PINX:LYFE LYFE Communications Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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 June 30, 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]


Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: August 21, 2012 – 90,248,623 shares of common stock ($0.001 par value) outstanding.


LYFE Communications, Inc.

Index to Report


PART I – FINANCIAL INFORMATION

Page

  

  

  

Item 1.

Financial Statements

3

 

Condensed Consolidated Balance Sheets – June 30, 2012 and December 31, 2011(unaudited)

Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2012 and 2011 (unaudited)

4

                        

5                            

 

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2012 and 2011 (unaudited)

            6

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

  17

Item 4.

Controls and Procedures

18

 

 

 

PART II – OTHER INFORMATION

  

 

 

Item 1.

Legal Proceedings

18

Item 1A.

Risk Factors

19

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 3.

Defaults upon Senior Securities

19

Item 4.

Mine Safety Disclosures

20

Item 5

Other Information

20

Item 6.

Exhibits

20




2




Part I - FINANCIAL INFORMATION


Item 1. Financial Statements


3




LYFE Communications, Inc.

 Condensed Consolidated Balance Sheets

As of June 30, 2012

And December 31, 2011

(Unaudited)


 

June 30, 2012

 

December 31, 2011

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

 $               102,749

 

 $                     3,700

Accounts receivable, net of allowances of $65,047 and $39,350, respectively

                    

62,328

 

                      

58,639

Total current assets

                  165,077

 

                      62,339

 

 

 

 

Property and equipment, net

                  266,184

 

                    363,295

Goodwill

                  233,100

 

                    233,100

Intangible assets, net

                  324,461

 

                    329,661

Other assets

                  361,952

 

                    363,025

Total assets

 $             1,350,774

 

 $               1,351,420

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

Current Liabilities:

 

 

 

Accounts payable

 $             1,002,148

 

 $               1,091,788

Accrued liabilities

               1,199,013

 

                  1,045,231

Deferred revenue

                    20,821

 

                      15,582

Taxes Payable

                  157,013

 

                    254,776

Notes Payable

                  369,722

 

                    334,250

Notes Payable – related party

                  390,000

 

                    275,000

Interest Payable

                    27,945

 

                      26,154

Interest Payable – related party

                    53,875

 

                      35,527

Total current liabilities

               3,220,536

 

                  3,078,308

 

 

 

 

Total liabilities

               3,220,536

 

                  3,078,308

 

 

 

 

 

 

 

 

Stockholder's deficit:

 

 

 

Common Stock, $0.001 par value; 200,000,000 shares authorized; 90,248,623 and 80,628,094 shares issued and outstanding, respectively

                    

90,249

 

                      

80,628

Paid in Capital

              12,869,132

 

                12,264,162

Accumulated Deficit

            (14,829,143)

 

              (14,071,678)

Total Stockholders’ deficit

              (1,869,762)

 

                (1,726,888)

Total liabilities and Stockholders’ deficit

 $             1,350,774

 

 $               1,351,420


See accompanying notes to condensed consolidated financial statements





LYFE Communications, Inc.

Condensed Consolidated Statements of Operations

For the three and six months ended June 30, 2012 and 2011

(Unaudited)



 

For the Three Months Ended 6/30/2012

 

For the Three Months Ended 6/30/2011

 

For the Six Months Ended 6/30/2012

 

For the Six Months Ended 6/30/2011

 

 

 

 

 

 

 

 

Revenues

 $         159,241

 

 $         95,551

 

 $       325,547

 

 $       211,259

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

Direct Costs

113,219

 

63,245

 

232,679

 

114,369

Sales and marketing

                2,575

 

5,978

 

4,650

 

68,558

Customer Service and Operating

Expenses

 

30,285

 

 

32,907

 

 

62,817

 

 

104,177

General and administrative

396,235

 

1,412,203

 

584,384

 

2,027,672

Research and development

                3,486

 

18,075

 

19,739

 

85,803

Depreciation and amortization

51,278

 

31,289

 

102,557

 

62,577

Loss on asset disposal

-

 

145,044

 

-

 

145,044

Total operating expenses

597,078

 

1,708,741

 

1,006,826

 

2,608,200

Loss from Operations

(437,837)

 

(1,613,190)

 

(681,279)

 

(2,396,941)

Interest Expense

53,658

 

110,832

 

76,186

 

147,628

Net loss

(491,495)

 

(1,724,022)

 

(757,465)

 

(2,544,569)

 

 

 

 

 

 

 

 

Loss Per Share – Basic and Diluted

$            (0.01)

 

$           (0.03)

 

$           (0.01)

 

$           (0.04)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares outstanding – Basic and Diluted

 

89,803,934

 

 

64,183,591

 

 

87,648,963

 

 

63,384,072





See accompanying notes to condensed consolidated financial statements




LYFE Communications, Inc.

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2012 and 2011

(Unaudited)

 

For the Six Months Ended 6/30/2012

 

For the Six Months Ended 6/30/2011

 Cash flows from operating activities:

 

 

Net loss

 $           (757,465)

 

 $        (2,544,569)

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

 

 

 

Depreciation and amortization expense

                102,557

 

                   62,577

Services provided in exchange for equity instrument

                  88,000

 

                 120,000

Share - Based Compensation Expense

                 112,750

 

              1,059,062

Non-Cash Interest Expense

                   40,472

 

                             -

Amortization of Beneficial Conversion Feature

                            -

 

                 105,997

Loss on Asset Disposal

                            -

 

                 145,044

Changes in assets and liabilities:

 

 

 

Accounts Receivable, net

                  (3,689)

 

                   15,292

Prepaid expenses

                             -

 

                     2,112

Other assets

                     1,075

 

                   31,333

Accounts payable

                (79,790)

 

                   88,538

Taxes Payable

               (97,763)

 

                   54,200

Deferred Revenue

                    5,239

 

                  (2,444)

Accrued liabilities

                 184,910

 

                 694,950

Other long-term liabilities - Deferred Rent

                             -

 

                     (725)

Net cash used in operating activities

              (403,704)

 

             (168,633)

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 proceeds

                 400,000

 

                 212,500

Payments on notes payable

                (95,000)

 

                            -

Proceeds from issuance of common stock

                 198,000

 

                   20,000

Net cash provided by financing activities

                 503,000

 

                 232,500

Net increase in cash and cash equivalents

                   99,049

 

                   24,654

Cash and cash equivalents at beginning of period

                     3,700

 

                     1,010

Cash and cash equivalents at end of period

 $             102,749

 

 $                25,664

 

 

 

 

Supplemental cash flow information

 

 

 

Interest

 $                 5,000

 

 $                          -

Income Taxes

                             -

 

                             -

Common stock issued for conversion of notes

                 205,989

 

                   83,600

Stock issued for accounts payable or prepaid expenses

                     9,850

 

                 114,000

Deposits applied to business acquisition

                             -

 

                 500,000



See accompanying notes to condensed consolidated financial statements



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.


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 June 30, 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 an accumulated deficit through June 30, 2012 of $14,829,143, 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.  


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 June 30, 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 June 30, 2011

 

For the six months ended June 30, 2011

Revenue

 $          95,352

 

 $        191,185

Direct Costs

             73,230

 

           152,659

Gross Margin

             22,122

 

             38,526

 

 

 

 

Operating, General and Administrative Costs

 $            9,343

 

 $          18,837

Net Income

 $          12,779

 

 $          19,689


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.


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.  





8





 

Options

 

Weighted Average Exercise Price

 

Weighted Average Grant Date Fair Value

Aggregate

Intrinsic Value

Outstanding, December 31, 2011

12,922,000

 

$

0.20

 

$                           0.11

$                        -

Granted

-

 

 

-

 

                                   -

                              -

Expired/Cancelled

-

 

 

-

 

                                   -

                              -

Exercised

-

 

 

-

 

                                   -

                              -

Outstanding, June 30, 2012

12,922,000

 

$  

0.20

 

$                       0.11

$             259,800

Exercisable

9,191,594

 

$

0.21

 

$                       0.15

$             259,800


The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between Company’s closing stock price on June 30, 2012 of $0.09 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 June 30, 2012. The intrinsic value amount changes based on the fair market value of the Company’s stock.


Range of Exercise

Number Outstanding

Remaining

Number Exercisable at

Prices

at June 30, 2012

Contractual Life

June 30, 2012

$                                     0.04

5,196,000

4.07

5,196,000

$                                     0.25

7,710,000

0.77

3,987,969

$                                     0.75

8,000

1.83

                             4,125

$                                     1.10

8,000

2.90

3,500

 

 

 

 

 


 

Nonvested Options

 

 

 

Weighted Average Exercise Price

January 1, 2012

4,987,063

  

 

$

0.25

Granted

-

  

 

 

-

Vested

1,256,657

 

 

 

0.25

  Forfeited

-

 

 

 

-

Non-vested at June 30, 2012

3,730,406

  

 

$

0.25


Option-based compensation expense totaled $56,375 and 1,001,905 for the three months ended June 30, 2012 and 2011, respectively.  Option-based compensation expense totaled $112,750 and and $1,059,062 for the six months ended June 30, 2012 and 2011, respectively. As of June 30, 2012 and December 31, 2011, the Company had $362,662 and $475,412 in unrecognized compensation costs related to non-vested stock options granted under the Plan, respectively.


During the six months ended June 30, 2012, the Company issued 1,450,000 shares of common stock valued at $88,000 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.




9




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

8.

During the three and six months ended June 30, 2012, the Company issued 866,667 and 9,620,529 shares, respectively.  The Company issued 500,000 and 1,450,000 shares for services provided to the Company valued at $50,000 and $88,000 for the three and six months ended June 30, 2012, respectively.  The Company issued 366,667 and 7,180,529 shares on the conversion of convertible notes payable amounting to $40,401 and $215,839 for the three and six months ended June 30, 2012.


As of June 30, 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.  As of June 30, 2012 no warrants have been exercised.   


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.  As of June 30, 2012 no warrants have been exercised.


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.   




10




A summary of warrant activity for the six months ended June 30, 2012 is presented below:


 

 

 

 

 

 

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 June 30, 2012

     1,095,000

 

 $           0.41

 

2.21Years

 

 $               -   

Exercisable as of June 30, 2012

     1,095,000

 

 $           0.41

 

2.21 Years

 

 $               -   


The year-end intrinsic values are based on a June 30, 2012 closing price of $0.09 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 June 30, 2012 and December 31, 2011 the Company has accrued $34,119 and $25,114 interest on the note payable to Robert Bryson, respectively.  The Company recorded $4,503 and $3,938 in interest expense for the three months ended June 30, 2012 and 2011, respectively. As of August 21, 2012 the note has not been repaid and is in default.


On February 16, 2011 an officer of the Company loaned the Company $100,000 bearing an interest rate of 12%.  The note matured on February 16, 2012.  As of June 30, 2012 and December 31, 2011 the Company has accrued $17,039 and $10,414 interest on the note payable to the officer, respectively. The Company recorded $3,000 and $3,312 in interest expense for the three months ended June 30, 2012 and 2011, respectively. As of August 21, 2012 the note has not been repaid and is in default.


On February 28, 2012 an officer of the Company loaned the Company $15,000 bearing an interest rate of 12%.  As of June 30, 2012 the Company has accrued $613 interest on the note payable to the officer. The Company recorded $450 in interest expense for the three months ended June 30, 2012. As of August 21, 2012 the note has not been repaid.


On April 3, 2012, the Company signed a $90,000 convertible promissory note payable to the relative of an officer of the Company. The note is due on October 3, 2012 and has a 10% interest rate.  The note provides for the conversion of principal plus interest into the Company’s common stock at a price equal to 90% of the market price on date of conversion.  Consequently, the liability has been recorded at $100,000 on the balance sheet.  The difference between the face value and fair value of the note has been recognized as interest expense.  As of June 30, 2012, the Company had accrued interest of $2,105 and recorded $2,105 in interest expense for the three months ended June 30, 2012.  As of August 21, 2012 no payments have been made on this note.


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.  On April 30, 2012 LYFE converted $20,000 of the note principal and $9,850 of payables to that party as well as $4,551 in interest payable in stock totaling



11




300,000 shares.  On June 21, 2012 LYFE converted $5,000 as well as $1,000 in interest payable in stock totaling 66,667 shares.  The remaining balance of the note is $15,000 with $3,770 in interest as of June 30, 2012.  The Company recorded $868 and $1,175 in interest expense for the three months ended June 30, 2012 and 2011, respectively.  As of August 21, 2012 the remaining balance on the note has not been repaid in full.


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 per share.  As of June 30, 2012 the Company has accrued $16,783 in interest on the note payable and recorded $2,757 and $2,250 in interest expense for the three months ending June 30, 2012 and 2011, respectively.  As of August 21, 2012 the Company is currently in default as no payments have been made on the note and the note has not been converted.


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 June 30, 2012 the Company accrued $1,803 interest on the note payable. The Company recorded $384 and $338 in interest expense for the three months ended June 30, 2012 and 2011, respectively. As of August 21, 2012 no payments have been made on this note and the note is in default.


On May 31, 2011, a shareholder loaned the Company $5,000 on a short-term convertible note payable.  The note was 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 June 30, 2012, the Company had accrued interest of $433.  The Company recorded $105 and $34 in interest expense for the three months ended June 30, 2012 and 2011, respectively.  As of August 21, 2012 no payments have been made on this note and the note is in default.


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 was 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 six months ended June 30, 2012, the Company recorded approximately, $3,250 in amortization.  As of June 30, 2012 the Company has accrued $4,708 in interest on the note payable and recorded $1,340 in interest expense for the three months ending June 30, 2012.  As of August 21, 2012 no payments have been made on this note and the note is in default.


On June 22, 2012, the Company signed a $200,000 convertible promissory note payable to a third party. The note is due on December 22, 2012 and has a 10% interest rate.  The note provides for the conversion of principal plus interest into the Company’s common stock at a price equal to 90% of the market price on date of conversion.  Consequently, the liability has been recorded at $222,222 on the balance sheet.  The difference between the face value and the fair value of the note has been recognized as interest expense.  As of June 30, 2012, the Company had accrued interest of $438 and recorded $438 in interest expense for the three months ended June 30, 2012.   As of August 21, 2012 no payments have been made on this note.



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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 period ended June 30, 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 three and six months ended June 30, 2012, we received $159,241 and $325,547, respectively.  This compared to $95,551 and $211,259 in revenues during the three and six months ended June 30, 2011, respectively.  The increase in revenues was due to the acquisition of properties from a regional provider in June 2011, which contributed approximately $52,600 and $105,200 in revenues during the three and six months ended June 30, 2012, respectively.  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 and six months ended June 30, 2012 direct costs were $113,219 and $232,679, respectively.  This compared to $63,245 and $114,369 for the three and six months ended June 30, 2011, respectively.  The increase in direct costs was due to the acquisition of properties from a regional provider in June 2011, which contributed approximately $51,000 and $102,000 in direct costs during the three and six months ended June 30, 2012, respectively.  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 and six month period ended June 30, 2012 from $2,575 and $4,650, respectively.  This compared to the decrease of $5,978 and $68,558 for the same period in 2011, respectively.  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 $30,285 and $62,817 for the three and six months ended June 30, 2012, respectively.  This compared to the decrease in total of $32,907 and



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$104,177 for the same period in 2011, respectively.   The decrease is due as a result of a reduction 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.


General and Administrative – General and Administrative costs decreased by $1,015,968 and $1,443,288 for the three and six months ended June 30, 2012 and 2011, respectively.  This decrease is due to a reduction in employee head count and $884,824 of stock compensation expense recognized for 5,196,000 options issued with immediate vesting during the three months ended June 30, 2011. 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 $14,589 and $66,064 for the three and six months ended June 30, 2012 and 2011, respectively, due to a decrease in headcount as a result of a lack of liquidity and funding resources.  


Net Loss - We had a net loss of $491,495 and $757,465 during the three and six months ended June 30, 2012, respectively.  This is compared to a net loss of $1,724,022 and 2,544,569 for the three and six months ended June 30, 2011, 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 six months ended June 30, 2012, the current assets increased by $102,738 when compared to December 31, 2011 due to an increase in accounts receivable and cash.


During the six months ended June 30, 2012, the current liabilities increased by $142,228 when compared to December 31, 2011.  The increase was due to the increase in notes payable used to fund operations as well as an increase in accrued interest and liabilities partially offset by a decrease in accounts and taxes payable.  The Company used financing provided by the sale of common shares and short term borrowing to pay down some of the outstanding payables and tax liabilities.




16




We anticipate that we are likely to 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 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 and 2013.


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.




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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 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 June 30, 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 June 30, 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 period ended June 30, 2012.


PART II - OTHER INFORMATION


Item 1. Legal Proceedings.


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.




18




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.  


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 June 30, 2012, $40,000 in payment have been made on the liability and $3,930 of interest has been accrued on the outstanding $35,000.  During the three months ended June 30, 2012, $15,000 in payments had been made to the Michigan landlord reducing the liability including interest to  $38,930.


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 $178,464 to reduce the tax liability, and the Company has had $25,302 in liability abated by the IRS.  As of June 30, 2012 the Company owes $62,712, including interest and penalties, to the IRS and continues to make monthly payments.


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.  As of June 30, 2012 no payments have been made and no settlement has been reached.


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 June 30, 2012.


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


The Company issued 366,667 shares of restricted common stock during the three months ended June 30, 2012 in exchange for $30,551 of principal and interest on notes payable as well as an additional $9,850 in accounts payable.


The Company issued 500,000 shares of restricted common stock during the three months ended June 30, 2012 in exchange for fundraising and investor relation services valued at $50,000.


Item 3. Defaults Upon Senior Securities.


None; not applicable.




19




Item 4. Mine Safety Disclosures.


None, not applicable.


Item 5. Other Information.


None


Item 6. Exhibits.


Exhibit No.                         Identification of Exhibit


 

 

31.1


32

Certification of Robert A. Bryson 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:

August 20, 2012

 

By:

/s/Gregory Smith

 

 

 

 

Gregory Smith

 Chief Executive Officer and Chairman of the Board

 

 

 

 

 

Date:

August 20, 2012

 

By:

/s/ Garrett Daw

 

 

 

 

 Garrett Daw 

Executive Vice President, Chief Accounting Officer, Secretary and Director











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