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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 September 30, 2011


[  ] 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

27-1606216

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

incorporation or organization)

  

 

 


912 West Baxter Drive, Suite 200

South Jordan, Utah 84095

 (Address of Principal Executive Offices)


(801) 478-2452

 (Registrant’s telephone number, including area code)



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]


APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS


Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.


Not applicable.


APPLICABLE ONLY TO CORPORATE ISSUERS


Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: November 21, 2011 – 75,816,599 shares of common stock.






Part I - FINANCIAL INFORMATION


Item 1. Financial Statements

LYFE Communications, Inc.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

September 30, 2011


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 financial statements should be read in conjunction with the accompanying notes, and with the historical financial information of the Company.






LYFE Communications, Inc.

 [A Development Stage Company]

Condensed Consolidated Balance Sheets

As of September 30, 2011

and December 31, 2010


 

September 30, 2011

 

December 31, 2010

 

[Unaudited]

 

[Audited]

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

 $                    38,494

 

 $                    1,010

Accounts receivable, net of allowance

                       53,334

 

                     59,611

Prepaid expenses

                       49,978

 

                       2,112

Total current assets

                     141,806

 

                     62,733

 

 

 

 

Property and equipment, net

                     268,833

 

                   317,630

Intangible assets, net

                     570,711

 

                   244,147

Other assets

                     361,775

 

                   893,108

Total assets

 $               1,343,125

 

 $             1,517,618

 

 

 

 

Liabilities and Shareholders’  Deficit

 

 

 

Current liabilities:

 

 

 

Accounts payable

 $                  936,593

 

 $                722,245

Accrued liabilities

                  1,155,672

 

                   328,768

Deferred revenue

                       15,557

 

                     18,641

Taxes Payable

                     330,105

 

                   245,188

Notes Payable

                     459,083

 

                   120,672

Notes Payable – related party

                     275,000

 

                   215,000

Interest Payable

                       18,297

 

                       5,091

Interest Payable – related party

                       31,374

 

                       9,705

Total current liabilities

                  3,221,681

 

                1,665,310

 

 

 

 

Other long-term liabilities

                         3,801

 

                       4,526

Total liabilities

                  3,225,482

 

                1,669,836

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ deficit:

 

 

 

Common Stock, $0.001 par value; 200,000,000 shares authorized; 73,377,326 and 62,527,337 shares issued and outstanding, respectively

                       73,378

 

                     62,527

Paid in Capital

                11,780,091

 

                9,855,502

Paid in Capital Shares to be issued

                                -

 

                   115,000

Deficit accumulated during the development stage

              (13,735,826)

 

             (10,185,247)

Total Shareholders’ deficit

                (1,882,357)

 

                  (152,218)

Total liabilities and Shareholders’ deficit

 $               1,343,125

 

 $             1,517,618


See accompanying notes to condensed consolidated financial statements





LYFE Communications, Inc.

[A Development Stage Company]

Condensed Consolidated Statements of Operations

For the three and nine months ended September 30, 2011 and 2010, and for the period from inception (September 14, 2009) through September 30, 2011

(Unaudited)



 

For the Three Months Ended 9/30/2011

 

For the Three Months Ended 9/30/2010

 

For the Nine Months Ended 9/30/2011

 

For the Nine Months Ended 9/30/2010

 

Period from Inception (September 14, 2009) to 9/30/2011

 

 

 

 

 

 

 

 

 

 

Revenues

 $          215,052

 

 $            84,962

 

 $          426,311

 

 $          115,091

 

 $           630,827

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

Direct Costs

             164,032

 

               69,585

 

278,401

 

             110,195

 

              440,179

Sales and marketing

                 3,270

 

             226,635

 

71,828

 

             522,777

 

              838,465

Customer Service and Operating Expenses

               51,697

 

               57,847

 

155,874

 

             341,402

 

              552,264

General and administrative

             810,990

 

             791,777

 

           2,838,662

 

           6,992,763

 

         11,083,345

Research and development

                 3,381

 

             108,493

 

89,184

 

             484,643

 

              743,345

Depreciation and amortization

               46,438

 

               34,543

 

109,015

 

               68,718

 

              210,326

Loss on asset disposal

                 7,387

 

                       -

 

152,431

 

                       -

 

              152,431

Total operating expenses

1,087,195

 

1,288,880

    

3,695,395

   

8,520,498

 

14,020,355

Loss from Operations

            (872,143)

 

         (1,203,918)

 

         (3,269,084)

 

         (8,405,407)

 

        (13,389,528)

Other Income (Expense)

 

 

 

 

 

 

 

 

 

Gain on debt forgiveness

               28,108

 

                       -

 

               28,108

 

                       -

 

               28,108

Interest Expense

            (161,975)

 

                       -

 

            (309,603)

 

                       -

 

            (374,406)

Loss before taxes

         (1,006,010)

 

         (1,203,918)

 

         (3,550,579)

 

         (8,405,407)

 

        (13,735,826)

Provision for income taxes

                       -

 

                       -

 

                       -

 

                       -

 

                        -

Net loss

 $      (1,006,010)

 

 $      (1,203,918)

 

 $      (3,550,579)

 

 $      (8,405,407)

 

 $     (13,735,826)

 

 

 

 

 

 

 

 

 

 

Income/(Loss) Per Share

 $               (0.01)

 

 $               (0.02)

 

 $               (0.05)

 

 $               (0.15)

 

 $                (0.23)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares outstanding

70,754,854

 

61,896,319

 

65,867,999

 

57,690,858

 

60,267,674




See accompanying notes to condensed consolidated financial statements




LYFE Communications, Inc.

[A Development Stage Company]

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2011 and 2010 and for the period from inception (September 14, 2009) through September 30, 2011

(Unaudited)

 

For the Nine Months Ended 9/30/2011

 

For the Nine Months Ended 9/30/2010

 

Period from Inception (September 14, 2009) to 9/30/2011

 Cash flows from operating activities:

 

 

 

 

 

Net loss

 $        (3,550,579)

 

 $        (8,405,407)

 

 $              (13,735,826)

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

 

 

 

 

 

Depreciation and amortization expense

                109,015

 

                  68,718

 

                       210,326

Services provided in exchange for Shareholders' equity

                273,000

 

                            -

 

                       428,000

Share - Based Compensation Expense

             1,116,624

 

             5,160,838

 

                    6,299,996

Loss on Asset Disposal

                152,431

 

                            -

 

                       152,431

Non-Cash Interest Expense

                267,944

 

                            -

 

                       317,318

Changes in assets and liabilities:

 

 

 

 

 

Accounts Receivable, net

                    6,277

 

                (43,803)

 

                        (53,334)

Other Receivable

 

 

                  (7,150)

 

 

Prepaid expenses

                (47,866)

 

                246,251

 

                        (49,978)

Other assets

                  31,333

 

                (29,949)

 

                        (61,775)

Accounts payable

                214,348

 

                397,281

 

                       936,593

Taxes Payable

                  84,917

 

                132,254

 

                       330,105

Bank Overdraft

 

 

                    6,833

 

 

Deferred Revenue

                  (3,084)

 

                            -

 

                         15,557

Accrued liabilities

                865,162

 

                226,894

 

                    1,208,726

Other long-term liabilities - Deferred Rent

                     (725)

 

                    2,955

 

                           3,801

Net cash used in operating activities

              (481,203)

 

           (2,244,285)

 

                   (3,998,060)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

                     (499)

 

              (296,406)

 

                      (411,839)

Payments for other intangible assets

                (38,714)

 

              (185,021)

 

                      (290,462)

Payments for other assets

                            -

 

              (800,000)

 

                      (800,000)

Net cash used in investing activities

                (39,213)

 

           (1,281,427)

 

                   (1,502,301)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from Note Payable

                418,900

 

                215,000

 

                       788,900

Proceeds from Issuance of Common Stock

                139,000

 

             3,043,955

 

                    4,749,955

Net cash provided by financing activities

                557,900

 

             3,258,955

 

                    5,538,855

 

 

 

 

 

 

Net Increase/(decrease) in cash and cash equivalents

                  37,484

 

              (266,757)

 

                         38,494

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

                    1,010

 

                266,757

 

                                   -

Cash and cash equivalents at end of period

 $               38,494

 

 $                         -

 

 $                      38,494

Cash Paid for

 

 

 

 

 

Interest

 $                         -

 

 $                         -

 

 $                                -

Income Taxes

                            -

 

                            -

 

                                   -

 

 

 

 

 

 

Non Cash Transactions

 

 

 

 

 

Deposits Applied to Business Acquisition

                500,000

 

                            -

 

                       500,000

Debt Converted to Equity

                148,200

 

                            -

 

                       148,200

 

See accompanying notes to condensed consolidated financial statements




LYFE Communications, Inc.

[A Development Stage Company]

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.  Organization and Nature of 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 is in the development stage as planned principal operations have commenced, but there has been no significant revenue there from.  The primary activities to date have included conducting research and development, developing markets for its products, securing strategic alliances, recruiting personnel and obtaining financing and beginning operations and testing of services.


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 condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  The results of operations for the period ended September 30, 2011, 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


Goodwill Impairment - In September 2011, the FASB issued new accounting guidance simplifying how all entities test goodwill for impairment. The new guidance is effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company does not believe the adoption of the new guidance will have an impact on its consolidated financial position, results of operations or cash flows.


Comprehensive Income – In June 2011, the FASB issued new guidance on the presentation of comprehensive income.  Specifically, the new guidance allows an entity to present components of net income or other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements.  The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance.  This new guidance is effective for fiscal years and interim periods beginning after




December 15, 2011.  The Company does not believe the adoption of the new guidance will have an impact on its consolidated financial position, results of operations or cash flows.


Fair Value Measurement – In April 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards.  This new guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization.  The new guidance is effective for fiscal years and interim periods beginning after December 15, 2011.  The Company does not believe the adoption of the new guidance will have an impact on its consolidated financial position, results of operations or cash flows.


The Company has reviewed all other 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 September 30, 2011 of $13,735,826 and has had negative cash flows from operating activities during the period from inception through September 30, 2011. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  


In June 2011 the Company completed the acquisition of properties and the Company anticipates maintaining subscriptions throughout the rest of 2011, which will require further financing for operating costs, capital expenditures and general expenses.  We anticipate that the funds received from subscribers throughout 2011 will not be sufficient to fund operations and would require additional debt or equity financing in order to meet planned expenditures over the next 12 months.


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 2011.


4. Business Combinations


On May 14, 2010, the Company entered into a Purchase Agreement with a telecom and cable services provider. At this time, the Company made a deposit of $500,000 toward the purchase.  Under the terms of the agreement, Connected Lyfe would acquire for specified properties, (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 for use on acquired subscribers and future subscribers of the subsidiary of the Company. 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.  The Company accounted for the transaction as a business combination in accordance with ASC 805.





The estimated allocation of the purchase price was as follows:


Assets:

 

 

Property and equipment

$

73,040

Intangible assets

 

426,960

Total assets acquired

 

500,000

 

 

 

Total consideration

$

500,000


It is impracticable to disclose the pro forma revenues and expenses from the acquisition because the accounting is incomplete.  Additionally the allocation of purchase price to the assets acquired in the business combination is based on management’s best estimate of fair value of the acquired assets and will be adjusted when a full valuation is completed.  The estimates were based on the approximate values of the assets provided by the seller.  The accounting is incomplete at the time of this report due to the timing of the acquisition completed recently which does not allow sufficient time to complete a full valuation of the rights of entry, property, equipment, licenses, customers, and network infrastructure.


Two of the properties with an estimated value of $145,044 were returned to the seller and were recorded as a loss on disposal of assets. As of the date of the report, management has estimated the value of the remaining property rights of entry recorded as intangible assets with a five year life at $303,000 and the remaining infrastructure and equipment at $51,956 as of June 22, 2011. The business combination was a result of the acquisition of the assets from Ygnition Networks, a long-standing partner and operator in the MDU space. Services and subscribers from forty-three properties in seven cities in the US have been transferred to Lyfe Communications. The Company has plans to consolidate these operations and increase the number and type of services provided at these locations. This tends to increase the market share of the property, as the offerings are typically much stronger than what was typically offered.


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 fair value of each option granted under the Plan is estimated on the date of grant, using the Black-Scholes option pricing model, based on the following weighted average assumptions:


Expected life

 

   1.0 - 5  years

 

    Expected stock price volatility

 

71.10 – 115.90

%

    Expected dividend yield

 

0.0

%

    Risk-free interest rate

 

0.34 – 1.94

%


The risk-free interest rate is based upon the U.S. Treasury yield curve at the time of grant for the respective expected life of the option. The expected life (estimated period of time outstanding) of options was estimated using the simplified method for each option under ASC 718-10-S99-1 with the expected term equal to the weighted average of the vesting period and expiration date.  The Company was unable to rely on historical exercise data due to the early stage of the Company and no historical exercise data.  The simplified method was applied to all options for all periods presented. The expected volatility of the Company’s options was calculated using a blend of Company’s historic data and historical data of comparable companies in the Company’s industry. Expected dividend yield was not considered in the option pricing formula since the Company does not pay dividends and has no plans to




do so in the future. If actual periods of time outstanding and rate of forfeitures differs from the expected rates, the Company may be required to make additional adjustments to compensation expense in future periods.


The Company recognized compensation expense on the cancelled and reissued options in accordance with ASC 718 as of the issue date, with any additional incremental costs on subsequent reissuance.  


The Company recognized $881,341 of compensation expense for 5,160,000 options that were issued on April 13, 2011 with immediate vesting with a $0.21 strike price.  The options were cancelled and re-issued on May 6, 2011 along with an additional 36,000 options with immediate vesting and a $0.12 strike price.  The Company recognized $39,403 in incremental cost associated with the 5,160,000 reissued options and $3,945 for the additional 36,000 options.  The options were then cancelled and reissued on July 28, 2011 with immediate vesting and a strike price of $0.045.  The Company recognized $29,381 in incremental cost associated with the reissued options.


 

Shares

 

Weighted Average Exercise Price

 

Outstanding, January 1, 2011

9,261,000

 

$

0.34

 

Granted

10,392,000

 

 

0.08

 

Expired/Cancelled

(6,386,000)

 

 

0.28

 

Exercised

-

 

 

 

 

 

 

Outstanding, September 30, 2011

13,267,000

 

 

0.20

 

Exercisable

6,404,750

 

$

0.14

 


 

 

Weighted Average

 

Range of Exercise

Number Outstanding

Remaining

Number Exercisable at

Prices

at September 30, 2011

Contractual Life

September 30, 2011

$                                     0.04

5,196,000

4.92

5,196,000

$                                     0.25

8,055,000

1.62

1,208,750

$                                     0.75

8,000

2.40

                             -

$                                     1.10

8,000

3.75

-


 

 

 

 

 

 

 

Nonvested Shares

 

 

 

Weighted Average Exercise Price

January 1, 2011

9,261,000

  

 

$

0.34

 

 

 

 

 

 

Granted

10,392,000

  

 

 

0.08

Vested

(6,404,750)

 

 

 

0.14

Forfeited

(6,386,000)

 

 

 

0.28

 

 

 

 

 

 

Nonvested at September 30, 2011

6,862,250

  

 

$

0.25


Option-based compensation expense totaled $57,562, and $1,116,624 for the three and nine months ended September 30, 2011 respectively. As of September 30, 2011, the Company had $511,748 in unrecognized compensation costs related to non-vested stock options granted under the Plan.


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 LYFE Communications as to who has not performed under the existing contract.  As stated in the notice, UTOPIA is working with LYFE Communications on a resolution.  However, if a resolution, satisfactory to both companies, cannot be found the situation could escalate to additional legal action.  As of November 21, 2011 no resolution has been made.


7. Operating Leases


The Company leases office space in Utah under an operating lease that expires in May 2013. The Company has forfeited deposits due to non-payment of the rent and is in default of the lease agreement. Based on the default of the rental agreement, the Company does not foresee continued rental space usage or the recognition of deferred rent. As of November 21, 2011 no resolution of the default has been made.  The Utah property owner is a relative of one of the officers of the Company.


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 the Ann Arbor Michigan lease agreement.  The judgment was for $191,160.  The Company entered into a settlement with the landlord for $75,000 which was recorded as an accrued liability.  Subsequent to September 30, 2011, $20,000 was paid on the liability.


8.  Equity


During the nine months ended September 30, 2011, the Company issued 10,849,989 shares of common stock.


The Company issued 148,465 shares for cash received in 2010 at $0.77 per share, which were classified as shares to be issued as of December 31, 2010, or $115,000.  


On January 15, 2011, the Company issued 8,000 shares for services valued at $0.75 per share, or $6,000.


The Company issued 5,708,416 shares in exchange for $148,200 in debt relief. See Note 11.


In May 2011, the Company received $20,000 for the issuance of 200,000 shares.   


On May 12, 2011 the Company issued 1,900,000 shares to consultants in exchange for services.  The shares were valued at the fair value of $0.12 per share, or $228,000, and recorded as stock compensation to the consultants.


On August 9 , 2011 the Company issued 1,344,037 shares to consultants in exchange for services.  The shares were valued at the fair value of $0.03 per share, or $39,000, and recorded as stock compensation to the consultants.


On July 6, 2011, the Company received $30,000 for the issuance of 428,571 shares valued at $0.07 per share.





On September 1, 2011, the Company received $40,000 for the issuance of 500,000 shares valued at $0.08 per share.


On September 2, 2011, the Company received $30,000 for the issuance of 375,000 shares valued at $0.08 per share.


On September 6, 2011, the Company received $14,000 for the issuance of 175,000 shares valued at $0.08 per share.


On September 6, 2011, the Company received $5,000 for the issuance of 62,500 shares valued at $0.08 per share.


9.  Related Party Transactions


On May 28, 2010 LYFE entered into a short-term note payable of $175,000 with Robert Bryson, a Director of LYFE.  The note has a 60 day maturity and 9% interest rate.  As of September 30, 2011 LYFE has accrued $23,656 interest on the note payable to Robert Bryson and recorded $4,374 in interest expense for the three months ending September 30, 2011.  The Company is currently in default as no payments have been made on the note.


On February 16, 2011 an officer of the Company loaned the Company $100,000.  The note has a 1 year maturity and 12% interest rate.  As of September 30, 2011 LYFE has accrued $7,718 interest on the note payable and recorded $3,168 in interest expense for the three months ending September 30, 2011.  As of November 21, 2011 no payments have been made on the note.


10.  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 $1,099 interest on the note as of September 30, 2011.


During 2010, the Company borrowed $65,000 with a stated interest rate of 18%. Of which, $15,000 was due on November 5, 2010. The remaining $50,000 is due on October 1, 2011.  On May 13, 2011 the original holder of the two notes totaling $65,000 assigned the entire debt to a new holder.  The Company also agreed to a debt modification whereby the interest rate was reduced to 12%; the maturity date was modified to May 13, 2012; and provided for conversion rights that allow the holder of the note 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 of the common stock during the most recent ten day period.  The Company issued 2,186,920 shares in exchange for a principal reduction of $65,000 related to this note.  


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 September 30, 2011 LYFE has accrued $9,422 in interest on the note payable and recorded $2,616 in interest expense for the three months ending September 30, 2011.  The Company is currently in default as no payments have been made on the note.


On December 9, 2010, the Company signed a $40,000 convertible promissory note with a third party. The note bears interest at 8% per annum and is due on September 13, 2011.  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 55% of the




average of the lowest three trading prices for the common stock during the most recent ten day period. In June, 2011, the Company issued 1,201,032 common shares in exchange for the $40,000 principal and $1,600 in accrued interest.  


On January 21, 2011, the Company signed a $40,000 convertible promissory note with a third party. The note bears interest at 8% per annum and is due on October 24, 2011.  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 55% of the average of the lowest three trading prices for the Common Stock during the most recent ten day period.  In August, 2011, the Company issued 2,320,463 common shares in exchange for the $40,000 principal and $1,600 in accrued interest.  As of September 30, 2011 LYFE has accrued $1,954 in interest on the note payable and recorded $311 in interest expense for the three months ending September 30, 2011.  


On March 25, 2011 the Company entered into a short-term note payable of $7,500 with Smith Consulting Services (SCS).  The note is due on demand with an 18% interest rate.  As of September 30, 2011 LYFE has accrued $1,092 interest on the note payable and recorded $375 in interest expense for the three months ending September 30, 2011.  No payments have been made on this note.


On May 13, 2011, the Company signed a $20,000 convertible promissory note with a third party. The note bears interest at 12% per annum and is due on January 13, 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 $40,000 on the balance sheet.  The difference between the face value has been recognized as interest expense.  As of September 30, 2011 LYFE has accrued $600 in interest on the note payable and recorded $600 in interest expense for the three months ending September 30, 2011.  


On May 17, 2011, the Company signed a $6,400 convertible promissory note with a third party. The note bears interest at 2% per month and is due on August 17, 2011.  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 discount to the price equal to 70% of the average daily closing trading prices for the Common Stock during the most recent five day period.  Consequently, the liability has been recorded at $21,333 on the balance sheet. The difference between the face value has been recognized as interest expense.  As of September 30, 2011 LYFE has accrued $572 in interest on the note payable and recorded $572 in interest expense for the three months ending September 30, 2011.  


On May 24, 2011, the Company signed a $40,000 convertible promissory note with a third party. The note bears interest at 8% per annum and is due on March 6, 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 $80,000 on the balance sheet.  The difference between the face value has been recognized as interest expense.  As of September 30, 2011 LYFE has accrued $1,013 in interest on the note payable and recorded $800 in interest expense for the three months ending September 30, 2011.  


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 September 30, 2011, the Company had accrued interest of $133 and recorded interest of $101 for the three months ending September 30, 2011.


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.  As of September 30, 2011 LYFE has accrued $552 in interest on the note payable and recorded $552 in interest expense for the three months ending September 30, 2011.  


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 September 30, 2011, the Company recorded approximately, $5,000 in amortization.  As of September 30, 2011 LYFE has accrued $1,133 in interest on the note payable and recorded $1,133 in interest expense for the three months ending September 30, 2011.


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 September 30, 2011, the Company recorded approximately, $3,250 in amortization.  As of September 30, 2011 LYFE has accrued $727 in interest on the note payable and recorded $727 in interest expense for the three months ending September 30, 2011.


11.  Subsequent Events


On October 3, 2011, the Company received $50,000 for the issuance of 250,000 shares valued at $0.20 per share with attached warrants with an exercise price of $0.40 per warrant.


On October 3, 2011, the Company received $75,000 for the issuance of 375,000 shares valued at $0.20 per share with attached warrants with an exercise price of $0.40 per warrant.


On October 4, 2011, the Company received $74,000 for the issuance of 370,000 shares valued at $0.20 per share with attached warrants with an exercise price of $0.40 per warrant.


The company issued 1,444,273 shares for marketing services to a related party.  The fair value of the marketing services was $75,000.


On November 15, 2011 the Company settled a judgment of $191,161 with the landlord of a leased property for $75,000 of which $20,000 was paid (Note 7).





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.


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 September 30, 2011, 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 15, 2011, for the year ended December 31, 2010.


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.


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


LYFE Communications is in the development phase as our planned principal operations have commenced but there has not been significant revenue therefrom.  


Revenue - During the three months ended September 30, 2011 and 2010, we recognized $215,052 and $84,962 respectively, in revenues.  For the nine months ended September 30, 2011 and 2010, the Company recognized $426,311 and $115,091 respectively.  The revenue was for services provided to LYFE customers over our service provider network for Video, Voice over internet, and data services.  The increase in revenue was due to the Company beginning services in April 2010 and a lower customer base in 2010.  Additionally $105,122 of revenues was due to the acquisition and taking possession of the business combination that was completed in June 2011.

 

Direct Costs - Direct costs are comprised of programming costs, monthly recurring Internet broadband connections and VOIP costs.  During the three months ended September 30, 2011 and 2010, we incurred $164,032 and $69,585 respectively, in direct costs.  For the nine months ended September 30, 2011 and 2010, the Company incurred $278,401 and $110,195 respectively.  The costs were for services provided to LYFE customers over our service provider network for Video, Voice over internet, and data services.  Increases in Direct costs were due to the Company beginning services in April 2010 and a lower customer base in 2010.  Additionally $82,482 of direct costs was due to the acquisition and taking possession of the business combination that was completed in June 2011.





Sales and Marketing – Sales and marketing costs are comprised of sales commissions and salaries, marketing relationships and materials. During the three months ended September 30, 2011 and 2010, we incurred $3,270 and $226,635 respectively, in sales and marketing costs.  For the nine months ended September 30, 2011 and 2010, the Company incurred $71,828 and $522,777 respectively.  The decrease is a result of headcount decreases of in-house sales, and a decrease in customer sales by outside sales due to insufficient liquidity and access to capital.


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. During the three months ended September 30, 2011 and 2010, we incurred $51,697 and $57,847 respectively, in customer service and operating expenses.  For the nine months ended September 30, 2011 and 2010, the Company incurred $155,874 and $341,402 respectively.  The decrease is a result of headcount decreases and maintaining steady operations over a steady customer base.  Additionally, we switched service providers that significantly decreased our operating costs and our customer service costs at the end of 2010.


General and Administrative – During the three months ended September 30, 2011 and 2010, we incurred $810,990 and $791,777 respectively, in general and administrative expenses.  For the nine months ended September 30, 2011 and 2010, the Company incurred $2,838,662 and $6,992,763 respectively.  The increase for the three months ended September 30, 2011 over 2010 was due to stock compensation expense, fundraising costs and settlements on contractual obligations associated with lease contracts. The  large decrease in costs for the nine months ended September 30, 2011 over 2010 was due to stock issued in April 2010 on the merger of Connected Lyfe with LYFE Communications.  Additionally, the Company decreased headcount and administrative operations in 2011 due to insufficient liquidity and access to capital.


Research and Development – Research and development costs are comprised of the costs to develop our next generation media and communications network.  During the three months ended September 30, 2011 and 2010, we incurred $3,381 and $108,493 respectively, in research and development costs.  For the nine months ended September 30, 2011 and 2010, the Company incurred $89,184 and $484,643 respectively.  The research and development costs decreased due to a decrease in headcount due to insufficient liquidity and access to capital.


Net Loss - During the three months ended September 30, 2011 and 2010, we incurred a net loss of $1,006,010

and $1,203,918 respectively.  For the nine months ended September 30, 2011 and 2010, the Company incurred a net loss of $3,550,579 and $8,405,407 respectively.    This represents a loss per share of $0.01 and $0.02 for the three months ended September 30, 2011 and 2010 respectively, and $0.05 and $0.15 for the nine months ended September 30, 2011 and 2010 respectively.  The Company incurred significant non-cash expenses for the issuance of stock on the merger of Connected Lyfe and LYFE Communications in April 2010.  The Company has decreased workforce and operations in 2011 due to insufficient liquidity and access to capital.   


LYFE Communications continues to maintain a customer base with Video, Data, and VOIP services.  The Company is actively seeking investor capital to continue with operations and to build, test, and pilot the full foundation of our all IP next generation “TV Anywhere” technologies and systems, with commercial deployment.  


Total Addressable Market


LYFE communications anticipates receipt of capital and liquidity to continue to build and test the next generation of IP technologies.  Additionally, Lyfe anticipates expansion into Texas, Arizona, Washington, and California with current and future technologies. These markets beyond the Wasatch Front in Utah represent hundreds of new high density communities across which Lyfe can deliver services into over 1,500,000 residential units. In addition to these reachable communities Lyfe is also developing flexible partnership operating models with existing TV and Network Operators seeking to replace legacy TV providers like Cable and Satellite offerings with more advanced and competitive than the analog/digital services available today.  However, in order for LYFE to expand it must first secure sufficient funding.


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.


As of September 30, 2011, the current assets increased by $79,073 when compared to December 31, 2010 due to an increase in cash due to receipt of investment funding and borrowings and also due to increased prepaid expenses.


As of September 30, 2011, the current liabilities increased by $1,556,371 when compared to December 31, 2010.   The primary reason for the increase is due to the fact that the Company has experienced an increase in notes payable and accrued liabilities. The majority of the increase is attributable to an increase in accrued wages which is categorized as accrued liabilities on the balance sheet.   Also, toward the end of 2010, two significant funding commitments were unable to provide working capital for the Company which resulted in a significant increase in current liabilities.


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 their early stage of development, 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 loans 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 2011.


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 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 executive officer concluded that, as of September 30, 2011, 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.


Since the evaluation, our management has made adjustments and improved our internal controls and continues to make adjustments and improve the Company’s internal controls and procedures.


Changes in internal control over financial reporting


There have been changes in internal control over financial reporting during the three months ended September 30, 2011due to employee turnover and staffing changes.  The Company continues to monitor and improve internal controls as resources are  available.


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 judgement 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.


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.” 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, 2010, filed on April 15, 2011. There have been no material changes in the Company’s assessment of its risk factors during the three months ended September 30, 2011.


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


During the three months ended September 30, 2011 the Company sold 1,541,071 restricted shares for $119,000 in proceeds.  The proceeds were used to fund operations.


Item 3. Defaults Upon Senior Securities.


May 28, 2010 loan to related party for $175,000 with a 9% interest rate due August 28, 2010 is in default.





October 4, 2010 $50,000 loan with an 18% interest rate due December 3, 2010 is in default.


May 17, 2011 $6,400  loan with an 2% per month interest rate due August 17, 2011 is in default.


Item 4. (Removed and Reserved).


Item 5. Other Information.


None


Item 6. Exhibits.


Exhibit No.                         Identification of Exhibit


31.1

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


32


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:

November 21, 2011

 

By:

/s/Greg Smith

 

 

 

 

Greg Smith, CEO

 

 

 

 

 

Date:

November 21, 2011

 

By:

/s/Garrett Daw

 

 

 

 

 Garrett Daw, Executive VP, CFO