the residual revenue is allocated to the delivered elements. Vendor specific objective evidence of fair value for such undelivered elements is based upon the price we charge for such product or service when it is sold separately. We may modify our pricing practices in the future, which would result in changes to our vendor specific objective evidence. As a result, future revenue associated with multiple element arrangements could differ significantly from our historical results.

Percentage of Completion Accounting.    Fees from licenses sold together with consulting services are generally recognized upon shipment of the licenses, provided (i) the criteria described in subparagraphs (a) through (d) in the second paragraph under Revenue Recognition above are met; (ii) payment of the license fee is not dependent upon performance of the consulting services; and (iii) the consulting services are not essential to the functionality of the licensed software. If the services are essential to the functionality of the software, or performance of services is a condition to payment of license fees, both the software license and consulting fees are recognized under the ‘‘percentage of completion’’ method of contract accounting. Under this method, we are required to estimate the number of total hours needed to complete a project, and revenues and profits are recognized based on the percentage of total contract hours as they are completed. Due to the complexity involved in the estimating process, revenues and profits recognized under the percentage of completion method of accounting are subject to revision as contract phases are actually completed. Historically, these revisions have not been material.

Sublicense Revenues.    We recognize sublicense fees as reported by our licensees. License fees for certain application development and data access tools are recognized upon direct shipment by us to the end user or upon direct shipment to the reseller for resale to the end user. If collection is not reasonably assured in advance, revenue is recognized only when sublicense fees are actually collected.

Service Revenues.    Technical support revenues are recognized ratably over the term of the related support agreement, which in most cases is one year. Revenues from consulting services under time and materials contracts, and for education, are recognized as services are performed. Revenues from other contract services are generally recognized based on the proportional performance of the project, with performance measured based on hours of work performed.

Impairment of Goodwill and Other Intangible Assets

Goodwill and intangible assets have generally resulted from our business combinations accounted for as purchases. We are required to test amounts recorded as goodwill or recorded as intangible assets with indeterminate lives, at least annually for impairment. The review of goodwill and indeterminate lived intangibles for potential impairment is highly subjective and requires us to make numerous estimates to determine both the fair values and the carrying values of our reporting units to which goodwill is assigned. If the estimated fair value of an asset is determined to be less than its carrying value, we are required to perform an analysis similar to a purchase price allocation for an acquired business in order to determine the amount of goodwill impairment, if any. This analysis requires a valuation of certain other intangible assets including in-process research and development, and developed technology. Changes in our internal business structure, changes in our future revenue and expense forecasts, and certain other factors that directly impact valuation could result in a future impairment charge. For these purposes, recoverability of these assets is measured by comparing their carrying values to the future undiscounted cash flows the assets are expected to generate. This methodology requires us to estimate future cash flows associated with certain assets or groups of assets. Changes in these estimates could result in impairment losses associated with other intangible assets. As of September 30, 2006, all intangible assets have been written off.

Allowance for Doubtful Accounts

Whenever relevant, we maintain an allowance for doubtful accounts to reflect the expected non-collection of accounts receivable based on past collection history and specific risks identified in our portfolio of receivables. Additional allowances might be required if deteriorating economic conditions or other factors affect our customers’ ability to make timely payments.

19

Capitalized Software

We capitalize certain software development costs after a product becomes technologically feasible and before its general release to customers. Significant judgment is required in determining when a product becomes ‘‘technologically feasible.’’ Capitalized development costs are then amortized over the product’s estimated life beginning upon general release of the product. Periodically, we compare a product’s unamortized capitalized cost to the product’s net realizable value. To the extent unamortized capitalized cost exceeds net realizable value based on the product’s estimated future gross revenues (reduced by the estimated future costs of completing and selling the product) the excess is written off. This analysis requires us to estimate future gross revenues associated with certain products and the future costs of completing and selling certain products. Changes in these estimates could result in write-offs of capitalized software costs. As of September 30, 2006, we did not have any software development projects where the product being developed meets the criteria for capitalization.

Income Taxes

We use the asset and liability approach to account for income taxes. This methodology recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. We then record a valuation allowance to reduce deferred tax assets to an amount that likely will be realized. We consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If we determine during any period that we could realize a larger net deferred tax asset than the recorded amount, we would adjust the deferred tax asset and record a corresponding reduction to its income tax expense for the period. Conversely, if management determines that we would be unable to realize a portion of our recorded deferred tax asset, it would adjust the deferred tax asset and record a charge to income tax expense for the period. Significant judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences (e.g., the income we earn within the United States) could materially impact our financial position or results of operations.

Stock-Based Compensation

During the first quarter of fiscal 2006, we adopted the provisions of, and account for stock-based compensation in accordance with, the Financial Accounting Standards Board’s (‘‘FASB’’) Statement of Financial Accounting Standards No. 123 — revised 2004 (‘‘SFAS 123R’’), ‘‘Share-Based Payment’’ that replaced" Statement of Financial Accounting Standards No. 123 (‘‘SFAS 123’’), ‘‘Accounting for Stock-Based Compensation’’ and supersedes APB Opinion No. 25, ‘‘Accounting for Stock Issued to Employees.’’ Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. We elected the modified-prospective method, under which prior periods are not revised for comparative purposes. The valuation provisions of SFAS 123R apply to new grants and to grants that were outstanding as of the effective date and are subsequently modified. Estimated compensation for grants that were outstanding as of the effective date will be recognized over the remaining service period using the compensation cost estimated for the SFAS 123 pro forma disclosures.

The adoption of SFAS 123R had an expense impact of $82,767 to our consolidated income statement in the third quarter of 2006 and $237,734 on a year to date basis.

Derivatives

We follow the provisions of SFAS No. 133 ‘‘Accounting for Derivative Instruments and Hedging Activities’’ (‘‘SFAS No. 133’’) along with related interpretations EITF No. 00-19 ‘‘Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock’’ (‘‘EITF 00-19’’) and EITF No. 05-2 ‘‘The Meaning of ‘Conventional Convertible Debt Instrument’ in Issue No. 00-19’’ (‘‘EITF 05-2’’). SFAS No. 133 requires every derivative instrument (including certain

20

---

derivative instruments embedded in other contracts) to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in the derivative’s fair value recognized currently in earnings unless specific hedge accounting criteria are met. We value these derivative securities under the fair value method at the end of each reporting period (quarter), and their value is marked to market at the end of each reporting period with the gain or loss recognition recorded against earnings. We continue to revalue these instruments each quarter to reflect their current value in light of the current market price of our common stock. We utilize the Black-Scholes option-pricing model to determine fair value. Key assumptions of the Black-Scholes option-pricing model include applicable volatility rates, risk-free interest rates and the instrument’s expected remaining life. These assumptions require significant management judgment.

Results of Operations

Our business is in its early stages and consequently our financial results are difficult to compare from one period to the next. We expect such period-to-period differences to continue to be significant over the next several quarters, until we have a number of full years of operations.

Since December 2003, we have focused on two areas: (1) further developing and enhancing the SWP and developing an array of products for the gaming, entertainment, financial services, and general corporate market that leverage the functionality of the SWP and (2) developing a sales strategy that would develop relationships with software manufacturers, multi service operators, wireless carriers and direct customers. Since we had limited capital, we lacked the resources to execute this strategy quickly. Once we began generating operating revenue in late 2004 and once we raised modest amounts of capital in the second quarter of 2005, we were able to begin hiring the sales and marketing and administrative personnel necessary to execute our strategy.

In 2006, in conjunction with our strategic alliance with Shuffle Master and because of the perceived opportunities for wireless applications in the gaming industry, we switched our primary sales and development focus towards the gaming industry. We continue to focus on the financial services and enterprise market segments for products, customers and verticals where we have previously experienced success.

Comparison of three months ended September 30, 2006 and 2005

For the three months ended September 30, 2006, we had a comprehensive loss of $1.99 million compared to a comprehensive loss of $2.01 million for the three months ended September 30, 2005. While total operating expenses remained fairly flat to the comparable quarter last year, sales and marketing decreased significantly due to our change in sales focus to a channel and partner based selling model. A channel and partner based selling model requires significantly less sales resources than a direct sales model, as it leverages the resources of the sales channels and partners. Decreases in sales and marketing expenses were offset by increases in general and administrative expenses, professional fees and development costs. Significant increases in expenses were incurred for product development related to our wireless gaming solution, as well as additional legal and accounting expenses related to our gaming license applications. The decline in revenues reflect the shift in focus from customized software projects in the financial services and enterprise market segments to the development of our wireless gaming solution for the Shuffle Master strategic alliance. The following table compares our consolidated statement of operations data for the three months ended September 30, 2006 and 2005.

21

---

			Three months ended September 30,
			2006						2005
Net Revenue				$	53,380					$	121,315
Operating expenses
Depreciation and amortization					9,607						15,847
General and administrative expenses					718,819						302,263
Professional fees					303,010						245,886
Development expenses					629,301						180,598
Selling and marketing expenses					454,400						1,230,767
Total operating expenses					2,115,137						1,975,361
Operating loss					(2,061,757	)					(1,854,046	)
Interest income					70,620						43,009
Interest expense					(785	)					(2,511	)
Other income and expense					—						(99,287	)
Net loss					(1,991,922	)					(1,912,835	)
Foreign currency translation adjustment					(978	)					(96,146	)
Comprehensive loss				$	(1,992,900	)				$	(2,008,981	)

Revenue

Revenue in the third quarter of 2006 was $53,000 compared to revenue of $121,000 for the third quarter of 2005, a decrease of 56%. Third quarter 2006 revenue included $43,000 of licensing fees and $10,000 of maintenance fees. Approximately 40% of the current quarter revenue is attributable to continuing license subscriptions and the balance relates to new projects begun this quarter and recognition of deferred revenue for projects completed. We believe that the decrease this quarter primarily reflects the shift of a large portion of our selling and development resources from the financial services and enterprise products to the development and pre-sales of our wireless gaming solution which we anticipate will begin generating revenue in the next few months.

Operating expenses

Total operating expenses for the third quarter of 2006 were $2.12 million compared to $1.98 million for the third quarter of 2005. There were substantial changes in the type of expenses incurred this quarter versus the same quarter a year ago. Selling and marketing expenses decreased by $776,000 or 63%, as we moved from a direct sales model to a partner and channel-based selling model which requires less headcount resources. Research and development expenses increased by $449,000 or 248% reflecting an increase in the number of developers, as well as increased product development costs related to the development and testing of our wireless gaming solution. General and administrative expenses and professional fees also increased due to additional infrastructure costs, stock compensation expense, costs of preparation and filing of required forms with the SEC, as well as other general corporate governance costs related to being a public company.

Depreciation and amortization

Depreciation and amortization expenses for the third quarter of 2006 were $10,000 compared to $16,000 in the third quarter of 2005. The depreciation and amortization expense for the third quarter of both years was composed of depreciation of property, plant and equipment.

General and Administrative expenses

General and administrative expenses for the third quarter of 2006 were $719,000 compared to $302,000 for the comparable quarter in 2005, a 138% increase. The increased expenses are attributable to the increased overhead structure required to support our sales and marketing and development efforts in 2006. Payroll expenses increased to $182,000 in the third quarter of 2006 compared to

22

---

$119,000 for the comparable 2005 quarter. We leased office space for a new corporate headquarters, sales and customer support office in New York during the middle of the third quarter of 2005 and a development facility in Boulder, Colorado in the fourth quarter of 2005, increasing our rent to $154,000 in the third quarter of 2006 from $103,000 in the third quarter of 2005. As a result of increased staff and office space, our expenses for office related costs, communication, insurance and other administrative expenses also increased. Our stock compensation expense for the third quarter of 2006 was $180,000 compared to zero in the third quarter of 2005 consisting of expenses related to the expensing of stock options under FAS 123R which were granted in October 2005 and July 2006 and amortization of restricted stock.

Professional fees

Professional fees for the third quarter of 2006 were $303,000 compared to $246,000 for the comparable 2005 quarter, a 23% increase. This increase was almost entirely made up of costs relating to our pending Nevada gaming license application including investigation costs paid to the Nevada Gaming Control Board pursuant to our gaming license application. Accounting, legal and consulting fees decreased slightly to $187,000 in the current quarter from $192,000 in the 2005 quarter. Other professional fees of $21,000 were incurred in the third quarter of 2006 for stock transfer agent fees and directors’ fees which was virtually unchanged from the same quarter last year.

Development expenses

Development expenses for the third quarter of 2006 were $629,000 compared to $181,000 for the comparable 2005 quarter, a 248% increase. Payroll related expenses increased by 131% from $167,000 in last year’s quarter to $384,000 in the current quarter reflecting the hiring of additional developers to support the wireless gaming software product development effort. Travel increased by $53,000 and product development and consulting expenses increased by $140,000 which were both also connected to the wireless gaming software project.

Selling and marketing expenses

Sales and marketing expenses for the third quarter of 2006 were $454,000 compared to $1,231,000 for the same period in 2005, a 63% decrease. The decrease in expenses is attributable to the significant effort undertaken in 2006 to reduce the selling costs associated with our products by switching to a partner and channel driven sales model, instead of the relatively expensive direct sales model we had previously employed. Our personnel and sales contractor costs decreased by 58%, from $718,000 in the third quarter of 2005 to $302,000 in the current quarter. Marketing, advertising and trade shows decreased from $198,000 in last year’s quarter to $19,000 in the third quarter of 2006, as we reduced our direct marketing efforts. Travel also decreased substantially in this category from $206,000 to $78,000 this year in the comparable quarters, which also reflected our reduced level of sales personnel.

Other income and expense

The other expense amount in the third quarter of 2005 was approximately $99,000 due to the revaluation of the warrants carried as a liability on the balance sheet at that time, in accordance with the provisions of EITF 00-19. In the second quarter of 2006, these warrants were reclassified as equity and as such do not require revaluation at the end of subsequent quarters.

Interest income

Interest income is derived from investing unused cash balances in short-term liquid investments. Average cash balances for the third quarter were higher in 2006 than in 2005, resulting in a higher level of interest income.

Interest expense

The interest expense amounts in the third quarters of both 2006 and 2005 relate primarily to bank charges and wire fees.

23

---

Foreign currency translation adjustment

Prior period retained earnings on Innovations’ books are translated at historical exchange rates while the rest of the financial statement line items are translated at current period rates. The resulting difference is treated as gain or loss due to foreign currency translation during the period. The fact that there was a relatively insignificant fluctuation in the Canadian dollar exchange rate in the third quarter of 2006 is reflected in the minor loss in this category this quarter, as compared to the larger translation adjustment loss incurred in the third quarter of 2005 when the exchange fluctuation was greater, as the U.S. dollar weakened against the Canadian dollar.

Comparison of nine months ended September 30, 2006 and 2005

For the nine months ended September 30, 2006, we had a comprehensive loss of $6.71 million compared to a comprehensive loss of $3.75 million for the nine months ended September 30, 2005. Most of this increase is attributable to increased expenses for an expanded sales and marketing effort, including the related development and administrative costs of a larger company, as well as to the professional fees associated with quarterly and annual public company filings. While the third quarter costs of each year are relatively unchanged, the first and second quarter expenses in 2006 were significantly higher than in the prior year. This reflects the timing of our company going public in the reverse merger at the end of April 2005 and subsequent hiring efforts commencing in the third quarter of 2005, following our June 2005 private placement for approximately $5 million. The following table compares our consolidated statement of operations data for the nine months ended September 30, 2006 and 2005:

			Nine months ended September 30,
			2006						2005
Net Revenue				$	344,133					$	380,321
Operating expenses
Depreciation and amortization					26,394						431,783
General and administrative expenses					1,848,525						772,226
Professional fees					903,096						456,696
Development expenses					1,382,995						419,857
Selling and marketing expenses					2,694,047						1,960,974
Total operating expenses					6,855,057						4,041,536
Operating loss					(6,510,924	)					(3,661,215	)
Interest income					107,273						51,871
Interest expense					(2,751	)					(5,370	)
Other income and expense					(117,162	)					(99,287	)
Net loss					(6,523,564	)					(3,714,001	)
Foreign currency translation adjustment					(191,035	)					(32,838	)
Comprehensive loss				$	(6,714,599	)				$	(3,746,839	)

Revenue

Revenue for the nine months ended September 30, 2006 was $344,000 compared to revenue of $380,000 for the nine months ended September 30, 2005, a decrease of 10%. Approximately 33% of the 2006 year to date revenue is attributable to continuing license subscriptions and the balance relates to new projects begun this year and recognition of deferred revenue for projects in progress. The decrease in 2006 relates to the slowdown in third quarter revenues resulting from the shift in focus from customized software projects in the financial services and enterprise market segments to the development of our wireless gaming solution for the Shuffle Master strategic alliance.

Operating expenses

Total operating expenses for the nine months ended September 30, 2006 were $6.85 million compared to $4.04 million for the nine months ended September 30, 2005. The increased operating

24

---

expenses are primarily attributable to the growth in sales, marketing and software development, in addition to increased professional fees related to being a public company.

Depreciation and amortization

Depreciation and amortization expenses for the nine months ended September 30, 2006 were $26,000 compared to $432,000 in the nine months ended September 30, 2005. In 2005, this expense related primarily to amortization of the software acquired in connection with the acquisition of Innovations in late 2003, which was fully written off in the six months ended June 30, 2005. The depreciation and amortization expense for the nine months ended September 30, 2006 was composed entirely of depreciation related to property, plant and equipment.

General and Administrative expenses

General and administrative expenses for the nine months ended September 30, 2006 were $1,849,000 compared to $772,000 for the comparable quarter in 2005, a 139% increase. The increased expenses are attributable to the increased overhead structure required to support our sales and marketing and development efforts in 2006. Subsequent to going public in the reverse merger in April 2005 and raising $5 million in financing in June 2005, we hired additional administrative, finance and accounting personnel, increasing our year to date payroll related expenses to $698,000 in 2006 from $336,000 in 2005. We leased office space for a new corporate headquarters, sales and customer support office in New York, New York and a development facility in Boulder, Colorado, increasing our rent to $489,000 in the nine months ended September 30, 2006 from $143,000 in the nine months ended September 30, 2005. As a result of increased staff and office space, our expenses for office related costs, communication, insurance and other administrative expenses also increased. Our communication expenses increased to $88,000 in the nine months ended September 30, 2006 from $57,000 in the nine months ended September 30, 2005. Our stock compensation expense in this category for the nine months ended September 30, 2006 was $392,000 compared to zero in the nine months ended September 30, 2005 consisting of expenses related to the expensing of stock options under FAS 123R and amortization of restricted stock grants. These options were granted in October 2005. Other office related and infrastructure costs including supplies, postage, printing costs increased from $75,000 in 2005 to $130,000 in 2006.

Professional fees

Professional fees for the nine months ended September 30, 2006 were $903,000 compared to $457,000 for the comparable 2005 period, a 98% increase. Legal fees increased to $433,000 in 2006 from $269,000 in the nine months ended September 30, 2005. A large portion of the legal expenses in the first nine months of 2006 related to legal fees associated with the filing of a registration statement that was declared effective in April 2006, as well as the normal legal costs associated with the quarterly public company filings. Accounting fees decreased slightly to $118,000 in 2006 from $128,000 in 2005. Other professional fees of $169,000 were incurred in the nine months ended September 30, 2006 compared to $58,000 in 2005. In 2006, $100,000 of this related to amounts paid to the Nevada Gaming Control Board in connection with the investigations required in conjunction with our pending Nevada gaming license application. Other amounts in this category were incurred for stock transfer agent fees, directors’ fees and recruiting expenses, as well as $107,000 of stock compensation expense related to the amortization of restricted stock granted to external board members.

Development expenses

Research and development expenses for the nine months ended September 30, 2006 were $1,383,000 compared to $420,000 for the comparable 2005 period, a 229% increase. Payroll and related expenses comprised approximately 76% of the total research and development expenses in the first nine months of 2006, and 92% in the comparable period in 2005. The 2006 year to date payroll related costs were $1,056,000 as compared to $386,000 in 2005. This increase in total development expenses is

25

---

predominantly due to the hiring of additional developers to support the increased sales and marketing efforts and the development of the wireless gaming solution. Travel, consulting and other product development costs related to the development of the wireless gaming solutions accounted for $248,000 in this category in the first nine months of 2006, as compared to $34,000 in the previous year.

Selling and marketing expenses

Sales and marketing expenses for the nine months ended September 30, 2006 were $2,690,000 compared to $1,960,000 for 2005, an increase of $733,000 or 37%. The increased expenses are attributable to the significant effort undertaken in 2006 to raise awareness of the SWP and related products in the two large vertical markets, (a) gaming and entertainment and (b) financial services and enterprise software, which we believe hold the greatest opportunities. Personnel expenses increased to $1,921,000 in the nine months ended September 30, 2006 compared to $1,228,000 in the similar period in the previous year when incremental hiring efforts did not start to increase significantly until the middle of the third quarter. Our travel and entertainment expenses related to sales and marketing increased to $353,000 in 2006, from $338,000 in 2005. We decreased our marketing and advertising costs to $120,000 in 2006 from $225,000 in 2005, which was primarily reflected in the reduction in marketing efforts in the third quarter of 2006. Marketing costs included participation in trade shows, attendance at conferences as well as investor and public relations expenses in both 2006 and 2005.

Other income and expense

The other expense amount of $117,000 in 2006 consists of other expense of approximately $598,000 related to the previously described write-off of purchased technology partially offset by $468,000 of other income relating to the revaluation of warrants carried as a liability on the balance sheet in accordance with EITF 00-19. There is also other income of $12,000 relating to the adjustment of the tax credits receivable balance in association with the filing of the 2004 tax returns. The 2005 amount relates to the revaluation of the aforementioned warrants in the third quarter of that year.

Interest income

The interest income balance of $107,000 in the nine months ended September 30, 2006 is derived from investing unused cash balances in short-term liquid investments versus interest income of $52,000 in the comparable period of 2005. Average cash balances for the third quarter were higher in 2006 than in 2005, resulting in a higher level of interest income.

Interest expense

Interest expense in both 2006 and 2005 relates primarily to bank charges and wire fees.

Foreign currency translation adjustment

The fact that there was a $191,000 loss in the nine months ending September 30, 2006 reflects the weakening of the U.S. dollar relative to the Canadian dollar during the period. Prior period retained earnings on Innovations’ books are translated at historical exchange rates while the rest of the financial statement line items are translated at current period rates, causing the foreign currency translation adjustment for the current period. This compares to a loss of $33,000 for the nine months ending September 30, 2005, when the U.S. dollar also weakened against the Canadian dollar.

Liquidity and Capital Resources

At September 30, 2006, we had total cash and cash equivalents of $7.3 million held in current and short-term deposit accounts. We believe that based on our current level of spending, this cash will only be sufficient to fund our operations to September 2007. If we do not generate new revenues or if we increase our level of spending, we will be obligated to seek additional financing.

We cannot assure you that we will be able to successfully implement our plans to increase our revenue and if necessary, raise additional capital. We may not be able to obtain additional capital or

26

---

generate new revenue opportunities on a timely basis, on favorable terms, or at all. If we cannot successfully implement our plans, our liquidity, financial condition and business prospects will be materially and adversely affected and we may have to cease operations.

Because of our limited revenue and cash flow from operations, we depend on financing transactions to support our working capital and capital expenditure requirements. Through September 30, 2006, we had accumulated losses of approximately $14 million, which were financed primarily through sales of equity securities. Since our inception in November 2003 through September 30, 2006, we have raised approximately $20 million in equity financing, including the sale of 2,307,693 shares of our common stock and warrants to purchase 1,200,000 shares of our common stock to Shuffle Master for $3.0 million in January 2006. The Shuffle Master warrants have an exercise price of $2.025 per share and expire on July 12, 2007. The sale of these shares and the issuance of the warrants were in connection with a strategic alliance distribution and licensing agreement between us and Shuffle Master.

In addition, on July 7, 2006, we closed a private placement to accredited investors whereby we sold 16,943,323 shares of common stock and warrants to purchase 8,471,657 shares of common stock at an exercise price of $0.83 per share, subject to downward adjustment if the Company does not meet specified annual revenue targets, for gross proceeds of approximately $9.3 million after payment of commissions and expenses.

At September 30, 2006, we had total cash and cash equivalents of $7.3 million held in current and short-term deposit accounts. In addition, to raising additional capital in July 2006, we have also made significant reductions in our work force and continually review other operating expenses such as telecommunications and rent. At the same time, we continue to aggressively market our products and services, particularly to existing and former customers.

Our working capital at September 30, 2006 was $6.5 million compared to our working capital of $3.4 million at September 30, 2005. Our current ratio at September 30, 2006 was 6.3 to 1 compared to our current ratio of 4.9 to 1 at September 30, 2005. The current ratio is derived by dividing current assets by current liabilities and is a measure used by lending sources to assess our ability to repay short-term liabilities.

Overall, for the nine months ended September 30, 2006, we had a net cash increase of $6.0 million attributable primarily to net cash provided by investing and financing activities of $12.0 million offset by net cash used in operating activities of $5.7 million. The primary components of our operating cash flows are net loss adjusted for non-cash expenses, such as depreciation and amortization, and the changes in accounts receivable, and accounts payable. The largest components of cash flow provided by financing activities were the proceeds from the Shuffle Master option exercise with accompanying warrants, which generated $3 million in gross proceeds, and the July 2006 private placement, which generated approximately $9.3 million in net proceeds after commissions and expenses.

There were capital expenditures of $31,000 for the nine months ended September 30, 2006. Approximately $94,000 of property, plant and equipment was converted to operating leases in the nine months ending September 30, 2006.

At September 30, 2006, we had no indebtedness.

Commitment and Contingencies

At September 30, 2006, we had commitments relating to office leases in Boulder, Colorado in the United States and Toronto, Ontario in Canada, as well as office equipment leases. The current Toronto office lease expires in April 2007. In New York, we had an office lease which ran to December 2007; however we were released from our lease obligation at the end of September 2006. We are currently looking for replacement office space in New York and are leasing temporary space on a month to month basis. Office lease payments, including additional variable operating expense charges, for the third quarters of 2006 and 2005 were approximately $149,000 and $140,000, respectively. Office equipment lease expenses for the third quarters of 2006 and 2005 were approximately $17,000 and $2,000, respectively.

27

---

Future lease commitments by year are as follows (2006 amounts are for nine months):

			Future Lease Commitments by Year (US$)
			2006						2007						2008						2009						2010
Office Space Leases:
United States (Boulder, CO)				$	15,667					$	64,454					$	67,938					$	74,732					$	62,059
Canada					21,265						28,353						—						—						—
Total Office Space					36,932						92,807						67,938						74,732						62,059
Office Equipment					35,252						141,008						140,657						60,577						615
Total Lease Commitments				$	72,184					$	233,815					$	208,595					$	135,309					$	62,674

On September 1, 2006, the Company entered into a Private Label Partner Agreement (the ‘‘Agreement’’) with Symbol Technologies, Inc. (‘‘Symbol’’) pursuant to which the Company has the exclusive right to purchase certain private label wireless solution products from Symbol to support the Company’s development of a secure wireless handheld gaming system. In connection therewith, Symbol will provide sales and technical education and certification training to the Company. The Agreement requires that the Company purchase a specified minimum number of units over the three-year term of the Agreement. In the event such minimum purchase requirement is not met, Symbol has the right to adjust the unit purchase price to a level commensurate with the Company’s volume and the private label exclusivity under the Agreement will be void. The Company believes that in the event of either the loss of private label exclusivity or the renegotiation of the unit purchase price, its financial statements would not be materially impacted.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements (as defined in Item 303 of Regulation S-B).

Item 3.    Controls And Procedures

Evaluation of Disclosure Controls and Procedures.    The Company's management, with the participation of the chief executive officer and the chief financial officer, carried out an evaluation of the effectiveness of the Company's ‘‘disclosure controls and procedures’’ (as defined in the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’) Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this quarterly report (the ‘‘Evaluation Date’’). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that the Company's disclosure controls and procedures were effective, as of the Evaluation Date to ensure that (i) information required to be disclosed in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time limits specified in the Commission's rules and forms, and (ii) information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's chief executive officer and the chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.    There were no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

28

---

PART II
OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

Small Business Issuer Purchases of Equity Securities

Period			Total Number of Shares Purchased						Average Price Paid per Share						Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs						Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 – July 31, 2006					650,000	(1)				$	0.46						0						0
August 1 – August 31, 2006					0					$	0						0						0
September 1 – September 30, 2006					0					$	0						0						0
Total					650,000					$	0.46						0						0

(1)	On July 7, 2006, the Company repurchased shares of common stock from its former chief executive officer, John Bush.

Item 4.    Submission of Matters to a Vote of Security Holders.

We held our annual meeting of stockholders on September 29, 2006. At the meeting, the following actions were taken:

	•	Our stockholders elected the four nominees, namely Shawn Kreloff, Paul C. Meyer, Michael Fields and M. Jeffrey Branman to the Board of Directors to serve until the annual meeting of stockholders in 2007 and until each director's successor is elected and qualified. The number of votes cast for management’s nominees and the number of votes cast against or withheld are listed in the table directly below. There were no abstentions and broker non-votes.

Name			For						Withheld
Shawn Kreloff					36,892,867						257,517
Paul C. Meyer					36,893,067						257,517
Michael Fields					36,913,067						237,517
M. Jeffrey Branman					36,913,067						237,517

	•	Our stockholders approved the 2006 Stock Incentive Plan. The number of votes cast for this proposition was 20,184,801, the number of votes cast against was 4,838,884 and the number of abstentions and broker non-votes was 12,126,899.

	•	Our stockholders approved the appointment of Horwath Orenstein LLP (‘‘Horwath’’) as the Company’s auditors for 2006. The number of votes cast for this proposition was 36,954,295 and the number of votes cast against was 180,258. There were no abstentions or broker non-votes for this matter.

Item 6.    Exhibits.

Exhibits:

Exhibit No.       Description

	10.1	Compensation Plan for Directors, as amended

	10.2	Employment Agreement, dated as of August 28, 2006 between the Company and Shawn Kreloff

	10.3	Private Label Partner Agreement, dated as of September 1, 2006 between the Company and Symbol Technologies, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s current report on form 8-K/A, filed November 1, 2006)

	10.4	2006 Incentive Plan (incorporated by reference to Appendix A of the Company’s definitive Proxy Statement, filed August 30, 2006)

29

---

	10.5	Form of Incentive Stock Option Award Agreement

	10.6	Form of Nonqualified Stock Option Award Agreement

	10.7	Form of Nonqualified Stock Option Award Agreement for Directors

	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

30

---

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			Sona Mobile Holdings Corp. (Registrant)
Date: November 14, 2006			/s/ Shawn Kreloff Chief Executive Officer
Date: November 14, 2006			/s/ Stephen Fellows Chief Financial Officer (Principal Financial Officer)

31

---