
              )
              
              
              —
              
              
              
              —
              
              
              —
              
              
              —Net
                  loss applicable to common stockholders
              
              $
              (3.14
              )
              
              $
              (1.86
              )
              
              $
              (1.19
              )
              $
              (0.49
              )
              $
              (0.46
              )Weighted
                  average shares of common stockoutstanding
              
              
              3,473,034
              
              
              
              4,714,930
              
              
              
              6,149,125
              
              
              8,865,807
              
              
              13,317,440
 
 **December
                  31****2001**
              
              **2002**
              
              **2003**
              
              **2004**
              
              **2005****Balance
                  Sheet Data:**Cash
              
              $
              115,992
              
              $
              25,990
              
              $
              2,188,645
              
              $
              1,405,788
              
              $
              8,985,158Total
                  assets
              
              
              1,003,524
              
              
              701,174
              
              
              2,880,938
              
              
              2,405,806
              
              
              10,219,784Long-term
                obligations
              
              
              67,311
              
              
              12,917
              
              
              215,932
              
              
              53,693
              
              
              584,040Total
                  stockholders' equity (deficit)
              
              $
              (5,708,495
              )
              $
              (4,464,054
              )
              $
              286,025
              
              $
              (87,196
              )
              $
              6,881,914
 ________________________
 (1)
              During
                  2001, Oasys Mobile disposed of its Rich Media Direct business and
                  accordingly reported the operating activity as discontinued operations
                  in
                  2001.
  31
  **ITEM7.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS.**
  
 The
        following discussion contains forward-looking statements that involve risks
        and
        uncertainties. Our actual results could differ materially from those anticipated
        in these forward-looking statements as a result of certain factors, including
        the risk factors included in this report in “Item 1A- Risk Factors”. The
        following discussion is qualified in its entirety by, and should be read
        in
        conjunction with, the more detailed information in our financial statements
        and
        the notes thereto appearing elsewhere in this annual report on Form
        10-K.
 
 **Key
        Developments in 2005**
 
 *December
        2004 and January 2005 Convertible Notes Payable*
 
 In
        December 2004, Oasys Mobile 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 Oasys Mobile 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 Oasys Mobile’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 Oasys Mobile’s common stock on the Maturity Date and 90% of the
        average closing prices of Oasys Mobile’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 Oasys Mobile’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, Oasys Mobile received an additional investment of $215,000
        of
        Senior Notes, on the same terms as those sold by Oasys Mobile in December
        2004.
        The holder was granted warrants to purchase a total of 42,157 shares of Oasys
        Mobile’s common stock on the same terms as the warrants issued in the December
        2004 transaction.
 
 Due
        to
        amounts received by us in February and March 2005 from the exercise of warrants
        (as described below), the maturity of the 12% Senior Notes accelerated from
        the
        original maturity date of May 15, 2005. Oasys Mobile repaid the principal
        balance of $1,640,000 of the Senior Notes, plus interest at the rate of 12%
        per
        annum. Since the Senior Notes were paid off in accordance with their terms,
        they
        have no rights or conversion into Oasys Mobile’s common stock.
 
 *Exercise
        of Warrants*
 
 During
        February and March 2005, Oasys Mobile received $4,112,134 from the exercise
        of
        approximately 1,263,246 warrants to purchase shares of Oasys Mobile’s common
        stock. These warrants were originally issued in connection with private
        placements of Oasys Mobile’s preferred stock and common stock. Oasys Mobile
        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.
 
 *November
        2005 6% Senior Secured Convertible Debentures*
 
 In
        November 2005, Oasys Mobile entered into senior debt agreements with certain
        investors for $8,000,000 of financing in the form of notes payable (the "Senior
        Secured Debentures"). The Senior Secured Debentures bear interest at 6% and
        mature on June 30, 2007 (“Maturity Date”). The Senior Debentures are convertible
        into shares of Oasys Mobile’s common stock at the option of the holder at a
        conversion price of $2.00 per share. The Senior Debentures are also subject
        to
        automatic conversion if Oasys Mobile meets certain revenue or trading stock
        price milestones. These Senior Secured Debentures are secured by all of the
        assets of Oasys Mobile.
 
 At
        the
        closing of the Senior Secured Debentures ,
        the
        investors received certain
        A
        Warrants, B Warrants and C-1 Warrants. The A Warrants provide the right to
        purchase an aggregate of up to 2,000,000 units at an exercise price of $2.00
        per
        unit. Each unit consists of one share of Oasys Mobile’s common stock and a
        warrant to purchase 4/10 of a share of Oasys Mobile’s common stock (the “C-2
        Warrant”). The A Warrants are exercisable at any time until June 29, 2006. The B
        Warrants are exercisable at any time for a period of two years from the date
        of
        issuance for 1,355,392 shares of Oasys Mobile’s common stock and have an
        exercise price of $2.71 per share. The C-1 Warrants are exercisable at any
        time
        for a period of five years from the date of issuance for an additional 1,355,392
        shares of Oasys Mobile’s common stock and have an exercise price of $3.54 per
        share. The C-2 Warrants have substantially the same terms and conditions
        as the
        C-1 Warrants.
  32
  
 **Results
        of Operations**
 
 The
        following discussion and analysis of our results of operations and financial
        condition should be read in conjunction with our financial statements and
        related notes included in this report.
 
  **Year
        Ended December 31, 2005 Compared to Year Ended December 31,
        2004**
   *Revenues*
  **Year
                  Ended December 31****%
                  of Total**
              
              
              
              **%
                  of Total****2005**
              
              **Revenues**
              
              **2004**
              
              **Revenues**
              
              **$
                  Change**
              
              **%
                  Change**Revenues
                  by category:Wireless
                  applications and
                Contracts
              
              $
              7,782,241
              
              
              99.8
              %
              $
              5,118,551
              
              
              99.0
              %
              $
              2,663,690
              
              
              52.0
              %Wireless
                  license fees
              
              
              12,700
              
              
              0.2
              
              
              9,000
              
              
              0.2
              
              
              3,700
              
              
              41.1Contracts
                  and license fees
              
              
              -
              
              
              -
              
              
              43,889
              
              
              0.8
              
              
              (43,889
              )
              
              (100.0
              )Total
                  revenues
              
              $
              7,794,941
              
              
              100.0
              %
              $
              5,171,440
              
              
              100.0
              %
              $
              2,623,501
              
              
              50.7
              %
  *Wireless
        Applications and Contracts.* Revenue
        from wireless applications and contracts increased $2,663,690 to $7,782,241
        in
        the year ended December 31, 2005, up 52.0% from $5,118,551 in the year ended
        December 31, 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 Oasys Mobile, launched
        by
        several wireless carriers and purchased by end-users. We continue to increase
        our subscriber base as well as expanding to new
        carriers.
  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 year ended December
        31, 2005. Revenue from contracts and license fees was $43,889 in the year
        ended
        December 31, 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 $12,700 and $9,000 in the year
        ended
        December 31, 2005 and 2004, respectively.
   *Costs
        of Revenues*
  **Year
                  Ended December 31****2005**
              
              
              **2004**
              
              
              **$
                  Change**
              
              
              %**Change**Cost
                  of revenues by categoryWireless
                  applications and contracts
              
              $
              3,893,776
              
              $
              2,596,823
              
              $
              1,296,953
              
              
              49.9
              %Contracts
                  and license fees
              
              
              -
              
              
              7,237
              
              
              (7,237
              )
              
              (100.0
              )Total
                  cost of revenues
              
              $
              3,893,776
              
              $
              2,604,060
              
              $
              1,289,716
              
              
              49.5
              %
  *Wireless
        Applications and Contracts.* Costs
        of
        wireless applications and contracts increased $1,296,953 to $3,893,776 in
        the
        year ended December 31, 2005, up 49.9% from $2,596,823 in the year ended
        December 31, 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 year ended December 31, 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 year ended
        December 31, 2005, therefore the Company did not record any costs of
        revenues *.* Costs
        of
        contracts and license fees were $7,237 in the year ended December 31, 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.
   33
   
 *Gross
        Profit*
  **Year
                  Ended December 31****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Gross
                  profit by category:Wireless
                  applications and contracts
              
              $
              3,888,465
              
              $
              2,521,728
              
              $
              1,366,737
              
              
              54.2
              %Wireless
                  license fees
              
              
              12,700
              
              
              9,000
              
              
              3,700
              
              
              41.1Contracts
                  and license fees
              
              
              -
              
              
              36,652
              
              
              (36,652
              )
              
              (100.0
              )Total
                  gross profit
              
              $
              3,901,165
              
              $
              2,567,380
              
              $
              1,333,785
              
              
              52.0
              %
  *Wireless
        Applications and Contracts.* Gross
        profit resulting from the development and deployment of wireless applications
        increased $1,366,737 to $3,888,465 for the year ended December 31, 2005,
        an
        increase of 54.2% over the gross profit for the year ended December 31, 2004
        of
        $2,521,728. 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 year ended December 31, 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 year ended
        December 31, 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 $12,700 and $9,000 for
        the
        years ended December 31, 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*
  **Year
                  Ended December 31****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**General
                  and administrative
              
              $
              3,175,819
              
              $
              2,694,571
              
              $
              481,248
              
              
              17.9
              %
  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 year ended December 31, 2005 were $3,175,819, compared to
        $2,694,571 for year ended December 31, 2004. The overall increase in general
        and
        administrative expenses was due to increases in several expense categories,
        including salaries, travel, fees related to the Qualcomm Quick-Pay program,
        legal, investor relations, and general office administration costs.
   *Research
        and Development Expenses*
  **Year
                  Ended December 31****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Research
                  and development
              
              $3,168,620
              
              $1,822,023
              
              $1,346,597
              
              73.9%
  Research
        and development expenses for the year ended December 31, 2005, were $3,168,620
        compared to $1,822,023 for the year ended December 31, 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 year ended December 31, 2005. We are focusing our resources on the
        development of new products for rapid deployment.
   34
   *Sales
        and Marketing Expenses*
  **Year
                  Ended December 31****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Sales
                  and marketing
              
              $1,846,608
              
              $712,869
              
              $1,133,739
              
              159.0%
  Sales
        and
        marketing expenses consist primarily of salaries, consulting fees, advertising
        fees and other professional fees. Sales and marketing expenses for the year
        ended December 31, 2005 were $1,846,608, compared to $712,869 for the year
        ended
        December 31, 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 year ended December 31, 2005 related
        to
        various print, mail and web-based advertising campaigns.
   *Non-Cash
        Compensation Expenses*
  **Year
                  Ended December 31****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Non-cash
                  compensation
              
              $39,221
              
              $79,521
              
              $(40,300)
              
              (50.7%)
  Non-cash
        compensation for the year ended December 31, 2005 was $39,221 compared to
        $79,521 for the year ended December 31, 2004. Non-cash compensation for each
        of
        the years resulted from the amortization of deferred compensation resulting
        from
        stock options granted.
   
 *Non-Cash
        Consulting Expenses*
  **Year
                  Ended December 31****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Non-cash
                  consulting
              
              $20,823
              
              $141,708
              
              $(120,885)
              
              (85.3%)
  Non-cash
        consulting expense for the year ended December 31, 2005, in the amount of
        $20,823 is attributable to 7,475 stock warrants granted to consultants for
        services, valued using the Black-Scholes option-pricing model.
  Non-cash
        consulting expense for the year ended December 31, 2004, in the amount of
        $141,708 is attributable to 44,536 stock options and 16,230 stock warrants
        granted to consultants for services, valued using the Black-Scholes
        option-pricing model.
   
 *Non-cash
        Settlements*
  **Year
                  Ended December 31****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 Oasys
        Mobile’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 Oasys Mobile’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.
   
   35
   *Interest
        Expense*
  **Year
                  Ended December 31****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Interest
              
              $77,262
              
              $62,519
              
              $14,743
              
              23.6%
  Interest
        expense for the year ended December 31, 2005, was $77,262 compared to interest
        expense of $62,519 for year ended December 31, 2004. Interest expense for
        each
        of the years 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 and Senior Debentures in
        2005.
        The Senior Notes were repaid in March 2005.
   *Amortization
        of discount on debt and beneficial conversion feature*
  **Year
                  Ended December 31****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Amortization
                  of discount on debt
                and
                  beneficial conversion feature
              
              $1,435,372
              
              $1,053,349
              
              $382,023
              
              36.3%
  Amortization
        of discount on debt and beneficial conversion feature for the year ended
        December 31, 2005 was $1,435,372. This related to amortization of the discounts
        on the convertible notes payable entered into in December 2004, January 2005
        and
        November 2005. The notes from December 2004 and January 2005 were repaid
        in
        March 2005 and the discount was fully amortized as interest expense in the
        year
        ended December 31, 2005. The amortization of the discount related to the
        convertible notes payable entered into in November 2005 was $584,041 in the
        year
        ended December 31, 2005.
  Amortization
        of discount on debt and beneficial conversion feature for the year ended
        December 31, 2004 was $1,053,349. This related to amortization of the discounts
        on the convertible notes payable entered into in May 2004 and December 2004.
        From September to December 2004, investors converted $1,000,000 of convertible
        notes payable entered into in May 2004. The discount on these notes of
        $1,000,000 was fully amortized as interest expense in the year ended December
        31, 2004. The amortization of the discount related to the convertible notes
        payable entered into in December 2004 was $53,349 in the year ended December
        31,
        2004.
   *Net
        Loss*
  **Year
                  Ended December 31****2005**
              
              **2004**
              
              **$
                  Change**
              
              **%
                  Change**Net
                  loss
              
              $5,921,310
              
              $3,872,807
              
              $2,048,503
              
              52.9%
  As
        a
        result of the factors discussed above, the net losses for the years ended
        December 31, 2005 and 2004 were $5,921,310 and $3,872,807, respectively.
  **Year
        Ended December 31, 2004 Compared to Year Ended December 31,
        2003**
 
 *Revenues*
  **Year
                  Ended December 31****%
                  of Total**
              
              
              
              **%
                  of Total****2004**
              
              **Revenues**
              
              **2003**
              
              **Revenues**
              
              **$
                  Change**
              
              **%
                  Change**Revenues
                  by category:Wireless
                  applications and
                Contracts
              
              $
              5,118,551
              
              
              99.0
              %
              $
              1,395,296
              
              
              82.1
              %
              $
              3,723,255
              
              
              266.8
              %Wireless
                  license fees
              
              
              9,000
              
              
              0.2
              
              
              249,951
              
              
              14.7
              
              
              (240,951
              )
              
              (96.4
              )Contracts
                  and license fees
              
              
              43,889
              
              
              0.8
              
              
              54,027
              
              
              3.2
              
              
              (10,138
              )
              
              (18.8
              )Total
                  revenues
              
              $
              5,171,440
              
              
              100.0
              %
              $
              1,699,274
              
              
              100.0
              %
              $
              3,472,166
              
              
              204.3
              %
  
   36
   *Wireless
        Applications and Contracts.* Revenue
        from wireless applications and contracts increased $3,723,255 to $5,118,551
        in
        the year ended December 31, 2004, up 266.8% from $1,395,296 in the year ended
        December 31, 2003. The increase in revenue from wireless applications and
        contracts resulted from the increase in sales of existing wireless applications
        and additional wireless applications developed by Oasys Mobile, launched
        by
        several wireless carriers and purchased by end-users. Oasys Mobile launched
        its
        Sports Illustrated Swimsuit Collection wallpaper and screen saver application
        in
        March 2004 and launched its multi-player Texas Hold’em game application in May
        2004. 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.
  *Wireless
        License Fees .* Revenue
        earned from wireless license fees totaled $9,000 in the year ended December
        31,
        2004. Revenue earned from wireless license fees totaled $249,951 in the year
        ended December 31, 2003. During this period, Oasys Mobile had sold and delivered
        existing image software for use in wireless transmission applications. During
        the second half of 2003, Oasys Mobile changed its focus from the commercial
        licensing of its technology to developing wireless applications.
  *Contracts
        and License Fees.* Revenue
        from contracts and license fees decreased $10,138 to $43,889 in the year
        ended
        December 31, 2004, down 18.8% from $54,027 in the year ended December 31,
        2003.
        These revenues were generated from providing governmental contract services.
   
 *Costs
        of Revenues*
  **Year
                  Ended December 31****2004**
              
              
              **2003**
              
              
              **$
                  Change**
              
              
              %**Change**Cost
                  of revenues by categoryWireless
                  applications and contracts
              
              $
              2,596,823
              
              $
              1,064,643
              
              $
              1,532,180
              
              
              143.9
              %Wireless
                  license fees
              
              
              -
              
              
              -
              
              
              -Contracts
                  and license fees
              
              
              7,237
              
              
              9,596
              
              
              (2,359
              )
              
              (24.6
              )Total
                  cost of revenues
              
              $
              2,604,060
              
              $
              1,074,239
              
              $
              1,529,821
              
              
              142.4
              %
  *Wireless
        Applications and Contracts.* Costs
        of
        wireless applications and contracts increased $1,532,180 to $2,596,823 in
        the
        year ended December 31, 2004, up 143.9% from $1,064,643 in the year ended
        December 31, 2003. 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 Oasys Mobile, 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 year ended December 31, 2004.
        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.
  *Wireless
        License Fees.* There
        were no costs of revenues regarding wireless license fees during the years
        ended
        December 31, 2004 and 2003, since the license fee agreements consummated
        during
        this period related to technology that had been previously developed by
        us.
  *Contracts
        and License Fees.* Costs of
        contracts and license fees decreased $2,359 to $7,237 in the year ended December
        31, 2004, down 24.6% from $9,596 in the year ended December 31, 2003. Costs
        of
        contracts and license fees consisted primarily of salaries and other related
        costs of providing governmental contract services.
   *Gross
        Profit*
  **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**Gross
                  profit by category:Wireless
                  applications and contracts
              
              $
              2,521,728
              
              $
              330,653
              
              $
              2,191,075
              
              
              662.7
              %Wireless
                  license fees
              
              
              9,000
              
              
              249,951
              
              
              (240,951
              )
              
              (96.4
              )Contracts
                  and license fees
              
              
              36,652
              
              
              44,431
              
              
              (7,779
              )
              
              (17.5
              )Total
                  gross profit
              
              $
              2,567,380
              
              $
              625,035
              
              $
              1,942,345
              
              
              310.8
              %
  37
   *Wireless
        Applications and Contracts .* Gross
        profit resulting from the development and deployment of wireless applications
        increased $2,191,075 to $2,521,728 for the year ended December 31, 2004,
        an
        increase of 662.7% over the gross profit for the year ended December 31,
        2003 of
        $330,653. 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.
  *Wireless
        License Fees.* Gross
        profit resulting from wireless license fees totaled $9,000 and $249,951 for
        the
        years ended December 31, 2004 and 2003, respectively. Oasys Mobile 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.
        During the second half of 2003, we changed our focus from the commercial
        licensing of its technology to developing wireless applications. Additionally,
        we do not expect to incur any future obligations relating to these license
        fees.
  *Contracts
        and License Fees.* Gross
        profit resulting from government contract services decreased $7,779 to $36,652
        in the year ended December 31, 2004, down 17.5% from $44,431 in the year
        ended
        December 31, 2003. The gross profit from these services resulted from deducting
        primarily salaries and other related costs from the related earned revenue.
   *General
        and Administrative Expenses*
  **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**General
                  and administrative
              
              $
              2,694,571
              
              $
              4,204,029
              
              $
              (1,509,458
              )
              
              (35.9
              %)
  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 year ended December 31, 2004 were $2,694,571, compared to
        $4,204,029 for year ended December 31, 2003. The decrease in general and
        administrative expenses during the current period as compared to the prior
        period reflects a reduction in several expense categories, namely salaries,
        third-party consulting fees, travel and general office administration costs.
        The
        reductions in these categories reflect continued cost reduction efforts
        implemented by management.
  
 *Research
        and Development Expenses*
 **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**Research
                  and development
              
              $1,822,023
              
              $1,056,770
              
              $765,253
              
              72.4%
  Research
        and development expenses consist primarily of salaries and consulting fees.
        Research and development expenses for the year ended December 31, 2004, were
        $1,822,023 compared to $1,056,770 for the year ended December 31, 2003. The
        increase in research and development expenses is a result of the increased
        number of wireless applications Oasys Mobile has in development. We are focusing
        our resources on the development of new products for rapid
        deployment.
   
 *Sales
        and Marketing Expenses*
  **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**Sales
                  and marketing
              
              $712,869
              
              $393,007
              
              $319,862
              
              81.4%
  Sales
        and
        marketing expenses consist primarily of salaries, consulting fees, advertising
        fees and other professional fees. Sales and marketing expenses for the year
        ended December 31, 2004 were $712,869, compared to $393,007 for year ended
        December 31, 2003. 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. In addition,
        we
        executed a strategically focused marketing campaign in late 2004 for Texas
        Hold’em.
   
   38
   *Non-Cash
        Compensation Expenses*
  **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**Non-cash
                  compensation
              
              $79,521
              
              $185,255
              
              $(105,734)
              
              (57.1%)
  Non-cash
        compensation for the year ended December 31, 2004 was $79,521 compared to
        $185,255 for the year ended December 31, 2003. Non-cash compensation for
        the
        year ended December 31, 2003 resulted from the amortization of deferred
        compensation resulting from stock options granted in prior years, at prices
        below the fair value of the underlying common stock. The decrease in the
        amount
        recorded in the current period as compared to the prior period reflects that
        prior years’ deferred compensation was fully amortized in the year ended
        December 31, 2004.
   
 *Non-Cash
        Consulting Expenses*
  **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**Non-cash
                  consulting
              
              $141,708
              
              $119,630
              
              $22,078
              
              18.4%
  Non-cash
        consulting expense for the year ended December 31, 2004, in the amount of
        $141,708 is attributable to 44,536 stock options and 16,230 stock warrants
        granted to consultants for services, valued using the Black-Scholes
        option-pricing model.
  Non-cash
        consulting expense for the year ended December 31, 2003, in the amount of
        $119,630 is attributable to: (1) the issuance of 17,926 shares of restricted
        common stock issued to consultants for services valued at $65,803; (2) 10,340
        stock options granted to consultants for services valued at $29,888, such
        value
        was determined by using the Black-Scholes option-pricing model; (3) the $20,000
        of amortization of a deferred expense recorded in 2002 relating to the issuance
        of 5,556 shares of restricted common stock, valued at $22,500, for consulting
        services to be rendered over a 4.5 month period; and (4) $3,939, representing
        the fair value, as determined using the Black-Scholes option-pricing model,
        of
        stock warrants granted to a consultant of Oasys Mobile.
   *Non-cash
        Settlements*
  **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**Non-cash
                  settlements
              
              $(126,373)
              
              $(1,525,698)
              
              $(1,399,325)
              
              (91.7%)
  On
        August
        31, 2004, Oasys Mobile signed and executed an agreement pertaining to payment
        for prior printing services provided to us valued at $276,373 with Bowne
        of New
        York City, LLC. The aggregate settlement gain resulting from this transaction
        totaled $126,373.
  Non-cash
        settlements totaling $1,525,698 resulted from the settlement of unpaid amounts
        from seven of Oasys Mobile’s creditors during the year ended December 31, 2003,
        as listed below:
  ·
            The
                first non-cash settlement was in connection with a settlement of
                a civil
                law suit by Holland & Knight LLP (“H&K”), a creditor of Oasys
                Mobile, seeking payment for prior legal services provided to us valued
                at
                $867,268. The aggregate settlement gain resulting from this transaction
                totaled $351,047.   ·
            On
                June 5, 2003, Oasys Mobile signed and executed an agreement pertaining
                to
                the payment of amounts owed to a current service provider. The aggregate
                settlement loss resulting from this transaction totaled
                $17,097.   ·
            In
                February 2003, Oasys Mobile signed and executed a mutual release
                of all
                claims with a former law firm that had provided legal services to
                us.
                Under the terms of the mutual release, all fees owed to the former
                law
                firm, totaling $886,557 were cancelled in full, resulting in a settlement
                gain of $886,557.   ·
            In
                March 2003, Oasys Mobile settled a claim filed against it by AT&T
                CORP. for payment of past services rendered to us. Under the terms
                of the
                settlement, all amounts owed by Oasys Mobile to AT&T CORP. were
                reduced by $118,783 to $120,000.   39
    ·
            On
                August 29, 2003, Oasys Mobile signed and executed an agreement pertaining
                to the payment of amounts owed to a current service provider. The
                aggregate settlement gain resulting from this transaction totaled
                $14,500.   ·
            On
                September 30, 2003, Oasys Mobile signed and executed an agreement
                pertaining to a promissory note with Raytheon Company. The aggregate
                settlement gain resulting from this transaction totaled
                $55,241.   ·
            In
                2003, Oasys Mobile issued warrants to purchase 33,334 shares of common
                stock to a consultant as payment of $200,000 of outstanding fees.
                The
                settlement gain resulting from this transaction totaled
                $116,667.   These
        non-cash settlements have been recorded as a reduction to our accounts payable
        and a credit in the statement of operations.
   *Interest
        Expense*
  **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**Interest
              
              $62,519
              
              $69,343
              
              $(6,824)
              
              (9.8)
                  %
  Interest
        expense for the year ended December 31, 2004, was $62,519, compared to interest
        expense of $69,343 for the year ended December 31, 2003. Interest expense
        for
        each of the years relates to interest costs associated with capital lease
        obligations and note payable agreements. The decrease in interest expense
        is due
        primarily to the decrease in principal on capital lease obligations and notes
        payable.
   
 *Amortization
        of discount on debt and beneficial conversion feature*
  **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**Amortization
                  of discount on debt
                and
                  beneficial conversion feature
              
              $1,053,349
              
              $
                  -
              
              $1,053,349
              
              100.0%
  Amortization
        of discount on debt and beneficial conversion feature for the year ended
        December 31, 2004 was $1,053,349. This related to amortization of the discounts
        on the convertible notes payable entered into in May 2004 and December 2004.
        From September to December 2004, investors converted $1,000,000 of convertible
        notes payable entered into in May 2004. The discount on these notes of
        $1,000,000 was fully amortized as interest expense in the year ended December
        31, 2004. The amortization of the discount related to the convertible notes
        payable entered into in December 2004 was $53,349 in the year ended December
        31,
        2004. There was no amortization of discount on debt and beneficial conversion
        feature for the year ended December 31, 2003.
   
 *Net
        Loss*
  **Year
                  Ended December 31****2004**
              
              **2003**
              
              **$
                  Change**
              
              **%
                  Change**Net
                  loss
              
              $3,872,807
              
              $3,877,301
              
              $(4,494)
              
              (0.1%)
  As
        a
        result of the factors discussed above, the net losses for the year ended
        December 31, 2004 and 2003 were $3,872,807 and $3,877,301,
        respectively.
  
  40
   **Liquidity
        and Capital Resources**
  As
        of
        December 31, 2005 we had $8,985,158 of cash on hand, working capital of
        $7,340,115, and approximately $2.75 million in current liabilities.
  *Funding
        Events*
  In
        January 2005, Oasys Mobile received an additional investment of $215,000
        of its
        Senior Notes on the same terms as those sold by the Company in December 2004.
        Oasys Mobile originally received $1,425,000 in the December 2004 initial
        closing
        of the Senior Notes. The holder was also granted warrants to purchase a total
        of
        42,157 shares of Oasys Mobile’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.
  During
        February and March 2005, Oasys Mobile received $4,112,134 from the exercise
        of
        1,263,246 warrants to purchase shares of Oasys Mobile’s common stock. These
        warrants were originally issued in connection with private placements of
        Oasys
        Mobile’s preferred stock and common stock. Oasys Mobile 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, Oasys Mobile 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 Oasys Mobile from these
        exercises was $218,229.
  Due
        to
        the additional financing received by Oasys Mobile in February and March 2005,
        the maturity of the Senior Notes accelerated from the original maturity date
        of
        May 15, 2005. Oasys Mobile repaid the principal balance of $1,640,000 of
        the
        Senior Notes, plus interest at the rate of 12% per annum. Since the Senior
        Notes
        were paid off in accordance with their terms, they have no rights of conversion
        into Oasys Mobile’s common stock.
  In
        November 2005, Oasys Mobile entered into senior debt agreements with certain
        investors for $8,000,000 of financing in the form of notes payable (the "Senior
        Secured Debentures"). The Senior Secured Debentures bear interest at 6% and
        mature on June 30, 2007 (“Maturity Date”). The Senior Secured Debentures are
        convertible into shares of Oasys Mobile’s common stock at the option of the
        holder at a conversion price of $2.00 per share. The Senior Secured Debentures
        are also subject to automatic conversion if Oasys Mobile meets certain revenue
        or trading stock price milestones. The Senior Secured Debentures are secured
        by
        all of the assets of Oasys Mobile.
  At
        the
        closing of the Senior Secured Debentures ,
        the
        investors received certain
        A
        Warrants, B Warrants and C-1 Warrants. The A Warrants provide the right to
        purchase an aggregate of 2,000,000 units at an exercise price of $2.00 per
        unit,
        each unit consisting of one share of Oasys Mobile’s common stock and a warrant
        to purchase 4/10 of a share of Oasys Mobile’s common stock (the “C-2 Warrant”).
        The A Warrants are exercisable at any time until June 29, 2006. The B Warrants
        are exercisable at any time for a period of two years from the date of issuance
        for 1,355,392 shares of Oasys Mobile’s common stock and have an exercise price
        of $2.71 per share. The C-1 Warrants are exercisable at any time for a period
        of
        five years from the date of issuance for an additional 1,355,392 shares of
        Oasys
        Mobile’s common stock and have an exercise price of $3.54 per share. The C-2
        Warrants have substantially the same terms and conditions as the C-1 Warrants.
  *Other
        Matters*
  From
        inception through our 2005 fiscal year, our primary source of funding for
        our
        operations came from the issuance of shares of our common stock in private
        placements to investors. We believe that we have enough working capital to
        fund
        and sustain our business operations through 2006 and beyond. However, business
        opportunities, such as product or geographic expansion, or the acquisition
        of
        product lines or companies may present themselves. If we were to pursue these
        opportunities, they may require that we raise additional capital through
        the
        issuance of our equity securities or that we issue shares of our common stock
        or
        other equity securities in connection with acquisitions. If we have to raise
        additional funding, we cannot guarantee that we will be able to raise the
        necessary capital or that, if we do so, it will be on favorable terms. We
        may
        have to sell equity at below market rates, and any future sales of our capital
        stock to finance our business plan will dilute our existing stockholders'
        ownership.
  Oasys
        Mobile is actively promoting and expanding its product line and pursuing
        additional financing for capital to expand its operations.
   41
   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.   *Cash
        Flow Information*
  **Year
                  Ended****December 31****2005**
              **2004**Cash
                  used in operating activities
              
              $
              (3,153,749
              )
              
              $
              (3,145,203
              )Cash
                  used in investing activities
              
              $
              (76,190
              )
              
              $
              (45,570
              )Cash
                  provided by financing activities
              
              $
              10,809,309
              
              
              $
              2,407,916
  *Cash
        Flow used in Operating Activities.*Net
        cash
        used in operating activities was $3,153,749 in the year ended December 31,
        2005,
        compared to $3,145,203 in the prior year. The change 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
        offset by increases in several expense categories, primarily research and
        development, sales and marketing, and certain general and administrative
        expenses, such as salaries, travel, fees related to the Qualcomm Quick-Pay
        program, legal, investor relations, and general office administration costs.
   *Cash
        Flow used in Investing Activities.* Net
        cash
        used in investing activities was $76,190 and $45,570 in the years ended December
        31, 2005 and 2004, respectively, representing computer equipment purchases.
   *Cash
        Flow provided by Financing Activities.* Net
        cash
        provided by financing activities was $10,809,309 in the year ended December
        31,
        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 59,660 stock options
                of
                $4,333,788. ·
            principal
                payments on Senior Notes of ($1,640,000). ·
            principal
                payments on note payable obligations of
                ($99,479). ·
            proceeds
                from issuance of Senior Debentures of
                $8,000,000  Net
        cash
        provided by financing activities was $2,407,916 in the year ended December
        31,
        2004 and consisted of the following:
  ·
            proceeds
                from issuance of convertible notes payable and common stock of $1,000,000
                and issuance of Senior Notes of
                $1,425,000. ·
            the
                sale of 43,104 shares of the Company’s common stock for cash proceeds of
                $20,086. ·
            proceeds
                from the exercise of 24,127 stock options and 86,207 stock warrants
                of
                $104,892. ·
            principal
                payments on capital lease obligations of
                ($17,296). ·
            principal
                payments on note payable obligations of
                ($124,766). 
 **Significant
        Concentrations**
 
 For
        the
        year ended December 31, 2005, one customer accounted for 45% and 18% of our
        revenues and accounts receivable, respectively. This same customer accounted
        for
        52% and 32% of the our revenues and accounts receivable for the year ended
        December 31, 2004. Should this wireless carrier discontinue the deployment
        of
        the Company’s applications, our business would be adversely affected. In
        addition, a second customer accounted for 24% of our accounts receivable
        as of
        December 31, 2005. A different customer accounted for 12% of our accounts
        receivable as of December 31, 2004. There were no other customers with revenues
        or accounts receivable in excess of 10 percent of the respective
        balances.
 
  42
   **Contractual
        Obligations**
  At
        December 31, 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 December 31, 2005
        and
        the effect these obligations are expected to have on our liquidity and cash
        flows in future periods.
  **Operating**
              
              **Notes**
              
              **Purchase****Total**
              
              **Leases**
              
              **Payable**
              
              **Obligations**Year
                  ending December 31, 2006
              
              $
              450,898
              
              $
              205,398
              
              $
              77,500
              
              $
              168,000Year
                  ending December 31, 2007
              
              
              8,172,716
              
              
              4,716
              
              
              8,000,000
              
              
              168,000Year
                  ending December 31, 2008
              
              
              4,716
              
              
              4,716
              
              
              -
              
              
              -Year
                  ending December 31, 2009
              
              
              1,965
              
              
              1,965
              
              
              -
              
              
              -Total
                  contractual obligations
              
              $
              8,630,295
              
              $
              216,795
              
              $
              8,077,500
              
              $
              336,000
 
 **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
        interim or annual period beginning after June 15, 2005. In April 2005, the
        SEC
        delayed implementation of SFAS No. 123(R) until the next fiscal year beginning
        after June 15, 2005. Under SFAS No. 123(R), pro forma disclosure will no
        longer
        be an alternative method for reporting stock-based compensation. SFAS No.
        123(R)
        permits public companies to adopt its requirements using one of two
        methods:
 
 1.
            A
                “modified prospective” method in which compensation cost is recognized
                beginning with the effective date (a) based on the requirements of
                SFAS
                No. 123(R) for all share-based payments granted after the effective
                date
                and (b) based on the requirements of SFAS No. 123 for all awards
                granted
                to employees prior to the effective date of SFAS No. 123(R) that
                remain
                unvested on the effective date; or 
 2.
            A
                “modified retrospective” method which includes the requirements of the
                modified prospective method described above, but also permits entities
                to
                restate either (a) all prior periods presented or (b) prior interim
                periods of the year of adoption for all amounts previously presented
                in
                pro forma disclosures under SFAS No. 123. 
 We
        currently intend to use the modified prospective method and the Black-Scholes
        model for estimating the fair value of share-based payments. The adoption
        of the
        SFAS No. 123(R) fair value method will have a significant impact on our results
        of operations, although it will have no impact on financial position. The
        SFAS
        123 disclosure of pro forma net income (loss) and earnings (loss) per share
        in
        Note 2 to our financial statements is not necessarily indicative of the impact
        on the Company’s results of operations for share-based payments under SFAS No.
        123 (R) in future periods. The impact of adoption of SFAS No. 123(R) will
        depend
        on the number of options granted, the value of the option awards and other
        factors.
 
 In
        May
        2005, the FASB issued SFAS No. 154, “ *Accounting
        Changes and Error Corrections”* (“SFAS
        No. 154”), a replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154
        requires retrospective application to prior periods’ financial statements of a
        voluntary change in accounting principles unless it is impracticable. APB
        Opinion No. 20, “ *Accounting
        Changes”* ,
        previously required that most voluntary changes in accounting principle be
        recognized by including in net income of the period of the change the cumulative
        effect of changing to the new accounting principle. This statement is effective
        beginning on January 1, 2006. We do not believe the adoption of SFAS No.
        154
        will have a material impact on our financial statements.
 
 **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.
  43
  *Revenue
        Recognition and Related Costs*
 
 Wireless
        applications and contracts
 
 Revenues
        earned from wireless applications are recognized upon delivery and acceptance
        by
        the end-user either as a one-time purchase or a monthly subscription. For
        content delivery partner arrangements, whereby Oasys Mobile remits a portion
        of
        the revenues earned through the sale of our applications, revenue is recorded
        on
        a gross basis in accordance with EITF 99-19. Oasys Mobile recognizes the
        cost of
        payments to the content providers as a cost of revenues. Wireless applications
        and contracts cost of revenues includes all third-party hosting, testing
        and/or
        carrier distribution fees. These costs are incurred on a monthly basis and
        are
        primarily fixed in nature regardless of the revenue generated by the related
        applications.
 
 Periodically,
        we enter into non-recurring engineering arrangements with our content partners.
        Generally, under the terms of these agreements, we receive funding upfront
        to
        complete projects. The funding we receive upfront is recorded as deferred
        revenue and is recognized as revenue under the terms of the individual
        arrangements. Deferred revenue represents amounts received for which we have
        not
        yet completed our contractual obligations.
 
 Wireless
        License Fees
 
 We
        recognize revenue from licensee fees for wireless software applications in
        accordance with the provisions of AICPA Statement of Position 97-2, “Software
        Revenue Recognition”, as amended by AICPA Statement of Position 98-9
“Modification of SOP No. 97-2 Software Revenue Recognition with Respect to
        Certain Transactions.” Revenue from software license fees is generally
        recognized upon delivery provided that a contract has been executed, the
        vendor
        fee is fixed or determinable, no significant vendor obligations or uncertainties
        surrounding customer acceptance remain, and collection of the resulting
        receivable is deemed probable.
 
 There
        were no costs related to the wireless license fee revenue generated during
        the
        years ended December 31, 2005, 2004 and 2003 as the license fee revenue related
        to technology that had been previously developed by us, and there were no
        costs
        for installation, delivery or customization, or other related
        costs.
 
 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.
 
 *Valuation
        of Equity Instruments*
 
 We
        have
        utilized our equity securities, including unregistered common stock and
        options/warrants to purchase unregistered common stock, to pay for services
        and
        to settle obligations owed to or claimed by creditors. The issuance of equity
        instruments as payment for services rendered to Oasys Mobile 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.
 
 
 
  44
  
 **ITEM
                7A.**
              **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
                8.**
              **FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY
                  DATA.**
 
 The
        financial statements and supplementary data filed with this report are set
        forth
        in the “Index to Financial Statements and Schedules” following Part IV of this
        annual report.
 
 **ITEM
                9.**
              **CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON **ACCOUNTING
                  AND FINANCIAL
                  DISCLOSURE.****
 
 Not
        Applicable.
 
 **ITEM
                9A.**
              **CONTROLS
                  AND PROCEDURES.**
 
 Under
        the
        supervision and with the participation of our management, including our
        principal executive officer and principal financial officer, we conducted
        an
        evaluation of the effectiveness of the design and operation of our disclosure
        controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
        the
        Securities Exchange Act of 1934, as of the end of the period covered by this
        report (the “Evaluation Date”). Based upon this evaluation, our principal
        executive officer and principal financial officer concluded as of the Evaluation
        Date that our disclosure controls and procedures were effective such that
        the
        material information required to the included in our Securities and Exchange
        Commission (“SEC”) reports is recorded, processed, summarized and reported
        within the time periods specified in SEC rules and forms relating to Oasys
        Mobile and was made known to them by others within those entities, particularly
        during the period when this report was being prepared.
 
 In
        addition, there were no significant changes in our internal controls or in
        other
        factors that could significantly affect these controls subsequent to the
        Evaluation Date. We have not identified any significant deficiencies or material
        weaknesses in our internal controls, and therefore there were no corrective
        actions taken.
 
 **ITEM
                9B.**
              **OTHER
                  INFORMATION.**
 
 On
        March
        14, 2006, our agreement with Sports Illustrated for the distribution of the
        Sports Illustrated Swimsuit content expired in accordance with its terms.
 
  45
  **PART
        III**
 
 **ITEM
                10.**
              **DIRECTORS
                  AND EXECUTIVE OFFICERS OF THE
                  REGISTRANT**
 
 **Business
        Experience of Directors and Executive Officers**
 
 **Gary
        E. Ban** ,
        age 42,
        joined Oasys Mobile as its Chief Operating Officer in February 2001 and was
        elected as Oasys Mobile’s Chief Executive Officer on February 17, 2004. Mr. Ban
        was also appointed as a Director of Oasys Mobile in September 2004. In his
        past
        role as Chief Operating Officer of Oasys Mobile, Mr. Ban had supervisory
        responsibility over operations, information technology and human resources.
        Prior to joining Oasys Mobile in September 1999, Mr. Ban held a variety of
        executive-level management positions establishing direction and operational
        implementation for business, financial and engineering systems integration.
        From
        November 1996 through August 1999, Mr. Ban served as Director of Customer
        Integration for ABB Power T&D Inc.'s electricity metering group, where he
        was responsible for global systems integration for large-scale information
        management solutions. Mr. Ban holds an M.B.A. from Duke University and a
        bachelor's degree in industrial management and an associate applied science
        degree in computer engineering from the Milwaukee School of
        Engineering.
 
 **Stephen
        M. Finn** ,
        age 56,
        was appointed to our Board of Directors in February 2004. Mr. Finn currently
        serves as president of Solstice, a media production and technology consulting
        firm. He began a career as an award-winning professional photographer, extending
        his skills to the worlds of computer graphics and video production as these
        technologies evolved. Based on this experience, Mr. Finn founded Solstice
        in
        1978 specializing in corporate theater, sales and marketing development,
        product
        introduction and branding. Solstice also focuses on translating technology
        advances into strategic product concepts.
 
 **Andrew
        L. Fox** ,
        age 42,
        has been Oasys Mobile’s Executive Vice President - Sales and Business
        Development since February 2004. Prior to that, Mr. Fox served as our
        Vice-President - Sales and Business Development since February 2001. Mr.
        Fox is
        responsible for sales, business development and content acquisition activity
        for
        Oasys Mobile. Before joining Oasys Mobile, Mr. Fox was marketing director
        at
        RealNetworks, a provider of software products and services for Internet media
        delivery. At RealNetworks, he was part of the initial RealAudio and RealVideo
        launch teams, and also started and ran RealNetworks Enterprise Group. He
        has
        also served as a Sales and Marketing Manager for IBM's Wireless Data Division
        and a Product Manager at IBM's Networking Hardware Division. Mr. Fox holds
        a
        master of business administration degree and an undergraduate degree in computer
        science and electrical engineering from Duke University.
 
 **J.
        Winder Hughes,** age
        47,
        was appointed to our Board of Directors in December 2003. Mr. Hughes is the
        founder of Hughes Capital Investors L.L.C., an investment group that he formed
        in 1995. He established the investor partnership, The Focus Fund L.P., in
        1999,
        for which he serves as the managing general partner. Mr. Hughes, who received
        his Bachelor of Arts degree in economics from the University of North Carolina
        in 1980, brings more than 20 years of investment community experience to
        the
        Oasys Mobile board.
 
 **Scott
        W. Hamilton** ,
        age
        48, **** was
        appointed to our Board of Directors in April 2004. Mr. Hamilton has over
        twenty
        years of marketing and business development experience in new and emerging
        markets. In June 2002 Mr. Hamilton founded HB Associates, an international
        strategic outsourcing firm. From 1999 to 2002 he led the restart of Framework
        Technologies, a provider of Collaborative Product Development Software, to
        9th
        place among the "New England Technology Fast 50" growing companies. Prior
        to
        1999 Mr. Hamilton held senior marketing positions with the consumer divisions
        of
        Waddington plc, Nice-Pak Products and PepsiCo.
 
 **Donald
        T. Locke** ,
        age
        47, **** joined
        Oasys Mobile as a consultant in October 2001 and served as its General Counsel.
        In March 2004, he was appointed as Oasys Mobile’s Chief Financial Officer. Prior
        to Oasys Mobile, Mr. Locke was Of Counsel to Kilpatrick Stockton LLP, a large
        southeastern law firm, where his practice focused on Securities and Exchange
        Commission issues, public company finance and merger and acquisition issues.
        Mr.
        Locke received his bachelor’s degree from Furman University in 1980 and his
        M.B.A and Law degrees from the University of South Carolina in 1986 and 1987,
        respectively.
 
 **Richard
        B. Ruben** ,
        age 51,
        was appointed to our Board of Directors in December 2005. Mr. Ruben brings
        to
        the Board over 20 years of experience helping companies in the communications,
        technology, wireless and entertainment industries grow strategically. Mr.
        Ruben
        served most recently as CEO of Wire One Communications, Inc. and had been
        with
        that company and its predecessor company V-SPAN, Inc. in a variety of positions
        from 1999 through April of 2005. Prior to that time Mr. Ruben's experience
        included roles as President of Comcast-Spectacor, Inc. and Spectacor, Inc.
        from
        1994-97 and a variety of positions at Bell Atlantic Corporation from 1986-94
        including Vice President of Planning and CFO of Bell Atlantic Mobile from
        1990-94. Mr. Ruben holds a law degree and an MBA from Santa Clara University
        and
        an economics degree from Fairleigh Dickinson University.
 
  46
  **Bernard
        Stolar** ,
        age 59,
        was appointed to our Board of Directors in January 2006, Mr. Stolar, noted
        for
        his expertise in both identifying and developing market-driving content and
        forging successful business partnerships, brings to the board over twenty
        years
        of senior-level experience within the interactive entertainment industry
        in all
        phases of company operations, including sales and marketing, product
        development, licensing, distribution, strategic planning and management.
        Mr.
        Stolar has served in high profile leadership roles at publicly and privately
        held interactive entertainment companies. Most recently he was president
        and
        chief operating office of BAM! Entertainment, where he transformed the company
        from a hand-held content company to a developer and marketer of interactive
        entertainment for next generation video game consoles. In 2000, Mr. Stolar
        joined Mattel, Inc. as president of Mattel Interactive, where he was responsible
        for directing and reorganizing the $1 billion Mattel Interactive division.
        From
        1996 to 1999, Mr. Stolar served as president and chief operating officer
        of Sega
        of America, Inc. where he helped increase sales from $200 million to over
        $1
        billion in three years, and orchestrated the launch of the Sega Dreamcast(TM),
        the fastest selling video game console in US history at that time. Mr. Stolar
        also served as executive vice president of Sony Computer Entertainment of
        America, where he was a key leader of the Sony Playstation® launch team,
        directing all third-party publishing in the U.S. Prior to that, Mr. Stolar
        served as president of Atari America's game division.
  **James
        A. Taylor** ,
        age 60,
        was appointed to our Board of Directors in June 2005. Mr. Taylor currently
        serves as president of Portola Packaging, a leading designer, manufacturer
        and
        marketer of tamper-evident plastic closures for a variety of industries,
        where
        he oversees worldwide operations. Since joining Portola Packaging, Mr. Taylor
        has helped increase revenues by more than $75 million to over $240 million
        through organic growth and product line acquisitions. Mr. Taylor also served
        as
        chief financial officer of Portola Packaging from 1998 to 1999, where he
        reorganized the finance department and streamlined global operations. From
        1996
        to 1998, Mr. Taylor served as vice president of finance and treasurer of
        Seagate
        Technology, Inc., the world's largest manufacturer and seller of disk and
        tape
        drives.
  **Agreements
        for Nomination of Director**
  J.
        Winder
        Hughes and Stephen M. Finn were nominated to the Board of Directors pursuant
        to
        a letter agreement dated as of September 26, 2003, by and between Oasys Mobile
        and Hughes Capital Investors, LLC, of which Mr. Hughes is the principal.
        In the
        letter agreement, Oasys Mobile agreed to nominate two directors selected
        by
        Hughes Capital. Pursuant to this agreement, Mr. Hughes and Mr. Finn were
        submitted to the stockholders of Oasys Mobile at its January 30, 2006 special
        shareholders meeting. In addition, Richard B. Ruben was nominated at the
        January
        30, 2006 stockholders meeting pursuant to an agreement entered into by Oasys
        Mobile with LAP Summus Holdings, LLC dated as of November 18, 2005. In this
        agreement, Oasys Mobile agreed it would cause a person designated by LAP
        Holdings to be elected to and thereafter remain on our Board of Directors
        for
        such period of time as LAP Holdings owns any of Oasys Mobile’s 6% Senior Secured
        Convertible Debentures or owns or has the right to acquire at least 10% of
        the
        shares to which LAP Holdings has the right to acquire under the warrants
        issued
        to them in connection with the 6% Senior Secured Convertible Debentures.
        Under
        this Agreement, Mr. Ruben shall also be nominated to any executive or comparable
        committee of the board, and any other committee that the board determines
        in its
        judgment.
  **Family
        Relationships**
  There
        are
        no family relationships among directors or executive officers of Oasys Mobile
        and, except as disclosed herein, no directorships are held by any director
        in a
        company which has a class of securities registered pursuant to Section 12
        of the Exchange Act or subject to the requirements of Section 15(d) of the
        Exchange Act or any company registered as an investment company under the
        Investment Company Act of 1940.
  **Audit
        Committee; Audit Committee Financial Experts**
  Oasys
        Mobile has a separately designated Audit Committee which is composed of two
        members, James A. Taylor and Richard B. Ruben. Each of Messrs. Taylor and
        Ruben,
        qualifies as an “Audit Committee Financial Expert”, as such term is defined in
        the rules and regulations of the Securities and Exchange Commission.
 
 Under
        the
        rules of the Securities and Exchange Commission, we are required to disclose
        whether the members of our Audit Committee are independent using the definition
        of “independent director” of a national securities exchange selected by us and
        approved by the Commission (even though the Company is not listed on such
        exchange). Oasys Mobile has chosen to use the definition used by The NASDAQ
        Stock Market, Rule 4200(a)(15) as set forth in the Marketplace Rules of the
        NASD
        Manual. Under this rule, only Mr. Taylor would be considered an independent
        director of the Audit Committee.
 
 On
        February 17, 2003, our Board adopted a written charter for the Audit Committee,
        which is available on our website at *www.oasysmobileinc.com.*
 
  47
  **Advisory
        Board Members**
 
 Our
        Board
        of Directors has an advisory board. The current member of the advisory board
        is
        Bob Bruggeworth, who is the Chief Executive Officer of RF Micro Devices,
        Inc.
        Members of the advisory board are appointed through resolution of the Board
        and
        consult and advise the Board as to industry and business matters. At the
        request
        of the Board, members of the advisory board may attend Board meetings and
        participate in such meetings, but they have no vote. Members of the advisory
        board will not be deemed to be directors of Oasys Mobile and will not be
        subject
        to any fiduciary or similar duties to Oasys Mobile solely by virtue of
        membership on the advisory board. Each member of the advisory board is required
        to execute a confidentiality and non-disclosure agreement with Oasys Mobile
        and
        will be considered an “insider” of Oasys Mobile, subject to our insider trading
        policies.
 
 **Compensation
        of Directors**
 
 Non-employee
        directors receive $2,000 for each regularly scheduled board meeting attended
        in
        person, $1,000 for each regularly scheduled board meeting attended by telephone
        and $250 for each special board meeting attended by telephone. The non-employee
        members of the Compensation Committee and the Nominating and Corporate
        Governance Committee receive an annual grant of options to purchase 2,500
        shares
        of the Company’s common stock, which are vested upon the date of grant, and the
        members of the Audit Committee receive options to purchase 5,000 shares of
        the
        Company’s common stock, which are vested quarterly from their date of grant.
        Non-employee directors also receive an initial grant of options to purchase
        36,000 shares of Oasys Mobile common stock upon their initial appointment
        or
        election to the Board of Directors, which vest quarterly over the one-year
        period from the date of grant, and a yearly grant of 24,000 restricted shares
        of
        the Company’s common stock, whose restrictions lapse one-year from their date of
        grant. All options granted to the non-employee directors are granted at an
        exercise price equal to the fair market value at the time of grant. All options
        issued to non-employee directors are exercisable for a period of ten years
        from
        their date of grant. We reimburse all of our directors for costs associated
        with
        attending board and committee meetings. The Board can change the compensation
        of
        the directors at any time.
 
 **Compliance
        with Section 16(a) of the Exchange Act**
 
 Section 16(a)
        of the Exchange Act and the SEC's rules thereunder require our directors,
        executive officers and persons who own more than 10% of our Common Stock
        to file
        reports of ownership and changes in ownership of our Common Stock with the
        SEC
        and to furnish to us copies of all reports they file. The SEC has established
        specific due dates for these reports and requires the Company to report in
        this
        Proxy Statement any failure by these persons to file or failure to file on
        a
        timely basis.
 
 To
        our knowledge, based solely on a review of the copies of such reports received
        or written representations from the reporting persons, we believe that, during
        our 2005 fiscal year, our directors, executive officers and persons who own
        more
        than 10% of our Common Stock complied with all Section 16(a) filing
        requirements.
 
 **Code
        of Ethics**
 
 We
        have
        adopted a Code of Ethics within the meaning of Item 405(b) of Regulation
        S-K of
        the Securities Exchange Act of 1934. This Code of Ethics applies to all
        Directors, officers and employees of Oasys Mobile. A copy of our Code of
        Ethics
        is publicly available on our website at www.oasysmobileinc.com .
 
 
 
 
  48
  **ITEM
        11.** **EXECUTIVE
        COMPENSATION**
 
 
 The
        following table provides certain summary information concerning the compensation
        paid during the fiscal years ended 2005, 2004, and 2003 to (i) the Chief
        Executive Officer and (ii) to each of the two other most highly compensated
        executive officers of Oasys
        Mobile (based on salary and bonus received during the last fiscal year) who
        were
        serving as executive officers of Oasys Mobile at the end of the fiscal year
        ended December 31, 2005, and whose aggregate compensation exceeded $100,000
        (the
“Named Executive Officers”).
 
 **Summary
                  Compensation Table****(1)****Annual**
                  **Compensation**
                **Long-Term**
                  **Compensation
                    Awards****Name
                    and**
                  **Principal
                    Position**
                **Fiscal**
                  **Year**
                **Salary
                    ($)**
                **Securities**
                  **Underlying**
                  **Options
                    (#)****(2)
                    (3)**
                **All
                    Other**
                  **Compensation
                    ($)**Gary
                    E. Ban
                2005
                $176,458
                275,000
                --Chief
                    Executive
                2004
                $214,000**(4)**
                126,919**(6)**
                $24,005**(7)**Officer
                2003
                $171,237**(5)**
                11,632**(6)**
                $1,650Donald
                    T. Locke
                2005
                $145,200
                225,000
                --Chief
                    Financial
                2004
                $192,000**(8)**
                100,000
                $24,000**(10)**Officer**(13)**
                2003
                $125,911**(9)**
                --
                $200,000**(11)**Andrew
                    L. Fox
                2005
                $149,071
                200,000
                --Executive
                    Vice-
                2004
                $171,064**(12)**
                100,000
                --President
                    - Business
                2003
                $127,481**(12)**
                --
                --Development
 
 
 (1)
              The
                  aggregate amount of perquisites and other personal benefits did
                  not exceed
                  the lesser of $50,000 or 10% of the total amount of salary and
                  bonus for
                  any year for any of the Named Executive Officers and has therefore
                  been
                  omitted.(2)
              The
                  options granted are without tandem stock appreciation rights, and
                  we did
                  not grant any stock appreciation rights to any of the Named Executive
                  Officers.(3)
              All
                  numbers related to stock options have been adjusted retroactively
                  to give
                  effect to Oasys Mobile’s one (1) for ten (10) reverse stock split which
                  was effective as of March 11, 2005.(4)
              $39,000
                  of the total amount of cash salary compensation paid to Mr. Ban
                  in 2004
                  was for a bonus amount owed to Mr. Ban since February 16, 2001,
                  pursuant
                  to his original employment agreement with Oasys Mobile.(5)
              $39,000
                  of the total amount of cash salary compensation paid to Mr. Ban
                  in 2003
                  was for a bonus amount owed to Mr. Ban since February 16, 2001,
                  pursuant
                  to his original employment agreement with Oasys Mobile.(6)
              1,919,
                  and 11,632 of these options received by Mr. Ban in 2004 and 2003,
                  respectively, were granted pursuant to the Oasys Mobile’s Alternative
                  Compensation Plan in lieu of cash compensation owed to
                  him.(7)
              Mr.
                  Ban was issued a total of 18,466 shares of Oasys Mobile common
                  stock,
                  valued at $1.30 per share for $24,005 owed to him. $13,000 of this
                  amount
                  was for a bonus amount owed to Mr. Ban since February 16, 2001,
                  pursuant
                  to his original employment agreement with Oasys Mobile, and $11,005
                  was
                  for back salary owed to Mr.
                  Ban.
  49
  
 (8)
              $78,000
                  of this amount was for cash compensation paid to Mr. Locke in
                  2004 for amounts owed to him for his consulting services from
                  2002.(9)
              All
                  amounts paid to Mr. Locke in 2003 was paid to him as a consultant
                  to Oasys
                  Mobile.(10)
              Mr.
                  Locke was issued a total of 18,462 shares of Oasys Mobile common
                  stock,
                  valued at $1.30 per share for $24,000 owed to him from consulting
                  services
                  provided to Oasys Mobile in 2002.(11)
              Mr.
                  Locke converted $200,000 owed to him for services rendered to Oasys
                  Mobile
                  as a consultant from October 2001 until December 2002 into warrants
                  to
                  purchase 33,334 shares of Oasys Mobile common stock with an exercise
                  price
                  of $6.00 per share.(12)
              $29,071,
                  $51,064 and $7,481 of the total amount of cash salary compensation
                  paid to
                  Mr. Fox in 2004 and 2003, respectively, were for commissions earned
                  by him
                  in those years.(13)
              Mr.
                  Locke was appointed as Oasys Mobile’s Chief Financial Officer on March 26,
                  2004. Prior to this date, Mr. Locke was a consultant serving as
                  Oasys
                  Mobile’s General Counsel since October 2001.
 
 **Stock
        Option Grants**
 
 The
        following table sets forth information concerning options to purchase shares
        of
        common stock granted during the fiscal year ended December 31, 2005, to the
        Named Executive Officers.
 
 **Name**
              
              **Number
                  of**
                **Securities**
                **Underlying**
                **Options**
                **Granted
                  (#)****(1)**
              
              **Percent
                  of**
                **Total**
                **Options**
                **Granted
                  To**
                **Employees
                  In**
                **Fiscal
                  Year**
              
              **Exercise**
                **Or
                  Base**
                **Price**
                **($/Sh)**
              
              **Expiration**
                **Date**
              
              **Grant
                  Date**
                **Present
                  Value ($)****(2)**Gary
                  E. Ban
              
              
              275,000
              
              
              33.1
              %
              $
              3.26
              
              
              6/21/15
              
              $
              775,500Donald
                  T. Locke
              
              
              225,000
              
              
              27.1
              %
              $
              3.26
              
              
              6/21/15
              
              $
              634,500Andrew
                  L. Fox
              
              
              200,000
              
              
              24.1
              %
              $
              3.26
              
              
              6/21/15
              
              $
              564,000
 
 _________________
 (1)
              All
                  of these options are subject to the terms of Oasys Mobile’s Third Amended
                  and Restated Equity Compensation Plan. All of these options were
                  vested at
                  the rate of one-thirty sixth (1/36) of the amount of the grant
                  per month
                  from the grant date of June 21, 2005. All options were granted
                  at an
                  exercise price equal to the fair market value of Oasys Mobile’s common
                  stock on the date of grant.(2)
              The
                  values in this column have been prepared using the Black-Scholes
                  model.
                  The calculations made pursuant to this model assume (a) volatility
                  of
                  1.2936, (b) a risk-free rate of return of 3.84%, (c) a dividend
                  yield of
                  0%, and (d) an expected option life of five
                  years.
 
 
 **Aggregated
        Option Exercises and Fiscal Year-End Option Values**
 
 The
        following table sets forth information concerning the number and intrinsic
        value
        of stock options held by the Named Executive Officers on December 30, 2005.
        Year-end values are based on the fair market value of $2.35 per share as
        of
        December 30, 2005, as reported on the OTC Bulletin Board System. They do
        not
        reflect the actual amounts, if any, which may be realized upon the future
        exercise of remaining stock options and should not be considered indicative
        of
        future stock performance. No Named Executive Officer exercised any options
        during the 2005 fiscal year.
 
  50
  
 **Name**
              **Number
                  of Securities**
                **Underlying**
                **Unexercised
                  Options**
                **at
                  Fiscal Year-End (#)**
              **Value
                  of Unexercised**
                **In-the-Money**
                **Options
                  at Fiscal Year-End ($)****Exercisable**
              **Unexercisable**
              **Exercisable**
              **Unexercisable**Gary
                  E. Ban
              237,316
              224,611
              $73,512
              $48,181Donald
                  T. Locke
              148,928
              182,889
              $58,056
              $36,944Andrew
                  L. Fox
              174,596
              166,889
              $58,056
              $36,944
  **Equity
        Compensation Plan Information**
 
 The
        Third Amended and Restated 2000 Equity Compensation Plan was created in 2000
        for
        the purpose of granting incentive or non-qualified stock options to employees,
        contractors, or directors of Oasys Mobile. A total of 200,000 shares were
        initially authorized under the plan. Subsequently, the Board has amended
        the
        plan to increase the authorized shares currently to 3,000,000 shares. Options
        granted under this plan were priced either at the fair market value of our
        common stock on the date of grant or at prices below the fair market value
        of
        our common stock and have a life of ten (10) years from their date of grant,
        subject to earlier termination as set forth in such plan. As of December
        31,
        2005, this plan is still in effect. There are no equity compensation plans
        approved by stockholders at the present time.
  
 **Equity
                  Compensation Plans**
                **Not
                  Approved by the**
                **Stockholders**
              **Number
                  of Securities**
                **to
                  be Issued Upon the**
                **Exercise
                  of**
                **Outstanding
                  Options**
              **Weighted
                  Average**
                **Exercise
                  Price of**
                **Outstanding
                  -**
                **Options**
              **Number
                  of Securities**
                **Remaining
                  Available for**
                **Future
                  Issuance under**
                **Equity
                  Compensation**
                **Plans****(2)**(a)
              (b)
              (c)Third
                  Amended and Restated
                2000
                  Equity Compensation Plan**(1)**
              1,836,215
              $6.68
              1,000,479
 __________________
 (1)
              The
                  Third Amended and Restated 2000 Equity Compensation Plan was originally
                  approved by stockholders and authorized 200,000 shares for issuance.
                  The
                  plan was subsequently amended by the Board to increase the authorized
                  number of shares to 3,000,000 and is therefore classified as a
                  plan not
                  approved by our stockholders.(2)
              This
                  column excludes securities reflected in column
                  (a).
  **Stock
        Option Plan**
 
 The
        following summary description of our Third Amended and Restated 2000 Equity
        Compensation Plan (the “Plan”) is not intended to be complete and is qualified
        by reference to the copy of the Plan, filed as Exhibit 10.5 to Oasys Mobile’s
        Annual Report on Form 10-K for the fiscal year ended December 31,
        2005.
 
 The
        Plan,
        as adopted by the stockholders on January 27, 2000, and subsequently amended
        by
        the Board of Directors, is intended to provide incentives:
 
 ·
            to
                the officers and other employees of Oasys Mobile and its subsidiaries
                by
                providing them with opportunities to purchase shares of common stock
                in
                Oasys Mobile pursuant to options granted under the Plan which qualify
                as
                “incentive stock options” (“ISOs”) under Section 422(b) of the Internal
                Revenue Code of 1986, as amended (the
“Code”); 
 ·
            to
                directors, officers, employees and consultants of Oasys Mobile and
                its
                subsidiaries by providing them with opportunities to purchase shares
                of
                common stock in Oasys Mobile pursuant to options granted under the
                Plan
                which do not qualify as ISOs (“non-qualified options”) (ISOs and
                non-qualified options being collectively referred to as “options”);
                and 
 ·
            to
                directors, officers, employees and consultants of Oasys Mobile, and
                its
                subsidiaries by providing them with stock appreciation rights, awards
                of
                restricted stock or deferred stock, stock awards, performance shares
                or
                other stock-based awards.  51
  
 The
        Compensation Committee (the “Committee”), consisting of two or more members of
        the Board of Directors, administers the Plan. The Committee has the exclusive
        right to interpret, construe and administer the Plan, to determine the
        individuals associated with Oasys Mobile and its subsidiaries from among
        the
        class of individuals eligible to whom options, awards and authorizations
        to make
        purchases may be granted in accordance with the terms of the Plan, and to
        determine the number, form, terms, conditions and duration of any such
        grant.
 
 *ISOs.* ISOs
        may
        be granted at any time through the tenth anniversary of the effective date
        of
        the Plan (which was January 31, 2000). The ISO exercise price is to be no
        less than 100% of the “Fair Market Value” (as defined in the Plan) of the common
        stock on the grant date. No ISO may be granted to an individual owning more
        than
        10% of the total combined voting power of all classes of stock issued by
        Oasys
        Mobile unless the purchase price of the underlying shares of common stock
        is at
        least 110% of the Fair Market Value of the shares issuable on exercise of
        the
        ISO determined as of the date the ISO is granted. ISOs granted under the
        Plan
        may have maximum terms of not more than ten years (five years in the case
        of an
        individual that owns more than 10% of the total combined voting power of
        all
        classes of Oasys Mobile stock) or such shorter period as the Committee specifies
        in an individual award. Generally, ISOs granted under the Plan may remain
        outstanding and may be exercised at any time up to three months after the
        person
        to whom such ISO was granted is no longer employed. ISOs granted under the
        Plan
        are subject to the restriction that the aggregate Fair Market Value (determined
        as of the date of grant) of ISOs, which first become exercisable in any calendar
        year, cannot exceed $100,000.
 
 *Stock
        Appreciation Rights.* Stock
        appreciation rights may be granted to eligible participants in tandem with
        an
        ISO or non-qualified option or may be granted independent of any related
        option.
        A tandem stock appreciation right entitles the holder of the option, within
        the
        period specified for exercise of such option, to surrender the unexercised
        option or a portion thereof and receive in exchange a payment in cash or
        shares
        of common stock having an aggregate value equal to the amount by which the
        Fair
        Market Value of each share of common stock underlying the option (or portion
        thereof) surrender exceeds the per share option exercise price, multiplied
        by
        the number of underlying shares of common stock surrendered. Each tandem
        stock
        appreciation right is subject to the same terms and conditions as the related
        option.
 
 With
        respect to non-tandem stock appreciation rights, the Committee is to specify
        the
        number of shares of common stock covered by such right and the base price
        of a
        share of common stock (the “Base Price”), which is to be no less than 100% of
        the Fair Market Value of a share of common stock on the date of grant. Upon
        exercise of a non-tandem stock appreciation right, the participant is entitled
        to receive from Oasys Mobile cash and/or common stock having an aggregate
        Fair
        Market Value equal to (i) the excess of (A) the Fair Market Value of one
        share
        of common stock at the time of exercise, over (B) the Base Price, multiplied
        by
        (ii) the number of shares of common stock covered by the non-tandem stock
        appreciation right. The Committee has the sole discretion to determine in
        each
        case whether the payment is to be made in the form of cash or shares of common
        stock.
 
 Options
        and stock appreciation rights granted under the Plan are generally not
        transferable, except by will or the laws of descent and distribution, or
        under
        the terms of a qualified domestic relations order as defined by the Code
        or
        ERISA; however, non-qualified options (including a related tandem stock
        appreciation right) may be transferred to the extent determined by the Committee
        to be consistent with securities and other applicable laws and with our
        policy.
 
 *Restricted
        Stock.* The
        Committee may make restricted stock awards to participants in the Plan as
        an
        incentive for the performance of future services that will contribute materially
        to the successful operation of Oasys Mobile. Awards of restricted stock may
        be
        made alone or in addition to or in tandem with other awards made under the
        Plan.
        The Committee is to determine the purchase price, if any, to be paid for
        the
        restricted stock, the length of the restriction period, the nature of the
        restrictions (e.g., in terms of the participant’s service or performance),
        whether the restrictions are to lapse at the end of the restriction period
        as to
        any or all of the shares covered by the award, and whether dividends and
        other
        distributions on the restricted stock are to be paid currently to the
        participant or to Oasys Mobile for the account of the participant.
 
 *Deferred
        Stock.* The
        Committee may make deferred stock awards, together with cash dividend
        equivalents, to participants in the Plan, conditioned upon the attainment
        of
        specified performance goals or other factors or criteria as the Committee
        determines. Deferred stock awards may not be sold, transferred, pledged,
        assigned or encumbered during the deferral period, as specified by the
        Committee. At the expiration of the deferral period, share certificates are
        to
        be delivered to the participant in a number equal to the shares of common
        stock
        covered by the award. Upon termination of employment during the deferral
        period,
        the participant shall forfeit the deferred stock; however, the Committee
        may
        accelerate the vesting of the award in the event of termination of employment
        due to death, disability or retirement, or in the event of hardship or other
        special circumstances.
 
  52
  *Stock
        Awards.* Stock
        awards are to be granted only in payment of compensation that has been earned
        or
        as compensation to be earned. All shares of common stock subject to a stock
        award are to be valued at no less than 100% of the Fair Market Value of such
        shares on the date of the stock award’s grant. Shares of common stock subject to
        a stock award may be issued or transferred to the participant at the time
        of
        grant or at a subsequent time, or in installments, as the Committee determines.
        A stock award will be subject to the terms and conditions the Committee
        determines; however, upon issuance of the shares, the participant shall be
        entitled to receive dividends, exercise voting rights and exercise all other
        rights of a stockholder except as otherwise provided in the stock
        award.
 
 *Performance
        Shares.* Performance
        shares may be awarded to participants as an incentive for the performance
        of
        future services to Oasys Mobile. Awards of performance shares may be made
        either
        alone or in addition to or in tandem with other awards granted under the
        Plan.
        The Committee is to determine and designate those participants to whom
        performance shares are to be awarded, the performance period and/or performance
        objectives (e.g., minimum earnings per share or return on equity), and any
        adjustments to be made to such objectives, applicable to such awards, the
        form
        of settlement of performance shares, and the other terms and conditions of
        such
        awards.
 
 *Other
        Stock-Based Awards.* The
        Committee may grant other awards that are valued in whole or in part by
        reference to, or are based on, the common stock, including convertible preferred
        stock, convertible debentures, exchangeable securities, phantom stock and
        stock
        awards or options valued by reference to book value or performance.
 
 *Administration.* The
        Plan
        provides that the Committee may make equitable adjustments in the aggregate
        number of shares of common stock that may be awarded under the Plan, the
        number
        of shares and class of stock that may be subject to an award, the purchase
        price
        to be paid per share under outstanding options, and the terms, conditions
        or
        restrictions of any award in the event of any reorganization, recapitalization,
        reclassification, stock split, stock dividend, merger or consolidation or
        separation, including a spin-off, of Oasys Mobile, the sale or other disposition
        of all or a portion of its assets and certain other transactions involving
        Oasys
        Mobile; however, the Plan requires that all such adjustments shall be made
        such
        that ISOs granted under the Plan shall continue to constitute ISOs within
        the
        meaning of Section 422 of the Code.
 
 Authorized
        but unissued shares of common stock of Oasys Mobile, shares of common stock
        that
        are not delivered or purchased under the Plan, and shares reacquired by Oasys
        Mobile, for reasons including a forfeiture, termination of employment,
        expiration or cancellation of an option, can be issued under the Plan. As
        of
        April 21, 2005, the Board adopted resolutions to amend the Plan to increase
        the
        number of shares reserved for grant under the Plan to 3,000,000. As of December
        31, 2005, we have issued 1,836,215 options to purchase shares of
        common stock, of which 1,060,126 of these options are currently
        vested.
 
 *Amendment
        of the Plan.* The
        Plan
        provides that our Board of Directors may amend or terminate the Plan at any
        time, provided, however, that specific types of amendments require approval
        of
        our stockholders and no such action may be taken which adversely affects
        any
        award previously granted to a participant under the Plan without the written
        consent of the Participant.
 
 **Employment
        and Severance Agreements with Gary E. Ban, Andrew L . Fox and Donald T.
        Locke**
 
 On
        June
        29, 2005, Oasys
        Mobile entered into new employment agreements with each of Gary E. Ban, Donald
        T. Locke and Andrew L. Fox. The employment agreements between each of Messrs.
        Ban, Fox and Locke, dated as of July 28, 2004, were cancelled in their entirety
        and replaced by the employment agreements described herein. All defined terms
        used in this description of these employment agreements shall have the meanings
        as set forth in the agreements, copies of which are attached as Exhibits
        10.1,
        10.2 and 10.3, respectively, to the Company’s Current Report on Form 8-K as
        filed with the Securities and Exchange Commission on June 29, 2005. The
        employment agreements name Mr. Ban as Chief Executive Officer; Mr. Fox as
        Executive Vice-President of Business Development and Sales; and Mr. Locke
        as
        Chief Financial Officer and General Counsel. The current annual base salaries
        for each of these officers, as adjusted by the Compensation Committee of
        the
        Board of Directors on December 14, 2005 is as follows:
 
 
 Name
                  of Executive
              
              Initial
                  Annual Base SalaryGary
                  E. Ban
              
              $210,000Donald
                  T. Locke
              
              $172,800Andrew
                  L. Fox
              
              $144,000
 
 Under
        the
        terms of each of the employment agreements, the Board of Directors will,
        on an
        annual basis, review each executive’s base salary in light of the base salaries
        paid to other executives of Oasys Mobile and each executive’s performance. It
        may, in its discretion, increase the executive’s annual base salary by an amount
        deemed appropriate by the Board.
 
  53
  Under
        the
        terms of the agreements of Messrs. Ban and Locke, their annual base salaries
        shall also automatically be increased to 1.5 times their initial base salary
        (“Initial Base Salary”) of $175,000 and $144,000, respectively, once Oasys
        Mobile achieves a fiscal year gross revenue of $10,000,000 and to 2.0 times
        their Initial Base Salary once Oasys Mobile achieves a fiscal year gross
        revenue
        of $20,000,000 and Oasys Mobile has net income for each such fiscal year
        period.
 
 In
        addition to the annual base salary, the Board, in its discretion, may pay
        each
        executive a bonus commensurate with other bonuses paid to employees of Oasys
        Mobile and take into account the total compensation paid to executives of
        other
        companies which would be competitive for the executive’s services. Messrs. Ban
        and Locke shall receive a cash bonus of 100% of their annual base salary
        upon
        the achievement of Oasys Mobile’s annual objectives as set by the Board of
        Directors. Messrs. Ban, Locke and Fox did not receive a bonus in
        2005.
  Mr.
        Fox
        shall receive (i) a commission of $10,000 for each transaction brought to
        Oasys
        Mobile by him that Oasys Mobile receives a gross profit of $250,000 from;
        (ii) a
        three percent (3%) commission of the gross profit received by Oasys Mobile
        from
        all transactions brought to Oasys Mobile by him; and (iii) a one percent
        (1%)
        commission of the gross profit received by Oasys Mobile from all other
        transactions of Oasys Mobile brought by personnel under Mr. Fox’s supervision.
        No funds under these bonus provisions of Mr. Fox’s agreement shall be payable to
        him until funds are received by Oasys Mobile. Mr. Fox shall receive the
        commissions set forth in items (ii) and (iii) of this paragraph for a period
        of
        eighteen (18) months from the launch of each such product related to these
        transactions arranged by him or by personnel under his supervision, as the
        case
        may be. After such eighteen (18) month period has expired, the commissions
        payable to Mr. Fox for a particular transaction shall expire and no longer
        be
        payable to him.
 
 Any
        bonuses earned by Messrs. Ban, Fox and Locke pursuant to the provisions of
        their
        employment agreements shall not be paid to them unless and until Oasys Mobile
        has achieved a cash flow positive position, which will be certified to the
        Board
        of Directors by an executive officer of Oasys Mobile.
 
 Under
        these employment agreements, Oasys Mobile granted to Messrs. Ban, Locke and
        Fox
        options to purchase 275,000, 225,000 and 200,000 shares of Oasys Mobile common
        stock, respectively. These options vest in equal monthly installments over
        the
        thirty-six (36) month period beginning from the grant date of June 21, 2005.
 
 All
        options and/or warrants previously granted to each of Messrs. Ban, Fox and
        Locke
        in lieu of cash compensation forgone by them shall have a life of ten (10)
        years
        from the date of each such respective grant while the executive is employed
        by
        Oasys Mobile or a life of three years from the date of termination of the
        executive’s employment.
 
 The
        employment agreements with Messrs. Ban, Fox and Locke each have a term of
        one
        (1) year, which shall be automatically extended (without further action of
        Oasys
        Mobile or the Board of Directors) each day for an additional day so that
        the
        remaining term shall continue to be one (1) year; provided that either party
        may
        at any time, by written notice to the other party, fix the term to a finite
        term
        of one (1) year, without automatic extension, commencing with the date of
        such
        notice.
 
 Each
        executive’s employment under their respective Agreements shall be terminated
        immediately on his death and may be terminated by the Board:
 
 ·
            at
                any time after the Permanent Disability of
                executive; ·
            at
                any time without Cause prior to a Change of
                Control; ·
            at
                any time without Cause upon a Change of Control;
                or ·
            at
                any time for Cause. 
 If
        an
        executive’s employment is terminated by death, his estate or designated
        beneficiaries shall be entitled to receive:
 
 ·
            any
                accrued but unpaid salary; ·
            a
                cash lump sum payment in respect of accrued but unused
                vacation; ·
            life
                insurance benefits pursuant to any life insurance policy purchased
                by
                Oasys Mobile on the executive; ·
            a
                pro rata portion of the bonus applicable to the calendar year in
                which
                such termination occurs, payable when and as such bonus is determined
                under the Agreement (in the case of Mr. Fox, he receives an amount
                equal
                to his Base Salary, in lieu of this provision);
                and ·
            acceleration
                of the vesting of one hundred percent (100%)of the unvested portion
                of all
                of the Executive’s stock options or other stock-based awards, together
                with the right to exercise such options or awards for a period equal
                to
                the remaining term for exercising such options or awards under the
                applicable agreement and/or plan. 
 If
        an
        executive’s employment is terminated by Oasys Mobile for Permanent Disability,
        he shall be entitled to receive:
 
 ·
            severance
                compensation equal to his Base Salary for a period of six (6) months,
                minus any amounts payable under any short-term disability insurance
                policy
                provided by Oasys Mobile or purchased by
                executive. ·
            a
                pro rata portion of the bonus applicable to the calendar year in
                which
                such termination occurs, payable when and as such bonus is determined
                under the Agreement (in the case of Mr. Fox, he receives an amount
                equal
                to his Base Salary in lieu of this
                provision); ·
            continuation
                of the insurance provided by Oasys Mobile for 12 months;
                and ·
            acceleration
                of the vesting of one hundred percent (100%)of the unvested portion
                of all
                of the Executive’s stock options or other stock-based awards, together
                with the right to exercise such options or awards for a period equal
                to
                the remaining term for exercising such options or awards under the
                applicable agreement and/or plan. 
 54
  If
          the
          executive’s employment is terminated by Oasys Mobile without Cause prior to a
          Change of Control, the executive shall be entitled to receive:
 
 ·
              accrued
                  but unpaid Base Salary to the date of such
                  termination; ·
              a
                  cash lump sum payment in respect of accrued but unused vacation
                  days; ·
              a
                  cash lump sum payment equal to his then-current Base Salary payable
                  within
                  ten (10) days of Executive’s termination; ·
              a
                  cash lump sum payment of the bonus applicable to the calendar year
                  in
                  which such termination occurs; this cash lump sum payment shall
                  be payable
                  within ten (10) days after the determination that the annual objectives,
                  as set by the Board of Directors pursuant to Section 5.2 of the
                  Agreement,
                  have been met; ·
              acceleration
                  of the vesting of one hundred percent (100%) of the unvested portion
                  of
                  all of Executive’s stock options or other stock-based awards, together
                  with the right to exercise such stock options or awards for a period
                  equal
                  to the remaining term for exercising such options or awards under
                  the
                  applicable agreement and/or plan; and ·
              continuation
                  of the insurance provided by the Company for 12 months. 
 If
          executive’s employment is terminated by Oasys Mobile without Cause upon a Change
          of Control or by Executive for Good Reason at any time, executive shall
          be
          entitled to receive:
 
 ·
              accrued
                  but unpaid Base Salary to the date of such termination; ·
              a
                  cash lump sum payment in respect of accrued but unused vacation
                  days
                  pursuant to the terms of this Agreement; ·
              a
                  cash lump sum payment of up two (2) times his then-current Base
                  Salary
                  (one times in the case of Mr. Fox) based on the greater of the
                  closing
                  price of the Company’s common stock on the date of the Change of Control
                  or the date of termination. The Executive shall receive the multiple
                  of
                  his Base Salary as set forth below based on such closing common
                  stock
                  price. This amount shall be paid within ten (10) days of Executive’s date
                  of termination. 
 **Multiple
                    of Base Salary**
                **Closing
                    Stock Price at Date of**
                  **Change
                    of Control or Date of**
                  **Termination**1.00
                    times Base Salary
                $3.50
                    or lower1.25
                    times Base Salary
                $4.001.50
                    times Base Salary
                $4.501.75
                    times Base Salary
                $5.002.00
                    times Base Salary
                $5.50
 
 ·
              cash
                  lump sum payment of up to two (2) times the bonus applicable to
                  the
                  calendar year in which such termination occurs based on the greater
                  of the
                  closing price of the Company’s common stock on the date of the Change of
                  Control or the date of termination pursuant to Section 7.5 of the
                  Agreement. The Executive shall receive the multiple of his bonus
                  as set
                  forth below based on such closing common stock price. This cash
                  lump sum
                  payment shall be payable within ten (10) days after the determination
                  that
                  the annual objectives, as set by the Board of Directors pursuant
                  to
                  Section 5.2 of the Agreement, have been met.   This
                  provision does not apply to Mr.
                  Fox.
 **Multiple
                  of Base Salary**
              **Closing
                  Stock Price at Date of**
                **Change
                  of Control or Date of**
                **Termination**1.00
                  times Bonus
              $3.50
                  or lower1.25
                  times Bonus
              $4.001.50
                  times Bonus
              $4.501.75
                  times Bonus
              $5.002.00
                  times Bonus
              $5.50
 
 ·
            acceleration
                of the vesting of one hundred percent (100%) of the unvested portion
                of
                Executive’s stock options or other stock-based awards, together with the
                right to exercise such stock options or awards for a period equal
                to the
                remaining term for exercising such options or awards under the applicable
                agreement and/or plan; and ·
            continuation
                of the insurance provided by the Company for 12 months. 
 If
        executive’s employment is terminated by Oasys Mobile for Cause or by the
        executive without Good Reason upon a Change of Control (other than as a result
        of executive’s Permanent Disability or death), Oasys Mobile shall not have any
        other or further obligations to executive under this Agreement,
        except:
 
 ·
            as
                may be provided in accordance with the terms of retirement and other
                benefit plans of Oasys Mobile; ·
            as
                to that portion of any unpaid Base Salary and other benefits accrued
                and
                earned under this Agreement through the date of such
                termination; ·
            all
                stock option grants that have vested as of the Executive’s date of
                termination for the remainder of the term of such option grants;
                and ·
            as
                to benefits, if any, provided by any insurance policies in accordance
                with
                their terms. 
 If
        executive’s employment is terminated by Oasys Mobile for Cause at any time
        during the Term, Executive shall immediately forfeit any and all unvested
        stock
        rights, stock options and other such unvested incentives or awards previously
        granted to him by the Oasys Mobile and any Bonus earned by him but not paid
        pursuant to the Agreement. Each of the employment agreements also contains
        customary covenants with respect to the non-disclosure of confidential or
        proprietary information regarding our business, prospects, finances, operations
        and trade secrets that have no finite duration.
 
 Each
        of
        the employment agreements also contains customary covenants with respect
        to the
        non-disclosure of confidential or proprietary information regarding our
        business, prospects, finances, operations and trade secrets that have no
        finite
        duration.
 
 
  55
  **ITEM
        12.**  **SECURITY
        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS**
 
 The
        following table sets forth, as of March 28, 2006, certain information regarding
        beneficial ownership of our common stock by: (i) each of our directors, (ii)
        each Named Executive Officer, as such term is defined in the regulations
        of the
        SEC, (iii) all directors and executive officers as a group and (iv) each
        person
        who is known by us to own beneficially more than 5% of the outstanding shares
        of
        our common stock. As of March 28, 2006, we had 13,519,704 shares of common
        stock
        issued and outstanding. As of that date, we also had 2,407 shares of Series
        A
        convertible preferred stock issued and outstanding. The Series A convertible
        preferred stock is non-voting, except in certain instances under Delaware
        law.
  **Shares
                  Beneficially Owned****Beneficial
                  Owner**
              
              
              **Number**
                **Owned**
              
              
              **Right to**
                **Acquire****(1)**
              
              
              **Percent(2)****5%
                  Stockholders****(3)**JDS
                  Capital Management, LLC
              
              
              1,821,450
              
              
              375,000
              
              
              15.81
              %Empire
                  Capital LP
              
              
              1,828,350
              
              
              
              
              
              13.52
              %RHP
                  Master Fund, Ltd.****
              
              
              
              
              
              1,482,892**(4)**
              
              
              9.90
              %LAP
                  Summus Holdings, LLC
              
              
              
              
              
              1,482,892**(6)**
              
              
              9.90
              %Donald
                  D. Hammett
              
              
              950,471
              
              
              10,000
              
              
              7.10
              %J.
                  Winder Hughes
              
              
              557,150
              
              
              201,022
              
              
              5.34
              %**Directors****(5)**Gary
                  E. Ban
              
              
              56,908
              
              
              281,780
              
              
              2.43
              %Stephen
                  M. Finn
              
              
              37,500
              
              
              56,886
              
              
              *Scott
                  W. Hamilton
              
              
              
              
              
              11,981
              
              
              *J.
                  Winder Hughes
              
              
              557,150
              
              
              201,022
              
              
              5.34
              %Richard
                  B. Ruben
              
              
              
              
              
              19,417
              
              
              *Bernard
                  Stolar
              
              
              
              
              
              9,000
              
              
              *James
                  A. Taylor
              
              
              
              
              
              6,622
              
              
              ***Named
                  Executive Officers****(5)**Gary
                  E. Ban
              
              
              56,908
              
              
              281,780
              
              
              2.43
              %Donald
                  T. Locke
              
              
              23,462
              
              
              217,373
              
              
              1.75
              %Andrew
                  L. Fox
              
              
              534
              
              
              223,040
              
              
              1.63
              %**All
                  Executive Officers and Directors as a Group (9
                  persons)**
              
              
              675,554
              
              
              1,027,121
              
              
              11.51
              %
 
 
 *
        Less
        than 1%
 
 (1)
              Pursuant
                  to Rule 13d-3(d)(1) of the Exchange Act, shares not outstanding which
                  are subject to options, warrants, rights or conversion privileges
                  exercisable on or May 27, 2006 (60 days after March 28, 2006) are
                  deemed outstanding for the purpose of calculating the number and
                  percentage owned by such person, but not deemed outstanding for
                  the
                  purpose of calculating the percentage owned by any other person
                  listed. We
                  believe that each individual or entity named has sole investment
                  and
                  voting power with respect to shares of Common Stock indicated as
                  beneficially owned by them, subject to community property laws,
                  where
                  applicable, except where otherwise noted.(2)
              Calculated
                  based upon 13,519,704 shares of our Common Stock issued and outstanding
                  on
                  March 28, 2006, and, in each individual's case, the number of shares
                  of
                  our Common Stock issuable upon the exercise of options exercisable
                  as of
                  60 days thereafter (i.e., May 27, 2006) held by such individual (but
                  excluding any shares of our Common Stock issuable upon the exercise
                  of any
                  other outstanding options) or, in the case of all Executive Officers
                  and
                  Directors as a Group, the number of shares of Common Stock issuable
                  upon
                  the exercise of warrants or options exercisable within 60 days
                  following March 28, 2006.
  56
  
 (3)
              Information
                  concerning our 5% Stockholders is based solely upon information
                  contained
                  in Schedules 13D and 13G filed by our 5% Stockholders with the
                  SEC .(4)
              The
                  beneficial ownership reported herein represents 9.9% of the Company’s
                  outstanding Common Stock on March 28, 2006, and consists of 1,482,892
                  shares of Common Stock that are currently issuable within 60 days
                  of March
                  28, 2006: (i) upon conversion of $4,000,000 principal amount of
                  6% Senior
                  Secured Debentures at a conversion price of $2.00 per share (the
                  “Debentures”); (ii) upon exercise of the Series A Warrants to purchase up
                  to 1,000,000 units at an exercise price of $2.00 per unit, each
                  unit
                  consisting of one share of Common Stock and a warrant to purchase
                  4/10 of
                  a share of Common Stock, issued in connection with the Debentures
                  (the “A
                  Warrants”); (iii) upon exercise of the Series B Stock Purchase Warrants
                  to
                  purchase up to 677,966 shares of Common Stock issued in connection
                  with
                  the Debentures (the “B Warrants”); (iv) upon exercise of the Series C-1
                  Stock Purchase Warrants to purchase up to 677,966 shares of Common
                  Stock
                  issued in connection with the Debentures (the “C-1 Warrants” and,
                  collectively with the A Warrants and the B Warrants, the “9.9 %
                  Warrants”); and (v) upon exercise of the Stock Purchase Warrant to
                  purchase up to 196,079 shares of Common Stock issued in December
                  2004 (the
                  “4.9% Warrants”).  The Debentures are convertible into Common Stock
                  until June 30, 2007.  The Series A Warrants expire on June 29, 2006.
                  The Series B Warrants expire on November 18, 2007.  The Series C-1
                  Warrants expire on November 18, 2010.  The 4.9% Warrants expire on
                  December 20, 2009.
                
                The
                  terms of the Debentures and the 9.9% Warrants (collectively, the
“9.9%
                  Securities”) and the terms of the 4.9% Warrants (the 4.9% Warrants
                  together with the 9.9% Securities are hereinafter referred to as
                  the
                  “Securities”) provide that the Securities are convertible or exercisable
                  on any given date only to the extent that the number of shares
                  of Common
                  Stock then issuable upon the conversion or exercise of the Securities,
                  together with any other shares of Common Stock beneficially owned
                  by the
                  reporting persons or any of their affiliates (excluding for this
                  purpose
                  shares of Common Stock which may be deemed beneficially owned through
                  the
                  ownership of the unconverted or unexercised Securities) would not
                  exceed
                  9.9%, in the case of the 9.9% Securities, or 4.9%, in the case
                  of the 4.9%
                  Warrants, of the Common Stock then issued and outstanding. 
                  Accordingly, the reporting persons’ ability to fully convert or exercise
                  the Securities may be limited by the terms of the Securities.(5)
              The
                  business address for each person named is c/o Oasys Mobile, Inc.,
                  434
                  Fayetteville Street, Suite 600, Raleigh, NC 27601.(6)
              The
                  beneficial ownership reported herein represents 9.9% of the Company’s
                  outstanding Common Stock on March 28, 2006 and consists of 1,482,892
                  shares of Common Stock that are currently issuable within 60 days
                  of March
                  28, 2006: (i) upon conversion of $4,000,000 principal amount of
                  6% Senior
                  Secured Debentures at a conversion price of $2.00 per share (the
                  “Debentures”); (ii) upon exercise of the Series A Warrants to purchase up
                  to 1,000,000 units at an exercise price of $2.00 per unit, each
                  unit
                  consisting of one share of Common Stock and a warrant to purchase
                  4/10 of
                  a share of Common Stock, issued in connection with the Debentures
                  (the “A
                  Warrants”); (iii) upon exercise of the Series B Stock Purchase Warrants
                  to
                  purchase up to 677,966 shares of Common Stock issued in connection
                  with
                  the Debentures (the “B Warrants”); and (iv) upon exercise of the Series
                  C-1 Stock Purchase Warrants to purchase up to 677,966 shares of
                  Common
                  Stock issued in connection with the Debentures (the “C-1 Warrants” and,
                  collectively with the A Warrants and the B Warrants, the “9.9 %
                  Warrants”). The Debentures are convertible into Common Stock until June
                  30, 2007.  The Series A Warrants expire on June 29, 2006. The Series
                  B Warrants expire on November 18, 2007.  The Series C-1 Warrants
                  expire on November 18, 2010.
                
                The
                  terms of the Debentures and the 9.9% Warrants (collectively, the
“9.9%
                  Securities”) provide that the 9.9% Securities are convertible or
                  exercisable on any given date only to the extent that the number
                  of shares
                  of Common Stock then issuable upon the conversion or exercise of
                  the 9.9%
                  Securities, together with any other shares of Common Stock beneficially
                  owned by the reporting persons or any of their affiliates (excluding
                  for
                  this purpose shares of Common Stock which may be deemed beneficially
                  owned
                  through the ownership of the unconverted or unexercised Securities)
                  would
                  not exceed 9.9% of the Common Stock then issued and outstanding. 
                  Accordingly, the reporting persons’ ability to fully convert or exercise
                  the Securities may be limited by the terms of the Securities.
 
 
  57
  **ITEM
        13.** **CERTAIN
        RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 Oasys
        Mobile paid J. Winder Hughes and Stephen M. Finn, two of its Directors, $44,444
        and $22,223, respectively, in cash compensation in 2005 for their assistance
        with the placement of the Company’s 12% Senior Convertible Debentures in
        December 2004. Oasys Mobile also paid Mr. Hughes $65,000 in December 2005
        in
        connection with his assistance in the placement of the Company’s 6% Senior
        Secured Convertible in November 2005.
 
 Richard
        Ruben was appointed to the Board of Directors on December 14, 2005. On November
        28, 2005, Oasys Mobile entered into a consulting agreement with Mr. Ruben
        in
        which he agreed to assist Oasys Mobile and its management with identifying
        and evaluating potential acquisition targets. This consulting agreement was
        for
        three months. Pursuant to the consulting agreement, Mr. Ruben received (1)
        $15,000 a month for the term of the agreement, (2) options to purchase 25,000
        shares of Oasys Mobile common stock at an exercise price of $2.20 per share,
        such options to vest at the rate of 1/12 monthly on the monthly anniversary
        date
        of the consulting agreement, (3) $15,000 upon the closing of each acquisition
        worked on by Mr. Ruben on behalf of Oasys Mobile if such acquisition closes,
        and
        (4) (i) 25,000 shares of Oasys Mobile common stock upon the closing of each
        acquisition (if such acquisition closes) worked on by Mr. Ruben in which
        the
        total purchase price paid by Oasys Mobile exceeds $10,000,000 or (ii)
        12,500 shares of Oasys Mobile common stock upon the closing of each acquisition
        worked on by Mr. Ruben in which the total purchase price paid by Oasys
        Mobile is less than $10,000,000.
 
 
 **ITEM
        14.** **PRINCIPAL
        ACCOUNTANT FEES AND SERVICES**
 
 **Audit
        Fees**
  The
        aggregate fees billed to us by Ernst & Young LLP for the audit of our annual
        financial statements and for the review of the financial statements included
        in
        its quarterly reports on Form 10-Q for the fiscal years ended December 31,
        2005
        and 2004 totaled $237,701 and $210,000, respectively.
 
 **Audit-Related
        Fees**
 
 Oasys
        Mobile did not incur or pay any fees to Ernst & Young LLP related to
        audit-related fees in either of the last two fiscal years.
 
 **Tax
        Fees**
 
 Oasys
        Mobile did not incur or pay any fees to Ernst & Young LLP for tax
        compliance, tax advice, and tax planning in either of the last two fiscal
        years.
  
 **All
        Other Fees**
 
 The
        aggregate fees billed to Oasys Mobile by Ernst & Young LLP for products and
        services, other than those as reported above for Audit Fees, Audit-Related
        Fees
        and Tax Fees, for the fiscal years ended December 31, 2005 and 2004 totaled
        $0
        and $0, respectively.
 
 It
        is the
        Audit Committee’s policy to pre-approve all services provided by Ernst &
Young LLP. All services provided by Ernst & Young LLP during the years ended
        December 31, 2005 and 2004 were pre-approved by the Audit
        Committee.
  As
        of the
        date of this filing, our current policy is to not engage Ernst & Young LLP
        to provide, among other things, bookkeeping services, appraisal or valuation
        services, or internal audit services. The policy provides that Oasys Mobile
        engage Ernst & Young LLP to provide audit, tax, and other assurance
        services, such as review of SEC reports or filings.
 
 The
        Audit
        Committee considered and determined that the provision of the services other
        than the services described under “Audit Fees” is compatible with maintaining
        the independence of the independent auditors.
 
 The
        Audit
        Committee may delegate pre-approval authority to one or more of its members.
        The
        member to whom such authority is delegated must report, for informational
        purposes only, any pre-approval decisions to the Audit Committee at its next
        scheduled meeting.
 
  58
  **PART
        IV**
 
 **ITEM
                  15.**
              **EXHIBITS,
                  FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
                  8-K.**
 
 (a)(1)
              Financial
                  Statements. See Index to Financial Statements on page F-1.(a)(2)
              Financial
                  Statement Schedules have been omitted because of the absence of
                  conditions
                  under which they would be required or because the required information
                  has
                  been included in the financial statements.(a)(3)
              The
                  following Exhibits are filed as part of this annual report on Form
                  10-K.
                  The Exhibits designated by (*) have been previously filed with
                  the
                  Securities and Exchange Commission and are incorporated by reference
                  herein.
            59
  
 Exhibit
                Number
              Exhibit
                Description3(I).1
              Certificate
                  of Incorporation of Oasys Mobile, Inc., a Delaware
                  corporation3(I).2
              Certificate
                  of Amendment of Certificate of Incorporation of Oasys Mobile,
                  Inc.3(II).1
              Bylaws
                  of Oasys Mobile, Inc., a Delaware corporation (Exhibit 3(II).1
                  to our
                  Annual Report on Form 10-K for the fiscal year ended December 31,
                  2005.4.1*
              Specimen
                  Common Stock Certificate (incorporated by reference to Exhibit
                  4.1 to our
                  Annual Report on Form 10-K for the fiscal year ended December 31,
                  2001)4.2*
              Form
                  of Subscription Agreement for private placement sales of our common
                  stock
                  (incorporated by reference to Exhibit 4.2 to our Annual Report
                  on Form
                  10-K for the fiscal year ended December 31, 2001)4.3*
              Form
                  of Selling Shareholders Agreement in connection with private placement
                  sales of our common stock (incorporated by reference to Exhibit
                  4.3 to our
                  Annual Report on Form 10-K for the fiscal year ended December 31,
                  2001)4.4*
              Form
                  of Warrant Agreement for warrants issued in connection with private
                  placement sales of our common stock (incorporated by reference
                  to Exhibit
                  4.4 to our Annual Report on Form 10-K for the fiscal year ended
                  December
                  31, 2001)4.5*
              Form
                  of Series C Convertible Preferred Stock Registration Rights Agreement
                  (incorporated by reference to Exhibit 4.2 to our Quarterly Report
                  on Form
                  10-Q for the fiscal quarter ended September 30, 2003)4.6*
              Form
                  of Series D Convertible Preferred Stock Registration Rights Agreement
                  (incorporated by reference to Exhibit 4.4 to our Quarterly Report
                  on Form
                  10-Q for the fiscal quarter ended September 30, 2003)4.7*
              Form
                  of Series E Convertible Preferred Stock Registration Rights Agreement
                  (incorporated by reference to Exhibit 4.6 to our Quarterly Report
                  on Form
                  10-Q for the fiscal quarter ended September 30, 2003)4.8*
              Form
                  of Warrants issued in connection with the 12% Senior Notes (incorporated
                  by reference to Exhibit 4.3 to our Current Report on Form 8-K dated
                  as of
                  December 20, 2004)4.9*
              Form
                  of Registration Rights Agreement in connection with 12% Senior
                  Notes
                  (incorporated by reference to Exhibit 4.4 to our Current Report
                  on Form
                  8-K dated as of December 20, 2004)4.10*
              Form
                  of Warrant issued in connection with our Series E Convertible Preferred
                  Stock (incorporated by reference to Exhibit 4.7 to our Quarterly
                  Report on
                  Form 10-Q for the fiscal quarter ended September 30,
                  2003)4.11*
              Form
                  of Registration Rights Agreement in connection with Summus’ issuance of
                  its Senior Convertible Debt and Common Stock (incorporated by reference
                  to
                  Exhibit 4.3 to our Quarterly Report on Form 10-Q for the fiscal
                  quarter
                  ended March 31, 2004)
  60
  4.12*
                Securities
                    Purchase Agreement for our 6% Senior Secured Convertible Debentures
                    (incorporated by reference to Exhibit 4.1 of our Current Report
                    on Form
                    8-K filed as of November 18, 2005)
                    2001)
 
 4.13*
                Form
                    of 6% Senior Secured Convertible Debentures (incorporated by
                    reference to
                    Exhibit 4.2 of our Current Report on Form 8-K filed as of November
                    18,
                    2005)
 
 4.14*
                Form
                    of A Warrant issued in connection with our 6% Senior Secured
                    Convertible
                    Debentures (incorporated by reference to Exhibit 4.3 of our Current
                    Report
                    on Form 8-K filed as of November 18,
                    2005)
 
 4.15*
                Form
                    of B Warrant issued in connection with our 6% Senior Secured
                    Convertible
                    Debentures (incorporated by reference to Exhibit 4.4 of our Current
                    Report
                    on Form 8-K filed as of November 18,
                    2005)
 
 4.16*
                Form
                    of C-1 Warrant issued in connection with our 6% Senior Secured
                    Convertible
                    Debentures (incorporated by reference to Exhibit 4.5 of our Current
                    Report
                    on Form 8-K filed as of November 18,
                    2005)
 
 4.17*
                Form
                    of C-2 Warrant issued in connection with our 6% Senior Secured
                    Convertible
                    Debentures (incorporated by reference to Exhibit 4.6 of our Current
                    Report
                    on Form 8-K filed as of November 18,
                    2005)
 
 4.18*
                Form
                    of D Warrant issued in connection with our 6% Senior Secured
                    Convertible
                    Debentures (incorporated by reference to Exhibit 4.7 of our Current
                    Report
                    on Form 8-K filed as of November 18,
                    2005)
 
 4.19*
                Registration
                    Rights Agreement in connection with our 6% Senior Secured Convertible
                    Debentures (incorporated by reference to Exhibit 4.8 of our Current
                    Report
                    on Form 8-K filed as of November 18,
                    2005)
 
 4.20*
                Security
                    Agreement in connection with our 6% Senior Secured Convertible
                    Debentures
                    (incorporated by reference to Exhibit 4.9 of our Current Report
                    on Form
                    8-K filed as of November 18, 2005)
 
 4.21*
                Letter
                    Agreement entered into with LAP Summus Holdings LLC for nomination
                    of a
                    Director in connection with our 6% Senior Secured Convertible
                    Debentures
                    (incorporated by reference to Exhibit 4.10 of our Current Report
                    on Form
                    8-K filed as of November 18,
                    2005)
   61
 10.1*
              Asset
                  Purchase Agreement, dated October 30, 2000, among Summus, Inc.,
                  Summus,
                  Ltd., and the stockholders named therein (incorporated by reference
                  to
                  Exhibit 10.01 to our Current Report on Form 8-K dated February
                  16,
                  2001)10.2*
              Amendment
                  Number 1 to Asset Purchase Agreement, dated as of December 30,
                  2000, among
                  Summus, Inc., Summus, Ltd. and the stockholders named therein
                  (incorporated by reference to Exhibit 10.02 to our Current Report
                  on Form
                  8-K dated February 16, 2001)10.3*
              Amendment
                  to Asset Purchase Agreement, dated as of January 30, 2001, among
                  Summus,
                  Inc., Summus, Ltd. and the stockholders named therein (incorporated
                  by
                  reference to Exhibit 10.03 to our Current Report on Form 8-K dated
                  February 16, 2001)10.4*
              Agreement
                  for Transfer of All Rights and Reservation of License in Software,
                  dated
                  September 4, 2000, between PlusStation, LLC, Niksa Radovic and
                  Summus,
                  Ltd. (incorporated by reference to Exhibit 10.9 to our Form 10
                  filed on
                  July 5, 2001)10.5*
              Third
                  Amended and Restated Summus 2000 Equity Compensation Plan, effective
                  June
                  24, 2004 (incorporated by reference to Exhibit 10.10.4 to our Quarterly
                  Report on Form 10-Q for the fiscal quarter ended June 31,
                  2004)10.6*
              Executive
                  Employment Agreement, dated as of June 29, 2005, between Summus and
                  Gary E. Ban (incorporated by reference to Exhibit 10.1 to our Current
                  Report on Form 8-K filed as of June 29,
                  2005)10.7*
              Executive
                  Employment Agreement, dated as of June 29, 2005, between Summus and
                  Donald T. Locke (incorporated by reference to Exhibit 10.2 to
                  our Current Report on Form 8-K filed as of June 29,
                  2005)10.8*
              Executive
                  Employment Agreement, dated as of June 29, 2005, between Summus and
                  Andrew L . Fox (incorporated by reference to Exhibit 10.3 to our
                  Current
                  Report on Form 8-K filed as of June 29, 2005)10.9*
              Lease
                  Agreement, dated as of October 15, 1999, as modified on March 23,
                  2000 and
                  June 9, 2000, between Phoenix Limited Partnership of Raleigh and
                  Summus,
                  Inc. (incorporated by reference to Exhibit 10.31 to our Form 10
                  filed on
                  July 5, 2001)10.10*
              Lease
                  Agreement, dated as of August 12, 1999, between Phoenix Limited
                  Partnership of Raleigh and Summus, Ltd. (incorporated by reference
                  to
                  Exhibit 32 to our Form 10 filed on July 5, 2001)10.11*
              Lease
                  Modification Agreement Number 1, dated as of December 22, 1999,
                  between
                  Phoenix Limited Partnership of Raleigh and Summus, Ltd. . (incorporated
                  by
                  reference to Exhibit 33 to our Form 10 filed on July 5, 2001)14.1*
              Code
                  of Ethics (incorporated by reference to Exhibit 14.1 to our Annual
                  Report
                  on Form 10-K for the fiscal year ended December 31,
                  2003)21.1
              Subsidiaries
                  of Summus - None23.1
              Consent
                  of Ernst & Young LLP31.1
              Rule
                  13a-14(a)/15(d)-14(a) Certificate of Gary E. Ban, Chief Executive
                  Officer31.2
              Rule
                  13a-14(a)/15(d)-14(a) Certificate of Donald T. Locke, Chief Financial
                  Officer32.1
              Section
                  1350 Certificate of Gary E. Ban, Chief Executive
                  Officer32.2
              Section
                  1350 Certificate of Donald T. Locke, Chief Financial
                  Officer
 
 
 
 
  62
  **INDEX
          TO FINANCIAL STATEMENTS**
 
 
 ***Page*****Financial
                    Statements of Oasys Mobile, Inc.**Report
                    of Independent Registered Public Accounting Firm
                F-2Balance
                    Sheets at December 31, 2005 and 2004
                F-3Statements
                    of Operations for the Years Ended December 31, 2005, 2004 and
                    2003
                F-5Statements
                    of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2005,
                    2004 and 2003
                F-6Statements
                    of Cash Flows for the Years Ended December 31, 2005, 2004 and
                    2003
                F-10Notes
                    to Financial Statements
                F-11
 
 
 
 
 
 
 
 
  F-1
  
 
 Report
          of
          Independent Registered Public Accounting Firm
 
 
 
 The
          Board
          of Directors and Stockholders
 Oasys
          Mobile, Inc.
 
 
 We
          have
          audited the accompanying balance sheets of Oasys Mobile, Inc. as of December
          31,
          2005 and 2004, and the related statements of operations, stockholders’ equity
          (deficit) and cash flows for each of the three years in the period ended
          December 31, 2005. These financial statements are the responsibility of
          the
          Company’s management. Our responsibility is to express an opinion on these
          financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          financial
          statements are free of material misstatement. We were not engaged to perform
          an
          audit of the Company’s internal control over financial reporting. Our audits
          included consideration of internal control over financial reporting as
          a basis
          for designing audit procedures that are appropriate in the circumstances,
          but
          not for the purpose of expressing an opinion on the effectiveness of the
          Company’s internal control over financial reporting. Accordingly, we express no
          such opinion. An audit includes examining, on a test basis, evidence supporting
          the amounts and disclosures in the financial statements. An audit also
          includes
          assessing the accounting principles used and significant estimates made
          by
          management, as well as evaluating the overall financial statement presentation.
          We believe that our audits provide a reasonable basis for our
          opinion.
 
 In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the financial position of Oasys Mobile, Inc. at December
          31,
          2005 and 2004, and the results of its operations and its cash flows for
          each of
          the three years in the period ended December 31, 2005, in conformity with
          U.S.
          generally accepted accounting principles.
 
 
 
 
 
 /s/
          Ernst
& Young LLP
 
 March
          10,
          2006
 Raleigh,
          North Carolina
 
 
 
 
 
  F-2
  **Oasys
          Mobile, Inc.**
 
 **Balance
          Sheets**
 
 **December
                    31****2005**
                
                **2004****Assets**Current
                    assets:Cash
                
                $
                8,985,158
                
                $
                1,405,788Accounts
                    receivable
                
                
                1,072,615
                
                
                801,698Prepaids
                    and other current assets
                
                
                36,172
                
                
                101,315Total
                    current assets
                
                
                10,093,945
                
                
                2,308,801Equipment,
                    software and furniture, net
                
                
                125,839
                
                
                97,005Total
                    assets
                
                $
                10,219,784
                
                $
                2,405,806
 
 
 
 F-3
 
  **December
                    31****2005**
                
                **2004****Liabilities
                    and stockholders’ equity (deficit)**Current
                    liabilities:Accounts
                    payable
                
                $
                2,319,754
                
                $
                1,167,259Accrued
                    salaries and related costs
                
                
                205,076
                
                
                187,029Accrued
                    interest
                
                
                151,500
                
                
                96,068Current
                    portion of notes payable
                
                
                77,500
                
                
                307,668Convertible
                    notes payable
                
                
                -
                
                
                1,425,000Discount
                    on convertible notes payable
                
                
                -
                
                
                (743,715
                )Total
                    current liabilities
                
                
                2,753,830
                
                
                2,439,309Long-term
                    liabilities:Notes
                    payable, less current portion
                
                
                -
                
                
                53,693Convertible
                    notes payable
                
                
                8,000,000
                
                
                -Discount
                    on convertible notes payable
                
                
                (7,415,960
                )
                
                -Total
                    liabilities
                
                
                3,337,870
                
                
                2,493,002Stockholders’
                    equity (deficit):Series
                    A convertible preferred stock, $0.001 par value;
                  10,000
                    shares designated, 2,407 shares
                  issued
                    and outstanding at December 31, 2005 and 2004
                  (liquidation
                    preference of $2,663,747 as of
                  December
                    31, 2005)
                
                
                2,407,295
                
                
                2,407,295Common
                    stock, $.001 par value, 185,000,000 shares authorized;
                  13,523,554
                    and 12,105,257 issued and 13,519,704 and 12,101,407
                  outstanding
                    at December 31, 2005 and 2004, respectively
                
                
                13,520
                
                
                12,101Additional
                    paid-in capital
                
                
                65,369,259
                
                
                52,485,043Deferred
                    compensation
                
                
                (85,578
                )
                
                (90,363
                )Accumulated
                    deficit
                
                
                (60,594,963
                )
                
                (54,673,653
                )Treasury
                    stock, at cost (3,850 shares)
                
                
                (227,619
                )
                
                (227,619
                )Total
                    stockholders’ equity (deficit)
                
                
                6,881,914
                
                
                (87,196
                )Total
                    liabilities and stockholders’ equity (deficit)
                
                $
                10,219,784
                
                $
                2,405,806
 
 *See
          accompanying notes.*
 
 
 
 
  F-4
  
 **Oasys
          Mobile, Inc.**
 
 **Statements
          of Operations**
 
 **Year
                    ended December 31****2005**
                
                **2004**
                
                **2003**Revenues:Wireless
                    applications and contracts
                
                $
                7,782,241
                
                $
                5,118,551
                
                $
                1,395,296Wireless
                    license fees
                
                
                12,700
                
                
                9,000
                
                
                249,951Contracts
                    and license fees
                
                
                -
                
                
                43,889
                
                
                54,027Total
                    revenues
                
                
                7,794,941
                
                
                5,171,440
                
                
                1,699,274Cost
                    of revenues:Wireless
                    applications and contracts
                
                
                3,893,776
                
                
                2,596,823
                
                
                1,064,643Contracts
                    and license fees
                
                
                -
                
                
                7,237
                
                
                9,596Total
                    cost of revenues
                
                
                3,893,776
                
                
                2,604,060
                
                
                1,074,239Gross
                    profit
                
                
                3,901,165
                
                
                2,567,380
                
                
                625,035Operating
                    expenses:General
                    and administrative
                
                
                3,175,819
                
                
                2,694,571
                
                
                4,204,029Research
                    and development
                
                
                3,168,620
                
                
                1,822,023
                
                
                1,056,770Sales
                    and marketing
                
                
                1,846,608
                
                
                712,869
                
                
                393,007Non-cash
                    compensation
                
                
                39,221
                
                
                79,521
                
                
                185,255Non-cash
                    consulting
                
                
                20,823
                
                
                141,708
                
                
                119,630Non-cash
                    settlements
                
                
                58,750
                
                
                (126,373
                )
                
                (1,525,698
                )Total
                    operating expenses
                
                
                8,309,841
                
                
                5,324,319
                
                
                4,432,993Loss
                    from operations
                
                
                (4,408,676
                )
                
                (2,756,939
                )
                
                (3,807,958
                )Interest
                    income (expense), net
                
                
                (77,262
                )
                
                (62,519
                )
                
                (69,343
                )Amortization
                    of discount on debt and beneficial
                  conversion
                    feature
                
                
                (1,435,372
                )
                
                (1,053,349
                )
                
                -Net
                    loss
                
                $
                (5,921,310
                )
                $
                (3,872,807
                )
                $
                (3,877,301
                )Net
                    loss applicable to common stockholders:Net
                    loss
                
                $
                (5,921,310
                )
                $
                (3,872,807
                )
                $
                (3,877,301
                )Accretion
                    of beneficial conversion feature
                  on
                    preferred stock
                
                
                -
                
                
                (293,444
                )
                
                (3,286,251
                )Preferred
                    stock dividends
                
                
                (192,552
                )
                
                (175,035
                )
                
                (171,265
                )Net
                    loss applicable to common stockholders
                
                $
                (6,113,862
                )
                $
                (4,341,286
                )
                $
                (7,334,817
                )Per
                    share amounts (basic and diluted)
                
                $
                (0.46
                )
                $
                (0.49
                )
                $
                (1.19
                )Weighted
                    average shares of common stock
                  outstanding
                
                
                13,317,440
                
                
                8,865,807
                
                
                6,149,125
 
 *See
          accompanying notes.*
 
 
 
 
  F-5
  **Oasys
          Mobile, Inc.**
  **Statements
          of Stockholders’ Equity (Deficit)**
 
 
 **Convertible
                    Preferred Stock****Series
                    A**
                
                **Series
                    C**
                
                **Series
                    D**
                
                **Series
                    E****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount****Balance
                    at December 31, 2002**
                
                
                2,328
                
                $
                2,328,312
                
                
                -
                
                $
                -
                
                
                -
                
                $
                -
                
                
                -
                
                $
                -Common
                    stock and warrants issued for cash
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Series
                    C, D and E preferred stock issued for cash
                
                
                -
                
                
                -
                
                
                1,310
                
                
                1,310,000
                
                
                4,000
                
                
                4,000,000
                
                
                200
                
                
                200,000Stock
                    issuance costs
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Beneficial
                    conversion feature related to issuance of Series C, D and E preferred
                    stock
                
                
                -
                
                
                -
                
                
                -
                
                
                (659,010
                )
                
                -
                
                
                (2,780,144
                )
                
                -
                
                
                (140,541
                )Accretion
                    of beneficial conversion feature of Series C, D and E preferred
                    stock
                
                
                -
                
                
                -
                
                
                -
                
                
                365,566
                
                
                -
                
                
                2,780,144
                
                
                -
                
                
                140,541Warrants
                    issued with Series C, D and E preferred stock
                
                
                -
                
                
                -
                
                
                -
                
                
                (650,990
                )
                
                -
                
                
                (1,219,856
                )
                
                -
                
                
                (59,459
                )Common
                    stock, options and warrants issued for services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Preferred
                    stock dividends
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Common
                    stock and warrants issued in settlement of vendor
                    liabilities
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Common
                    stock issued in non-cash settlements
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Deferred
                    compensation related to issuance of stock options
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Amortization
                    of deferred compensation
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Conversion
                    of Series A, D and E preferred stock
                
                
                (250
                )
                
                (250,000
                )
                
                -
                
                
                -
                
                
                (1,100
                )
                
                (764,540
                )
                
                (30
                )
                
                (21,081
                )Exercise
                    of warrants
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Net
                    loss for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**Balance
                    at December 31, 2003**
                
                
                2,078
                
                
                2,078,312
                
                
                1,310
                
                
                365,566
                
                
                2,900
                
                
                2,015,604
                
                
                170
                
                
                119,460Accretion
                    of beneficial conversion feature of Series C preferred
                    stock
                
                
                -
                
                
                -
                
                
                -
                
                
                293,444
                
                
                -
                
                
                -
                
                
                -
                
                
                -Issuance
                    of common stock in conjunction with issuance of convertible
                    debt
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Beneficial
                    conversion feature related to issuance of convertible debt
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Common
                    stock, options and warrants issued for services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Common
                    stock issued for cash
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Common
                    stock issued for accrued payroll
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Preferred
                    stock dividends
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Deferred
                    compensation related to issuance of stock options
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Amortization
                    of deferred compensation
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Conversion
                    of Series C, D and E preferred stock
                
                
                -
                
                
                -
                
                
                (1,310
                )
                
                (659,010
                )
                
                (2,900
                )
                
                (2,015,604
                )
                
                (170
                )
                
                (119,460
                )Payment
                    of Series A preferred stock dividends with additional shares
                    of Series A
                    preferred stock
                
                
                329
                
                
                328,983
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Exercise
                    of warrants
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Exercise
                    of options
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Warrants
                    issued with convertible debt
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Conversion
                    of convertible debt
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Net
                    loss for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**Balance
                    at December 31, 2004**
                
                
                2,407
                
                
                2,407,295
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
 
  F-6
  **Oasys
          Mobile, Inc.**
  **Statements
          of Stockholders’ Equity (Deficit)**
 **(continued)**
 
 **Convertible
                    Preferred Stock****Series
                    A**
                
                **Series
                    C**
                
                **Series
                    D**
                
                **Series
                    E****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**Warrants
                    issued with convertible debt
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Beneficial
                    conversion feature related to issuance of convertible debt
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Common
                    stock, options and warrants issued for services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Common
                    stock issued in settlement of note payable
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Deferred
                    compensation related to issuance of stock options
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Amortization
                    of deferred compensation
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Exercise
                    of warrants
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Exercise
                    of options
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Net
                    loss for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**Balance
                    at December 31, 2005**
                
                
                2,407
                
                $
                2,407,295
                
                
                -
                
                $
                -
                
                
                -
                
                $
                -
                
                
                -
                
                $
                -
 
 
 
  F-7
  **Oasys
          Mobile, Inc.**
  **Statements
          of Stockholders’ Equity (Deficit)**
 **(continued)**
 
 **Additional**
                
                
                
                
                
                
                
                **Total****Common
                    Stock**
                
                **Paid-In**
                
                **Deferred**
                
                **Accumulated**
                
                **Treasury**
                
                **Stockholders’****Shares**
                
                **Amount**
                
                **Capital**
                
                **Compensation**
                
                **Deficit**
                
                **Stock**
                
                **Equity
                    (Deficit)****Balance
                    at December 31, 2002**
                
                
                5,491,930
                
                $
                5,492
                
                $
                36,718,638
                
                $
                (227,132
                )
                $
                (43,061,745
                )
                $
                (227,619
                )
                $
                (4,464,054
                )Common
                    stock and warrants issued for cash
                
                
                270,416
                
                
                270
                
                
                1,337,312
                
                
                -
                
                
                -
                
                
                -
                
                
                1,337,582Series
                    C, D and E preferred stock issued for cash
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                5,510,000Stock
                    issuance costs
                
                
                -
                
                
                -
                
                
                (184,515
                )
                
                -
                
                
                -
                
                
                -
                
                
                (184,515
                )Beneficial
                    conversion feature related to issuance of Series C, D and E preferred
                    stock
                
                
                -
                
                
                -
                
                
                3,579,695
                
                
                -
                
                
                -
                
                
                -
                
                
                -Accretion
                    of beneficial conversion feature of Series C, D and E preferred
                    stock
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,286,251
                )
                
                -
                
                
                -Warrants
                    issued with Series C, D and E preferred stock
                
                
                -
                
                
                -
                
                
                1,930,305
                
                
                -
                
                
                -
                
                
                -
                
                
                -Common
                    stock, options and warrants issued for services
                
                
                21,926
                
                
                22
                
                
                112,434
                
                
                -
                
                
                -
                
                
                -
                
                
                112,456Preferred
                    stock dividends
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (171,265
                )
                
                -
                
                
                (171,265
                )Common
                    stock and warrants issued in settlement of vendor
                    liabilities
                
                
                90,694
                
                
                91
                
                
                391,597
                
                
                -
                
                
                -
                
                
                -
                
                
                391,688Common
                    stock issued in non-cash settlements
                
                
                146,173
                
                
                146
                
                
                517,358
                
                
                -
                
                
                -
                
                
                -
                
                
                517,504Deferred
                    compensation related to issuance of stock options
                
                
                -
                
                
                -
                
                
                11,550
                
                
                (11,550
                )
                
                -
                
                
                -
                
                
                -Amortization
                    of deferred compensation
                
                
                -
                
                
                -
                
                
                -
                
                
                185,255
                
                
                -
                
                
                -
                
                
                185,255Conversion
                    of Series A, D and E preferred stock
                
                
                566,756
                
                
                567
                
                
                1,035,054
                
                
                -
                
                
                -
                
                
                -
                
                
                -Exercise
                    of warrants
                
                
                349,125
                
                
                349
                
                
                928,326
                
                
                -
                
                
                -
                
                
                -
                
                
                928,675Net
                    loss for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,877,301
                )
                
                -
                
                
                (3,877,301
                )**Balance
                    at December 31, 2003**
                
                
                6,937,020
                
                
                6,937
                
                
                46,377,754
                
                
                (53,427
                )
                
                (50,396,562
                )
                
                (227,619
                )
                
                286,025Accretion
                    of beneficial conversion feature of Series C preferred
                    stock
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (293,444
                )
                
                -
                
                
                -Issuance
                    of common stock in conjunction with issuance of convertible
                    debt
                
                
                1,428,600
                
                
                1,429
                
                
                498,571
                
                
                -
                
                
                -
                
                
                -
                
                
                500,000Beneficial
                    conversion feature related to issuance of convertible debt
                
                
                -
                
                
                -
                
                
                500,000
                
                
                -
                
                
                -
                
                
                -
                
                
                500,000Common
                    stock, options and warrants issued for services
                
                
                30,000
                
                
                30
                
                
                195,678
                
                
                -
                
                
                -
                
                
                -
                
                
                195,708Common
                    stock issued for cash
                
                
                43,104
                
                
                43
                
                
                20,043
                
                
                -
                
                
                -
                
                
                -
                
                
                20,086Common
                    stock issued for accrued payroll
                
                
                64,748
                
                
                64
                
                
                84,108
                
                
                -
                
                
                -
                
                
                -
                
                
                84,172Preferred
                    stock dividends
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (110,840
                )
                
                -
                
                
                (110,840
                )Deferred
                    compensation related to issuance of stock options
                
                
                -
                
                
                -
                
                
                116,457
                
                
                (116,457
                )
                
                -
                
                
                -
                
                
                -Amortization
                    of deferred compensation
                
                
                -
                
                
                -
                
                
                -
                
                
                79,521
                
                
                -
                
                
                -
                
                
                79,521Conversion
                    of Series C, D and E preferred stock
                
                
                2,059,000
                
                
                2,059
                
                
                2,792,015
                
                
                -
                
                
                -
                
                
                -
                
                
                -Payment
                    of Series A preferred stock dividends with additional shares
                    of Series A
                    preferred stock
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                328,983Exercise
                    of warrants
                
                
                86,207
                
                
                86
                
                
                40,431
                
                
                -
                
                
                -
                
                
                -
                
                
                40,517Exercise
                    of options
                
                
                24,128
                
                
                24
                
                
                64,351
                
                
                -
                
                
                -
                
                
                -
                
                
                64,375Warrants
                    issued with convertible debt
                
                
                -
                
                
                -
                
                
                797,064
                
                
                -
                
                
                -
                
                
                -
                
                
                797,064Conversion
                    of convertible debt
                
                
                1,428,600
                
                
                1,429
                
                
                998,571
                
                
                -
                
                
                -
                
                
                -
                
                
                1,000,000Net
                    loss for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,872,807
                )
                
                -
                
                
                (3,872,807
                )**Balance
                    at December 31, 2004**
                
                
                12,101,407
                
                
                12,101
                
                
                52,485,043
                
                
                (90,363
                )
                
                (54,673,653
                )
                
                (227,619
                )
                
                (87,196
                )
  
 *See
          accompanying notes.*
 
  F-8
  **Oasys
          Mobile, Inc.**
  **Statements
          of Stockholders’ Equity (Deficit)**
 **(continued)**
 
 **Additional**
                
                
                
                
                
                
                
                **Total****Common
                    Stock**
                
                **Paid-In**
                
                **Deferred**
                
                **Accumulated**
                
                **Treasury**
                
                **Stockholders’****Shares**
                
                **Amount**
                
                **Capital**
                
                **Compensation**
                
                **Deficit**
                
                **Stock**
                
                **Equity
                    (Deficit)**Warrants
                    issued with convertible debt
                
                
                -
                
                
                -
                
                
                3,799,711
                
                
                -
                
                
                -
                
                
                -
                
                
                3,799,711Beneficial
                    conversion feature related to issuance of convertible debt
                
                
                -
                
                
                -
                
                
                4,307,906
                
                
                -
                
                
                -
                
                
                -
                
                
                4,307,906Common
                    stock, options and warrants issued for services
                
                
                46,668
                
                
                47
                
                
                166,615
                
                
                -
                
                
                -
                
                
                -
                
                
                166,662Common
                    stock issued in settlement of note payable
                
                
                47,673
                
                
                48
                
                
                243,084
                
                
                -
                
                
                -
                
                
                -
                
                
                243,132Deferred
                    compensation related to issuance of stock options
                
                
                -
                
                
                -
                
                
                34,436
                
                
                (34,436
                )
                
                -
                
                
                -
                
                
                -Amortization
                    of deferred compensation
                
                
                -
                
                
                -
                
                
                -
                
                
                39,221
                
                
                -
                
                
                -
                
                
                39,221Exercise
                    of warrants
                
                
                1,264,296
                
                
                1,264
                
                
                4,112,865
                
                
                -
                
                
                -
                
                
                -
                
                
                4,114,129Exercise
                    of options
                
                
                59,660
                
                
                60
                
                
                219,599
                
                
                -
                
                
                -
                
                
                -
                
                
                219,659Net
                    loss for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (5,921,310
                )
                
                -
                
                
                (5,921,310
                )**Balance
                    at December 31, 2005**
                
                
                13,519,704
                
                $
                13,520
                
                $
                65,369,259
                
                $
                (85,578
                )
                $
                (60,594,963
                )
                $
                (227,619
                )
                $
                6,881,914
 
 
 
 
  F-9
  **Oasys
          Mobile, Inc.**
 
 **Statements
          of Cash Flows**
 
 **Year
                    ended December 31****2005**
                
                
                **2004**
                
                
                **2003****Operating
                    activities**Net
                    loss
                
                $
                (5,921,310
                )
                $
                (3,872,807
                )
                $
                (3,877,301
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                47,356
                
                
                144,564
                
                
                259,025Non-cash
                    compensation
                
                
                39,221
                
                
                79,521
                
                
                185,255Common
                    stock, options and warrants issued for services
                
                
                166,662
                
                
                195,708
                
                
                112,456Amortization
                    of discount on debt and beneficial conversion feature
                
                
                1,435,372
                
                
                1,053,349
                
                
                -Allowance
                    for doubtful accounts
                
                
                5,000
                
                
                -
                
                
                -Non-cash
                    settlements
                
                
                58,750
                
                
                (126,373
                )
                
                (1,525,698
                )Loss
                    on disposal of fixed assets
                
                
                -
                
                
                -
                
                
                40,760Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                (275,917
                )
                
                (321,204
                )
                
                (406,233
                )Prepaid
                    and other assets
                
                
                65,143
                
                
                (85,515
                )
                
                88,390Accounts
                    payable and other accrued expenses
                
                
                1,207,927
                
                
                (20,052
                )
                
                33,696Accrued
                    salaries and related costs
                
                
                18,047
                
                
                (192,394
                )
                
                (124,665
                )Deferred
                    revenue
                
                
                -
                
                
                -
                
                
                (7,285
                )Net
                    cash used in operating activities
                
                
                (3,153,749
                )
                
                (3,145,203
                )
                
                (5,221,600
                )**Investing
                    activities**Purchases
                    of equipment and furniture
                
                
                (76,190
                )
                
                (45,570
                )
                
                (11,721
                )Proceeds
                    from sale of equipment andfurniture
                
                
                -
                
                
                -
                
                
                12,670Net
                    cash (used in) provided by investingactivities
                
                
                (76,190
                )
                
                (45,570
                )
                
                949**Financing
                    activities**Proceeds
                    from exercise of stock optionsandwarrants
                
                
                4,333,788
                
                
                104,892
                
                
                928,675Net
                    proceeds from sale of common stockandwarrants
                
                
                -
                
                
                20,086
                
                
                1,337,582Proceeds
                    from issuance of convertiblepreferredstock
                
                
                -
                
                
                -
                
                
                5,510,000Stock
                    issuance costs
                
                
                -
                
                
                -
                
                
                (184,515
                )Proceeds
                    from issuance of convertible debt
                
                
                8,215,000
                
                
                2,425,000
                
                
                -Principal
                    payments on convertible debt
                
                
                (1,640,000
                )
                
                -
                
                
                -Principal
                    payments on capital lease obligations
                
                
                -
                
                
                (17,296
                )
                
                (60,394
                )Principal
                    payments on notes payable and short-termborrowings
                
                
                (99,479
                )
                
                (124,766
                )
                
                (148,042
                )Net
                    cash provided by financing activities
                
                
                10,809,309
                
                
                2,407,916
                
                
                7,383,306Net
                    increase (decrease) in cash
                
                
                7,579,370
                
                
                (782,857
                )
                
                2,162,655Cash
                    at beginning of year
                
                
                1,405,788
                
                
                2,188,645
                
                
                25,990Cash
                    at end of year
                
                $
                8,985,158
                
                $
                1,405,788
                
                $
                2,188,645**Supplemental
                    disclosures of cash flow information**Cash
                    paid for interest
                
                $
                47,527
                
                $
                49,262
                
                $
                34,535
 
 *See
          accompanying notes.*
 
 
 
 
  F-10
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements**
 
 **December
          31, 2005**
 
 
 **1.
          Business, Organization and Basis of Presentation**
 
 *Business*
 
 Oasys
          Mobile, Inc. ("Oasys Mobile” or the "Company") is engaged primarily in the
          development of applications that optimize the consumer wireless experience.
          The
          core of the Company's business plan is to focus on the emerging wireless
          market
          and partner with leading content brands to bring branded products to mobile
          phones. Our content brands include America Online, Fujifilm, Mattel, The
          Associated Press, The Wall Street Journal, Phil Hellmuth, Howard Lederer,
          Golf
          Digest, Hooters, The Grateful Dead and others.
 
 Oasys
          Mobile has developed software, technology and applications to enable information
          processing and resource management to include, but not be limited to, the
          creation, transmission, playing and management of content over wireless
          networks. We currently offer products in various categories, including
          games,
          messaging, personalization and entertainment. The Company's technology,
          which
          provides the foundation for its current products, is designed to address
          the
          usability constraints of the existing wireless network infrastructure.
          This
          technology will enable more efficient use of existing and future bandwidth
          allocations, resulting in a perceived bandwidth increase by the mobile
          end-user.
 
 Oasys
          Mobile builds end-user applications for most major mobile platforms, including
          QUALCOMM’s Binary Runtime Environment for WirelessTM (BREWTM), JavaTM 2 Platform,
          Micro Edition (J2METM), SymbianTM OS and Wireless Application Protocol (WAP). We
          distribute our applications through major wireless carriers who make our
          products available to their customers. Oasys Mobile currently has relationships
          with carriers that account for 97% of all U.S. wireless subscribers. We
          also
          have relationships with international carriers covering Canada, Latin America,
          Australia, Israel, the U.K and China.
 
 We
          have
          completed the development and deployment of more than thirty (30) wireless
          applications on a total of forty-eight (48) wireless carriers and distribution
          partners. Some of our United States based wireless carriers include Alltel,
          Cingular, Sprint PCS, T-Mobile, US Cellular and Verizon Wireless. These
          applications can be purchased by the end-user as a one-time purchase, or
          a
          monthly subscription, depending on content, product function, and/or carrier
          preferences.
 
 The
          majority of the applications completed and deployed by the Company, as
          well as
          planned future applications, have been developed by the Company through
          a
          process that involves securing agreements with content providers and carriers,
          and developing and launching the applications. The Company outsources the
          infrastructure needed to host and deliver the transactions for its application
          end-users.
 
 *Organization*
 
 On
          February 16, 2001, High Speed Net Solutions, Inc. (“High Speed”) and Summus,
          Ltd. entered into a contract whereby, in legal form, High Speed acquired
          all the
          assets of Summus, Ltd. Since the Summus, Ltd. stockholders were the majority
          owners of the entity after this transaction was completed, the transaction
          was
          accounted for as an issuance of stock by Summus, Ltd. in exchange for the
          net
          monetary assets of High Speed accompanied by a recapitalization of Summus,
          Ltd.
 
 Subsequent
          to this transaction, Summus, Ltd., continued to use the High Speed trade
          name,
          as High Speed was a publicly-traded entity, and its stock continued to
          trade in
          the public markets under the High Speed name. As a result of the transaction,
          the historical financial statements of Summus, Ltd., for accounting purposes,
          are deemed to be those of the Company.
 
 
 
  F-11
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **1.
          Business, Organization and Basis of Presentation
          (continued)**
 
 On
          February 27, 2002, the Company officially changed its legal name from High
          Speed
          Net Solutions, Inc. to Summus, Inc. (USA). On March 11, 2005, Summus, Inc.
          (USA)
          was reincorporated into the State of Delaware as Summus, Inc. On January
          31,
          2006, the Company officially changed its legal name from Summus, Inc. to
          Oasys
          Mobile, Inc. Therefore, the financial statements presented herein and labeled
          as
          the financial statements of Oasys Mobile, Inc. represent the historical
          financial statements of Summus, Inc. and also referred to herein as “the
          Company.” References herein to “High Speed” refer to High Speed Net Solutions,
          Inc. prior to the February 16, 2001 recapitalization transaction.
 
 *Future
          Operations*
 
 As
          shown
          in the financial statements for the year ended December 31, 2005, the Company
          incurred a net loss of $5,921,310 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.
 
 **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.
 
  
 
  F-12
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **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 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 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
          years ended December 31, 2005, 2004 and 2003 as the license fee revenue
          related
          to technology that had been previously developed by the Company, and there
          were
          no costs for installation, delivery or customization, or other related
          costs.
 
 Contracts
          and license fees
 
 We
          derive
          certain revenues from research and development contracts for governmental
          agencies and the commercial licensing of our technology. We recognize revenue
          on
          these contracts at the time services are rendered based upon the terms
          of
          individual contracts. Regarding the commercial licensing of our technology,
          we
          follow the provisions of AICPA Statement of Position 97-2, “ *Software
          Revenue Recognition* ”,
          as
          amended by AICPA Statement of Position 98-9 “ *Modification
          of SOP No. 97-2 Software Revenue Recognition with Respect to Certain
          Transactions* .”
          Revenue from software license fees is generally recognized upon delivery
          provided that a contract has been executed, the vendor fee is fixed or
          determinable, no significant vendor obligations or uncertainties surrounding
          customer acceptance remain, and collection of the resulting receivable
          is deemed
          probable.
 
 *Segments*
 
 Management
          has structured the Company’s internal organization as one business segment for
          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.
 
 
 
 
  F-13
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **2.
          Summary of Significant Accounting Policies (continued)**
 
 *Financial
          Instruments*
 
 The
          Company’s financial instruments that are exposed to a concentration of credit
          risk consist primarily of its trade accounts receivable, which are unsecured.
          Collateral is generally not required. Management provides an estimated
          allowance
          for doubtful accounts based on its assessment of the likelihood of future
          collections. The Company recorded an allowance for doubtful accounts of
          $5,000
          as of December 31, 2005. There was no allowance for doubtful accounts recorded
          as of December 31, 2004. The carrying amount of cash, accounts receivable,
          accounts payable and debt approximate fair value for these financial instruments
          because of the short maturities of the instruments.
 
 *Significant
          Concentrations*
 
 For
          the
          year ended December 31, 2005, one customer,
          Verizon Wireless, accounted for 45% and 18% of the Company’s revenues
          and accounts receivable, respectively. This same customer accounted for
          52% and
          32% of the Company’s revenues and accounts receivable for the year ended
          December 31, 2004. Should this wireless carrier discontinue the deployment
          of
          the Company’s applications, the Company’s business would be adversely affected.
          In addition, a second customer, QPass, accounted for 24% of the Company’s
          accounts receivable as of December 31, 2005. A different customer, Fuji
          Photo
          Film U.S.A., accounted for 12% of the Company’s accounts receivable as
          of December 31, 2004. There were no other customers with revenues or accounts
          receivable in excess of 10 percent of the respective balances.
 
 *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.
 
 During
          2005 and 2004, the period between achieving technological feasibility and
          the
          general availability of the software coincided, therefore no software
          development costs were capitalized.
 
 *Advertising
          Costs*
 
 Advertising
          costs are expensed as incurred. Advertising expense for the years ended
          December
          31, 2005, 2004 and 2003 was $872,098, $336,299 and $34,485,
          respectively.
 
 *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.
 
 
 
 
  F-14
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **2.
          Summary of Significant Accounting Policies (continued)**
 
 *Stock-Based
          Compensation*
 
 The
          Company has stock-based compensation plans for employees, consultants and
          directors, which are described more fully in Note 12. The Company accounts
          for
          those plans under the intrinsic value method prescribed by APB Opinion
          No. 25,
“ *Accounting
          for Stock Issued to Employees”* 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
          $39,221, $79,521 and $185,255 in 2005, 2004 and 2003, 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”.* 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 years ended December 31, 2005, 2004 and 2003: dividend
          yield
          of 0%; volatility ranging from 1.218 to 1.379; risk-free interest rate
          ranging
          from 2.75% to 4.89%, and expected option lives of 5 years for employees
          and
          consultants and 10 years for Board members. Forfeitures are accounted for
          as
          they occur. The weighted average grant-date fair value of options granted
          during
          2005, 2004 and 2003 was $2.84, $1.48 and $3.00 per option,
          respectively.
 
 **Year
                    ended December 31****2005**
                
                **2004**
                
                **2003**Net
                    loss applicable to common stockholders
                
                $
                (6,113,862
                )
                $
                (4,341,286
                )
                $
                (7,334,817
                )Non-cash
                    compensation charges included in
                  net
                    loss applicable to common stockholders
                
                
                39,221
                
                
                79,521
                
                
                185,255Stock-based
                    employee compensation cost that
                  would
                    have been included in net loss applicable to
                  common
                    stockholders under the fair value method
                
                
                (775,125
                )
                
                (1,185,769
                )
                
                (2,310,252
                )Adjusted
                    net loss applicable to common
                  Stockholders
                
                $
                (6,849,766
                )
                $
                (5,447,534
                )
                $
                (9,459,814
                )Basic
                    and diluted loss per share:Reported
                    net loss applicable to common
                  Stockholders
                
                $
                (0.46
                )
                $
                (0.49
                )
                $
                (1.19
                )Non-cash
                    compensation charges included in net
                  loss
                    applicable to common stockholders
                
                
                0.01
                
                
                0.01
                
                
                0.03Stock-based
                    employee compensation cost that
                  would
                    have been included in net loss applicable
                  to
                    common stockholders under the fair value method
                
                
                (0.06
                )
                
                (0.13
                )
                
                (0.38
                )Adjusted
                    net loss applicable to common
                  Stockholders
                
                $
                (0.51
                )
                $
                (0.61
                )
                $
                (1.54
                )
 
 
  F-15
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **2.
          Summary of Significant Accounting Policies (continued)**
 
 The
          Company accounts for stock-based compensation to non-employees of the Company,
          primarily consultants and advisors, at the fair value of the equity instrument
          in accordance with the provisions of SFAS No. 123 and Emerging Issues Task
          Force
          (“EITF”) 96-18, “ *Accounting
          for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
          or
          in Conjunction With Selling, Goods or Services.”* EITF
          96-18 requires that compensation be measured at the end of each reporting
          period
          for changes in the fair value of the Company’s stock until the options are
          vested. Non-cash consulting expense related to such stock based compensation
          for
          the years ended December 31, 2005, 2004 and 2003 was $20,823, $141,708
          and
          $119,630, respectively.
 
 *Net
          Loss Per Share*
 
 Loss
          per
          share has been calculated in accordance with SFAS No. 128, *“Earnings
          Per Share.”* Basic
          loss per share was computed by dividing the net loss for each period presented
          by the weighted average number of shares of common stock outstanding for
          such
          period, as adjusted for the recapitalization. Although the Company has
          potential
          common stock equivalents related to its outstanding stock options, warrants,
          preferred stock and convertible debt, these potential common stock equivalents
          were not included in diluted loss per share for each period presented because
          the effect would have been antidilutive.
 
 Common
          stock equivalents not included in diluted loss per share in 2005 consist
          of
          1,836,215 outstanding stock options, 7,967,002 outstanding warrants, 18,706
          Series A preferred shares and related dividends, as converted, and 4,000,000
          convertible debt shares, as converted.
 
 *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
          interim or annual period beginning after June 15, 2005. In April 2005,
          the SEC
          delayed implementation of SFAS No. 123(R) until the next fiscal year beginning
          after June 15, 2005. Under SFAS No. 123(R), pro forma disclosure will no
          longer
          be an alternative method for reporting stock-based compensation. SFAS No.
          123(R)
          permits public companies to adopt its requirements using one of two
          methods:
 
 1.
                A
                    “modified prospective” method in which compensation cost is recognized
                    beginning with the effective date (a) based on the requirements
                    of SFAS
                    No. 123(R) for all share-based payments granted after the effective
                    date
                    and (b) based on the requirements of SFAS No. 123 for all awards
                    granted
                    to employees prior to the effective date of SFAS No. 123(R) that
                    remain
                    unvested on the effective date; or
 
 2.
                A
                    “modified retrospective” method which includes the requirements of the
                    modified prospective method described above, but also permits
                    entities to
                    restate either (a) all prior periods presented or (b) prior interim
                    periods of the year of adoption for all amounts previously presented
                    in
                    pro forma disclosures under SFAS No.
                    123.
 
 The
          Company currently intends to use the modified prospective method and the
          Black-Scholes model for estimating the fair value of share-based payments.
          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 SFAS No. 123 disclosure of pro forma net income
          (loss)
          and earnings (loss) per share in Note 2 to the Company’s financial statements is
          not necessarily indicative of the impact on the Company’s results of operations
          for share-based payments under SFAS No. 123(R). The impact of adoption
          of SFAS
          No. 123(R) will depend on the number of options granted, the value of the
          option
          awards and other factors.
 
  F-16
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **2.
          Summary of Significant Accounting Policies (continued)**
 
 In
          May
          2005, the FASB issued SFAS No. 154, “ *Accounting
          Changes and Error Corrections”* (“SFAS
          No. 154”), a replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154
          requires retrospective application to prior periods’ financial statements of a
          voluntary change in accounting principles unless it is impracticable. APB
          Opinion No. 20, “ *Accounting
          Changes”* ,
          previously required that most voluntary changes in accounting principle
          be
          recognized by including in net income of the period of the change the cumulative
          effect of changing to the new accounting principle. This statement 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.
 
 **3.
          Equipment, Software and Furniture**
 
 Equipment,
          software and furniture consists of the following at December 31:
 
 **2005**
                
                **2004**Computer
                    equipment financed by capital leases
                
                $
                634,529
                
                $
                634,529Computer
                    software and equipment
                
                
                490,812
                
                
                414,622Furniture
                    and fixtures
                
                
                160,403
                
                
                160,4031,285,744
                
                
                1,209,554Less
                    accumulated depreciation and amortization
                
                
                (1,159,905
                )
                
                (1,112,549
                )$
                125,839
                
                $
                97,005
 
 Depreciation
          and amortization expense totaled $47,356, $144,564 and $259,025 for the
          years
          ended December 31, 2005, 2004 and 2003, respectively.
 
 **4.
          Leases**
 
 The
          Company leases equipment and office space under operating lease agreements.
          Rental expense amounted to approximately $278,000, $249,000 and $259,000
          for the
          years ended December 31, 2005, 2004 and 2003, respectively.
 
 Minimum
          future lease payments under noncancellable operating leases at December
          31, 2005
          are as follows:
 
 2006
                
                $
                205,3982007
                
                
                4,7162008
                
                
                4,7162009
                
                
                1,965Total
                    minimum lease payments
                
                $
                216,795
 
  F-17
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **5.
          Income Taxes**
 
 No
          provision for income taxes has been recorded during the years presented
          due to
          the Company’s significant operating losses in each year.
 
 Deferred
          income taxes reflect the net tax effects of temporary differences between
          the
          carrying amounts of assets and liabilities for financial reporting purposes
          and
          the amounts used for income tax purposes. Significant components of the
          Company’s deferred tax assets are as follows:
 
 **December
                    31****2005**
                
                **2004**Accrued
                    expenses and other revenue
                
                $
                43,000
                
                $
                10,000Net
                    operating losses
                
                
                14,983,000
                
                
                12,610,000Start-up
                    costs
                
                
                893,000
                
                
                1,660,000Other
                
                
                435,000
                
                
                160,000Stock
                    based compensation
                
                
                219,000
                
                
                190,000Total
                    deferred tax assets
                
                
                16,573,000
                
                
                14,630,000Valuation
                    allowance
                
                
                (16,573,000
                )
                
                (14,630,000
                )Net
                    deferred taxes
                
                $
                -
                
                $
                -
 
 Management
          has determined that a 100% valuation allowance for existing deferred tax
          assets
          is appropriate given the uncertainty regarding the ultimate realization
          of these
          assets.
 
 The
          reasons for the difference between actual income tax benefit for the years
          ended
          December 31, 2005, 2004 and 2003 and the amount computed by applying the
          statutory federal income tax rate to losses before incomes taxes are as
          follows:
 
 **December
                    31****2005**
                
                
                **2004**
                
                
                **2003**Income
                    tax benefit at statutory rate
                
                $
                (2,072,000
                )
                
                (35.0
                )%
                $
                (1,360,000
                )
                
                (35.0
                )%
                $
                (1,350,000
                )
                
                (35.0
                )%State
                    income taxes, net of federal benefit
                
                
                (266,000
                )
                
                (4.5
                )
                
                (180,000
                )
                
                (4.5
                )
                
                (170,000
                )
                
                (4.5
                )Non-deductible
                    expenses
                
                
                667,000
                
                
                11.3
                
                
                480,000
                
                
                12.4
                
                
                1,000
                
                
                0.1Change
                    in valuation allowance
                
                
                1,943,000
                
                
                32.8
                
                
                1,230,000
                
                
                31.7
                
                
                1,500,000
                
                
                38.8Other
                
                
                (272,000
                )
                
                (4.6
                )
                
                (170,000
                )
                
                (4.6
                )
                
                19,000
                
                
                (0.6
                )Income
                    tax benefit
                
                $
                -
                
                
                -
                %
                $
                -
                
                
                -
                %
                $
                -
                
                
                -
                %
 
 At
          December 31, 2005, the Company had federal and state net operating loss
          carryforwards of approximately $37.9
          million for income tax purposes. The tax benefit of these carryforwards
          is
          reflected in the above table of deferred tax assets. If not used, these
          carryforwards begin to expire in 2020 for federal tax purposes and in 2015
          for
          state tax purposes. U. S. tax rules impose limitations on the use of net
          operating losses following certain changes in ownership. If such a change
          occurs, the limitation would reduce the amount of these benefits that would
          be
          available to offset future taxable income each year, starting with the
          year of
          ownership change. Additionally, the Company has federal research and development
          credits of approximately $433,000 which begin to expire in 2024.
 
 
  F-18
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **6.
          Related Party Transactions**
 
 During
          2005, the Company issued stock options to purchase 25,000 shares of common
          stock
          to a consultant who became a director of the Company in December 2005.
          These
          options were valued at $53,250 using the Black-Scholes option-pricing model
          under the fair market value method of accounting. Of this amount, $4,438
          was
          expensed in the year ended December 31, 2005. In addition, the Company
          paid
          $15,000 to this director for consulting fees during the year ended December
          31,
          2005.
 
 During
          2004, the Company issued fully-vested stock options to purchase 27,000
          shares of
          common stock to two directors of the Company, working as consultants to
          the
          Company. These options were valued at $76,500 using the Black-Scholes
          option-pricing model under the fair value method of accounting.
 
 
 **7.
          Convertible Notes Payable**
 
 *November
          2005 Convertible Notes Payable*
  In
          November 2005, the Company entered into senior debt agreements with certain
          investors for $8,000,000 of financing in the form of notes payable (the
          "Senior
          Secured Debentures"). The Senior Secured Debentures bear interest at 6%
          and
          mature on June 30, 2007 (“Maturity Date”). The Senior Secured Debentures are
          convertible into shares of the Company’s common stock at the option of the
          holder at a conversion price of $2.00 per share. The Senior Secured Debentures
          are also subject to automatic conversion if the Company meets certain revenue
          or
          trading stock price milestones. The Senior Secured Debentures are secured
          by all
          of the assets of the Company.
 
 At
          the
          closing of the Senior Secured
          Debentures ,
          the
          investors received certain
          A
          Warrants, B Warrants and C-1 Warrants. The A Warrants provide the right
          to
          purchase an aggregate of 2,000,000 units at an exercise price of $2.00
          per unit,
          each unit consisting of one share of the Company’s common stock and a warrant to
          purchase 4/10 of a share of the Company’s common stock (the “C-2 Warrant”). The
          A Warrants are exercisable at any time until June 29, 2006. The B Warrants
          are
          exercisable at any time for a period of two years from the date of issuance
          for
          1,355,392 shares of the Company’s common stock and have an exercise price of
          $2.71 per share. The C-1 Warrants are exercisable at any time for a period
          of 5
          years from the date of issuance for an additional 1,355,392 shares of the
          Company’s common stock and have an exercise price of $3.54 per share. The C-2
          Warrant has substantially the same terms and conditions as the C-1 Warrant.
 
 The
          Company allocated the $8,000,000 of proceeds received in connection with
          the
          financing between the Senior Secured  Debentures and the
          warrants on a relative fair value basis. Accordingly, the Company allocated
          $4,307,906 to the Senior Secured  Debentures and
          $3,692,094 to the warrants issued. Since the Senior Secured  Debentures were
          issued at a discount to the principal balance, the effective conversion
          price of
          the Senior Secured  Debentures was less
          than the fair value of the Company's common stock on the date of issuance.
          In
          accordance with EITF 98-5, " *Accounting
          for Convertible Securities with Beneficial Conversion Features or Contingently
          Adjustable Conversion Ratios* ,"
          a
          beneficial conversion feature of $4,307,906 was recorded as a discount
          to the debt and a
          corresponding credit to additional paid-in capital on the date of
          issuance.
 
 The
          discount on the debt is being amortized to interest expense over the term
          of the
          Senior Secured  Debentures beginning on the date of issuance. Amortization of the discount of the
          Senior  Secured  Debentures was
          $584,040 for the year ended December 31, 2005.
 
 The
          principal balance of the Senior Secured Debentures is $8,000,000 as of
          December
          31, 2005 and matures on June 30, 2007. The discount related to the Senior
          Secured Debentures is $7,415,960 as of December 31, 2005, and is shown
          as a
          contra-liability on the balance sheet.
 
  F-19
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **7.
          Convertible Notes Payable (continued)**
 
 *May
          2004 Convertible Notes Payable*
 
 In
          May
          2004, the Company entered into senior convertible debt agreements with
          certain
          investors to provide up to $2,000,000 of financing in the form of convertible
          notes payable (the "Notes"). The Notes did not bear interest and were
          convertible into shares of the Company’s common stock at the option of the
          holder. At the closing of the senior convertible debt agreements, each
          investor
          received 715 shares of the Company’s common stock for each $1,000 invested, for
          a total of 1,428,600 shares of the Company’s common stock. Each $1,000 of senior
          convertible debt issued and outstanding was convertible into an additional
          1,429
          shares of the Company’s common stock.
 
 Upon
          closing, the Company received $1,000,000 in cash and the remaining $1,000,000
          of
          proceeds received were placed in an escrow account with American Stock
          Transfer
          Company (the “Escrow Agent”). The Company was not to have access to this
          escrowed $1,000,000 until it achieved positive EBITDA, as defined in the
          senior
          convertible debt agreements, for a one-month period. The Company achieved
          positive EBITDA for the month of August 2004 and sent the Escrow Agent
          a
          certificate of its Chief Financial Officer notifying it of such, which
          gave the
          Company access to the escrowed funds. The Company was not required to and
          did
          not draw down any of these funds. Any of the escrowed funds not drawn down
          by
          the Company by March 31, 2005, were to be released by the Escrow Agent
          to the
          holders of the Notes on a pro rata basis. Any of the escrowed funds not
          released
          by the Escrow Agent to the Company were to have no conversion rights into
          the
          Company’s common stock as set forth above. On December 16, 2004, the Company
          released all of the escrowed funds, plus accrued interest, to the respective
          investors on a pro rata basis.
 
 The
          Company allocated the $1,000,000 of proceeds received in connection with
          the
          financing in May 2004 between the Notes and the 1,428,600 shares of common
          stock
          issued on a relative fair value basis. Accordingly, the Company allocated
          $500,000 to the Notes and $500,000 to the common stock issued. Since the
          Notes
          were issued at a discount to the principal balance, which is the basis
          for
          conversion, the effective conversion price of the Notes was less than the
          fair
          value of the Company's common stock on the date of issuance. Accordingly,
          a
          beneficial conversion feature of $500,000 was recorded as a discount to
          the
          Notes and a corresponding credit to additional paid-in capital on the date
          of
          issuance. Since the Notes had a term of three years, the aggregate discount
          of
          $1,000,000 was being amortized to interest expense over a thirty-six month
          period commencing on the date of issuance.
  From
          September to December 2004, these notes were converted into 1,428,600 shares
          of
          common stock. The remaining discount on these Notes was fully amortized
          in 2004.
          Amortization of the discount of the Notes was $1,000,000 for the year ended
          December 31, 2004.
  *December
          2004 and January 2005 Convertible Notes Payable*
  In
          December 2004, the Company entered into senior debt agreements with certain
          investors for $1,425,000 of financing in the form of notes payable (the
          "Senior
          Notes"). The Senior Notes bore interest at 12% and were to mature on the
          earlier
          of when the Company closed on at least $3,000,000 in financing or May 15,
          2005
          (“Maturity Date”). The Senior Notes had an optional conversion feature in that
          the Senior Notes were convertible into shares of the Company’s common stock at
          the option of the holder, in the event the Senior Notes were not repaid
          prior to
          or on the Maturity Date. The conversion price was to be the lower of 90%
          of the
          closing price of the Company’s common stock on the Maturity Date or 90% of the
          average closing prices of the Company’s common stock for the five days prior to
          optional conversion.
 
 At
          the
          closing of the Senior Notes, the investors received warrants to purchase
          279,413
          shares of the Company’s common stock. The warrants were exercisable upon
          issuance, have a term of five years and have an exercise price of $5.60
          per
          share.
 
 In
          January 2005, the Company received an additional investment of $215,000
          of
          Senior Notes, on the same terms as those sold by the Company in the December
          2004 Senior Notes Financing. The holder was granted warrants to purchase
          a total
          of 42,157 shares of the Company’s common stock on the same terms as the warrants
          issued in the December 2004 Senior Notes Financing.
 
 
  F-20
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **7.
          Convertible Notes Payable (continued)**
 
 Due
          to
          the financing received by the Company in February and March 2005, the maturity
          of the 12% Senior Notes accelerated from the original maturity date of
          May 15,
          2005. The Company repaid the principal balance of $1,640,000 of the Senior
          Notes, plus interest at the rate of 12% per annum. Since the Senior Notes
          were
          paid off in accordance with their terms, they have no rights of conversion
          into
          the Company’s common stock.
 
 The
          Company allocated the $1,640,000 of proceeds received in connection with
          the
          financing in December 2004 and January 2005 between the Senior Notes and
          the
          warrants on a relative fair value basis. Accordingly, the Company allocated
          $735,319 to the Senior Notes and $904,681 to the warrants issued. Since
          the
          Senior Notes were issued at a discount to the principal balance, which
          is the
          basis for the optional conversion, the effective conversion price of the
          Senior
          Notes was less than the fair value of the Company's common stock on the
          date of
          issuance. In accordance with EITF 98-5, " *Accounting
          for Convertible Securities with Beneficial Conversion Features or Contingently
          Adjustable Conversion Ratios* ,"
          a
          beneficial conversion feature of $735,319 was measured at the date of issuance
          and would have been recognized and recorded as a discount on debt and a
          corresponding credit to additional paid-in capital if the Senior Notes
          had not
          been repaid prior to or on the Maturity Date.
 
 The
          discount on the debt of $904,681 related to the warrants was being amortized
          to
          interest expense over the term of the Senior Notes beginning on the date
          of
          issuance. Amortization of the discount of the Senior Notes was $851,332
          and
          $53,349 for the years ended December 31, 2005 and 2004, respectively. The
          discount was fully amortized in 2005.
 
 **8.
          Notes Payable**
 
 On
          September 4, 2000, the Company entered into an agreement to obtain the
          rights to
          certain software technology. In exchange for these rights, the Company
          agreed to
          pay $200,000 in eight equal installments of $25,000 beginning in 2001 and
          continuing over the next two years. On July 19, 2002, the payment terms
          of this
          agreement were amended for an adjustment in the payment terms, whereby
          the
          Company issued 23,500 shares of common stock with registration rights to
          repay
          $87,500 of the outstanding balance. The remaining balance was scheduled
          to be
          repaid in 6 equal installments commencing July 19, 2003; however, no payments
          have been made on this balance subsequent to July 19, 2003 due to dispute
          over
          performance, and therefore the agreement is in default. The outstanding
          principal balance of this note as of December 31, 2005 and 2004 is
          $77,500.
 
 On
          May
          23, 2003, the Company executed a settlement agreement with Holland & Knight
          LLP (“H&K”). The terms of the H&K agreement are more fully described in
          Note 14 below. Under the terms of the H&K agreement, the Company entered
          into a note payable agreement whereby it agreed to make payments totaling
          $325,000, consisting of monthly payments of $9,028 over a three year period
          commencing on June 1, 2003. Since the H&K agreement did not provide for an
          interest rate component pertaining to this payment plan, a rate of 20%
          per annum
          was used to present value the note, resulting in a net present value of
          $242,926. On January 31, 2005, the Company entered into a modified settlement
          agreement with 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.
 
 On
          September 3, 2003, the Company negotiated a revised settlement agreement
          with
          Analysts International Corporation (“AIC”), a former service provider. The terms
          of the revised AIC settlement agreement are more fully described in Note
          14
          below. Under the terms of the revised AIC settlement agreement, the Company
          agreed to pay a monthly payment of $7,500 until the total indebtedness,
          including interest at 8%, is paid in full. This note was fully paid in
          2005. As
          of December 31, 2005, the Company has accrued interest of $94,167 recorded
          on
          the balance sheet related to this note.
 
 
 
  F-21
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **8.
          Notes Payable (continued)**
 
 On
          September 30, 2003, the Company executed a settlement agreement with Raytheon
          Company (“Raytheon”), regarding a note payable agreement that had previously
          been in default and had accrued interest at a rate of 18% per annum. The
          terms
          of the Raytheon agreement are more fully described in Note 14 below. Under
          the
          terms of the Raytheon agreement, the Company entered into a note payable
          agreement whereby it agreed to make payments totaling $87,516, consisting
          of an
          initial payment of $10,000; six (6) equal monthly installments of $3,000;
          fourteen (14) monthly installments of $4,000; and one final installment
          of
          $3,516. Since the Raytheon agreement did not provide for an interest rate
          component pertaining to this payment plan, a rate of 20% per annum was
          used to
          present value the note, resulting in a net present value of $74,305. This
          note
          was fully paid in 2005.
 
 **9.
          Profit Sharing Plan**
 
 The
          Company has established a 401(k) retirement plan for the benefit of employees
          who have attained the age of 21 years. The Company’s matching contribution to
          the plan is discretionary and is not limited to profits. For the years
          ended
          December 31, 2005, 2004 and 2003, the Company contributed $-0-, $-0- and
          $28,706
          to the plan, respectively.
 
 **10.
          Common Stock and Warrants**
 
 *2005
          Transactions*
 
 In
          2005,
          the Company issued 46,668 shares of restricted common stock pursuant to
          a
          marketing agreement valued at $145,838.
  Duing
          2005, the Company issued to a consultant 7,475
          warrants to purchase common stock.  The warrants were valued at $20,824
          using the Black-Scholes option-pricing model.
 
 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.
 
 In
          May
          2005, the Company received $1,995 from the exercise of 1,050 warrants to
          purchase shares of the Company’s common stock.
 
 *2004
          Transactions*
 
 From
          April 2004 to June 2004, the Company issued 43,104 shares of common stock
          to an
          investor, who is unaffiliated with the Company, for aggregate proceeds
          of
          $20,086.
 
 In
          May
          2004, the Company issued 30,000 shares of restricted common stock pursuant
          to a
          marketing agreement valued at $54,000.
 
 In
          June
          2004, the Company issued 64,748 shares of common stock to employees in
          lieu of
          accrued payroll of $84,172.
 
 From
          October 2004 to November 2004, the Company issued 86,207 shares of common
          stock
          upon the exercise of warrants, held by an investor unaffiliated with the
          Company, for aggregate proceeds of $40,517.
  During
          2004, the Company issued to consultants
          16,223 warrants to purchase common stock. The warrants were valued at $29,591
          using the Black-Scholes option-pricing model.
 
 *2003
          Transactions*
 
 During
          2003, the Company sold to private accredited investors in negotiated
          transactions 270,416 shares of its common stock, warrants to purchase an
          additional 31,600 shares of common stock, and re-priced 660,965 previously
          issued warrants. These transactions were in two forms. The first form involved
          purchases of common stock at prices which were above the trading value
          of the
          Company’s freely-tradable shares and allowed these investors to reduce the
          exercise price of a certain number of their previously purchased warrants,
          typically allowing them to reprice 2 warrants for every share purchased.
          The
          other form allowed warrant holders to reduce the exercise price of previously
          issued warrants if the holder exercised those repriced warrants immediately.
          The
          original exercise prices of the repriced warrants ranged between $6.00
          and
          $52.50, per share. The repriced exercise prices ranged between $2.00 and
          $16.90,
          per share. Total cash proceeds from the sale of the shares and issuance
          of the
          new warrants was $1,337,582.
 
  F-22
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **10.
          Common Stock and Warrants (continued)**
 
 During
          2003, the Company issued 349,125 shares of common stock upon the exercise
          of
          warrants with exercise prices ranging from $2.00 to $5.00 per share. Of
          the
          349,125 exercised warrants, 288,135 were exercised in connection with the
          repricing of the exercise price of the warrants as described in the previous
          paragraph. The initial exercise prices of the warrants ranged between $6.00
          and
          $52.50. The repriced exercise prices ranged between $2.00 and $16.90. The
          exercise of these warrants generated gross proceeds of $928,675.
 
 During
          2003, the Company issued to consultants 21,926 shares of common stock and
          1,794
          warrants for services provided to the Company for an aggregate value of
          $112,456. The shares of common stock were valued at $78,629 based on the
          negotiated terms of each contract and the warrants were valued at $3,939
          using
          the Black-Scholes option-pricing model.
 
 During
          2003, the Company issued 90,694 shares of its common stock valued at $308,355
          to
          entities as payment on outstanding vendor balances.
 
 During
          2003, the Company issued 146,173 shares of its common stock valued at $517,504
          to entities as settlement of outstanding obligations. During 2003, Oasys
          Mobile
          issued 33,334 warrants to Donald T. Locke, working as a consultant acting
          in the
          capacity of the general counsel to Oasys Mobile, as payment for $200,000
          of fees
          owed to Mr. Locke. The warrants have an exercise price of $6.00 per share
          and a
          contractual life of 5 years. The warrants were valued at $83,333 using
          the
          Black-Scholes option-pricing model. The settlement gain resulting from
          this
          transaction was $116,667 and was recorded in non-cash settlements for the
          year
          ended December 31, 2003. The settlements are more fully described in Note
          14 below.
 
 The
          Company has reserved shares of its authorized 185,000,000 shares of common
          stock
          for future issuance as follows:
 
 Conversion
                    of convertible debt
                
                
                4,000,000Series
                    A convertible preferred stock and related dividends
                
                
                18,706Outstanding
                    common stock warrants
                
                
                7,967,002Outstanding
                    stock options
                
                
                1,836,215Possible
                    future issuance under stock option plans
                
                
                1,000,479Total
                
                
                14,822,402
 
 A
          summary
          of the Company’s outstanding warrants as of December 31, 2005 is as
          follows:
 
 Range
                    of
                  Exercise
                    Prices
                Warrants
                  Outstanding$0.01
                    - 2.50
                2,014,6922.51
                    - 5.00
                3,385,1555.01
                    - 10.00
                769,20210.01
                    - 20.00
                817,64520.01
                    - 30.00
                637,69330.01
                    - 40.00
                226,164Over
                    40.00
                116,4517,967,002
 
 The
          warrants can be exercised at any time until their expiration dates, which
          are
          between January 2, 2006 and December 30, 2010.
 
 
 
 
 
  F-23
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **11.
          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 December 31, 2005 and 2004. 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. The Company issued 329 shares of Series A preferred stock during
          2004 as
          payment for declared dividends. Cumulative unpaid dividends at December
          31, 2005
          were $256,452.
 
 During
          2003, a holder of the Series A preferred stock converted 250 shares of
          Series A
          preferred stock into 1,756 shares of the Company’s common stock.
 
 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.
 
 *Series
          C Convertible Preferred Stock*
 
 In
          June
          2003, the Company amended its articles of incorporation to establish its
          Series
          C convertible preferred stock (“Series C preferred stock”). The Series C
          preferred stock had an issued price of $1,000 per share and the following
          rights
          and privileges:
 
 ·
                no
                    voting rights except with respect to (i) the amendment or alteration
                    of
                    the statement of rights and preferences applicable to the Series
                    C
                    preferred stock, and (ii) any matters for which voting rights
                    were
                    provided under Florida law;
 
 ·
                shares
                    of the Series C preferred stock shall rank on a parity with Oasys
                    Mobile’s
                    Series A, Series D and Series E convertible preferred stock as
                    to
                    liquidation preference upon dissolution, liquidation or the winding
                    up of
                    Oasys Mobile;
 
 ·
                a
                    liquidation preference, subject to adjustment for any combinations,
                    consolidations, stock distributions or stock dividends with respect
                    to the
                    Series C preferred stock, of $1,000 per share payable in the
                    event of any
                    liquidation, dissolution or winding up of Oasys Mobile;
                    and
 
 ·
                the
                    right to convert each share of Series C preferred stock into
                    shares of our
                    common stock at any time, at the option of the Series C preferred
                    stockholder, after nine (9) months from the date of its issuance.
                    Each
                    share of Series C preferred stock shall be convertible into 400
                    fully paid
                    and nonassessable shares of the Company’s common
                    stock.
 
 
 
 
  F-24
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **11.
          Preferred Stock (continued)**
 
 During
          2003, the Company sold 1,310 shares of its Series C preferred stock and
          issued
          warrants in connection with such sale to purchase 524,000 shares of common
          stock
          with an exercise price of $7.50 per share for gross proceeds of $1,310,000.
          The
          value of the warrants issued in this offering, totaling $650,990, was determined
          utilizing the Black Scholes pricing model, limited to the pro-rata fair
          value of
          the Series C offering proceeds allocable to the warrants. Cash commissions
          of
          $35,263 were paid in connection with the Series C offering.
 
 During
          2004, holders of the Series C preferred stock converted 1,310 shares of
          Series C
          preferred stock into 524,000 shares of the Company’s common stock. All shares of
          the Series C preferred stock have been converted into shares of the Company’s
          common stock as of December 31, 2004.
 
 *Series
          D Convertible Preferred Stock*
 
 In
          September 2003, the Company amended its articles of incorporation to establish
          its Series D convertible preferred stock (“Series D preferred stock”). The newly
          established Series D preferred stock had an issued price of $1,000 per
          share and
          the following rights and privileges:
 
 ·
                no
                    voting rights except with respect to (i) the amendment or alteration
                    of
                    the statement of rights and preferences applicable to the Series
                    D
                    preferred stock, and (ii) any matters for which voting rights
                    were
                    provided under Florida law;
 
 ·
                shares
                    of the Series D preferred stock shall rank on a parity with Oasys
                    Mobile’s
                    Series A, Series C and Series E preferred stock as to liquidation
                    preference upon dissolution, liquidation or the winding up of
                    Oasys
                    Mobile;
 
 ·
                a
                    liquidation preference, subject to adjustment for any combinations,
                    consolidations, stock distributions or stock dividends with respect
                    to the
                    Series D preferred stock, of $1,000 per share payable in the
                    event of any
                    liquidation, dissolution or winding up of Oasys Mobile;
                    and
 
 ·
                the
                    right to convert each share of Series D preferred stock into
                    shares of our
                    common stock at any time, at the option of the Series D preferred
                    stockholder. Each share of Series D preferred stock shall be
                    convertible
                    into 500 fully paid and nonassessable shares of the Company’s common
                    stock.
 
 During
          2003, the Company sold 4,000 shares of its Series D preferred stock and
          issued
          warrants in connection with such sale to purchase 1,000,000 shares of common
          stock with an exercise price of $3.50 per share for gross proceeds of
          $4,000,000. The value of the warrants issued in this offering, totaling
          $1,219,856, was determined utilizing the Black Scholes pricing model, limited
          to
          the pro-rata fair value of the Series D offering proceeds allocable to
          the
          warrants. Cash commissions of $111,000 were paid in connection with the
          Series D
          offering.
 
 During
          2003, holders of the Series D preferred stock converted 1,100 shares of
          Series D
          preferred stock into 550,000 shares of the Company’s common stock. During 2004,
          holders of the Series D preferred stock converted 2,900 shares of Series
          D
          preferred into 1,450,000 shares of the Company’s common stock. All shares of the
          Series D preferred stock have been converted into shares of the Company’s common
          stock as of December 31, 2004.
 
 
  F-25
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **11.
          Preferred Stock (continued)**
 
 *Series
          E Convertible Preferred Stock*
 
 In
          November 2003, the Company amended its articles of incorporation to establish
          its Series E convertible preferred stock (“Series E preferred stock”). The
          Series E preferred stock had an issued price of $1,000 per share and the
          following rights and privileges:
 
 ·
                no
                    voting rights except with respect to (i) the amendment or alteration
                    of
                    the statement of rights and preferences applicable to the Series
                    E
                    preferred stock, and (ii) any matters for which voting rights
                    were
                    provided under Florida law;
 
 ·
                shares
                    of the Series E preferred stock shall rank on a parity with Oasys
                    Mobile’s
                    Series A, Series C and Series D preferred stock as to liquidation
                    preference upon dissolution, liquidation or the winding up of
                    Oasys
                    Mobile;
 
 ·
                a
                    liquidation preference, subject to adjustment for any combinations,
                    consolidations, stock distributions or stock dividends with respect
                    to the
                    Series E preferred stock, of $1,000 per share payable in the
                    event of any
                    liquidation, dissolution or winding up of Oasys Mobile;
                    and
 
 ·
                the
                    right to convert each share of Series E preferred stock into
                    shares of our
                    common stock at any time, at the option of the Series E preferred
                    stockholder. Each share of Series E preferred stock shall be
                    convertible
                    into 500 fully paid and nonassessable shares of the Company’s common
                    stock.
 
 During
          November 2003, the Company sold 200 shares of its Series E preferred stock
          and
          issued warrants in connection with such sale to purchase 50,000 shares
          of common
          stock with an exercise price of $3.50 per share for gross proceeds of $200,000.
          The value of the warrants issued in this offering, totaling $59,459, was
          determined utilizing the Black Scholes pricing model, limited to the pro-rata
          fair value of the Series E offering proceeds allocable to the warrants.
          Cash
          commissions of $6,000 were paid in connection with the Series E
          offering.
 
 During
          2003, a holder of Series E preferred stock converted 30 shares of Series
          E
          preferred stock into 15,000 shares of the Company’s common stock. During 2004, a
          holder of Series E preferred stock converted 170 shares of Series E preferred
          stock into 85,000 shares of the Company’s common stock. All shares of the Series
          E preferred stock have been converted into shares of the Company’s common stock
          as of December 31, 2004.
 
 The
          accounting treatment for the Series C, D and E preferred stock (the “Preferred
          Stock”) involved allocating the value of the principal amount received from the
          Preferred Stock offerings between the Preferred Stock, the associated warrants
          and a beneficial conversion feature (“BCF”) associated with the Preferred Stock.
          A BCF existed because the effective conversion rate of the Preferred Stock
          was
          below the traded value of the Company’s common stock on the date the Preferred
          Stock was issued. The BCF for the Preferred Stock totaling $3,579,695 was
          recorded as a discount to the Preferred Stock and additional paid-in capital
          on
          the date the Preferred Stock was issued. Since the Series C preferred stock
          became convertible at any time after nine months from its issuance, the
          value of
          its BCF totaling $659,010 was amortized to retained deficit over a nine
          month
          period commencing with its issuance. Amortization of the Series C preferred
          stock BCF for the years ended December 31, 2004 and 2003 was $293,444 and
          $365,566, respectively. Since the Series D and E preferred stock were
          convertible immediately, the value of its beneficial conversion feature
          totaling
          $2,920,685 was fully amortized to retained deficit on the date of issuance
          in
          2003.
 
 
  F-26
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **12.
          Stock Options**
 
 During
          2000, the Company established a stock option plan to provide for the issuance
          of
          stock options to employees and directors. The Plan provides for the issuance
          of
          stock options to employees, directors, advisors and consultants of the
          Company.
          Options granted generally have a ten-year term and vest over three years
          from
          the date of grant. Certain of the stock options granted under the Plan
          have been
          granted pursuant to various stock option agreements. Each stock option
          agreement
          contains specific terms. On May 23, 2005, the Board of Directors authorized
          an
          increase in the number of options available for grant under the Plan to
          3,000,000.
 
 During
          2003, the Company granted 3,300 stock options to a member of its Board
          of
          Advisors. This option vests quarterly over a one year period and has an
          exercise
          price equal to the traded per share value of the underlying common stock
          on the
          date of grant. The value of the option of $8,663 was determined using the
          Black-Scholes option-pricing model and was recorded as deferred compensation
          and
          amortized as non-cash compensation expense over the vesting period.
 
 During
          2004, the Company granted 3,300 stock options to a member of its Board
          of
          Advisors. This option vests quarterly over a one year period and has an
          exercise
          price equal to the traded per share value of the underlying common stock
          on the
          date of grant. The value of the option of $6,600 was determined using the
          Black-Scholes option-pricing model and was recorded as deferred compensation
          and
          amortized as non-cash compensation expense over the vesting period.
 
 Commencing
          August 15, 2002 and ending in February 2004, the Company adopted an alternative
          compensation arrangement for its executives. Under the terms of the new
          arrangement, electing executives could receive a portion of their annual
          cash
          compensation in the form of fully vested stock options. The stock options
          had an
          exercise price equal to the fair market value of the Company’s common stock
          based on the closing prices of the common stock at the end of each respective
          payroll period. The amount of compensation to be received in stock options
          (the
“target compensation”) was determined by the participating executive based on
          increments of 5% commencing with a minimum level of 15% of the participant’s
          annual compensation. The number of shares underlying each option was determined
          by dividing the dollar value of the target compensation by the closing
          price at
          the end of each respective payroll period. Beginning on August 15, 2002,
          five
          executives elected to participate in this alternative payment plan at reduced
          salary levels ranging between 25% and 35% of the participant’s annual
          compensation. During the years ended December 31, 2004 and 2003, the Company
          issued 10,315 and 49,061, respectively, fully vested stock options with
          exercise
          prices ranging between $1.60 and $5.10 per share under this plan.
 
 The
          Company has entered into various consulting agreements that provide for
          the
          issuance of options to purchase shares of the Company’s common stock primarily
          on a monthly basis as services are performed. These options vest on a monthly
          basis as they are earned and have exercise prices that equal the traded
          per
          share value of the underlying common stock on the date of grant. For the
          years
          ended December 31, 2005, 2004 and 2003, the Company issued -0-, 44,536
          and
          10,340 options, respectively, under these consulting agreements. These
          options
          were valued at $0, $112,117 and $29,888, respectively, using the Black-Scholes
          option-pricing model under the fair value method of accounting. The term
          of
          these agreements is generally twelve months, however the Company can immediately
          terminate them.
 
 During
          2005 and 2004, the Company also issued options to consultants that vest
          over
          varying periods. The measurement date for the calculation of compensation
          expense for these options is considered to be the date when all services
          have
          been rendered or the date that options are fully vested. Compensation expense
          is
          recognized up to the measurement date based on changes in the fair value
          of the
          Company’s common stock. During the years ended December 31, 2005 and 2004, the
          Company issued 25,000 and 9,000 options, respectively, under these agreements.
          The Company expensed $14,885 and $4,194 related to these options during
          the
          years ended December 31, 2005 and 2004, respectively.
 
 During
          2004, the Company issued options to management with exercise prices that
          were
          issued below the fair market value of the underlying stock. The Company
          issued
          325,000 options under these agreements. The Company expensed $21,668 and
          $18,600
          related to these options during the years ended December 31, 2005 and 2004,
          respectively.
 
 
  F-27
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **12.
          Stock Options (continued)**
 
 A
          summary
          of the Company’s stock option activity is as follows:
 **Shares**
                
                **Weighted**
                  **Average**
                  **Exercise
                    Price**Outstanding
                    - December 31, 2002
                
                
                755,618
                
                $
                22.90Granted
                
                
                131,553
                
                
                3.40Exercised
                
                
                —
                
                
                —Forfeited
                
                
                (116,208
                )
                
                15.00Outstanding
                    - December 31, 2003
                
                
                770,963
                
                
                18.00Granted
                
                
                495,947
                
                
                1.50Exercised
                
                
                (24,128
                )
                
                2.70Forfeited
                
                
                (98,792
                )
                
                18.60Outstanding
                    - December 31, 2004
                
                
                1,143,990
                
                
                11.16Granted
                
                
                915,622
                
                
                3.26Exercised
                
                
                (59,660
                )
                
                3.68Forfeited
                
                
                (163,737
                )
                
                20.37Outstanding
                    - December 31, 2005
                
                
                1,836,215
                
                
                6.53
 
  The
          following table summarizes information about stock options outstanding
          at
          December 31, 2005:
  **Options
                    Outstanding****Range
                    of**
                  **Exercise
                    Prices**
                
                **Number**
                  **Outstanding**
                
                **Weighted
                    Average**
                  **Contractual
                    Life**
                
                **Weighted
                    Average**
                  **Exercise
                    Price**$
                    0.01- 2.50
                
                
                582,434
                
                
                8.73
                
                $
                1.372.51
                    - 5.00
                
                
                936,278
                
                
                8.53
                
                
                3.475.01-
                    10.00
                
                
                35,849
                
                
                5.45
                
                
                6.3010.01-
                    20.00
                
                
                94,579
                
                
                5.09
                
                
                14.2420.01-
                    30.00
                
                
                95,140
                
                
                4.66
                
                
                22.5930.01-
                    40.00
                
                
                58,601
                
                
                4.21
                
                
                35.47Over
                    40.00
                
                
                33,334
                
                
                3.47
                
                
                64.611,836,215
                
                
                7.92
                
                
                6.53
 
 **Options
                    Exercisable****Range
                    of**
                  **Exercise
                    Prices**
                
                **Number**
                  **Exercisable**
                
                **Weighted
                    Average**
                  **Exercise
                    Price**$
                    0.01- 2.50
                
                
                313,727
                
                $
                1.442.51
                    - 5.00
                
                
                438,824
                
                
                3.675.01-
                    10.00
                
                
                25,921
                
                
                6.5410.01-
                    20.00
                
                
                94,579
                
                
                14.2420.01-
                    30.00
                
                
                95,140
                
                
                22.5930.01-
                    40.00
                
                
                58,601
                
                
                35.47Over
                    40.00
                
                
                33,334
                
                
                64.611,060,126
                
                
                9.39
 
  F-28
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **12.
          Stock Options (continued)**
 
 During
          2005 and 2004, the Company issued 59,660 and 24,128, respectively, shares
          of
          common stock upon the exercise of outstanding options, and received $219,659
          and
          $64,375, respectively, in proceeds from the exercise of these stock options.
          There were no exercises of stock options in 2003.
 
 **13.
          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. Dr. Jawerth’s deferred
          salary amount of $81,106 is recorded as accrued salaries in the Company’s
          balance sheet as of December 31, 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 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.
 
 
 
 
  F-29
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **14.
          Settlements of Contractual Disputes and Litigation**
 
 **2003
          Settlements**
 
 *The
          AIC Settlement*
 
 On
          March
          30, 2001, Analysts International Corporation (“AIC”) filed a civil summons and
          complaint in General Court of Justice, District Court Division, County
          of Wake,
          North Carolina, against High Speed Net Solutions, Inc. The complaint alleged
          that the Company breached certain contracts with AIC, dated December 9,
          1999,
          February 11, 2000, April 25, 2000, May 9, 2000, and May 23, 2000, under
          which
          AIC provided the Company with computer programming services.
 
 The
          Company and AIC entered into a settlement agreement and release, dated
          August 7,
          2001, under which the Company agreed to pay the sum of $358,426, plus interest
          accruing at the rate of 8% per annum from March 31, 2000 (the “Indebtedness”)
          according to the following payment schedule: (i) $20,000 upon execution
          of the
          settlement agreement, (ii) $5,000 per month for a period of nine months,
          commencing one month after execution of the settlement agreement, and (iii)
          $10,000 per month thereafter until the balance of the Indebtedness is paid
          in
          full. We ceased making payments under this settlement agreement on November
          15,
          2002 due to liquidity constraints, and therefore, we were in default under
          the
          terms of the initial agreement. The Company received notification of its
          default
          from AIC on July 9, 2003, and the 3-day cure period to which the Company
          was
          entitled under the terms of the settlement agreement expired, which would
          allow
          AIC to file a consent judgment against the Company. While negotiating to
          amend
          the settlement agreement in August 2003, Oasys Mobile learned that AIC
          had filed
          the consent judgment on February 13, 2002, which Oasys Mobile believes
          was in breach of the original settlement agreement. In September 2003,
          the
          parties negotiated a revised settlement agreement pursuant to which (i)
          the
          consent judgment remains filed and of record, (ii) AIC will file with the
          court
          a credit to the judgment reflecting all payments made by the Company; (iii)
          the
          payment terms have been revised to require payment by the Company of $60,000
          by
          September 5, 2003, which has been made, and $7,500 per month thereafter
          until
          the full amount of the indebtedness, including accrued interest is paid,
          and
          (iv) AIC agrees to refrain from executing on the consent judgment as long
          as the
          Company makes the payments required by the revised settlement terms as
          identified in this paragraph. In the event that the Company fails to make
          a
          scheduled payment as set forth in this revised settlement agreement, AIC
          may
          execute on the consent judgment and seek to satisfy the judgment from the
          assets
          of the Company in accordance with the laws of the state of North Carolina.
 
 *The
          AT&T CORP. Settlement*
 
 On
          June
          7, 2002, AT&T filed a civil lawsuit in the United States District Court for
          the Eastern District of North Carolina against the Company. In this suit,
          AT&T claimed that it is entitled to payment in the amount of $238,783 for
          telephone calls and services rendered to the Company. In March 2003, the
          Company
          and AT&T settled the claim between them, whereby both parties agreed to
          reduce the total amount owed by the Company to AT&T to $120,000 and this
          reduced amount be repaid over an 18 month period commencing in March 2003.
          The
          settlement gain resulting from this transaction was $118,783. These amounts
          were
          paid in full in 2004.
 
 *The
          Holland and Knight LLP Settlement*
 
 On
          February 27, 2003, Holland & Knight LLP (“H&K”) filed a civil lawsuit in
          the Superior Court for the District of Columbia against the Company. In
          this
          suit, H&K claimed that it was entitled to $867,268, plus interest, for
          services rendered to Oasys
          Mobile . Oasys
          Mobile and
          H&K entered into an agreement on May 23, 2003 settling this litigation,
          whereby both parties agreed to the following terms:
 
 ·
                $217,268
                    of the total balance due was forgiven by H&K, resulting in a portion
                    of the settlement gain of this
                    transaction.
 
 
  F-30
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **14.
          Settlements of Contractual Disputes and Litigation
          (continued)**
 
 ·
                $325,000
                    of the total balance due will be paid over a three-year period
                    with
                    monthly installments of $9,028, commencing on June 1, 2003. The
                    settlement
                    agreement did not provide for an interest rate component pertaining
                    to the
                    three-year payment plan. Therefore, an interest rate of 20% per
                    annum was
                    used to present value the note, resulting in a net present value
                    of
                    $242,926. The difference between the face value of $325,000 and
                    the net
                    present value of $242,926, totaling $82,074, was recorded as
                    a portion of
                    the settlement gain. The 20% rate of interest was considered
                    appropriate
                    to fair value the note based on the Company’s financial condition,
                    including its negative working capital and negative net worth
                    position.
 
 ·
                The
                    remaining amount of the recorded liability due to H&K of $325,000 was
                    satisfied through the issuance to H&K of 73,864 shares of the
                    Company’s common stock. The fair value of the 73,864 shares of common
                    stock was estimated at $273,295, based on the traded value of
                    the
                    Company’s common stock on the date the settlement agreement became
                    effective. The difference between the estimated fair value of
                    the 73,864
                    common shares and the recorded value of the liability of $325,000,
                    totaling $51,705, was recorded as a portion of the settlement
                    gain. The
                    shares have since been registered, and H&K has contractually agreed to
                    sell no more than 1,800 shares in any one (1) business
                    day.
 
 ·
                Therefore,
                    the aggregate settlement gain resulting from this transaction
                    totaled
                    $351,047.
 
 *The
          Raytheon Company Settlement*
 
 During
          1999, the Company entered into an agreement with Raytheon Company (“Raytheon”)
          to repurchase 154 shares of its common stock from Raytheon for an aggregate
          value of $268,373, of which $268,075 represented a termination fee for
          a
          development contract and $298 represented the fair value of the shares
          repurchased. In connection with this agreement, the Company entered into
          a
          promissory note with Raytheon whereby the Company agreed to pay approximately
          $10,000 per month over a 27-month period to fund this transaction. The
          Company
          did not make all required monthly installments and thus defaulted on the
          promissory note. Consequently, the note began accruing interest at 18%
          per
          annum. On September 30, 2003, the Company executed a settlement agreement
          with
          Raytheon whereby both parties agreed to the following terms.
 
 ·
                $
                    49,128 of the total balance due was forgiven by Raytheon, resulting
                    in a
                    portion of the settlement gain of this
                    transaction.
 
 ·
                $87,516
                    of the total balance due will be paid over a 22 month period,
                    with an
                    initial payment of $10,000; six (6) equal monthly installments
                    of $3,000;
                    fourteen (14) monthly installments of $4,000; and one final installment
                    of
                    $3,516. The settlement agreement did not provide for an interest
                    rate
                    component pertaining to the 22-month payment plan. Therefore,
                    an interest
                    rate of 20% per annum was used to present value the note, resulting
                    in a
                    net present value of $74,306. The difference between the face
                    value of
                    $87,516 and the net present value of $74,306, totaling $13,210
                    was
                    recorded as a portion of the settlement gain. The 20% rate of
                    interest was
                    considered appropriate to fair value the note based on the Company’s
                    financial condition, including its negative working capital and
                    negative
                    net worth position.
 
 ·
                The
                    remaining amount of the recorded liability due to Raytheon of
                    $87,516 was
                    satisfied through the issuance to Raytheon of 29,567 shares of
                    the
                    Company’s common stock. The fair value of the 29,567 shares of common
                    stock was estimated at $94,613, based on the traded value of
                    the Company’s
                    common stock on the date the settlement agreement became effective.
                    The
                    difference between the estimated fair value of the 29,567 common
                    shares
                    and the recorded value of the liability of $87,516, totaling
                    $7,097, was
                    recorded as an offset to the settlement gain. Raytheon has contractually
                    agreed to sell no more than 1,500 shares in any one (1) business
                    day.
 
 ·
                Therefore,
                    the aggregate settlement gain resulting from this transaction
                    totaled
                    $55,241.
 
 
 
 
  F-31
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **14.
          Settlements of Contractual Disputes and Litigation
          (continued)**
 
 *Other
          2003 Settlements*
 
 On
          February 21, 2003, the Company signed and executed a mutual release of
          all
          claims with a former law firm that had provided legal services to the Company.
          Under the terms of this agreement, both parties agreed to a mutual release
          of
          any and all claims between the parties, as well as a cancellation of the
          unpaid
          fees owed by the Company to the law firm, totaling $886,557. The Company
          did not
          issue any cash or equity securities or enter into any other obligations
          in
          connection with this release. The settlement gain resulting from this
          transaction was $886,557.
 
 On
          June
          5, 2003, the Company signed and executed an agreement pertaining to the
          payment
          of amounts owed to a current service provider. Under the terms of the agreement,
          the Company issued 42,742 shares of its common stock, for full payment
          of
          $132,500 owed to the service provider. The fair value of the 42,742 shares
          of
          common stock was estimated at $149,597, based on the traded value of the
          Company’s common stock on the date the settlement agreement became effective.
          The difference between the estimated fair value of the 42,742 common shares
          and
          the recorded value of the liability of $132,500 was recorded as a settlement
          loss of $17,097. The service provider has contractually agreed to sell
          no more
          than 500 shares in any one (1) business day.
 
 During
          2003, the Company issued warrants to purchase 33,334 shares of common stock
          to a
          consultant as payment for $200,000 of fees. The warrants were valued at
          $83,333
          using the Black-Scholes option-pricing model. The non-cash settlement gain
          resulting from this transaction totaled $116,667.
 
 On
          August
          29, 2003, the Company signed and executed an agreement pertaining to past
          due
          amounts owed to a current service provider totaling $62,500. Under the
          terms of
          the agreement, the service provider agreed to forgive $14,500 of the total
          past
          due amounts. The remaining amount due of $48,000 is to be paid in twelve-monthly
          installments of $4,000 each. The non-cash settlement gain resulting from
          this
          transaction totaled $14,500.
 
 **2004
          Settlement**
 
 *Bowne
          Settlement*
 
 On
          February 25, 2003, Bowne of New York City, LLC (“Bowne”), a financial printing
          firm, filed a civil summons in the Supreme Court of County of New York
          in the
          State of New York, claiming that it was entitled payment in the amount
          of
          $276,373, plus accrued interest, for past services rendered to the
          Company.
 
 In
          August
          2004, the Company and Bowne settled the claim between them, whereby both
          parties
          agreed to reduce the total amount owed by the Company to Bowne to $150,000.
          The
          parties also agreed that this amount would be paid by (i) an initial payment
          of
          $10,000, (ii) monthly installments of $6,000 per month from November 1,
          2004
          through September 1, 2006 and (iii) a final payment of $2,000 on October
          1, 2006
          by Oasys Mobile. The settlement gain resulting from this transaction was
          $126,373. The balance owed as of December 31, 2005, was $56,000, which
          is
          included in accounts payable.
 
 **2005
          Settlement**
 
 *Modified
          Holland & Knight LLP Settlement*
 
 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.
 
 The
          total
          non-cash settlement (losses) gains during the years ended December 31,
          2005,
          2004 and 2003 were ($58,750), $126,373 and $1,525,698,
          respectively.
  F-32
  **Oasys
          Mobile, Inc.**
 
 **Notes
          to Financial Statements (continued)**
 
 
 **15.
          Selected Quarterly Financial Data (unaudited)**
 
 Selected
          quarterly financial data for the years ended December 31, 2005 and 2004
          is as
          follows:
 
 **Three
                    Months Ended****March
                    31**
                
                **June
                    30**
                
                **September
                    30**
                
                **December
                    31***(in
                    thousands, except per share data)***2005**Revenues
                
                $
                1,990
                
                $
                1,794
                
                $
                2,058
                
                $
                1,953Cost
                    of revenues
                
                
                956
                
                
                883
                
                
                1,009
                
                
                1,046Gross
                    profit
                
                
                1,034
                
                
                911
                
                
                1,049
                
                
                907Net
                    loss
                
                
                (1,591
                )
                
                (847
                )
                
                (1,044
                )
                
                (2,439
                )Net
                    loss per common share, basic and
                  diluted
                
                
                (0.13
                )
                
                (0.07
                )
                
                (0.08
                )
                
                (0.18
                )**2004**Revenues
                
                $
                788
                
                $
                1,209
                
                $
                1,501
                
                $
                1,673Cost
                    of revenues
                
                
                400
                
                
                628
                
                
                729
                
                
                847Gross
                    profit
                
                
                388
                
                
                581
                
                
                772
                
                
                826Net
                    loss
                
                
                (1,240
                )
                
                (709
                )
                
                (957
                )
                
                (967
                )Net
                    loss per common share, basic and
                  diluted
                
                
                (0.20
                )
                
                (0.10
                )
                
                (0.10
                )
                
                (0.09
                )
 
 
 
    F-33
  
 
 **SIGNATURES**
 
 
 Pursuant
        to the requirements of the Section 13 or 15(d) Securities Exchange Act of
        1934,
        the Registrant has duly caused this registration statement to be signed on
        its
        behalf by the undersigned, thereunto duly authorized.
 
 **OASYS
                  MOBILE, INC.**By:
              /s/
                  Gary E.
                  BanGary
                  E. Ban
                Chief
                  Executive Officer
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed by the following persons on behalf of the Registrant and in the
        capacities and on the dates indicated.
 
 ***Signature***
              ***Title***
              ***Date*****/s/
                  Gary E. Ban**
                **Gary
                  E. Ban**
              Chief
                  Executive Officer and Director
                (Principal
                  Executive Officer)
              March
                  30, 2006**/s/
                  Donald T. Locke**
                **Donald
                  T. Locke**
              Chief
                  Financial Officer
                (Principal
                  Financial and Principal
                Accounting
                  Officer)
              March
                  30, 2006**/s/
                  Stephen M. Finn**
                **Stephen
                  M. Finn**
              Director
              March
                  30, 2006**/s/
                  Scott W. Hamilton**
                **Scott
                  W. Hamilton**
              Director
              March
                  30, 2006**/s/
                  J. Winder Hughes**
                **J.
                  Winder Hughes**
              Director
              March
                  30, 2006**/s/
                  Richard B. Ruben**
                **Richard
                  B. Ruben**
              Director
              March
                  30, 2006**/s/
                  Bernard Stolar**
                **Bernard
                  Stolar**
              Director
              March
                  30, 2006**/s/
                  James A. Taylor**
                **James
                  A. Taylor**
              Director
              March
                  30, 2006
 
 
 
 
  
  **Exhibit
        Index**
 
  Exhibit
                  Number
                Exhibit
                  Description3(I).1
                Certificate
                    of Incorporation of Oasys Mobile, Inc., a Delaware
                    corporation3(I).2
                Certificate
                    of Amendment of Certificate of Incorporation of Oasys Mobile,
                    Inc.3(II).1
                Bylaws
                    of Oasys Mobile, Inc., a Delaware corporation (Exhibit 3(II).1
                    to our
                    Annual Report on Form 10-K for the fiscal year ended December
                    31,
                    2005.4.1*
                Specimen
                    Common Stock Certificate (incorporated by reference to Exhibit
                    4.1 to our
                    Annual Report on Form 10-K for the fiscal year ended December
                    31, 2001)4.2*
                Form
                    of Subscription Agreement for private placement sales of our
                    common stock
                    (incorporated by reference to Exhibit 4.2 to our Annual Report
                    on Form
                    10-K for the fiscal year ended December 31, 2001)4.3*
                Form
                    of Selling Shareholders Agreement in connection with private
                    placement
                    sales of our common stock (incorporated by reference to Exhibit
                    4.3 to our
                    Annual Report on Form 10-K for the fiscal year ended December
                    31, 2001)4.4*
                Form
                    of Warrant Agreement for warrants issued in connection with private
                    placement sales of our common stock (incorporated by reference
                    to Exhibit
                    4.4 to our Annual Report on Form 10-K for the fiscal year ended
                    December
                    31, 2001)4.5*
                Form
                    of Series C Convertible Preferred Stock Registration Rights Agreement
                    (incorporated by reference to Exhibit 4.2 to our Quarterly Report
                    on Form
                    10-Q for the fiscal quarter ended September 30, 2003)4.6*
                Form
                    of Series D Convertible Preferred Stock Registration Rights Agreement
                    (incorporated by reference to Exhibit 4.4 to our Quarterly Report
                    on Form
                    10-Q for the fiscal quarter ended September 30, 2003)4.7*
                Form
                    of Series E Convertible Preferred Stock Registration Rights Agreement
                    (incorporated by reference to Exhibit 4.6 to our Quarterly Report
                    on Form
                    10-Q for the fiscal quarter ended September 30, 2003)4.8*
                Form
                    of Warrants issued in connection with the 12% Senior Notes (incorporated
                    by reference to Exhibit 4.3 to our Current Report on Form 8-K
                    dated as of
                    December 20, 2004)4.9*
                Form
                    of Registration Rights Agreement in connection with 12% Senior
                    Notes
                    (incorporated by reference to Exhibit 4.4 to our Current Report
                    on Form
                    8-K dated as of December 20, 2004)4.10*
                Form
                    of Warrant issued in connection with our Series E Convertible
                    Preferred
                    Stock (incorporated by reference to Exhibit 4.7 to our Quarterly
                    Report on
                    Form 10-Q for the fiscal quarter ended September 30,
                    2003)4.11*
                Form
                    of Registration Rights Agreement in connection with Summus’ issuance of
                    its Senior Convertible Debt and Common Stock (incorporated by
                    reference to
                    Exhibit 4.3 to our Quarterly Report on Form 10-Q for the fiscal
                    quarter
                    ended March 31, 2004)
  
  4.12*
                  Securities
                      Purchase Agreement for our 6% Senior Secured Convertible Debentures
                      (incorporated by reference to Exhibit 4.1 of our Current Report
                      on Form
                      8-K filed as of November 18, 2005)
                      2001)
 
 4.13*
                  Form
                      of 6% Senior Secured Convertible Debentures (incorporated by
                      reference to
                      Exhibit 4.2 of our Current Report on Form 8-K filed as of November
                      18,
                      2005)
 
 4.14*
                  Form
                      of A Warrant issued in connection with our 6% Senior Secured
                      Convertible
                      Debentures (incorporated by reference to Exhibit 4.3 of our
                      Current Report
                      on Form 8-K filed as of November 18,
                      2005)
 
 4.15*
                  Form
                      of B Warrant issued in connection with our 6% Senior Secured
                      Convertible
                      Debentures (incorporated by reference to Exhibit 4.4 of our
                      Current Report
                      on Form 8-K filed as of November 18,
                      2005)
 
 4.16*
                  Form
                      of C-1 Warrant issued in connection with our 6% Senior Secured
                      Convertible
                      Debentures (incorporated by reference to Exhibit 4.5 of our
                      Current Report
                      on Form 8-K filed as of November 18,
                      2005)
 
 4.17*
                  Form
                      of C-2 Warrant issued in connection with our 6% Senior Secured
                      Convertible
                      Debentures (incorporated by reference to Exhibit 4.6 of our
                      Current Report
                      on Form 8-K filed as of November 18,
                      2005)
 
 4.18*
                  Form
                      of D Warrant issued in connection with our 6% Senior Secured
                      Convertible
                      Debentures (incorporated by reference to Exhibit 4.7 of our
                      Current Report
                      on Form 8-K filed as of November 18,
                      2005)
 
 4.19*
                  Registration
                      Rights Agreement in connection with our 6% Senior Secured Convertible
                      Debentures (incorporated by reference to Exhibit 4.8 of our
                      Current Report
                      on Form 8-K filed as of November 18,
                      2005)
 
 4.20*
                  Security
                      Agreement in connection with our 6% Senior Secured Convertible
                      Debentures
                      (incorporated by reference to Exhibit 4.9 of our Current Report
                      on Form
                      8-K filed as of November 18, 2005)
 
 4.21*
                  Letter
                      Agreement entered into with LAP Summus Holdings LLC for nomination
                      of a
                      Director in connection with our 6% Senior Secured Convertible
                      Debentures
                      (incorporated by reference to Exhibit 4.10 of our Current Report
                      on Form
                      8-K filed as of November 18,
                      2005)
   
 10.1*
                Asset
                    Purchase Agreement, dated October 30, 2000, among Summus, Inc.,
                    Summus,
                    Ltd., and the stockholders named therein (incorporated by reference
                    to
                    Exhibit 10.01 to our Current Report on Form 8-K dated February
                    16,
                    2001)10.2*
                Amendment
                    Number 1 to Asset Purchase Agreement, dated as of December 30,
                    2000, among
                    Summus, Inc., Summus, Ltd. and the stockholders named therein
                    (incorporated by reference to Exhibit 10.02 to our Current Report
                    on Form
                    8-K dated February 16, 2001)10.3*
                Amendment
                    to Asset Purchase Agreement, dated as of January 30, 2001, among
                    Summus,
                    Inc., Summus, Ltd. and the stockholders named therein (incorporated
                    by
                    reference to Exhibit 10.03 to our Current Report on Form 8-K
                    dated
                    February 16, 2001)10.4*
                Agreement
                    for Transfer of All Rights and Reservation of License in Software,
                    dated
                    September 4, 2000, between PlusStation, LLC, Niksa Radovic and
                    Summus,
                    Ltd. (incorporated by reference to Exhibit 10.9 to our Form 10
                    filed on
                    July 5, 2001)10.5*
                Third
                    Amended and Restated Summus 2000 Equity Compensation Plan, effective
                    June
                    24, 2004 (incorporated by reference to Exhibit 10.10.4 to our
                    Quarterly
                    Report on Form 10-Q for the fiscal quarter ended June 31,
                    2004)10.6*
                Executive
                    Employment Agreement, dated as of June 29, 2005, between Summus and
                    Gary E. Ban (incorporated by reference to Exhibit 10.1 to our Current
                    Report on Form 8-K filed as of June 29,
                    2005)10.7*
                Executive
                    Employment Agreement, dated as of June 29, 2005, between Summus and
                    Donald T. Locke (incorporated by reference to Exhibit 10.2 to
                    our Current Report on Form 8-K filed as of June 29,
                    2005)10.8*
                Executive
                    Employment Agreement, dated as of June 29, 2005, between Summus and
                    Andrew L . Fox (incorporated by reference to Exhibit 10.3 to
                    our Current
                    Report on Form 8-K filed as of June 29, 2005)10.9*
                Lease
                    Agreement, dated as of October 15, 1999, as modified on March
                    23, 2000 and
                    June 9, 2000, between Phoenix Limited Partnership of Raleigh
                    and Summus,
                    Inc. (incorporated by reference to Exhibit 10.31 to our Form
                    10 filed on
                    July 5, 2001)10.10*
                Lease
                    Agreement, dated as of August 12, 1999, between Phoenix Limited
                    Partnership of Raleigh and Summus, Ltd. (incorporated by reference
                    to
                    Exhibit 32 to our Form 10 filed on July 5, 2001)10.11*
                Lease
                    Modification Agreement Number 1, dated as of December 22, 1999,
                    between
                    Phoenix Limited Partnership of Raleigh and Summus, Ltd. . (incorporated
                    by
                    reference to Exhibit 33 to our Form 10 filed on July 5, 2001)14.1*
                Code
                    of Ethics (incorporated by reference to Exhibit 14.1 to our Annual
                    Report
                    on Form 10-K for the fiscal year ended December 31,
                    2003)21.1
                Subsidiaries
                    of Summus - None23.1
                Consent
                    of Ernst & Young LLP31.1
                Rule
                    13a-14(a)/15(d)-14(a) Certificate of Gary E. Ban, Chief Executive
                    Officer31.2
                Rule
                    13a-14(a)/15(d)-14(a) Certificate of Donald T. Locke, Chief Financial
                    Officer32.1
                Section
                    1350 Certificate of Gary E. Ban, Chief Executive
                    Officer32.2
                Section
                    1350 Certificate of Donald T. Locke, Chief Financial
                    Officer