PINX:LYFE LYFE Communications Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 March 31, 2012


[  ] TRANSITION REPORT UNDER SECTION 13 OR 15 ( d ) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ____________ to____________


Commission File No. 000-50892



LYFE COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)


 

 

Utah

87-0638511

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

  


P.O. Box 951026

South Jordan, Utah 84095

 (Address of Principal Executive Offices)


(801) 478-2452

 (Registrant’s telephone number, including area code)


None

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


Large accelerated filer [  ]      Accelerated filer [  ]       Non-accelerated filer [  ]      Smaller reporting company [X]





Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]


At May 21, 2012, there were 89,681,956 shares of the Registrant’s Common Stock, par value $0.001 per share outstanding.



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Part I - FINANCIAL INFORMATION


Item 1. Financial Statements

LYFE Communications, Inc.

FINANCIAL STATEMENTS

(UNAUDITED)

March 31, 2012


The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  However, in the opinion of management, all adjustments (which include normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made.  These condensed consolidated financial statements should be read in conjunction with the accompanying notes, and with the historical financial information of the Company.





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LYFE Communications, Inc.

 Condensed Consolidated Balance Sheets

As of March 31, 2012

And December 31, 2011

(Unaudited)


 

March 31, 2012

 

December 31, 2011

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

 $              9,778

 

 $                    3,700

Accounts receivable, net of allowances of $53,971 and $39,350, respectively

               72,909

 

                     58,639

Total current assets

               82,687

 

                     62,339

 

 

 

 

Property and equipment, net

             314,863

 

                   363,295

Goodwill

             233,100

 

                   233,100

Intangible assets, net

             327,061

 

                   329,661

Other assets

             361,950

 

                   363,025

Total assets

 $       1,319,661

 

 $             1,351,420

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

Current Liabilities:

 

 

 

Accounts payable

 $       1,012,008

 

 $             1,091,788

Accrued liabilities

          1,099,013

 

                1,045,231

Deferred revenue

               25,813

 

                     15,582

Taxes Payable

             175,772

 

                   254,776

Notes Payable

             172,500

 

                   334,250

Notes Payable – related party

             290,000

 

                   275,000

Interest Payable

               26,971

 

                     26,154

Interest Payable – related party

               42,628

 

                     35,527

Total current liabilities

          2,844,705

 

                3,078,308

 

 

 

 

Other long-term liabilities

                        -

 

                               -

Total liabilities

          2,844,705

 

                3,078,308

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholder's deficit:

 

 

 

Common Stock, $0.001 par value; 200,000,000 shares authorized; 89,381,956 and 80,628,094 shares issued and outstanding, respectively

               89,382

 

                     80,628

Paid in Capital

        12,723,222

 

              12,264,162

Accumulated Deficit

      (14,337,648)

 

             (14,071,678)

Total Stockholders’ deficit

        (1,525,044)

 

               (1,726,888)

Total liabilities and Stockholders’ deficit

 $       1,319,661

 

 $             1,351,420


See accompanying notes to condensed consolidated financial statements





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LYFE Communications, Inc.

Condensed Consolidated Statements of Operations

For the three months ended March 31, 2012 and 2011

(Unaudited)



 

For the Three Months Ended 3/31/2012

 

For the Three Months Ended 3/31/2011

 

 

 

 

Revenues

 $          166,306

 

 $           115,708

 

 

 

 

Costs and Expenses:

 

 

 

Direct Costs

            119,460

 

               51,124

Sales and marketing

                2,075

 

               62,580

Customer Service and Operating Expenses

              32,532

 

               71,270

General and administrative

            188,149

 

              615,469

Research and development

              16,253

 

               67,728

Depreciation and amortization

              51,279

 

               31,288

Total operating expenses

            409,748

 

              899,459

Loss from Operations

           (243,442)

 

            (783,751)

Interest Expense

             (22,528)

 

              (36,796)

Net loss

 $        (265,970)

 

 $         (820,547)

 

 

 

 

Loss Per Share – Basic and Diluted

 $             (0.01)

 

 $              (0.01)

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding – Basic and Diluted

 

85,493,991

 

 

62,575,670





See accompanying notes to condensed consolidated financial statements




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LYFE Communications, Inc.

Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2012 and 2011

(Unaudited)


 

For the Three Month Ended 3/31/2012

 

For the Three Months Ended 3/31/2011

 Cash flows from operating activities:

 

 

 

Net loss

 $                 (265,970)

 

 $                (820,547)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

Depreciation and amortization expense

                        51,279

 

                      31,288

Services provided in exchange for Common Stock

                        38,000

 

                        6,000

Share - Based Compensation Expense

                        56,375

 

                      57,157

Non-Cash Interest Expense

                          8,250

 

                      21,342

Changes in assets and liabilities:

 

 

 

Accounts Receivable, net

                      (14,270)

 

                        4,356

Prepaid expenses

                                 -

 

                        2,112

Other assets

                          1,075

 

                      21,152

Accounts payable

                      (79,779)

 

                        1,134

Taxes Payable

                      (79,004)

 

                      63,298

Deferred Revenue

                        10,231

 

                       (4,456)

Accrued liabilities

                        67,138

 

                    506,536

Other long-term liabilities - Deferred Rent

                                 -

 

                        1,331

Net cash used in operating activities

                    (206,675)

 

                   (109,297)

 

 

 

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

                           (247)

 

                          (499)

Payments for other intangible assets

                                 -

 

                     (38,714)

Net cash used in investing activities

                           (247)

 

                     (39,213)

 

 

 

 

Cash flows from financing activities:

 

 

 

Note Payable

                        15,000

 

                    147,500

Issuance of Common Stock

                      198,000

 

                                -

Net cash provided by financing activities

                      213,000

 

                    147,500

 

 

 

 

Net Increase/(decrease) in cash and cash equivalents

                          6,078

 

                       (1,010)

 

 

 

 

Cash and cash equivalents at beginning of period

                          3,700

 

                        1,010

Cash and cash equivalents at end of period

 $                       9,778

 

 $                             -

 

 

 

 

Supplemental cash flow information

 

 

 

Interest

 $                              -

 

 $                             -

Income Taxes

                                 -

 

                                -

Common stock issued for conversion of notes

                      175,438

 

                                -



See accompanying notes to condensed consolidated financial statements



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LYFE Communications, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)



1.  Business


The Company’s business is to develop, deploy, and operate next media and communications network based services in single-family, multi-family, high-rise, resort and hospitality properties.


The Company was considered to be in the development stage in prior periods, but has exited the development stage in 2011 as planned principal operations have commenced and revenue has been earned.  


2.  Summary of Significant Accounting Policies


The accompanying condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  These interim financial statements include all adjustments consisting of normal recurring entries, which in the opinion of management, are necessary to present a fair statement of the results for the period. The results of operations for the period ended March 31, 2012, are not necessarily indicative of the operating results for the full year.


Use of Accounting Estimates


The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Generally, matters subject to estimation and judgment include amounts related to asset impairments, useful lives of fixed assets and capitalization of costs for software developed for internal use.  Actual results may differ from estimates provided.


Recently Enacted Accounting Pronouncements


The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements.


3.  Going Concern and Liquidity


The Company has accumulated losses from inception through March 31, 2012 of $14,337,648, and has had negative cash flows from operating activities. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  


The Company anticipates increasing subscriptions in 2012, which will require further financing for operating costs, capital expenditures and general expenses.  We anticipate that the funds received from subscribers throughout 2012 will not be sufficient to fund operations and would require additional debt

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or equity financing in order to meet planned expenditures over the next 12 months. If the Company is unsuccessful with their plans, there is a possibility of discontinuance of operations.


Subsequent to March 31, 2012, the Company received proceeds of $90,000 from the issuing of notes payable to the relative of an officer of the Company to fund continuing operations.  See Note 10.


In 2011 sources of funding did not materialize as committed and as a result the Company received insufficient funding to execute its business plan. The Company accrued significant liabilities for which the Company does not have liquidity or committed funding to meet its current obligations.  If new sources of financing are insufficient or unavailable, we will modify our growth and operating plans to the extent of available funding, if any.  If we cease or stop operations, our shares could become valueless. Historically, we have funded operating, administrative and development costs through the sale of equity capital and short term related party and other shareholder loans. If our plans and/or assumptions change or prove inaccurate, and we are unable to obtain further financing, or such financing and other capital resources, in addition to projected cash flow, if any, prove to be insufficient to fund operations, our continued viability could be at risk. To the extent that any such financing involves the sale of our equity, our current stockholders could be substantially diluted. There is no assurance that we will be successful in achieving any or all of these objectives in 2012.


4. Acquisitions


On June 22, 2011 the Company completed the acquisition of the (i) property rights of entry, (ii) network infrastructure, (iii) subscribers, (iv) certain regional assets, and (v) license to the telecom and cable services provider back office system effective June 1, 2011 from a regional telecom provider.  The Company accounted for the transaction as a business combination in accordance with ASC 805.


The condensed consolidated financial statements as of March 31, 2012 include the accounts of the acquired Ygnition properties and results of operations since the date of acquisition. The following summary, prepared on a pro forma basis, presents the results of operations as if the acquisition had occurred on January 1, 2011 (unaudited).  


 

 

 

 

 

 

 

For the three months ended

 

 

 

March 31, 2011

Revenue

 

 

$                  90,656

Direct Costs

 

 

70,776

Gross Margin

 

 

19,880

 

 

 

 

Operating, General and Administrative Costs

 

 

8,118

Net Loss

 

 

$                  11,761


The pro forma results are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of 2011 or as a projection of future results.





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5. Equity-Based Compensation


On January 1, 2010, the Company’s board of directors approved a stock plan.  The stock plan known as the 2010 Stock Plan (the “Plan”) reserves up to 15,000,000 shares of the Company’s authorized common stock for issuance to officers, directors, employees and consultants under the terms of the Plan.  The Plan permits the board of directors to issue stock options and restricted stock.   


The stock options were valued based on the Black Scholes option pricing model and the inputs and expenses associated with the options are detailed in the December 31, 2011 year end financial statements filed with the SEC on April 16, 2012.  


 

Options

 

Weighted Average Exercise Price

 

Weighted Average Grant Date Fair Value

Aggregate

Intrinsic Value

Outstanding, December 31, 2011

 

13,267,000

 

 

$

 

0.20

 

 

$                      0.11

 

     $                       -

Granted

-

 

 

-

 

                              -

                              -

Expired/Cancelled

-

 

 

-

 

                              -

                              -

Exercised

-

 

 

-

 

                              -

                              -

Outstanding, March 31, 2012

13,267,000

 

 

0.20

 

$                      0.11

$              311,760

Exercisable

7,268,500

 

$

0.21

 

$                      0.15

$              311,760


The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between Company’s closing stock price on March 31, 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2012. This amount changes based on the fair market value of the Company’s stock.


Range of Exercise

Number Outstanding

Remaining

Number Exercisable at

Prices

at March 31, 2012

Contractual Life

March 31, 2012

$                                     0.04

5,196,000

4.32

5,196,000

$                                     0.25

8,055,000

1.02

2,072,500

$                                     0.75

8,000

2.08

                             -

$                                     1.10

8,000

3.15

-

 

 

 

 

 


 

Nonvested Options

 

 

 

Weighted Average Exercise Price

January 1, 2012

6,862,250

  

 

$

0.25

Granted

-

  

 

 

-

Vested

863,750

 

 

 

0.25

  Forfeited

-

 

 

 

-

Nonvested at March 31, 2012

5,998,500

  

 

$

0.25


Option-based compensation expense totaled $56,375 and $57,157 for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012 and December 31, 2011, the Company had $419,037 and $475,412 in unrecognized compensation costs related to non-vested stock options granted under the Plan, respectively.




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During the three months ended March 31, 2012, the Company issued 950,000 shares of common stock for services performed by consultants, promoters, investor relations and fundraisers.  The value of the services was determined based on the closing price of the Company’s stock on the date the services were performed which was valued at $38,000 for the three months ended March 31, 2012.


6. Composition of Certain Financial Statement Captions


Other Assets


In February 2010, the Company signed a letter of intent to enter into a services and asset acquisition agreement with a network operator.  The agreement provides for a payment of $350,000 which was fully paid in October 2010.  The payments were made in advance of taking possession of the video distribution system and video content rights provided in the agreement. If the network operator does not fulfill remaining conditions of the agreement pertaining to the transfer of rights and licenses, which are subject to content provider approval, the asset may be determined to be impaired.  If the Company does not obtain the necessary financing to operate the system, the asset may be determined to be impaired.  


On March 3, 2011 the Company received a “notice of exercise of video system reversionary rights.” Currently, there is a dispute between UTOPIA and Connected Lyfe as to who has not performed under the existing contract.  As stated in the notice, UTOPIA is working with Connected Lyfe on a resolution. However, if a resolution, satisfactory to both companies, cannot be found the situation could escalate to additional legal action.  


7.  Equity


During the three months ended March 31, 2012, the Company issued 8,753,862 shares.  The Company received $198,000 in proceeds for the issuance of 990,000 shares.  The Company issued 950,000 shares for services provided to the Company.  The Company issued 6,813,862 shares on the conversion of convertible notes payable amounting to $175,438.


As of March 31, 2012, there were warrants to purchase 995,000 shares of common stock in connection with the sale of 995,000 shares common stock for cash consideration of $199,000 outstanding.  The warrants issued had an exercise price of $0.40 per share with a three year expiration and immediate vesting.   


During 2011, the Company issued warrants to purchase 100,000 shares of common stock with a fair value of $12,024 in exchange for services.  The warrants had an exercise price of $0.50 per share with a three year expiration and immediate vesting.


The warrants were valued using the Black-Scholes option pricing model and the inputs and fair values associated with the warrants are detailed in the December 31, 2011 year-end financial statements filed with the SEC on April 16, 2012.   


A summary of warrant activity for the three months ended March 31, 2012 is presented below:



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Weighted

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

Shares

 

Average

 

Remaining

 

Aggregate

 

 

Under

 

Exercise

 

Contractual

 

Intrinsic

 

 

Warrants

 

Price

 

Life

 

Value

Outstanding as of December 31, 2011

     1,095,000

 

 $           0.41

 

 

 

 

 

Granted

                    -

 

 $               -   

 

 

 

 

 

Expired

                    -

 

 $               -   

 

 

 

 

 

Converted

                    -

 

 $               -   

 

 

 

 

Outstanding as of March 31, 2012

     1,095,000

 

 $           0.41

 

2.46 Years

 

 $               -   

Exercisable as of March 31, 2012

     1,095,000

 

 $           0.41

 

2.46 Years

 

 $               -   


The year-end intrinsic values are based on a March 31, 2012 closing price of $0.10 per share.


8.  Related Party Transactions


On May 28, 2010 the Company entered into a short-term note payable of $175,000 with a former officer of the Company.  The note has a 60 day maturity and 9% interest rate. As of March 31, 2012 and December 31, 2011 the Company has accrued $29,051and $25,114 interest on the note payable to Robert Bryson.  The Company recorded $3,938 in interest expense for the three months ended March 31, 2012 and 2011, respectively. As of May 21, 2012 the note has not been repaid.


On February 16, 2011 an officer of the Company loaned the Company $100,000 bearing an interest rate of 12%.   As of March 31, 2012 and December 31, 2011 the Company has accrued $13,414 and $10,414 interest on the note payable to the officer. The Company recorded $3,000 in interest expense for the three months ended March 31, 2012. As of May 21, 2012 the note has not been repaid.


On February 28, 2012 an officer of the Company loaned the Company $15,000 bearing an interest rate of 12%.   As of March 31, 2012 the Company has accrued $162 interest on the note payable to the officer. The Company recorded $162 in interest expense for the three months ended March 31, 2012. As of May 21, 2012 the note has not been repaid.


9.  Notes Payable


On July 1, 2010 LYFE entered into a short-term note payable of $40,000 with Smith Consulting Services (SCS) and affiliates.   The loan does not have an interest rate or due date. The Company has imputed and accrued $8,413 interest on the note as of March 31, 2012.  The Company recorded $1,200 in interest expense for the three months ended March 31, 2012 and 2011, respectively. As of May 21, 2012 the note has not been repaid.


On October 1, 2010, the Company signed a $50,000 convertible promissory note with a third party. The note bears interest at 18% per annum and was due on November 5, 2010.  The note has conversion rights that allow the holder of the note at any time to convert all or any part of the remaining principal balance into the Company’s common stock at a price of $0.70.  As of March 31, 2012 the Company has accrued $13,518 in interest on the note payable and recorded $2,250 in interest expense for the three months ending March 31, 2012 and 2011, respectively.  As of May 21, 2012 the Company is currently in default as no payments have been made on the note and the note has not been converted.



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On March 25, 2011 the Company entered into a short-term note payable of $7,500 with Smith Consulting Services (SCS) and affiliates.  The note is due on demand with an 18% interest rate.  As of March 31, 2012 the Company accrued $1,372 interest on the note payable. The Company recorded $338 and $22 in interest expense for the three months ended March 31, 2012 and 2011, respectively. As of May 21, 2012 no payments have been made on this note.


On May 31, 2011, a shareholder loaned the Company $5,000 on a short-term convertible note payable.  The note is due on February 10, 2012 and has an 8% interest rate.  The note provides for the conversion of principal plus interest into the Company’s common stock at a price equal to 50% of the market price on date of conversion.  Consequently, the liability has been recorded at $10,000 on the balance sheet.  The difference between the face value has been recognized as interest expense.  As of March 31, 2012, the Company had accrued interest of $334.  The Company recorded $100 in interest expense for the three months ended March 31.  As of May 21, 2012 no payments have been made on this note.


On July 20, 2011, the Company signed a $35,000 convertible promissory note with a third party. The note bears interest at 8% per annum and is due on April 20, 2012.  The note has conversion rights that allow the holder of the note at any time to convert all or any part of the remaining principal balance into the Company’s common stock at a price equal to 50% of the average of the lowest three trading prices for the Common Stock during the most recent ten day period. Consequently, the liability has been recorded at $70,000 on the balance sheet.  The difference between the face value has been recognized as interest expense.  During the three months ended March 31, 2012, the Company issued 1,612,219 common shares in exchange for $70,000 in debt and $1,400 in accrued interest.


On August 10, 2011, the Company signed a $100,000 convertible promissory note with a third party. The note bears interest at 8% per annum and is due on February 10, 2012.  The note has conversion rights that allow the holder of the note at any time to convert all or any part of the remaining principal balance into the Company’s common stock at a price of $0.02.  The Company calculated the value of the BCF using the intrinsic method as stipulated in ASC 470. The value of the beneficial conversion feature (“BCF”) of the note has been calculated at $20,000.  For the three months ended March 31, 2012, the Company recorded approximately, $5,000 in amortization and $142 in interest expense. During the three months ended March 31, 2012, the Company issued 5,201,643 common shares in exchange for $100,000 in debt and $4,038 in accrued interest.


On August 10, 2011, the Company signed a $65,000 convertible promissory note with a third party. The note bears interest at 8% per annum and is due on February 10, 2012.  The note has conversion rights that allow the holder of the note at any time to convert all or any part of the remaining principal balance into the Company’s common stock at a price of $0.02.  The Company calculated the value of the BCF using the intrinsic method as stipulated in ASC 470. The value of the BCF of the note has been calculated at $13,000.  For the three months ended March 31, 2012, the Company recorded approximately, $3,250 in amortization.  As of March 31, 2012 the Company has accrued $3,327 in interest on the note payable and recorded $1,300 in interest expense for the three months ending March 31, 2012.  As of May 21, 2012 no payments have been made on this note.




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10.  Subsequent Events


The Company received proceeds of $90,000 from the issuing of notes payable to the relative of an officer of the Company to fund continuing operations.  The note bears an interest rate of 10% and is due on October 3, 2012.


The Company issued 300,000 common shares in exchange for $33,000 in principal on a note payable.



13





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


Forward-looking Statements


Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.


Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, international gold prices, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.


Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made.  We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.


Overview


We are developing, deploying and operating, we believe, the next generation media and communications network based services to single-family, multi-family, high-rise, resort and hospitality properties. LYFE Communications has commenced providing video, Internet and telephone services to consumers and businesses and is planning on transitioning those services to our next generation platform.  We function as a network and service provider and rely on our underlying facilities based network partners to provide the basic telecommunications network connections to our end customers. We are an application services provider (“ASP”) of Internet protocol television (“IPTV”), Internet services (“ISP”) and voice over Internet protocol (“VOIP”) telephone services. We launched services with a fiber to the home (“FTTH”) network provider along the Wasatch front in Utah and are seeking to expand our reach through partnerships with other networks.  To provide services along the Wasatch front in Utah, we  have entered into two agreements with Utah Telecommunications Open Infrastructure Agency ( “UTOPIA”) to: (1) become a non-exclusive service provider over its network and (2) to acquire its video systems and provide video services over its system and make such video services available to other providers.  


Our primary products are IPTV, Broadband Internet Access and VOIP Telephony.  The markets currently planned to be served are along the Wasatch front in Utah.  We are planning to expand our markets by building data connections to multi-dwelling units (“MDUs”) and are actively seeking partnerships with other last mile network providers.   The last mile network refers to connections to the actual home, business or apartment.




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IPTV:  Our planned television service will include local and basic cable network channels, a premium or extended channel package and individual add on channel packages.  The channel packages are typical of IPTV packages provided by other telecommunications companies and negotiated by industry intermediaries or directly with channel providers.  We will differ from other cable and satellite providers by our ability to have an interactive feel as we roll out our software packages and set top boxes. Additionally, we will focus on the mobility of our offering so our programming is not just tethered to the traditional television but can be viewed over multiple media devices such as smart phones, laptops and tablets.


Broadband Internet Access:  The Internet product will come in varying speeds depending on the location of the customer and the type of network connecting that particular customer to our backbone network.  


Current operational subscribers will be connected via fiber and have a choice of regular broadband or higher speed broadband access.


VOIP Telephony:  The telephone product will provide a dial tone in the home or business from which the customer can place local or long distance calls.  Rates will vary based on the call destination and type of service provided.  

 

We are developing, deploying and operating the networked platform for the next generation of communications and entertainment services. By leveraging our IP (“Internet Protocol”) technologies, we can provide, we believe, an innovative and compelling media and communication services to consumers and businesses who increasingly want access to their television, Internet and voice services on their terms – from any device, at home, in the office, or on the go.


Critical Accounting Policies and Estimates

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited Financial Statements and accompanying notes.  Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.  The Company believes there have been no significant changes during the three month period ended March 31, 2012, to the items disclosed as significant accounting policies in management's Notes to the Financial Statements in the Company's Form 10-K, filed on April 16, 2012, for the year ended December 31, 2011.


Nevertheless, the Company’s financial statements contained in this report have been prepared assuming that the Company will continue as a going concern. As discussed in the footnotes to the financial statements and elsewhere in this report, the Company has not established any significant source of revenue to sustain operations, has had negative cash flows from operations and has not received sufficient capital to sustain operations. These factors raise substantial doubt that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




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Stock-Based Compensation


The Company has accounted for stock-based compensation under the provisions of FASB Accounting Standards Codification (ASC) 718-10-55.  This statement requires us to record an expense associated with the fair value of stock-based compensation.  We use the Black-Scholes option valuation model to calculate stock based compensation at the date of grant.  Option pricing models require the input of highly subjective assumptions, including the expected price volatility.  Market approach analysis for pricing stock with infrequent trades and transactions require highly subjective assumptions, including restriction discount and blockage discounts.  Changes in these assumptions can materially affect the fair value estimate.


Revenue Recognition


The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition, (SAB 104). The criteria to meet this guideline are: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed and determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured.  The Company derives its revenue primarily from the sale of Video, Data and Voice over Internet Protocol services and recognizes revenues in the period the related services are provided and the amount of revenue is determinable and collection is reasonably assured.


Results of Operations


Revenue - During the quarterly period ended March 31, 2012, we received $166,306 compared to $115,708 in revenues for the quarterly period ended March 31, 2011.  The increase in revenues was due to the acquisition of properties from a regional provider in June 2011 which contributed approximately $69,000 in revenues.  The additional revenue was offset by a decline in subscriber base of our customers on the UTOPIA network.


Direct Costs - Direct costs are comprised of programming costs, monthly recurring Internet broadband connections and VOIP costs.  During the three months ended March 31, 2012 direct costs were $119,460 compared to $51,124 for the three months ended March 31, 2011.  The increase in direct costs was due to the acquisition of properties from a regional provider in June 2011 which contributed approximately $52,000 in direct costs.  The additional cost was offset by a decline in subscriber base of our customers on the UTOPIA network.


Sales and Marketing – Sales and marketing costs are comprised of sales commissions and salaries, marketing relationships and materials. Sales costs in total decreased for the three month period ended March 31, 2012 to $2,075 from $62,580 for the same period in 2011.  The decrease was a result of a cut in headcount of the sales and marketing employees which occurred in 2011 and the lack of funding to sell and market.  This decrease in sales and marketing expenditures has resulted in a decrease in customer base.


Customer Service and Operating Expenses – Customer Service and Operating costs are comprised of the Company’s call center, technical support, project management and general operations. Customer Service costs decreased in total to $32,532 for the three months ended March 31, 2011 from $71,270 for the same period in 2011 as a result of decreases in head count in customer service.  The Company uses a provider to manage customer service and operations for the properties acquired.  Additionally, due to the decrease in sales and marketing expenditures, the customer base on the UTOPIA network has decreased which has decreased the customer service and operating costs.




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General and Administrative – General and Administrative costs decreased $427,321 for the three months ended March 31, 2012 from the three months ended March 31, 2011 due to a decrease in employee head count.  Due to a lack of liquidity and funding resources, the Company has reduced all non-essential costs.    


Research and Development – Research and development costs are comprised of the costs to develop our next generation media and communications network.  The costs decreased $51,475 for the three months ended March 31, 2012 from the three months ended March 31, 2011 due to a decrease in headcount as a result of a lack of liquidity and funding resources.  


Net Loss - We had a net loss for the three months ended March 31, 2012 and 2011, of $265,970 and $820,547, respectively.  This represents a loss per share of $0.01, respectively.  The Company has reduced expenditures due to a lack of liquidity and funding.  As a result of decreased expenditures, revenue growth has slowed.  The Company is actively seeking additional funding which will be used to further the development of the IPTV technology the Company has been developing, search for strategic alliances, and grow current customer bases.


Liquidity and Capital Resources


Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of stock and by borrowings.


Since inception, we have financed our cash flow requirements through issuance of common stock and notes payable. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending additional revenues. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings to the extent available or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient revenues from product and software sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans.  There can be no assurance we will be successful in raising the necessary funds to execute our business plan.


During the three months ended March 31, 2012, the current assets increased by $20,348 when compared to December 31, 2011 due to an increase in accounts receivable and cash.


During the three months ended March 31, 2012, the current liabilities decreased by $233,603 when compared to December 31, 2011.   The decrease was due to the payment of tax liabilities with cash raised through stock and note issuances and liabilities that were paid with the issuance of common shares.


We anticipate that we may incur operating losses during the next twelve months. The Company’s lack of operating history makes predictions of future operating results difficult to ascertain.  Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in early operations, particularly companies in new and rapidly evolving markets. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. These factors raise substantial doubt about our ability to continue as a going concern. To address these risks, we must, among other things, increase our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and 



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the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.


If new sources of financing are insufficient or unavailable, we will modify our growth and operating plans to the extent of available funding, if any. Any decision to modify our business plans would harm our ability to pursue our growth plans. If we cease or stop operations, our shares could become valueless. Historically, we have funded operating, administrative and development costs through the sale of equity capital and short term related party and other shareholder loans. If our plans and/or assumptions change or prove inaccurate, and we are unable to obtain further financing, or such financing and other capital resources, in addition to projected cash flow, if any, prove to be insufficient to fund operations, our continued viability could be at risk. To the extent that any such financing involves the sale of our equity, our current stockholders could be substantially diluted. There is no assurance that we will be successful in achieving any or all of these objectives in 2012.


Management is currently seeking sources of equity and debt financing from current and potential investors.  Additionally, the Company has halted the purchase of video customer premise equipment and sales of video services to conserve costs.  Additionally, the Company has cut expenses and reduced headcount to reduce expenses.  Currently the Company is in negotiations with suppliers to reduce operation costs for providing services to customers.  Management believes that if further funding is not received more cuts in headcount and customer services will be made.


Going Concern


The Company has accumulated losses since inception and has not yet been able to generate profits from operations. Operating capital has been raised through the sale of common stock or through loans from stockholders.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  


Management plans are to further develop new and innovative products and services that target the telecommunications industry.  If management is unsuccessful in these efforts, discontinuance of operations is possible.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.


Not required.


Item 4.  Controls and Procedures.


Evaluation of disclosure controls and procedures


Our management, with the participation of our chief financial and executive officers evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to

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apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.


Based on that evaluation, our chief accounting and chief executive officers concluded that, as of March 31, 2012, our disclosure controls and procedures were, subject to the limitations noted above, not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.


As of March 31, 2012, the Company did not have the capital and staffing resources to maintain the operating effectiveness of internal controls over financial reporting.  Since the evaluation, management has been attempting to secure capital and resources to improve the operating effectiveness of internal controls over financial reporting.  


Changes in internal control over financial reporting


There have been no changes in internal control over financial reporting during the three months ended March 31, 2012.


PART II - OTHER INFORMATION


Item 1. Legal Proceedings.


On June 15, 2011, the Company received a default judgment from the State of Michigan Judicial Court in conjunction with the default on lease payments to a landlord in conjunction with a lease agreement. The judgment was for $191,160 which was recorded as a liability.  The Company entered into a settlement with the landlord for $75,000 on November 15, 2011.  As of December 31, 2011 $20,000 in payment was made on the liability and $2,088 of interest was accrued on the outstanding $55,000. On March 30, 2012 the Company made a payment in the amount of $5,000 to the Michigan landlord reducing the liability to $50,000.


On December 13, 2010, Love Communications LLC filed a complaint against the Company in the Third Judicial Court of Salt Lake County in the amount of $43,671 for unpaid invoices.  The Company disputed the complaint and engaged in settlement proceedings with Love Communications.  On March 27, 2012 the dispute was settled in the amount of $36,000 and paid by the Company.


On October 12, 2011, a former employee residing in Michigan filed a complaint with the Michigan Department of Licensing and Regulatory Affairs against the Company for unpaid payroll in the amount of $10,000.  On March 19, 2012 the claim was settled and paid by the Company.


On January 20, 2012, a former employee residing in Utah filed a complaint with the State of Utah Labor Commission against the Company for unpaid payroll in the amount of $1,725.  The Company is currently complying with the requests from the Labor Commission to settle the dispute.



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On July 19, 2011, the Company was notified by the Internal Revenue Service of intent to lien in the amount of $258,668 for unpaid taxes.  Since that time the Company has made payments to the IRS in the amount of $163,464 to reduce the tax liability, and the Company has had $25,302 in liability abated by the IRS.  As of April 1, 2012 the Company owes $69,901 to the IRS and continues to make monthly payments.


On March 2, 2011, the Company received from UTOPIA a notice of termination in conjunction with the agreement between Connected Lyfe and UTOPIA entitled Non-Exclusive Network Access and Use Agreement.  According to the notice, Connected Lyfe had until May 2, 2011 to transition its customers to another service provider on the UTOPIA network or cure the breach by working out an arrangement with UTOPIA that is acceptable.  The notice of termination is due to non-payment of network access fees. UTOPIA and the Company have agreed that as long as the Company pays the monthly network fees moving forward that UTOPIA will not pursue its rights under the notice of termination.  If the Company is unable to maintain its payments under the new agreement, UTOPIA may pursue its right to transition its customers on the UTOPIA network to another service provider.


On March 3, 2011, the Company received a “notice of exercise of video system reversionary rights” from UTOPIA. Currently, there is a dispute between UTOPIA and Connected Lyfe as to who has not performed under the existing contract.  As stated in the notice, UTOPIA is working with Connected Lyfe on a resolution.   However, if a resolution, satisfactory to both companies, cannot be found the situation could escalate to additional legal action.  


Item 1A.  Risk Factors.


For a discussion of the Company’s risk factors, please refer to Part 1, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed on April 16, 2012. There have been no material changes in the Company’s assessment of its risk factors during the quarter ended March 31, 2012.


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


The Company issued 990,000 shares of restricted common stock during the three months ended March 31, 2012 in exchange for cash proceeds.  Proceeds were used for operating expenses and accounts payable.


The Company issued 6,813,862 shares of restricted common stock during the three months ended March 31, 2012 in exchange for $175,438 of principal and interest on notes payable.


The Company issued 950,000 shares of restricted common stock during the three months ended March 31, 2012 in exchange for fundraising and investor relation services valued at $38,000.


Item 3. Defaults Upon Senior Securities.


None; not applicable.




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Item 4. Mine Safety Disclosures.


None, not applicable.


Item 5. Other Information.


None


Item 6. Exhibits.


Exhibit No.                         Identification of Exhibit


31.1


31.2


32

Certification of Gregory Smith Pursuant to Section 302 of the Sarbanes-Oxley Act.


Certification of Garrett Daw Pursuant to Section 302 of the Sarbanes-Oxley Act.


Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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

  

LYFE COMMUNICATIONS, INC.


 

 

 

 

 

Date:

May 21, 2012

 

By:

/s/Gregory Smith

 

 

 

 

Gregory Smith

 Chief Executive Officer and Chairman of the Board

 

 

 

 

 

Date:

May 21, 2012

 

By:

/s/ Garrett Daw

 

 

 

 

 Garrett Daw 

Executive Vice President, Chief Accounting Officer, Secretary and Director










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