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EX-32.1 - CERTIFICATION - NUMOBILE, INC.numobile_10k-ex3201.htm
EX-31.1 - CERTIFICATION - NUMOBILE, INC.numobile_10k-ex3101.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
     
x
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
OR
     
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
 

 NuMobile, Inc.
(Exact name of registrant as specified in its charter)
     
Nevada
 
61-1342734
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
2520 South Third Street, Suite 206
Louisville, Kentucky
 
40208
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number: (502) 636-2807
  
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained herein, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

At June 30, 2010, the end of our second fiscal quarter, the aggregate market value of common stock held by non-affiliates of the registrant was approximately $586,000 based on the closing price of $0.05 as reported on the Over-the-Counter Bulletin Board Market.

Number of shares of common stock outstanding as of March  23, 2011:  3,931,232,805.
 


 
 
 
 
 

TABLE OF CONTENTS
TO ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 2010 [to be revised]

       
Page
PART I
     
1
 
Item 1.
 
Business
 
1
 
Item 1A.
 
Risk Factors
 
6
 
Item 1B.
 
Unresolved Staff Comments
 
8
 
Item 2.
 
Properties
 
8
 
Item 3.
 
Legal Proceedings
 
8
 
Item 4.
 
[Removed and Reserved]
 
8
 
           
PART II
     
8
 
Item 5.
 
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
8
 
Item 6.
 
Selected Financial Data
 
9
 
Item 7.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
9
 
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
12
 
Item 8.
 
Financial Statements and Supplementary Data
 
12
 
Item 9.
 
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
12
 
Item 9A.
 
Controls and Procedures
 
12
 
Item 9B.
 
Other Information
 
12
 
           
PART III
     
13
 
Item 10.
 
Directors, Executive Officers and Corporate Governance
 
13
 
Item 11.
 
Executive Compensation
 
14
 
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
15
 
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence
 
16
 
Item 14.
 
Principal Accounting Fees and Services
 
16
 
           
PART IV
     
17
 
Item 15.
 
Exhibits, Financial Statement Schedules
 
17
 
Signatures
     
18
 
 
 

 
 


 
i

 
 
The statements contained in this annual report that are not historical facts are “forward-looking statements” with respect to our financial condition, results of operations and business, which can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties.  Management wishes to caution the reader of the forward-looking statements that such statements, which are contained in this annual report, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employee, and general business factors affecting our operations, markets, growth, services, products, licenses and other factors discussed in our other filings with the Securities and Exchange Commission ("SEC"), and that these statements are only estimates or predictions.  No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of risks facing us, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.
 
These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. Some of these risks are described in “Risk Factors” in Item 1A of this annual report.
 
These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward-looking statements made in connection with this annual report that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. Except as may be required under applicable securities laws, we do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. Further, the information about our intentions contained in this document is a statement of our intention as of the date of this document and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

PART I

In this Annual Report on Form 10-K, we will refer to NuMobile, Inc., a Nevada corporation, and our subsidiaries, Enhance Network Communication, Inc. and Stonewall Networks, Inc., as "NuMobile," "our company," "we," "us," and "our" unless the context otherwise requires.
 
ITEM 1. BUSINESS
 
GENERAL INFORMATION
 
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. We have recently 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 Communications, 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.
 
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. We have no current arrangements or agreements for any specific acquisitions.

 
 
1

 
 
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.
 
Principal products and services and their markets
 
Enhance Network Communications
 
Enhance’s current and primary vertical market is the education sector, in particular K-12.
 
Enhance provides the following services to this vertical market space:
 
 
Voice over IP (VOIP)
 
 
Network Architecting
 
 
Network Implementation
 
 
Network Support
 
 
Network Monitoring
 
 
Network Management
 
 
Software as a Service (SaaS)
 
Stonewall Networks
 
Stonewall’s current and primary vertical markets are:
 
 
Wireless
 
 
Telecom
 
 
Hospitality
 
 
Gaming
 
 
Health
 
Stonewall provides the following products/services to these vertical markets:
 
 
Cornerstone Security Policy Manager
 
 
Device Portability
 
 
Mobile security integration
 
 
Architect design and review
 
 
Security Auditing
 

 
2

 
 
In March 2010, Stonewall released Policy Manager 2.0 (PM 2.0), the latest version of its software suite allowing companies to set comprehensive security policies for both wired and mobile assets within a company's network. We are currently Beta testing the latest release of the software at a company with an extensive network across the United States, Africa and Asia.
 
About Policy Manager 2.0 (“PM 2.0”)
 
PM 2.0, is the latest version of a software suite developed by Stonewall Networks. PM 2.0 allows companies to set comprehensive security policies for both wired and mobile assets in a company's network. These policies help organizations meet specific regulatory and audit requirements such as PCS, Sarbanes-Oxley, HIPAA, GLBA and FDA. Policy Manager also allows enterprises to audit and enforce corporate-wide security policies in a quick, comprehensive, automated manner. PM 2.0 also allows for managed security, service providers, and large enterprises to gather real-time data needed for both internal asset protection and regulatory auditing and reporting.
 
Distribution method of products
 
Enhance Network Communication
 
Enhance provides all services and technology directly to the vertical markets being serviced. This is done by hiring engineers and sales/marketing associates to work with its offices in California.
 
Stonewall Networks
 
Stonewall provides all services and products through one of two methods. First is through its internal sales and marketing team. Second is through strategic partnerships with value added resellers and distributors.
 
Competition
 
Enhance Network Communication
 
Enhance competes in the IT Systems Integration business, also known as System Integration, Convergence, Network Systems Integration, Integration, Digital Convergence, Integrating Systems, Integrated Systems, and Technology Integration.
 
A systems integrator (SI) is an individual or business that builds computing systems for clients by combining hardware and software products from multiple vendors. Using a systems integrator, a company can align cheaper, pre-configured components and off-the-shelf software to meet key business goals, as opposed to more expensive, customized implementations that may require original programming or manufacture of unique components. Creation of these information systems may include designing or building a customized architecture or application, integrating it with new or existing hardware, packaged and custom software, and communications infrastructure. Some systems integrators working in specialized areas, like SAP or ERP installations or upgrades, may offer more customization for specific applications. Systems integration has traditionally been a crucial specialty in the defense contracting industry. Proprietary, closed systems needs to be upgraded or, as is often the case, legacy hardware or software.
 
The growth of data and mobile applications has led to the need for a more flexible systems integration market. Operators, with their margins squeezed, are faced with whether to take a bigger slice of their action by acquiring greater integration skills, or opt to make deals with a range of partners to provide customized solutions for businesses.
 
The onward march of global business and converging technologies is challenging some established telecoms business practices. As the scope of data and voice services grows, telecoms companies increasingly need to acquire a range of different business skills to meet customers' expectations.
 
At the heart of that change is the evolving role of systems integration (SI), which underpins the networks and systems that provide those services (source:http://findarticles.com/p/articles/mi_m0UKG/is_2001_August_13/ai_77574951/).
 
The market for systems integration (SI) solutions is becoming more competitive as the traditional outsourcers, such as Computer Sciences Corporation (CSC), Electronic Data Systems (EDS), and KAZ Group, make their move into the SI business. This benefits buyers of IT services, as these new entrants and more traditional integrators have increased their focus on outcomes and client satisfaction to ensure that their business continues to grow. The service normalization and downward rate pressure have brought systems integration offerings to the reach of companies that haven't used such services in the past.
 
 
3

 
 
Stonewall Networks
 
Security management is a broad field of management related to asset management, physical security and human resource safety functions. It entails the identification of an organization's information assets and the development, documentation and implementation of policies, standards, procedures and guidelines.
 
Security management includes the set of functions that protects telecommunications networks and systems from unauthorized access by persons, acts, or influences and that includes many subfunctions, such as creating, deleting, and controlling security services and mechanisms; distributing security-relevant information; reporting security-relevant events; controlling the distribution of cryptographic keying material; and authorizing subscriber access, rights, and privileges.
 
Management tools such as information classification, risk assessment and risk analysis are used to identify threats, classify assets and to rate system vulnerabilities so that effective control can be implemented.
 
Security outsourcing is now the fastest-growing segment of IT security budgets, according to a Forrester Research report. Although IT security spending was relatively flat in 2009, investments in managed security service providers (MSSPs) grew by roughly 8 percent.
 
Reasons include pressures in staffing and expertise, an ever-shifting threat landscape, and a growing compliance burden. Service providers are also broadening their offerings and sometimes providing valuable advisory services.
 
MSSPs have traditionally helped companies in areas such as network firewall monitoring and e-mail and Web filtering. Such services are still among the most prevalent, according to Forrester, but services are now offering assistance with more holistic security needs such as log management and event monitoring. Organizations’ technology and processes churn out large amounts of data, says Forrester; some MSSPs can sift through it and even present findings in a neat dashboard.
 
A growing percentage of attacks are also targeting applications as opposed to network infrastructure. MSSPs can provide managed application firewalls and application security scanning and penetration testing.
 
MSSPs are also helping companies take a more risk-based approach to security. Rather than helping with one or more regulations, they are increasingly helping clients make decisions based on a standard or risk-based framework, according to Forrester. Some MSSPs are also providing metrics in areas such as efficiency and return on investment. Companies are also turning to MSSPs because of their 24 x 7 support.
 
Conducting adequate due diligence is important before hiring a service provider, says Forrester. Companies should understand MSSPs’ strengths and weaknesses and also speak to customer references. Organizations should also continue to make key policy and strategy decisions themselves. MSSPs can provide “the bare minimum, but you still need to understand your environment and what it requires.” (source: http://www.securitymanagement.com/news/managed-security-market-booming-006903).
 
Competition comes from original equipment manufacturers, or OEM, vendors (e.g. Cisco, Juniper, Checkpoint), security information management consolidators (e.g. ArcSight, NetForensics, Exaprotect, Symantec), homegrown applications, and brute force labor.
 
OEM vendors provide management software with their security devices to simplify device configuration.  This device-centric approach is fine for smaller networks but does not scale to larger networks and introduces the issue of consistent policy implementation amongst security devices.  Rather than directly compete, Stonewall Networks will look to build OEM alliances to augment OEM security solutions and provide non-OEM capabilities such as multi-vendor support and a network approach, rather than a device approach, to security.  Already, Stonewall Networks has signed one OEM agreement and has had preliminary discussions with several other OEMs.
 
Security information management (SIM) vendors provide the ability to identify attacks, analyze network security, identify weaknesses, and take corrective action.  Although competitors, SIM vendors are actually ideal candidates for partnership agreements since their products are often weakest at vulnerability remediation, Cornerstone’s strength.  Cornerstone will work in tandem with SIM products, taking findings from these products and implementing them quickly, globally, and consistently in the enterprise network.  One competitor in particular, Exaprotect, acquired a company called Solsoft that provides a capability similar to Stonewall Networks’ Cornerstone product.   Based on discussions with both customers and industry experts, we believe Cornerstone’s flexibility in supporting new devices and scalability both provide clear advantages to the Solsoft product.  However, Exaprotect’s entry into this market does provide validation of the need for sophisticated policy management products.
 
Homegrown solutions and brute force labor also provide competition to Cornerstone.  This approach is widely prevalent because the market is not providing adequate technology solutions and because it is often easier to use existing headcount to solve a problem than it is to get budget approval for a new product purchase.  Homegrown tools will never provide the sophistication of Cornerstone, but they may provide enough functionality to stave off the need for 3rd party products.  Manual processes are also currently used at most organizations for security setup and auditing.  Cornerstone provides an excellent return on investment to displace these solutions justified based on numerous factors such as total cost of ownership, ongoing threat mitigation, and compliance.  For example, as previously discussed, a financial company may hire outside consultants to perform mandatory periodic compliance audits.  Although this approach may meet the specific business audit requirement, it is both costly and lacks timeliness.  Periodic audits provide ample opportunity for vulnerabilities to be created and exploited without the company knowing.
 
 
4

 
 
Sources and availability of raw materials and principal suppliers
 
Enhance Network Communication
 
Enhance obtains products and services from the manufacturer or distributors directly.
 
Providers/distributors:
 
 
Micro D
 
 
Microsoft
 
 
Tech Data
 
 
3Com
 
 
Xirrus
 
Stonewall Networks
 
Stonewall owns and maintains critical proprietary source code. Stonewall utilizes open source technologies that have no limitations with regard to bundling. Stonewall also retains in escrow a copy of the open source code for backup to any industry failures on behalf of the open source provider. In that event Stonewall will allow in-house developers/engineers take on the service and support.
 
Providers/distributors:
 
 
Enhance Networks
 
 
Linux
 
 
Java
 
 
Jabber
 
Dependence on one or a few major customers
 
Enhance Network Communication
 
In 2010 and 2009 the Department of Education (Hawaii) accounted for a majority of our revenue.
 
Intellectual property
 
Enhance Network Communications
 
Enhance Network Communication does not own any intellectual property.
 
Stonewall Networks
 
Stonewall Networks owns copyright to its proprietary software, Cornerstone Policy Manager. Cornerstone is a Security Policy Manager that strengthens, centralizes, and greatly simplifies network security for mid to large enterprises.  With Cornerstone, security policies are consistently implemented to seamlessly secure the entire enterprise network.
 
Research and Development
 
 
We did not incur any expenses on research and development during the years ended December 31, 2010 and 2009.
 
Employees
 
The number of people we employ fluctuates depending on workload but generally ranges from two to seven, all of whom are full-time, including our chief executive officer and one to six employees of Stonewall. Enhance does not have any employees as it currently retains only contract personnel.

 
 
5

 
 
RISK FACTORS
 
We are subject to various risks that may materially harm our business, financial condition and results of operations. If any of these risks or uncertainties actually occurs, the trading price of our common stock could decline and you could lose all or part of your investment.
 
Risks Related to our Business
 
We have historically lost money, and our losses may continue in the future.
 
We have historically lost money. As of December 31, 2010, we had an accumulated deficit of $(12,344,682). Further such losses are likely to occur in the future, and we may experience significant liquidity and cash flow problems if we are not able to raise additional capital as needed and on acceptable terms. We can give no assurances that we will be successful in reaching or maintaining profitable operations.
 
We will need to raise additional capital to finance operations.
 
We have relied almost entirely on external financing to fund our operations. This financing has historically come from a combination of borrowings and from the sale of common stock and assets to third parties. We will need to raise additional capital to fund our anticipated operating expenses and future expansion. Among other things, external financing will be required to cover our operating costs. We cannot assure you that financing, whether from external sources or related parties, will be available if needed or on favorable terms. The sale of our common stock to raise capital may cause dilution to our existing shareholders. Our inability to obtain adequate financing will result in the need to curtail business operations. Any of these events would be materially harmful to our business and may result in a lower stock price.
 
There is substantial doubt about our ability to continue as a going concern due to recurring losses and working capital shortages.
 
The report of our independent accountants on our December 31, 2010, financial statements includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to recurring losses and working capital shortages. Our ability to continue as a going concern will be determined by our ability to obtain additional funding.

Our business could be materially adversely affected as a result of a lessening demand in the information technology market.
 
Our revenue and profitability depend on the overall demand for our products and services. Delays or reductions in IT spending, domestically or internationally, could materially adversely affect demand for our products and services which could result in decreased revenues or earnings.
 
Competitive pricing, sales volume, mix and component costs could materially adversely affect our revenues, gross margins and earnings.
 
Our gross margins are impacted by a variety of factors, including competitive pricing, component and product design costs as well as the volume and relative mixture of product and services revenues. Increased component costs, increased pricing pressures, the relative and varying rates of increases or decreases in component costs and product price, changes in product and services revenue mixture or decreased volume could have a material adverse effect on our revenues, gross margins or earnings.
 
The markets in which we do business are highly competitive, and we may encounter aggressive price competition for all of our products and services from numerous companies. There also has been and may continue to be a willingness on the part of certain competitors to reduce prices or provide IT products or services, at minimal or no additional cost in order to preserve or gain market share. Such price competition may result in pressure on our product and service prices, and reductions in product and service prices may have a material adverse effect on our revenues, gross margins and earnings. We currently believe that pricing pressures will continue.
 
We may be unable to keep pace with rapid industry, technological and market changes.
 
The markets in which we compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing needs of customers. There can be no assurance that our existing products will be properly positioned in the market or that we will be able to introduce new or enhanced products into the market on a timely basis, or at all. We spend a considerable amount of money on research and development and introduce new products from time to time. There can be no assurance that enhancements to existing products and solutions or new products and solutions will receive customer acceptance.
 
Risks associated with the development and introduction of new products include delays in development and changes in data storage, networking virtualization, infrastructure management, information security and operating system technologies which could require us to modify existing products. Risks inherent in the transition to new products include:
 
 
the difficulty in forecasting customer preferences or demand accurately;
 
the inability to expand production capacity to meet demand for new products;
 
 
6

 
 
 
the impact of customers’ demand for new products on the products being replaced, thereby causing a decline in sales of existing products and an excessive, obsolete supply of inventory; and
 
delays in initial shipments of new products.
 
Further risks inherent in new product introductions include the uncertainty of price-performance relative to products of competitors, competitors’ responses to the introductions and the desire by customers to evaluate new products for extended periods of time. Our failure to introduce new or enhanced products on a timely basis, keep pace with rapid industry, technological or market changes or effectively manage the transitions to new products or new technologies could have a material adverse effect on our business, results of operations or financial condition.
 
The markets we serve are highly competitive and we may be unable to compete effectively .
 
We compete with many companies in the markets we serve. Some of these companies (whether independently or by establishing alliances) may have substantially greater financial, marketing and technological resources, larger distribution capabilities, earlier access to customers and greater opportunity to address customers’ various IT requirements than us. In addition, as the IT industry consolidates, companies may improve their competitive position and ability to compete against us. We compete on the basis of our products’ features, performance and price as well as our services. Our failure to compete on any of these bases could affect demand for our products or services, which could have a material adverse effect on our business, results of operations or financial condition.
 
Companies may develop new technologies or products in advance of us or establish business models or technologies disruptive to us. Our business may be materially adversely affected by the announcement or introduction of new products, including hardware and software products and services by our competitors, and the implementation of effective marketing or sales strategies by our competitors. The material adverse effect to our business could include a decrease in demand for our products and services and an increase in the length of our sales cycle due to customers taking longer to compare products and services and to complete their purchases.
 
Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments.
 
As part of our business strategy, we seek to acquire businesses that offer complementary products, services or technologies. These acquisitions are accompanied by the risks commonly encountered in an acquisition of a business, which may include, among other things:
 
 
the effect of the acquisition on our financial and strategic position and reputation;
 
the failure of an acquired business to further our strategies;
 
the failure of the acquisition to result in expected benefits, which may include benefits relating to enhanced revenues, technology, human resources, cost savings, operating efficiencies and other synergies;
 
the difficulty and cost of integrating the acquired business, including costs and delays in implementing common systems and procedures and costs and delays caused by communication difficulties or geographic distances between the two companies’ sites;
 
the assumption of liabilities of the acquired business, including litigation-related liability;
 
the potential impairment of acquired assets;
 
the lack of experience in new markets, products or technologies or the initial dependence on unfamiliar supply or distribution partners;
 
the diversion of our management’s attention from other business concerns;
 
the impairment of relationships with customers or suppliers of the acquired business or our customers or suppliers;
 
the potential loss of key employees of the acquired company; and
 
the potential incompatibility of business cultures.
 
These factors could have a material adverse effect on our business, results of operations or financial condition. To the extent that we issue shares of our common stock or other rights to purchase our common stock in connection with any future acquisition, existing shareholders may experience dilution. Additionally, regardless of the form of consideration issued, acquisitions could negatively impact our net income and our earnings per share.
 
In addition to the risks commonly encountered in the acquisition of a business as described above, we may also experience risks relating to the challenges and costs of closing a transaction. Further, the risks described above may be exacerbated as a result of managing multiple acquisitions at the same time.
 
Risks Related to our Common Stock
 
Our common stock may be affected by limited trading volume and may fluctuate significantly.
 
There has been a limited public market for our common stock, and we can give no assurances that an active trading market for our common stock will develop. The lack of an active trading market could adversely affect our shareholders’ ability to sell our common stock without delay, or possibly at all. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations that could adversely affect the market price of our common stock regardless of our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. Substantial fluctuations in our stock price could significantly reduce the price of our stock.
 
 
7

 
 
Our common stock is traded on the Over-the-Counter Bulletin Board, which may make it more difficult for investors to resell their shares due to suitability requirements.
 
Our common stock is currently traded on the Over-the-Counter Bulletin Board (OTCBB), where we expect it to remain for the foreseeable future. Broker-dealers often decline to trade in OTCBB stocks because the market for such securities is often limited, the stocks are more volatile, and the risks to investors are greater. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to find buyers for their shares. This could cause our stock price to decline.
 
Nevada law and our articles of incorporation may inhibit a takeover of our company that stockholders may consider favorable.
 
Provisions of Nevada law, such as its business combination statute, may have the effect of delaying, deferring, or preventing a change in control of our company. As a result, these provisions could limit the price some investors might be willing to pay in the future for shares of our common stock.
 
The holder of our Class A Preferred Stock owns the majority of the voting power of our shareholders.
 
There are 2,656 shares of Class A Preferred Stock issued and outstanding, all of which are held by Beachhead LLC. The holder of the Class A Preferred Stock vote as one class with the holders of the Common Stock and own 51% of the voting power of the Company’s shareholders.  As a result, Beachhead LLC, as the holder of our outstanding Class A Preferred Stock, will have the ability to control all matters submitted to shareholders, and its interests may differ from those of other shareholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Our executive and administrative office is located in Louisville, Kentucky. Monthly rent is $1,300 and we are on a month-to-month lease.
 
Our subsidiary, Enhance Network Communication, Inc., rents 642 square feet of office space for its main corporate office in San Jose, California on a lease on a month-to-month arrangement for $1,200 per month.
 
Our subsidiary, Stonewall Networks, Inc., rents shared office space on a month-to-month arrangement for $840 per month.
 
ITEM 3. LEGAL PROCEEDINGS
 
As of December 31, 2010, and as of the date of this filing, the Company is not a party to any pending or threatened litigation, claim or assessment.
  
ITEM 4. [REMOVED AND RESERVED]

Not applicable.
 
 
 
 
 
 
8

 
 
PART II
 
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market Information

A limited public market for our common stock exists on the OTCQB under the symbol “NUBL”.
 
The following table sets forth the range of high and low closing prices for our common stock for each quarterly period indicated (as adjusted for the Company’s 50-to-1 reverse stock split effected in September 2010), as reported by brokers and dealers making a market in the capital stock. Such quotations reflect inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions.
 
   
High
   
Low
 
For the year ended December 31, 2009:
           
    Fourth quarter
 
$
1.505
   
$
0.27
 
    Third quarter
 
$
3.15
   
$
0.70
 
    Second Quarter
 
$
1.60
   
$
8.00
 
    First quarter
 
$
1.60
   
$
8.00
 
For the year ended December 31, 2010:
               
    Fourth quarter
 
$
            0.025
   
$
0.0005
 
    Third quarter
 
$
           0.035
   
$
                 0.02
 
    Second Quarter
 
$
            0.20
   
$
               0.035
 
    First quarter
 
$
            0.30
   
$
                0.10
 

As of March 24, 2011, there were approximately 84 record holders of our common stock.
 
Dividends

We have not paid any cash or other dividends on our common stock since our company was formed and we do not anticipate paying any such dividends in the foreseeable future. We intend to retain any earnings to use in our operations and to finance the expansion of our business.
 
Recent Issuances of Unregistered Securities

During the three months ended December 31, 2010, the Company issued, pursuant to exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering:  we issued 194,078,776 shares of common stock upon conversion of convertible debt and notes in the amount of $634,744.

Issuer Repurchases of Equity Securities

None.

Equity Compensation Plan Information

We do not have an equity compensation plan as of December 31, 2010
 
 
9

 
 
ITEM 6. SELECTED FINANCIAL DATA

Intentionally Omitted.
 
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 This Annual Report on Form 10-K 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 consolidated financial statements and the related notes included in this Form 10-K included elsewhere in this Annual 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 changed our name to NuMobile, Inc. In connection with this name change, our stock ticker symbol was changed from “PXIT” to “NUBL.” Our prior business operations consisted of purchasing, training and selling of thoroughbred horses. We have recently 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”).  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”). Stonewall is a development stage information technology security product company headquartered in Cary, North Carolina.
 
Critical Accounting Policies
 
Accrued Derivative Liability - The convertible debt and the Series A, D and E preferred stock can be converted 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. 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 - Our 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.
 
 
 
 
10

 

Operating Results for the Years Ended December 31, 2010 and 2009
 
Revenues. Our revenues for the years ended December 31, 2010 and 2009 were $403,331 and $177,815, respectively. The increase in revenue in 2010 is primarily the result of revenue earned from our subsidiary, Enhance Network Communication, Inc., from the sale of its network security technology. Enhance sold its technology and maintenance services to new customers during 2010, which accounts for the increase from 2009.
 
Operating Expenses. Our operating expenses for the years ended December 31, 2010 and 2009 were $2,303,373 and $980,182, respectively.  The increase from 2009 to 2010 is primarily the result of greater operational expenses such as payroll and professional services during 2010.
 
Interest Expense and Financing Costs. Our interest expense and financing costs for the year ended December 31, 2010 and 2009 were $1,205,552 and $149,537 respectively.  The increase in the interest expense and financing costs is the result of increased borrowings and interest incurred from existing and new borrowings during 2010.
 
Change in Accrued Derivative Liability.Change in accrued derivative liability for the years ended December 31, 2010 and 2009 was $1,093,065 and $577,887, respectively. The change in derivative liability is directly related to the change in the accrued derivative liability balance, which fluctuates based on fair value.
 
  Net Loss. Our net loss for the years ended December 31, 2010 and 2009 was $2,990,288 and $1,502,715, respectively.  The difference is principally due to additional operating expenses and interest expense during 2010.
 
Changes In Balance Sheet.We had current assets of $32,226 at December 31, 2010.  We had total assets of $3,821,033 at December 31, 2010, total liabilities of $9,324,219 at December 31, 2010 and stockholders’ deficit of $5,503,186 at December 31, 2010.
 
Liquidity, Capital Resources and Cash Requirements. During the year ended December 31, 2010 net cash used in operating activities was $564,669 as compared to $587,209 for the year ended December 31, 2009.   Net cash provided by investing activities during the year ended December 31, 2010 was $6,000, compared to $96,118 in 2009. Net cash provided by financing activities during the year ended December 31, 2010 was $417,633 as a result of the proceeds from notes payable of $661,831, offset by repayments of $224,198. Net cash provided by financing activities during the year ended December 31, 2009 was $650,907 as a result of the proceeds from notes payable of $688,498, offset by repayments of $37,591.
 
As a result of the above, as of December 31, 2010, we had a cash position of $24,400.
 
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.
 
In the immediate future, we have no commitments or plans to finance our business. We will continue to finance our operations from the sale of debt and equity securities until we are able to generate sufficient cash flow from operations.  There is no assurance that we will be able to sale debt and equity securities on term favorable to us or it at all.
 
Contractual Obligations
 
   
Payments due by Period
 
   
Less than
   
One to
   
Three to
   
More Than
       
   
One Year
   
Three Years
   
Five Years
   
Five Years
   
Total
 
Notes payable
  $ 4,721,518     $ -     $ -     $ -     $ 4,721,518  
Total
  $ 4,721,518     $ -     $ -     $ -     $ 4,721,518  

Off-Balance Sheet Arrangements
 
We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
 

 
 
11

 
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements are listed in the Index to Financial Statements on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
       
None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our principal executive officer and principal financial officer, based on his evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K, has concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Internal Control over Financial Reporting

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2010.
 
This Annual Report on Form 10-K does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting (as defined in Rule 13a-15f under the Exchange Act) that occurred during the fourth quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.
 
 
 
12

 
 
 
PART III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
The following table sets forth the name, age and position with the Company of each officer and director of the Company as of the date of this report.
 
Name
 
Age
   
Position
   
James D. Tilton, Jr.
 
50
   
Chairman of the Board,
President, Chief Executive Officer and Secretary
   

Background of Executive Officers and Directors

James D. Tilton, Jr., has served as chairman of our board of directors, chief executive officer, president, secretary, treasurer and sole director since we were formed. Mr. Tilton has also served as President, Treasurer, Secretary and director of SEA-Tiger, Inc. since it resumed activity in 2008. Since August 2010 Mr. Tilton has also served as Chief Financial Officer and director of World Series of Golf, Inc., and since February 2010 Mr. Tilton has served as Chief Financial Officer and director of Savanna East Africa, Inc. Mr. Tilton has a B.A. in Political Science with an emphasis in Accounting/Business from the University of Louisville. Mr. Tilton’s experience as founder of the Company, in the securities industry (from 1995 to 1996, Mr. Tilton was a stockbroker at Morgan Keegan, and from 1997 to 1999, Mr. Tilton worked independently in the securities industry, specializing in corporate finance and investment banking) and as a director of other public companies qualifies him to serve as a director of the Company.
 
Board of Directors

Our Directors are elected by the vote of a plurality in interest of the holders of our voting stock and hold office for a term of one year and until a successor has been elected and qualified.  

A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board individually or collectively consent in writing to the action.

Audit Committee Financial Expert

Our board of directors acts as our audit committee. The Company does not have an audit committee financial expert due to the small size and early stage of the Company.

Board Leadership Structure and Role in Risk Oversight
 
Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles. James Tilton has served as Chairman and Chief Executive Officer of the Company since inception. Due to the small size and early stage of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined.
 
Our board of directors is primarily responsible for overseeing our risk management processes, and acts as our audit committee.  The board of directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The board of directors focuses on the most significant risks facing our Company and our Company’s general risk management strategy, and also ensure that risks undertaken by our Company are consistent with the board’s appetite for risk. While the board oversees our Company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our Company and that our board leadership structure supports this approach.
 

 
 
13

 
 
Family Relationships

None

Beneficial Ownership Reporting Compliance
 
Under section 16 of the Exchange Act, our directors and executive officers and beneficial owners of more than 10% of the our common stock are required to file certain reports, within specified time periods, indicating their holdings of and transactions in our common stock and derivative securities. Based solely on a review of those reports provided to us and written representations from those persons regarding the necessity to file any such reports, we are not aware of any failures to file reports or report transactions in a timely manner during our fiscal year ended December 31, 2010.
 
Code of Ethics
 
Our board of directors had adopted a code of ethics applicable to persons at our company who are responsible for financial management. A copy of the code of ethics is attached to this Annual Report as Exhibit 14.1.
 
Nominating Procedures

During 2010 there were no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
 
ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation
 
The following table sets forth the compensation awarded to, earned by or paid to Mr. Tilton. We had no other officers during this period.

Name 
 
Year 
 
Salary
   
Bonus
   
Stock 
Awards
   
Option 
Awards ($)
   
Other
   
Total
 
James  D. Tilton, Jr.
 
2010
 
$
103,000
             
-
             
-
   
$
103,000
 
President and CEO
 
2009
 
$
231,000
(1) 
 
$
-
     
-
     
-
     
-
   
$
231,000
 

(1) Accrued and unpaid

Employment Agreements

We are not party to any employment agreements.

Director Compensation

No compensation was paid to Mr. Tilton, our sole director, during the year ended December 31, 2010, for services as director.

Outstanding Equity Awards at December 31, 2010

None.
 
 
 
14

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table provides information about shares of common stock beneficially owned as of March 23, 2011 by:
 
 
each of our directors, executive officers and our executive officers and directors as a group; and
 
each person owning of record or known by us, based on information provided to us by the persons named below, to own beneficially at least 5% of our common stock;

Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.
 
   
Shares beneficially owned
 
   
Number of
shares
   
Percentage of
class (1)
 
Stockholders
           
Beachhead, LLC (2)
14860 Montfort Drive, Suite 210
Dallas, TX 75254
   
3,541,333,333
(3)
   
47.39
%
                 
Directors and Officers:
               
James Tilton
2520 South Third Street, Suite 206
Louisville, KY 40208
   
5,027
(4)
   
*
 
                 
All executive officers and directors as a group (1 person)
   
5,027
     
*
 
 
(*) Less than one percent.
 
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 23, 2011 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. Except as pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned.
 
(2) Philip Verges has voting and investment power over the securities of the Company owned by Beachhead, LLC.
 
(3) Represents shares of common stock issuable upon conversion of 2,656 shares of Class A Preferred Stock. The holder of our outstanding Class A Preferred Stock owns 51% of the voting power of our stockholders.
 
(4) Includes 27 shares of outstanding Common Stock and 5,000 shares of Common Stock issuable upon conversion of 5,000 shares of Series C Preferred Stock.
 

 

 
 
15

 
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Related Party Transactions
 
The premises housing our executive and administrative office are owned by James D. Tilton, Jr., our chief executive officer. See “Item 2. Properties.” Starting July 1, 2003, he has charged us $1,250 per month for our use of these premises, and during 2005 rent was increased to $1,500 per month.  Since August 2006, the Company, due to lack of funds has been unable to pay rent. From June 2008 through July 2009, we moved to a space on Riverbend Drive in Ludlow, Kentucky. Rent was $1,500 per month, and Mr. Tilton paid the monthly rent on our behalf. Total rent expense accrued to Mr. Tilton, our CEO, for the year ended December 31, 2009 and 2008 was $4,500 and $18,000, respectively.  No such amount is due at December 31, 2010..
 
We have multiple notes payable outstanding as of December 31, 2010 and 2009 with various related parties. Below is a summary:
 
 
Loan payable to company wholly owned by officer of Stonewall Networks, Inc. in the amount of $400,178 and $386,153 as of December 31, 2010 and 2009, respectively.
 
Note payable to employee of Stonewall Networks, Inc. in the amounts of $102,026 and $105,026 as of December 31, 2010 and 2009, respectively.
 
Note payable to company wholly owned by officer of Stonewall Networks, Inc. in the amount of $18,815 and $61,439 as of December 31, 2010 and 2009, respectively.
 
Note payable to officer of Stonewall Networks, Inc. in the amount of $ 0 and $18,075 at December 31, 2010 and 2009, respectively.
 
Note payable to company wholly owned by officer of Enhance Network Communications, Inc. in the amount of $0 and $10,100 as of December 31, 2010 and 2009, respectively.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
 
Aggregate fees billed to us for the fiscal years ended December 31, 2010 and 2009 by our principal accountants, Gruber and Company, LLC, are as follows:
 
   
For the Years Ended
December 31,
 
   
2009
   
2010
 
Audit Fees
 
$
9,000
   
$
20,000
 
Audit-Related Fees
 
$
10,000
   
$
15,000
 
Tax Fees
 
$
   
$
 
Other Fees
 
$
   
$
 
 
The audit-related fees relate to review services performed by our accountant; the tax fees relate to preparation of our tax returns by our accountant.
 
Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our independent accountants must now be approved in advance by the audit committee to assure that those services do not impair the accountants’ independence. We do not have an audit committee, so our board of directors reviews and approves audit and permissible non-audit services performed by Gruber and Company LLC as well as the fees they charge for performing those services.
 

 
 
16

 
 
PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
Financial Statements

A list of the financial statements of the Company filed as part of this Report can be found in the Index to Financial Statements on page F-1.
 
The following Exhibits are filed herewith and made part hereof.
 
3.1
 
Articles of incorporation of the registrant (incorporated by reference to the registrant’s registration statement on Form 10-KSB, as amended, filed with the Commission on July 5, 2000).
3.2
 
Certificate of designations of Series A preferred stock of the registrant filed with the Nevada Secretary of State on April 18, 2002 (incorporated by reference to the registrant’s quarterly report on form 10-QSB filed with the Commission on June 6, 2004).
3.3
 
Certificate of designations of Series B preferred stock of the registrant filed with the Nevada Secretary of State on December 17, 2003 (incorporated by reference to the registrant’s quarterly report on form 10-QSB filed with the Commission on June 6, 2004).
3.4
 
Certificate of amendment of the registrant filed with the Nevada Secretary of State on December 31, 2003 (incorporated by reference to the registrant’s quarterly report on form 10-QSB filed with the Commission on June 6, 2004).
3.5
 
Certificate of designations of Series C preferred stock of the registrant filed with the Nevada Secretary of State on January 13, 2004 (incorporated by reference to the registrant’s quarterly report on form 10-QSB filed with the Commission on June 6, 2004).
3.6
 
Corrected certificate of designation of Series D preferred stock of the registrant (incorporated by reference to the registrant's annual report on form 10-KSB filed with the Commission on March 31, 2005).
3.7
 
Certificate of Amendment of Certificate of Designation of Class A Preferred Stock (incorporated by reference to the registrant’s current report on Form 8-K filed with the Commission on May 5, 2010)
3.8
 
Certificate of Amendment of Certificate of Designation of Series D Preferred Stock (incorporated by reference to the registrant’s current report on Form 8-K filed with the Commission on August 6, 2010)
3.9
 
Certificate of Amendment of Certificate of Designation of Series E Preferred Stock (incorporated by reference to the registrant’s current report on Form 8-K filed with the Commission on August 6, 2010)
3.10
 
Bylaws of the registrant (incorporated by reference to the registrant’s registration statement on Form 10-KSB, as amended, filed with the Commission on July 5, 2000).
10.1
 
Debenture issued by the registrant to Patrick L. Brown due April 30, 2004 (incorporated by reference to the registrant’s quarterly report on form 10-QSB filed with the Commission on June 6, 2004).
10.2
 
Debenture issued by the registrant to Pinnacle Investment Partners, L.P. due February 7, 2005 (incorporated by reference to the registrant’s quarterly report on form 10-QSB filed with the Commission on June 6, 2004).
10.3
 
Securities purchase agreement dated February 7, 2004, between the registrant and Pinnacle Investment Partners, L.P. (incorporated by reference to the registrant’s quarterly report on form 10-QSB filed with the Commission on June 6, 2004).
10.4
 
Form of securities purchase agreement providing for purchase of shares of Series D preferred stock and shares of common stock (incorporated by reference to current report on Form 8-K of the registrant filed with the Commission on January 4, 2005).
10.5
 
Stock Purchase Agreement, dated September 9, 2009, among NuMobile, Inc., Enhance Network Communication, Inc., and the shareholders of Enhance Network Communication, Inc. (incorporated by reference to the registrant’s current report on Form 8-K filed with the Commission on September 18, 2009).
10.6
 
Form of Promissory Note, dated September 9, 2009 (incorporated by reference to the registrant’s current report on Form 8-K filed with the Commission on September 18, 2009).
10.7
 
Stock Purchase Agreement, dated October 7, 2009, among NuMobile, Inc., Stonewall Networks, Inc., and the shareholders of Stonewall Networks, Inc. (incorporated by reference to the registrant’s current report on Form 8-K filed with the Commission on October 16, 2009).
10.8
 
Form of Promissory Note, dated October 7, 2009 (incorporated by reference to the registrant’s current report on Form 8-K filed with the Commission on October 16, 2009).
10.9
 
Exchange Agreement, dated May 21, 2010, between the Company and Aubrey C. Brown (incorporated by reference to the registrant’s current report on Form 8-K filed with the Commission on May 26, 2010).
10.10
 
Convertible Promissory Note, dated May 27, 2010 (incorporated by reference to the registrant’s current report on Form 8-K filed with the Commission on June 3, 2010).
10.11
 
Convertible Debenture, dated September 28, 2010 (incorporated by reference to the registrant’s quarterly report on Form 10-Q filed with the Commission on November 12, 2010).
14.1
 
Code of Ethics (incorporated by reference to the registrant’s annual report on Form 10-K filed with the Commission on April 8, 2010).
21.1
 
Subsidiaries of Registrant (incorporated by reference to the registrant’s annual report on Form 10-K filed with the Commission on April 8, 2010).
31.1
 
Certification of the Chief 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 (filed herewith).
32.1
 
Certification of the Chief 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 (filed herewith).
 
 
 
 
17

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  NuMobile, Inc.  
       
Date: March 31, 2011
By:
/s/ James D. Tilton, Jr.  
    James D. Tilton, Jr.  
   
Chairman, President, Secretary and Chief Executive Officer
(Principal Executive Officer, Principal Financial Officer and
Principal Accounting Officer)
 
       
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
 
/s/ James D. Tilton, Jr.

James D. Tilton, Jr.
(Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
 
 
Chairman, President and Chief Executive Officer
 
 
March 31, 2011
 
 
 
 

 
18

 
 
NuMobile, Inc and Subsidiaries
Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 
 
 
 
Contents
 
 
  Page
   
Report of Independent Registered Public Accounting Firm F-1
   
Financial Statements:  
   
Consolidated Balance Sheets as of December 31, 2010 and 2009
F-2
   
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009
F-3
   
Consolidated Statement of Stockholders' Deficit for the years ended December 31, 2010 and 2009
F-4
   
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009
F-5
   
Notes to Consolidated Financial Statements
F-6
    
 
 

 
 
 
Report of Independent Registered Public Accounting Firm



To The Board of Directors and Stockholders of
NuMobile, Inc.
Louisville, Kentucky
 
 
We have audited the accompanying consolidated balance sheet of NuMobile, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
 
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NuMobile, Inc. and subsidiaries as of December 31, 2010 and 2009, and the consolidated results of their operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has incurred a net loss of $2,990,288, used cash for operations of $564,669 for the year ended December 31, 2010, has an accumulated deficit of $12,344,682 as of December 31, 2010 and has a working capital deficit of $9,291,993 as of December 31, 2010. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 



/s/ Gruber and Company, LLC
Certified Public Accountants

Lake St. Louis, Missouri
March 30, 2011
 
 

 
 
F-1

 
 
NuMobile, Inc and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2010 and 2009
     
   
2010
   
2009
 
             
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 24,400     $ 177,436  
Accounts receivable
    6,986       130,171  
Prepaid expenses
    840       840  
                 
TOTAL CURRENT ASSETS
    32,226     $ 308,447  
                 
PROPERTY AND EQUIPMENT, net
    16,492       14,277  
INTANGIBLE ASSETS, net
    3,722,315       4,811,618  
DEPOSIT
    50,000       50,000  
                 
TOTAL ASSETS
  $ 3,821,033     $ 5,184,342  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
    943,678       1,072,186  
Due to related party
    185,294       7,295  
Advances payable
    50,000       -  
Advances payable, related party
    41,831       -  
Convertible debt, net of discounts of $0 and $0, related party
    100,000       100,000  
Convertible debt, net of discounts of $48,066 and $23,156, respectively
    1,718,150       211,284  
Notes payable - related parties
    521,019       580,793  
Notes payable
    2,382,349       3,647,593  
Dividends payable
    667,817       996,189  
Accrued derivative liability
    1,860,481       1,313,307  
Preferred stock; Series A; $0.001 par value; 5,000 shares authorized; 0 and 2,656 shares issued and outstanding
    -       265,600  
Preferred stock; Series D convertible; $0.001 par value; 25,000 shares authorized; 6,118 and 9,034 shares issued and outstanding
    611,800       903,400  
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
    9,324,219       9,339,447  
                 
                 
COMMITMENTS AND CONTINGENCIES
    -       -  
                 
STOCKHOLDERS' DEFICIT
               
Preferred stock; Series A; $0.001 par value; 5,000 shares authorized; 2,656 and 0 shares issued and outstanding
    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; 210,796,359 and 3,241,387 shares issued and outstanding
    210,796       3,241  
Additional paid-in capital
    6,630,692       5,393,700  
Accumulated deficit
    (12,344,682 )     (9,552,051 )
                 
TOTAL STOCKHOLDERS' DEFICIT
    (5,503,186 )     (4,155,105 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 3,821,033     $ 5,184,342  
   
The accompanying notes are an integral part of these consolidated financial statements.
      
 
F-2

 
 
NuMobile, Inc and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
For the Years Ended December 31, 2010 and 2009
       
   
2010
   
2009
 
             
REVENUES
  $ 403,331     $ 177,815  
                 
COST OF REVENUE
    277,929       48,529  
                 
GROSS PROFIT
    125,402       129,286  
                 
OPERATING EXPENSES
               
General and adminstative
    1,208,220       665,202  
Depreciation and amortization
    1,095,153       314,980  
                 
TOTAL OPERATING EXPENSES
    2,303,373       980,182  
                 
LOSS FROM OPERATIONS
    (2,177,971 )     (850,896 )
                 
OTHER INCOME (EXPENSE)
               
Interest expense
    (1,205,552 )     (149,537 )
Change in accrued derivative liability
    1,093,065       577,887  
Loss on conversion of debt to equity
    (1,118,634 )     (1,080,169 )
Gain on forgiveness of debt
    22,249       -  
Loss on extinguishment of debt
    (694,228 )     -  
Impact from re-pricing derivative liabilities
    1,090,783       -  
                 
TOTAL OTHER INCOME (EXPENSE)
    (812,317 )     (651,819 )
                 
LOSS BEFORE PROVISION FOR INCOME TAXES
    (2,990,288 )     (1,502,715 )
                 
PROVISION FOR INCOME TAXES
    -       -  
                 
NET LOSS
    (2,990,288 )     (1,502,715 )
                 
PREFERRED STOCK DIVIDENDS
    (155,935 )     (280,103 )
                 
NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS
  $ (3,146,223 )   $ (1,782,818 )
                 
NET LOSS PER SHARE ATTRIBUTED TO COMMON STOCKHOLDERS - BASIC AND DILUTED:
  $ (0.16 )   $ (1.84 )
                 
WEIGHTED AVERAGE SHARES OUTSTANDING:
         
BASIC AND DILUTED
    19,489,420       968,747  
 
The accompanying notes are an integral part of these consolidated financial statements.
   
 
F-3

 
  
NuMobile, Inc and Subsidiaries
Consolidated Statement of Stockholders' Deficit
For The Years Ended December 31, 2010 and 2009
  
                                       
Additional
         
Total
 
   
Series A
   
Series C
   
Common Stock
   
Paid-in
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Deficit
 
                                                       
Balance, December 31, 2008
    -     $ -       5,000     $ 5       200,895     $ 201     $ 2,268,819     $ (7,769,233 )   $ (5,500,208 )
                                                                         
Common stock issued for conversion of Series D preferred stock and preferred stock dividends
                                    1,192,726       1,193       780,499               781,692  
Accrued preferred stock dividends
                                                            (280,103 )     (280,103 )
Conversion of debt to equity
                                    1,839,456       1,839       2,335,080               2,336,919  
Shares issued for services
                                    8,310       8       9,302               9,310  
Net loss
                                                            (1,502,715 )     (1,502,715 )
                                                                         
Balance, December 31, 2009
    -       -       5,000       5       3,241,387       3,241       5,393,700       (9,552,051 )     (4,155,105 )
                                                                         
Reclassification of Series A preferred stock arising from change in control
    2,656       3                                       265,597               265,600  
Cancellation of dividends in arrears on Series A preferred stock
                                                            353,592       353,592  
Common stock issued for conversion of Series D preferred stock and preferred stock dividends
                                    1,244,563       1,245       178,880               180,125  
Fair value of conversion option liability upon issuance of Series D & E preferred stock
                                                    (262,090 )             (262,090 )
Accrued preferred stock dividends
                                                            (155,935 )     (155,935 )
Conversion of debt to equity
                                    206,310,409       206,310       2,054,605               2,260,915  
Conversion of Series D & E preferred stock into note payable
                                                    (1,000,000 )             (1,000,000 )
Net loss
                                                            (2,990,288 )     (2,990,288 )
                                                                         
Balance, December 31, 2010
    2,656     $ 3       5,000     $ 5       210,796,359     $ 210,796     $ 6,630,692     $ (12,344,682 )   $ (5,503,186 )
 
The accompanying notes are an integral part of these consolidated financial statements.
  
 
F-4

 
 
NuMobile, Inc and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2010 and 2009
  
   
2010
   
2009
 
             
CASH FLOW FROM OPERATING ACTIVITIES:
           
Net loss
  $ (2,990,288 )   $ (1,502,715 )
Adjustment to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    1,093,088       314,980  
Amortization of debt discount
    767,847       23,413  
Bad debt expense
    1,226       -  
Change in accrued derivative liability
    (1,093,065 )     (577,887 )
Non-cash financing charge
    20,337       -  
Loss on convertion of debt to equity
    1,118,634       1,080,169  
Gain on forgiveness of debt
    (22,249 )     -  
Common stock issued for services
    -       9,310  
Note payable - related party issued for compensation
    -       100,000  
Impact from re-pricing derivative liabilities
    (1,090,782 )     -  
Loss on extinguishment of debt
    694,228       -  
Changes in operating assets and liabilities:
               
Accounts receivable
    121,959       120,239  
Prepaid expenses
    -       2,043  
Accounts payable and accrued expenses
    636,397       (164,056 )
Due to related party
    177,999       7,295  
                 
Net cash used in operating activities
    (564,669 )     (587,209 )
                 
CASH FLOW FROM INVESTING ACTIVITIES:
               
Cash purchased with acquisition
            103,438  
Purchases of property and equipment
    (6,000 )     (7,320 )
                 
Net cash provided by (used in) financing activities
    (6,000 )     96,118  
                 
CASH FLOW FROM FINANCING ACTIVITIES:
               
Proceeds from notes payable
    641,831       688,498  
Payments on notes payable
    (224,198 )     (37,591 )
                 
Net cash provided by financing activities
    417,633       650,907  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (153,036 )     159,816  
                 
CASH AND CASH EQUIVALENTS, Beginning of period
    177,436       17,620  
                 
CASH AND CASH EQUIVALENTS, End of period
  $ 24,400     $ 177,436  
                 
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
  $ 2,260,915     $ 2,336,918  
Conversion of Series A, D & E preferred stock and dividends to common stock
  $ 180,125     $ 781,693  
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     $ -  
Conversion of 7,500 of Series D and 2,500 of Series E preferred stock plus $349,600 note into new note payable
  $ 750,000     $ -  
    
The accompanying notes are an integral part of these consolidated financial statements.
  
 
F-5

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
   
NOTE 1 — ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Organization and Basis of Presenation
 
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.  The Company has recently launched a new business strategy to create a comprehensive and global mobile computing technology business.
  
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 $2,990,288, used cash for operations of $564,669 for the year ended December 31, 2010, has an accumulated deficit of $12,344,682 as of December 31, 2010 and has a working capital deficit of $9,291,993 as of December 31, 2010.  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 believes that it can continue to raise equity or debt financing to support its operations or find an acquisition candidate to complete a merger. Management believes that this could cause additional dilution to its shares of common stock. During September 2009, the Company acquired, through a stock purchase, Enhance Network Communication, Inc., which has developed a proprietary large enterprise network security technology designed for managing the information management requirements of network delivered government services.  During October 2009, the Company also acquired, through a stock purchase, Stonewall Networks, Inc. which has developed a proprietary software solution for mobile network security, including an innovative security policy management product for enterprise customers.
  
Stock Splits
 
On January 7, 2004, the Company affected a one-for-ten (1 for 10) reverse stock split of its common stock.  On January 20, 2006, the Company authorized a one-for-fifty (1 for 50) reverse stock splits of its common stock.  On June 1, 2009, the Company authorized a one-for-one hundred sixty (1 for 160) reverse stock split of its common stock.  On September 3, 2010, the Company authorized 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 three reverse stock splits.
  
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. from the date of acquisition (September 17, 2009), and Stonewall Networks, Inc. from the date of acquisition (October 2, 2009). 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.
  
 
F-6

 

NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
  
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 December 31, 2010, 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.

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.
 
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
    
 
F-7

 

NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
   
The following table represents our assets and liabilities by level measured at fair value on a recurring basis at December 31, 2010.

Description
 
Level 1
   
Level 2
   
Level 3
 
                   
Liabilities
                 
                   
Accrued derivative liability
    -     $ 1,860,481       -  
   
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.
 
F-8

 

NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
   
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 at December 31, 2010 and 2009:
   
   
2010
   
2009
 
             
Computer equipment
  $ 17,485     $ 9,418  
Office furniture and fixtures
    705       705  
Office equipment
    7,625       7,625  
Total
    25,815       17,748  
                 
Less accumulated depreciation
    (9,323 )     (3,471 )
                 
Net property and equipment
  $ 16,492     $ 14,277  
   
Intangib le Assets

Intangible assets consist of purchased technology in connection with the acquisition of Enhance Network Communication, Inc. and Stonewall Networks, Inc. (See Note 7).  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.
  
 
F-9

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
   
The following are the details of intangible assets at December 31, 2010 and 2009:

   
2010
   
2009
 
             
Software
  $ 485,078     $ 485,078  
Purchased technology
    4,638,049       4,638,049  
Total
    5,123,127       5,123,127  
                 
Less Accumulated amortization
    (1,400,812 )     (311,509 )
                 
Intangibles, net
  $ 3,722,315     $ 4,811,618  
  
The following table summarizes the amortization over the next 5 years:

Year Ended December 31,
 
Amount
 
       
2011
  $ 1,137,224  
2012
    910,528  
2013
    910,528  
2014
    764,035  
2015
  $ -  
  
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 December 31, 2010 and 2009, 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.
  
 
F-10

 

NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
  
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.

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 years ended December 31, 2010 and 2009 because the effect would have been anti-dilutive:
  
 
F-11

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
      
   
2010
   
2009
 
Common stock issuable (approximate) upon conversion of notes payable
    5,295,251,617       -  
                 
Common stock issuable (approximate) upon conversion of preferred stock
    521,462,907       12,814,589  
   
Comprehensive Loss
 
For the year ended December 31, 2010 and 2009, 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 2009 balances to conform to the 2010 presentation. These reclassifications had no effect on the recorded net income or net loss.
  
Recently Issued Accounting Pronouncements
 
On July 1, 2009, the Company adopted Accounting Standards Update (“ASU”) No. 2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments based on Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles” (“ASU No. 2009-01”).  ASU No. 2009-01 re-defines authoritative GAAP for nongovernmental entities to be only comprised of the FASB Accounting Standards Codification™ (“Codification”) and, for SEC registrants, guidance issued by the SEC.  The Codification is a reorganization and compilation of all then-existing authoritative GAAP for nongovernmental entities, except for guidance issued by the SEC.  The Codification is amended to effect non-SEC changes to authoritative GAAP.  Adoption of ASU No. 2009-01 only changed the referencing convention of GAAP in Notes to the consolidated financial statements.
 
In August 2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements and Disclosures (ASC 820) Measuring Liabilities at Fair Value. This guidance clarifies that in circumstances in which a quoted price in an active market for an identical liability is not available, a reporting entity is required to measure fair value of such liability using one or more of the of the techniques prescribed by the update. This guidance is effective for the first reporting period beginning after issuance, which is the period ending December 31, 2009.  The impact of the adoption of this guidance was not significant to the Company’s consolidated financial statements.
 
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.
   
 
F-12

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
   
On March 5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815 “Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the guidance within the derivative literature that exempts certain credit related features from analysis as potential embedded derivatives requiring separate accounting. The ASU specifies that an embedded credit derivative feature related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another is not subject to bifurcation from a host contract under ASC 815-15-25, “Derivatives and Hedging — Embedded Derivatives — Recognition.” All other embedded credit derivative features should be analyzed to determine whether their economic characteristics and risks are “clearly and closely related” to the economic characteristics and risks of the host contract and whether bifurcation is required. The ASU became effective for the Company on July 1, 2010. The adoption of this ASU did not have an impact on the Company’s 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

On September 21, 2009, the Company exchanged with a Holder 3,000 shares of its Series D preferred stock for a $301,250 convertible note, due March 21, 2010. The note accrued interest at 12% per annum. The balance of the note was $52,000 at December 31, 2009 and was fully converted and repaid during 2010. The number of shares to be received on conversion is determined by multiplying the principal being converted by 1% times the number of months from January 1, 2004 through the conversion notice date. The conversion price is equal to the lesser of 70% of the closing bid price on the date of the notice of conversion by the Holder and $0.0192. The Company recorded a beneficial conversion feature liability on September 21, 2009, valued at $46,569, which was recorded against the face value of the note and is being amortized over the note’s term. The Company valued the beneficial conversion feature liability on September 21, 2009 with the following assumptions: (1) Exercise price of $0.0192, (2) Term of 0.5 years, (3) Volatility of 0% and (4) Risk-free rate of 0.15%. The value of the liability at December 31, 2010 and 2009 was $0 and $35,476, respectively, and the change has been recorded through operations as a change in fair value of derivative liabilities in the amount of $35,476 and $11,094, respectively. The Company valued the beneficial conversion feature liability on December 31, 2009 with the following assumptions: (1) Exercise price of $0.00378, (2) Term of 0.25 years, (3) Volatility of 0% and (4) Risk-free rate of 0.20%.
   
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 and $100,000 at December 31, 2010 and 2009, respectively. On December 31, 2010 and 2009, the notes were convertible into a total of 285,714,286 and 370,270 shares of common stock, respectively.
  
 
F-13

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 
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. 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 February 18 and December 31, 2010, the debenture was convertible into 625,000 and 152,857,143 shares of the Company’s common stock, respectively. On May 20, 2010, the Company entered into a second convertible debenture with the same holder, for cash proceeds of $60,000. This debenture matured November 20, 2010, was issued on the same terms as the first convertible debenture and is currently in default at December 31, 2010. On May 20, 2010 and December 31, 2010, the debenture was convertible into 1,043,478 and 180,000,000 shares of the Company’s common stock, respectively. On September 28, 2010, the Company entered into a third convertible debenture with this holder, with a principal amount and cash proceeds of $100,000. This debenture matures March 28, 2011 and was issued on the same terms as the other convertible debentures issued to this holder. On September 28, 2010 and December 31, 2010, the debenture was convertible into 10,000,000 and 291,428,571 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. The initial fair values of the conversion option features were estimated at $50,045 on February 18, 2010, $65,283 on May 20, 2010 and $100,094 on September 28, 2010 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 – 0.22%, and (4) expected life of 0.50 years. On December 31, 2010, the entire $210,000 balance remained outstanding.
 
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 matured on September 30, 2010 and bears interest at 8% per annum. In October 2010, the note’s maturity was extended to March 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 closing bid price of the common stock on the date that the Company receives notice of conversion. On March 3 and December 31, 2010, the entire debenture was convertible into 1,417,457 and 878,942,857 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 December 31, 2010, the entire $90,000 plus the $182,440 previous balance remained outstanding.
 
On February 26, 2010, the Company exchanged 2,000 shares, or $200,000 plus $1,250 of accrued dividends of its Series D preferred stock for a convertible promissory note with a principal amount of $201,250. The note matured on August 26, 2010 and bears interest at 12% 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, as is determined by dividing (i) the sum f (A) the outstanding amount, plus (B) an amount equal to 1% of the outstanding amount multiplied by the number of months elapsed from January 20, 2004 until the date of conversion by (ii) the conversion price at that time. The conversion price means the lesser of 70% of the closing bid price or (ii) $0.0192. On February 26, 2010, the note was convertible into 2,300,000 shares of the Company’s common stock. The initial fair value of the conversion option feature was estimated at $148,680 using the Black-Scholes pricing model. The assumptions used in the Black-Scholes option pricing model at February 26, 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 0.50 years. During the year ended December 31, 2010, the holder converted the entire balance of the note into 3,823,957 shares of the Company’s common stock.
   
 
F-14

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 
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. On May 27 and December 31, 2010, the note was convertible into 4,373,089 and 563,089,912 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.
 
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. The Company has considered the impact of ASC 470-50 “Debt-Modifications and Extinguishments” on the accounting treatment for the restructuring of the instruments into one note. ASC 470-50 states that a transaction resulting in a significant change in the nature of a debt instrument should be accounted for as an extinguishment of debt. The difference between the reacquisition price and the net carrying amount of the extinguished debt should be recognized currently in income of the period of extinguishment. The Company has concluded that the issuance of the Series 2010-A convertible note in place of the Series D preferred stock, Series E preferred stock and $349,600 promissory note constitutes a substantial modification. During the year ended December 31, 2010, the Company recognized a loss on extinguishment of debt of $773,148 representing the difference between the fair value of the Series 2010-A convertible promissory note and the carrying value of the original instruments, plus the fair value of the conversion option liability. 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.
      
 
F-15

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
   
Debt Extinguishment
 
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 April 20, 2011. 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.
 
The Company has considered the impact of ASC 470-50 “Debt-Modifications and Extinguishments” on the accounting treatment for the restructuring of the instruments into one note. The Company has concluded that the exchange of the old note for a replacement convertible note constitutes a substantial modification. During the year ended December 31, 2010, the Company recognized a gain on extinguishment of debt of $57,360 representing the difference between the fair value of the replacement note and the carrying value of the original note and accrued interest, plus the fair value of the conversion option. 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.
 
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 April 22, 2011. 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.
   
 
F-16

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
  
The Company has considered the impact of ASC 470-50 “Debt-Modifications and Extinguishments” on the accounting treatment for the restructuring of the instruments into one note. The Company has concluded that the exchange of the old note for a replacement convertible note constitutes a substantial modification. During the year ended December 31, 2010, the Company recognized a gain on extinguishment of debt of $21,560 representing the difference between the fair value of the replacement note and the carrying value of the original note and accrued interest, plus the fair value of the conversion option. 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 December 31, 2010 and December 31, 2009 was $1,860,481 and $1,313,307, respectively. The Company recorded a change of $1,093,065 and $577,887 in its accompanying statements of operations for the years ended December 31, 2010 and 2009, respectively as change in accrued derivative liability. The assumptions used in the Black-Scholes option pricing model at December 31, 2010 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 0.12% - 2.01%, and (4) expected life of 0.24 - 5 years. Interest expense on the Company’s debt for the years ended December 31, 2010 and 2009 was $417,910 and $126,547, respectively. Interest expense arising from amortization of debt discounts amounted to $671,062 and $23,156 during the years ended December 31, 2010 and 2009 respectively.
  
NOTE 4 — NOTE PAYABLE
 
Notes payable consisted of the following at December 31, 2010 and 2009:

   
2010
   
2009
 
Note payable to investor; interest accrues at 12%; note is unsecured and due upon demand
  $ 108,400     $ 108,400  
                 
Note payable to investor; interest accrues at 18%; note is unsecured and due upon demand
    10,000       10,000  
                 
Note payable to investor; interest accrues at 18%; note is unsecured and due upon demand
    -       19,119  
                 
Note payable assumed in connection with purchase of Enhance Network Communication, Inc.
    178,875       425,000  
                 
Note payable to shareholders of Stonewall Networks, Inc.; note is due on December 31, 2011
    1,350,000       1,350,000  
                 
Note payable to shareholders of Enhance Network Communication, Inc.; note is due on September 9, 2010. Note is past due.
    -       1,000,000  
                 
Note payable to investor; note is unsecured; interest accrues at 8% and due June 15, 2010. Has been extended to March 31, 2011.
      100,000       100,000  
                 
Note payable to investor; note is unsecured; interest accrues at 8% and due December 31, 2008. Has been extended to March 31, 2011.
    25,016       25,016  
                 
Note payable to investor; note is unsecured; interest accrues at 8% and due October 15, 2011.
    610,058       610,058  
                 
    $ 2,382,349     $ 3,647,593  
   
 
F-17

 
   
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
  
NOTE 5 — NOTE PAYABLE – RELATED PARTIES
 
Notes payable – related parties consisted of the follows at December 31, 2010 and 2009:
   
   
2010
   
2009
 
Loan payable to company wholly owned by officer of Stonewall Networks, Inc.; interest accrues at Prime Rate plus 1%; note is unsecured and due upon demand
    400,178       386,153  
                 
Note payable to employee of Stonewall Networks, Inc.; interest accrues at 8%; note is unsecured and due on demand
    102,026       105,026  
                 
Note payable to company wholly owned by officer of Stonewall Networks, Inc.; does not accrue interest; note is unsecured and due on demand
    18,815       61,439  
                 
Note payable to officer of Stonewall Networks, Inc.; does not accrue interest; note is unsecured and due on demand
    -       18,075  
                 
Note payable to company wholly owned by officer of Enhance Network Communication, Inc.; does not accrue interest;  note is unsecured and due on demand
    -       10,100  
    $ 521,019     $ 580,793  
      
 
F-18

 

NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
  
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 October 5, 2005, the Company filed an Information Statement requesting approval from the stockholders to give the Company’s board of directors the authority to (1) effect a reverse stock split of each share of common stock of the Company at a ratio of one share for up to 50 shares of common stock outstanding, as determined by the Company’s board of directors at its discretion, and (2) amend the Company’s Articles of Incorporation to increase from 980,000,000 to 5,000,000,000 the number of shares of common stock the Company is authorized to issue. The stockholders approved items (1) and (2) above and 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 three reverse stock splits.
 
Common Stock
 
The Company had the following transactions in its common stock.
 
For the year ended December 31, 2010, the Company issued:

·  
1,244,563 shares of common stock for the conversion of Series D stock and preferred stock dividends of $180,125;
·  
206,310,409 shares of common stock for the conversion of convertible debt and notes payable of $2,260,915.

For the year ended December 31, 2009, the Company issued:

·  
1,192,726 shares of common stock for the for conversion of Series D stock and preferred stock dividends of $781,692;
·  
8,310 shares of common stock for services valued at $9,310 (the value was determined the fair value of the Company’s stock at the date of issuance); and
·  
1,839,456 shares of common stock for the conversion of convertible debt/notes payable of $2,336,919.
    
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.
   
 
F-19

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
  
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) at a discount of (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:

 
o
All accrued but unpaid dividends payable to the holders of Class A Preferred Stock were eliminated.

 
o
The right of the holders of the Class A Preferred Stock to receive future dividends was eliminated.

 
o
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.
   
 
F-20

 
 
NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
 
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). The Company recognized a gain from re-pricing its derivative liabilities in the amount of $1,090,783 during the year ended December 31, 2010 in connection with the change in the conversion price of the Series D and Series E preferred stock.
 
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. See Note 3.
   
 
F-21

 

NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
        
NOTE 7 — ACQUISITION
   
On September 17, 2009 the Company entered into a stock purchase agreement with Enhance Network Communication, Inc., a California corporation ("Enhance").  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. The Company purchased from the shareholders of Enhance 1,500 shares of common stock of Enhance, representing 100% of the outstanding capital stock of Enhance. The Company issued to the Enhance shareholders a note in the principal amount of $5,000,000 (the "Note"). $1,000,000 of the principal amount of the Note (the "Initial Principal Amount") will be due and payable on September 9, 2010. The Company's obligation to repay the remaining $4,000,000 principal amount of the Note (the "Final Principal Amount") is conditioned upon Enhance entering into a contract for its proprietary technology that contemplates the generation of at least $20,000,000 in revenue and $8,000,000 in gross margin prior to April 1, 2011 (the "Final Principal Amount Conditions"). If the Final Principal Amount Conditions are met, the Final Principal Amount will be due and payable on September 9, 2014. If the Final Principal Amount Conditions are not met, the Note shall be deemed paid in full and cancelled on April 1, 2011, subject to the payment of the Initial Principal Amount, interest thereon, and any other amounts due thereon. Interest on the Note accrues at the rate of 8% per annum commencing on September 9, 2009, with respect to the Initial Principal Amount and April 1, 2011 with respect to the Final Principal Amount, and is due and payable upon maturity of the Initial Principal Amount and Final Principal Amount (provided the Final Principal Amount Conditions are met) respectively. If the Final Principal Amount Conditions are met, the shareholders of Enhance will have the option to repurchase the 1,500 shares of common stock of Enhance for $5,000,000 in cash and the cancellation of the Note.  The Final Principal Amount of $4,000,000 is considered a contingent note and will not be recorded on the balance sheet until the Final Principal Amount Conditions are met.

The Company purchased Enhance as part of its strategy to build a portfolio of security and software solution companies.  The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. 

Cash
  $ 98,421  
Accounts receivable
    250,410  
Property and equipment
    16,024  
Intangible asset
    1,889,681  
Accounts payable and accrued expenses
    (429,536 )
Notes payable
    (825,000 )
Purchase price
  $ 1,000,000  

The intangible asset is being amortized over 5 years using the straight line method.

On October 12, 2009, the Company entered into a stock purchase agreement, dated October 7, 2009 with Stonewall Networks, Inc., a Delaware corporation (“Stonewall”) and the shareholders of Stonewall. Stonewall is a development stage information technology security product company headquartered in Cary, North Carolina. Pursuant to the Purchase Agreement, on October 15, 2009, the Company purchased from the shareholders of Stonewall 3,720,000 shares of common stock and 5,924,243 shares of Series A preferred stock of Stonewall, representing 100% of the outstanding capital stock of Stonewall. The Company issued to the Stonewall shareholders notes in the aggregate principal amount of $1,350,000.
   
 
F-22

 

NuMobile, Inc and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
   
The Company purchased Stonewall as part of its strategy to build a portfolio of security and software solution companies.  The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. 

       
Cash
  $ 5,017  
Prepaid expenses
    2,883  
Property and equipment
    1,724  
Intangible asset
    3,226,126  
Accounts payable and accrued expenses
    (669,308 )
Notes payable
    (1,216,442 )
Purchase price
  $ 1,350,000  

The intangible asset is being amortized over 5 years using the straight line method.

The following pro forma financial information presents the consolidated operations of the Company as if the above mentioned acquisitions had occurred on January 1, 2008.
  
For the years ended December 31, 2009 and 2008:

   
2009
   
2008
 
             
Revenues
  $ 839,844     $ 1,143,297  
Gross profit
  $ 462,786     $ 356,087  
Loss from operations
  $ (1,772,076 )   $ (1,929,197 )