ProText Mobility, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - ProText Mobility, Inc.	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - ProText Mobility, Inc.	v230081_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - ProText Mobility, Inc.	v230081_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - ProText Mobility, Inc.	v230081_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - ProText Mobility, Inc.	v230081_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2011

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

For the transition period from _______________________ to _____________

Commission file number 001-31590

ProText Mobility, Inc.

(Exact name of small business issuer as specified in its charter)

Delaware	11-3621755
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

6800 Jericho Turnpike, Suite 208E,
Syosset, New York	11791
(Address of principal executive offices)	(Zip Code)

Issuer's telephone number, including area code (516) 802-0223

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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 x No ¨

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 definitions of “large accelerated filer,” “accelerated filer,” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company x
		(Do not check if a smaller
		reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchanges Act) Yes ¨ No x

State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date.

The outstanding number of the issuer's common stock, par value $.0001, as of August 8, 2011 is 165,385,774 shares.

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

INDEX

	Page No.

Factors Affecting Forward-Looking Statements	2

PART I FINANCIAL INFORMATION

ITEM 1 – Financial Statements:

Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010 (Audited)	3–4

Consolidated Statements of Operations For the Three Months and Six Months ended June 30, 2011 (Unaudited) and 2010 (Unaudited)	5

Consolidated Statements of Cash Flows For the Six Months ended June 30, 2011 (Unaudited) and 2010 (Unaudited )	6-7

Notes to Consolidated Financial Statements (Unaudited)	8 -17

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	18-22

ITEM 3 – Quantitative and Qualitative Disclosure about Market Risk	22

ITEM 4T –Controls and Procedures	22

PART II:

Item 1 – Legal Proceedings	22
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3 – Defaults upon Senior Securities	23
Item 4 – Removed and Reserved	23
Item 5 - Other Information	23
Item 6 – Exhibits	24
Signature Page	25

Forward Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We do not undertake any duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q to conform these statements to actual results, unless required by law.

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

	June 30,		December 31,
	2011		2010
	(Unaudited)		(Audited)
Current assets:
Cash	$	2,397	$	60,209
Prepaid expenses		15,268		12,130
Total current assets		17,665		72,339

Property and equipment - net		1,398		14,647

Other assets:
Capitalized software costs, less accumulated amortization of $156,355 and $112,250, respectively		241,127		161,931
Website development costs, less accumulated amortization of of $2,916 and $21,250, respectively		27,084		38,750
Security deposit		9,454		9,454
Total other assets		277,665		210,135

Total assets	$	296,728	$	297,121

See notes to consolidated unaudited financial statements

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

LIABILITIES AND STOCKHOLDERS' DEFICIT

	June 30,			December 31,
	2011			2010
	(Unaudited)			(Audited)
Current liabilities:
Current portion of long term debt and capital leases	$	-		$	6,002
Current portion of 10% convertible notes payable		114,034			114,034
Convertible short term bridge notes payable, net of discount of $0 and $535,053 respectively		660,125			976,407
Non convertible short term bridge notes payable		-			124,790
Due to stockholder		-			195,686
Accounts payable		476,472			370,126
Accrued expenses		271,230			201,234
Total current liabilities		1,521,861			1,988,279

Other liabilities:
Dividends payable		324,632			90,840
Deferred rent		2,003			3,849
Total liabilities		1,848,496			2,082,968

Stockholders' deficit
Preferred stock - $.0001 par value, authorized - 25,000,000 shares;
Series A Preferred stock - $.0001 par value, $2.62 liquidation value, 1,526,718 designated; issued and outstanding -164,805 and 269,862 repectively		16			27
Series B Preferred stock - $.0001 par value, $9.09 liquidation value, 1,000,000 designated; issued and outstanding -511,551		51			51
Common stock - $.0001 par value, authorized - 400,000,000 shares;
issued and outstanding -165,144,107 and 145,138,192 shares respectively		16,514			14,514
Additional paid-in capital		43,348,562			40,926,795
Accumulated deficit		(44,916,911	)		(42,727,234	)
Total stockholders' deficit		(1,551,768	)		(1,785,847	)

Total liabilities and stockholders' deficit	$	296,728		$	297,121

See notes to consolidated unaudited financial statements

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	For the Six Months Ending June 30,						For the Three Months Ended June 30,
	2011			2010			2011			2010

Revenues	$	12,691		$	16,419		$	7,003		$	8,796

Cost of Sales:
Commissions		-			224			-			28
Amortization of Software Costs		44,105			67,474			22,907			34,939
Cost of Sales		44,105			67,698			22,907			34,967

Gross Loss		(31,414	)		(51,279	)		(15,904	)		(26,171	)

Operating expenses:
Selling		15,233			27,150			8,536			2,391
Web site costs		54,203			65,311			26,455			34,323
General and administrative		1,242,558			1,940,948			490,899			1,088,270
Depreciation and amortization		16,165			37,548			7,699			19,647
Total operating expenses		1,328,159			2,070,957			533,589			1,144,631

Loss from operations		(1,359,573	)		(2,122,236	)		(549,493	)		(1,170,802	)

Other (income) expenses:
Interest		49,523			119,820			19,464			57,230
(Gain)/loss on extinguishment of liabilities		(23,981	)		31,263			11,258			31,263
Other income		(4,000	)		-			-			-
Write off of website costs		38,750			-			-			-
Debt conversion expense		966			159,638			-			159,638
Amortization of note discounts		535,054			187,664			-			73,199
Total other expenses		596,312			498,385			30,722			321,330

Net loss		(1,955,885	)		(2,620,621	)		(580,215	)		(1,492,132	)

Common stock dividends to be issued for Series B Preferred Stock		(233,792	)		(90,430	)		(117,542	)		(55,430	)
Deemed preferred stock dividend related to warrant modification		-			(2,023,804	)		-			-
Deemed preferred stock dividend related to issuance of warrants and common stock		-			(2,953,181	)		-			(574,438	)

Net loss applicable to common stock holders	$	(2,189,677	)	$	(7,688,036	)	$	(697,757	)	$	(2,122,000	)

Per share data
Loss per share - basic and diluted	$	(0.01	)	$	(0.08	)	$	(0.00	)	$	(0.02	)

Weighted average number of shares outstanding- basic and diluted		147,959,708			96,161,391			163,362,892			112,628,931

See notes to consolidated unaudited financial statements

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	For the Six Months Ended June 30,
	2011			2010

Cash flows from operating activities:
Net loss	$	(1,955,885	)	$	(2,620,621	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on extinguishment of debt		(23,981	)		31,263
Debt modification expense		966			159,638
Write off of website development costs		38,750			-
Warrants/options issued for consulting services		61,954			169,687
Warrants/options issued to employees		-			-
Common stock issued for services		155,534			48,600
Common stock issued for compensation		105,500			-
Stock issued for interest		6,842			14,796
Compensatory element of stock options		220,379			632,381
Depreciation		13,249			30,049
Amortization of software and website development costs		47,021			74,974
Amortization of discount related to debt		535,054			187,664
Increase (decrease) in cash flows as a result of changes in asset and liability account balances:
Accounts receivable		-			32
Prepaid expenses and other assets		(3,138	)		5,031
Deferred rent		(1,846	)		(1,846	)
Accounts payable and accrued expenses		375,936			163,935
Due to stockholders		(4,314	)		-
Total adjustments		1,527,906			1,516,204

Net cash used in operating activities		(427,979	)		(1,104,417	)

Cash flows from investing activities:
Capitalized software costs		(123,301	)		(89,044	)
Capitalized website development costs		(5,000	)		-
Net cash used in investing activities		(128,301	)		(89,044	)

See notes to consolidated unaudited financial statements

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

	For the Six Months Ended June 30,
	2011			2010

Cash flows from financing activities:
Proceeds from sale of Preferred B securities	$	-		$	1,300,000
Proceeds from sale of common stock		337,500			-
Proceeds from exercise of stock options		26,970			-
Payments to stockholders		-			(56,076	)
Proceeds from bridge notes payable		170,000			200,000
Payments of bridge notes payable		(30,000	)		(210,000	)
Payments of note payable - equipment		(2,773	)		-
Payments of 10% investor notes payable		-			(6,815	)
Payments under capital lease		(3,229	)		(22,267	)
Net cash provided by financing activities		498,468			1,204,842

Net (decrease) increase in cash		(57,812	)		11,381

Cash at beginning of period		60,209			37,890

Cash at end of period	$	2,397		$	49,271

Supplemental Schedules of Noncash Investing and Financing Activities:
Common stock issued in connection with settlement agreement	$	25,000		$	72,000
Common stock issued in connection with extinguishment of payable	$	267,033		$	14,000
Common stock issued as a result of debt conversion	$	1,116,126		$	311,404
Common stock issued in lieu of accrued interest	$	125,012		$	228,750
Restricted stock issued in connection to bridge loans	$	-		$	31,438
Debt discount related to restricted stock issued in connection to modification of debt instruments	$	-		$	154,054
Increase in fair value of embedded conversion feature recognized in connection with debt modification	$	-		$	26,653
Debt discount related to warrants granted in connection to bridge loans	$	-		$	38,795
Debt discount of beneficial conversion feature in relation to bridge loans	$	-		$	15,121
Common stock dividends payable for Series B Preferred Stock	$	233,792		$	-
Common stock dividends issued for Series B Preferred Stock	$	-		$	90,430
Deemed preferred stock dividend related to warrant modification	$	-		$	2,023,804
and common stock	$	-		$	2,953,181

See notes to consolidated unaudited financial statements

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

June 30, 2011

NOTE 1 - DESCRIPTION OF BUSINESS

The Company and Nature of Business

ProText Mobility Inc. (formerly known as EchoMetrix Inc. and SearchHelp, Inc) was incorporated in the State of Delaware on September 5, 2001 and completed its initial public offering on July 23, 2003. During the fiscal year ended December 31, 2008, the Company acquired 100% of the stock of EchoMetrix, Inc, a wholly owned subsidiary, and in May of 2009 the Company filed a Certificate of Ownership and Merger with the state of Delaware pursuant to which EchoMetrix was merged into the Company, and the Company's corporate name was changed from SearchHelp, Inc. to EchoMetrix, Inc. In December of 2010, the Company formed a new Corporation (ProText Mobility, Inc) and filed a Certificate of Ownership and Merger with the state of Delaware pursuant to which the Company’s wholly owned subsidiary, ProText Mobility, Inc., was merged into the Company, and the Company’s name changed from Echo Metrix, Inc. to ProText Mobility, Inc.

Presentation of Interim Statements

The accompanying unaudited consolidated financial statements have been prepared, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Annual report, as amended on Form 10-K/A filed on April 11, 2011. The results of the six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

Going Concern

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the unaudited consolidated financial statements, the Company incurred net losses of approximately $1,956,000 and $2,621,000 for the six months ended June 30, 2011 and 2010, respectively. In addition, the Company had negative working capital of approximately $1,504,000 and an accumulated deficit of approximately $44,917,000 at June 30, 2011. These matters raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management's efforts have been directed towards the development and implementation of a plan to generate sufficient revenues to cover all of its present and future costs and expenses. This plan is to address mobile messaging market opportunities with novel, comprehensive and robust solutions for the consumer and enterprise market. Overall, we see a unique opportunity to add value to the text messaging market.

Our lead offering, SafeText, is a premium service for mobile devices that provide parents a solution to help manage their children’s mobile communications activities. SafeText is offered in two configurations; a device-based and a network-based solution as more fully described in Management's Discussion and Analysis of Financial Condition and Results of Operations. If the Company does not generate sufficient revenues from the sales of its products in an amount necessary to meet its cash needs, the Company will need additional financing to continue to operate. There are no assurances that the Company can continue to successfully raise additional financing. As the Company increases sales from its products and services, the Company expects to have cash flows from operations. For the six months ended June 30, 2011, the Company raised through private placements of common stock and warrants and issuance of debt of approximately $508,000. In addition an approximate total of $1,241,000 of the bridge notes payable and accrued interest have been converted into common stock for the six months ended June 30, 2011.

NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES

(a) Earnings Per Share :

The Company utilizes the guidance per FASB Codification “ASC 260 "Earnings Per Share". Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented separately as it is anti-dilutive. Such securities, shown below, presented on a common share equivalent basis and outstanding as of June 30, 2011 and 2010 have been excluded from the per share computations:

	For the Six Months Ended
	June 30,
	2011		2010
2004 Stock Plan Options		230,000		230,000
Non ISO Stock Options		31,204,900		25,791,922
Convertible Preferred Stock		52,764,630		45,316,000
Convertible Notes Payable		8,729,195		14,835,964
Warrants		107,025,589		87,172,317

(b) Software Development Costs:

Research and development costs are expensed as incurred. No research and development costs were incurred during the six months ended June 30, 2011 and 2010.

In accordance with the provisions of Accounting for the costs of computer software to be sold or otherwise marketed, software development costs are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for release to customers. For the six months ended June 30, 2011 and 2010, respectively, the Company capitalized approximately $128,000 and $89,000, respectively of software and website development costs. The software costs are amortized on a straight line basis over the estimated useful life of three years. Amortization expense for the six months ended June 30, 2011 and 2010 was approximately $44,000 and $67,000 respectively.

The Company recognizes revenues in accordance with authoritative guidance when services have been rendered, the sales price is determinable and collectability is reasonably assured. Revenue from online Internet sales is recognized upon the settlement of credit card charges, typically within three days of the sale.

(d) Use of Estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

(e) Recent Accounting Pronouncements:

In March 2011, the SEC issued Staff Accounting Bulletin (SAB) 114. This SAB revises or rescinds portions of the interpretive guidance included in the codification of the Staff Accounting Bulletin Series. This update is intended to make the relevant interpretive guidance consistent with current authoritative accounting guidance issued as a part of the FASB’s Codification. The principal changes involve revision or removal of accounting guidance references and other conforming changes to ensure consistency of referencing through the SAB Series. The effective date for SAB 114 is March 28, 2011. The adoption of the new guidance did not have a material impact on the Company’s consolidated audited financial statements.

In April 2011, the FASB issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” The amendments in this ASU clarify the guidance on a creditor’s evaluation of whether it has granted a concession to a debtor. They also clarify the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulty. The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011. Early adoption is permitted. Retrospective application to the beginning of the annual period of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, an entity may identify receivables that are newly considered to be impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Company is currently assessing the impact that ASU 2011-02 will have on its consolidated audited financial statements.

In June 2011, the FASB issued ASU 2011-05, which is an update to Topic 220, “Comprehensive Income”. This update eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity, requires consecutive presentation of the statement of net income and other comprehensive income and requires reclassification adjustments from other comprehensive income to net income to be shown on the financial statements. ASU 2011-05 is effective for all interim and annual reporting periods beginning after December 15, 2011. ASU 2011-05 is not expected to have a material impact on the Company’s financial position or results of operation.

The Company evaluates the new accounting provisions for guidance applicable to ProText Mobility, Inc. During the period, the Company does not believe there are any new pronouncements that will materially impact the Company.

(f) Long-Lived Assets

In accordance with FASB Codification Topic ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, we review long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. In such circumstances, we will estimate the future cash flows expected to result from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we will recognize an impairment loss to adjust to the fair value of the asset. In the six months ended June 30, 2011, the Company launched its new website and accordingly wrote off the remaining value of the website costs that were capitalized with the prior website totaling approximately $39,000 which is included in the accompanying consolidated statement of operations. There was no impairment for the six months ended June 30, 2010.

NOTE 3 – STOCK COMPENSATION

The Company’s 2004 Stock Plan (the “ 2004 Plan”), which is shareholder approved, permits the grant of share options and shares to its employees for up to 1,500,000 shares of Common Stock as stock compensation. All stock options under the 2004 Stock Plan are granted at the fair market value of the Common Stock at the grant date. Employee stock options vest ratably over a three-year period and generally expire 5 years from the grant date.

The Company’s 2009 Incentive Stock Plan, (the “2009 Plan”), which is Board of Director approved, permits the grant of share options and shares to directors, executives and selected employees and consultants for up to 25,000,000 shares of Common Stock as stock compensation. During the six months ended June 30, 2011, 2,195,752 shares of common stock have been issued to employees and consultants for services.

Accounting for Employee Awards:

The Company adheres to the provisions of Share Based Compensation as defined in the FASB codification, topic ASC 718. The codification focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment transactions. This guidance requires an entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost is recognized over the period during which an employee is required to provide services in exchange for the award.

As a result of the adoption of the provision of Share Based Compensation, the Company's results for the six months ended June 30, 2011 and 2010 include share-based compensation expense for employees and board of directors totaled approximately $467,000 and $607,000, respectively, which have been included in the general and administrative expenses line item in the accompanying consolidated statement of operations. No income tax benefit has been recognized in the income statement for share-based compensation arrangements as the Company has provided a 100% valuation allowance on its’ net deferred tax asset. Stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for the entire portion of the award. The Company has not adjusted the expense by estimated forfeitures, as required for employee options, since the forfeiture rate based upon historical data was determined to be immaterial.

During the six months ended June 30, 2011 the Company granted 1,100,000 fully vested options to employees with an exercise price ranging from $0.01 to $0.10 and a five year term.

The fair value of options at the date of grant is estimated using the Black-Scholes option pricing model. During the six months ended June 30, 2011 and 2010 the assumptions made in calculating the fair values of options are as follows:

	For the Six Months Ended
	June 30,
	2011			2010
Expected term (in years)		5			5
Expected volatility		106.2%-106.38	%		100.31%-104.89	%
Expected dividend yield		0			0
Risk-free interest rate		3.42%-3.64	%		2.97%-4.01	%

Accounting for Non-employee Awards:

The Company records its stock-based compensation expense in accordance with ASC 718-10, formerly SFAS 123R, “Share Based Payment” to its non-employee consultants for stock granted.

Stock compensation expense related to non-employee options was approximately $0 and $164,000 for the six months ended June 30, 2011 and 2010, respectively. These amounts are included in the Consolidated Statements of Operations within the general and administrative expenses line item.

There were no options granted to non-employees during the six months ended June 30, 2011.

The following table represents our stock options granted, exercised, and forfeited during the six months ended June 30, 2011.

						Weighted		Weighted
						Average		Average
						Exercise		Remaining		Aggregate
			Number			Price		Contractual		Intrinsic
Stock Options			of Shares			per Share		Term		Value
Outstanding at January 1, 2010				32,473,422		$	0.20		2.3029	$	0
Granted				1,100,000		$	0.09		4.5648		0
Exercised				(746,119	)	$	0.03
Forfeited/expired				(1,392,403	)	$	0.05
Outstanding at June 30, 2011				31,434,900		$	0.11		3.0513	$	0

Exercisable at June 30, 2011				31,434,900		$	0.11		3.0513	$	0
Weighted average fair value of options granted during the year	$	0.10

As of June 30, 2011, there was approximately $74,000 of unrecognized compensation cost, related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately less than 1 year.

NOTE 4 - 10% CONVERTIBLE NOTES PAYABLE

In May of 2010, the Company sent each noteholder a letter which (i) offered to lower their conversion from $0.40 to $0.14 per share or (ii) exchange their existing note for a new note with the same principal and interest terms to extend the maturity date by nine months. In exchange for the new note, each noteholder would receive one restricted share of the Company’s common stock and one warrant (with a $0.35 exercise price and one year term) for each one dollar of principal outstanding.

During the fiscal year ended December 31, 2010 the Company exchanged $41,596 of principal, issuing 41,596 of the Company’s restricted common stock and 41,596 warrants (at an exercise price of $0.35 with a one year term). The new note is a nine month note with interest calculated at 10% per annum paid in stock on a quarterly basis. The note is senior to any cash distributions to the Company’s primary investor and has mandatory principal repayment terms when and if options and warrants are exercised and the Company receives the cash proceeds.

During the fiscal year ended December 31, 2010, the Company’s 10% Noteholders converted approximately $120,000 of their principal balances and received 855,703 shares of common stock. The Company applied the accounting per ASC 470-20, when conversion prices are lowered to induce conversion and recorded debt conversion expense totaling approximately $64,000 as a result of the decrease in the conversion price from $0.40 to $0.14. The offset of the conversion was to additional paid in capital.

As of June 30, 2011 the remaining 10% convertible notes outstanding were in default. The default provision requires an additional 2% interest per annum until the loans are repaid or converted. The 2% default penalty totaled approximately $1,147 and $2,100 for six months ended June 30, 2011 and 2010, respectively and is included in interest expense on the consolidated statement of operations and in accrued expenses on the consolidated balance sheet as of June 30, 2011 and December 31, 2010, respectively.

As reflected on the balance sheets, the value of the 10% convertible notes at June 30, 2011 and December 31, 2010 amounted to approximately $114,000 and are classified as current due to the fact that they are in default for the non payment by the maturity date

NOTE 5 - BRIDGE NOTES PAYABLE

Convertible Bridge Notes Payable:

2011

In March of 2011, bridge noteholders converted approximately $991,000 of principal and $77,000 in accrued interest into 7,802,262 shares of the Company’s common stock. During the six months ended June 30, 2011 the company received $170,000 in short term convertible bridge notes payable. The notes bear interest at 10% interest and is payable upon maturity, 90 days from the date of the loans. During the six months ended June 30, 2011, the Company repaid $30,000 of notes payable.

During the six months ended June 30, 2011, the Company recorded amortization expense of approximately $535,000 relating to prior year debt discount on bridge notes payable.

2010

In May of 2010, the Company sent each noteholder an inducement letter which (i) offered to lower their conversion from $0.15 to $0.14 per share of principal and to lower the accrued interest from $0.14 to $0.12 or (ii) exchange their existing note for a new note with the same principal and interest terms to extend the maturity date by nine months. In exchange for the new note, each noteholder would receive one restricted share of the Company’s common stock and one warrant (with a $0.35 exercise price and one year term) for each one dollar of principal outstanding.

During the fiscal year ended December 31, 2010 convertible note holders converted approximately $376,000 of their principal balance and approximately $203,000 of their accrued interest into 3,928,571 and 1,689,520 shares , respectively of the Company’s common stock. In accordance with ASC 470-20, the Company applied the guidance for debt inducement, and recorded an expense for the debt modification of approximately $212,000 as a result of the decrease in the conversion price.

In addition, during the fiscal year ended December 31, 2010 the Company exchanged approximately $1,100,000 of principal bridge notes payable (which includes non convertible loans that exchanged their loans for convertible loans (of approximately $113,000 of principal) and issued 1,066,366 of the Company’s restricted common stock and 1,066,366 of warrants (at an exercise price of $0.35) with a one year term. The new notes were for nine months and interest is calculated at 10% per annum, payable quarterly in stock. For the year ended December 31, 2010 interest expense totaled approximately $108,000 which is accrued on the accompanying consolidated balance sheet. The notes are convertible at any time at $0.14 and carry mandatory principal repayments when options or warrants are exercised and the company receives cash proceeds.

The Company evaluated the extension event under ASC 470-50 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” to determine if the modification was substantial. Because the change in fair value of the conversion option was less than 10% of the carrying value of the debt, the debt modification determined not to be substantial and as a result, no gain or loss was recorded.

The Company received approximately $645,000 in new bridge notes during the year ended December 31, 2010 issuing 1,290,250 of restricted common shares, recording a discount of approximately $466,000. During the year ended December 31, 2010 the Company repaid approximately $645,000 to bridge note holders.

The Company recorded amortization expense totaling approximately $679,000 for the fiscal year ended December 31, 2010, respectively related to bridge note holders.

Non Convertible Bridge Notes Payable:

2011

In March of 2011, the principal balance of the note of approximately $125,000 and accrued interest of approximately $48,000 was converted into 1,424,028 shares of common stock of the Company.

2010

On October 4, 2007, the Company issued a short term promissory note in the principal amount of $150,000. This note was payable on September 30, 2008 and bears an interest rate equal to the prime rate plus three percent, 6.25% per annum and is payable at the end of the term. During the year ended December 31, 2009, the Company repaid approximately $25,000 of this note. As of December 31, 2010 the total of approximately $125,000 of principal and accrued interest of approximately $45,000 was outstanding.

NOTE 6 - DUE TO STOCKHOLDERS

In March of 2011, the Company settled all outstanding liabilities with Mr. Bozsnyak in exchange for 1,200,000 shares of common stock and recorded a gain on extinguishment of approximately $47,000, which is included in the accompanying consolidated statement of operations for the six months ended June 30, 2011.

NOTE 7 - EQUITY TRANSACTIONS

Common Stock:

Payment of Interest

For the six months ended June 30, 2011, the Company issued 63,812 shares (valued at $6,842) of the Company’s common stock as payment for interest due on the Company’s 10% convertible notes.

Services Rendered

The Company issued 1,349,998 shares (valued at $155,534) for the six months ended June 30, 2011 of the Company’s restricted common stock as payment for compensation to consultants and employees. The Company issued 824,235 shares (valued at $105,500) for the six months ended June 30, 2011 of the Company’s restricted common stock as payment for services to the Board of Directors.

Extinguishment of Accounts Payable

During the six months ended June 30, 2011 the Company issued 2,295,754 shares (valued at $267,033) of its common stock in lieu accounts payable and the due to shareholder totaling approximately $290,000. The resulting net gain of approximately $23,000 is included within the gain on extinguishment of liabilities line item in the accompanying consolidated statement of operations.

Option and Warrant Exercises

During the six months ended June 30, 2011 the Company issued 714,869 shares of common stock as a result of option exercises (500,000 were cashless and the Company received proceeds totaling $26,970 for the non cashless exercise of 246,119 options).

During the six months ended June 30, 2011, the Company issued 553,088 shares of common stock as a result of 601,914 warrants exercised on a cashless basis.

Debt Conversion of Interest

In the six months ended June 30, 2011, the Company issued 1,253,961 shares of its common stock as a result of converting $125,012 of accrued interest on the bridge note holders.

Debt Conversion

In the six months ended June 30, 2011, the Company issued 7,972,329 shares of its common stock as a result of converting $1,116,126 of principal on the bridge note holders.

Issuance of Common Stock as a Result of Sale of Securities

In the six months ended June 30, 2011, the Company issued 3,888,778 shares of common stock for proceeds from the sale of the Company’s restricted common stock of $337,500.

Conversion of Preferred A

In the six months ended June 30, 2011, shareholders converted 108,909 shares of Preferred A into 1,089,090 shares of common stock.

Warrants :

During the six months ended June 30, 2011, the Company granted 413,025 warrants with a 5 year term and a $0.01 cashless exercise price to a consultant and recorded approximately $62,000 of compensation expense which is included in the accompanying consolidated statement of operations in the general and administrative line item. All of these warrants were exercised within the first fiscal quarter of 2011.

For the year ended December 31, 2010, in connection with Amendment No. 2 to the Series B Convertible Preferred Stock agreement, the Company cancelled warrants issued in the fiscal year 2009 of 22,002.200 with an exercise price of $0.15. Pursuant to Amendment No. 2 which was effective June 4, 2010, the Company issued 25,300,000 cashless warrants with an exercise price of $0.03 and term of five years, and 25,300,000 non cashless warrants with an exercise price of $0.06 and a five year term. As a result of this modification, the Company recorded approximately $2,024,000 of a deemed dividend which is included in the accompanying consolidated statement of operations.

Pursuant to Amendment No. 2 to the Series B Convertible Preferred Stock agreement, when proceeds were received in the period ended September 30, 2010, the Company issued 14,200,000 of cashless warrants with an exercise price of $0.03 and term of five years, and 14,200,000 non cashless warrants with an exercise price of $0.06 and a five year term.

Pursuant to Amendment No. 5 to the Series B Convertible Preferred Stock agreement effective October 19, 2010 (Note 8), all warrants were changed to $0.01 cashless. In the fourth quarter ended December 31, 2010, the Company cancelled 42,500,000 of cashless warrants with an exercise price of $0.03 and 42,500,000 of non cashless warrants with an exercise price of $0.06 and issued 85,000,000 cashless warrants with an exercise price of $0.01. In this connection, the Company recorded approximately $775,000 as a deemed dividend related to warrant modification with a corresponding credit to additional paid-in capital. The Company issued an additional 8,000,000 of cashless warrants with an exercise price of $0.01 in the fourth quarter ended December 31, 2010.

During the year ended December 31, 2010, the Company issued 1,107,935 warrants at an exercise price of $0.35 and a one year term in connection with the debt exchange (Note 4 and 5). During the year ended December 31, 2010, 1,941,667 warrants were exercised on a net cashless basis.

Effective June 9, 2009, the Company filed a Post Effective Amendment No. 4 to its Registration Statement on Form S-1 (“Post Effective Amendment” to extend the terms to exercise the Class A Warrant from June 30, 2009 to June 30, 2010 and to extend the term of the Class B Warrant from December 31, 2009 to June 30, 2010. On October 20, 2010 (the date the SEC deemed Amendment No. 5 to the S-1 effective), these warrants were extended to June 30, 2011, however they were not trading on the over the counter bulletin board, as no quote was made since they expired on June 30, 2010. As of June 30, 2011, 2,469,000 and 2,474,000 of Class A Warrants and Class B Warrants with an exercise price of $0.17 and $.022, respectively expired.

NOTE 8 - PREFERRED B

On July 29, 2009, the Company and Rock Island Capital, LLC (“Rock Island”) entered into a Series B Convertible Preferred Stock Purchase Agreement, as amended on September 9, 2009 (the “Agreement”). Pursuant to the Agreement, the Company has sold to assignees of Rock Island an initial tranche of $2,000,000 of its Series B Convertible Preferred Stock (220,022 shares), in the aggregate, at a purchase price per share of $9.09, and has issued to such assignees Warrants to purchase 22,002,200 shares of the Company’s Common Stock, in the aggregate, at an exercise price of $0.15 per share. Each share of Series B Convertible Preferred Stock is convertible into 100 shares of the Company’s Common Stock at the sole discretion of the holder. Pursuant to the Agreement, Rock Island may designate one member for service on the Company’s board of directors. Under the terms of the Agreement, Rock Island and its assignees could, at their discretion, purchase additional shares of Series B Convertible Preferred Stock and Warrants in two additional tranches of $2,000,000 and $1,000,000 payable on or before December 2, 2009, and January 8, 2010, respectively.

On March 4, 2010, ProText Mobility, Inc. (the “Company”) entered into Amendment No. 2 (“Amendment No. 2”) to the Series B Convertible Preferred Stock Purchase Agreement, dated July 29, 2009, as amended by Amendment No. 1 to the Series B Convertible Preferred Stock Purchase Agreement, with Rock Island Capital, LLC (the “Purchaser”), dated September 4, 2009 (as amended, the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company agreed to sell to the Purchaser, in tranches (with the last tranche to occur within approximately 60 days from execution of Amendment No. 2), an aggregate of 550,055 shares of Series B Preferred Stock (of which 220,022 shares were sold prior to execution of Amendment No.2) for an aggregate purchase price of $5,000,000 (of which $2,000,000 was sold prior to execution of Amendment No. 2). In addition, the Company agreed to issue to the Purchaser five-year warrants to purchase 50,000,000 shares at an exercise price of $0.03, exercisable on a cashless basis, and 50,000,000 shares at an exercise price of $0.06, not exercisable on a cashless basis, in tranches pro rata with the sale of the Series B Preferred Stock. The exercise price of the warrants not exercisable on a cashless basis shall be reduced to $0.03 if the closing price of the Company’s common stock has a volume weighted average price of less than $0.06 for a thirty day period during the term of such warrants. The Company also agreed to issue to the Purchaser 45,000,000 shares of common stock (the “Additional Shares”), in tranches pro rata with the sale of the Series B Preferred Stock. As amended by Amendment No. 3, the Purchaser may terminate the Purchase Agreement upon 10 days’ written notice, in which event the Purchaser shall not be obligated to make any additional purchases under the Purchase Agreement.

In connection with the Purchase Agreement, the Company filed an Amended and Restated Certificate of Designation of Series B Preferred Stock (the “Certificate of Designation”) filed with the State of Delaware on June 5, 2010.

In accordance with the accounting guidance for modifications, for Amendment No. 2, the Company recorded approximately $2,024,000 as a deemed preferred dividend relating to warrant modification with a corresponding credit to additional paid in capital. The Company recorded $1,980,000 as a deemed preferred dividend relating to issuance of common stock with a corresponding credit to additional paid in capital.

In accordance with the agreement, dividends payable in common stock amounting to 1,617,578 shares were issued for the year ended December 31, 2010.

On July 29, 2010 the Company entered into Amendment No. 4 to the Stock Purchase Agreement of its Series B Convertible Preferred Stock with Rock Island Capital LLC whereby it amended the termination clause to remove the penalties and the termination payment fee.

On October 19, 2010 the Company entered into Amendment No. 5 to the Stock Purchase Agreement of its Series B Convertible Preferred Stock with Rock Island Capital LLC (“Purchaser”) whereby the Purchaser agreed to purchase from the Company, and the Company agreed to sell to the Purchaser, up to 192,500 units, with each unit consisting of (i) one share of Series B Preferred Stock, (ii) 81.818181 shares of the Company’s common stock and (iii) five-year warrants to purchase 181.818181 shares of the Company’s common stock at an exercise price of $0.01 (which may be exercised on a cashless basis), for a purchase price of $9.0909 per unit. The units will be sold in installments of at least $100,000 each on before the 30th day following the prior payment, with the first installment due on or before the thirtieth day following the final payment of the aggregate purchase price under the Agreement. In the event that the Purchaser shall fail to timely pay any installment and does not notify the Company in writing at least five days prior to such installment due date (upon which notice the Purchaser shall be granted a 7-day extension), the Company may, from and after the expiration of any and all applicable cure periods, terminate the Agreement, and the Company shall have no right to pursue any other remedy against Purchaser.

The warrants issued or issuable under the Agreement shall be exercisable on a cashless basis.

On October 20, 2010, the Company filed an Amended and Restated Certificate of Designation of Series B Preferred Stock, pursuant to which:

▪

Pursuant to the commitment of the additional financing of $1,750,000, the number of shares of authorized Series B Preferred Stock was increased from 550,055 to 1,000,000;

▪

Pursuant to the commitment of the additional financing of $1,750,000, the “Special Dividend Amount” payable to the holders of Series B Preferred Stock was increased from $2,500,000 to $3,375,000;and

▪

The holders of Series B Preferred Stock shall be entitled to cumulative dividends at a rate of 10% per annum, compounded annually and payable in cash upon conversion of the Series B Preferred Stock into shares of common stock or upon such other date as determined by the Board of Directors of the Company.

In accordance with the accounting guidance for modifications, for Amendment No. 5, the Company recorded approximately $760,000 as a deemed preferred dividend relating to warrant modification with a corresponding credit to additional paid in capital.

For the year ended December 31, 2010, the Company received $2,650,000 from the sale of Series B Convertible Preferred Stock, and issued an additional 291,529 preferred B shares. The Company recorded the beneficial conversion feature and the warrant associated with such investment as a deemed preferred dividend of $2,650,000 with a corresponding credit to additional paid in capital In accordance with Amendment No. 5, the Company has accrued dividends payable amounting to approximately $325,000 and $91,000 at June 30, 2011 and December 31, 2010, respectively which is included in the accompanying consolidated balance sheet.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Almut Von Biedermann

On May 10, 2010, the Company was served with an action from Ms. Von Biederman for breach of contract seeking damages in excess of $75,000. The Company intends to vigorously defend the action, and has accrued $20,000 of prior consulting fees due to Ms. Von Biedermann.

NOTE 10 - SUBSEQUENT EVENTS

Between July 1, 2011 and August 8, 2011, the Company received $50,000 in short term convertible bridge notes payable from two members of board of directors. The notes bear interest at 10% interest and are due in thirty days from the effective date.

On August 1, 2011, the Company received a $42,500 convertible promissory note. The note bears interest at 8%, and is due six months from the effective date.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following is a discussion of our results of operations and current financial position. This discussion should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this report, as well as our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K/A for the year ended December 31, 2010.

As used in this quarterly report on Form 10-Q, references to the “Company,” “we,” “us,” “our” or similar terms include ProText Mobility, Inc. and its consolidated subsidiaries.

Forward Looking Statements

Except for the historical information contained herein, the matters discussed below or elsewhere in this quarterly report may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Forward-looking statements reflect the Company's views and assumptions based on information currently available to management. Such views and assumptions are based on, among other things, the Company's operating and financial performance over recent years and its expectations about its business for the current and future fiscal years. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions, including, but not limited to, (a) the Company's ability to secure necessary capital in order to continue to operate (b) the Company's ability to complete and sell its products, (c) the Company's ability to achieve levels of sales sufficient to cover operating expenses, (d) prevailing economic conditions which may significantly deteriorate, thereby reducing the demand for the Company's products and services, (e) regulatory or legal changes affecting the Company's business and (f) the effectiveness of the Company's relationships in the mobile communications industry.

General

Protext Mobility develops innovative products and solutions for the mobile communications market. As disclosed in public filings, the Company has evolved from a software developer for personal computer (“PC”) to products designed for the mobile industry. Our first technology, FamilySafe Parental Controls continues to generate revenue for the Company. Going forward, the Company’s mission is to leverage our core intellectual property; namely, the ability to analyze and contextualize digital data streams and apply the results towards high-growth markets, such as mobile communications and messaging. Our lead offering, SafeText is a premium service for mobile devices that provides parents a solution to help manage their children’s mobile communication activities. SafeText Parental Management is an easy to use and effective mobile solution providing instant notification when potentially "dangerous" situations are happening through a text messaging interaction. The offering enables and empowers parents with an easy to use, robust set of tools and features designed to help protect and manage their children’s text messaging activities against cyber-bullying and other threats that exist in the digital world. SafeText has a proprietary database including an extensive library of words, phrases and slang that allow for a complete auto-analysis of text conversations. The parent can view full text message history and message content within the guidelines of all Privacy laws. SafeText is offered in two configurations; a device-based and a network-based solution. Core features of SafeText are proprietary and patent-pending technology that we consider to be competitively advantageous.

Device-based

The SafeText device-based parental management solution is designed to operate on multiple mobile platforms. The current configuration is fully compatible with the ANDRIOD and the BlackBerry operating system.

Network-based

The SafeText network-based parental management solution is the first carrier-grade, safe-texting solution for the mobile marketplace. Protext Mobility has formed an alliance with Acision, a world leader in mobile data, to deploy the breakthrough SafeText parental management solution. The SafeText parental management solution is integrated with Acision’s Message Plus platform. Message Plus provides a rich set of enhancements across multiple mobile messaging technologies (e.g. Short Message Service (“SMS”), MultiMedia Messaging Service (“MMS”), email and Session Integration Protocol (“SIP”) allowing mobile operators to offer services to their subscribers that have the same look and feel regardless of the communication channel of choice.

New Features

The SafeText platform was recently updated with the Guardian release. New features for the platform include;

·	Picture Messaging Log & Monitoring – the Guardian dashboard includes visibility to multi-media messages (MMS) on the child device. The parent is able to view pictures to ensure the images are appropriate and/or there is no dangerous behavior such as Sexting.

·	Mobile Web Browsing – Guardian displays the website address visited by the child’s phone, together with the date and time of the visit. The parent is now able to ensure good mobile browsing behavior and have peace of mind their child is viewing age appropriate web content.

Distracted Driving Alerts – Guardian alerts parents by email or text message automatically at the time of a potential distracted driving condition is being detected. The parent can adjust settings to report and receive alerts when texting or phone call activity is made while the device is in motion over 10 MPH. Guardian displays the speed icon with MPH details via "hover-over" and threaded map location on all dashboards.

"Locate Now" Button and GPS Location – parents can locate their child, or a lost phone, on-demand via the “Locate Now” button. The dashboard provides a detailed and historical view of all positions collected by the system. Or, if parent is concerned about dangerous driving while child is a passenger, hit the “Locate Now” button to receive a speed/MPH reading snapshot for that specific point in time.

·	Voice Call Log -- without having to wait for next mobile phone bill with call details, parents can view the real-time voice call history, including incoming and outgoing calls, together with a map location and speed indication.

·	Application Install Reporting – Guardian provides the parent a dashboard view into apps that are installed or uninstalled. The application name, details and status - including the install date and time - are shown on the dashboard.

Distracted Driving Solution

The Company has deployed its DriveAlert distracted driving solution for Android and BlackBerry smartphones. The solution is designed to combat the serious issue of distracted driving; DriveAlert automatically detects when a smartphone user is driving and sets the phone into ‘DriveAlert’ mode. Once the service is activated, it blocks access to text messages, e-mails, phone calls and applications while the phone is in motion and sends an auto-reply to incoming text messages, helping drivers keep their attention on the road. The solution features an override button allowing access to all phone functions in an emergency situation or if the user is a passenger. Parents can choose to be notified by text and/or email when an override occurs.

Results of Operations

Comparison of the Results for the Six Months Ended June 30, 2011 and June 30, 2010

Revenue for the six months ended June 30, 2011 and 2010 was approximately $12,700 and $16,400, respectively, a slight decrease of approximately $3,700. Gross loss decreased to approximately $31,000 from $51,000 due to the decreased amortization of software costs in the current period ended June 30, 2011 compared to the same period in the prior year.

Selling costs decreased to approximately $15,000 from approximately $27,000 for the six months ended June 30, 2011 and 2010, respectively, as a result of a decrease in travel expenses.

Website costs decreased slightly by approximately $11,000 for the six months ended June 30, 2011 compared to the same period in the prior year.

General and administrative expenses decreased to approximately $1,243,000 from approximately $1,941,000 for the six months ended June 30, 2011and 2010, respectively. The decrease of approximately $698,000 and 36% consists of the following changes:

Compensation costs (which includes stock compensation, salaries, taxes and benefits) decreased approximately $371,000 for the current period ended June 30, 2011 compared to the prior comparable period due to a decrease in salaries, employee benefits and related taxes.

Professional fees (which includes accounting/auditing, consulting and legal fees) decreased approximately $316,000 for the six months ended June 30, 2011 compared to the same period in 2010. This is primarily a result of a significant decrease in consulting expense of approximately $223,000 and a decrease of approximately $93,000 in legal and other professional services.

Interest expense for the six months ended June 30, 2011 and 2010 was approximately $50,000 and $120,000 respectively, a decrease of approximately $70,000. The decrease in interest expense is due to the fact that the outstanding balance of convertible notes was lower as of June 30, 2011 compared to the same period in the prior year.

Gain on extinguishments of liabilities totaled approximately $24,000 for the six months ended June 30, 2011 and was due to settlements of outstanding liabilities and a due to shareholder balance. The Company issued 2,295,754 shares of common stock, and recorded a net gain which is included in the accompanying consolidated statement of operations.

Amortization expense from deferred note discounts for the six months ended June 30, 2011 and 2010 was approximately $535,000 and $188,000, respectively. Although the principal amount of notes payable is lower in the current period, the Company recorded the amortization from notes when the debtors extended the notes in the second quarter of the fiscal year ended December 31, 2010.

Comparison of the Results for the Three Months Ended June 30, 2011 and June 30, 2010

Revenue for the three months ended June 30, 2011 and 2010 was approximately $7,000 and $8,800, respectively, a slight decrease of approximately $1,800. Gross loss decreased to approximately $15,900 from $26,200 due to the decreased amortization of software costs in the current period ended June 30, 2011 compared to the same period in the prior year.

Selling costs increased to approximately $9,000 from approximately $2,000 for the three months ended June 30, 2011 and 2010, respectively as a result of an increase in travel and advertising expenses.

Website costs decreased slightly by approximately $8,000 for the three months ended June 30, 2011 compared to the same period in the prior year.

General and administrative expenses decreased to approximately $491,000 from approximately $1,088,000 for the three months ended June 30, 2011and 2010, respectively. The decrease of approximately $597,000 and 55% consists of the following changes:

Compensation costs (which includes stock compensation, salaries, taxes and benefits) decreased approximately $508,000 for the current period ended June 30, 2011 compared to the prior comparable period due to a decrease in salaries, employee benefits and related taxes.

Professional fees (which includes accounting/auditing, consulting and legal fees) decreased approximately $83,000 for the three months ended June 30, 2011 compared to the same period in 2010. This is primarily a result of a significant decrease in consulting expense of approximately $59,000 and a decrease of approximately $24,000 in legal and other professional services.

Interest expense for the three months ended June 30, 2011 and 2010 was approximately $19,000 and $57,000 respectively, a decrease of approximately $38,000. The decrease in interest expense is due to the fact that the outstanding balance of convertible notes was lower as of June 30, 2011 compared to the prior comparable period.

Loss on extinguishments of liabilities totaled approximately $11,000 for the three months ended June 30, 2011 and was due to settlements of outstanding liabilities. The Company issued 655,754 shares of common stock, and recorded a net gain which is included in the accompanying consolidated statement of operations.

Amortization expense from deferred note discounts for the three months ended June 30, 2011 and 2010 was approximately $0 and $73,000, respectively. This is primarily due to most notes being fully amortized during the first quarter of the current fiscal year.

Liquidity and Capital Resources

The Company's liquidity and capital needs relate primarily to working capital and other general corporate requirements. To date, the Company has funded its operations with stockholder loans, by issuing notes and by the sale of common and preferred stock. Since inception, the Company has not generated any significant cash flows from operations. At June 30, 2011, the Company had cash and cash equivalents of approximately $2,400 and a working capital deficiency of approximately $1,504,000. If the Company does not generate sufficient revenues from the sales of its products in an amount necessary to meet its cash needs, the Company would need additional financing to continue to operate. As the Company increases sales from its products and services, the Company expects to increase cash flows from operations.

Net cash used in operating activities for the six months ended June 30, 2011 and 2010 was approximately $428,000 and $1,104,000, respectively. The current period net cash used in operating activities relates to the net loss of approximately $1,956,000 offset by adjustments totaling approximately $1,528,000, which primarily relates to approximately $550,000 of non cash stock compensation expense, and $595,000 of depreciation and amortization. The prior comparative period’s net cash used in operating was due to a net loss of approximately $2,621,000 offset by adjustments totaling approximately $1,516,000, which primarily relates to $865,000 of non cash stock compensation expense, debt modification expense of $160,000 and depreciation and amortization of $293,000.

Net cash used in investing activities for the six months ended June 30, 2011 and 2010 was approximately $128,000 and $89,000, respectively, and is attributable to the additions of capitalizable software costs.

Net cash provided by financing activities was approximately $498,000 and $1,205,000 for the six months ended June 30, 2011 and 2010, respectively. The decrease was a result of the proceeds from the sale of the Company’s Preferred B Stock totaling $1,300,000 in the prior period compared to net proceeds totaling approximately $508,000 from sales of restricted common stock and bridge note holders in the current period.

While the Company has raised capital from equity and debt transactions as mentioned above, we are dependent on improved operating results and raising additional funds over the next twelve month period. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.

Research and Development

Research and development costs are generally expensed as incurred. In accordance with the provisions of FASB Codification Topic ACS 985-20, "Costs of Software to be Sold, Leased, or Marketed,” software development costs are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for release to customers. For the six months ended June 30, 2011, and 2010 the Company capitalized approximately $128,000 and $89,000 of software and website development costs, respectively. The software and website costs are amortized on a straight line basis over the estimated useful life of three years. Amortization expense for the six months ended June 30, 2011 and 2010 was approximately $47,000 and $75,000 respectively.

In accordance with FASB Codification Topic ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, we review long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. In such circumstances, we will estimate the future cash flows expected to result from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we will recognize an impairment loss to adjust to the fair value of the asset. In the first quarter of the 2011, the Company recorded a write off of approximately $39,000 for website development costs which is included in the accompanying consolidated statement of operations. There was no impairment for the same period ended June 30, 2010.

The Company continually strives to enhance and improve the functionality of its software products. As such all new programming must be tested, even if it is only a small component of a larger existing element of the software, before being released to the public. Testing is an ongoing process and generally occurs in three areas. First, upgrades and enhancements are done on a continual basis to prolong the lifecycle of the products and as new enhancements and upgrades are completed, each item must be tested for performance and function. Testing is also performed to assure that new components do not adversely affect existing software. Finally, as with all software, testing must assure compatibility with all third party software, new operating systems and new hardware platforms.

Critical Accounting Policies:

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. See "Notes to Consolidated Financial Statements" for additional disclosure of the application of these and other accounting policies.

Revenue Recognition: The Company recognizes revenues in accordance with authoritative guidance and when there AS persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable and collectability is reasonably assured. Software products and services revenue is derived via two distinct methods: direct non- consignment sales, and online Internet sales: (i) revenue in the form of direct non- consignment sales of merchandise are recognized when title passes to the customer, typically upon shipment, less an estimated reserve if return privileges exist (ii) revenue from online Internet sales is recognized upon the settlement of credit card charges, typically within three days of the sale.

Stock Based Compensation: Effective January I, 2006, the Company's 2004 Stock Plan and options granted outside of the Plan are accounted for in accordance with the recognition and measurement provisions of Share Based Compensation as defined in FASB Codification, topic 718, which requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable

Item 4. Controls and Procedures.

Internal Controls

(a)

Evaluation of Disclosure Controls and Procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of June 30, 2011 and have concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported with the time periods specified in the Commission's rules and forms.

(b)

Changes in Internal Controls. There were no changes in our internal controls over financial reporting that occurred during the three month period ended June 30, 2011 that have materially affected, or are reasonably like to materially affect, our internal controls over financial reporting.

The Company's management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that the Company's disclosure controls or the Company's internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and may not be detected. We will conduct periodic evaluations of our internal controls to enhance, where necessary, our procedures and controls.

PART II

Item 1. Legal Proceedings.

Almut Von Biedermann, Nassau County, NY

On May 10, 2010, the Company was served with an action from Ms. Von Biederman for breach of contract seeking damages in excess of $75,000. The Company is currently in mediation proceedings, and has accrued $20,000 of prior consulting fees due to Ms. Von Biedermann.

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

In the second quarter of 2011, the Company received proceeds of $125,000 for the sale of 1,388,890 shares of its restricted common stock.

The above securities were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act for transactions not involving a public offering.

Item 3. Defaults upon Senior Securities.

The Company is currently in default on the 10% convertible notes totaling $114,034 of principal as of June 30, 2011. In addition, the Company is in default on the principal of short term bridge notes payable totaling approximately $175,000 as of June 30, 2011.

Item 4. Removed and Reserved.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits

31.1 Certification of Principal Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2 Certification of Principal Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ProText Mobility, Inc.
(Registrant)

By:	/s/ Erica Zalbert
	Erica Zalbert, Principal Financial Officer

Date: August 8, 2011

Attached files

ProText Mobility, Inc. Reports

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