10-Q 1 numobile_10q-063011.htm FORM 10-Q numobile_10q-063011.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

 
x  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 
 
For the quarterly period ended June 30, 2011
  

 
o  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
  
 
 
For the transition period from                  to                 
  
     
Commission File Number: 000-30949
NUMOBILE, INC.
2520 South Third Street, Suite 206
Louisville, Kentucky 40208
(502) 636-2807
Incorporated in Nevada
I.R.S. Employer
Identification No. 61-1342734

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 x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files.  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
   
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company x
(Do not check if a smaller reporting company)  
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No o
  
As of August 2, 2011 there were 4,987,033,932 shares of common stock outstanding.
 
 
 
 
  
NUMOBILE, INC.
 
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2011
 
TABLE OF CONTENTS

 
  Page
       
PART I.  FINANCIAL INFORMATION 3
       
  Item 1. Financial Statements 3
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
  Item 4. Controls and Procedures 26
       
PART II.  OTHER INFORMATION 26
       
  Item 1. Legal Proceedings 26
  Item 1A. Risk Factors 26
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
  Item 3. Defaults Upon Senior Securities 27
  Item 4. [Removed and Reserved.] 27
  Item 5. Other Information 27
  Item 6. Exhibits 27
       
SIGNATURES 28
   
 
2
 
 
PART I.  FINANCIAL INFORMATION
   
Item 1.  Financial Statements
   
NUMOBILE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2011 AND DECEMBER 31, 2010
  
   
June 30,
2011
    
December 31,
2010
  
   
(Unaudited)
        
ASSETS
            
CURRENT ASSETS
            
Cash and cash equivalents
   $ 63,760     $ 24,400  
Accounts receivable
     6,986       6,986  
Prepaid expenses
     840       840  
                 
TOTAL CURRENT ASSETS
     71,586     $ 32,226  
                 
PROPERTY AND EQUIPMENT, net
     12,282       16,492  
INTANGIBLE ASSETS, net
     3,177,665       3,722,315  
DEPOSIT
     50,000       50,000  
                 
TOTAL ASSETS
   $ 3,311,533     $ 3,821,033  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
                
                 
CURRENT LIABILITIES
                
Accounts payable and accrued expenses
   $ 1,288,068     $ 943,678  
Due to related party
     220,734       185,294  
Advances payable
     50,000       50,000  
Advances payable, related party
     41,831       41,831  
Convertible debt, net of discounts of $0 and $0, related party
     100,000       100,000  
Convertible debt, net of discounts of $137,343 and $48,066, respectively
     1,491,434       1,718,150  
Notes payable - related parties
     518,388       521,019  
Notes payable
     2,025,640       2,382,349  
Dividends payable
     726,287       667,817  
Accrued derivative liability
     1,736,540       1,860,481  
Preferred stock; Series A; $0.001 par value; 5,000 shares authorized;
0 and 0 shares issued and outstanding
     -       -  
Preferred stock; Series D convertible; $0.001 par value; 25,000 shares authorized;
6,118 and 6,118 shares issued and outstanding
     611,800       611,800  
Preferred stock; Series E convertible; $0.001 par value; 25,000 shares authorized;
2,418 and 2,418 shares issued and outstanding
     241,800       241,800  
                 
TOTAL CURRENT LIABILITIES
     9,052,522       9,324,219  
                 
                 
COMMITMENTS AND CONTINGENCIES
     -       -  
                 
STOCKHOLDERS' DEFICIT
                
Preferred stock; Series A; $0.001 par value; 5,000 shares authorized;
2,656 and 2,656 shares issued and outstanding
     3       3  
Preferred stock; Series B; $0.001 par value; 100,000 shares authorized;
0 and 0 shares issued and outstanding
     -       -  
Preferred stock; Series C; $0.001 par value; 12,000,000 shares authorized;
5,000 and 5,000 shares issued and outstanding
     5       5  
Common stock; $0.001 par value; 5,000,000,000 shares authorized;
4,987,033,932 and 210,796,359 shares issued and outstanding
     4,987,034       210,796  
Additional paid-in capital
     2,860,302       6,630,692  
Accumulated deficit
     (13,588,333 )     (12,344,682 )
                 
TOTAL STOCKHOLDERS' DEFICIT
     (5,740,989 )     (5,503,186 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
   $ 3,311,533     $ 3,821,033  
 
The accompanying notes are an integral part of these consolidated financial statements.
   
 
3
 
   
NUMOBILE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Unaudited)
    
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2011
    
2010
    
2011
    
2010
  
                         
REVENUES
   $ 61,850     $ 185,104     $ 118,243     $ 273,944  
                                 
COST OF REVENUE
     -       128,451       -       179,305  
                                 
GROSS PROFIT
     61,850       56,653       118,243       94,639  
                                 
OPERATING EXPENSES
                                
General and adminstative
     226,493       409,751       383,302       688,175  
Depreciation and amortization
     274,430       273,487       548,860       546,964  
                                 
TOTAL OPERATING EXPENSES
     500,923       683,238       932,162       1,235,139  
                                 
LOSS FROM OPERATIONS
     (439,073 )     (626,585 )     (813,919 )     (1,140,500 )
                                 
OTHER INCOME (EXPENSE)
                                
Interest expense
     (210,159 )     (400,781 )     (335,524 )     (634,332 )
Change in accrued derivative liability
     170,107       926       372,569       165,239  
Gain (loss) on conversion of debt to equity
     44,675       200,808       (408,307 )     (438,095 )
Gain on forgiveness of debt
     -       22,249       -       22,249  
                                 
TOTAL OTHER INCOME (EXPENSE)
     4,623       (176,798 )     (371,262 )     (884,939 )
                                 
LOSS BEFORE PROVISION FOR INCOME TAXES
     (434,450 )     (803,383 )     (1,185,181 )     (2,025,439 )
                                 
PROVISION FOR INCOME TAXES
     -       -       -       -  
                                 
NET LOSS
     (434,450 )     (803,383 )     (1,185,181 )     (2,025,439 )
                                 
PREFERRED STOCK DIVIDENDS
     (29,235 )     (54,983 )     (58,470 )     (105,902 )
                                 
NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS
   $ (463,685 )   $ (858,366 )   $ (1,243,651 )   $ (2,131,341 )
                                 
NET LOSS PER SHARE ATTRIBUTED TO COMMON STOCKHOLDERS -
BASIC AND DILUTED:
   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC AND DILUTED
     4,951,954,992       338,461,596       3,337,197,294       442,867,768  
     
The accompanying notes are an integral part of these consolidated financial statements.
   
 
4
 
 
NUMOBILE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2011
(unaudited)
  
   
Series A
    
Series C
    
Common Stock
    
Additional
Paid-in
    
Accumulated
    
Total
Stockholders'
  
   
Shares
    
Amount
    
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Deficit
    
Deficit
  
                                                       
Balance, December 31, 2010
     2,656     $ 3       5,000     $ 5       210,796,359     $ 210,796       6,630,692     $ (12,344,682 )   $ (5,503,186 )
                                                                         
Accrued preferred stock dividends
                                                             (58,470 )     (58,470 )
Conversion of debt to equity
                                     4,776,237,573       4,776,238       (3,770,390 )             1,005,848  
Net loss
                                                             (1,185,181 )     (1,185,181 )
                                                                         
Balance, June 30, 2011
     2,656     $ 3       5,000     $ 5       4,987,033,932     $ 4,987,034     $ 2,860,302     $ (13,588,333 )   $ (5,740,989 )
   
The accompanying notes are an integral part of these consolidated financial statements.
   
 
5
 
 
NUMOBILE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(unaudited)
      
   
2011
    
2010
  
             
CASH FLOW FROM OPERATING ACTIVITIES:
            
Net loss
   $ (1,185,181 )   $ (2,025,439 )
Adjustment to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization
     548,860       546,967  
Amortization of debt discount
     159,351       404,070  
Bad debt expense
     -       1,226  
Change in accrued derivative liability
     (372,569 )     (165,239 )
Non-cash financing charge
     -       20,243  
Loss on convertion of debt to equity
     408,307       438,095  
Gain on forgiveness of debt
     -       (22,249 )
Changes in operating assets and liabilities:
                
Accounts receivable
     -       113,805  
Prepaid expenses
     -       (66 )
Accounts payable and accrued expenses
     351,783       370,136  
Due to related party
     35,440       48,469  
                 
Net cash used in operating activities
     (54,009 )     (269,982 )
                 
CASH FLOW FROM INVESTING ACTIVITIES:
                
Advances towards loans receivable
     -       (6,000 )
                 
Net cash used in investing activities
     -       (6,000 )
                 
CASH FLOW FROM FINANCING ACTIVITIES:
                
Proceeds from notes payable
     100,000       450,000  
Payments on notes payable
     (6,631 )     (159,498 )
                 
Net cash provided by financing activities
     93,369       290,502  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
     39,360       14,520  
                 
CASH AND CASH EQUIVALENTS, Beginning of period
     24,400       177,436  
                 
CASH AND CASH EQUIVALENTS, End of period
   $ 63,760     $ 191,956  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
                
                 
Interest paid
   $ -     $ -  
Income taxes paid
   $ -     $ -  
                 
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
          
                 
Conversion of debentures/notes payable to common stock
   $ 590,140     $ 788,902  
Conversion of Series A, D & E preferred stock and dividends to common stock
   $ -     $ 180,125  
Cancellation of dividends in arrears of Series A preferred stock
     -       353,592  
Conversion of accrued payroll liability into promissory note
   $ -     $ 523,844  
Conversion of note payable to Series D & E preferred stock
   $ -     $ 500,000  
   
The accompanying notes are an integral part of these financial statements.
   
 
6
 

NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
    
Organization and Basis of Presentation
   
NuMobile, Inc. (the “Company”) was organized under the laws of Nevada on March 25, 1999 as Thoroughbred Interests, Inc.  Effective May 18, 2004, the Company changed its name to Phoenix Interests, Inc. and effective July 14, 2009 changed its name to NuMobile,Inc.  The Company’s prior business operations consisted of purchasing, training and selling of thoroughbred horses.  In July 2009, the Company launched a new business strategy to create a comprehensive and global mobile computing technology business.  In November 2010, the Company acquired a Kenyan shell entity in order to pursue business opportunities in Kenya. The entity has had no assets, liabilities or operations from the inception of the acquisition.
   
The unaudited consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America were omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  The results for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.
  
Going Concern
   
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.  The Company has incurred a net loss of $1,185,181, has an accumulated deficit of $13,588,333 as of June 30, 2011 and has a working capital deficit of $8,980,936 as of June 30, 2011.  These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management is looking to raise at least $1,500,000 of additional funds over the next twelve months through equity and debt financing. There is no assurance such funds will be available on terms acceptable to the Company, or at all.
   
Stock Splits
   
On January 7, 2004, the Company effected a one-for-ten (1 for 10) reverse split of its common stock.  On January 20, 2006, the Company effected a one-for-fifty (1 for 50) reverse splits of its common stock.  On June 1, 2009, the Company effected a one-for-one hundred sixty (1 for 160) reverse stock split of its common stock.  On September 3, 2010, the Company effected a one-for-fifty (1 for 50) reverse stock split of its common stock.  All share information for common shares has been retroactively restated for these four reverse stock splits.
       
 
7
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
Consolidated Financial Statements
   
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Online Enterprises, Inc., Enhance Network Communication, Inc., and Stonewall Networks, Inc. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All inter-company accounts and transactions have been eliminated.
   
Use of Estimates
   
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.  As of June 30, 2011, the Company used estimates in determining accrued expenses, the value of stock based compensation issued for services and the value of the accrued derivative liability. Actual results could differ from these estimates.
   
Fair Value of Financial Instruments
   
For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and notes payable, the carrying amounts approximate their fair values due to their short maturities.
   
Fair Value Measurements
   
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.  The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
   
● Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
   
● Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
   
● Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
        
 
8
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
  
The following table represents our assets and liabilities by level measured at fair value on a recurring basis at June 302011:
   
Description
  
Level 1
    
Level 2
    
Level 3
  
                   
Liabilities
                  
                   
Accrued derivative liabilities
           $ 1,736,540          
  
Cash and Cash Equivalents
 
For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with a maturity of three months or less, plus all certificates of deposit.
  
Accounts Receivable
  
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
  
Concentration of Credit Risk
  
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and accounts receivables. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company extends credit based on an evaluation of the customer’s financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.
   
 
9
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
Property and Equipment
 
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
      
Computer equipment
5 years
   
Office furniture and fixtures
7 years
   
Office equipment
5 years
    
The following are the details of property and equipment:
      
   
June 30,
2011
    
December 31,
2010
  
   
(unaudited)
        
             
Computer equipment
   $ 17,485     $ 17,485  
Office furniture and fixtures
     705       705  
Office equipment
     7,625       7,625  
      25,815       25,815  
Less accumulated depreciation
     (13,533 )     (9,323 )
Fixed assets, net
   $ 12,282     $ 16,492  
     
Intangible Assets
 
Intangible assets consist of purchased technology in connection with the acquisition of Enhance Network Communication, Inc. and Stonewall Networks, Inc.  The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets is measured by comparing its net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.
 
The following are the details of intangible assets:
     
   
June 30,
2011
    
December 31,
2010
  
   
(unaudited)
        
             
Software
   $ 485,078     $ 485,078  
Purchased technology
     4,638,049       4,638,049  
      5,123,127       5,123,127  
Less accumulated amortization
     (1,945,462 )     (1,400,812 )
Fixed assets, net
   $ 3,177,665     $ 3,722,315  
  
 
10
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
Impairment of Long-Lived Assets
   
The Company applies the provisions of ASC Topic 360, “Property, Plant, and Equipment,” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review, the Company believes that as of June 30, 2011 and December 31, 2010, there was no significant impairment of its long-lived assets.
   
Accrued Derivative Liability
   
The Company’s convertible debt and the Series A, D and E preferred stock can be converted into common stock at a conversion price that is a percentage of the market price; therefore the number of shares that could be required to be delivered upon “net-share settlement” is essentially indeterminate. The Company has bifurcated the beneficial conversion features embedded in its convertible debentures and preferred stock and has recorded the fair value of these beneficial conversion features as a current liability.
   
Convertible Preferred Stock and Convertible Note
   
The Company’s Series A, D and E preferred stock and convertible debt are presented as liabilities since the Company has financial instruments that are convertible into common stock at a conversion price that is a percentage of the market price; therefore the number of shares that could be required to be delivered upon “net-share settlement” is essentially indeterminate and the Company does not have enough authorized shares to satisfy the conversion of its convertible preferred stock.
   
Revenue Recognition
   
The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (SAB) 104. Revenue is recognized when services are rendered to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
  
Income Taxes
   
The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
   
 
11
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s consolidated financial statements.
  
Loss Per Share
    
The Company reports loss per share in accordance with ASC Topic 260, “Earnings Per Share.”  Basic earnings per share is based upon the weighted average number of common shares outstanding.  Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.  The following potential common shares have been excluded from the computation of diluted net loss per share for the six months ended June 30, 2011 and 2010 because the effect would have been anti-dilutive:
      
   
2011
    
2010
  
             
Common stock issuable (approximate) upon conversion of convertible debt
     22,246,009,667       1,612,579,738  
                 
Common stock issuable (approximate) upon conversion of convertible stock
     3,557,450,853       3,702,255,048  
   
Comprehensive Loss
   
For the three and six months ended June 30, 2011 and 2010, the Company did not have items that represented other comprehensive income and, accordingly, a statement of comprehensive loss has not been included herein.
   
Reclassification
   
Certain reclassifications have been made to the 2010 balances to conform to the 2011 presentation. These reclassifications had no effect on the recorded net income or net loss.
   
Recently Issued Accounting Pronouncements
  
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2010-06, Improving Disclosures about Fair Value Measurements (“ASU No. 2010-06”). The new standard addresses, among other things, guidance regarding activity in Level 3 fair value measurements. Portions of ASU No. 2010-06 that relate to the Level 3 activity disclosures are effective for the annual reporting period beginning after December 15, 2010. The Company will provide the required disclosures beginning with the Company’s Annual Report on Form 10-K for the year ending December 31, 2011. Based on the initial evaluation, the Company does not anticipate a material impact to the Company’s financial position, results of operations or cash flows as a result of this change.
    
 
12
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 2 – RELATED PARTY TRANSACTIONS
  
The Company has a number of notes payable outstanding to related parties. See Note 5.
  
NOTE 3 – CONVERTIBLE DEBT
  
Convertible debt, inclusive of the related party amount, consisted of the following at June 30, 2011 and December 31, 2010:
   
Date of Convertible Debt Issuance
  
June 30,
2011
    
December 31,
2010
  
             
October 9, 2009
     100,000       100,000  
                 
February 18, 2010
     -       50,000  
                 
May 20, 2010
     -       60,000  
                 
March 23, 2011
     50,000       -  
                 
March 23, 2011
     60,000       -  
                 
September 28, 2010
     100,000       100,000  
                 
March 28, 2011
     100,000       -  
                 
March 3, 2010
     272,440       272,440  
                 
May 27, 2010
     47,185       237,605  
                 
December 2, 2010
     497,000       744,019  
                 
February 15, 2011
     200,000       -  
                 
October 2, 2010
     169,000       169,000  
                 
October 2, 2010
     133,152       133,152  
                 
Subtotal
     1,728,777       1,866,216  
                 
Less: Debt discount
     (137,343 )     (48,066 )
                 
Total
     1,591,434       1,818,150  
     
 
13
 

NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
The underlying terms of the convertible debt above have been included as follows:
   
On October 9, 2009, in consideration for compensation earned, the Company issued two unsecured notes payable to Jim Tilton, the Company’s President and Chief Executive Officer in the amount of $50,000 each, for a total principal amount of $100,000. The notes bear interest at 8% per annum and are due upon demand.  Principal and accrued and unpaid interest on the notes are convertible at the option of the holder at 50% of the closing price of the Company’s common stock on the date of conversion. The notes have been classified as convertible debt, related party in the accompanying balance sheets. The balance of the conversion option liability associated with these notes was $100,000 at June 30, 2011 and December 31, 2010. On June 30, 2011 and December 31, 2010, the notes were convertible into a total of 2,000,000,000 and 285,714,286 shares of common stock, respectively.
   
On February 18, 2010, the Company entered into a convertible debenture for cash proceeds of $50,000. The debenture initially matured on August 18, 2010 and bears interest at 8% per annum. In October 2010, the note’s maturity was extended to March 31, 2011. On March 23, 2011, the party who held the debenture assigned the debenture to a party unaffiliated with the Company, and the assignee renegotiated the terms of the note. The new note is due December 31, 2011 and bears interest at 8% per annum.  The holder is entitled, at its option, to convert any or all of the outstanding principal plus accrued and unpaid interest at any time into shares of the Company’s common stock, at a price per share equal to 50% of the lowest closing bid price for the preceding 10 days prior to the Company receiving notice of conversion. On March 23, 2011 and June 30, 2011, the debenture was convertible into 545,000,000 and 555,000,000 shares of the Company’s common stock, respectively.
   
On May 20, 2010, the Company entered into a second convertible debenture with the same original holder, for cash proceeds of $60,000. This debenture matured November 20, 2010 and was issued on the same terms as the first convertible debenture.  On March 23, 2011, the party who held the debenture assigned the debenture to a party unaffiliated with the Company, and the assignee renegotiated the terms of the note. The new note is due December 31, 2011 and bears interest at 8% per annum.  The holder is entitled, at its option, to convert any or all of the outstanding principal plus accrued and unpaid interest at any time into shares of the Company’s common stock, at a price per share equal to 50% of the lowest closing bid price for the preceding 10 days prior to the Company receiving notice of conversion. On March 23, 2011 and June 30, 2011, the debenture was convertible into 642,000,000 and 654,000,000 shares of the Company’s common stock, respectively.
   
On September 28, 2010, the Company entered into a third convertible debenture with the same original holder, with a principal amount and cash proceeds of $100,000. On March 23, 2011, the party who held the debenture assigned the debenture to a party unaffiliated with the Company, and the assignee renegotiated the terms of the note. The new note is currently due and bears interest at 8% per annum. The Company anticipates extending the maturity date to December 31, 2011.  The holder is entitled, at its option, to convert any or all of the outstanding principal plus accrued and unpaid interest at any time into shares of the Company’s common stock, at a price per share equal to 50% of the lowest closing bid price for the preceding 10 days prior to the Company receiving notice of conversion. On March 23, 2011 and June 30, 2011, the debenture was convertible into 1,040,000,000 and 1.060,000,000 shares of the Company’s common stock, respectively. The Company has complied with the provisions of ASC 815 “Derivatives and Hedging”, and recorded the fair value of the embedded conversion option liability associated with the debentures.
      
 
14
 
  
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
The initial fair values of the conversion option features were estimated at $54,623 on March 23, 2011, $64,345 on March 23, 2011 and $104,254 on March 23, 2011 using the Black-Scholes pricing model. The assumptions used in the Black-Scholes option pricing model at the issuance dates of the debentures are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 0.30%, and (4) expected life of 0.75 years.
     
On March 28, 2011 the Company entered into a convertible debenture for cash proceeds of $100,000. The debenture initially matures on September 28, 2011 and bears interest at 8% per annum. The holder is entitled, at its option, to convert any or all of the outstanding principal plus accrued and unpaid interest at any time into shares of the Company’s common stock, at a price per share equal to 50% of the lowest closing bid price for the preceding 10 days prior to the Company receiving notice of conversion. On March 28, 2011 and June 30, 2011, the debenture was convertible into 916,666,667 and 851,683,333 shares of the Company’s common stock, respectively. The Company has complied with the provisions of ASC 815 “Derivatives and Hedging”, and recorded the fair value of the embedded conversion option liability associated with the debenture. The initial fair value of the conversion option feature was estimated at $73,433 on March 28, 2011 using the Black-Scholes pricing model. The assumptions used in the Black-Scholes option pricing model at the issuance dates of the debentures are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 0.18%, and (4) expected life of 0.50 years.
 
On March 3, 2010, the Company entered into a convertible debenture for cash proceeds of $90,000, which is in addition to a convertible debenture outstanding with the same holder in the amount of $182,440. The entire $272,440 debenture matures on December 31, 2011 and bears interest at 8% per annum. The holder is entitled, at its option, to convert any or all of the outstanding principal plus accrued and unpaid interest at any time into shares of the Company’s common stock, at a price per share equal to 50% of the closing bid price of the common stock on the date that the Company receives notice of conversion. On March 3, 2010 and June 30, 2011, the entire debenture was convertible into 1,417,457 and 6,370,560,000 shares of the Company’s common stock, respectively. The initial fair value of the conversion option feature was estimated at $287,354 using the Black-Scholes pricing model. The assumptions used in the Black-Scholes option pricing model at March 3, 2010 in connection with this debenture are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 0.19%, and (4) expected life of 0.59 years.
 
On May 27, 2010, the Company issued and sold a convertible note in the principal amount of $260,000, for a purchase price of $250,000 (reflecting an original issue discount of $10,000), to St. George Investments, LLC. Principal and unpaid interest on the note is due six months from the date of issuance. The note bears interest at the rate of 12% per annum, payable upon maturity. Outstanding principal, and accrued interest thereon is convertible into such number of shares of the Company’s common stock, as is determined by dividing (i) the sum of (A) the Outstanding Amount, plus (B) an amount equal to 1% of the Outstanding Amount multiplied by the number of whole months elapsed from May 31, 2010 until the date of conversion but in no event less than 10% of the Outstanding Amount by (ii) the Conversion Price (as defined in the note) at that time. The conversion price is defined in the note as the lesser of (a) 60% of the average of the closing bid price of the Company’s common stock on each of the five immediately preceding trading days or (b) $1.25. During the six month period ending June 30, 2011, $190,420 of the outstanding balance was converted into 993,000,000 shares of common stock. On May 27, 2010 and June 30, 2011, the note was convertible into 4,373,089 and 750,375,000 shares of the Company’s common stock, respectively. The initial fair value of the conversion option feature was estimated at $151,637 using the Black-Scholes pricing model. The assumptions used in the Black-Scholes option pricing model at May 27, 2010 in connection with this debenture are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 0.23%, and (4) expected life of 0.50 years.
   
 
15
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
On December 2, 2010, a holder of 7,500 shares of the Company’s Series D convertible preferred stock, 2,500 shares of the Company’s Series E preferred stock, and $349,600 in a note payable exchanged these instruments into a new Series 2010-A convertible promissory note due December 31, 2012 in the amount of $750,000. The new note bears interest at 8% per annum, payable semi-annually in arrears, on January 1 and July 1 of each year during the note’s term, with the first payment due and payable on January 1, 2011. The new note, plus any accrued and unpaid interest, is convertible at the holder’s option at any time, into shares of the Company’s common stock at a conversion price equal to 50% of the lowest of the closing bid prices for the common stock for the ten trading days prior to and including the conversion date. During the six month period ending June 30, 2011, $247,019 of the outstanding balance was converted into 2,217,201,460 shares of common stock.  On December 2, 2010 and June 30, 2011, the note was convertible to 652,173,913 and 5,260,120,000 shares of the Company’s common stock, respectively. The initial fair value of the conversion option feature was estimated at $1,475,920 using the Black-Scholes pricing model. The assumptions used in the Black-Scholes option pricing model at December 2, 2010 in connection with this debenture are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 0.55%, and (4) expected life of 2.00 years.
  
On February 15, 2011, the Company exchanged a note payable $200,000 and accrued interest of $38,500 into a convertible note. Principal and unpaid interest on the note is due October 15, 2011. The note bears interest at the rate of 8% per annum, payable upon maturity. The note, plus any accrued and unpaid interest, is convertible at the holder’s option at any time, into shares of the Company’s common stock at a conversion price equal to 50% of the lowest of the closing bid prices for the common stock for the five trading days prior to and including the conversion date. On February 15, 2011 and June 30, 2011, the note was convertible to 1,093,125,000 and 2,037,500,000 shares of the Company’s common stock, respectively. The assumptions used in the Black-Scholes option pricing model at February 15, 2011 in connection with this debenture are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 0.17%, and (4) expected life of 0.66 years.
   
On October 20, 2010, the employee who held a note due from the Company in the amount of $300,000 plus $27,000 in accrued interest assigned the note to a party unaffiliated with the Company, and the assignee renegotiated the terms of the note and amount due and payable from the Company. The original note was past due and the new holder waived any defaults, and the Company and the holder executed a replacement unsecured convertible promissory note with principal of $169,000. Interest on the replacement note accrues at a rate of 12% per annum; provided that upon occurrence of an event of default interest shall accrue at a rate of 18% per annum. The note is due on demand. At any time prior to payment in full of the entire outstanding principal amount of this note, plus accrued interest hereunder, fees and collection costs, the holder shall have the right, at holder’s option, to convert the outstanding amount on this note, in whole or in part, into the number of shares of common stock as is determined by dividing (i) the sum of (A) the conversion amount, plus (B) an amount equal to 1% of the conversion amount multiplied by the number of whole months elapsed from the date hereof until the date of conversion but in no event less than 10% of the conversion amount by (ii) the conversion price at that time. The conversion price means 60% of the lesser of (y) the average of the closing bid prices of the common stock on each of the five immediately preceding trading days, or (z) the closing bid price for the common stock for the trading day immediately preceding the date of conversion. On October 20, 2010 and June 30, 2011, the note was convertible to 34,812,734 and 1,513,958,333 shares of the Company’s common stock, respectively. The assumptions used in the Black-Scholes option pricing model at October 20, 2010 in connection with this replacement note are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 0.17%, and (4) expected life of 0.50 years.
   
 
16
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
On October 22, 2010, an unrelated party who held a note due from the Company in the amount of $223,844 plus $20,146 in accrued interest assigned the note to a party unaffiliated with the Company, and the assignee renegotiated the terms of the note and amount due and payable from the Company. The original note was past due and the new holder waived any defaults, and the Company and the holder executed a replacement unsecured convertible promissory note with principal of $133,152. Interest on the replacement note accrues at a rate of 12% per annum; provided that upon occurrence of an event of default interest shall accrue at a rate of 18% per annum. The note is due on demand. At any time prior to payment in full of the entire outstanding principal amount of this note, plus accrued interest hereunder, fees and collection costs, the holder shall have the right, at holder’s option, to convert the outstanding amount on this note, in whole or in part, into the number of shares of common stock as is determined by dividing (i) the sum of (A) the conversion amount, plus (B) an amount equal to 1% of the conversion amount multiplied by the number of whole months elapsed from the date hereof until the date of conversion but in no event less than 10% of the conversion amount by (ii) the conversion price at that time. The conversion price means 60% of the lesser of (y) the average of the closing bid prices of the common stock on each of the five immediately preceding trading days, or (z) the closing bid price for the common stock for the trading day immediately preceding the date of conversion. On October 22, 2010 and June 30, 2011, the note was convertible to 28,718,964 and 1,192,813,000 shares of the Company’s common stock, respectively. The assumptions used in the Black-Scholes option pricing model at October 22, 2010 in connection with this replacement note are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 0.17%, and (4) expected life of 0.50 years.
  
The fair value of the conversion option feature associated with the Company’s outstanding convertible debentures at June 30, 2011 and December 31, 2010 was $1,736,541 and $1,860,481, respectively. The Company recorded a change of $170,107 and $372,569  in its accompanying statements of operations for the three and six months ended June 30, 2011, respectively as change in accrued derivative liability, and $100,926 and $265,239 for the three and six months ended June 30, 2010, respectively. The assumptions used in the Black-Scholes option pricing model at June 30, 2011 in connection with the Company’s outstanding convertible debentures are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 0.00% - 1.76%, and (4) expected life of 0.00 - 5 years. Interest expense on the Company’s debt for the three and six months ended June 30, 2011 was $85,503 and $176,180, respectively. Interest expense on the Company’s debt for the three and six months ended June 30, 2010 was $57,283 and $119,369, respectively. Interest expense arising from amortization of debt discounts amounted to $ 124,663 and $159,344 during the three and six months ended June 30, 2011, respectively. Interest expense arising from amortization of debt discounts amounted to $ 128,802 and $404,070 during the three and six months ended June 30, 2010, respectively.
 
NOTE 4 – NOTE PAYABLE
  
Notes payable consisted of the following at June 30, 2011 and December 31, 2010:
   
   
June 30,
2011
    
December 31,
2010
  
Note payable to investor; interest accrues at 12%; note is unsecured and due upon demand
   $ 43,400     $ 108,400  
Note payable to investor; interest accrues at 18%; note is unsecured and due upon demand
     110,000       10,000  
Note payable assumed in connection with purchase of Enhance Network Communication, Inc.
     87,166       178,875  
Note payable to shareholders of Stonewall Networks, Inc.; note is due on December 31, 2011
     1,350,000       1,350,000  
Note payable to investor; note is unsecured; interest accrues at 8% and due upon demand
     100,000       100,000  
Note payable to investor; note is unsecured; interest accrues at 8% and due upon demand
     25,016       25,016  
Note payable to investor; note is unsecured; interest accrues at 8% and due October 15, 2011.
     410,058       610,058  
                 
    $ 2,125,640     $ 2,382,349  
     
 
17
 

NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 5 – NOTE PAYABLE – RELATED PARTIES
  
Notes payable – related parties consisted of the follows at June 30, 2011 and December 31, 2010:
   
   
June 30,
2011
    
December 31,
2010
  
Loan payable to company wholly owned by officer of Stonewall Networks, Inc.; interest accrued at Prime Rate plus 1%; note is unsecured and due upon demand
   $ 400,178     $ 400,178  
Note payable to employee of Stonewall Networks, Inc.; does not accrue interest; note is unsecured and due on demand
     102,026       102,026  
Note payable to company wholly owned by officer of Stonewall Networks, Inc.; does not accrue interest; note is unsecured and due on demand
     16,184       18,815  
                 
    $ 518,388     $ 521,019  
   
NOTE 6 – STOCKHOLDERS’ DEFICIT
   
On January 2, 2004, the Company filed a Certificate of Amendment to its Articles of Incorporation for the State of Nevada to amend its capitalization. The amendment grants the Company the authority to issue 1 billion shares of par value $0.001 stock consisting of 20,000,000 preferred shares and 980,000,000 common shares.
   
On November 9, 2005, the Company filed a Certificate of Amendment with the Nevada Secretary of State increasing the number of authorized common shares to 5,000,000,000.
  
On January 7, 2004, the Company effected a one-for-ten reverse split of its common stock. On January 20, 2006, the Company effected a one-for-fifty reverse split of its common stock. On June 1, 2009, the Company effected a one-for-one hundred sixty (160) reverse split of its common stock. On September 3, 2010, the Company effected a one-for-fifty (1 for 50) reverse split of its common stock. All share information for common shares has been retroactively restated for these four reverse stock splits.
   
Common Stock
   
The Company had the following transactions in its common stock.
   
For the six months ended June 30, 2011, the Company issued:
   
●
4,776,237,573 shares of common stock for the conversion of convertible debt and notes payable of $594,147.
    
Preferred Stock
 
The Company has debt and equity instruments that can be converted into common stock at a conversion prices that are a percentage of the market price; therefore the number of shares that could be required to be delivered upon “net-share settlement” is essentially indeterminate. Therefore, the Series A, D and E Preferred Stock which can be converted into shares of common stock are shown in the accompanying consolidated balance sheet as a current liability.
   
 
18
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Series A Preferred Stock - There are 5,000 shares of Series A preferred stock authorized. Each share of Series A preferred stock was initially entitled to receive a monthly dividend of $2.00 per share, payable quarterly in arrears, and is convertible into common stock at the rate of $100 per share ($500,000 in the aggregate) divided by the conversion price which is equal to (1) 75% of the closing bid price of the common stock (if at the option of the holder), or (2) 60% of the closing bid price of the common stock (if at the option of our company). In the event of liquidation, all shares of Series A preferred stock would automatically be converted into shares of our common stock at rate of $100 per share, with holders of shares of Series A preferred stock being entitled to receive, in the aggregate, shares of our common stock valued at $500,000. Shares of Series A preferred stock initially were to vote with shares of our common stock on an as-converted basis.
  
On May 3, 2010, the Company filed an amendment to the Company’s certificate of designation of its Class A Preferred Stock. Pursuant to the Amendment:
   
●
All accrued but unpaid dividends payable to the holders of Class A Preferred Stock were eliminated.
    
●
The right of the holders of the Class A Preferred Stock to receive future dividends was eliminated.
    
●
The holders of the Class A Preferred Stock will own 51% of the voting power of the shareholders of the Company.
       
Accordingly, the Company (a) reclassified its Series A preferred stock from liabilities to equity in the accompanying consolidated balance sheet at June 30, 2010, as the instrument now holds majority (51%) voting rights in Company decisions and thus is characterized more akin to an equity instrument, and (b) eliminated previously accrued dividends on Series A preferred stock in the amount of $353,592 during the nine months ended September 30, 2010.
   
Series B Preferred Stock - There are 100,000 shares of Series B preferred stock authorized. In the event of liquidation, each share of Series B preferred stock ranks equivalent to one share of our common stock. Shares of Series B preferred stock are not entitled to participate in dividends declared on our common stock. The Series B preferred stock votes together with our common stock on the basis of 1,000 votes per share.
   
Series C Preferred Stock - There are 12,000,000 shares of Series C preferred stock authorized. Each share of Series C preferred stock is convertible into one share of our common stock. The Series C preferred stock is non-interest bearing, does not have voting rights, and is not entitled to receive dividends. In the event of a liquidation, each share of Series C preferred stock will automatically convert into one share of our common stock and will otherwise not be entitled to any preference over shares of our common stock or any shares of our preferred stock. Shares of Series C preferred stock are entitled to name two members of our board of directors.
        
 
19
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
Series D Preferred Stock - There are 25,000 shares of Series D preferred stock authorized. Shares of Series D preferred stock are entitled to participate, on an as-converted basis, in any dividends declared on the common stock. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation, holders of Series D preferred stock shall be entitled to share pari passu with the holders of shares of common stock in the assets of the Corporation, on an as converted basis, whether such assets are capital or surplus of any nature. Any outstanding shares of Series D preferred stock may, at the option of the holder, be converted at any time or from time to time into fully paid and nonassessable shares of common stock at the conversion rate in effect at the time of conversion, determined as provided herein, except that (1) a holder of shares of Series D preferred stock may at any given time convert only up to that number of shares of Series D preferred stock as would result in the aggregate beneficial ownership of the Company’s common stock (calculated in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of that holder and all persons affiliated with that holder not being more than 4.99% of the Company’s common stock then outstanding and (2) a holder of shares of Series D preferred stock may not convert more than half of that holder’s shares of Series D preferred stock within any 30-day period. The number of shares into which one share of Series D preferred stock is convertible will be determined by dividing (1) the sum of (A) Stated Value plus (B) an amount equal to 1% of the Stated Value multiplied by the number of months from the original issue date until the date of conversion (pro rated for any period of less than a month) by (2) the conversion price at that time. The conversion price is the lesser of (1) 70% of the closing bid price and (2) $0.0192 (the amount being 120% of the closing bid price on December 22, 2004).
  
Series E Preferred Stock - There are 25,000 shares of Series E preferred stock authorized. Shares of Series E preferred stock may, at the option of the holder, be converted into shares of common stock at the conversion rate in effect at the time of conversion. The number of shares into which one share of Series E preferred stock is convertible will be determined by dividing (1) the sum of (A) the “Stated Value” (equal to $100) plus (B) an amount equal to 1.5% of the Stated Value multiplied by the number of months from the date of issuance until the date of conversion (pro-rated for any period of less than a month) by (2) the lesser of (A) $0.006 and (B) the Conversion Price at that time. For these purposes, “Conversion Price” means 70% of the Closing Bid Price, and “Closing Bid Price” on a given day means the lowest closing bid price of the common stock out of the closing bid price of the common stock on each of the five immediately preceding trading days on NASDAQ or any other principal securities price quotation system or market on which prices of the common stock are reported.
   
On August 3, 2010, the Company filed amendments to the Company’s certificates of designation of its Series D and Series E Preferred Stock, respectively. Pursuant to the amendments, the number of shares of common stock issuable upon conversion of one share of Series D or Series E Preferred Stock, respectively, will be determined by dividing the stated value of $100 by the conversion price of $0.10 (subject to adjustment in the event of stock splits, combinations and stock dividends).
      
 
20
 
 
NUMOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
NOTE 7 – COMMITMENTS AND CONTINGENCIES
  
The Company’s executive and administrative office is located in Louisville, Kentucky. Rent for the premises is approximately $1,300 per month.
  
The Company’s subsidiary, Enhance Network Communication, Inc., rents 642 square feet of office space for its main corporate office in San Jose, California on a month-to-month lease.  Rent for the premises is approximately $1,200 per month.
  
The Company’s subsidiary, Stonewall Networks, Inc., rents shared office space on a month-to month arrangement for $840 per month..
  
The rent expense recorded for the three months ended June 30, 2011 and 2010 was $3,362 and $20,287, respectively. The rent expense recorded for the six months ended June 30, 2011 and 2010 was $19,644 and $23,175, respectively.
     
NOTE 8 – SUBSEQUENT EVENTS
 
The Company has evaluated all subsequent events that occurred up to the time of the Company’s issuance of financial statements and has indentified no items of significance.
   
 
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and the information incorporated by reference may include “forward-looking statements” All statements regarding our expected financial position and operating results, our business strategy, our financing plans and the outcome of any contingencies are forward-looking statements. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements.
 
The following discussion should be read in conjunction with NuMobile’s financial statements and the related notes included in this Form 10-Q included elsewhere in this Quarterly Report.
 
Overview
 
We were organized under the laws of Nevada on March 25, 1999 as Thoroughbred Interests, Inc. Effective May 18, 2004, we changed our name to Phoenix Interests, Inc. and effective July 14, 2009 we changed our name to NuMobile, Inc. In connection with this latter name change, our stock ticker symbol on the Over-the-Counter Bulletin Board was changed from “PXIT” to “NUBL.” Our prior business operations consisted of purchasing, training and selling of thoroughbred horses. In July 2009, we launched a new business strategy to create a comprehensive and global mobile computing technology business.
 
On September 17, 2009, we acquired 100% of the outstanding capital stock of Enhance Network Communication, Inc. (“Enhance” or “Enhance Network Communication”).  Enhance is an information technology company headquartered in Cupertino, California, that has developed a proprietary large enterprise network security technology designed for managing the information management requirements of network delivered government services.
 
On October 12, 2009, we acquired 100% of the outstanding capital stock of Stonewall Networks, Inc., a Delaware corporation (“Stonewall” or “Stonewall Networks”). Stonewall is a development stage information technology security product company headquartered in Cary, North Carolina.
 
In November 2010, we acquired a Kenyan shell entity in order to pursue business opportunities in Kenya. The entity has had no assets, liabilities or operations from the inception of the acquisition.
 
In May 2011, we entered into a non-binding letter of intent with China Crescent Enterprises, Inc., which contemplates that we will acquire a subsidiary operation of China Crescent Enterprises, Inc., located in Shenzen, China.  The subsidiary provides original design and manufacturing services primarily within the mobile communications market sector. There is no assurance a definitive agreement will be reached.
Our business address is 2520 South Third Street, Suite 206, Louisville, Kentucky 40208, and our telephone number is (502) 636-2807.
NuMobile, Inc
  
NuMobile currently conducts its operations through its subsidiaries Enhance and Stonewall. NuMobile’s plan and focus is to strategically acquire corporations that focus on four major vertical markets. The first of these markets is applications providing for smart phones and mobile computing trending to cloud network support and scaling. The second is infrastructure, architect design and management for wireless and land based networking. The third is the creation of mobile framework and applications for healthcare services and products. The fourth and last is providing infrastructure and support to the hospitality and gaming sectors with emphasis on mobile monitoring of fleet management, infrastructure security and communication for security detailing. Except with respect to the non-binding letter of intent with China Crescent Enterprises, Inc. noted above, we have no current arrangements or agreements for any specific acquisitions.
  
 
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Enhance Network Communication
 
Enhance provides a wide variety of services from infrastructure architect to software as a service supplier. This positions Enhance to continue working with local and national government to provide service and support to the educational sector through to commercial usage such as conventions and local business markets.
 
Stonewall Networks
 
Stonewall Networks has built the Cornerstone Security Policy Manager.  Cornerstone, a centralized IT security policy manager, is an engine for security policy modeling, implementation, monitoring, enforcement, and auditing.  Product features include consistent security policy implementation across all (multi-vendor) network security devices, policy auditing, mobile device security, rapid support of new network security devices, and rapid threat response.
  
Critical Accounting Policies
 
Accrued Derivative Liability - The convertible debenture and the Series A, D and E preferred stock can be converted into common stock at a conversion price that is a percentage of the market price; therefore the number of shares that could be required to be delivered upon “net-share settlement” is essentially indeterminate. In accordance with ASC 815, we have bifurcated the beneficial conversion features embedded in our convertible debentures and preferred stock and have recorded the fair value of these beneficial conversion features as a current liability.
  
Convertible Preferred Stock - Our Series A, D and E preferred stock are presented as a current liability since we have financial instruments that are convertible into common stock at a conversions price that is a percentage of the market price; therefore the number of shares that could be required to be delivered upon “net-share settlement” is essentially indeterminate and we do not have enough authorized shares to satisfy the conversion of our convertible preferred stock.
  
Revenue Recognition - Revenue is recognized when services are rendered to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

Operating Results for the Three Months Ended June 30, 2011 and 2010
 
Revenue.  Revenue for the three months ended June 30, 2011 and 2010 was $61,850 and $185,104, respectively. The decrease in revenue in 2011 compared to 2010 is the result of a decrease in the overall goods and services provided between the periods.
  
 
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Operating Expenses.  Operating expenses for the three months ended June 30, 2011 and 2010 were $500,923 and $683,238, respectively.  The decrease from 2010 to 2011 is primarily the result of the operational expenses incurred in 2010 from our two subsidiaries acquired in late 2009, Enhance Network Communication, Inc. and Stonewall Networks, Inc. The subsequent expenses relating to their respective acquisition dates were completed in 2010 and no longer incurred in 2011.
 
Interest Expense and Financing Costs.  Interest expense for the three months ended June 30, 2011 and 2010 was $210,159 and $400,781, respectively.  The decrease in the interest expense and financing costs is the result of a reduction in the average outstanding debt due to an increase in debt conversions during 2011. 
 
Change in Accrued Derivative Liability.  Change in accrued derivative liability for the three months ended June 30, 2011 and 2010 was $170,107 and $926, respectively. The change in derivative liability is directly related to the change in the accrued derivative liability balance, which fluctuates based on fair value each period.
 
Gain on conversion of debt to equity.  Gain on conversion of debt to equity for the three months ended June 30, 2011 and 2010 was $44,675 and $200,808, respectively. This amount represents the excess of the fair value of the stock issued over the carrying value of the debt that was converted, in instances where the debt’s terms did not contain a conversion provision.
 
Net Loss.  Net loss for the three months ended June 30, 2011 and 2010 was $434,450 and $803,383, respectively.  The difference is principally due to the change in accrued derivative liability.
  
Operating Results for the Six Months Ended June 30, 2011 and 2010
  
Revenue.  Revenue for the six months ended June 30, 2011 and 2010 was $118,243 and $273,944, respectively. The decrease in revenue in 2011 compared to 2010 is primarily the result of a decrease in the overall goods and services provided between the periods.
 
Operating Expenses.  Operating expenses for the six months ended June 30, 2011 and 2010 were $932,162 and $1,235,139, respectively.  The decrease from 2010 to 2011 is primarily the result of the operational expenses incurred in 2010 from our two subsidiaries acquired in late 2009, Enhance Network Communication, Inc. and Stonewall Networks, Inc. The subsequent expenses relating to their respective acquisition dates were completed in 2010 and no longer incurred in 2011.
 
Interest Expense and Financing Costs.  Interest expense for the six months ended June 30, 2011 and 2010 was $335,524 and $634,332, respectively.  The decrease in the interest expense and financing costs is the result of a reduction in the average outstanding debt due to an increase in debt conversions during 2011. 
 
Change in Accrued Derivative Liability.  Change in accrued derivative liability for the six months ended June 30, 2011 and 2010 was $372,569 and $165,239, respectively. The change in derivative liability is directly related to the change in the accrued derivative liability balance, which fluctuates based on fair value each period.
 
Loss on conversion of debt to equity.  Loss on conversion of debt to equity for the six months ended June 30, 2011 and 2010 was $408,307 and $438,095, respectively. This amount represents the excess of the fair value of the stock issued over the carrying value of the debt that was converted, in instances where the debt’s terms did not contain a conversion provision.
 
Net Loss.  Net loss for the six months ended June 30, 2011 and 2010 was $1,185,181 and $2,025,439, respectively.  The difference is principally due to the change in accrued derivative liability.
 
Changes In Balance Sheet.  We had current assets of $71,586 at June 30, 2011.  We had total assets of $3,311,533 at June 30, 2011, total liabilities of $9,052,522 at June 30, 2011 and stockholders’ deficit of $5,740,989 at June 30, 2011.
   
 
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Liquidity, Capital Resources and Cash Requirements.  During the six months ended June 30, 2011 net cash used in operating activities was $54,009 as compared to net cash used in operating activities of $269,982 for the six months ended June 30, 2010.  During the six months ended June 30, 2011, net cash used in investing was $0 as compared to net cash used in investing of $6,000 towards advances on loans receivables during the six months ended June 30, 2010.   Net cash provided by financing activities during the six months ended June 30, 2011 and 2010 was $93,369 and $290,502, respectively, primarily as a result of the net proceeds from notes payable.
 
As a result of the above, as of June 30, 2011, we had a cash position of $63,760.
 
Stock Splits. On January 7, 2004, we effected a one-for-ten (1 for 10) reverse split of our common stock.  On January 20, 2006, we effected a one-for-fifty (1 for 50) reverse split of our common stock.  On June 1, 2009, we effected a one-for-one hundred sixty (1 for 160) reverse split of our common stock. On September 3, 2010, we effected a one-for-fifty (1 for 50) reverse split of our common stock. All share information for common shares has been retroactively restated for these four reverse stock splits.
 
We have historically financed our operations via convertible-debt and preferred-stock financing obtained from various private equity firms. These funds intend, over time, to convert their positions into shares of our common stock. This will cause significant dilution to existing shareholders.
 
We currently have sufficient cash to continue our operations for six months.  We will require additional funds through the receipt of conventional sources of capital or through future sales of our common stock, until such time as our revenues are sufficient to meet our cost structure, and ultimately achieve profitable operations. Management estimates that it will need to raise $1,500,000 over the next twelve months. There is no assurance we will be successful in raising additional capital or achieving profitable operations.
  
Change in Number of Employees
 
There has been no significant change in the number of employees during the six months ended June 30, 2011.
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
  
Not required
   
 
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Item 4.  Controls and Procedures
 
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file pursuant to the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our Chief Executive Officer (“CEO”), who also serves as the Company’s Principal Financial Officer (“PFO”), to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management designed the disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives. 
 
We carried out an evaluation, under the supervision and with the participation of our management, including our CEO and PFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures are effective.
 
Changes in Internal Control over Financial Reporting
 
There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
  
PART II.  OTHER INFORMATION
  
Item 1.   Legal Proceedings
 
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our company.
 
Item 1A.  Risk Factors
 
There have been no material changes from the disclosure provided in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010.
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
During the six months ended June 30, 2011, the Company issued 4,776,237,573 shares of common stock upon conversion of convertible debt and notes in the amount of $594,147.
 
On February 15, 2011, the Company exchanged a note payable $200,000 and accrued interest of $38,500 into a convertible note. Principal and unpaid interest on the note is due October 15, 2011. The note bears interest at the rate of 8% per annum, payable upon maturity. The note, plus any accrued and unpaid interest, is convertible at the holder’s option at any time, into shares of the Company’s common stock at a conversion price equal to 50% of the lowest of the closing bid prices for the common stock for the five trading days prior to and including the conversion date.
  
 
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On March 28, 2011, the Company issued a convertible debenture to Cove Partners, LLC in the principal amount of $100,000. The convertible debenture is convertible into shares of common stock at a conversion price of 50% of the lowest closing bid price for the preceding ten trading days prior to the Company receiving notice of conversion.
 
In connection with the foregoing, the Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.
 
Item 3.   Defaults Upon Senior Securities
 
As of the filing of this document, we are currently in default on the following debt:
   
  ●
The Cove Partner convertible promissory note:  Principal and interest owed as of the date of this filing is $150,019.
     
  ●
The St. George convertible promissory note:  Principal and interest owed as of the date of this filing is $72,036.
     
  ●
The Cove Partner convertible promissory note:  Principal and interest owed as of the date of this filing is $106,000.
     
  ●
The St. George convertible promissory note:  Principal and interest owed as of the date of this filing is $143,138.
     
  ●
The St. George convertible promissory note:  Principal and interest owed as of the date of this filing is $181,675.
        
Item 4.   [Removed and Reserved.]
  
   
Item 5.   Other Information
  
Not applicable.
  
Item 6.   Exhibits
  
No.   Description
     
31.1   Certification of the Principal Executive Officer and Principal Financial Officer under 18 U.S.C. section 1350, as adopted in accordance with section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of the Principal Executive Officer and Principal Financial Officer under 18 U.S.C. section 1350, as adopted in accordance with section 906 of the Sarbanes-Oxley Act of 2002.
      
101.INS
  
XBRL Instance Document
101.SCH
  
XBRL Schema Document
101.CAL
  
XBRL Calculation Linkbase Document
101.DEF
  
XBRL Definition Linkbase Document
101.LAB
  
XBRL Label Linkbase Document
101.PRE
  
XBRL Presentation Linkbase Document
    
 
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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
   
 
NUMOBILE, INC.
   
  
   
By:
/s/ James D. Tilton, Jr.
   
  
James D. Tilton, Jr.
   
  
Chairman, President, Secretary and Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)
Dated: August 10, 2011 
    
 
 
 
 
 
 
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