Table
      of Contents


**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,
                2006****OR** ̈
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR
                15(d)**
              **OF
                THE SECURITIES EXCHANGE ACT OF
                1934**





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





**Commission
      File Number: 0-29625**





**OASYS
      MOBILE, INC.**


(Exact
      name of Registrant as Specified in its Charter)





Delaware
            65-0185306**(State
                of incorporation)**
            **(I.R.S.
                Employer Identification No.)**5400
                Trinity Road, Suite 208Raleigh,
                North Carolina 27607(919)
                807-5600**(Address,
                including zip code, and telephone number (including area code)
                of****Registrant’s
                principal executive offices)**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, 2006, was approximately $8,510,490 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 25, 2007 was 13,748,836.








**OASYS
      MOBILE, INC.**


**FORM
      10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006**


**TABLEOF
      CONTENTS**











***PAGE*****PART
                I****ITEM
                1**
            BUSINESS
            5**ITEM
                1A**
            RISK
                FACTORS
            18**ITEM
                1B**
            UNRESOLVED
                STAFF COMMENTS
            36**ITEM
                2**
            PROPERTIES
            37**ITEM
                3**
            LEGAL
                PROCEEDINGS
            37**ITEM
                4**
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITIES
                HOLDERS
            37**PART
                II****ITEM
                5**
            MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
                MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
            38**ITEM
                6**
            SELECTED
                FINANCIAL DATA
            39**ITEM
                7**
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF
                FINANCIAL
              CONDITION
                AND RESULTS OF OPERATIONS
            41**ITEM
                7A**
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES
                ABOUT
              MARKET
                RISK
            57**ITEM
                8**
            FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA
            57**ITEM
                9**
            CHANGES
                IN AND DISAGREEMENTS WITH
                ACCOUNTANTS
              ON
                ACCOUNTING AND FINANCIAL DISCLOSURE
            58**ITEM
                9A**
            CONTROLS
                AND PROCEDURES
            58**ITEM
                9B**
            OTHER
                INFORMATION
            58**PART
                III****ITEM
                10**
            DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE
              GOVERANCE
            59**ITEM
                11**
            EXECUTIVE
                COMPENSATION
            61**ITEM
                12**
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL
                OWNERS
              AND
                MANAGEMENT AND RELATED STOCKHOLDER
                MATTERS
            76**ITEM
                13**
            CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS,
              AND
                DIRECTOR INDEPENDENCE
            81**ITEM
                14**
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            82**PART
                IV****ITEM
                15**
            EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES
            83





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, 2006, 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 raise capital to pay our 6% Senior Secured Convertible
                Debentures balance of $8,000,000 due June 30,
                2007;





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





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





·
            our
                future revenue opportunities;





·
            our
                ability to develop and enter into strategic relationships with wireless
                service providers, 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 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. Except
      where otherwise indicated, the terms “Oasys Mobile”, “we,” “us” and “our”
refer to Oasys Mobile, Inc. Our executive offices are located at 5400 Trinity
      Road, Suite 208, Raleigh, NC 27607, 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:





·
              Branded
                  Mobile Applications;


·
              Aggregation;
                  and


·
              White
                  Label Services.




*Branded
      Mobile Applications*





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





·
            Games;


·
            Messaging;


·
            Personalization;
                and


·
            Entertainment.





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





Oasys
      Mobile's partner and product portfolio includes such household names as Mattel,
      Phil Hellmuth, Fujifilm, America Online, Alex Rodriguez, The Grateful Dead,
      Hooters Calendar, Churchill Downs, Golf Digest, 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 75 major
      wireless carriers and distribution partners in the United States and
      abroad.





During
      2007, Oasys Mobile plans to release 20 new products, further expand the number
      and reach of its carrier and distribution partners, especially in new
      international markets, and enter into new content and brand partnerships.





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
      Nextel’s *Vision,* Alltel’s *Axcess,* US
      Cellular’s *Easy
      Edge* and
      T-Mobile’s *t-zones* .





We
      believe that the quality of our applications, the breadth of our distribution
      and licensing relationships and the advantages we gain through our technology
      will enable us to gain share in this growing market.





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.


5





*Aggregation*





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





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





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





*White
      Label Services*





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





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





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





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





Oasys
      Mobile is currently exploring how to capitalize on the Oasys Mobile gaming
      community, which encompasses over 1,300,000 gamers playing Oasys Mobile’s
      multi-player games. One possibility is the development of  a gaming
      community not only for the users of Oasys Mobile games, but for games produced
      by other third-party game developers as well. In addition, we are negotiating
      agreements to provide ad-supported gaming and free game downloads from
      OasysMobile.com.




*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 internationally.
      Verizon, Cingular, Sprint Nextel and Alltel, our largest wireless carrier
      relationships, accounted for approximately 31%, 22%, 13% and 11% of our total
      revenues, respectively, during the fiscal year ended December 31, 2006.





6


*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 (i) securing agreements with content providers and
      carriers, (ii) developing the mobile applications, (iii) porting the
      applications over an extensive reach of handsets and (iv) launching the
      applications on the wireless carriers distribution decks. We outsource the
      infrastructure needed for the hosting and delivery of our branded applications.





*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:




*Accelerating
      Deployment of Advanced Wireless Networks.* Advances
      in wireless networks are increasingly enabling convenient and rapid downloads
      of
      large files such as mobile games and other mobile applications. In addition,
      these advanced networks have improved merchandising capabilities, as well as
      flexible provisioning and billing capabilities for data applications such as
      pay-per-play, that provide the infrastructure necessary for purchasing and
      downloading mobile games. We believe that incremental revenue from data-centric
      usages, such as accessing the Internet and downloading mobile games, helps
      wireless carriers recoup their multi-billion dollar investments in
      next-generation infrastructure. Juniper Research, in its June 2006 “Mobile
      Games: Subscription & Download, 2006-2011” report, estimates that the
      number of wireless subscribers on 2.5G and 3G networks, which facilitate the
      latest and highest quality mobile games, will grow from 970 million
      subscribers in 2006 to 1.8 billion subscribers in 2010.




*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 reached 295.5 million units in 2005,
      representing 38% of total worldwide mobile phone sales, according to Gartner
      Inc. Info Trends expects this to grow to 903 million camera phones sales by
      2010, representing 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.




*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.





*Growth
      in the Mobile Games Industry* .
      Approximately 60% of Oasys Mobile’s revenue for the fiscal year ended December
      31, 2006, came from the mobile games we distribute. We expect a large part
      of
      our revenue to come from our mobile games business for the foreseeable future.
      Juniper Research, a market research firm, in its June 2006 “Mobile Games:
      Subscription & Download , 2006-2011” report, estimates that the worldwide
      market for mobile games will grow from $3.1 billion in 2006 to $10.5 billion
      in
      2009, representing an annual growth rate of 50.2%. We believe that the rapid
      growth of the mobile game market has been driven by continued advances in
      wireless communications technology, proliferation of multimedia-enabled mobile
      handsets, increasing availability of high-quality mobile games and increasing
      end-user awareness of, and demand for, mobile games. Oasys Mobile is well
      positioned to benefit from this strong market growth.





7


**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 a
      small percentage of consumers have purchased content from off-deck portal
      websites in the United States, whereas in Europe, an overwhelming percentage
      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 White-Label
      business.





*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 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**




We
      believe we have a proven capability to develop high-quality mobile games and
      other wireless applications that engage end users. Our portfolio of more than
      35
      games and other mobile applications includes a variety of genres and is designed
      to appeal to the diverse interests of the broad wireless subscriber population.
      As the mobile entertainment market continues to develop, we believe that
      wireless carriers and branded content owners will increasingly recognize the
      benefits of partnering with independent mobile entertainment publishers that
      have achieved the scale necessary to develop and publish a consistent portfolio
      of high-quality games and other mobile applications and to distribute them
      globally. We believe that we will continue to be attractive to carriers, content
      owners and end users because of the following strengths:





*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.





*Mobile
      Game Expertise* .
      Two of
      the
      top mobile revenue generating applications are published by Oasys Mobile,
      including *Texas
      Hold’em by Phil Hellmuth* and the
      UNO® series of applications. Both *Texas
      Hold’em by Phil Hellmuth* and *UNO®
      Challenge* were
      included in the top 10 best sellers list of games for mobile phones in the
      United States in the May 2006 rankings by M:Metrics. Oasys Mobile also shares
      the leading market share position (21%) with Electronic Arts for revenues in
      the
      fourth quarter of 2006 in the Casino/Card Games category, according to
      Telephia’s market research.







8


*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 Mattel, Phil Hellmuth, America Online,
      Fujifilm, The Associated Press, The Wall Street Journal, Alex Rodriguez, Howard
      Lederer, Golf Digest, Hooters Calendar, 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 certain of
      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 75 wireless
      carriers and distribution partners worldwide. 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 450 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.





*Proprietary
      Porting Capabilities.* ****** We
      have
      developed proprietary technologies and processes designed to increase the
      profitability of our games. These technologies and processes include a
      standardized development process designed to facilitate efficient porting,
      a
      tool library covering each handset model and ongoing work flow analysis tools.
      Once developed, mobile games may need to be ported to more than 1,000 different
      handset models, many with different technological requirements. Therefore,
      the
      ability to port mobile games quickly and cost effectively can be a competitive
      differentiator among mobile game publishers and a barrier to entry for other
      potential market entrants. Our porting capabilities, along with other processes
      we have developed, help us in our efforts to increase the initial sales of
      each
      game and support continuing premium deck placement.




*Increasing
      Complexity of Developing and Publishing Mobile Games and Other Mobile
      Applications.* Mobile
      game publishers have emerged to address the requirements specific to mobile
      games and other mobile applications, such as creating games and mobile
      applications to operate within the resource constraints of handsets, negotiating
      the requisite distribution agreements, and developing the technical expertise
      required to port and customize a game or other mobile application to handset
      models and, with regional and language requirements, to create thousands of
      versions of that game or mobile application. Some companies in related
      industries, such as carriers, traditional game publishers and other branded
      content owners, have established internal mobile game and mobile application
      development or publishing capabilities. We believe that these companies are
      becoming increasingly aware of the complexities of developing mobile games
      and
      other mobile applications and, as a result, are increasingly partnering with
      a
      small group of leading publishers that can manage the complexities specific
      to
      mobile games and other mobile applications.





*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. 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 a leading publisher and 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 our White-Label opportunities, 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. This
                alternative method of distribution or “white labeling” allows us to use
                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 White-Label 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
                and
                other distribution partners 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
                on
                an international level 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.





*Build
      Upon Our Position as a Leading Publisher to Strengthen Licensing
      Relationships.* We
      believe that, as a leading independent publisher of mobile games and
      applications, we will continue to benefit from branded content owners’
increasing recognition of the challenges associated with mobile entertainment
      publishing. As a result of these challenges, some branded content owners are
      reducing their own internal mobile development efforts. We believe that branded
      content owners are also becoming more reluctant to contract with other mobile
      game publishers that do not have a reputation for quality development or that
      do
      not have the breadth of carrier relationships and technological capabilities
      necessary to publish a game on a worldwide basis. We intend to capitalize on
      these trends and on our reputation with non-mobile content owners as a leading
      mobile partner to strengthen our existing licensing relationships and develop
      additional relationships.





*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.





10


**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. Oasys Mobile’s core publishing strategy is to focus on
“franchise” names, such as Mattel, Phil Hellmuth and Hooters, among others. By
      working with branded applications, Oasys Mobile is able to leverage on the
      mind
      share these franchises have amassed in their traditional lines of business
      and
      capitalize on that awareness in the mobile space.





We
      currently offer more than 35 wireless applications deployed through 75 wireless
      carriers and distribution partners worldwide. Retail fees for our wireless
      applications generally range from $1.99 to $7.99 for a one-time purchases and
      from $1.99 to $3.99 for monthly subscriptions.





**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. This deal includes mobile
      games based on Mattel's UNO® brand, as well as the classic games *Rock'em
      Sock'em RobotsTM, Kerplunk!®* and *Toss
      AcrossTM.* In March
      2007, Oasys Mobile further expanded its license with Mattel for the distribution
      of UNO® branded games to include all of the major countries of Asia and received
      a license for the distribution of Mattel’s *Max
      SteelTM* property
      in Mexico, Central America and South America. Also in March 2007, Oasys Mobile
      entered into agreements for the distribution of the mobile version of *Magic
      8 Ball* on a
      worldwide basis and the distribution of games and other applications around
      the
      Barbie® brand in Japan and Taiwan.





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 35 carriers across multiple operating
      environments. The game continues to see more carrier distribution and has over
      950,000 registered users of its multi-player version. According to Telephia,
      Oasys was one of the leading publishers within the Card/Casino mobile game
      genre
      in the fourth quarter of 2006, with a 21% share of revenues.





Oasys
      Mobile is currently in talks with major gaming companies for licenses to other
      major game brands for the development and distribution of these games to
      wireless carriers and distribution partners on a worldwide basis.





*Messaging*





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 users send personalized photo greetings
      to loved ones’ mailboxes 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 has teamed 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.







11


*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* , *Golf
      Digest Mobile and Mobile Graffiti.* Oasys
      Mobile continues to expand its portfolio of marquee personalization content
      to
      include wallpapers, video screensavers, ringtones and truetones.




Oasys
      Mobile is currently negotiating with several companies to license its portal
      and
      locker technology for the development of white-label portals for the
      distribution of wireless content directly to consumers without the consumer
      having to go through the wireless carrier decks.





*Entertainment*





Oasys
      Mobile has launched a number of unique entertainment products. For instance,
      the
      world’s largest golf publishing company, Golf Digest, has 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 .





**Product
      Development and Technology**




We
      have
      developed proprietary technologies and product development processes that are
      designed to enable us rapidly and cost effectively to develop and publish games
      and other mobile applications that are consistently rated as high quality and
      that meet the needs of our wireless carriers. These technologies and processes
      include:




*Development.* Our
      development platforms are designed to enable us to create high-quality games
      and
      mobile applications that overcome the significant constraints of mobile handsets
      while taking advantage of the inherent capabilities of networked handsets.
      We
      primarily use internal resources to develop our mobile games and applications,
      but we have also developed an infrastructure that allows us to outsource the
      development of some games and applications while retaining the consistency
      of
      our development processes. We believe that we can better control costs,
      diversify risks and maintain access to talent by using both internal and
      third-party resources.





Our
      mobile 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


*Porting
      Tools and Processes.* Unlike
      the personal computer or console markets, which have a relatively small number
      of platforms, the heterogeneity of handsets creates substantial complexity
      when
      publishing a game broadly. We have designed our overall game development
      processes and tools to account for the complexity of porting a game to over
      450
      handsets. Furthermore, we have developed proprietary software, tools and
      libraries that we believe provide us with an advantage over our competitors
      by
      allowing us to port our games to handsets quickly and at a significantly lower
      cost.




*Broad
      Development Capabilities.* We
      have created development capabilities intended to exploit the full range of
      handsets as an entertainment platform, including single player games, client
      server applications, and real-time multi-player games such as *Texas
      Hold’em by Phil Hellmuth* and *UNO®
      Challenge* .





*Application
      Hosting, Provisioning and Billing Capabilities.* We
      have developed an application hosting and provisioning system that integrates
      with both carrier and other third-party billing systems and allows for a range
      of billing options designed to maximize the attractiveness of games to end
      users
      with different payment preferences. We believe that this system allows us to
      deepen our relationships with our carriers and provides a marketing opportunity
      by allowing for control of our own merchandising.




*Merchandising
      and Marketing Platform.* We
      have developed technologies to enable innovative sales and marketing programs.
      For example, we have developed innovative technologies that address the
      historical challenges of marketing to end users within the limits of the deck.
      We also create and host wireless application protocol, or WAP, channels that
      enable Oasys Mobile-branded storefronts, or menus, on a carrier’s e-commerce
      system.





**Sales,
      Marketing and Distribution**





We
      market
      and sell our games primarily through wireless carriers. We coordinate our
      marketing efforts with carriers and mobile handset manufacturers in the launch
      of new games with new handsets.




Our
      sales
      and marketing organization focuses on increasing end-user awareness, adoption
      and repeat purchase rates through a variety of programs. We co-market our games
      with our partners, including carriers, branded content owners and
      direct-to-consumer companies. For example, when we create an idea for a game,
      we
      discuss the game with carriers early in the development process to gain an
      understanding of the attractiveness of the game to them, to obtain their other
      feedback regarding the game, and to develop plans for co-marketing and a
      potential launch strategy. We also coordinate our marketing efforts with those
      of branded content owners. These programs leverage the sales and marketing
      resources of our carriers and content licensors to amplify our own sales and
      marketing efforts. In addition, we work with our carriers to develop
      merchandising initiatives that stimulate trial and purchase, often with free
      trials.




We
      believe that placement of games and other mobile applications on the top level
      or featured handset menu or toward the top of the genre-specific or other menus,
      rather than lower down or in sub-menus, is likely to result in games and other
      mobile applications achieving a greater degree of commercial success. We believe
      that a number of factors may influence the deck placement of a game or other
      mobile application including:





·
            the
                perceived attractiveness of the title or
                brand;





·
            the
                past success of the game or mobile application or of other games
                or mobile
                applications previously introduced by a
                publisher;





·
            the
                number of handsets for which a version of the game or mobile application
                is available;





·
            the
                relationship with the applicable
                carrier;





·
            the
                carrier’s economic incentives with respect to the particular game or
                mobile application, such as the revenue split percentage; and





·
            the
                level of marketing support, including marketing development funds.




If
      carriers choose to give our games and other mobile applications less favorable
      deck placement, our applications may be less successful than we anticipate
      and
      our business, operating results and financial condition may be materially
      harmed.




13


We
      currently have agreements with more than 75 carriers and other distribution
      partners. End users download our mobile games and related applications to their
      handsets, and typically their carrier bills them a one-time fee or monthly
      subscription fee, depending on the end user’s desired payment arrangement and
      the carrier’s offerings. Our carrier distribution agreements establish the
      portion of revenues that will be retained by the carrier for distributing our
      games and other applications. Our carrier agreements do not establish us as
      the
      exclusive provider of mobile games with the carriers and typically have a term
      of one or two years with automatic renewal provisions upon expiration of the
      initial term, absent a contrary notice from either party. In addition, the
      carriers can usually terminate these agreements early and, in some instances,
      at
      any time without cause, which could give them the ability to renegotiate
      economic or other terms. The agreements generally do not obligate the carriers
      to market or distribute any of our games. In many of these agreements, we
      warrant that our games do not contain libelous or obscene content,
      do not contain material defects or viruses, and do not violate third-party
      intellectual property rights.  We also indemnify the carrier for any
      breach of a third party’s intellectual property.





One
      major
      competitive advantage Oasys Mobile has is that the wireless carriers are rarely
      entering into new direct carrier deals with companies providing services similar
      to Oasys Mobile, and in some cases, the carriers are paring down the number
      of
      these relationships. Because of Oasys Mobile’s strong carrier relationships,
      this gives us the ability to place applications on the carrier decks, which
      have limited “shelf space” for new wireless applications. In addition, Oasys
      Mobile has the ability and the relationships to get “top of the deck” placement
      for the wireless applications it distributes.





In
      addition to our carrier distribution channels, we are in the process of
      launching our White-Label business. We are also exploring the possibility of
      having our wireless applications embedded directly into mobile handsets.





In
      2006,
      Verizon Wireless, Cingular Wireless, Sprint Nextel and Alltel accounted for
      31%,
      22%, 13% and 11%, respectively, of our revenues. In 2005, those carriers
      accounted for 45%, 13%, 9% and 9%, respectively, of our revenues.





Although
      we intend to continue the primary distribution of our games through carriers,
      we
      also market and sell our games and other mobile applications through our own
      website and various Internet portals. Currently, revenues from these alternative
      distribution channels are immaterial. However, we believe that these channels
      increase the exposure of our games and other mobile applications and brand
      to
      end users and that they may become significant channels in the future. As with
      our carriers, we believe that inferior placement of our games and other mobile
      applications in the menus of off-deck distributors will result in lower revenues
      than might otherwise be anticipated from these alternative sales channels.




Carriers
      and other distributors also control billings and collections for our games
      and
      other mobile applications, either directly or through third-party service
      providers. We depend on their reports for information regarding the amount
      of
      sales of our games and related applications and to determine the amount of
      royalties we owe branded content licensors and the amount of our revenues.
      These
      reports may not be timely, and in the past they have contained, and in the
      future they may contain, errors. If our carriers or their third-party service
      providers cause material inaccuracies when providing billing and collection
      services to us, our revenues may be less than anticipated or may be subject
      to
      refund at the discretion of the carrier. This could harm our business, operating
      results and financial condition.





**Studios**




We
      have
      one internal studio and one external studio that create and develop games and
      other products tailored to mobile handsets. These studios, based in Raleigh,
      North Carolina and Atlanta, Georgia have the ability to design and build
      products from original intellectual property, based on games originated in
      other
      media such as online and game consoles, or based on other licensed brands and
      intellectual property.   Our external studio gives us flexibility to
      meet changing development needs in a cost-effective manner.




Where
      we
      license intellectual property from films or other brands or content not based
      on
      games from other media, our game development process involves a significant
      amount of creativity. Even licensed console or Internet games require more
      than
      a simple port to the mobile environment; rather, our developers must create
      games that are inspired by the game play of the original game. In each of these
      cases, our creative and technical studio expertise is necessary to design games
      that appeal to end users and work well on handsets with their inherent
      limitations such as small screen sizes and control buttons.




14


**Competition**





The
      wireless applications market is highly competitive and characterized by frequent
      product introductions, evolving wireless platforms and new technologies. As
      demand for wireless applications continues to increase, we expect new
      competitors to enter the market and existing competitors to allocate more
      resources to develop and market wireless applications. As a result, we expect
      competition in the wireless market to intensify.




Our
      primary competitors in the mobile games industry include Glu-Mobile, Digital
      Chocolate, Electronic Arts (EA Mobile), Gameloft, Hands-On Mobile, I-play,
      Namco
      and THQ, with Electronic Arts having the largest market share of any company
      in
      the mobile games market. In the future, likely competitors include major media
      companies, traditional video game publishers, content aggregators, mobile
      software providers and independent mobile game publishers. Wireless carriers
      may
      also decide to develop, internally or through a managed third-party developer,
      and distribute their own mobile games. If carriers enter the mobile game market
      as publishers, they might refuse to distribute some or all of our games or
      might
      deny us access to all or part of their networks.




The
      development, distribution and sale of mobile games is a highly competitive
      business. For end users, we compete primarily on the basis of brand, game
      quality and price. For carriers, we compete for deck placement based on these
      factors, as well as historical performance and perception of sales potential and
      relationships with licensors of brands and other intellectual property. For
      content and brand licensors, we compete based on royalty and other economic
      terms, perceptions of development quality, porting abilities, speed of
      execution, distribution breadth and relationships with carriers. We also compete
      for experienced and talented employees.





Some
      of
      our competitors’ and our potential competitors’ advantages over us, either
      globally or in particular geographic markets, include the following:





·
            significantly
                greater revenues and financial
                resources;





·
              stronger
                  brand and consumer recognition regionally or
                  worldwide;





·
            the
                capacity to leverage their marketing expenditures across a broader
                portfolio of mobile and non-mobile
                products;





·
            more
                substantial intellectual property of their own from which they can
                develop
                games and other mobile applications without having to pay
                royalties;





·
            pre-existing
                relationships with brand owners or carriers that afford them access
                to
                intellectual property while blocking the access of competitors to
                that
                same intellectual property;





·
            greater
                resources to make acquisitions;





·
            lower
                labor and development
                costs; and





·
            broader
                global distribution and presence.




Further,
      our capital resources limit the number of games and other mobile applications
      that we can develop and market, and any inability to predict successfully the
      appropriate level of marketing investment in each game and mobile application
      could result in lower earnings than we anticipate. For example, Electronic
      Arts
      (EA Mobile) and Gameloft have expended significant amounts to promote the
      introduction of a large number of games in Europe in the fourth calendar quarter
      of 2006. The success of these marketing efforts and the volume of games and
      mobile applications involved may result in less desirable placement, or no
      placement, on the decks of some carriers for the new games and other mobile
      applications that we plan to introduce, and, irrespective of deck placement,
      may
      result in greater sales of their games and mobile applications to end users
      and,
      consequently, lower sales of our games and mobile applications.







15


Our
      primary competition, with respect
      to our branded applications in other areas, are as follows:





·
            Personalization
                - Airborne Entertainment, Verisign/M-Qube, Hands-On Mobile, InfoSpace
                and
                Moderati (Bellrock Media);





·
            Messaging
                - Verisign/M-Qube, Kodak and dot
                Photo;





·
            Entertainment
                - Airborne Entertainment, Zingy/Vindigo Studios, Verisign/M-Qube
                and
                Infospace.





Our
        primary competition with respect to the White-Label part of our business
        is as
        follows:





·
            Mobile
                Content Portals - Mobizzo (owned by News Corp.), Jamster (owned by
                Verisign), Blinko (owned by Buongiorno) and MonsterMob; and





·
            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*.





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.





16


**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 25, 2007, we had 38 full-time employees and 10 contractors, including
      3 in
      marketing and sales, 21 in product development, 7 in operations, 12 in quality
      assurance and 5 in corporate operations and administration. 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.





17


**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
            **Oasys
                Mobile has working capital to fund its business operations until
                June
                2007. Failure to raise sufficient capital to pay off the $8,000,000
                of 6%
                Senior Secured Convertible Debentures, plus accrued interest, plus
                other
                necessary working capital, will render the Company insolvent and
                unable to
                continue operations. If we raise additional capital through the issuance
                of equity securities or debt convertible into equity securities to
                pay
                this debt and supply additional working capital, our stockholders
                may
                experience substantial
                dilution.**





From
      inception through our 2006 fiscal year, our primary source of funding for our
      operations came from the issuance of shares of our common stock and convertible
      debt in private placements to investors. We believe that we have enough working
      capital to fund and sustain our business operations until June 2007. In order
      to
      continue our operations beyond that date, we will have to raise additional
      funds.





Oasys
      Mobile currently has 185,000,000 shares of common stock authorized for issuance.
      As of March 25, 2007, we have approximately 27,662,011 shares of common stock
      either issued and outstanding or reserved for issuance as follows:





·
            13,748,836
                shares are issued and outstanding;





·
            4,000,000
                are reserved for conversion of our 6% Senior Secured Convertible
                Debentures;





·
            7,602,340
                are reserved for the issuance of shares underlying
                warrants;





·
            20,396
                are reserved for the conversion of 2,407 shares of our Series A Stock,
                plus related dividends; and





·
            2,290,439
                are reserved for issuance in connection with the outstanding options
                granted under our Third Amended and Restated 2000 Equity Compensation
                Plan.





There
      are
      no assurances that we can raise sufficient capital to pay off the maturing
      debt
      and accrued interest, plus additional working capital, or that we can negotiate
      terms for such capital that will be favorable to us. If we are successful in
      raising additional working capital through the issuance of our equity securities
      or debt convertible into our equity securities, existing stockholders could
      experience substantial dilution of their ownership interests in Oasys Mobile.
      In
      addition, the new equity securities may have rights, preferences or privileges
      senior to those of existing holders of shares of our common stock.





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 in principal of its 6% Senior Secured Convertible
      Debentures. These 6% 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 6% Debentures are also subject to
      automatic conversion into shares of our common stock upon the achievement of
      certain revenue and share price thresholds.  The 6% Debentures are secured
      by all of the assets of Oasys Mobile.





As
      of the
      date of this annual report on Form 10-K, Oasys Mobile does not have the funds
      to
      pay the principal and interest due on its 6% Debentures, and we do not expect
      to
      generate such funds from our operations prior to their maturity on June 30,
      2007. We have engaged RBC Daniels & Associates as our investment banker to
      assist Oasys Mobile in obtaining an equity investment or debt issuance to allow
      us to pay the principal and interest on the 6% Debentures at their maturity
      plus
      raise additional working capital. Alternatively, or in addition thereto, RBC
      Daniels will also assist Oasys Mobile in evaluating certain strategic
      alternatives, including investments from strategic partners or business
      combinations, including the sale of the business. There are no assurances that
      Oasys Mobile will be successful in obtaining funds that would allow it to pay
      the principal and interest due on its 6% Debentures at the June 30, 2007
      maturity date, or to raise additional working capital necessary to continue
      the
      operations of our business.


18





Ø
            **If
                we use equity instruments for acquisitions, our stockholders may
                experience substantial
                dilution.**





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
      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.





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, 2,653,745 of which have been granted as of
      March 25, 2007. We also have outstanding warrants for 7,602,340 shares of our
      common stock as of March 25, 2007.





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
            **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 $14,570,385 and $5,921,310 for the fiscal
      year periods ended December 31, 2006 and December 31, 2005, respectively. As
      of
      December 31, 2006, we had an accumulated deficit of $75,165,348 and a working
      capital deficit of $5,266,249. 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;





·
            maintain
                and expand our current, and develop new, relationships with third-party
                branded content owners;





·
            retain
                or improve our current revenue-sharing arrangements with carriers
                and
                third-party branded content owners;





·
            maintain
                and enhance our own brands;





·
            continue
                to develop new high-quality mobile games that achieve significant
                market
                acceptance;





·
            continue
                to port existing mobile games to new mobile
                handsets;





·
            continue
                to develop and upgrade our
                technology;





·
            continue
                to enhance our information processing
                systems;


19





·
            increase
                the number of end users of our
                games;





·
            maintain
                and grow our non-carrier, or “off-deck,” distribution, including through
                our website and third-party direct-to-consumer
                distributors;





·
            expand
                our development capacity in countries with lower
                costs;





·
            execute
                our business and marketing strategies
                successfully;





·
            respond
                to competitive
                developments; and





·
            attract,
                integrate, retain and motivate qualified
                personnel.





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.





Ø
            **Our
                financial results could vary significantly from quarter to quarter
                and are
                difficult to predict, which may cause our stock price to
                fluctuate.**




Our
      revenues and operating results could vary significantly from quarter to quarter
      because of a variety of factors, many of which are outside of our control.
      As a
      result, comparing our operating results on a period-to-period basis may not
      be
      meaningful. In addition, we may not be able to predict our future revenues
      or
      results of operations. We base our current and future expense levels on our
      internal operating plans and sales forecasts, and our operating costs are to
      a
      large extent fixed. As a result, we may not be able to reduce our costs
      sufficiently to compensate for an unexpected shortfall in revenues, and even
      a
      small shortfall in revenues could disproportionately and adversely affect
      financial results for that quarter. Individual games and carrier relationships
      represent meaningful portions of our revenues and net loss in any quarter.
      We
      may incur significant or unanticipated expenses when licenses are renewed.
      In
      addition, some payments from carriers that we recognize as revenue on a cash
      basis may be delayed unpredictably.




In
      addition to other risk factors discussed in this section, factors that may
      contribute to the variability of our quarterly results include:





·
            the
                number of new mobile games and applications released by us and our
                competitors;





·
            the
                timing of release of new games and applications by us and our competitors,
                particularly those that may represent a significant portion of revenues
                in
                a period;





·
            the
                popularity of new games and other applications and games and other
                applications released in prior
                periods;





·
            changes
                in prominence of deck placement for our leading games and applications
                and
                those of our competitors;





·
            the
                expiration of existing content licenses for particular games and
                other
                applications;





·
            the
                timing of charges related to impairments of goodwill, intangible
                assets,
                prepaid royalties and guarantees;





·
            changes
                in pricing policies by us, our competitors or our carriers and other
                distributors;





·
            changes
                in the mix of original and licensed games and applications, which
                have
                varying gross margins;





·
            the
                timing of successful mobile handset
                launches;





·
            the
                seasonality of our industry;





·
            fluctuations
                in the size and rate of growth of overall consumer demand for mobile
                games
                and related content;





·
            strategic
                decisions by us or our competitors, such as acquisitions, divestitures,
                spin-offs, joint ventures, strategic investments or changes in business
                strategy;


20





·
            our
                success in entering new geographic
                markets;





·
            foreign
                exchange fluctuations;





·
            accounting
                rules governing recognition of
                revenue;





·
            the
                timing of compensation expense associated with equity compensation
                grants;
                and





·
            decisions
                by us to incur additional expenses, such as increases in marketing
                or
                research and development.




As
      a
      result of these and other factors, our operating results may not meet the
      expectations of investors or public market analysts who choose to follow our
      company. The failure to meet market expectations would likely result in
      decreases in the trading 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
            **Failure
                to renew our existing brand and content licenses on favorable terms
                or at
                all and to obtain additional licenses would impair our ability to
                introduce new mobile games and applications or to continue to offer
                our
                current games and other applications based on third-party
                content.**




In
      2006,
      revenues derived from our two largest licensors, Phil Hellmuth and Mattel,
      accounted for approximately 26% and 26% of our revenues,
      respectively .
      In
      2005, revenues derived from Phil Hellmuth and Mattel accounted for approximately
      37% and 1% of our revenues, respectively. Even if mobile games or our other
      applications based on licensed content or brands remain popular, any of our
      licensors could decide not to renew our existing license or not to license
      additional intellectual property and instead license to our competitors or
      develop and publish its own mobile games or other applications, competing with
      us in the marketplace. Some of these licensors in the games industry already
      develop games for other platforms, and may have significant experience and
      development resources available to them should they decide to compete with
      us
      rather than license to us.




We
      have
      both exclusive and non-exclusive licenses and both licenses that are global
      and
      licenses that are limited to specific geographies, often with other publishers
      having rights to geographies not covered by our licenses. Our licenses generally
      have terms that range from one to three years. We may be unable to renew these
      licenses or to renew them on terms favorable to us, and we may be unable to
      secure alternatives in a timely manner. Failure to maintain or renew our
      existing licenses or to obtain additional licenses would impair our ability
      to
      introduce new mobile games and applications or to continue to offer our current
      games and applications, which would materially harm our business, operating
      results and financial condition. Some of our existing licenses impose, and
      licenses that we obtain in the future might impose, development, distribution
      and marketing obligations on us. If we breach our obligations, our licensors
      might have the right to terminate the license or change an exclusive license
      to
      a non-exclusive license, which would harm our business, operating results and
      financial condition.




Even
      if
      we are successful in gaining new licenses or extending existing licenses, we
      may
      fail to anticipate the entertainment preferences of our end users when making
      choices about which brands or other content to license. If the entertainment
      preferences of end users shift to content or brands owned or developed by
      companies with which we do not have relationships, we may be unable to establish
      and maintain successful relationships with these developers and owners, which
      would materially harm our business, operating results and financial condition.





Ø
            **End
                user tastes are continually changing and are often unpredictable;
                if we
                fail to develop and publish new mobile games and other mobile applications
                that achieve market acceptance, our sales would
                suffer.**




Our
      business depends on developing and publishing mobile games and other wireless
      applications that wireless carriers will place on their decks and end users
      will
      buy. We must continue to invest significant resources in licensing efforts,
      research and development, marketing and regional expansion to enhance our
      offering of games and applications and introduce new games and applications,
      and
      we must make decisions about these matters well in advance of product release
      in
      order to implement them in a timely manner. Our success depends, in part, on
      unpredictable and volatile factors beyond our control, including end-user
      preferences, competing games and applications and the availability of other
      entertainment activities. If our games and related applications are not
      responsive to the requirements of our carriers or the entertainment preferences
      of end users, or they are not brought to market in a timely and effective
      manner, our business, operating results and financial condition would be harmed.
      Even if our games and applications are successfully introduced and initially
      adopted, a subsequent shift in our carriers or the entertainment preferences
      of
      end users could cause a decline in our games and other applications popularity
      that could materially reduce our revenues and harm our business, operating
      results and financial condition.




21





Ø
            **Inferior
                deck placement would likely adversely impact our revenues and thus
                our
                operating results and financial condition.**




Wireless
      carriers provide a limited selection of games and other mobile applications
      that
      are accessible to their subscribers through a deck on their mobile handsets.
      The
      inherent limitation on the number of games and other mobile applications
      available on the deck is a function of the limited screen size of handsets
      and
      carriers’ perceptions of the depth of menus and numbers of choices end users
      will generally utilize. Carriers typically provide one or more top level menus
      highlighting games and other mobile applications that are recent top sellers,
      that the carrier believes will become top sellers or that the carrier otherwise
      chooses to feature, in addition to a link to a menu of additional games and
      mobile applications sorted by genre. We believe that deck placement on the
      top
      level or featured menu or toward the top of genre-specific or other menus,
      rather than lower down or in sub-menus, is likely to result in games and other
      mobile applications achieving a greater degree of commercial success. If
      carriers choose to give our games and other mobile applications less favorable
      deck placement, they may be less successful than we anticipate, our revenues
      may
      decline and our business, operating results and financial condition may be
      materially harmed.




Ø
            **We
                have depended on no more than two mobile games for a majority of
                our
                revenues in recent fiscal periods.**





In
      our
      industry, new games are frequently introduced, but a relatively small number
      of
      games account for a significant portion of industry sales. Similarly, a
      significant portion of our revenues comes from a limited number of mobile games.
      For example, in fiscal 2006, we generated approximately 26% and 26% of our
      revenues, respectively, from our *Texas
      Hold’em by Phil Hellmuth* and *UNO®
      Challenge* mobile games.
      We
      expect to release a relatively small number of new games and mobile applications
      each year for the foreseeable future. If these games and mobile applications
      are
      not successful, our revenues could be limited and our business and operating
      results would suffer in both the year of release and thereafter.




In
      addition, the limited number of games and mobile applications that we release
      in
      a year may contribute to fluctuations in our operating results. Therefore,
      our
      reported results at quarter and year end may be affected based on the release
      dates of our products, which could result in volatility in the price of our
      common stock. If our competitors develop more successful games and other mobile
      applications or offer them at lower prices or based on payment models, such
      as
      pay-for-play or subscription-based models, perceived as offering a better value
      proposition, or if we do not continue to develop consistently high-quality
      and
      well-received games and mobile applications, our revenues would likely decline
      and our business, operating results and financial condition would be harmed.





Ø
            **If
                we are unsuccessful in establishing and increasing awareness of our
                brand
                and recognition of our mobile games and mobile applications or if
                we incur
                excessive expenses promoting and maintaining our brand or our games
                and
                mobile applications, our potential revenues could be limited, our
                costs
                could increase and our operating results and financial condition
                could be
                harmed.**




We
      believe that establishing and maintaining our brand is critical to retaining
      and
      expanding our existing relationships with wireless carriers and content
      licensors, as well as developing new relationships. Promotion of the Oasys
      Mobile brand will depend on our success in providing high-quality mobile games
      and applications. Similarly, recognition of our mobile games by end users will
      depend on our ability to develop engaging games of high quality with attractive
      titles. However, our success will also depend, in part, on the services and
      efforts of third parties, over which we have little or no control. For instance,
      if our carriers fail to provide high levels of service, our end users’ ability
      to access our games and applications may be interrupted, which may adversely
      affect our brand. If end users, branded content owners and carriers do not
      perceive our existing games and applications as high-quality or if we introduce
      new games and applications that are not favorably received by our end users
      and
      carriers, then we may be unsuccessful in building brand recognition and brand
      loyalty in the marketplace. In addition, globalizing and extending our brand
      and
      recognition of our games and applications will be costly and will involve
      extensive management time to execute successfully. Further, the markets in
      which
      we operate are highly competitive and some of our competitors, such as
      Electronic Arts (EA Mobile) and Glu Mobile, already have substantially more
      brand name recognition and greater marketing resources than we do. If we fail
      to
      increase brand awareness and consumer recognition of our games and applications,
      our potential revenues could be limited, our costs could increase and our
      business, operating results and financial condition could suffer.





22





Ø
            **We
                currently rely on wireless carriers, in particular, Verizon Wireless,
                Cingular, Sprint Nextel and Alltel, 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, 2006, we earned approximately 31%, 22%, 13%
      and
      11%, respectively, of our revenues from subscribers of Verizon Wireless,
      Cingular, Sprint Nextel, and Alltel. 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.





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.


23





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
                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.





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.


24





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.





Ø
            **If
                we fail to deliver our games at the same time as new mobile handset
                models
                are commercially introduced, our sales may suffer.**




Our
      business is dependent, in part, on the commercial introduction of new handset
      models with enhanced features, including larger, higher resolution color
      screens, improved audio quality, and greater processing power, memory, battery
      life and storage. We do not control the timing of these handset launches. Some
      new handsets are sold by carriers with one or more games or other applications
      pre-loaded, and many end users who download our games do so after they purchase
      their new handsets to experience the new features of those handsets. If, because
      of game launch delays, we miss the opportunity to sell games when new handsets
      are shipped or our end users upgrade to a new handset, or if we miss the key
      holiday selling period, either because the introduction of a new handset is
      delayed or we do not deploy our games in time for the holiday selling season,
      our revenues would likely decline and our business, operating results and
      financial condition would likely suffer.


25




Ø
            **If
                we fail to maintain and enhance our capabilities for porting games
                to a
                broad array of mobile handsets, our attractiveness to wireless carriers
                and branded content owners will be impaired, and our sales could
                suffer.**





Once
      developed, a mobile game may be required to be ported to, or converted into
      separate versions for, more than 1000 different handset models, many with
      different technological requirements. These include handsets with various
      combinations of underlying technologies, user interfaces, keypad layouts, screen
      resolutions, sound capabilities and other carrier-specific customizations.
      If we
      fail to maintain or enhance our porting capabilities, our sales could suffer,
      branded content owners might choose not to grant us licenses and carriers might
      choose to give our games and other mobile applications less desirable deck
      placement or not to give our applications placement on their decks at all.




Changes
      to our game and application design and development processes to address new
      features or functions of handsets or networks might cause inefficiencies in
      our
      porting process or might result in more labor intensive porting processes.
      In
      addition, we anticipate that in the future we will be required to port existing
      and new games and applications to a broader array of handsets. If we utilize
      more labor intensive porting processes, our margins could be significantly
      reduced and it might take us longer to port games and applications to an
      equivalent number of handsets. This, in turn, could harm our business, operating
      results and financial condition.




Ø
            **If
                our independent, third-party developers cease development of new
                games for
                us and we are unable to find comparable replacements, we may have
                to
                reduce the number of games that we intend to introduce, delay the
                introduction of some games or increase our internal development staff,
                which would be a time-consuming and potentially costly process, and,
                as a
                result, our competitive position may be adversely
                impacted.**





We
      rely
      on independent third-party developers to develop a few of our games, which
      subjects us to the following risks:





·
            key
                developers who worked for us in the past may choose to work for or
                be
                acquired by our competitors;





·
            developers
                currently under contract may try to renegotiate our agreements with
                them
                on terms less favorable to
                us; and





·
            our
                developers may be unable or unwilling to allocate sufficient resources
                to
                complete our games in a timely or satisfactory manner or at
                all.





If
      our
      developers terminate their relationships with us or negotiate agreements with
      terms less favorable to us, we may have to reduce the number of games that
      we
      intend to introduce, delay the introduction of some games or increase our
      internal development staff, which would be a time-consuming and potentially
      costly process, and, as a result, our business, operating results and financial
      condition could be harmed.





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.





26





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;
                and





·
                significant
                    non-recurring charges.





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.





27





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, hinder our growth and adversely affect our business, operating
                results and financial
                condition.**





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;





·
            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.





28





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 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.





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.


29





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
      Douglas B. Dyer, Donald T. Locke and Tracy T. Jackson. 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, Executive Officers and
      Corporate Governance” in this annual report on Form 10-K.





30





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 and other equity components 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.





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 might cause us to change our business
                practices.**





We
      prepare our financial statements to conform with U.S. generally accepted
      accounting principles. These accounting principles are subject to interpretation
      by the Financial Accounting Standards Board, or FASB, the SEC, and various
      other
      bodies. A change in those principles could have a significant effect on our
      reported results and might affect our reporting of transactions completed before
      a change is announced. For example, we have used stock options as a fundamental
      component of our employee compensation packages. We believe that stock options
      directly motivate our employees to maximize long-term stockholder value and,
      through the use of vesting, encourage employees to remain in our employ. Several
      regulatory agencies and entities have made regulatory changes that could make
      it
      more difficult or expensive for us to grant stock options to employees. For
      example, the FASB released Statement of Financial Accounting Standards “SFAS”
No. 123R, “ *Share-Based
      Payment,”* that
      required us to record a charge to earnings for employee stock option grants
      beginning in 2006.








**Risks
      Relating to Our Industry**




Ø
              **Wireless
                  carriers generally control the price charged for our mobile games
                  and the
                  billing and collection for sales of our mobile games and could
                  make
                  decisions detrimental to us.**
 
 Wireless
        carriers generally control the price charged for our mobile games either
        by
        approving or establishing the price of the games charged to their subscribers.
        Some of our carrier agreements also restrict our ability to change prices.
        In
        cases where carrier approval is required, approvals may not be granted in
        a
        timely manner or at all. A failure or delay in obtaining these approvals,
        the
        prices established by the carriers for our games, or changes in these prices
        could adversely affect market acceptance of those games. When we make changes
        to
        a pricing plan (the wholesale price and the corresponding suggested retail
        price
        based on our negotiated revenue-sharing arrangement), adjustments to the
        actual
        retail price charged to end users may not be made in a timely manner or at
        all
        (even though our wholesale price was reduced). A failure or delay by these
        carriers in adjusting the retail price for our games, could adversely affect
        sales volume and our revenues for those games.
  Carriers
        and other distributors also control billings and collections for our games,
        either directly or through third-party service providers. If our carriers
        or
        their third-party service providers cause material inaccuracies when providing
        billing and collection services to us, our revenues may be less than anticipated
        or may be subject to refund at the discretion of the carrier. This could
        harm
        our business, operating results and financial condition.





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.





31





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.





Ø
            **The
                complexity of and incompatibilities among mobile handsets may require
                us
                to use additional resources for the development of our
                games.**





To
      reach
      large numbers of wireless subscribers, mobile entertainment publishers like
      us
      must support numerous mobile handsets and technologies. However, keeping pace
      with the rapid innovation of handset technologies together with the continuous
      introduction of new, and often incompatible, h andset
      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 investments in our
      development if the number of different types of handset models continues to
      proliferate. In addition, as more advanced handsets are introduced that enable
      more complex, feature rich games, we anticipate that our per-game and
      per-applications development costs will increase, which could increase the
      risks
      associated with the failure of any one game and could materially harm our
      operating results and financial condition.





Ø
            **If
                wireless subscribers do not continue to use their mobile handsets
                to
                access games and other mobile applications, our business growth and
                future
                revenues may be adversely affected.**





We
      operate in a developing industry. Our success depends on growth in the number
      of
      wireless subscribers who use their handsets to access data services and, in
      particular, entertainment applications of the type we develop and distribute.
      New or different mobile entertainment applications, such as streaming video
      or
      music applications, developed by our current or future competitors may be
      preferred by subscribers to our games. In addition, other mobile platforms
      such
      as the iPod and dedicated portable gaming platforms such as the PlayStation
      Portable and the Nintendo DS may become widespread, and end users may
      choose to switch to these platforms. If the market for our games and mobile
      applications does not continue to grow or we are unable to acquire new end
      users, our business growth and future revenues could be adversely affected.
      If
      end users switch their entertainment spending away from the games and related
      mobile applications that we publish, or switch to portable gaming platforms
      or
      distribution where we do not have comparative strengths, our revenues would
      likely decline and our business, operating results and financial condition
      would
      suffer.




Ø
            **Our
                industry is subject to risks generally associated with the entertainment
                industry, any of which could significantly harm our operating
                results.**




Our
      business is subject to risks that are generally associated with the
      entertainment industry, many of which are beyond our control. These risks could
      negatively impact our operating results and include: the popularity, price
      and
      timing of release of games and mobile handsets on which they are played;
      economic conditions that adversely affect discretionary consumer spending;
      changes in consumer demographics; the availability and popularity of other
      forms
      of entertainment; and critical reviews and public tastes and preferences, which
      may change rapidly and cannot necessarily be predicted.





32





Ø
            **A
                shift of technology platform by wireless carriers and mobile handset
                manufacturers could lengthen the development period for our games,
                increase our costs and cause our games to be of lower quality or
                to be
                published later than anticipated.**





End
      users
      of games must have a mobile handset with multimedia capabilities enabled by
      technologies capable of running third-party games and related applications
      such
      as ours. Our development resources are concentrated in the BREW and Java
      platforms, and we have experience developing games for the Symbian and Windows
      Mobile Platforms. If one or more of these technologies fall out of favor with
      handset manufacturers and wireless carriers and there is a rapid shift to a
      technology platform such as Adobe Flash Lite or a new technology where we do
      not
      have development experience or resources, the development period for our games
      may be lengthened, increasing our costs, and the resulting games may be of
      lower
      quality, and may be published later than anticipated. In such an event, our
      reputation, business, operating results and financial condition might suffer.





Ø
            **System
                or network failures could reduce our sales, increase costs or result
                in a
                loss of end users of our games.**




Mobile
      game publishers rely on wireless carriers’ networks to deliver games to end
      users and on their or other third parties’ billing systems to track and account
      for the downloading of their games. In certain
      circumstances, mobile game publishers may also rely on their own servers to
      deliver games on demand to end users through their carriers’ networks. In
      addition, certain subscription-based games require access over the mobile
      Internet to our servers in order to enable features such as multiplayer modes,
      high score posting or access to information updates. Any failure of, or
      technical problem with, carriers’, third parties’ or our billing systems,
      delivery systems, information systems or communications networks could result
      in
      the inability of end users to download our games, prevent the completion of
      billing for a game, or interfere with access to some aspects of our games or
      other products. If any of these systems fails or if there is an interruption
      in
      the supply of power, an earthquake, fire, flood or other natural disaster,
      or an
      act of war or terrorism, end users might be unable to access our games and
      mobile applications. For example, from time to time, our carriers have
      experienced failures with their billing and delivery systems and communication
      networks, including gateway failures that reduced the provisioning capacity
      of
      their branded e-commerce system. Any failure of, or technical problem with,
      the
      carriers’, other third parties’ or our systems could cause us to lose end users
      or revenues or incur substantial repair costs and distract management from
      operating our business. This, in turn, could harm our business, operating
      results and financial condition.





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
            **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 internationally. This
      includes deployment and maintenance of reliable next-generation digital networks
      with the speed, data capacity and security necessary to provide reliable
      wireless communications services. Wireless communications infrastructure may
      be
      unable to support the demands placed on it if the number of subscribers
      continues to increase, or if existing or future subscribers increase their
      bandwidth requirements. Wireless communications have experienced 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 games successfully. In addition, changes by a wireless carrier
      to
      network infrastructure may interfere with downloads of our games and may cause
      end users to lose functionality in our games that they have already downloaded.
      This could harm our business, operating results and financial condition.





33





Ø
            **Future
                mobile handsets may significantly reduce or eliminate wireless carriers’
                control over delivery of our games and mobile applications and force
                us to
                rely further on alternative sales channels, which, if not successful,
                could require us to increase our sales and marketing expenses
                significantly.**





Substantially
      all our games are currently sold through carriers’ branded e-commerce services.
      We have invested significant resources developing this sales channel. However,
      a
      growing number of handset models currently available allow wireless subscribers
      to browse the Internet and, in some cases, download applications from sources
      other than a carrier’s branded e-commerce service. In addition, the development
      of other application delivery mechanisms such as premium-SMS may enable
      subscribers to download applications without having to access a carrier’s
      branded e-commerce service. Increased use by subscribers of open operating
      system handsets or premium-SMS delivery systems will enable them to bypass
      carriers’ branded e-commerce services and could reduce the market power of
      carriers. This could force us to rely further on alternative sales channels
      where we may not be successful selling our games, and could require us to
      increase our sales and marketing expenses significantly. As with our carriers,
      we believe that inferior placement of our games and other mobile entertainment
      products in the menus of off-deck distributors will result in lower revenues
      than might otherwise be anticipated from these alternative sales channels.
      We
      may be unable to develop and promote our direct website distribution
      sufficiently to overcome the limitations and disadvantages of off-deck
      distribution channels. This could harm our business, operating results and
      financial condition.




Ø
            **Actual
                or perceived security vulnerabilities in mobile handsets or wireless
                networks could adversely affect our revenues.**




Maintaining
      the security of mobile handsets and wireless networks is critical for our
      business. There are individuals and groups who develop and deploy viruses,
      worms
      and other illicit code or malicious software programs that may attack wireless
      networks and handsets. Security experts have identified computer “worm”
programs, such as “Cabir” and “Commwarrior.A,” and viruses, such as “Lasco.A,”
that target handsets running on the Symbian operating system. Although these
      worms have not been widely released and do not present an immediate risk to
      our
      business, we believe future threats could lead some end users to seek to return
      our games, reduce or delay future purchases of our games or reduce or delay
      the
      use of their handsets. Wireless carriers and handset manufacturers may also
      increase their expenditures on protecting their wireless networks and mobile
      phone products from attack, which could delay adoption of new handset models.
      Any of these activities could adversely affect our revenues and this could
      harm
      our business, operating results and financial condition.





Ø
            **If
                a substantial number of the end users that purchase our games and
                mobile
                applications by subscription change mobile handsets or if wireless
                carriers switch to subscription plans that require active monthly
                renewal
                by subscribers, our sales could
                suffer.**




Subscriptions
      represent a significant portion of our revenues. As handset development
      continues, over time an increasing percentage of end users who already own
      one
      or more of our subscription games and other mobile applications will likely
      upgrade from their existing handsets. With some wireless carriers, it is not
      currently feasible for these end users to transfer their existing subscriptions
      from one handset to another. In addition, carriers may switch to subscription
      billing systems that require end users to actively renew, or opt-in, each month
      from current systems that passively renew unless end users take some action
      to
      opt-out of their subscriptions. In either case, unless we are able to re-sell
      subscriptions to these end users or replace these end users with other end
      users, our sales would suffer and this could harm our business, operating
      results and financial condition.





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 that could restrict the media and wireless communications
      industries, including laws and regulations regarding 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 business through wireless carriers. We
      anticipate that regulation of our industry will increase and that we will be
      required to devote legal and other resources to address this 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 games.




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, or any media reports suggesting
      such
      a link, could increase government regulation of, and reduce demand for, mobile
      phones and, accordingly, the demand for our games and related applications,
      and
      this could harm our business, operating results and financial condition.





34





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.








**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.





35





Ø
            **The
                sale of a large number of shares of our common stock could depress
                our
                stock price.**





Of
      the
      13,748,836 shares of our common stock outstanding as of March 25, 2007, an
      aggregate of 7,681,306 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 25, 2007, 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 7,602,340 shares of our common
                stock;





·
            options
                to purchase 2,290,439 shares of our common stock, 1,836,458 of which
                were
                fully vested; and





·
            2,407
                outstanding shares of our Series A Stock, plus related dividends,
                which
                are convertible into 20,396 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
            **Our
                Directors and Executive Officers beneficially own approximately 18.21%
                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 25, 2007, our executive officers, directors and affiliated persons
      beneficially owned approximately 18.21% 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.





36


**ITEM2.**  **PROPERTIES.**





Our
      principal executive offices are located at 5400 Trinity Road, Suite 208,
      Raleigh, North Carolina 27607. We occupy 7,339 square feet of leased space
      at
      such location. Our lease for this space, representing our principal executive
      offices, expires February 28, 2008. The base rent for January 24, 2007 through
      February 28, 2008 is approximately $103,358.





**ITEM3.**  **LEGAL
      PROCEEDINGS.**





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





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





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





**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, 2006.





37


**PART
      II**





**ITEM5.**
              **MARKET
                  FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS
                  AND****ISSUER
                  PURCHASES OF EQUITY
                  SECUTITIES**





**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, 2005 and 2006, and
      for
      the first quarter of 2007 through March 30, 2007, 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.





**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
              
              $
              1.42
              
              $
              2.27Second
                  Quarter
              
              $
              0.95
              
              $
              1.57Third
                  Quarter
              
              $
              0.80
              
              $
              1.24Fourth
                  Quarter
              
              $
              0.30
              
              $
              0.85**2007**
              
              **Low**
              
              **High**First
                  Quarter
                (through
                  March 30, 2007)
              
              $
              0.27
              
              $
              0.45





On
      March
      30, 2007, the closing sale price for our common stock as reported on the OTC
      Bulletin Board® was $0.33 per share. As of March 30, 2007, we had approximately
      13,748,836 shares of common stock outstanding and approximately 484 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.





38


**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, 2006, 2005
      and 2004, 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.




During
      2006, we adopted SFAS No. 123(R), *“Share-Based
      Payment”*
      which resulted in approximately $960,000 of stock-based compensation expense
      for
      2006.





39





**OASYS
      MOBILE, INC.**





**SELECTED
      FINANCIAL DATA**





**2002**
            
            
            
            **2003**
            
            
            
            **2004**
            
            
            **2005**
            
            
            **2006****Statement
                of Operations Data:**Revenues
            
            $
            406,952
            
            
            $
            1,699,274
            
            
            $
            5,171,440
            
            $
            7,794,941
            
            $
            8,687,867Cost
                of revenues
            
            
            182,109
            
            
            
            1,074,239
            
            
            
            2,604,060
            
            
            3,893,776
            
            
            5,018,966Selling,
                general and administrative
            
            
            7,407,408
            
            
            
            4,901,921
            
            
            
            3,628,669
            
            
            5,082,471
            
            
            7,681,854Research
                and development
            
            
            918,948
            
            
            
            1,056,770
            
            
            
            1,822,023
            
            
            3,168,620
            
            
            3,843,254Modification
                of warrants in conjunction with the Securities Purchase
                Agreement
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            —
            
            
            1,478,585Non-cash
                settlements
            
            
            —
            
            
            
            (1,525,698
            )
            
            
            (126,373
            )
            
            58,750
            
            
            —Loss
                from operations
            
            
            (8,101,513
            )
            
            
            (3,807,958
            )
            
            
            (2,756,939
            )
            
            (4,408,676
            )
            
            (9,334,792
            )Interest
                expense, net
            
            
            (469,571
            )
            
            
            (69,343
            )
            
            
            (62,519
            )
            
            (77,262
            )
            
            (278,037
            )Amortization
                of discount on debt and beneficial conversion feature
            
            
            —
            
            
            
            —
            
            
            
            (1,053,349
            )
            
            (1,435,372
            )
            
            (4,957,556
            )Net
                loss
            
            $
            (8,571,084
            )
            
            $
            (3,877,301
            )
            
            $
            (3,872,807
            )
            $
            (5,921,310
            )
            $
            (14,570,385
            )Net
                loss applicable to common stockholders:Net
                loss
            
            $
            (8,571,084
            )
            
            $
            (3,877,301
            )
            
            $
            (3,872,807
            )
            $
            (5,921,310
            )
            $
            (14,570,385
            )Accretion
                of beneficial conversion feature on preferred stock
            
            
            —
            
            
            
            (3,286,251
            )
            
            
            (293,444
            )
            
            —
            
            
            —Preferred
                stock dividends
            
            
            (183,039
            )
            
            
            (171,265
            )
            
            
            (175,035
            )
            
            (192,552
            )
            
            (192,560
            )Net
                loss applicable to common stockholders
            
            $
            (8,754,123
            )
            
            $
            (7,334,817
            )
            
            $
            (4,341,286
            )
            $
            (6,113,862
            )
            $
            (14,762,945
            )Per
                share amounts (basic and diluted):Net
                loss applicable to common stockholders
            
            $
            (1.86
            )
            
            $
            (1.19
            )
            
            $
            (0.49
            )
            $
            (0.46
            )
            $
            (1.09
            )Weighted
                average shares of common stock outstanding
            
            
            4,714,930
            
            
            
            6,149,125
            
            
            
            8,865,807
            
            
            13,317,440
            
            
            13,570,553





**December
                31****2002**
            
            **2003**
            
            **2004**
            
            **2005**
            
            **2006****Balance
                Sheet Data:**Cash
            
            $
            25,990
            
            $
            2,188,645
            
            $
            1,405,788
            
            $
            8,985,158
            
            $
            1,451,498Total
                assets
            
            
            701,174
            
            
            2,880,938
            
            
            2,405,806
            
            
            10,219,784
            
            
            4,105,740Total
                current liabilities
            
            
            5,152,311
            
            
            2,378,981
            
            
            2,439,309
            
            
            2,753,830
            
            
            9,219,002Long-term
                obligations
            
            
            12,917
            
            
            215,932
            
            
            53,693
            
            
            584,040
            
            
            18,697Total
                stockholders' equity (deficit)
            
            $
            (4,464,054
            )
            $
            286,025
            
            $
            (87,196
            )
            $
            6,881,914
            
            $
            (5,131,959)





40


**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.





**Overview**





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





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





·
            Branded
                Mobile Applications;


·
            Aggregation;
                and


·
            White
                Label Services.




*Branded
      Mobile Applications*





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





·
            Games;


·
            Messaging;


·
            Personalization;
                and


·
            Entertainment.





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





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





During
      2007, Oasys Mobile plans to release 20 new products, further expand the number
      and reach of its carrier and distribution partners, especially in new
      international markets, and enter into new content and brand partnerships.





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.




41


*Aggregation*





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





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





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





*White
      Label Services*





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





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





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





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





*Other
      Matters*





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





42


*Revenues*




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




*Cost
      of Revenues*




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





*Gross
      Profit*




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




*Operating
      Expenses*




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




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




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




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




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




*Interest
      Expense, Net*




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





43


**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, 2006 Compared to Year Ended December 31,
      2005**




*Revenues*




**Year
                Ended December 31****%
                of Total**
            
            
            
            **%
                of Total****2006**
            
            **Revenues**
            
            **2005**
            
            **Revenues**
            
            **$
                Change**
            
            **%
                Change**Revenues
                by category:Wireless
                applications and
              contracts
            
            $
            8,663,117
            
            
            99.7
            %
            $
            7,782,241
            
            
            99.8
            %
            $
            880,876
            
            
            11.3
            %Wireless
                license fees
            
            
            24,750
            
            
            0.3
            
            
            12,700
            
            
            0.2
            
            
            12,050
            
            
            94.9Total
                revenues
            
            $
            8,687,867
            
            
            100.0
            %
            $
            7,794,941
            
            
            100.0
            %
            $
            892,926
            
            
            11.5
            %




*Wireless
      Applications and Contracts.* Revenue
      from wireless applications and contracts increased $880,876 to $8,663,117 in
      the
      year ended December 31, 2006, up 11.3% from $7,782,241 in the year ended
      December 31, 2005. The
      increase in revenue from wireless applications and contracts resulted from
      the
      increase in sales of existing wireless applications and additional wireless
      applications developed by Oasys Mobile, launched by several wireless carriers
      and purchased by end-users. We continue to increase our subscriber base as
      well
      as expanding to new carriers. The Company’s products, including Mattel’s UNO®
Challenge, College and Greek Logos and Hooters Calendar have shown
      strong growth during the year ended December 31, 2006. In addition, the
      Company launched UNO® Freefall during the period.




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 $24,750 and $12,700 in the years
      ended
      December 31, 2006 and 2005, respectively.




*Costs
      of Revenues*




**Year
                Ended December 31****2006**
            
            
            **2005**
            
            
            **$
                Change**
            
            
            %**Change**Cost
                of revenues by category:Wireless
                applications and contracts
            
            $
            5,018,966
            
            $
            3,893,776
            
            $
            1,125,190
            
            
            28.9
            %Total
                cost of revenues
            
            $
            5,018,966
            
            $
            3,893,776
            
            $
            1,125,190
            
            
            28.9
            %




*Wireless
      Applications and Contracts.* Costs
      of
      wireless applications and contracts increased $1,125,190 to $5,018,966 in the
      year ended December 31, 2006, up 28.9% from $3,893,776 in the year ended
      December 31, 2005. The
      increase in costs of wireless applications and contracts resulted from the
      increase in sales of existing wireless applications and additional wireless
      applications developed by the Company, launched by several wireless carriers
      and
      purchased by end-users. These costs are direct costs associated with the sale
      and delivery of wireless applications and primarily consist of third-party
      hosting fees and fees associated with content information provided by our
      content providers for wireless applications which were deployed during 2006.
      The
      costs related to third-party hosting are incurred on a monthly basis and are
      primarily fixed in nature regardless of the revenue generated by the related
      applications. Our contracts with our content partners have various cost
      structures. Certain content partner arrangements have minimum payment
      requirements regardless of revenues. Therefore, our costs of revenues could
      vary
      depending on the mix of products sold in a given period.





In
      addition, the Company was selected by Sprint during 2006 to be one of two mobile
      content aggregators for personalization content. The Company receives a fixed
      percentage of all mobile personalization content that is distributed through
      this relationship.





44


*Gross
      Profit*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Gross
                profit by category:Wireless
                applications and contracts
            
            $
            3,644,151
            
            $
            3,888,465
            
            $
            (244,314
            )
            
            (6.3)
            %Wireless
                license fees
            
            
            24,750
            
            
            12,700
            
            
            12,050
            
            
            94.9****Total
                gross profit
            
            $
            3,668,901
            
            $
            3,901,165
            
            $
            (232,264
            )
            
            (6.0)
            %




*Wireless
      Applications and Contracts.* Gross
      profit resulting from the development and deployment of wireless applications
      decreased $244,314 to $3,644,151 for the year ended December 31, 2006, a
      decrease of 6.3% over the gross profit for the year ended December 31, 2005
      of
      $3,888,465. The
      decrease in gross profit resulting from these activities is due primarily to
      certain new content partner arrangements with higher royalty payments. Our
      contracts with our content partners have various cost structures. Certain
      content partner arrangements have minimum payment requirements regardless of
      revenues. Therefore, our gross profit could vary depending on the mix of
      products sold in a given period. The costs for these revenues include costs
      that
      are primarily fixed in nature, consisting mostly of third-party hosting fees
      and
      content information provided by certain of our content providers, and costs
      that
      are primarily variable in nature, consisting mostly of third-party content
      information.





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




*Wireless
      License Fees.* Gross
      profit resulting from wireless license fees totaled $24,750 and $12,700 for
      the
      years ended December 31, 2006 and 2005, respectively. The Company did not incur
      any specific direct costs associated with the sale, delivery, or installation
      of
      the software underlying the license agreements consummated during the period.
      Additionally, the Company does not expect to incur any future obligations
      relating to these license fees.




*General
      and Administrative Expenses*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**General
                and administrative
            
            $
            3,735,570
            
            $
            3,215,040
            
            $
            520,530
            
            
            16.1
            %




General
      and administrative expenses consist primarily
      of salaries, consulting fees, office operations, administrative and general
      management activities, including legal, accounting, investor relations and
      other
      professional fees. General
      and administrative expenses for the year ended December 31, 2006 were
      $3,735,570, compared to $3,215,040 for the year ended December 31, 2005. The
      overall increase in general and administrative expenses was due to an increase
      in stock-based compensation expense offset by decreases
      in several expense categories, including legal and accounting fees, fees
      related to the Qualcomm Quick-Pay program and general office administration
      costs. Stock-based compensation expense included in general and administrative
      expense was $806,433 and $39,221 for the years ended December 31, 2006 and
      2005,
      respectively. The increase in stock-based compensation expense was
      due
      to new accounting requirements for the expensing of stock options issued to
      employees. Stock-based compensation for 2006 reflects the fair value of employee
      stock options earned during the period.




45


*Research
      and Development Expenses*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Research
                and development
            
            $3,843,254
            
            $3,168,620
            
            $674,634
            
            21.2%




Research
      and development expenses for the year ended December 31, 2006, were $3,843,254
      compared to $3,168,620 for the year ended December 31, 2005. The
      increase in research and development expenses was due to the increase in the
      number of applications that the Company is developing for future revenue
      generation, as well as the development for the Oasys Mobile portal. The increase
      was also due to stock-based compensation expense of $128,443 included in
      research and development in the year ended December 31, 2006 due to new
      accounting requirements for the expensing of stock options issued to employees.
      There was no stock-based compensation expense included in research and
      development expense in the year ended December 31, 2005. We currently have
      several new products in development. In addition, the Company has expanded
      its
      porting development and quality assurance teams to expedite deployment of
      products to the carriers. The Oasys Mobile portal launched during the first
      quarter of 2006, and the Company was continuing to add new functionality
      throughout 2006. We are focusing our resources on the development of new
      products for rapid deployment.




*Sales
      and Marketing Expenses*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Sales
                and marketing
            
            $3,911,284
            
            $1,846,608
            
            $2,064,676
            
            111.8%




Sales
      and
      marketing expenses consist primarily of salaries, consulting fees, advertising
      and marketing fees and other professional fees. Sales and marketing expenses
      for
      the year ended December 31, 2006 were $3,911,284, compared to $1,846,608 for
      the
      year ended December 31, 2005. The
      increase in sales and marketing expenses during 2006 as compared to 2005 was
      primarily due to the event-related marketing, partner marketing arrangements
      and
      search marketing for the Oasys Mobile portal and certain carrier campaigns.
      The
      increase was also due to stock-based compensation expense of $120,984 included
      in sales and marketing in the year ended December 31, 2006 due to new accounting
      requirements for the expensing of stock options issued to employees. There
      was
      no stock-based compensation expense included in sales and marketing expense
      in
      the year ended December 31, 2005. During the fourth quarter of 2006, the Company
      significantly decreased the level of marketing expense on the Oasys Mobile
      portal. The Company is focusing its efforts on positioning the Oasys Mobile
      portal as a white-label technology opportunity rather than a direct-to-consumer
      portal. The increase in sales and marketing expenses reflects our focus to
      deploy and market new products in order to continue increasing revenues in
      a
      cost effective manner.




*Modification
      of Warrants in Conjunction with the Securities Purchase
      Agreement*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Modification
                of warrants in conjunction
              with
                the Securities Purchase Agreement
            
            $1,478,585
            
            $
                   -
            
            $1,478,585
            
            100.0%




Modification
      of warrants in conjunction with the Securities Purchase Agreement for the year
      ended December 31, 2006 was $1,478,585. This related to a modification on the
      warrants and the Securities Purchase Agreement associated with the convertible
      notes entered into in November 2005. The modification was made on July 27,
      2006.
      There were no similar transactions in the year ended December 31,
      2005.





46


*Non-Cash
      Consulting Expenses*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                consulting
            
            $35,000
            
            $20,823
            
            $14,177
            
            68.1%




Non-cash
      consulting expense for the year ended December 31, 2006, in the amount of
      $35,000 is related to the amortization of restricted stock. The Company issued
      100,000 shares of restricted stock on September 29, 2006 to a director of the
      Company for consulting services. Of the shares, 25,000 vested immediately and
      the remaining vest monthly over 1 year. The restricted stock was valued at
      $80,000.




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
      Settlements*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Non-cash
                settlements
            
            $
                -
            
            $58,750
            
            ($58,750)
            
            (100.0)%




Non-cash
      settlements totaling $58,750 for the year ended December 31, 2005 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.




The
      Company did not enter into any non-cash settlements during the year ended
      December 31, 2006.





*Interest
      Expense*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Interest
            
            $278,037
            
            $77,262
            
            $200,775
            
            259.9%




Interest
      expense for the year ended December 31, 2006 was $278,037 compared to interest
      expense of $77,262 for year ended December 31, 2005. Interest expense for each
      of the years related to interest costs associated with capital lease obligations
      and convertible note agreements. The increase in interest expense is due
      primarily to interest expense for the convertible note agreements being
      outstanding for all of 2006. The Company entered into these agreements in
      November 2005.




*Amortization
      of Discount on Debt and Beneficial Conversion Feature*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Amortization
                of discount on debt
              and
                beneficial conversion feature
            
            $4,957,556
            
            $1,435,372
            
            $3,522,184
            
            245.4%




Amortization
      of discount on debt and beneficial conversion feature for the year ended
      December 31, 2006 was $4,957,556. This related to amortization of the discounts
      on the convertible notes payable entered into in November 2005. These
      convertible notes payables were outstanding for all of 2006.





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.







47


*Net
      Loss*




**Year
                Ended December 31****2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change**Net
                loss
            
            $14,570,385
            
            $5,921,310
            
            $8,649,075
            
            146.1%




As
      a
      result of the factors discussed above, the net losses for the years ended
      December 31, 2006 and 2005 were $14,570,385 and $5,921,310, respectively.







48


**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.




*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.




*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.




*Costs
      of Revenues*




**Year
                Ended December 31****2005**
            
            
            **2004**
            
            
            **$
                Change**
            
            
            %**Change**Cost
                of revenues by category:Wireless
                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.


49


*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.




*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.




*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.




*General
      and Administrative Expenses*




**Year
                Ended December 31****2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**General
                and administrative
            
            $
            3,215,040
            
            $
            2,774,092
            
            $
            440,948
            
            
            15.8
            %




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 $3,215,040, compared to
      $2,774,092 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.







50


*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
      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.




*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.




51


*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.







52


**Liquidity
      and Capital Resources**




As
      of
      December 31, 2006 we had $1,451,498 of cash on hand, a working capital deficit
      of $5,266,249, and approximately $9.2 million in current liabilities, including
      $5.5 million in convertible notes payable.




*Convertible
      Notes Payable*





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





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





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





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




*Capital
      Needs*




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





As
      of the date of this annual report on Form 10-K, Oasys Mobile does not have
      the
      funds to pay the principal and interest due on its convertible notes payable,
      and we do not expect to generate such funds from our operations prior to their
      maturity on June 30, 2007. We have engaged RBC Daniels & Associates as our
      investment banker to assist Oasys Mobile in obtaining an equity investment
      or
      debt issuance to allow us to pay the principal and interest on the convertible
      notes payable at their maturity plus raise additional working capital.
      Alternatively or in addition thereto, RBC Daniels will also assist Oasys Mobile
      in evaluating certain strategic alternatives, including investments from
      strategic partners or business combinations, including the sale of the business.
      There are no assurances that Oasys Mobile will be successful in obtaining funds
      that would allow it to pay the principal and interest due on its convertible
      notes payable at the June 30, 2007 maturity date, or to raise additional working
      capital necessary to continue the operations of our business.


53


*Cash
      Flow Information*




**Year
                Ended December 31****2006**
            
            **2005**Cash
                used in operating activities
            
            $
            (7,477,878
            )
            $
            (3,153,749
            )Cash
                used in investing activities
            
            $
            (43,040
            )
            $
            (76,190
            )Cash
                (used in) provided by financing activities
            
            $
            (12,742
            )
            $
            10,809,309






*Cash
      Flow used in Operating Activities.* Net
      cash
      used in operating activities was $7,477,878 in the year ended December 31,
      2006,
      compared to $3,153,749 in the prior year. The
      increase in net cash used in operating activities was due to the following:




·
              increase
                  in net loss due to investments in the development and marketing
                  planning
                  for the new Oasys Mobile portal launched in the first quarter of
                  2006, and
                  marketing expenses related to several carrier and portal marketing
                  campaigns, including event-based marketing and partner marketing
                  arrangements;


·
              a
                  two-month lag on payments from Qualcomm due to our ending our
                  participation in the Qualcomm Quick Pay Program early in 2006;


·
              increases
                  in payments to service providers in preparation for the launch
                  of the
                  portal;


·
              payment
                  of approximately $220,000 made in September 2006 related to severance
                  as
                  provided in an agreement with the former Chief Executive Officer
                  of the
                  Company.





*Cash
      Flow used in Investing Activities.* Net
      cash
      used in investing activities was $43,040 and $76,190 in the years ended December
      31, 2006 and 2005, respectively, representing computer equipment purchases.





*Cash
      Flow (used in) provided by Financing Activities.* Net
      cash
      used in financing activities was $12,742 in the year ended December 31, 2006,
      representing payments on capital lease obligations.





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




**Significant
      Concentrations**





For
      the
      year ended December 31, 2006, one customer,
      Verizon Wireless, accounted for 31% and 33% of our revenues and
      accounts receivable, respectively. This same customer accounted for 45% and
      18%
      of our revenues and accounts receivable for the year ended December 31, 2005.
      In
      addition, a second customer, QPass (Cingular Wireless), accounted for 22%
      and 18% of our revenues and accounts receivable for the year ended December
      31,
      2006. This same customer accounted for 24% of our accounts receivable as of
      December 31, 2005. A third customer, Alltel, accounted for 11% and 15% of
      our revenues and accounts receivable for the year ended December 31, 2006.
      A
      fourth customer, Sprint Nextel, accounted for 13% and 16% of our revenues and
      accounts receivable for the year ended December 31, 2006.  Should these
      wireless carriers discontinue the deployment of our applications, our business
      would be adversely affected. There were no other customers with revenues or
      accounts receivable in excess of 10 percent of the respective
      balances.




For
      the year ended December 31, 2006, two licensors,
      Phil Hellmuch and Mattel, accounted for 26% and 26% of our revenues,
      respectively.  Should these licensors discontinue their license to the
      Company, our business would be adversely affected.  For the year ended
      December 31, 2005, two licensors, Phil Hellmuth and Sports Illustrated accounted
      for 37% and 23% of our revenues, respectively.  Our contract with Sports
      Illustrated ended in March 2006.  There were no other licensors attributing
      to revenues in excess of 10 percent of total revenues.


54


**Contractual
      Obligations**




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




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




**Notes**
            
            **Purchase****Total**
            
            **Leases**
            
            **Payable**
            
            **Obligations**Year
                ending December 31, 2007
            
            $
            8,358,590
            
            $
            113,090
            
            $
            8,077,500
            
            $
            168,000Year
                ending December 31, 2008
            
            
            39,613
            
            
            39,613
            
            
            -
            
            
            -Year
                ending December 31, 2009
            
            
            3,441
            
            
            3,441
            
            
            -
            
            
            -Total
                contractual obligations
            
            $
            8,401,644
            
            $
            156,144
            
            $
            8,077,500
            
            $
            168,000





**New
      Accounting Pronouncements**


We
        adopted SFAS No. 123(R), “ *Share-Based
        Payment,* ”
        effective January 1, 2006, as required, and have incorporated the modified
        prospective method for recognizing stock-based compensation expense which
        does
        not require restated results for prior periods. Under the modified prospective
        method, stock-based compensation cost recognized for the year ended
        December 31, 2006 includes: (a) stock-based compensation cost for all
        share-based payments granted, but not yet vested as of January 1, 2006,
        based on grant date fair value estimated in accordance with the original
        provisions of SFAS No. 123, and (b) stock-based compensation cost for
        all share-based payments granted subsequent to January 1, 2006, based on
        the grant date fair value estimated in accordance with the provisions of
        SFAS
        No. 123(R). Such amounts are reduced by our estimate of forfeitures of all
        unvested awards. In March 2005, the SEC issued Staff Accounting Bulletin
        No. 107, or SAB No. 107, regarding the SEC’s interpretation of SFAS
        No. 123(R) and the valuation of share-based payments for public companies.
        We have applied the provisions of SAB No. 107 in our adoption of SFAS
        No. 123(R).
 
 Prior
        to
        January 1, 2006, we accounted for our stock-based compensation plans under
        the recognition and measurement provisions of Accounting Principles Board
        Opinion No. 25, “ *Accounting
        for Stock Issued to Employees,”* or APB
        No. 25, and related interpretations for all awards granted to employees.
        Under APB No. 25, when the exercise price of options granted to employees
        under these plans equals the market price of the common stock on the date
        of
        grant, no compensation expense is recorded. When the exercise price of options
        granted to employees under these plans is less than the market price of the
        common stock on the date of grant, compensation expense is recognized over
        the
        vesting period.
 
 As
        of
        December 31, 2006, approximately $567,000 of unrecognized stock-based
        compensation expense related to the unvested portion of our stock options
        is
        expected to be recognized over a weighted-average period of 0.95 years.




In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      (“FIN”) No. 48, “ *Accounting
      for Uncertainty in Income Taxes* .”
FIN
      No. 48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN No. 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN No. 48 is effective for the
      Company’s first fiscal year beginning after December 15, 2006. We are
      currently evaluating the provisions of FIN No. 48 to determine what effect
      its adoption in the first quarter of 2007 will have on our financial position,
      cash flows, and results of operations.





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





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





**Description
      of Critical Accounting Policies**





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





55


*Revenue
      Recognition and Related Costs*





Wireless
      applications and contracts





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





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





Wireless
      License Fees





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





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





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.





*Stock-Based
      Compensation*





On
      January 1, 2006, we adopted SFAS No. 123(R), “ *Share-Based
      Payment”* ,
      which
      requires us to account for share-based payment transactions using a fair
      value-based method and recognize the related expense in our results of
      operations. Prior to our adoption of SFAS No. 123(R), as permitted by SFAS
      No. 123, we accounted for share-based payments to employees using the
      Accounting Principles Board Opinion No. 25 (“APB 25”), “ *Accounting
      for Stock Issued to Employees”* ,
      intrinsic value method. Accordingly, prior to January 1, 2006 we generally
      did not recognize compensation cost for employee stock options, as all such
      options had an exercise price equal to the market value of the underlying common
      stock on the date of the grant. SFAS No. 123(R) allows companies to choose
      one of two transition methods: the modified prospective transition method or
      the
      modified retrospective transition method. We chose to use the modified
      prospective transition methodology. Under this transition method, our
      compensation cost recognized includes compensation costs for all share-based
      payments granted prior to, but not yet vested as of, January 1, 2006 based
      on the grant date fair value estimated in accordance with the original
      provisions of SFAS No. 123, and compensation cost for all share-based
      payments granted subsequent to January 1, 2006 based on the grant date fair
      value estimated in accordance with the provisions of SFAS No. 123(R).
      Accordingly, we have not restated our financial results for prior periods.





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


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





56


We
      account for stock-based compensation to non-employees of the Company, primarily
      consultants and advisors, at the fair value of the equity instrument in
      accordance with the provisions of SFAS No. 123 and EITF 96-18, “ *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction With Selling, Goods or Services.”* EITF
      96-18 requires that compensation be measured at the end of each reporting period
      for changes in the fair value of our stock until the options are vested.








**ITEM7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK.**





***Interest
      Rate and Credit Risk***





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





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





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





***Foreign
      Currency Risk***





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





***Inflation***





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





**ITEM8.**
            **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 on Form 10-K.





57


**ITEM9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE.**





Not
      Applicable.





**ITEM9A.**
            **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.**





In
      November 2005, Oasys Mobile entered into agreements with certain investors
      for
      the issuance of $8,000,000 in principal of its 6% Senior Secured Convertible
      Debentures. These 6% Debentures mature on June 30, 2007.




As
      of the
      date of this annual report on Form 10-K, Oasys Mobile does not have the funds
      to
      pay the principal and interest due on its 6% Debentures, and we do not expect
      to
      generate such funds from our operations prior to their maturity on June 30,
      2007. We have engaged RBC Daniels & Associates as our investment banker to
      assist Oasys Mobile in obtaining an equity investment or debt issuance to allow
      us to pay the principal and interest on the 6% Debentures at their maturity
      plus
      raise additional working capital. Alternatively, or in addition thereto, RBC
      Daniels will also assist Oasys Mobile in evaluating certain strategic
      alternatives, including investments from strategic partners or business
      combinations, including the sale of the business. There are no assurances that
      Oasys Mobile will be successful in obtaining funds that would allow it to pay
      the principal and interest due on its 6% Debentures at the June 30, 2007
      maturity date, or to raise additional working capital necessary to continue
      the
      operations of our business.


58


**PART
      III**





**ITEM10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE**





**Business
      Experience of Directors and Executive Officers**





**Douglas
      B. Dyer** ,
      age 43,
      was appointed as our Chief Executive Officer on December 11, 2006. Prior
      to
      joining us, he served as acting CEO and President of ROK Entertainment Group
      US,
      Inc., a global company focused on delivering video and rich media to mobile
      devices. Prior to ROK, Dyer was Vice-President of Wireless Entertainment for
      Warner Bros., where he oversaw the building of a global publishing and mobile
      marketing organization that currently spans over 50 countries in the Americas,
      Europe and Asia. Through Dyer's leadership, Warner Bros took an aggressive
      and
      leading position in the mobile industry and became established as one of the
      premiere Hollywood studios in the space. Overseeing the mobile publishing of
      such major brands as Harry Potter, DC Comics, and Looney Tunes, Mr. Dyer
      extended Warner Bros.' brands and content to a global subscriber base of over
      800 million customers. Dyer is also credited with starting and building THQ
      Wireless into one of the leading mobile game publishers in the world. He was
      responsible for the negotiation and acquisition of such brands as The Simpsons,
      WWE Wrestling, Major League Baseball, and Hello Kitty as well as developing
      relationships with over 70 operators worldwide. Before entering the mobile
      entertainment industry, Dyer was a well-known figure in the video game and
      console world, holding management and business development positions at GT
      Interactive and Infogrames/Atari. Prior to that, Mr. Dyer spent several years
      at
      Microsoft as one of the initial team members of their fledgling games
      division.





**Stephen
      M. Finn** ,
      age 57,
      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.





**J.
      Winder Hughes,** age
      48,
      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.





**Tracy
      T. Jackson** ,
      age 36,
      was appointed as our Chief
      Financial Officer on April 17, 2006. Prior to joining the company, she served
      as
      senior audit manager and director of quality assurance at Hughes, Pittman &
Gupton, a leading CPA firm which is a member of the CPAmericas, International,
      one of the worlds largest networks of independent CPA and consulting firms.
      From
      2000 to 2003, Ms. Jackson served as controller for Arsenal Digital Solutions
      Worldwide, Inc., a provider of data storage management with 22 locations
      nationwide. She has also served as a senior manager for KPMG, providing audit
      and business advisory services to public and private technology and life science
      companies. Ms. Jackson has a Bachelor of Business Administration in Accounting
      from James Madison University and is a certified and licensed as
      a Certified Public Accountant in North Carolina and Virginia.





**Donald
      T. Locke** ,
      age
      48, **** our
      Executive Vice-President of Corporate Development and General Counsel joined
      Oasys Mobile as a consultant in October 2001 and served as its General Counsel.
      In March 2004, he was appointed as our Chief Financial Officer, where he served
      until taking his current role in April 2006. Prior to Oasys Mobile, Mr. Locke
      was Of Counsel to Kilpatrick Stockton LLP, a large southeastern law firm, where
      his practice focused on mergers and acquisitions, public company finance and
      Securities and Exchange Commission issues. Mr. Locke received his bachelor’s
      degree from Furman University in 1980 and his MBA and Law degrees from the
      University of South Carolina in 1986 and 1987, respectively. Mr. Locke is a
      member of the bar of the states of Texas and South Carolina.




**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
      is currently the Chief Executive Officer of XOS Technologies, Inc. Prior to
      this, Mr.
      Ruben
      served 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.




**Bernard
      Stolar** ,
      age 60,
      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. Currently,
      Mr. Stolar is Dean of Games and Game Evangelist for Google,
      Inc. From February 2006 until its purchase by Google, Inc. in February 2007,
      Mr.
      Stolar was the Chairman of the Board of Adscape Media. Prior
      to
      this, 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.





59




**James
        A. Taylor** ,
        age
        61was appointed to our Board of Directors in June 2005.  Mr. Taylor
        currently serves as vice president-finance and chief financial officer of
        Free-Flow Packaging International, a leading designer, manufacturer and seller
        of protective packing materials with operations in the United States, Europe
        and
        Australia.  Prior to joining Free-Flow Packaging in September, 2005, Mr.
        Taylor was president of Portola Packaging, a leading designer, manufacturer
        and
        marketer of tamper-evident plastic closures for a variety of industries,
        where
        he oversaw worldwide operations.  At Portola, Mr. Taylor helped increase
        revenues by more than $75 million to over $240 million through organic growth
        and product line acquisitions.  Mr. Taylor served as chief financial
        officer of Portola from 1998 to 1999.  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.




**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, Mr. Taylor and Mr. Ruben would be considered
      independent directors 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.*





**Code
      of Ethics**





We
      have
      adopted a Code of Ethics within the meaning of Item 406(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 .





**Section
      16(a) Beneficial Ownership Reporting Compliance**





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
      annual report on Form 10-K 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
      2006 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.





60





**ITEM11.**  **EXECUTIVE
      COMPENSATION**





**Compensation
      Discussion and Analysis**





*Objectives
      of Compensation Program*





This
      section discusses the principles underlying our executive compensation policies
      and decisions and the most important factors relevant to an analysis of these
      policies and decisions. It provides qualitative information regarding the manner
      and context in which compensation is awarded to and earned by our executive
      officers and places in perspective the data presented in the tables and
      narrative that follow in this annual report on Form 10-K.




Our
      compensation program for executive officers is designed to attract, as needed,
      individuals with the skills necessary for us to achieve our business plan,
      to
      motivate those individuals, to reward those individuals fairly over time, and
      to
      retain those individuals who continue to perform at or above the levels that
      we
      expect. It is also designed to reinforce a sense of ownership, urgency and
      overall entrepreneurial spirit and to link rewards to measurable corporate
      and
      individual performance.





*Elements
      of Compensation*





There
      are
      three main components to our compensation package: base salaries, annual cash
      bonuses, and stock based compensation. A fourth, less significant component
      is
      other benefits and perquisites. Our compensation program is designed to be
      competitive with other employment opportunities and to align the interests
      of
      all employees, including our executive officers, with the long-term interests
      of
      our stockholders.





We
      fix
      executive officer base compensation at a level we believe enables us to hire
      and
      retain individuals in a competitive environment and to reward satisfactory
      individual performance and a satisfactory level of contribution to our overall
      business goals. We also take into account the base compensation that is payable
      by companies that we believe to be our competitors and by other private and
      public companies with which we believe we generally compete for executives.
      We
      have accessed a number of executive compensation surveys and other databases
      and
      review them when making crucial executive officer hiring decisions and annually
      when we review executive compensation. We designed our executive cash bonuses
      to
      focus our executives on achieving key corporate financial objectives, to
      motivate certain desired individual behaviors and to reward substantial
      achievement of these company financial objectives and individual goals. We
      utilize these cash bonuses to reward performance achievements with a time
      horizon of one year or less, and we utilize salary as the base amount necessary
      to match our competitors for executive talent. We utilize stock options and
      restricted stock to reward long-term performance, with excellent corporate
      performance and extended officer tenure producing potentially significant value
      for the officer.





We
      view
      these components of compensation as related but distinct. Although our
      compensation committee does review total compensation, we do not believe that
      significant compensation derived from one component of compensation should
      negate or reduce compensation from other components. We determine the
      appropriate level for each compensation component based in part, but not
      exclusively, on the analysis of the compensation committee and the Board of
      Directors consistent with our recruiting and retention goals, our view of
      internal equity and consistency, and other considerations we deem relevant,
      such
      as rewarding extraordinary performance. Prior to the date of the annual report
      on Form 10-K, in which this Compensation Discussion and Analysis is included,
      Oasys Mobile has never engaged compensation consultants to assist with this
      analysis.





We
      believe that, as is common in the technology sector, stock option awards and
      restricted stock are the primary compensation-related motivators in attracting
      and retaining executives and that s alary
      and
      bonus levels are secondary considerations. Except as described below, our
      compensation committee has not adopted any formal or informal policies or
      guidelines for allocating compensation between long-term and currently paid
      out
      compensation, between cash and non-cash compensation, or among different forms
      of non-cash compensation. However, our compensation committee’s philosophy is to
      make a greater percentage of an employee’s compensation performance-based as he
      or she becomes more senior and to keep cash compensation to the minimum
      competitive level while providing the opportunity to be well rewarded through
      equity if the company performs well over time.





Our
      compensation committee’s current intent is to perform at least annually a
      strategic review of our executive officers’ compensation levels to determine
      whether they provide adequate incentives and motivation to our executive
      officers and whether they adequately compensate our executive officers relative
      to comparable officers in other companies with which we compete for executives.
      These companies may or may not be public companies or even in all cases
      technology companies. Our compensation committee’s most recent review occurred
      in February 2007. Compensation committee meetings typically have included,
      for
      all or a portion of each meeting, not only the committee members, but also
      our
      chief executive officer, our chief financial officer and our executive
      vice-president and general counsel. For compensation decisions, including
      decisions regarding the grant of equity compensation, relating to executive
      officers, our compensation committee typically considers recommendations from
      the executive management team as one factor in its analysis.




61





Since
      January 1, 2006, we account for equity compensation paid to our employees under
      the rules of SFAS No. 123R, which requires us to estimate and record an
      expense over the service period of the award. Accounting rules also require
      us
      to record cash compensation as an expense at the time the obligation is accrued.
      Unless and until we achieve sustained profitability, the availability to us
      of a
      tax deduction for compensation expense will not be material to our financial
      position. We structure cash bonus compensation so that it is taxable to our
      executives at the time it becomes available to them. We currently intend that
      all cash compensation paid will be tax deductible for us. However, with respect
      to equity compensation awards, while any gain recognized by employees from
      nonqualified options should be deductible, to the extent that an option
      constitutes an incentive stock option gain recognized by the optionee will
      not
      be deductible if there is no disqualifying disposition by the optionee. In
      addition, if we grant restricted stock or restricted stock unit awards that
      are
      not subject to performance vesting, they may not be fully deductible by us
      at
      the time the award is otherwise taxable to the employee.





*Factors
      unique to 2006*





We
      had
      two separate chief executive officers during 2006. On September 29, 2006, our
      then Chief Executive Officer, Gary E. Ban, resigned from that position and
      as a
      director of Oasys Mobile. Mr. Ban was paid certain amounts pursuant to his
      employment agreement with Oasys Mobile.  A more complete description
      of this event is addressed below in “ *Severance
      and Change of Control Provisions* ”
of
      this
      Compensation Discussion and Analysis. Our Board of Directors, led by Lead
      Director Bernard Stolar, performed a search for a candidate with experience
      in
      the development and distribution of mobile games and other mobile applications.
      As a result of the search, the Board of Directors of Oasys Mobile hired Douglas
      B. Dyer as our new Chief Executive Officer effective December 11,
      2006.





In
      addition, Andrew L. Fox, our Executive Vice-President of Business Development
      resigned from his position with Oasys Mobile effective November 17, 2006. A
      more
      complete description of this event is addressed below in “ *Severance
      and Change of Control Provisions* ”
of
      this
      Compensation Discussion and Analysis.




*Base
      Salaries*





We
      provide our executive officers with a level of cash compensation that
      facilitates an appropriate lifestyle and provides a reasonable minimum
      compensation. We make this determination based on a variety of factors including
      professional accomplishments, level of education, past experience and scope
      of
      responsibilities. The actual amount of base salary paid to each Named Executive
      Officer is set forth in the “Summary
      Compensation Table” included
      later in
      this annual report on Form 10-K.





The
      salary level for Mr. Ban as Chief Executive Officer was set at a rate of
      $175,000 per year beginning in February 2004 and remained at that level until
      it
      was increased by the Board of Directors in December 2005 to $210,000 per year.
      When Mr. Dyer joined Oasys Mobile in December 2006, his annualized salary was
      set at the rate of $190,000. The salary level for Donald T. Locke, our Executive
      Vice-President of Corporate Development, was set at a rate of $144,000 per
      year
      beginning in February 2004, and remained at that level until it was increased
      by
      the Board of Directors to $172,800 per year in December 2005. Tracy T. Jackson
      joined Oasys Mobile as its Chief Financial Officer in May 2006 at an annual
      salary level of $130,000. The salary level for Mr. Fox was set at a rate of
      $120,000 per year in February 2004 and remained at that level until it was
      increased by the Board of Directors to $144,000 per year in December 2005.
      The
      base salary amounts for all three current executive officers, Messrs. Dyer
      and
      Locke and Ms. Jackson, remain at their 2006 levels.





*Bonuses*





We
      have
      no established cash bonus or non-equity incentive plan. As set forth in their
      respective employment agreements with Oasys Mobile, Mr. Dyer, Mr. Ban, Mr.
      Locke
      and Ms. Jackson are or were each eligible for cash bonuses of up to 100% of
      their respective base salaries upon the achievement of goals set by the Board
      of
      Directors. In past years these cash bonuses were tied to the achievement of
      certain revenue thresholds and Oasys Mobile becoming cash flow positive. No
      bonuses have ever been paid to any of the above referenced executive officers
      under this provision of their employment agreements since Oasys Mobile has
      not
      achieved the goals set by the Board of Directors for the granting of these
      bonuses. The
      compensation committee felt that these bonuses should be based on our executive
      officers’ success as a team and thus the goals set for the executive officers
      for the achievement of their bonuses are based on corporate financial goals. No
      goals
      for the possible achievement of cash bonuses by Mr. Dyer, Mr. Locke and Ms.
      Jackson have been set for the 2007 fiscal year. The Compensation Committee
      of
      the Board of Directors also has the power to award discretionary cash bonuses
      to
      each of Mr. Dyer, Mr. Locke and Ms. Jackson; however, no such bonuses have
      ever
      been granted.





Mr.
      Fox,
      who resigned effective November 17, 2006, was entitled under his employment
      agreement to receive a commission bonus of three percent (3%) of the gross
      profit received from all transactions generated by him and a commission bonus
      of
      one percent (1%) of the gross profit generated by personnel under Mr. Fox’s
      direct supervision. During the fiscal years 2006, 2005 and 2004, Mr. Fox
      received commission bonuses of $58,256, $29,071 and $51,064, respectively,
      related to this provision in his employment agreement.




62


*Stock
      Based Compensation*





All
      of
      our employees participate in our stock based compensation plans and receive
      awards of non-qualified stock options or restricted stock. We use non-qualified
      options because of the favorable tax treatment to us and the near universal
      expectation by employees in our industry that they will receive stock options.
      The overwhelming majority of these awards are time-based options which vest
      over
      a period of three years while the employees are in the employ of Oasys Mobile.
      Our current executive officers have received stock options and restricted stock
      as part of their compensation. The
      value
      of the shares subject to option grants and grants of restricted stock to
      executive officers are reflected in the “Summary Compensation Table” table below
      and further information about these grants is reflected in the “2006 Grants of
      Plan-Based Awards” table below.





We
      do not
      have any program, plan or obligation that requires us to grant equity
      compensation on specified dates. We have not made equity grants in connection
      with the release or withholding of material non-public information. It is
      possible that we will establish programs or policies of this sort in the future.
      Authority to make equity grants to executive officers rests with our
      compensation committee; however, as noted above, our compensation committee
      does
      consider the recommendations of our executive management team.





In
      February 2004, Mr. Ban, Mr. Locke and Mr. Fox received options to purchase
      125,000, 100,000 and 100,000 shares of Oasys Mobile common stock, respectively.
      These option grants vest at the rate of 1/36 th per
      month over the course of three years from the grant date. In June 2005, Mr.
      Ban,
      Mr. Locke and Mr. Fox received options to purchase 275,000, 225,000 and 200,000
      shares of Oasys Mobile common stock, respectively. These option grants vest
      at
      the rate of 1/36 th per
      month over the course of three years from the grant date. In April 2006, Mr.
      Locke received a grant of 25,000 options to purchase shares of Oasys Mobile
      common stock for the waiver of certain provisions in his employment agreement
      with Oasys Mobile. This grant of options to Mr. Locke was fully vested as of
      the
      grant date. In May 2006, Tracy T. Jackson received options to purchase 90,000
      shares of Oasys Mobile common stock in connection with being hired as the Chief
      Financial Officer of the company. This option grant vests at the rate of
      1/36 th per
      month over the course of three years from the grant date.





In
      February 2007, the Compensation Committee approved the grants of restricted
      stock to each of Mr. Dyer, Mr. Locke and Ms. Jackson subject to the Board of
      Directors approving an increase in the number of authorized shares available
      for
      issuance in the
      Third Amended and Restated 2000 Equity Compensation Plan .
      Under
      the grants, Mr. Dyer and Locke are to receive grants of 400,000 shares each
      and
      Ms. Jackson is to receive a grant of 240,000 shares. The restrictions on 100,000
      of these shares for each of Mr. Dyer and Locke and 65,000 shares for Ms. Jackson
      lapse on the date of grant and are owned by the respective executive officers.
      The restrictions lapse on 60,000 shares each for Mr. Dyer and Locke and 35,000
      shares for Ms. Jackson once the closing stock price of Oasys Mobile common
      stock
      remains at $1.00, $1.25, $1.50, $1.75 and $2.00 for five (5) consecutive trading
      days, respectively. As of the date of this annual report on Form 10-K, none
      of
      the performance thresholds for the lapse of restrictions on shares of the
      restricted stock granted to each of Mr. Dyer, Mr. Locke and Ms. Jackson have
      been achieved.





In
      general, our philosophy is to set common goals for all executive officers for
      all performance-based option grants and grants of restricted stock. We expect
      that in normal circumstances, future option grants and grants of restricted
      stock that are performance based will be based on common goals for all executive
      officers.





At
      the
      present time, we have no formal policy related to stock ownership for executive
      officers, and in establishing grant levels, we generally do not consider the
      equity ownership levels of the executive officers or the existence of fully
      vested prior awards.





*Timing
      of Option Grants*





We
      do not
      have a formal written policy related to the timing of option grants or grants
      of
      restricted stock; however we do have certain time periods when options are
      normally granted. At the present time, we do not have many analysts that follow
      our common stock and the release of our quarterly financial reports normally
      has
      little or no impact on the price of our common stock. There are two normal
      situations where options are granted. The first is when a new employee,
      including an executive officer, is hired. If a new employee receives options
      as
      part of starting employment, those options are granted either at, or shortly
      after, the employment start date. All options to employees that have been
      granted to date, including those to the executive officers, are time-based
      awards.





For
      executive officers, the Compensation Committee also meets annually to establish
      compensation levels, including salary, bonus, options and restricted stock,
      for
      the year. This meeting normally occurs in the month of January of each year.
      In
      2007, the compensation committee completed this activity in February.





All
      option grants for all employees are approved by the compensation committee
      of
      the Board of Directors. The compensation committee does not delegate any of
      its
      powers for granting options to others.





63


*Other
      Benefits and Perquisites*





Since
      we
      have not yet reached profitability, we take a relatively minimal approach to
      benefits for all employees, including our executive officers. There are no
      benefit plans available to our executive officers that are not available to
      all
      employees. These benefits include health and dental insurance, group term life
      insurance, disability insurance and our 401(k) plan. Historically, our 401(k)
      is
      funded entirely by employee elective deferrals. There are no special benefits
      or
      perquisites provided to any executive officer. We have no company funded
      retirement plans or deferred compensation plans. We also do not provide any
      of
      the perquisites common at larger companies.





*Severance
      and Change of Control Provisions*





Each
      of
      our current executive officers, Mr. Dyer, Mr. Locke and Ms. Jackson, currently
      have a employment agreement with Oasys Mobile, and Mr. Ban, our former Chief
      Executive Officer, and Mr. Fox, our former Executive Vice-President of Business
      Development, had employment agreements which contain certain provisions for
      the
      acceleration of option grants and grants of restricted stock and severance
      payments if their employment is terminated without cause prior to a change
      of
      control event or if their employment is terminated for
      any
      reason other than for cause, disability or death within one (1) year following
      a
      change of control event.





Under
      each of these conditions, 100% of the shares subject to non-vested options
      and
      restricted stock on the date of termination accelerate and vest in their
      entirety for that subject executive officer. In addition to the acceleration
      provisions of equity instruments, upon the occurrence to either of the events
      described in the paragraph above, each of the executive officers named above
      are
      entitled to receive:





(i)
              one
                  (1) year salary, payable in lump sum within ten (10) days of such
                  executive’s termination;


(ii)
              a
                  lump sum payment of any bonus applicable to the calendar year in
                  which
                  such termination occurs payable within ten (10) days after the
                  determination that the applicable annual objectives relating to
                  such bonus
                  have been met; and


(iii)
              continuation
                  of their health insurance for a period of one (1) year after such
                  termination in accordance with the company’s policies.





These
      employment agreements with our executive officers also contain a provision
      which
      allows an executive officer to terminate his or her employment for “good reason”
as defined in “- Potential Payments Upon Termination or Change of Control;
      Employment Agreements” of this annual report on Form 10-K below. If this
      circumstance occurs, the executive officer may terminate his or her employment
      with Oasys Mobile and will receive the following:





(i)
            one
                (1) year salary, payable in lump sum within ten (10) days of such
                executive’s termination;


(ii)
            a
                lump sum payment of any bonus applicable to the calendar year in
                which
                suchtermination
                occurswithin
                ten (10) days after the determination that the applicable annual
                objectives relating to such bonus havebeen
                met; and


(iii)
            continuation
                of their health insurance for a period of twelve (12) months after
                such
                termination inaccordancewith
                the company’s policies.





Our
      Board
      of Directors determined to provide these termination without cause arrangements
      and change of control arrangements for our executive officers in order to
      mitigate some of the risk that exists for executives working in a small, dynamic
      startup company, an environment where there are changing priorities for an
      executive management team and there is a meaningful likelihood that we may
      be
      acquired. These arrangements are intended to attract and retain qualified
      executives that have alternatives that may appear to them to be less risky
      absent these arrangements, and to mitigate a potential disincentive to
      consideration and execution of an acquisition, particularly where the services
      of these executive officers may not be required by the acquirer. For
      quantification of these severance and change of control benefits, please see
      the
      discussion under “— Potential Payments Upon Termination or Change of
      Control; Employment Agreements” of this annual report on Form 10-K below. These
      agreements, by their terms, pertained to all options previously granted to
      Mr.
      Ban, Mr. Locke, Mr. Fox and Ms. Jackson. Options or restricted stock grants
      subsequently granted to Mr. Dyer, Mr. Locke and Ms. Jackson will incorporate
      the
      terms of these severance agreements.





Gary
      E.
      Ban resigned as the company’s Chief Executive Officer effective September 29,
      2006. Under the terms of Mr. Ban’s employment agreement, he received a lump sum
      payment of $210,000, his base salary at the time of his departure from the
      company. All of Mr. Ban’s options that had not vested at the time of his
      departure vested under the terms of his agreement.





Andrew
      L.
      Fox, resigned as the company’s Executive Vice-President of Business Development
      effective November 17, 2006. Mr. Fox and the company negotiated a separation
      agreement in which Mr. Fox received a lump sum payment on February 27, 2007
      of
      $42,037. In addition, we agreed to pay Mr. Fox severance payments in the amount
      of $12,698 on the first day of each month beginning on March 1, 2007 and ending
      on November 1, 2007.





64


*Compensation
      Approval Process*





The
      compensation committee of our Board of Directors approves all compensation
      and
      awards to all executive officers. Regarding most compensation matters, including
      executive compensation, the members of the executive management team provide
      recommendations to the compensation committee. However, the compensation
      committee does not delegate any of its functions to others in setting
      compensation. To this point, we have never made formal use of any compensation
      consultants in determining executive compensation levels for any of our
      executive officers. We do, however, intend to undergo a thorough review of
      our
      executive compensation practices in 2007 to insure that our current compensation
      practices are reasonable and appropriate for our circumstances. We anticipate
      that this review will include benchmarking against other companies. This review
      may or may not include an independent analysis by compensation consultants.





As
      previously discussed, we hired a new Chief Executive Officer during 2006. In
      the
      case of Mr. Dyer, we did not use a search firm. In the course of that search,
      the compensation committee discussed the compensation of Mr. Ban, our exiting
      Chief Executive Officer, as well as a range of possible compensation for a
      new
      Chief Executive Officer. The compensation committee feels that the compensation
      of Mr. Dyer as Chief Executive Officer falls within the reasonable range. We
      did
      not do a specific analysis, nor did we receive any written report or specific
      recommendations as to the compensation for Mr. Dyer as Chief Executive Officer.
      We believed that our proposal for Mr. Dyer’s compensation was reasonable, and
      Mr. Dyer accepted the proposal.





*Compensation
      Committee Report*





We
      have
      reviewed and discussed with management the Compensation Discussion and Analysis
      to be included in the Company’s 2006 Annual Report on Form 10-K for the fiscal
      year ended December 31, 2006, filed pursuant to Section 13 or 15(d) of the
      Securities Exchange Act of 1934 (the “Form 10-K”). Based on the reviews and
      discussions referred to above, we recommend to the Board of Directors that
      the
      Compensation Discussion and Analysis referred to above be included in the
      Company’s annual report on Form 10-K for the fiscal year ended December 31,
      2006.





Compensation
      Committee:





Stephen
      M. Finn


Bernard
      Stolar


James
      A.
      Taylor








65


**Summary
      Compensation Table**





The
      following table includes information concerning compensation for the one year
      period ended December 31, 2006, in reference to the three current executive
      officers of Oasys Mobile and two former executive officers whose employment
      with
      Oasys Mobile ceased during the 2006 fiscal year. All persons listed in this
      Summary Compensation Table are referred to collectively herein as the “Named
      Executive Officers”.




Name
                & Principal Position
            
            Year
            
            Salary
            
            Option
                Awards(1)
            
            All
                OtherCompensation(5)
            
            TotalDouglas
                D. Dyer(2)
              Chief
                Executive Officer
            
            
            2006
            
            $
            11,570
            
            $
            -
            
            $
            20,000
            
            $
            31,570Gary
                E. Ban(3)
              Chief
                Executive Officer
            
            
            2006
            
            $
            165,577
            
            $
            -
            
            $
            210,000
            
            $
            375,577Donald
                T. Locke
              Executive
                Vice-President
              &
                General Counsel
            
            
            2006
            
            $
            172,800
            
            $
            20,048
            
            $
            -
            
            $
            192,848Tracy
                T. Jackson
              Chief
                Financial Officer
            
            
            2006
            
            $
            92,083
            
            $
            72,171
            
            $
            -
            
            $
            164,254Andrew
                L. Fox(4)
              Executive
                Vice-President-
              Business
                Development
            
            
            2006
            
            $
            200,595
            
            $
            -
            
            $
            156,319
            
            $
            356,914








(1)
            Amounts
                included in the Options Awards column are calculated utilizing the
                provisions of Statement of Financial Accounting Standards (“SFAS”) No.
                123R, “Share-Based Payments.” See Note 12 of the consolidated financial
                statements included in this annual report on Form 10-K for the assumptions
                underlying valuation of equity awards. The amounts are calculated
                based on
                all options granted during the year without regard to whether the
                options
                vest or expire.(2)
            Mr.
                Dyer was appointed as the Chief Executive Officer on December 11,
                2006.(3)
            Mr.
                Ban resigned as the Chief Executive Officer and as a member of the
                Board
                of Directors effective September 29, 2006.(4)
            Mr.
                Fox resigned as the Executive Vice-President of Business Development
                effective November 17, 2006.(5)
            Under
                the terms of Mr. Ban’s employment agreement, he received a lump sum
                payment of $210,000, his base salary at the time of his departure
                from the
                Oasys Mobile. Mr. Fox negotiated a separation agreement with us in
                which
                he received a lump sum payment on February 27, 2007 of $42,037. In
                addition, we agreed to pay Mr. Fox severance payments in the amount
                of
                $12,698 on the first day of each month beginning on March 1, 2007
                and
                ending on November 1, 2007. Under the terms of Mr. Dyer’s employment
                agreement, he received a lump sum payment of $20,000 for moving expenses.








66


**2006
      Grants of Plan-Based Awards Table**





The
      following table sets forth certain information with respect to the options
      granted during or for the fiscal year ended December 31, 2006, for each of
      the
      Named Executive Officers listed in the Summary Compensation Table above. There
      were not any options granted to Mr. Dyer, Mr. Ban or Mr. Fox during
      2006.





Name
            
            Grant
                Date
            
            ApprovalDate
            
            All
                Other
              Option
                Awards
              Number
                of SharesUnderlying
                Options(1)
            
            Exercise
                Price
              of
              Option
                Awards(2)Donald
                T. Locke
            
            4/17/06
            
            4/17/06
            
            25,000
            
            $
                1.40Tracy
                T. Jackson
            
            4/17/06
            
            4/17/06
            
            90,000
            
            $
                1.40


_________________


(1)
            All
                of these options are subject to the terms of Oasys Mobile’s Third Amended
                and Restated Equity Compensation Plan. Ms. Jackson’s options vest at the
                rate of one-thirty sixth (1/36) of the amount of the grant per month
                from
                the grant date. Mr. Locke’s grant was fully vested on its grant date.(2)
            All
                options have an exercise price equal to the fair market value of
                Oasys
                Mobile’s common stock on the date of grant.








**Outstanding
      Equity Awards at Fiscal Year-End Table**





The
      following table sets forth information concerning the outstanding equity awards
      held by the Named Executive Officers at December 31, 2006. There were not any
      outstanding equity awards for Mr. Dyer at December 31, 2006.









Option
                AwardsName
            
            Number
                of
              Shares
              Underlying
              OptionsExercisable
            
            Number
                of
              Shares
              Underlying
              Option
              Unexercisable
            
            Option
              Exercise
                Price
            
            Option
              Expiration
              DateGary
                E. Ban
            
            1,892
            
            -
            
            $       5.00
            
            9/29/075,317
            
            -
            
            14.40
            
            9/29/0736,000
            
            -
            
            14.40
            
            9/29/07588
            
            -
            
            3.10
            
            9/29/07521
            
            -
            
            3.50
            
            9/29/07730
            
            -
            
            2.50
            
            9/29/07493
            
            -
            
            3.70
            
            9/29/07456
            
            -
            
            4.00
            
            9/29/07380
            
            -
            
            4.80
            
            9/29/07445
            
            -
            
            4.10
            
            9/29/07380
            
            -
            
            4.80
            
            9/29/07406
            
            -
            
            4.50
            
            9/29/07388
            
            -
            
            4.70
            
            9/29/07380
            
            -
            
            4.80
            
            9/29/07358
            
            -
            
            5.10
            
            9/29/07415
            
            -
            
            4.40
            
            9/29/07397
            
            -
            
            4.60
            
            9/29/07434
            
            -
            
            4.20
            
            9/29/07434
            
            -
            
            4.20
            
            9/29/07480
            
            -
            
            3.80
            
            9/29/07424
            
            -
            
            4.30
            
            9/29/07468
            
            -
            
            3.90
            
            9/29/07507
            
            -
            
            3.60
            
            9/29/07537
            
            -
            
            3.40
            
            9/29/07


67





Option
                AwardsName
            
            Number
                of
              Shares
              Underlying
              Options
              Exercisable
            
            Number
                of
              Shares
              Underlying
              Option
              Unexercisable
            
            Option
              Exercise
                Price
            
            Option
              Expiration
              DateGary
                Ban (continued)
            
            537
            
            -
            
            3.40
            
            9/29/07570
            
            -
            
            3.20
            
            9/29/07456
            
            -
            
            4.00
            
            9/29/07629
            
            -
            
            2.90
            
            9/29/07608
            
            -
            
            3.00
            
            9/29/07629
            
            -
            
            2.90
            
            9/29/071,177
            
            -
            
            3.10
            
            9/29/07986
            
            -
            
            3.70
            
            9/29/071,586
            
            -
            
            2.30
            
            9/29/071,919
            
            -
            
            1.90
            
            9/29/07125,000
            
            -
            
            1.40
            
            9/29/09275,000
            
            -
            
            3.26
            
            9/29/09Donald
                T. Locke
            
            317
            
            -
            
            18.60
            
            11/30/11500
            
            -
            
            17.30
            
            12/31/11500
            
            -
            
            23.80
            
            1/31/12500
            
            -
            
            11.70
            
            2/28/12500
            
            -
            
            14.30
            
            3/30/12500
            
            -
            
            10.60
            
            4/29/12500
            
            -
            
            10.00
            
            5/30/12500
            
            -
            
            6.10
            
            6/29/12500
            
            -
            
            3.10
            
            7/30/12500
            
            -
            
            2.50
            
            8/30/12500
            
            -
            
            4.00
            
            9/29/12500
            
            -
            
            4.10
            
            10/30/12500
            
            -
            
            4.50
            
            11/28/12500
            
            -
            
            4.80
            
            12/30/1294,444
            
            5,556
            
            1.40
            
            7/28/14153,000
            
            72,000
            
            3.26
            
            6/21/1525,000
            
            -
            
            1.40
            
            4/16/16Tracy
                T. Jackson
            
            21,500
            
            68,500
            
            1.40
            
            4/16/16Andrew
                L. Fox
            
            8,000
            
            -
            
            43.80
            
            11/17/072,750
            
            -
            
            5.00
            
            11/17/0716,000
            
            -
            
            5.00
            
            11/17/0712,000
            
            -
            
            21.00
            
            11/17/072,735
            
            -
            
            14.40
            
            11/17/07100,000
            
            -
            
            1.40
            
            11/17/09200,000
            
            -
            
            3.26
            
            11/17/09








68


**Option
      Exercises and Stock Vested**





The
      following table sets forth information concerning the option exercises and
      stock
      vested during
      or
      for the fiscal year ended December 31, 2006, for each of the Named Executive
      Officers listed in the Summary Compensation Table above. There
      were no option exercises or stock vested for Mr. Ban, Mr. Locke, Ms. Jackson
      or
      Mr. Fox during the year ended December 31, 2006. There were no option exercises
      for Mr. Dyer during the year ended December 31, 2006.





Stock
                AwardsName
            
            Number
                of Shares
              Acquired
                on
              Vesting
            
            Value
              Realized
                on
              Vesting(1)Douglas
                D. Dyer
            
            100,000
            
            $39,000


_________________


(1)
            Value
                calculated using the fair market value of Oasys Mobile’s common stock on
                the date of vesting.








**Pension
      Benefits Table**





We
      maintain no retirement plans covering Named Executive Officers or other
      employees, except for a 401(k) plan funded solely by elective employee
      contributions. As such, no pension benefits table is included.








**Non-Qualified
      Deferred Compensation Table**





We
      do not
      maintain any non-qualified deferred compensation plans covering Named Executive
      Officers or other employees. As such, no deferred compensation table is
      included.








**Potential
      Payments Upon Termination or Change of Control; Employment
      Agreements**





*Employment
      agreements*





On
      June
      29, 2005, Oasys Mobile entered into employment agreements with Gary E. Ban
      and
      Andrew L. Fox. On April 17, 2006, we entered into an employment agreement with
      Donald T. Locke. On December 11, 2006, we entered into an employment agreement
      with Douglas B. Dyer. On February 6, 2007, we entered into an employment
      agreement with Tracy T. Jackson. 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, 10.4
      and 10.5, respectively, to this annual report on Form 10-K. The employment
      agreements named Mr. Ban as Chief Executive Officer; Mr. Dyer as Chief Executive
      Officer; Mr. Fox as Executive Vice-President of Business Development and Sales;
      Mr. Locke as Executive Vice-President of Corporate Development and General
      Counsel and Ms. Jackson as Chief Financial Officer. Mr. Ban resigned as our
      Chief Executive Officer and as a director of Oasys Mobile on September 29,
      2006.
      Mr. Fox resigned his position with us effective November 17, 2006. The current
      annual base salaries for each of these officers (or the amount that was being
      paid to Mr. Ban and Mr. Fox at the date of their resignation) is as
      follows:








Name
                of Executive
            
            Annual
                Base SalaryDouglas
                B. Dyer
            
            $190,000Gary
                E. Ban
            
            $210,000Donald
                T. Locke
            
            $172,800Tracy
                T. Jackson
            
            $130,000Andrew
                L. Fox
            
            $144,000





Only
      the
      terms of the employment agreements of Mr. Dyer, Mr. Locke and Ms. Jackson are
      addressed below in this section. Since Mr. Ban and Mr. Fox resigned during
      the
      2006 fiscal year, their employment agreements will not be discussed in this
      section. The specific triggering event applying to Mr. Ban and Mr.
      Fo x
      will be
      addressed below in “ *Payments
      to Former Executive Officers* .”





69


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. Under the terms of Mr. Locke’s employment
      agreement, his annual base salary can be automatically increased to $216,000
      once Oasys Mobile achieves a fiscal year gross revenue of $10,000,000 and to
      $288,000 once Oasys Mobile achieves a fiscal year gross revenue of $20,000,000.
      In each case, Oasys Mobile must have net income for such fiscal year period
      for
      this increase to be earned by Mr. Locke.





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. Mr. Dyer, Mr.
      Locke and Ms. Jackson shall each 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. No executive officer of Oasys Mobile has ever received
      a
      bonus under this provision of their employment agreements. Any bonuses earned
      by
      Mr. Dyer, Mr. Locke or Ms. Jackson pursuant to this provision 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.





The
      employment agreements with Mr. Dyer, Mr. Locke and Ms. Jackson 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 the
      respective executive or Oasys Mobile 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.





*Terminations;
      Potential Payments Upon Termination or Change of Control*





Each
      executive’s employment under their respective agreements shall be terminated
      immediately on his or her 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 or her 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; 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 or she shall be entitled to receive:





·
              severance
                  compensation equal to their 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 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;


·
              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.





70


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 or her 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 Oasys Mobile 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 in
                  the case of Mr. Locke based on the greater of the closing price
                  of Oasys
                  Mobile’s common stock on the date of the Change of Control or the date
                  of
                  termination. Mr. Locke shall receive the multiple of his Base Salary
                  as
                  set forth below based on such closing common stock price. Mr. Dyer
                  and Ms.
                  Jackson shall receive one (1) times their Base Salary if this provision
                  of
                  their employment agreement is triggered. 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 in the case of Mr.
                  Locke
                  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. Mr. Locke shall receive the multiple
                  of his
                  bonus as set forth below based on such closing common stock price.
                  Mr.
                  Dyer and Ms. Jackson shall receive one (1) times their bonus if
                  this
                  provision of their employment agreement is triggered.  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.





**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








71





·
                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 Oasys Mobile 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 employment agreement.





For
      purposes of these above described employment agreements, **“** Cause”
      shall mean:





(1)
            active
                participation by executive in fraudulent conduct against Oasys Mobile,
                conviction of or a plea of guilty or*nolo
                contendere*with respect to a felony involving theft or moral turpitude, an act
                or
                series of deliberate acts which were not taken in good faith by executive
                and which, in the reasonable judgment of the Board of Directors,
                results
                or will likely result in material injury to the business, operations
                or
                business reputation of Oasys Mobile, or an act or series of acts
                constituting willful malfeasance or gross misconduct;





(2)
            a
                substantial and continual refusal by executive in breach of his or
                her
                employment agreement to perform the duties, responsibilities or
                obligations assigned to executive pursuant to the terms hereof, which
                breach has not been cured (if it is of a nature that can be cured)
                to the
                Board’s reasonable satisfaction within ten (10) days after Oasys Mobile
                gives written notice thereof to executive; or





(3)
            excessive
                absenteeism by executive; provided that absenteeism (i) related to
                illness
                or otherwise covered by Section 6 of his or her employment agreement,
                (ii)
                required to be permitted under applicable federal or state laws,
                or (iii)
                permitted under company policy, shall not be deemed to be excessive.





For
      purposes of these employment agreements, a “Change of Control” shall occur if:





(1)
            there
                shall be consummated any consolidation or merger of Oasys Mobile,
                in which
                it is not the continuing or surviving corporation;





(2)
            any
                Person (as defined in Section 2(a)(2) of the Securities Act of 1933,
                as
                amended) other than Oasys Mobile, subsequently becomes the beneficial
                owner, directly or indirectly (including by holding securities which
                are
                exercisable for or convertible into shares of capital stock of Oasys
                Mobile) of forty percent (40%) or more of the combined voting power
                of the
                then outstanding shares of capital stock of Oasys Mobile entitled
                to vote
                generally in the election of directors;





(3)
            Oasys
                Mobile sells, leases, exchanges or otherwise transfers all or
                substantially all of its property and assets (in a transaction or
                series
                of transactions contemplated or arranged by any party as a single
                plan);





(4)
              Continuing
                  Directors cease to constitute at least a majority of the Board;
                  or





(5)
            a
                majority of the Outside Directors determine that a Change of Control
                has
                occurred.







72


For
      purposes of these employment agreements, “Good Reason” is defined as a
      termination of executive’s employment by executive within ninety (90) days
      following:





(1)
            a
                reduction in executive’s Base Salary or incentive compensation or equity
                participation opportunity;





(2)
            a
                material reduction in executive’s position(s), duties and responsibilities
                or reporting lines from those described in Section 2 of the executive’s
                employment agreement;





(3)
            a
                change in the location of the Oasys Mobile’s headquarters or of the office
                of executive from the Raleigh-Durham metropolitan area;





(4)
            a
                material breach of his or her respective employment agreement by
                Oasys
                Mobile if such breach is not cured within 15 days of written notice
                thereof by executive to Oasys Mobile; or





(5)
            any
                failure by Oasys Mobile to obtain from any successor an agreement
                reasonably satisfactory to executive to assume and perform their
                employment agreement.





Notwithstanding
      the foregoing, a termination shall not be treated as a termination for Good
      Reason (A) if the executive shall have consented in writing to the occurrence
      of
      the event giving rise to the claim of termination for Good Reason, or (B) unless
      the executive shall have delivered a written notice to the Board of Directors
      within thirty (30) days of his having actual knowledge of the occurrence of
      one
      of such events stating that he intends to terminate his employment for Good
      Reason and specifying the factual basis for such termination, and such event,
      if
      capable of being cured, shall not have been cured within ten (10) days of the
      receipt of such notice.





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.





The
      following table describes the potential payments to Mr. Dyer, Mr. Locke and
      Ms.
      Jackson upon involuntary termination of his or her employment without Cause
      prior to a Change of Control or by Mr. Dyer, Mr. Locke or Ms. Jackson for Good
      Reason within 12 months following a Change of Control.





Name
            Salary(1)
            Acceleration(2)
            Perquisites(3)Douglas
                B. Dyer
            $190,000
            $       -
            $
                8,000Donald
                T. Locke
            $172,800
            $       -
            $
                8,000Tracy
                T. Jackson
            $130,000
            $       -
            $
                8,000





_________________


(1)
            Reflects
                12 months of continued salary in the case of each of the above
                referenced Named Executive Officers.(2)
            Calculated
                based on the change in control taking place as of December 31, 2006
                and based on the fair market value of shares as of that date. Reflects
                100% acceleration of vesting of equity awards in each case.(3)
            Reflects
                12 months of continued health (medical, dental and vision) insurance
                benefits in each case.





73


*Payments
      to Former Executive Officers*





Gary
      E.
      Ban resigned as our Chief Executive Officer effective September 29, 2006. Andrew
      L. Fox resigned as our Executive Vice-President effective November 17, 2006.
      The
      following table describes the payments to Mr. Ban and Mr. Fox pursuant to their
      employment agreements.


**


Name
            Salary(1)
            Acceleration(2)
            Perquisites(3)Gary
                E. Ban
            $210,000
            $       -
            $
                8,000Andrew
                L. Fox
            $144,000
            $       -
            $
                8,000


_________________


(1)
            Reflects
                12 months of continued salary in the case of each of the above
                referenced Named Executive Officer.(2)
            Calculated
                based on the termination of Mr. Ban’s employment on September 29, 2006 and
                the termination of Mr. Fox’s employment on November 17, 2006 and based on
                the fair market value of shares as of those respective dates. Reflects
                100% acceleration of vesting of equity awards in each case.(3)
            Reflects
                12 months of continued health (medical, dental and vision) insurance
                benefits in each case.








*Director
      Compensation*





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.





74


The
      following table provides information for 2006 regarding all plan and non-plan
      compensation awarded to, earned by or paid to each person who served as a
      director for some portion or all of 2006. Other than as set forth in the table
      and described more fully below, in 2006, we did not pay any fees to, reimburse
      any expenses of, make any equity or non-equity awards to or pay any other
      compensation to our non-employee directors. All compensation that we paid to
      Mr.
      Ban, our only employee director, is set forth in the tables summarizing
      executive officer compensation above. No compensation was paid to Mr. Ban
      in his capacity as a director.





Name
            
            Fees
                Earned
              or
              Paid
                in Cash
            
            Option
              Awards(1)
            
            All
                Other
              Compensation(4)
                (6)
            
            TotalGary
                E. Ban(5)
            
            $     -
            
            $     -
            
            $     -
            
            $    -Stephen
                M. Finn
            
            $   9,250
            
            $   4,594
            
            $   9,600
            
            $23,444Scott
                W. Hamilton(3)
            
            $ 10,000
            
            $   4,594
            
            $  
                9,600
            
            $24,194J.
                Winder Hughes
            
            $ 11,250
            
            $   4,594
            
            $   9,600
            
            $25,444Richard
                B. Ruben
            
            $   9,250
            
            $   9,189
            
            $ 54,600
            
            $63,439Bernard
                Stolar(2)
            
            $ 11,250
            
            $ 70,754
            
            $ 24,600
            
            $73,079James
                A. Taylor
            
            $ 11,250
            
            $   9,189
            
            $  
                9,600
            
            $30,039




___________




(1)
            Amounts
                included in the option awards column are calculated utilizing the
                provisions of Statement of Financial Accounting Standards (“SFAS”) No.
                123R, “Share-Based Payments.” See Note 12 of the consolidated financial
                statements included in this annual report for the assumptions underlying
                valuation of equity awards. See the table titled “Security Ownership of
                Management” included in Item 12 of this report for stock option grants
                outstanding at year held by each Director.





(2)
            Mr.
                Stolar was appointed to the Board of Directors on January 2,
                2006.





(3)
            Mr.
                Hamilton resigned as a member of the Board of Directors effective
                December
                4, 2006.





(4)
            Mr.
                Stolar has a consulting agreement with Oasys Mobile which pays him
                $5,000
                per month. Mr. Ruben had a consulting agreement with Oasys Mobile
                under
                which he was paid $15,000 per month for three months in 2006.





(5)
            Mr.
                Ban resigned as a Director effective September 29,
                2006.





(6)
            During
                2006, each director earned 24,000 shares of restricted stock for
                compensation as a director. As of the date of this report on Form
                10-K,
                these shares have not been issued, except to Mr. Hamilton in January
                2007.








*Compensation
      Committee Interlocks and Insider Participation*





The
      Compensation Committee currently consists of Mr. Finn, Mr. Taylor and Mr.
      Stolar, none of which is or has been an officer or employee of Oasys Mobile.
      Only Mr. Stolar has a relationship with Oasys Mobile requiring disclosure under
      Item 404 of Regulation S-K; this disclosure is contained in “Item 13 Certain
      Relationships and Related Transactions and Director Independence” below in this
      annual report on Form 10-K. No interlocking relationship existed during the
      fiscal year ended December 31, 2006, between Oasys Mobile’s Board of Directors
      or Compensation Committee and the board of directors or compensation committee
      of any other company.








75


**ITEM12.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS**





The
      following table sets forth, as of March 25, 2007, 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 25, 2007, we had 13,748,836 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
            
            
            15.55
            %Empire
                Capital LP
            
            
            2,616,710
            
            
            -
            
            
            19.03
            %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
            
            
            6.98
            %J.
                Winder Hughes
            
            
            732,150
            
            
            203,522
            
            
            6.71
            %**Directors****(5)**Gary
                E. Ban
            
            
            59,508
            
            
            463,169
            
            
            3.68
            %Stephen
                M. Finn
            
            
            37,500
            
            
            59,386
            
            
            *J.
                Winder Hughes
            
            
            732,150
            
            
            203,522
            
            
            6.71
            %Scott
                W. Hamilton
            
            
            24,000
            
            
            14,481
            
            
            *Richard
                B. Ruben
            
            
            -
            
            
            66,000
            
            
            *Bernard
                Stolar
            
            
            66,667
            
            
            221,833
            
            
            2.07James
                A. Taylor
            
            
            -
            
            
            11,622
            
            
            ***Named
                Executive Officers****(5)**Douglas
                B. Dyer
            
            
            100,000
            
            
            -
            
            
            *Gary
                E. Ban
            
            
            59,508
            
            
            463,169
            
            
            3.68
            %Donald
                T. Locke
            
            
            23,462
            
            
            348,150
            
            
            2.64
            %Tracy
                T. Jackson
            
            
            -
            
            
            32,500
            
            
            *Andrew
                L. Fox
            
            
            534
            
            
            357,485
            
            
            2.54
            %**All
                Executive Officers and Directors as a Group (11
                persons)**
            
            
            1,043,821
            
            
            1,778,148
            
            
            18.21
            %










*
      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 25, 2007 (60 days after March 25, 2007) 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 13,748,836 shares of our Common Stock issued and outstanding
                on
                March 25, 2007, 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 25, 2007) 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 25, 2007.





76








(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 25, 2007, and consists of 1,482,892
                shares of Common Stock that are currently issuable within 60 days
                of March
                25, 2007: (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 1,400,000 units at an exercise price of $1.10 per unit, each unit
                consisting of one share of Common Stock and a warrant to purchase
                0.285 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, 2007.
                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.,
                5400
                Trinity Road, Suite 208, Raleigh, NC 27607.(6)
            The
                beneficial ownership reported herein represents 9.9% of the Company’s
                outstanding Common Stock on March 25, 2007 and consists of 1,482,892
                shares of Common Stock that are currently issuable within 60 days
                of March
                25, 2007: (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 1,400,000 units at an exercise price of $1.10 per unit, each unit
                consisting of one share of Common Stock and a warrant to purchase
                0.285 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, 2007. 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.





77


**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,
      2006, 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)**
            2,294,646
            $4.26
            342,048


__________________


(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.


78





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.








79


*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, 2006, we have issued 2,294,646 options to purchase shares of
      common stock, of which 1,790,415 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.











80





**ITEM13.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





*Agreement
      with Bernard Stolar*





On
      September 29, 2006 (the “Effective Date”) , Oasys Mobile entered into a
      Consulting Agreement with Bernard Stolar to become its Lead Director. Mr. Stolar
      will provide the services and have the responsibilities set forth in Appendix
      A
      to such agreement, a copy of which is attached to this annual report on Form
      10-K as Exhibit 10.6. This agreement expires on September 29, 2007.





Throughout
      the term of this agreement, Oasys Mobile shall pay or provide to Mr. Stolar
      the
      compensation and other benefits and rights set forth below:





(a)
            Annual
                Retainer.
                Oasys Mobile shall pay to Mr. Stolar an annual cash fee of $60,000,
                payable at the rate of $5,000 per
                month.





(b)
            Common
                Stock.
                Mr. Stolar shall receive 100,000 shares of restricted Oasys Mobile
                common
                stock; these restricted shares shall vest as
                follows:





(i)
            25,000
                vest on the Effective Date;




(ii)
            the
                remaining 75,000 shares of this grant vest at the rate of 6,250 shares
                per
                month on each of the twelve monthly anniversaries of the Effective
                Date.





(c)
            Option
                Grants.In
                addition to the annual retainer and the restricted stock to be received
                by
                Mr. Stolar, Oasys Mobile granted to Mr. Stolar options to purchase
                275,000
                shares of Oasys Mobile’s common stock. These options vest and are priced
                as follows:





(i)
            50,000
                of these stock options vested upon the Effective Date;




(ii)
            the
                remaining 225,000 of these stock options vest at the rate of 18,750
                stock
                options on each of the twelve monthly anniversaries of the Effective
                Date.




The
      first
      100,000 of these stock options to vest have an exercise price of $0.80 per
      share; the next 75,000 of these stock options to vest shall have an exercise
      price of $1.25 per share; the next 50,000 of these stock Options to vest shall
      have an exercise price of $1.75 per share; and the remaining 50,000 of these
      stock options to vest shall have an exercise price of $2.00 per
      share




(d)
            Other
                Compensation.
                In addition to the compensation set forth above, Mr. Stolar shall
                also
                receive:




(i)
            two
                and one-half percent (2.5%) of any funds raised from sources introduced
                by
                Mr. Stolar to Oasys Mobile. Stolar shall clear all contacts with
                the
                General Counsel of Oasys Mobile before initiating contact with such
                source(s) to avoid overlap with other entities Oasys Mobile has engaged
                to
                perform comparable services.




(ii)
            a
                bonus, to be determined by the Board of Directors, for achievements
                effected by Mr. Stolar, including but not limited to the consummation
                of
                licensing products of Oasys Mobile or other strategic transactions
                with
                parties introduced by Mr. Stolar to Oasys Mobile. Mr. Stolar shall
                clear
                all contacts with the General Counsel of Oasys Mobile before initiating
                contact to avoid overlap with other entities Oasys Mobile has engaged
                to
                perform such services.




(iii)
            an
                additional grant of 100,000 shares of Oasys Mobile common stock if
                milestones as agreed upon by the Board of Directors and Mr. Stolar
                are
                achieved.





(iv)
            a
                cash bonus of $100,000 and a grant of 100,000 shares of Oasys Mobile
                common stock if Oasys Mobile is positioned such that it is reasonably
                likely that the liquidity position of Oasys Mobile is improved so
                as to
                allow it to operate in the normal course of its business until December
                31, 2007.








81


*Related
      Transactions Approval Process*







It
      is the
      policy of Oasys Mobile that all material related party transactions be approved
      by the Board of Directors, with any member of the Board affected by the related
      party transaction abstaining from such vote.







*Director
      Independence*





Under
      the
      rules of the Securities and Exchange Commission, we are to disclose whether
      the
      members of our Board of Directors are independent using the definition of
“independent director” of a national securities exchange selected by Oasys
      Mobile and approved by the Commission (even though the Company is not listed
      on
      such exchange).  We have 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, Mr. Finn, Mr. Taylor and Mr. Ruben would be
      considered independent directors of the Board of Directors.








**ITEM14.**  **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,
      2006
      and 2005 totaled $243,000 and $235,805, 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, 2006 and 2005 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, 2006 and 2005 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.








82


**PART
      IV**





**ITEM15.**
            **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.







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 .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 Oasys Mobile’ 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)


83





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 Amended A Warrant issued in connection with our 6% Senior Secured
                Convertible Debentures (incorporated by reference to Exhibit 4.1
                of our
                Current Report on Form 8-K filed as of July 27, 2006)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
            Executive
                Employment Agreement, dated as of June 21, 2005, between Oasys Mobile
                and Gary E. Ban10.2
            Executive
                Employment Agreement, dated as of June 21, 2005 between Oasys Mobile
                and
                Andrew L. Fox10.3
            Executive
                Employment Agreement, dated as of April 17, 2006, between Oasys
                Mobile and Donald T. Locke10.4
            Executive
                Employment Agreement, dated as of December 11, 2006, between Oasys
                Mobile and Douglas B. Dyer10.5
            Executive
                Employment Agreement, dated as of February 6, 2007, between Oasys
                Mobile and Tracy T. Jackson10.6*
            Consulting
                Agreement dated as of September 29, 2006, by and between Oasys Mobile
                and
                Bernard Stolar (incorporated by reference to Exhibit 10.1 of our
                Current
                Report on Form 8-K filed as of September 29, 2006)10.7*
            Third
                Amended and Restated Oasys Mobile 2000 Equity Compensation Plan,
                effective
                June 24, 2004 (incorporated by reference to Exhibit 10.5 to our Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2005)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 Oasys Mobile - None23.1
            Consent
                of Ernst & Young LLP31.1
            Rule
                13a-14(a)/15(d)-14(a) Certificate of Douglas B. Dyer, Chief Executive
                Officer31.2
            Rule
                13a-14(a)/15(d)-14(a) Certificate of Tracy T. Jackson, Chief Financial
                Officer32.1
            Section
                1350 Certificate of Douglas B. Dyer, Chief Executive
                Officer32.2
            Section
                1350 Certificate of Tracy T. Jackson, Chief Financial
                Officer





84














**INDEX
      TO FINANCIAL STATEMENTS**








***Page*****Financial
                Statements of Oasys Mobile, Inc.**Report
                of Independent Registered Public Accounting Firm
            F-2Balance
                Sheets as of December 31, 2006 and 2005
            F-3Statements
                of Operations for the Years Ended December 31, 2006, 2005 and 2004
            F-5Statements
                of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2006,
                2005 and 2004
            F-6Statements
                of Cash Flows for the Years Ended December 31, 2006, 2005 and
                2004
            F-9Notes
                to Financial Statements
            F-10





























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,
      2006 and 2005, and the related statements of operations, stockholders’ equity
      (deficit) and cash flows for each of the three years in the period ended
      December 31, 2006. 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,
      2006 and 2005, and the results of its operations and its cash flows for each
      of
      the three years in the period ended December 31, 2006, in conformity with U.S.
      generally accepted accounting principles.





The
      accompanying financial statements have been prepared assuming that Oasys Mobile,
      Inc. will continue as a going concern. As more fully described in Note 1, Oasys
      Mobile, Inc. has incurred operating losses since inception and has a working
      capital deficiency. These conditions raise substantial doubt about Oasys Mobile,
      Inc.’s ability to continue as a going concern. Management’s plans in regard to
      these matters also are described in Note 1. The financial statements do not
      include any adjustments to reflect the possible future effects on the
      recoverability and classification of assets or the amounts and classification
      of
      liabilities that may result from the outcome of this uncertainty.





In
      2006,
      as discussed in Notes 2 and 12 to the financial statements, the Company adopted
      the provisions of Statement of Financial Accounting Standards No. 123(R),
“Share-Based Payment.”







/s/
      Ernst
& Young LLP





March
      28,
      2007


Raleigh,
      North Carolina




















F-2





**Oasys
      Mobile, Inc.**





**Balance
      Sheets**





**December
                31****2006**
            
            **2005****Assets**Current
                assets:Cash
            
            $
            1,451,498
            
            $
            8,985,158Accounts
                receivable
            
            
            2,354,553
            
            
            1,072,615Prepaids
                and other current assets
            
            
            146,702
            
            
            36,172Total
                current assets
            
            
            3,952,753
            
            
            10,093,945Equipment,
                software and furniture, net
            
            
            152,987
            
            
            125,839Total
                assets
            
            $
            4,105,740
            
            $
            10,219,784











F-3








**December
                31****2006**
            
            **2005****Liabilities
                and stockholders’ equity (deficit)**Current
                liabilities:Accounts
                payable
            
            $
            2,699,201
            
            $
            2,319,754Accrued
                salaries and related costs
            
            
            311,554
            
            
            205,076Accrued
                interest
            
            
            574,251
            
            
            151,500Current
                portion of notes payable
            
            
            77,500
            
            
            77,500Current
                portion of capital lease obligations
            
            
            14,900
            
            
            -Convertible
                notes payable
            
            
            8,000,000
            
            
            -Discount
                on convertible notes payable
            
            
            (2,458,404
            )
            
            -Total
                current liabilities
            
            
            9,219,002
            
            
            2,753,830Long-term
                liabilities:Capital
                lease obligations
            
            
            18,697
            
            
            -Convertible
                notes payable
            
            
            -
            
            
            8,000,000Discount
                on convertible notes payable
            
            
            -
            
            
            (7,415,960
            )Total
                liabilities
            
            
            9,237,699
            
            
            3,337,870Stockholders’
                equity (deficit):Series
                A convertible preferred stock, $0.001 par value;
              10,000
                shares designated, 2,407 shares
              issued
                and outstanding at December 31, 2006 and 2005
              (liquidation
                preference of $2,856,307 as of
              December
                31, 2006)
            
            
            2,407,295
            
            
            2,407,295Common
                stock, $.001 par value, 185,000,000 shares authorized;
              13,752,686
                and 13,523,554 issued and 13,748,836 and 13,519,704
              outstanding
                at December 31, 2006 and 2005, respectively
            
            
            13,749
            
            
            13,520Additional
                paid-in capital
            
            
            67,839,964
            
            
            65,369,259Deferred
                compensation
            
            
            -
            
            
            (85,578
            )Accumulated
                deficit
            
            
            (75,165,348
            )
            
            (60,594,963
            )Treasury
                stock, at cost (3,850 shares)
            
            
            (227,619
            )
            
            (227,619
            )Total
                stockholders’ equity (deficit)
            
            
            (5,131,959
            )
            
            6,881,914Total
                liabilities and stockholders’ equity (deficit)
            
            $
            4,105,740
            
            $
            10,219,784





*See
      accompanying notes.*

















F-4





**Oasys
      Mobile, Inc.**





**Statements
      of Operations**





**Year
                ended December 31****2006**
            
            **2005**
            
            **2004**Revenues:Wireless
                applications and contracts
            
            $
            8,663,117
            
            $
            7,782,241
            
            $
            5,118,551Wireless
                license fees
            
            
            24,750
            
            
            12,700
            
            
            9,000Contracts
                and license fees
            
            
            -
            
            
            -
            
            
            43,889Total
                revenues
            
            
            8,687,867
            
            
            7,794,941
            
            
            5,171,440Cost
                of revenues:Wireless
                applications and contracts
            
            
            5,018,966
            
            
            3,893,776
            
            
            2,596,823Contracts
                and license fees
            
            
            -
            
            
            -
            
            
            7,237Total
                cost of revenues
            
            
            5,018,966
            
            
            3,893,776
            
            
            2,604,060Gross
                profit
            
            
            3,668,901
            
            
            3,901,165
            
            
            2,567,380Operating
                expenses:General
                and administrative
            
            
            3,735,570
            
            
            3,215,040
            
            
            2,774,092Research
                and development
            
            
            3,843,254
            
            
            3,168,620
            
            
            1,822,023Sales
                and marketing
            
            
            3,911,284
            
            
            1,846,608
            
            
            712,869Modification
                of warrants in conjunction with the Securities
              Purchase
                Agreement
            
            
            1,478,585
            
            
            -
            
            
            -Non-cash
                consulting
            
            
            35,000
            
            
            20,823
            
            
            141,708Non-cash
                settlements
            
            
            -
            
            
            58,750
            
            
            (126,373
            )Total
                operating expenses
            
            
            13,003,693
            
            
            8,309,841
            
            
            5,324,319Loss
                from operations
            
            
            (9,334,792
            )
            
            (4,408,676
            )
            
            (2,756,939
            )Interest
                expense, net
            
            
            (278,037
            )
            
            (77,262
            )
            
            (62,519
            )Amortization
                of discount on debt and beneficial
              conversion
                feature
            
            
            (4,957,556
            )
            
            (1,435,372
            )
            
            (1,053,349
            )Net
                loss
            
            $
            (14,570,385
            )
            $
            (5,921,310
            )
            $
            (3,872,807
            )Net
                loss applicable to common stockholders:Net
                loss
            
            $
            (14,570,385
            )
            $
            (5,921,310
            )
            $
            (3,872,807
            )Accretion
                of beneficial conversion feature on preferred stock
            
            
            -
            
            
            -
            
            
            (293,444
            )Preferred
                stock dividends
            
            
            (192,560
            )
            
            (192,552
            )
            
            (175,035
            )Net
                loss applicable to common stockholders
            
            $
            (14,762,945
            )
            $
            (6,113,862
            )
            $
            (4,341,286
            )Per
                share amounts (basic and diluted)
            
            $
            (1.09
            )
            $
            (0.46
            )
            $
            (0.49
            )Weighted
                average shares of common stockoutstanding
            
            
            13,570,553
            
            
            13,317,440
            
            
            8,865,807





*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, 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
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -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
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Reversal
                of deferred compensation to additional paid-in capital
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Modification
                of warrants in conjunction with the Securities Purchase
                Agreement
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                stock issued for accrued expenses
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Restricted
                stock issued
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                stock issued for compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                stock issued for services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Non-cash
                consulting expense related to the vesting of restricted
                stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Balance
                at December 31, 2006**
            
            
            2,407
            
            $
            2,407,295
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -




*See
      accompanying notes.*


F-6





**Oasys
      Mobile, Inc.**




**Statements
      of Stockholders’ Equity (Deficit)**


**(continued)**





**Additional****Common
                Stock**
            
            **Paid-In**
            
            **Deferred****Shares**
            
            **Amount**
            
            **Capital**
            
            **Compensation****Balance
                at December 31, 2003**
            
            
            6,937,020
            
            $
            6,937
            
            $
            46,377,754
            
            $
            (53,427
            )Accretion
                of beneficial conversion feature of Series C preferred
                stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of common stock in conjunction with issuance of convertible
                debt
            
            
            1,428,600
            
            
            1,429
            
            
            498,571
            
            
            -Beneficial
                conversion feature related to issuance of convertible debt
            
            
            -
            
            
            -
            
            
            500,000
            
            
            -Common
                stock, options and warrants issued for services
            
            
            30,000
            
            
            30
            
            
            195,678
            
            
            -Common
                stock issued for cash
            
            
            43,104
            
            
            43
            
            
            20,043
            
            
            -Common
                stock issued for accrued payroll
            
            
            64,748
            
            
            64
            
            
            84,108
            
            
            -Preferred
                stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -Deferred
                compensation related to issuance of stock options
            
            
            -
            
            
            -
            
            
            116,457
            
            
            (116,457
            )Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            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
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercise
                of warrants
            
            
            86,207
            
            
            86
            
            
            40,431
            
            
            -Exercise
                of options
            
            
            24,128
            
            
            24
            
            
            64,351
            
            
            -Warrants
                issued with convertible debt
            
            
            -
            
            
            -
            
            
            797,064
            
            
            -Conversion
                of convertible debt
            
            
            1,428,600
            
            
            1,429
            
            
            998,571
            
            
            -Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Balance
                at December 31, 2004**
            
            
            12,101,407
            
            
            12,101
            
            
            52,485,043
            
            
            (90,363
            )Warrants
                issued with convertible debt
            
            
            -
            
            
            -
            
            
            3,799,711
            
            
            -Beneficial
                conversion feature related to issuance of convertible debt
            
            
            -
            
            
            -
            
            
            4,307,906
            
            
            -Common
                stock, options and warrants issued for services
            
            
            46,668
            
            
            47
            
            
            166,615
            
            
            -Common
                stock issued in settlement of note payable
            
            
            47,673
            
            
            48
            
            
            243,084
            
            
            -Deferred
                compensation related to issuance of stock options
            
            
            -
            
            
            -
            
            
            34,436
            
            
            (34,436
            )Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            39,221Exercise
                of warrants
            
            
            1,264,296
            
            
            1,264
            
            
            4,112,865
            
            
            -Exercise
                of options
            
            
            59,660
            
            
            60
            
            
            219,599
            
            
            -Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Balance
                at December 31, 2005**
            
            
            13,519,704
            
            
            13,520
            
            
            65,369,259
            
            
            (85,578
            )Reversal
                of deferred compensation to additional paid-in capital
            
            
            -
            
            
            -
            
            
            (85,578
            )
            
            85,578Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            959,260
            
            
            -Modification
                of warrants in conjunction with the Securities Purchase
                Agreement
            
            
            -
            
            
            -
            
            
            1,478,585
            
            
            -Common
                stock issued for accrued expenses
            
            
            23,334
            
            
            23
            
            
            32,644
            
            
            -Restricted
                stock issued
            
            
            100,000
            
            
            100
            
            
            (100
            )
            
            -Common
                stock issued for compensation
            
            
            100,000
            
            
            100
            
            
            38,900
            
            
            -Common
                stock issued for services
            
            
            5,798
            
            
            6
            
            
            11,994
            
            
            -Non-cash
                consulting expense related to the vesting of restricted
                stock
            
            
            -
            
            
            -
            
            
            35,000
            
            
            -Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Balance
                at December 31, 2006**
            
            
            13,748,836
            
            $
            13,749
            
            $
            67,839,964
            
            $
            -




*See
      accompanying notes.*


F-7





**Oasys
      Mobile, Inc.**




**Statements
      of Stockholders’ Equity (Deficit)**


**(continued)**





**Total****Accumulated**
            
            **Treasury**
            
            **Stockholders’****Deficit**
            
            **Stock**
            
            **Equity
                (Deficit)****Balance
                at December 31, 2003**
            
            $
            (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
            
            
            -
            
            
            -
            
            
            500,000Beneficial
                conversion feature related to issuance of convertible debt
            
            
            -
            
            
            -
            
            
            500,000Common
                stock, options and warrants issued for services
            
            
            -
            
            
            -
            
            
            195,708Common
                stock issued for cash
            
            
            -
            
            
            -
            
            
            20,086Common
                stock issued for accrued payroll
            
            
            -
            
            
            -
            
            
            84,172Preferred
                stock dividends
            
            
            (110,840
            )
            
            -
            
            
            (110,840
            )Deferred
                compensation related to issuance of stock options
            
            
            -
            
            
            -
            
            
            -Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            79,521Conversion
                of Series C, D and E preferred stock
            
            
            -
            
            
            -
            
            
            -Payment
                of Series A preferred stock dividends with additional shares of Series
                A
                preferred stock
            
            
            -
            
            
            -
            
            
            328,983Exercise
                of warrants
            
            
            -
            
            
            -
            
            
            40,517Exercise
                of options
            
            
            -
            
            
            -
            
            
            64,375Warrants
                issued with convertible debt
            
            
            -
            
            
            -
            
            
            797,064Conversion
                of convertible debt
            
            
            -
            
            
            -
            
            
            1,000,000Net
                loss for the period
            
            
            (3,872,807
            )
            
            -
            
            
            (3,872,807
            )**Balance
                at December 31, 2004**
            
            
            (54,673,653
            )
            
            (227,619
            )
            
            (87,196
            )Warrants
                issued with convertible debt
            
            
            -
            
            
            -
            
            
            3,799,711Beneficial
                conversion feature related to issuance of convertible debt
            
            
            -
            
            
            -
            
            
            4,307,906Common
                stock, options and warrants issued for services
            
            
            -
            
            
            -
            
            
            166,662Common
                stock issued in settlement of note payable
            
            
            -
            
            
            -
            
            
            243,132Deferred
                compensation related to issuance of stock options
            
            
            -
            
            
            -
            
            
            -Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            39,221Exercise
                of warrants
            
            
            -
            
            
            -
            
            
            4,114,129Exercise
                of options
            
            
            -
            
            
            -
            
            
            219,659Net
                loss for the period
            
            
            (5,921,310
            )
            
            -
            
            
            (5,921,310
            )**Balance
                at December 31, 2005**
            
            
            (60,594,963
            )
            
            (227,619
            )
            
            6,881,914Reversal
                of deferred compensation to additional paid-in capital
            
            
            -
            
            
            -
            
            
            -Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            959,260Modification
                of warrants in conjunction with the Securities Purchase
                Agreement
            
            
            -
            
            
            -
            
            
            1,478,585Common
                stock issued for accrued expenses
            
            
            -
            
            
            -
            
            
            32,667Restricted
                stock issued
            
            
            -
            
            
            -
            
            
            -Common
                stock issued for compensation
            
            
            -
            
            
            -
            
            
            39,000Common
                stock issued for services
            
            
            -
            
            
            -
            
            
            12,000Non-cash
                consulting expense related to the vesting of restricted
                stock
            
            
            -
            
            
            -
            
            
            35,000Net
                loss for the period
            
            
            (14,570,385
            )
            
            -
            
            
            (14,570,385
            )**Balance
                at December 31, 2006**
            
            $
            (75,165,348
            )
            $
            (227,619
            )
            $
            (5,131,959
            )




*See
      accompanying notes.*


F-8





**Oasys
      Mobile, Inc.**





**Statements
      of Cash Flows**





**Year
                ended December 31****2006**
            
            
            **2005**
            
            
            **2004****Operating
                activities**Net
                loss
            
            $
            (14,570,385
            )
            $
            (5,921,310
            )
            $
            (3,872,807
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            62,231
            
            
            47,356
            
            
            144,564Stock-based
                compensation
            
            
            1,055,860
            
            
            39,221
            
            
            79,521Common
                stock, options and warrants issued for services
            
            
            12,000
            
            
            166,662
            
            
            195,708Amortization
                of discount on debt and beneficial conversion feature
            
            
            4,957,556
            
            
            1,435,372
            
            
            1,053,349Amortization
                of restricted stock
            
            
            35,000
            
            
            -
            
            
            -Modification
                of warrants in conjunction with the Securities Purchase
                Agreement
            
            
            1,478,585
            
            
            -
            
            
            -Allowance
                for doubtful accounts
            
            
            10,000
            
            
            5,000
            
            
            -Non-cash
                settlements
            
            
            -
            
            
            58,750
            
            
            (126,373
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (1,291,938
            )
            
            (275,917
            )
            
            (321,204
            )Prepaid
                and other assets
            
            
            (110,530
            )
            
            65,143
            
            
            (85,515
            )Accounts
                payable and other accrued expenses
            
            
            354,514
            
            
            1,152,495
            
            
            (33,308
            )Accrued
                interest
            
            
            422,751
            
            
            55,432
            
            
            13,256Accrued
                salaries and related costs
            
            
            106,478
            
            
            18,047
            
            
            (192,394
            )Net
                cash used in operating activities
            
            
            (7,477,878
            )
            
            (3,153,749
            )
            
            (3,145,203
            )**Investing
                activities**Purchases
                of equipment and furniture
            
            
            (43,040
            )
            
            (76,190
            )
            
            (45,570
            )Net
                cash used in investing activities
            
            
            (43,040
            )
            
            (76,190
            )
            
            (45,570
            )**Financing
                activities**Proceeds
                from exercise of stock options and warrants
            
            
            -
            
            
            4,333,788
            
            
            104,892Net
                proceeds from sale of common stock and warrants
            
            
            -
            
            
            -
            
            
            20,086Proceeds
                from issuance of convertible debt
            
            
            -
            
            
            8,215,000
            
            
            2,425,000Principal
                payments on convertible debt
            
            
            -
            
            
            (1,640,000
            )
            
            -Principal
                payments on capital lease obligations
            
            
            (12,742
            )
            
            -
            
            
            (17,296
            )Principal
                payments on notes payable and short-term borrowings
            
            
            -
            
            
            (99,479
            )
            
            (124,766
            )Net
                cash (used in) provided by financing activities
            
            
            (12,742
            )
            
            10,809,309
            
            
            2,407,916Net
                (decrease) increase in cash
            
            
            (7,533,660
            )
            
            7,579,370
            
            
            (782,857
            )Cash
                at beginning of year
            
            
            8,985,158
            
            
            1,405,788
            
            
            2,188,645Cash
                at end of year
            
            $
            1,451,498
            
            $
            8,985,158
            
            $
            1,405,788**Supplemental
                disclosures of cash flow information**Cash
                paid for interest
            
            $
            72,572
            
            $
            47,527
            
            $
            49,262





*See
      accompanying notes.*








F-9





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements**





**December
      31, 2006**








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





*Basis
      of Presentation*





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. As
      shown
      in the financial statements for the year ended December 31, 2006, the Company
      incurred a net loss of $14,570,385 and experienced negative cash flows from
      operations. The Company’s continuation
      as a going concern is dependent
      on its ability to generate sufficient cash flow to meet its obligations on
      a
      timely basis, to obtain additional financing, and ultimately to attain
      profitability. The Company is actively promoting and expanding its product
      line.
      The Company expects that increased revenues and cost reductions will reduce
      its
      operating losses in future periods.





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





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





*Business*





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





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





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





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





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





F-10





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








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





*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.





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.”





**2.
      Summary of Significant Accounting Policies**





*Estimates*





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





*Reverse
      Stock Split*





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





*Reclassifications*





Certain
      2005 and 2004 amounts in the accompanying financial statements have been
      reclassified to conform to the 2006 presentation. These reclassifications had
      no
      effect on previously reported net loss or stockholders’ equity
      (deficit).
















F-11





**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 in accordance with Emerging Issues Task Force (“EITF) 99-19,
“ *Reporting
      Revenues Gross as a Principal Versus Net as an Agent.”* The
      Company recognizes the cost of payments to the content providers as a cost
      of
      revenues. Wireless applications and contracts cost of revenues includes all
      third-party hosting and carrier distribution fees. These costs are incurred
      on a
      monthly basis and are primarily fixed in nature regardless of the revenue
      generated by the related applications.





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





Wireless
      License Fees





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





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





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.








F-12





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








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





*Equipment,
      Software and Furniture*





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





*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 reviews the allowance for doubtful accounts
      monthly.  Past due balances over 120 days are reviewed individually for
      collectibility.  Account balances are charged off against the allowance
      when it is probable the receivable will not be recovered.  The Company
      recorded an allowance for doubtful accounts of $15,000 and $5,000 as of December
      31, 2006 and 2005, respectively. 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, 2006, one customer,
      Verizon Wireless, accounted for 31% and 33% of the Company’s revenues
      and accounts receivable, respectively. This same customer accounted for 45%
      and
      18% of the Company’s revenues and accounts receivable for the year ended
      December 31, 2005. In addition, a second customer, QPass (Cingular
      Wireless), accounted for 22% and 18% of the Company’s revenues and accounts
      receivable for the year ended December 31, 2006. This same customer accounted
      for 24% of the Company’s accounts receivable as of December 31, 2005. A third
      customer, Alltel, accounted for 11% and 15% of the Company’s revenues and
      accounts receivable for the year ended December 31, 2006. A fourth customer,
      Sprint Nextel, accounted for 13% and 16% of the Company’s revenues and accounts
      receivable for the year ended December 31, 2006. Should these wireless carriers
      discontinue the deployment of the Company’s applications, the Company’s business
      would be adversely affected. There were no other customers with revenues or
      accounts receivable in excess of 10 percent of the respective
      balances.





For
      the
      year ended December 31, 2006, two licensors, Phil Hellmuth and Mattel, accounted
      for 26% and 26% of the Company’s revenues, respectively. Should these licensors
      discontinue their license to the Company, the Company’s business would be
      adversely affected. For the year ended December 31, 2005, two licensors, Phil
      Hellmuth and Sports Illustrated accounted for 37% and 23% of the Company’s
      revenues, respectively. The Company’s contract with Sports Illustrated ended in
      March 2006. There were no other licensors attributing to revenues in excess
      of
      10 percent of total revenues.





*Research
      and Development Costs*





The
      Company charges costs related to research, design and development of products
      to
      research and development expense as incurred. The types of costs included in
      research and development expense include salaries, contractor fees and
      third-party testing and services costs.





*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
      2006 and 2005, the period between achieving technological feasibility and the
      general availability of the software coincided; therefore no software
      development costs were capitalized.





F-13





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








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





*Advertising
      Costs*





Advertising
      costs are expensed as incurred. Advertising expense for the years ended December
      31, 2006, 2005 and 2004 was $2,230,944, $872,098 and $336,299,
      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 No. 109, deferred tax assets or liabilities are computed based upon the
      difference between the financial statement and income tax basis of assets and
      liabilities using the enacted marginal tax rate applicable when the related
      asset or liability is expected to be realized or settled. Deferred income tax
      expenses or benefits are based on the changes in the asset or liability from
      period to period. If available evidence suggests that it is more likely than
      not
      that some portion or all of the deferred tax assets will not be realized, a
      valuation allowance is required to reduce the deferred tax assets to the amount
      that is more likely than not to be realized. Future changes in such valuation
      allowance would be included in the provision for deferred income taxes in the
      period of change.





*Stock-Based
      Compensation*





On
      January 1, 2006, the Company adopted SFAS No. 123(R), *Share-Based
      Payment* ,
      which
      requires us to account for share-based payment transactions using a fair
      value-based method and recognize the related expense in our results of
      operations. Prior to our adoption of SFAS No. 123(R), as permitted by SFAS
      No. 123, we accounted for share-based payments to employees using the
      Accounting Principles Board Opinion No. 25 (“APB 25”), *Accounting
      for Stock Issued to Employees* ,
      intrinsic value method. Accordingly, prior to January 1, 2006 we generally
      did not recognize compensation cost for employee stock options, as all such
      options had an exercise price equal to the market value of the underlying common
      stock on the date of the grant. SFAS No. 123(R) allows companies to choose
      one of two transition methods: the modified prospective transition method or
      the
      modified retrospective transition method. We chose to use the modified
      prospective transition methodology. Under this transition method, our
      compensation cost recognized includes compensation costs for all share-based
      payments granted prior to, but not yet vested as of, January 1, 2006 based
      on the grant date fair value estimated in accordance with the original
      provisions of SFAS No. 123, and compensation cost for all share-based
      payments granted subsequent to January 1, 2006 based on the grant date fair
      value estimated in accordance with the provisions of SFAS No. 123(R).
      Accordingly, we have not restated our financial results for prior periods.





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





The
      Company accounts for stock-based compensation to non-employees of the Company,
      primarily consultants and advisors, at the fair value of the equity instrument
      in accordance with the provisions of SFAS No. 123 and EITF 96-18, “ *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction With Selling, Goods or Services.”* EITF
      96-18 requires that compensation be measured at the end of each reporting period
      for changes in the fair value of the Company’s stock until the options are
      vested.





Refer
      to
      Footnote 12 (“Stock-Based Compensation”) for the discussion of the adoption of
      SFAS No. 123(R).








F-14





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








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





*Net
      Loss Per Share*





Loss
      per
      share has been calculated in accordance with SFAS No. 128, *“Earnings
      Per Share.”* Basic
      loss per share was computed by dividing the net loss for each period presented
      by the weighted average number of shares of common stock outstanding for such
      period, as adjusted for the recapitalization. Although the Company has potential
      common stock equivalents related to its outstanding stock options, warrants,
      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 2006 consist of
      2,294,646 outstanding stock options, 7,934,687 outstanding warrants, 20,058
      Series A preferred shares and related dividends, as converted, and 4,000,000
      convertible debt shares, as converted.





*New
      Accounting Pronouncements*





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      (“FIN”) No. 48, “ *Accounting
      for Uncertainty in Income Taxes* .”
FIN
      No. 48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN No. 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN No. 48 is effective for the
      Company’s first fiscal year beginning after December 15, 2006. The Company
      is currently evaluating the provisions of FIN No. 48 to determine what
      effect its adoption in the first quarter of 2007 will have on the Company’s
      financial position, cash flows, and results of operations.





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





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










F-15





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**3.
      Equipment, Software and Furniture**





Equipment,
      software and furniture consist of the following at December 31:





**2006**
            
            **2005**Computer
                equipment financed by capital leases
            
            $
            680,868
            
            $
            634,529Computer
                software and equipment
            
            
            533,852
            
            
            490,812Furniture
                and fixtures
            
            
            160,403
            
            
            160,4031,375,123
            
            
            1,285,744Less
                accumulated depreciation and amortization
            
            
            (1,222,136
            )
            
            (1,159,905
            )$
            152,987
            
            $
            125,839





Depreciation
      and amortization expense totaled $62,231, $47,356 and $144,564 for the years
      ended December 31, 2006, 2005 and 2004, respectively.





**4.
      Leases**





The
      Company leases equipment and office space under long-term capital and operating
      lease agreements. Rental expense amounted to approximately $289,000, $278,000
      and $249,000 for the years ended December 31, 2006, 2005 and 2004,
      respectively.





Minimum
      future lease payments under noncancellable leases at December 31, 2006 are
      as
      follows:





Operating
            
            Capital2007
            
            $
            93,973
            
            $
            19,1172008
            
            
            20,618
            
            
            18,9952009
            
            
            1,965
            
            
            1,476Total
                minimum lease payments
            
            $
            116,556
            
            $
            39,588Less
                amounts representing interest
            
            
            
            
            
            (5,991)Present
                value of minimum lease payments
            
            
            
            
            $
            33,597








F-16





**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****2006**
            
            **2005**Accrued
                expenses and other revenue
            
            $
            118,000
            
            $
            43,000Net
                operating losses
            
            
            18,436,000
            
            
            14,983,000Start-up
                costs
            
            
            128,000
            
            
            893,000Other
            
            
            656,000
            
            
            435,000Stock-based
                compensation
            
            
            613,000
            
            
            219,000Total
                deferred tax assets
            
            
            19,951,000
            
            
            16,573,000Valuation
                allowance
            
            
            (19,951,000
            )
            
            (16,573,000
            )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, 2006, 2005 and 2004 and the amount computed by applying the
      statutory federal income tax rate to losses before incomes taxes are as
      follows:





**December
                31****2006**
            
            
            **2005**
            
            
            **2004**Income
                tax benefit at statutory rate
            
            $
            (5,100,000
            )
            
            (35.0
            )%
            $
            (2,072,000
            )
            
            (35.0
            )%
            $
            (1,360,000
            )
            
            (35.0
            )%State
                income taxes, net of federal benefit
            
            
            (666,000
            )
            
            (4.6
            )
            
            (266,000
            )
            
            (4.5
            )
            
            (180,000
            )
            
            (4.5
            )Non-deductible
                expenses
            
            
            2,631,000
            
            
            18.0
            
            
            667,000
            
            
            11.3
            
            
            480,000
            
            
            12.4Change
                in valuation allowance
            
            
            3,378,000
            
            
            23.2
            
            
            1,943,000
            
            
            32.8
            
            
            1,230,000
            
            
            31.7Other
            
            
            (243,000
            )
            
            (1.6
            )
            
            (272,000
            )
            
            (4.6
            )
            
            (170,000
            )
            
            (4.6
            )Income
                tax benefit
            
            $
            -
            
            
            -
            %
            $
            -
            
            
            -
            %
            $
            -
            
            
            -
            %





At
      December 31, 2006, the Company had federal and state net operating loss
      carryforwards of approximately $46.5 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 $649,000 which begin to expire in
      2024.











F-17





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**6.
      Related Party Transactions**





On
      September 29, 2006, the Company entered into a consulting agreement with a
      director of the Company to provide services as Lead Director. Under this
      agreement, the Company granted 100,000 shares of restricted common stock with
      a
      grant-date fair value of these shares was $0.80 per share. These shares are
      vesting monthly over the period of one year. As of December 31, 2006, there
      were 75,000 unvested shares and unamortized compensation expense related to
      the
      unvested shares under this award of $45,000. Expense of $35,000 is recorded
      as
      non-cash consulting expense in the statement of operations for the year ended
      December 31, 2006.





In
      addition, the Company granted options to purchase 275,000 shares of the
      Company’s common stock. 50,000 of the options vested immediately and the
      remaining options vest monthly over the period of one year. The options have
      exercise prices as follows: (1) the first 100,000 of the options to vest have
      an
      exercise price equivalent to the closing market price of the common stock on
      the
      date of the agreement; (2) the next 75,000 of the options to vest have an
      exercise price of $1.25 per share; (3) the next 50,000 of the options to vest
      have an exercise price of $1.75 per share; and (4) the remaining 50,000 of
      the
      options to vest have an exercise price of $2.00 per share. Expense of $60,183
      for these options is recorded in stock-based compensation in the statement
      of
      operations for the year ended December 31, 2006.





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
      $45,000 and $15,000 to this director for consulting fees during the years ended
      December 31, 2006 and 2005, respectively.





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 were 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.








F-18





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**7.
      Convertible Notes Payable (continued)**





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 $4,957,556 and
      $584,040 for the years ended December 31, 2006 and 2005, respectively.





The
      principal balance of the Senior Secured Debentures is $8,000,000 as of December
      31, 2006 and matures on June 30, 2007. The discount related to the Senior
      Secured Debentures is $2,458,404 as of December 31, 2006, and is shown as a
      contra-liability on the balance sheet. Accrued interest related to this debt
      is
      $542,667 and $57,333 as of December 31, 2006 and 2005,
      respectively.





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





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





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





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





*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.








F-19





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**7.
      Convertible Notes Payable (continued)**





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.





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.








F-20





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**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, 2006 and 2005 is
      $77,500.





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. The principal component of this
      note
      was fully paid in 2005. As of December 31, 2006, the Company has accrued
      interest of $31,584 recorded on the balance sheet related to this
      note.





**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 three years
      ended December 31, 2006, the Company did not contribute to the
      plan.





**10.
      Common Stock and Warrants**





*2006
      Transactions*





In
      2006,
      the Company issued 23,334 shares of restricted common stock pursuant to a
      marketing agreement valued at $32,667.





In
      2006,
      the Company issued 5,798 shares of restricted common stock pursuant to a
      marketing services agreement valued at $12,000.





As
      discussed in Note 6, in 2006, the Company issued 100,000 shares of restricted
      common stock to a director of the Company pursuant to a consulting agreement
      valued at $80,000.





As
      discussed in Note 12, in 2006, the Company issued 100,000 shares of common
      stock
      to the Chief Executive Officer of the Company pursuant to an employment
      agreement valued at $39,000.





*2005
      Transactions*





In
      2005,
      the Company issued 46,668 shares of restricted common stock pursuant to a
      marketing agreement valued at $145,838.




During
      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.











F-21





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**10.
      Common Stock and Warrants (continued)**





*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.





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
            
            
            20,058Outstanding
                common stock warrants
            
            
            7,934,687Outstanding
                stock options
            
            
            2,294,646Possible
                future issuance under stock option plans
            
            
            342,048Total
            
            
            14,591,439





A
      summary
      of the Company’s outstanding warrants as of December 31, 2006 is as
      follows:





Range
                of
              Exercise
                Prices
            Warrants
              Outstanding$0.01
                - 2.50
            2,814,6922.51
                - 5.00
            3,297,6555.01
                - 10.00
            758,55210.01
                - 20.00
            657,699Over
                20.00
            406,0897,934,687





The
      warrants can be exercised at any time until their expiration dates, which are
      between January 2, 2007 and December 30, 2010.




















F-22





**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, 2006 and 2005. These shares are
      valued based upon the liquidation preference (the “Liquidation Preference”) of
      Series A preferred stock of $1,000 per share.





The
      holders of the Series A preferred stock are entitled to receive cumulative
      cash
      dividends at a rate of 8% per annum of the initial liquidation preference of
      $1,000 per share. The Company, at its election, can provide for the payment
      of
      dividends on the Series A preferred stock through the issuance of additional
      shares of Series A preferred stock having an aggregate initial liquidation
      preference equal to the amount of cash dividends otherwise payable. Dividends
      are cumulative from the date of issuance and are payable, when, as and if
      declared by the Board of Directors. The Company is restricted from paying
      dividends on common stock until dividends are paid on Series A preferred in
      full. The Company issued 329 shares of Series A preferred stock during 2004
      as
      payment for declared dividends. Cumulative unpaid dividends at December 31,
      2006
      were $449,307.





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”). 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”). 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.





*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”). 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.


F-23





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**11.
      Preferred Stock (continued)**





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 year ended December 31, 2004 was $293,444. 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 accumulated
      deficit on the date of issuance in 2003.





**12.
      Stock-Based Compensation**





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





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


**Shares**
            
            **Weighted**
              **Average**
              **Exercise
                Price**
            
            **Average
                Remaining Contractual Term**
            
            **Aggregate
                Intrinsic Value**Outstanding
                - 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
            
            
            6.53Granted
            
            
            893,300
            
            
            1.42Exercised
            
            
            -
            
            
            -Forfeited
            
            
            (434,869
            )
            
            6.82Outstanding
                - December 31, 2006
            
            
            2,294,646
            
            $
            4.26
            
            
            5.75
            $
            -Exercisable
                - December 31, 2006
            
            
            1,790,415
            
            $
            5.00
            
            
            4.74
            $
            -





The
      aggregate intrinsic value represents the pretax value (the period’s closing
      market price, less the exercise price, times the number of in-the-money options)
      that would have been received by all option holders had they exercised their
      options at the end of the period. The exercise price of stock options granted
      during year ended December 31, 2006 was equal to the market price of the
      underlying common stock on the grant date.





F-24





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**12.
      Stock-Based Compensation (continued)**





The
      following table summarizes information about stock options outstanding at
      December 31, 2006:




**Options
                Outstanding****Range
                of**
              **Exercise
                Prices**
            
            **Number**
              **Outstanding**
            
            **Weighted
                Average**
              **Contractual
                Life**
            
            **Weighted
                Average**
              **Exercise
                Price**$
                0.01- 1.25
            
            
            584,239
            
            
            7.44
            
            $
            1.151.26
                - 2.50
            
            
            696,799
            
            
            6.76
            
            
            1.632.51
                - 5.00
            
            
            804,236
            
            
            4.60
            
            
            3.375.01-
                10.00
            
            
            7,958
            
            
            5.96
            
            
            6.3010.01-
                20.00
            
            
            72,378
            
            
            1.98
            
            
            14.38Over
                20.00
            
            
            129,036
            
            
            1.89
            
            
            32.342,294,646
            
            
            5.75
            
            
            4.26





**Options
                Exercisable****Range
                of**
              **Exercise
                Prices**
            
            **Number**
              **Exercisable**
            
            **Weighted
                Average**
              **Exercise
                Price**$
                0.01- 1.25
            
            
            326,064
            
            $
            1.171.26
                - 2.50
            
            
            522,743
            
            
            1.612.51
                - 5.00
            
            
            732,236
            
            
            3.385.01-
                10.00
            
            
            7,958
            
            
            6.3010.01-
                20.00
            
            
            72,378
            
            
            14.38Over
                20.00
            
            
            129,036
            
            
            32.341,790,415
            
            
            5.00








The
      weighted average fair value of options granted during 2006, 2005 and 2004 was
      $1.01, $2.84 and $1.48, respectively.





The
      adoption of SFAS No. 123(R) had a material impact on our results of
      operations. Our statement of operations for the year ended December 31, 2006
      included the following stock-based compensation expense:







Year
                ended
              December
                31, 2006General
                and administrative
            
            $
            806,433Research
                and development
            
            
            128,443Sales
                and marketing
            
            
            120,984$
            1,055,860








Unrecognized
      stock-based compensation expense expected to be recognized over an estimated
      weighted-average amortization period of 0.95 years was approximately $567,000
      at
      December 31, 2006.








F-25





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**12.
      Stock-Based Compensation (continued)**





Time-Based
      Stock Awards





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




Expected
                volatility
            
            96.89
            %Expected
                dividends
            
            0
            %Expected
                terms
            
            5.77
                Years for Employees and 10 Years for DirectorsRisk-free
                interest rate
            
            4.31
                - 5.23
            %





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





Restricted
      Stock





During
      2006, the Company granted 100,000 shares of restricted common stock to a Board
      member for consulting services. The grant-date fair value of these shares was
      $0.80 per share. These shares are vesting monthly over the period of one year.
      As of December 31, 2006, there were 75,000 unvested shares and unamortized
      compensation expense related to the unvested shares under this award of $45,000.
      Expense of $35,000 is recorded as non-cash consulting expense in the statement
      of operations for the year ended December 31, 2006.





During
      2006, the Company granted 100,000 shares of restricted common stock to the
      Chief
      Executive Officer of the Company pursuant to an employment agreement. The
      grant-date fair value of these shares was $0.39 per share. These shares vested
      immediately. Expense of $39,000 is recorded as stock-based compensation expense
      in the statement of operations for the year ended December 31,
      2006.





During
      2006, the Company accrued amounts relating to restricted stock payable to
      directors as compensation for services as directors of the Company. Amounts
      accrued at December 31, 2006 are for 144,000 shares of restricted stock and
      total $57,600. This amount is based on the grant-date fair value of these shares
      of $0.40 per share as of December 31, 2006. Expense of $57,600 is recorded
      as
      stock-based compensation expense in the statement of operations for the year
      ended December 31, 2006 and is accrued in accounts payable at December 31,
      2006.
      These shares were not issued as of December 31, 2006.





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





**Shares**
            
            **Weighted**
              **Average
                Grant Date Fair Value**Outstanding
                - December 31, 2005
            
            
            -
            
            $
            -Granted
            
            
            200,000
            
            
            0.60Vested
            
            
            143,750
            
            
            0.51Forfeited
            
            
            -
            
            
            -Outstanding
                - December 31, 2006
            
            
            56,250
            
            $
            0.80





During
      the year ended December 31, 2006, 143,750 shares of restricted stock vested,
      with a fair value of $74,000.







F-26





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**12.
      Stock-Based Compensation (continued)**





2005
      and 2004 Stock-Based Compensation





The
      following table illustrates the effect on net loss and net loss per share for
      the years ended December 31, 2005 and 2004, if the Company had accounted for
      all
      employee stock-based compensation during that period based on the fair value
      method as prescribed by SFAS No. 123(R).





**Year
                ended December 31****2005**
            
            **2004**Net
                loss applicable to common stockholders
            
            $
            (6,113,862
            )
            $
            (4,341,286
            )Non-cash
                compensation charges included in
              net
                loss applicable to common stockholders
            
            
            39,221
            
            
            79,521Stock-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
            )Adjusted
                net loss applicable to common
              stockholders
            
            $
            (6,849,766
            )
            $
            (5,447,534
            )Basic
                and diluted loss per share:Reported
                net loss applicable to common
              stockholders
            
            $
            (0.46
            )
            $
            (0.49
            )Non-cash
                compensation charges included in net
              loss
                applicable to common stockholders
            
            
            0.01
            
            
            0.01Stock-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
            )Adjusted
                net loss applicable to common
              stockholders
            
            $
            (0.51
            )
            $
            (0.61
            )







For
      the
      purpose of the above table, 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 and 2004: dividend yield of 0%; volatility ranging
      from
      1.218 to 1.294; risk-free interest rate ranging from 2.80% 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 and 2004 was $2.84 and
      $1.48 per option, respectively.





F-27





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**13.
      Commitments and Contingencies**





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





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





Oasys
      Mobile has accrued $81,106 in deferred wages owed to Dr. Jawerth, which were
      deferred with Dr. Jawerth’s agreement. Dr. Jawerth’s deferred salary amount of
      $81,106 is recorded as accrued salaries in the Company’s balance sheet as of
      December 31, 2006 and 2005.





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





*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-28





**Oasys
      Mobile, Inc.**





**Notes
      to Financial Statements (continued)**








**14.
      Settlements of Contractual Disputes and Litigation, Write-Offs of Accounts
      Payable**





**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. This obligation was fully paid in 2006.





**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, 2006,
      2005 and 2004 were $-0-, ($58,750) and $126,373, respectively.




**Write-Offs
        of Certain Accounts Payable Balances**
 
 The
        Company has written off certain accounts payable balances which it deems
        are not
        owed by the Company pursuant to North Carolina law. These balances resulted
        in
        reduction of expenses on the statement of operations of approximately $96,000,
        $69,000 and $56,000 for the years ended December 31, 2006, 2005 and 2004,
        respectively.





**15.
      Selected Quarterly Financial Data (unaudited)**





Selected
      quarterly financial data for the years ended December 31, 2006 and 2005 is
      as
      follows:





**Three
                Months Ended****March
                31**
            
            **June
                30**
            
            **September
                30**
            
            **December
                31***(in
                thousands, except per share data)***2006**Revenues
            
            $
            2,117
            
            $
            1,809
            
            $
            2,118
            
            $
            2,644Cost
                of revenues
            
            
            1,111
            
            
            967
            
            
            1,290
            
            
            1,652Gross
                profit
            
            
            1,006
            
            
            842
            
            
            828
            
            
            992Net
                loss
            
            
            (3,361
            )
            
            (3,071
            )
            
            (5,236
            )
            
            (2,902
            )Net
                loss per common share, basic and
              diluted
            
            
            (0.25
            )
            
            (0.23
            )
            
            (0.39
            )
            
            (0.22
            )**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
            )







F-29


**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/
                Douglas B.
                DyerDouglas
                B. Dyer
              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/
                Douglas B. Dyer**
              **Douglas
                B. Dyer**
            Chief
                Executive Officer
              (Principal
                Executive Officer)
            April
                2, 2007**/s/
                Tracy T. Jackson**
              **Tracy
                T. Jackson**
            Chief
                Financial Officer
              (Principal
                Financial and Principal
              Accounting
                Officer)
            April
                2, 2007**/s/
                Stephen M. Finn**
              **Stephen
                M. Finn**
            Director
            April
                2, 2007**/s/
                J. Winder Hughes**
              **J.
                Winder Hughes**
            Director
            April
                2, 2007**/s/
                Richard B. Ruben**
              **Richard
                B. Ruben**
            Director
            April
                2, 2007**/s/
                Bernard Stolar**
              **Bernard
                Stolar**
            Director
            April
                2, 2007**/s/
                James A. Taylor**
              **James
                A. Taylor**
            Director
            April
                2, 2007