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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


Form 10-K


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


For the fiscal year ended December 31, 2011


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


Commission file number: 000-50892

 


LYFE COMMUNICATIONS INC.

(Exact name of registrant as specified in its charter)


Utah

  

87-0638511

27-1606216

(State or other jurisdiction of

 incorporation or organization)

  

(I.R.S. Employer

Identification No.)


P.O Box 961026

South Jordan, Utah

  

84095

(Correspondence Address)

  

(Zip Code)


Registrant's telephone number:    (801) 478-2452


Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock ($0.001par value)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o    No X


 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o    No X



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



1




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 o

  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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).  Not applicable.

Yes X    No o


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

 

Indicate by check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer  o

Accelerated filer  o

  

  

Non-accelerated filer  o

Smaller reporting company  X


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

Yes o    No X


The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2011) was approximately $5.4 million.


The number of shares of Common Stock, $0.001 par value, outstanding on April 16, 2012 was 89,381,956 shares.


DOCUMENTS INCORPORATED BY REFERENCE: None.



  

  




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LYFE COMMUNICATIONS INC.

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2011


Index to Report


PART I

Page

  

  

  

Item 1.

Business

4

Item 1A.

Risk Factors

13

Item 1B.

Unresolved Staff Comments

18

Item 2.

Properties

19

Item 3.

Legal Proceedings

19

Item 4.

Mine Safety Disclosure

20


PART II

 

 

 

Item 5.

Market for Registrant’s Common equity and Related Stockholder

20

  

Matters and Issuer Purchases of Equity Securities

  

Item 6.

Selected Financial Data

22

Item 7.

Management’s Discussion and Analysis of Financial Condition and

22

 

Results of Operations

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 8.

Financial Statements and Supplementary Data

28

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

50

Item 9A.

Control and Procedures

50

Item 9B.

Other Information

50

 

 

 

PART III

  

 

 

Item 10.

Directors, Executive Officers, Promoters and Corporate Governance

50

Item 11.

Executive Compensation

53

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

54

Item 13.

Certain Relationships and Related Transactions, and Director

55

 

Independence

 

Item 14

Principal Accounting Fees and Services

55

 

 

 

PART IV

  

 

 

Item 15.

Exhibits, Financial Statement Schedules

56



  

  



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FORWARD-LOOKING STATEMENTS


This document contains “forward-looking statements”.  All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.


Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words.  These forward-looking statements present our estimates and assumptions only as of the date of this report.  Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made.  Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.  You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.


Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.  Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.  The factors impacting these risks and uncertainties include, but are not limited to:


·

our current lack of working capital;

·

inability to raise additional financing;

·

the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;

·

deterioration in general or regional economic conditions;

·

adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

·

inability to efficiently manage our operations;

·

inability to achieve future sales levels or other operating results; and

·

the unavailability of funds for capital expenditures.


For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Item 1A. Risk Factors” in this document.


Throughout this Annual Report references to “we”, “our”, “us”, “Lyfe”, “Lyfe Communications”, “Connected Lyfe”, “the Company”, and similar terms refer to LYFE Communications, Inc.


PART I


ITEM 1.  BUSINESS


General Business Development

Our business focus is on delivering the next generation of television, entertainment and communication.  We are developing, deploying and operating the networked platform for the communications and entertainment services for delivery to consumers through multiple delivery mediums, such as smart phones,



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televisions, and portable electronic devices at any location with Internet connectivity.  As technology and consumer connectivity expands, we believe, the consumer is no longer satisfied with the traditional entertainment choices or the TV experience.  We believe, consumers want more choices and freedom and no longer want to be tethered to their TV alone for the viewing options.  We believe the consumer wants the mobility the Internet and new devices such as smart phones provide them.  We believe our technology helps bridge the gap between the past static television viewing to an interactive television experience as well as provide the mobility the consumer wants and expects.  By leveraging our proprietary 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.


Business of LYFE Communications

LYFE Communications, Inc. is developing a technology base for next generation entertainment and communications. Through the wholly owned subsidiary Connected Lyfe, Inc., its primary customer acquisition, operations and services division, LYFE Communications is truly integrating television, ultra high-speed Internet and enhanced voice services for delivery via the Internet using IP (Internet Protocol).


The Company’s technology innovations take traditional digital television delivery and convert it to an adaptive IP-based service. The result is dramatically lower cost of operation, new interactive capabilities and delivery to any device, in any location, at any time.


As of April 16, 2012, LYFE Communications provides high-speed data and voice services to consumers in six cities and will deploy next generation television services, with voice and data access, into each of these markets, offering the most innovative and compelling media and communications services to residential customers.  Beyond these markets, LYFE Communications will deploy its innovative platform through acquisitions, partnerships, and technology licensing to major existing service providers.


Our technologies are the foundation for many exciting, customer-valued IP services for a rapidly growing market segment that lives “always on and connected,” accessing all the people, information and entertainment in their lives, on their terms – any time, any place, on any device.

 

The Emergence of Lifestyle Media

Consumers are increasingly calling the shots in a converged media world. They use portable music devices to make their own music playlists. Personal video recorders allow them to customize television line-ups. Satellite radios pump commercial-free music into their cars. These consumers pull stock-market updates, text messages, wallpaper, ringtones, and video into their mobile phones. They come together in online communities, generate their own content, mix it, and share it on a growing number of social networks. No longer a captive, mass media audience, today’s media consumer is unique, demanding, and engaged.


Broadband or high-speed Internet access and the Internet Protocol (IP) are the technology enablers that have made this new breed of consumer possible. Broadband and IP will be the foundation through which consumers organize their productive, leisure, and social time. The rules are radically changing for all value chain participants now that video content is no longer bound to a specific access network or device.


A new approach that helps consumers maximize their limited time and attention to create a rich, personalized, and social media environment is needed. PricewaterhouseCoopers calls this approach Life-style Media; it is the combination of a personalized media experience with a social context for participation. It bridges the world of unlimited professional and user-created video content with the world of limited consumer time and attention. It explicitly recognizes that consumers increasingly access a two-way communication infrastructure.




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To realize this vision of Lifestyle Media, two fundamental components are needed: new content distribution models that put consumers in control and more accurate and scalable data about what they are watching, doing, and creating. The combination of these two crucial elements will create a media marketplace, a platform that connects media providers and media seekers through an organizational and technical infrastructure. It will enable Lifestyle Media to flourish by allowing content owners, advertisers, and consumers to discover, select, configure, distribute, and exchange professionally produced and user-generated video content.

 

Overview of the Industry and Direction/Challenges

Media businesses have seen the rise and fall of new revenue models and new media empires on a pace and scale uncommon in other industries.  The business changes with each new advancement in telecommunications capability and adoption.  As with previous evolutions driven by cable network distribution, digitization or satellite transmission power, the next set of changes are foreseeable and actionable. As of April 16, 2012, improvements in physical network infrastructure, technological innovation, and content rights have, for the first time, all progressed to the levels necessary for the next generation in consumer tele-visual experience.  

 

Television and the Internet

Physical network infrastructure development has been the most obvious and forceful influence on the media business in the last 35 years.  The deployment of cable networks changed the television business, creating an entirely new scale of television programming and adding subscription revenue sources.  This closed network generation of network development had a powerful affect on the television industry.  Pundits have forecasted for over a decade that today’s generation of open network build out will have an even greater affect on the media industries.  While that affect has been seen in the music industry, it is only now possible to see and capitalize on how these forces will impact television and other video industries.  As evidenced by nascent IPTV deployments at major Telcos and minor ones, the fiber networks of today’s Internet are finally large enough to carry television signals with equivalent or better quality than traditional cable infrastructure. With quality issues overcome, the door is open to the interactivity and new content types that define a next generation television services.


Challenges:  Traditional Web/Internet Video and Television

Routers and fiber aren’t the only technologies needed to make video signals survive in an Internet world.  The second, and less known issue is the shared nature of the open network.  Simply because a DSL connection is in place does not mean that a connection will continuously deliver ESPN in HD, even if that connection is fast enough.   The Internet is a shared resource.  Email, web browsing, file sharing, and a host of other applications are all competing for the same bandwidth over the same data lines.  To solve this problem, traditional IPTV systems carefully control network resources, which is expensive and problematic.  Under this model, the distribution of IPTV services is limited to geographies with the right population density, higher ARPU (Average Revenue Per User) potential, and more easily shared network costs.  In the past few years, advancements in application control have demonstrated that it’s possible to provide quality of service without expensive network controls.  These advances have created significant opportunities to distribute next generation television services much more broadly.

 

The Cornerstone of the LYFE Communication’s Television Opportunity

The ability to watch last night’s episode from any channel is such an obvious and direct user desire; but it has eluded service providers for years.  While copyright law leaves open a viewer’s right to record anything, it specifically precludes the service provider from recording and redistributing without an additional negotiated right.  These are challenging legal problems.  The programming available on television comes from a host of sources, each with its own contracts and cleared rights.  Foreseeing the power of an open Internet to affect their businesses, content owners have taken huge strides to normalize rights and publish some shows on sites like Hulu, Fox.com, and ABC.com.  They have also signaled that



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much more content can be made available, if the underlying diversity of cleared rights can be managed and honored, and if the advertisements carried within the content can be managed, counted, and replaced as necessary. For industry outsiders, its not always obvious that it’s not just inefficient to air a commercial for a weekend store sale the following week, it may breach contractual rights as the rights to air that ad may have expired.  These are the critical issues that make the media industry tick.  With control of VoD or network DVRs, television networks can relinquish the rights they have and work to inform us of the rights they do not have.  This opening of rights has not been available before now, and it opens the door for video browsing and episode search necessary to provide next generation television services.


By integrating a new type of consumer interaction, quality of service for individual media

 streams over the Internet, meta data driven media operations, and multiple communications services with traditional media, LYFE is building the platform for the next generation of communications and entertainment services.  The sharable experience, special interest content, and integrated communications with media create a unique service with natural revenue extensions and partner marketing power.

 

Sustainable Competitive Advantages Business Plan

Next generation television services are now possible because of the evolution of network, technology and content rights.  In past 5 years, there has been tremendous hype over the bundling of services: the Voice, Data, and TV triple play.  Unfortunately, a triple play is not a next generation of anything.  It is a billing advancement only.  We have seen the cable operators learn to provide the same voice services that the telcos had provided and we have seen the telcos learn to provide the exact same television service that the cable operators had provided.  And we’ve had billing innovation: we get all three services for one price.  That’s good, but now its time to advance the services themselves.  Interactive, shared user experiences with hobbies and interests specific to the viewers are now possible.  Some simple examples of next generation capabilities:     

·

Shared viewing is when you take an aerobics class with your best friend without leaving your house.  Shared is when you catch the bowl games with your college buddies in Allentown.  Shared is when your kids play a marathon game of video RISK against their cousins in Albuquerque.

·

Media operations today are appliance based, massively inefficient, and rigidly inflexible.  This makes the cost of assembly and distribution high, limiting the types of content that can be profitable.  Meta data based operations running on general purpose hardware can replace the traditional methods with orders of magnitude cost savings and liberating new flexibility to create new media types.

·

Television EPG navigation is linear, list based, and robotic.  Hypertext Markup Language, the language of the Web, is used everyday to create nonlinear, intuitive, hyper link navigation that can be used to integrate Triple play Voice and Web services into a coherent user experience.  You could see your contacts on your computer or TV, click dial, and pick your home handset or talk through your TV with or without video conferencing.

 

Cable and Satellite - Internet Television - High Performance IP Networks and LYFE Communications

The history of television has always been driven by infrastructure. Service providers are the ones that make the decisions on who the television reaches. This puts a limit on what type of television different users get. In the mid 1970’s we started to see a change in television with the introduction of cable and satellite distribution. This created more channels for the viewers other than the three major networks, ABC, NBC and CBS.  Open networks increase that content supply infinitely.  LYFE Communications will be able to reach those users and also be able to provide service to areas that are currently under-served by television service providers. Community fiber networks are able to reach hundreds of thousands of homes in various states.  Taxpayers have paid for this fiber and yet are still limited to basic television.



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In addition, over 32.5% of Americans currently live in apartment complexes.  They do not have full access to television services. Because of the structure of the building, new network development can be capital intensive. This leaves the housing co-operatives free to decide whether they prefer that residents be linked to a signal provider individually or whether they want to own and operate their local cable TV network in common.  Private Cable Operators (PCOs) must now upgrade their systems, which many of them do not want to do or can’t due to the associated costs.  Many are now looking for 3rd party distributors to provide the services that the MPEG 2 cable TV did not provide.


There are many vertical markets in which LYFE Communications would be a better solution to get more television services.  The university market is hard to reach because the hardware that is needed is expensive and users only want to pay for a nine-month period.  The LYFE Communications service can be run on a PC or a laptop, which college students have. Our services also benefit those in the military.  The military currently has many fragmented deals with private sector operators to provide multi channel television but once again since LYFE Communications can be run on a PC or a laptop, those in the military would be able to have access to television shows that they did not previously have.


LYFE Communication’s open network distribution offers a greater reach to areas that have been under-served by television services delivering quality video to more consumers.  The opportunity:


·

Extended TV services to PCs and mobile devices  

·

Digital TV to currently underserved areas

·

Integrated Voice, TV, and Data for interactivity

 

Target Customers

 

Connected Families of All Types

LYFE Communications is reaching the large wave of consumers whose lives and whose family’s lives are fundamentally shaped by the reality that at school, work, and especially at home, they are always "connected."  As the web has delivered empowering new social and rich searchable experiences, rigid digital TV service offerings have provided very limited control, personalization, or flexibility. We believe families of all demographic profiles, in all phases of their lives and lifestyles are ready and even expect access to all the Television channels from any device, from any network, at any time.  Consumers do not want to have separate boxes with separate services.  They want to view, share, and interact with the movies, shows, and events they love.

 

Students

Teenage through college youth have both the appetite and readiness to view more television when it is accessible from the devices that are mainstays in their lives, such as: iPod's, Smartphones, Mac's and PC's, and even a television. They want to "tweet," “text,” or "Facebook."  If they can ichat and share a website with a friend, why can't they watch a favorite Primetime episode with friends wherever they are? Live linear channels of TV networks that are always on will continue into the next decade, but the new expectation of a channel and its brand of programming will expand "Everywhere" lead by services like LYFE Communications.

 

Uniquely Truly Viewer Driven

Every participant in the Television industry claims to focus on consumers needs, but the reality of the traditional TV industry is that consumer desires are subjugated to the battles between Programmers and Operators. For weeks and months at a time consumers lose access to favorite programming due to the high stakes negotiations between Cable Networks and Satellite or cable Systems. After years of providing convenient web access to extensive TV shows online, Cable leaders now tout new closed services but provide only a fraction of the programming.

 

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The traditional IPTV and cable infrastructure is rigid.  Without innovation, the only battle to be had, which can affect profitability, is over rights.  Customers are an afterthought.  LYFE Communication’s meta-data driven operations changes the battle.  Meta–data is information about media and by working with the information instead of the media directly, the system has the flexibility to provide new services with new revenues and innovative customer interface tools.  

 

LYFE Communications has no dependency on expensive legacy digital transmission systems and set top devices.  We have developed the technology to provide TV truly on the terms of consumers to affordable devices and also harness the devices consumers already have.

 

Technology Transforming TV Delivery and Consumption

When networks were first developed, the simplest solutions were typically brought to market.  Similar to the development of rail road networks being the simple and efficient transportation network before a national highway system became viable, Circuit Switched networks were a simple and efficient way to solve original data networking problems.  Telephone networks were one of the first circuit switched networks.  To make a phone call, operators would patch network segments together to ultimately create a circuit between the originating caller and the callee.  


This eventually became an automated process utilizing transistors to create the temporary circuit between the callers, but the fact remained that a single, physical, unbroken pathway of metal was established between the individual parties that wanted to make the call.  Television networks have similar origins, and still operate this way.  When watching a live event on cable, you have an uninterrupted connection between the output of the camera and the back of your TV.  Packet based networks eliminate this one-one mapping, splitting the data into small routable packets and allow network routers to determine the best path take to deliver the data packets.  This packet-based infrastructure is what makes the Internet so flexible and adaptable. It is a general purpose, open network.


Packet switched networks offer remarkable financial advantages, but come with substantial technology hurdles, which have made television distribution impossible until now.  LYFE Communications is developing a multi-faceted approach to dealing with the issues that present themselves in packet switched networks. The solution is to regulate the data flow at key points in the network itself.  Our services can make informed decisions as to how best to get the data to the user.  By using several techniques we can ensure that we are getting the maximum amount of data through to the user   while correcting minor transmission issues.

 

Lowest Operating Cost in Subscription Television

The television content stream has been delivered to your television in almost the same way for the past 60 years.  The picture has improved and there are more channels to select, but the process behind the scenes has not evolved.  Content is sourced from national, international or local sources.  National media control rooms mix the content frame by frame for a steady stream of viewing images.  They mix together network ads and national commercials along with a single show and send the channel to the next step.  This next step can be a regional or local affiliate who then has to sell local commercials, tear the images apart and add in the local content.  They insert local commercials and local tags, further “handling” the content.  This manual process is done frame by frame around the clock to create the traditional television product we have known for years.  


Fast-forward to the LYFE Communications way:  Our software renders television in a new way.  It selects your custom content on the fly from many different streams.  It can source your viewing experience real



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time frame by frame from thousands of different locations and creators.  Your television, PC or wireless device will change the way you watch television.

 

Competition and Industry Movement

The video / television industry is currently under pressure from Internet technologies to make significant change to how they do business.  These technologies exert pressure by enabling the average viewer to watch high-definition programs streamed via the Internet from anywhere to their laptop or portable device or to their home in the family living room.  The resistance from the incumbents to keep things as they are restricts competition.  One thing that we have learned from Internet technologies is that the benefits to the consumer will ultimately drive change and in this case increase the ability of companies to compete.

 

Distribution Strategy / Wasatch Front Multiple Market Validation

LYFE Communications expects to significantly increase their subscriber base in 2012.  There are currently 45,000 homes connected to UTOPIA, the first network that the Company utilized, 150,000 Qwest high-speed DSL connected homes and 32,500 MDU residences across the Wasatch Front, on net to the LYFE Communications IP triple service network.


This target audience is an ideal group to deploy a first generation service, establish market penetration, and defend critical business objectives such as the Company’s pricing model and customer retention rates.  


LYFE Communications Distribution and Marketing Plan

Traditionally, TV, phone, and Internet service providers have relied on mass marketing and advertising campaigns to reach out and acquire customers.  This has typically been accomplished using a mix of media such as TV, radio, and print.  Although these are effective ways to create buzz, and inform consumers about your company, this type of marketing makes it very difficult to exactly reach our target customer, and, measure the sales team’s effectiveness.  Also, it is not cost effective, especially for a relatively young company.  For these reasons and many others, LYFE Communications uses a more direct and personal method to reach and acquire our customers.  Our direct sales force contacts customers in specific neighborhoods directly about using our service.  


Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, including Duration

We are implementing standard web technologies for interactivity and integrating video sources across our network and into the consumer televisions, personal computers and other authenticated devices.  Our approach demands a meta-data driven operation to reduce back end costs and expands the possible services and features on the network.


We are developing several proprietary technologies that address network management and video distribution over IP networks. We recently filed for a patent on our adaptive multi-cast streaming technology and we have filed for a provisional patent on our real time adaptive stream switching technology.  We expect to file more patents in 2012.  These applications will address the distribution of common video across some types of legacy IP networks, specific methods for the integrated use of meta data in operations to reduce costs and extend functionality, the development of multi-tiered control systems to manage heterogeneous IP networks, and methods for video frame storage that reduce cost, increase reliability, and reduce latency.  We have not filed any applications but are hoping to file in the near term.  Where required, we will obtain franchise cable rights.  At this time, we are a franchise cable provider through the UTOPIA network.




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Need for any Government Approval of our Principal Products or Services.

Except as set forth herein, we know of no required governmental or regulatory approval of our principal products or services in our current markets.  As we expand our service area, we will be subject to various governmental regulations on the federal, state and local levels related to cable television and phone services.


Effect of Existing or Probable Governmental Regulations on our Business

Federal, state and local governments extensively regulate the cable industry and the telephone services industry and are beginning to regulate certain aspects of the Internet services industry. There are numerous proceedings pending before the Federal Communications Commission (the “FCC”), state PUCs and state and federal courts that may materially affect the way we do business. For example, Congress, the FCC and some states are considering various regulations and legislation pertaining to “network neutrality,” digital carriage obligations, digital set top box requirements, program access rights, digital telephone services and changes to the pricing at which we interconnect exchange traffic with other telephone companies, any of which may materially affect our business operations and costs. With respect to VoIP services, the FCC is considering whether it should impose additional VoIP E911 obligations on interconnected VoIP providers, including a proposed requirement that interconnected VoIP providers automatically determine the physical location of their customer rather than allowing customers to manually register their location. Also, the FCC continues to evaluate alternative methods for assessing USF charges. We cannot predict what actions the FCC or state regulators may take in the future, nor can we determine the potential financial impact of those possible actions.


We also expect that new legislative enactments, court actions and regulatory proceedings will continue to clarify and in some cases change the rights and obligations of cable operators, telecommunications companies and other entities under federal, state, and local laws, possibly in ways that we have not foreseen. Congress and state legislatures consider new legislative requirements potentially affecting our businesses virtually every year and new proceedings before the FCC, state PUCs and state and federal courts are initiated on a regular basis that may also have an impact on the way that we do business.


Actions by local authorities may also affect our business. Local franchise authorities grant franchises or other agreements that permit us to operate our cable and OVS systems, and we have to renew or renegotiate these agreements from time to time. Local franchise authorities often demand concessions or other commitments as a condition to renewal or transfer, and such concessions or other commitments could be costly to us in the future. In addition, we could be materially disadvantaged if we remain subject to legal constraints that do not apply equally to our competitors, such as where local telephone companies that enter our markets to provide video programming services are not subject to the local franchising requirements and other requirements that apply to us. For example, the FCC has adopted rules and several states have enacted legislation to ease the franchising process and enable statewide franchising for new entrants. While reduced franchising limitations could also benefit us if we were to expand our systems, the chief beneficiaries of these rules are the larger, well-funded traditional companies such as cable players Dish, DirecTV, Comcast, Time Warner and others, like Telco’s such as AT&T and Verizon.


Federal Regulation

In February 1996, Congress passed the Telecommunications Act of 1996, which substantially amended the Federal Communications Act of 1934, as amended (the “Communications Act”). This legislation has altered and will continue to alter federal, state and local laws and regulations affecting the communications industry, including certain of these services that we will provide. On November 29, 1999, Congress enacted the Satellite Home Viewer Improvement Act of 1999 (“SHVIA”), which amended the Satellite Home Viewer Act. SHVIA permits direct broadcast Satellite (“DBS”) operators to transmit local television signals into local markets. In other important statutory amendments of significance to satellite carriers and television broadcasters, the law generally seeks to place satellite operators on an equal footing with cable television operators in regards to the availability of television broadcast programming. SHVIA amends the



11







Copyright Act and the Communications Act in order to clarify the terms and conditions under which a DBS operator may retransmit local and distant broadcast television stations to subscribers. The law was intended to promote the ability of satellite services to compete with cable television systems and to resolve disputes that had arisen between broadcasters and satellite carriers regarding the delivery of broadcast television station programming to satellite service subscribers. As a result of SHVIA, television stations are generally entitled to seek carriage on any DBS operator’s system providing local service in their respective markets. SHVIA creates a statutory copyright license applicable to the retransmission of broadcast television stations to DBS subscribers located in their markets. Although there is no royalty payment obligation associated with this license, eligibility for the license is conditioned on the satellite carrier’s compliance with the applicable Communications Act provisions and FCC rules governing the retransmission of such “local” broadcast television stations to satellite service subscribers. Noncompliance with the Communications Act and/or FCC requirements could subject a satellite carrier to liability for copyright infringement. SHVIA was essentially extended and re-enacted by the Satellite Home Viewer Extension and Reauthorization Act (“SHVERA”) signed in December of 2004.

 

On October 31, 2007, the FCC banned the use of exclusivity clauses by franchised cable companies for the provision of video services to MDU properties. The FCC noted that 30% of Americans live in MDU properties and that competition has been stymied due to these exclusivity clauses. The FCC maintains that prohibiting exclusivity will increase choice and competition for consumers residing in MDUs. Currently this order only applies to cable companies subject to Section 628 of the Communications Act, which does not include DBS and private cable operators (“PCOs”) that do not cross public rights-of-way, such as the Company. Although exempt from this order, the FCC did reserve judgment on exclusivity clauses used by DBS companies and PCOs until further discussion and comment can be taken and evaluated.  If the order covers us, it will result in more competition.

 

We will have to comply with all regulations and have to budget such costs into our serves offering.  Although this will increase our costs, we believe we can make up such costs in other areas of our operations.  However, we will be at a disadvantage in complying with regulations given our relative size compared to our competitors.

 

State and Local Cable System Regulation

Where necessary, we will obtain the necessary franchise requirements for providing television services. Through our agreements with UTOPIA, we are a franchise cable provider on its networks.  Additionally, we may be required to comply with state and local property tax, environmental laws and local zoning laws, we do not anticipate that compliance with these laws will have any material adverse impact on our business.


State Mandatory Access Laws

A number of states have enacted mandatory access laws that generally require, in exchange for just compensation, the owners of rental apartments (and, in some instances, the owners of condominiums) to allow the local franchise cable television operator to have access to the property to install its equipment and provide cable service to residents of the MDU. Such state mandatory access laws effectively eliminate the ability of the property owner to enter into an exclusive right of entry with a provider of cable or other broadcast services. In addition, some states have anti-compensation statutes forbidding an owner of an MDU from accepting compensation from whomever the owner permits to provide cable or other broadcast services to the property. These statutes have been and are being challenged on constitutional grounds in various states. These state access laws may provide both benefits and detriments to our business plan should we expand significantly in any of these states. There can be no assurance that future state or federal laws or regulations will not restrict our ability to offer access payments, limit MDU owners’ ability to receive access payments or prohibit MDU owners from entering into exclusive agreements, any of which could have a material adverse effect on our business.

 



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Regulation of High-Speed Internet

Information or Internet service providers (“ISPs”), including Internet access providers, are largely unregulated by the FCC or state public utility commissions at this time (apart from federal, state and local laws and regulations applicable to business in general). However, there can be no assurance that this business will not become subject to regulatory restraints. Also, although the FCC has rejected proposals to impose additional costs and regulations on ISPs to the extent they use local exchange telephone network facilities, such change may affect demand for Internet related services. No assurance can be given that changes in current or future regulations adopted by the FCC or state regulators or other legislative or judicial initiatives relating to Internet services would not have a material adverse effect on our business.


Employees

As of the date of this Current Report, we have 6 full-time and/or part-time employees and/or contractors working for the Company.  None of them are represented by a labor union or subject to a collective bargaining agreement.  We consider our relations with our staff members and contractors to be good.

 

Reports to Security Holders


We file reports with the Securities and Exchange Commission, or SEC, including annual reports, quarterly reports and other information we are required to file pursuant to US federal securities laws.  You may read and copy materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information from the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which is http://www.sec.gov.

 

ITEM 1A. RISK FACTORS


An investment in our common stock involves a high degree of risk, and should not be made by anyone who cannot afford to lose their entire investment.  You should consider carefully the risks set forth in this section, together with the other information contained in this prospectus, before making a decision to invest in our common stock.  Our business, operating results and financial condition could be seriously harmed and you could lose your entire investment if any of the following risks were to occur.


Risks Related to Our Business


We are a start-up company with limited operating history, limited revenue and have to rely on our ability to raise capital to fund operations and there can be no assurance we will ever reach profitability or be able to continue to raise capital to fund operations.

LYFE Communications commenced limited operations in April of 2010, therefore, we have limited operating history on which to make an investment decision. Accordingly, LYFE Communications has a limited operating history and the business strategy may not be successful. Failure to implement the business strategy could materially adversely affect our business, financial condition and results of operations. Through December 31, 2011, LYFE Communication’s business has not shown a profit in operations and has generated modest revenues.  There can be no assurance we will achieve or attain profitability or be able to raise sufficient capital to stay in business. If we cannot achieve operating profitability or raise capital, we may not be able to meet our working capital requirements, which could have a material adverse effect on our business operating results and financial condition resulting in the loss of an investors’ entire investment in us.


We need substantial additional capital to grow and fund our present and planned business and business strategy.

Our current and planned operations contemplate additional funding to execute on operating and growth



13







strategies.  Failure to meet these funding milestones may have a significant adverse effect on our growth and anticipated revenues and we may have to curtail our business strategy.  If we receive less funding than planned, we will have to revise our business model and reduce proposed expansion.  Without significant funding, we will not be able to execute on our business operations and may be forced to cease operations. At this time, there can be no assurance we will be able to obtain the funding we need and even if we obtain such funding that it will be on terms and conditions favorable to us and our existing shareholders.  Without funding we will not be able to proceed with planned operations or meet existing obligations.


Our auditor’s “Going Concern” qualification in our financial statements might create additional doubt about our ability to stay in business, which could result in a total loss on investment by our shareholders.

Our accompanying financial statements have been prepared assuming that we will continue as a “going concern.” As discussed in Note 3 to the LYFE Communications Inc’s December 31, 2011 financial statements, we have limited revenues, have incurred a loss from operations and have negative operating cash flows since inception. These issues raise substantial doubt about our ability to continue as a “going concern.” Our ability to stay in business will, in part, depend on our ability to raise additional funding.  Our financial statements do not include any adjustment that might result from the outcome of this uncertainty.


Our internal systems and operations are untested and may not be adequate and could adversely affect our ability to continue our planned business.

Our internal systems and operations are new and unproven at scale.  Subscriber growth could place unanticipated strain on our systems used to efficiently manage and operate our planned services.  This could have a material adverse effect upon our business, results of operations and financial condition and could force us to halt our planned operations or continued expansion of those planned operations, causing us to lose any opportunity to gain significant anticipated market share in our industry. Our ability to compete effectively as a provider of IPTV, Broadband Internet Access and VOIP services and to manage future growth will require us to continue to improve our operational systems, our organization and our financial and management controls, reporting systems and procedures. We may fail to make these improvements effectively. Additionally, our efforts to make these improvements may divert the focus of our personnel and we may not be able to effectively continue our planned operations, which may materially and adversely affect our business, results of operations and financial condition.   


Our inability to attract and maintain key personnel required to implement our business strategy could adversely affect our ability to continue our current and planned business resulting in slower growth.

We are trying to grow our effort to provide services and we are still hiring key positions and integrating personnel at all levels into a cohesive team.  If executives or other new hires integrate poorly, perform badly, or do not have the anticipated experience or skill sets required, our current and planned business endeavors could be harmed.  Planned personnel, management practices and controls may also prove to be inadequate to provide services, acquire customers and partners and operate the business, and any gaps or failures may have a material adverse affect on our business, financial condition and results of operations.


Increased competition may have an adverse effect on our ability to continue our current and planned business operations and result in our going out of business and may have a material adverse affect on our business, financial condition and results of operations.

We may see increased competition in our markets.  We do not have an exclusive relationship with our network partners and other providers may attempt to provide similar services over the same infrastructure. Furthermore, alternative network providers with closed systems through which we cannot provide services may enter the markets in which we sell services.  The competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and devote greater resources to develop, promote and sell their products or services. In addition, increased competition could result in



14







reduced subscriber fees, reduced margins and loss of market share, any of which could harm our business.  We cannot guarantee that we can compete successfully against current or future competitors, many of which have substantially more capital, existing brand recognition, resources and access to additional financing. All these competitive pressures may result in increased marketing costs, or loss of market share or otherwise may materially and adversely affect our business, results of operations and financial condition.


Our inability to patent, protect and update our technology may result in our inability to effectively compete in our selected industry.

We use technology advancements of our own and from suppliers to provide a more advanced service with more efficient economics.  Technology advancement is very fast paced in digital media and can lead to changing standards and new modes of providing services.  The advancement of other technology not available to or usable within our operations could make our current or future products or services obsolete or non-competitive.  Keeping pace with the introduction of new standards and technological developments could result in additional costs or prove difficult or impossible. The failure to keep pace with these changes and to continue to enhance and improve the responsiveness, functionality and features of our services could harm our ability to attract and retain users.


Our pursuit of technology or process patents may prove to be fruitless.  While our management has experience in these areas and intends to pursue patent applications around our technologies and business processes, we cannot guarantee that other patents have not already superseded those which we intend to pursue.  We have applied the knowledge and insight from our management teams’ industry experience and relationships to research the platform and technology directions of other industry participants and are unaware of other providers of the specific capabilities of LYFE Communications’ technology development; however, patents filed with the U. S. Patent Office during the past are not publicly available, and patent applications that cover our concepts could have already been filed by others which may materially and adversely affect our business, results of operations and financial condition..


Our operating results could be impaired if we become subject to burdensome government regulation and legal uncertainties, all of which would increase our cash requirements which may materially and adversely affect our business, results of operations and financial condition.

We are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally.  However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet, relating to:


·

user privacy;

·

pricing;

·

content;

·

copyrights;

·

distribution; and

·

characteristics and quality of products and services.


The adoption of any additional laws or regulations may decrease the expansion of the Internet.  A decline in the growth of the Internet could decrease demand for our products and services and increase our cost of doing business.  Moreover, the applicability of existing laws to the Internet is uncertain with regard to many issues, including property ownership, export of specialized technology, sales tax, libel and personal privacy. Our business, financial condition and results of operations could be seriously impaired by any new legislation or regulation.  The application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other



15







online services which may materially and adversely affect our business, results of operations and financial condition.


The secure transmission over the Internet from our services to customers and back is important to customers trust in our ability to deliver services and if we should experience a breach in our security, we could lose customers or incur potential liability.

The secure transmission of confidential information over public networks is critical to electronic commerce and communications.  Anyone who can circumvent our security measures could misappropriate confidential information or cause interruptions in our operations.  We may have to spend large amounts of money and other resources to protect against potential security breaches or to alleviate problems caused by any breach. These costs may not be able to pass along to customers making our operations less profitable.  Additionally, we could be liable for breaches of security resulting in customers’ information being obtained in such breaches which could subject us to potential liability which may materially and adversely affect our business, results of operations and financial condition.


We rely on providers of content to provide rights for the distribution of their content to our customers which could be withdrawn, or prices for providing content could become cost prohibitive.

We do not own the video content that we provide to our customers.  We pay the content providers a fee for the rights to provide their content to subscribers.  The providers of the content may withdraw their rights, revoke rights, refuse rights, or increase the cost of their content rights, which may materially and adversely affect our business, results of operations and financial condition.


Planned acquisitions come with various risks, along with dilution to our shareholders, which could negatively affect our stock prices and may materially and adversely affect our business, results of operations and financial condition.

Acquisitions, mergers and joint ventures entered into by us may have an adverse effect on our business. We expect to engage in acquisitions, mergers or joint ventures as part of our long-term business strategy. These transactions involve significant challenges and risks including that the transaction does not advance our business strategy, that we don't realize a satisfactory return on our investment, or that we experience difficulty in the integration of new assets, employees, business systems, and technology, or diversion of management's attention from our other businesses. These events may materially and adversely affect our business, results of operations and financial condition.


The current and future state of the economy may materially and adversely affect our business, results of operations and financial condition.

Our business may be adversely affected by changes in domestic economic conditions, including inflation, changes in consumer preferences, changes in consumer spending rates, personal bankruptcy and the ability to collect our customer accounts. Changes in economic conditions may adversely affect the demand for our products and make it more difficult to collect customer accounts, thereby negatively affecting our business, operating results and financial condition. The recent disruptions in credit and other financial markets and deterioration of national and global economic conditions could, among other things, impair the financial condition of some of our customers and suppliers, thereby increasing customer bad debts or non-performance by suppliers.   If we experience bad debts or slow paying customers in significant quantities, our cash flow will be limited and our ability to pay our own obligations will questionable.  As a small business these issues will affect us more than our larger competitors putting financial strain on our business and threatening our survival particularly since we have limited capital to rely on to overcome cash flow issues of slow paying customers.  If our customers are unable to pay or pay slowly it may materially and adversely affect our business, results of operations and financial condition.


Present members of management currently own in excess of a majority of our outstanding voting securities and can elect all directors who in turn elect all officers, without the votes of any other



16







shareholders effectively giving management complete control over our direction and limiting shareholders’ ability to change management if they do not like our direction or management.

Messrs. Bryson, Daw and Smith, who comprise all of the members of our current directors collectively own 50% of our outstanding voting securities and accordingly, have effective control of us and may have effective control of us for the near and long term future.  Votes of other shareholders can have little effect when we are managed by our Board of Directors and operated through our officers, all of whom can be elected by these persons.


Future stock issuances could severely dilute our current shareholders’ interests.

Our Board of Directors has the authority to issue up to 200,000,000 authorized shares of our common stock or stock options to acquire such common stock; or up to 10,000,000 shares of preferred stock with rights, privileges and preferences designated by the Board of Directors. The future issuance of common stock or preferred stock may result in dilution in the percentage of our common stock held by our existing stockholders. Also, any stock we sell in the future may be valued on an arbitrary basis by us and the issuance of shares of common stock or preferred stock for future services, acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our existing stockholders.


We do not expect to pay dividends in the near future.

We do not expect to declare or pay any dividends on our common stock in the foreseeable future. The declaration and payment in the future of any cash or stock dividends on the common stock will be at the discretion of our Board of Directors and will depend upon a variety of factors, including our ability to service our outstanding indebtedness, if any, and to pay dividends on securities ranking senior to the common stock, our future earnings, if any, capital requirements, financial condition and such other factors as our Board of Directors may consider to be relevant from time to time. Our earnings, if any, are expected to be retained for use in expanding our business.


Risks Related to Our Common Stock


Our common stock is classified as a “penny stock” under SEC Rules and Regulations, which means there is a very limited trading market for our shares.

Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 of the SEC.  Penny stocks are stocks (i) with a price of less than five dollars per share; (ii) that are not traded on a “recognized” national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) in issuers with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years); or $5,000,000 (if in continuous operation for less than three years); or with average revenues of less than $6,000,000 for the last three years.  


Section 15(g) of the Exchange Act and Rule 15g-2 of the SEC require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account.   Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.”


Moreover, Rule 15g-9 of the SEC requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor.  This procedure requires the broker dealer to (i) obtain from the investor information concerning his, her or its financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor, and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock



17







transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives.  Compliance with these requirements may make it more difficult for investors in our common stock to resell their shares to third parties or to otherwise dispose of such shares.


Due to the substantial instability in our common stock price, you may not be able to sell your shares at a profit or at all, and as a result, any investment in our shares could be totally lost.

The public market for our common stock is very limited. As with the market for many other small companies, any market price for our shares is likely to continue to be very volatile.  Our common stock has very limited volume and as a “penny stock,” many brokers will not trade in our stock limiting our stocks’ liquidity.  As such it may be difficult to sell shares of our common stock.


Our common stock has a limited trading history, and it will be difficult to determine any market trends or prices for our shares and additional shares that become available under Rule 144 could cause the price of our stock to decrease.

Our common stock currently is quoted on the OTC Bulletin Board, under the symbol “LYFE.”  However, with little trading history, a trading market that does not represent an “established trading market,” volatility in the bid and asked prices and the fact that our common stock is very thinly traded, you could lose all or a substantial portion of your funds if you make an investment in us.   Additionally as more shares become available for resale, it is likely there will be negative pressures on our stock price. The sale or potential sale of shares of our common stock that may become publicly tradable under Rule 144 in the future may have a severe adverse impact on any market that develops for our common stock, and you may lose your entire investment or be unable to resell any shares in us that you purchase.


Item 1B.  Unresolved Staff Comments


Not required under Regulation S-K for smaller reporting companies.





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ITEM 2.  PROPERTIES


We currently do not have a corporate office.  Due to a lack of funding the Company was unable to continue paying on the lease.  Additionally management determined to save on the cost of offices as management of operations can be performed by employees and contractors remotely.  The Company maintains correspondence through the post office box of P.O Box 961026

South Jordan, Utah 84095.


ITEM 3.  LEGAL PROCEEDINGS


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


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


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


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


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


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

19







Company is unable to maintain its payments under the new agreement, UTOPIA may pursue its right to transition its customers on the UTOPIA network to another service provider.


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


ITEM 4.  MINE SAFETY DISCLOSURE


None; Not applicable.


PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES


Market Information


Our common stock is traded in the over-the-counter securities market through the Financial Industry Regulatory Authority ("FINRA") Automated Quotation Bulletin Board System, under the symbol “LYFE”. We have been eligible to participate in the OTC Bulletin Board since April 12, 2010. The following table sets forth the quarterly high and low bid prices for our common stock during since trading began, as reported by a Quarterly Trade and Quote Summary Report of the OTC Bulletin Board.  The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.  Below are the high and low prices for Connected Lyfe common stock for each of the quarters in 2010 and 2011 in which the company publically traded its stock.


Quarter Ending

High Bid

Low Bid

 

 

 

March 31, 2010

$-  

$-

June 30, 2010

$2.48

$1.75

September 30, 2010

$2.25

$0.70

December 31, 2010

$1.35

$0.70

March 31, 2011

$0.80

$0.51

June 30, 2011

$0.52

$0.05

September 30,2011

$0.18

$0.02

December 31, 2011

$0.11

$0.05


Holders of Common Stock


As of April 12, 2012, we had 122 stockholders of record of the 89,381,956 shares outstanding.




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Dividends


The payment of dividends is subject to the discretion of the Company’s Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid nor declared any dividends on our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements, do not anticipate paying any dividends in the foreseeable future.

 

We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:


·

     our financial condition;

·

   earnings;


·

need for funds;

·

capital requirements;


·

     prior claims of preferred stock to the extent issued and outstanding; and

·

     other factors, including any applicable laws.


Therefore, there can be no assurance that any dividends on the common stock will ever be paid.


Securities Authorized for Issuance under Equity Compensation Plans


2010 Stock Plan


Connected Lyfe has reserved for issuance an aggregate of 15,000,000 shares of common stock under the Company’s 2010 Stock Plan (“the Plan”) that was adopted effective January 1, 2010.   During 2010 the Board of Directors approved, priced and granted 12,276,500 options to purchase 12,276,500 shares of the Company’s common Stock.  During 2010 3,015,500 of the options that were granted were forfeited. In 2011, the Board approved, priced, and granted 15,588,000 options to purchase 15,588,000 shares of the Company’s common stock.  During 2011, 11,582,000 options were cancelled or expired.


For additional information pertaining to the Company’s stock option plan, see Note 5 of the Company’s notes to the financial statements.


Equity Compensation Plans Information


We maintain the 2010 Stock Plan to allow the Company to compensate employees, directors, consultants and certain other individuals providing bona fide services to the Company or to compensate officers, directors and employees for accrual of salary through the award of common stock.  .


LYFE Communications shareholders approved the Connected Lyfe Stock Option Plan effective January1, 2010 and adopted under the Merger Agreement.




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ITEM 6.  SELECTED FINANCIAL DATA


As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS


The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report. References in the following discussion and throughout this annual report to “we”, “our”, “us”, “LYFE Communications”, “Connected Lyfe”, “Lyfe”, “the Company”, and similar terms refer to LYFE Communications, Inc. unless otherwise expressly stated or the context otherwise requires. This discussion contains forward-looking statements that involve risks and uncertainties. LYFE Communications Inc’s actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this filing.


OVERVIEW AND OUTLOOK


Background


LYFE Communications, Inc (formerly known as Hangman Productions, Inc) was organized under the laws of the State of Utah on August 11, 1999, and in November 2001, commenced operations to produce film content in the format of “short films.”  LYFE Communication concluded that these operations were unviable because LYFE was unable to recruit experienced production staff to produce and complete post-production film content within the expected budget, and in 2004, we entered into a relationship with Benderspink, a diversified management and production company, specializing in initiating and managing the careers of screenwriters and actors.  LYFE then changed our focus to conducting screenplay contests (our Screenplay Shootout Contests), and conducted our first screenplay contest during that year, with Benderspink having agreed to consider our competition finalists’ screenplays.  LYFE hosted four (4) screenplay contests between 2004 and 2007, and one in 2009. LYFE produced one film, Four Stories of St. Julian, through LYFE’s then wholly-owned subsidiary, 4th Grade Films, Inc. (4th Grade). 4th Grade had been formed by us in 2007 to raise capital to produce a screenplay.  LYFE completed production of this film in the summer of 2007; and we sold our interest in 4th Grade in June 2008.  


Merger


Effective April 12, 2010 (theEffective Date), LYFE Communications completed an Agreement and Plan of Merger between LYFE Communications and a newly formed wholly-owned subsidiary, Hangman Acquisition, Inc., a Utah corporation (Merger Subsidiary), whereby Merger Subsidiary merged with and into Connected Lyfe, Inc., a Utah corporation (the Merger and the Merger Agreement).  Connected Lyfe, as the surviving corporation under the Merger, became LYFE’s wholly-owned subsidiary, and Connected Lyfe shareholders exchanged their shares of common stock of Connected Lyfe for 52,199,394 shares of LYFE’s common stock.  All shares received in the Merger are subject to a lock-up period (the Lock-Up Period) of the greater of twelve (12) months or the holding period required under Rule 144, subject, however, to waiver by our Board of Directors, so long as the holding period of Rule 144 has been previously satisfied, along with other conditions to which any resale of such shares are subject under Rule 144.  


Connected Lyfe founders were required to execute and deliver a founders’ certificate (the Connected Lyfe Founders’ Certificate) respecting Connected Lyfe’s products, services and software and the lack of infringement of such products, services and software of others.  Prior to closing, Connected Lyfe founders



22







had also executed and delivered to Connected Lyfe Employment Agreements and other agreements respecting proprietary information, confidentiality, non-competition, inventions and other related matters which were assigned over to Connected Lyfe.  


LYFE Communications adopted, ratified and approved the Connected Lyfe Stock Option Plan (the Stock Option Plan), under which Connected Lyfe had reserved 15,000,000 shares for issuance to eligible participants, including employees, directors, officers, consultants and advisors(see Note 5). The stock options (theConnected Lyfe Convertible Securities) shall continue to have, and be subject to, the same terms and conditions but will be convertible into shares of our common stock.   The stock options are for a term of no more than ten (10) years, which is the absolute maximum time for which stock options may be granted under the Stock Option Plan and are subject to vesting requirements, and in certain instances, are subject to leak-out resale restrictions following exercise and the satisfaction of performance milestones.


The Merger resulted in a change of our control, and the persons who were directors, executive officers and principal shareholders of Connected Lyfe were designated as LYFE Communications’ directors and executive officers, with LYFE Communications’ pre-Merger directors and executive officers resigning. Robert A. Bryson was designated a director and President; Garrett R. Daw was designated as a director and Secretary; and Gregory M. Smith was designated as a director and Vice President.  These persons collectively own 44,683,000 shares of post-Merger outstanding voting securities, comprised of common stock, or approximately 50% of LYFE Communications’ common stock.


Connected Lyfe was incorporated under the laws of the State of Utah, effective January 1, 2010, when Acclivity Media, LLC, a Utah limited liability company formed on September 14, 2009 (“Acclivity”) was converted into a corporate form.  Acclivity was organized to develop, deploy and operate next generation media and communications network based services to single-family, multi-family, high-rise, resort and hospitality properties.  LYFE Communications succeeded to Connected Lyfe’s current and intended business operations under the Merger.  


General Development of Business


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.  




23







Business


Principal Products or Services and Their Markets


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 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.


Results of Operations


For the years ended December 31, 2011, and 2010


Total revenues were $621,830 in 2011 compared to $204,516 revenue in 2010.  The increase in revenues is due to the acquisition of multiple dwelling unit properties from a regional service provider and the revenues from the customers obtained from those properties  from June 2011 through the end of the year.   Currently the Company operates on the UTOPIA fiber network and has approximately 370 subscribers.  The customers obtained from the regional provider are in approximately 44 multiple dwelling units in Arizona, California, Utah and Texas.  We offer high-speed Internet, telephone (VoIP) and television or Video services to our customers.   Due to cash constraints the Company was forced suspend its selling efforts and its growth.  If alternative funding is closed we will begin adding subscribers to our current subscriber base.


Direct costs for the year ended December 31, 2011 and 2010, was $515,491 and $161,778, respectively, generating a gross profit in 2011 and 2010 of $106,339 and $42,738 or 17 and 21 percent of sales, respectively.  The Company expects to improve its gross profit as a percentage of sales through economies of scale on equipment and other fixed costs incurred that is sufficient to service a much larger subscriber base in future periods.



24








Sales and marketing expenses totaled $82,705 for the year ended December 31, 2011 as compared to sales and marketing expense of $636,880 in 2010.  The decrease in sales and marketing was due to the lack of funding and the slowing of the sales effort until additional capital and funding is secured by the Company to grow the network and increase subscribers.   The Company will increase sales as funding is received to increase subscribers.


Customer service expenses totaled $195,548 for the year ended December 31, 2011 as compared to customer service expense of $396,390 in 2010.   The decrease in customer service expenses are a result of a lack of capital and funding for the Company which caused a downsizing of the workforce, and a significant decrease in service visits due to a change in suppliers of VOIP services.

 

Research and development expenses totaled $99,050 in 2011 as compared to $573,581 incurred in 2010.  The decrease was due to a reduction in workforce at the beginning of 2011 as a result of a lack of funding at the Company.  


General and administrative costs totaled $3,088,945 in 2011 as compared to $7,717,695 incurred in 2010 of which 38 percent and 67 percent or $1,513,790 and $5,183,372 was associated with non-cash compensation expense recognized in conjunction with the issuance of common stock and stock options.  The remaining general and administrative expenses were expended in the operations of the Company.  The decrease in General and administrative costs was due to a downsizing of the workforce and a slowing of operations due to a lack of capital and funding.


Liquidity and Capital Resources


The following table summarizes total current assets, total current liabilities and working capital at December 31, 2011 compared to December 31, 2010.


 

 

 

 

 

 

Increase/Decrease

 

 

12/31/2011

 

12/31/2010

 

$

 

%

Current Assets

 

        62,339

 

        62,733

 

           (394)

 

1%

Current Liabilities

 

   3,078,308

 

   1,665,310

 

      1,412,998

 

85%

Working Capital (Deficit)

 

(3,015,969)

 

(1,602,577)

 

     (1,413,392)

 

88%


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 twelve months ended December 31, 2011, the current liabilities increased by $1,412,998 when compared to December 31, 2010.  The primary reason for the increase in current liabilities is due to funding and liquidity at the Company and increase in short-term notes payable which have been used to fund operations  The Company incurs expenses through operations and without additional funding the



25







liabilities will continue to increase.   Additionally short-term loans have been used to fund obligations and operations, some of which are in default.

  

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.


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.


Critical Accounting Policies and Estimates


The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. We believe our assumptions to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions.


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.


The Company records revenues on a gross basis which includes taxes and fees that are collected from the customer to be remitted to the taxing and regulatory agencies.  The taxes and fees are recorded as expenses under direct costs as they are remitted to the taxing and regulatory agencies.  




26







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.  We used a market approach for stock compensation issued to consultants for services.  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.


Goodwill and Long-Lived Asset Valuation


 We test goodwill for impairment on an annual basis as of December 31. The goodwill impairment evaluation process is based on both an assessment of  future cash flows  and a market comparable approach. The assessment of future cash flows uses our estimates of future market growth, market share, revenue and costs, to determine the future profitability of the properties. We evaluated goodwill for impairment as of December 31, 2011 and determined that recorded goodwill was not impaired at that time.  If we fail to achieve our assumed growth rates or assumed gross margin, we may incur charges for impairment in the future. For these reasons, we believe that the accounting estimates related to goodwill and long-lived assets are critical accounting estimates.


Recently Issued Accounting Standards


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.  This amendment impacts testing steps only, and therefore its adoption should not have an impact on the Company’s 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.



27







Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


This item in not applicable as we are currently considered a smaller reporting company.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders

LYFE Communications, Inc.

 

We have audited the accompanying consolidated balance sheets of LYFE Communications, Inc. as of December 31, 2011 and 2010 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 2011 and 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of LYFE Communications, Inc. as of December 31, 2011 and 2010 and the consolidated results of operations and cash flows for the years ended December 31, 2011 and 2010, in conformity with accounting principles generally accepted in the United States of America.


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 3 to the financial statements, the Company has incurred significant losses and negative cash flows from operations  since inception.  The Company has not established operations with consistent revenue streams and has a working capital deficit.  These factors raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 3.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Mantyla McReynolds, LLC

Mantyla McReynolds, LLC

Salt Lake City, Utah

April 16, 2012





28




LYFE Communications, Inc.

Consolidated Balance Sheets

As of December 31, 2011and 2010



 

December 31, 2011

 

December 31, 2010

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

 $                               3,700

 

 $                               1,010

Accounts receivable, net of allowances of $39,350 and $6,615, respectively

                                58,639

 

                                59,611

Prepaid expenses

                                       -   

 

                                  2,112

Total current assets

                                62,339

 

                                62,733

 

 

 

 

Property and equipment, net

                              363,295

 

                              317,630

Goodwill

                              233,100

 

                                       -   

Intangible assets, net

                              329,661

 

                              244,147

Other assets

                              363,025

 

                              893,108

Total assets

 $                        1,351,420

 

 $                        1,517,618

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

Current Liabilities:

 

 

 

Accounts payable

 $                        1,091,788

 

 $                           722,245

Accrued liabilities

                           1,045,231

 

                              328,768

Deferred revenue

                                15,582

 

                                18,641

Taxes Payable

                              254,776

 

                              245,188

Notes Payable

                              334,250

 

                              120,672

Notes Payable – related party

                              275,000

 

                              215,000

Interest Payable

                                26,154

 

                                  5,091

Interest Payable – related party

                                35,527

 

                                  9,705

Total current liabilities

                           3,078,308

 

                           1,665,310

 

 

 

 

Other long-term liabilities

                                         -

 

                                  4,526

Total liabilities

                           3,078,308

 

                           1,669,836

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholder's deficit:

 

 

 

Common Stock, $0.001 par value; 200,000,000 shares authorized; 80,628,094 and 62,527,337 shares issued and outstanding, respectively

                                80,628

 

                                62,527

Paid in Capital

                         12,264,162

 

                           9,855,502

Paid in Capital Shares to be issued

                                         -

 

                              115,000

Accumulated deficit

                       (14,071,678)

 

                       (10,185,247)

Total Stockholders’ deficit

                         (1,726,888)

 

                            (152,218)

Total liabilities and Stockholders’ deficit

 $                        1,351,420

 

 $                        1,517,618

 

See accompanying notes to consolidated financial statements



29




LYFE Communications, Inc.

Consolidated Statements of Operations

For the years ended December 31, 2011 and 2010





 

12/31/2011

 

12/31/2010

 

 

 

 

 

 

Revenues

 $                621,830

 

 $               204,516

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

Direct Costs

515,491

 

161,778

 

Sales and marketing

82,705

 

636,880

 

Customer Service and Operating Expenses

195,548

 

396,390

 

General and administrative

3,088,945

 

7,717,695

 

Research and development

99,050

 

573,581

 

Depreciation and amortization

165,652

 

97,429

 

Loss on asset disposal

7,387

 

                             -

 

Total operating expenses

4,154,778

 

9,583,753

 

Loss from Operations

             (3,532,948)

 

             (9,379,237)

 

Gain on debt forgiveness

                     28,108

 

 

 

Interest Expense

                 (381,591)

 

                    (64,803)

 

Net loss

 $           (3,886,431)

 

 $          (9,444,040)

 

 

 

 

 

 

Loss Per Share – Basic and Diluted

 $                    (0.06)

 

 $                   (0.16)

 

 

 

 

 

 

Weighted Average Shares outstanding – Basic and Diluted

68,580,611

 

58,922,091

 



See accompanying notes to consolidated financial statements



30




LYFE Communications, Inc.

Consolidated Statements of Stockholders’ Deficit

For the years ended December 31, 2011 and 2010






 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common

 

Paid-In Capital

 

 

 

 

 

Total

 

Common Shares

 

 Shares To

 

Common Shares

 

Additional

 

 Accumulated

 

Stockholders'

 

Shares

 

Amount

 

 Be issued

 

To Be issued

 

Paid-In Capital

 

Deficit

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2009

          50,760,000

 

       50,760

 

                    -

 

                         -   

 

         1,254,240

 

             (741,207)

 

              563,793

Common Stock Issued for cash

            3,524,859

 

           3,525

 

                    -

 

                             -

 

           3,342,430

 

                            -

 

             3,345,955

Recapitalization with Merger

            2,980,000

 

           2,980

 

                    -

 

                             -

 

                (2,980)

 

                            -

 

                            -

Common Stock Issued for Services

            5,262,478

 

           5,262

 

                    -

 

                             -

 

           4,941,467

 

                            -

 

             4,946,729

Compensation related to Stock Option Grants

                           -

 

                   -

 

                    -

 

                             -

 

              236,643

 

                            -

 

                236,643

Issuance of Convertible Debt for cash

 

 

 

 

 

 

 

 

                83,702

 

 

 

                  83,702

Common Stock to be issued for cash

                           -

 

                   -

 

          95,833

 

                 115,000

 

                          -

 

                            -

 

                115,000

Net Loss

                           -

 

                   -

 

                    -

 

                             -

 

                          -

 

            (9,444,040)

 

           (9,444,040)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2010

          62,527,337

 

       62,527

 

          95,833

 

               115,000

 

         9,855,502

 

        (10,185,247)

 

            (152,218)

Common Shares Issued

                 95,833

 

                96

 

         (95,833)

 

                (115,000)

 

              114,904

 

 

 

                            -

Common Stock Issued for cash

            2,736,072

 

           2,736

 

 

 

 

 

              335,264

 

                            -

 

                338,000

Common Stock Issued for Services

            4,748,941

 

           4,749

 

                    -

 

                             -

 

              338,082

 

                            -

 

                342,831

Compensation related to Stock Option Grants

                           -

 

                   -

 

                    -

 

                             -

 

           1,170,959

 

                            -

 

             1,170,959

Common Stock Issued for Conversion of Notes

          10,519,911

 

         10,520

 

                    -

 

                             -

 

              416,451

 

                            -

 

                426,971

Beneficial conversion Feature on Convertible Notes

                           -

 

                   -

 

                    -

 

                             -

 

                33,000

 

                            -

 

                  33,000

Net Loss

                           -

 

                   -

 

                    -

 

                             -

 

                          -

 

            (3,886,431)

 

           (3,886,431)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2011

          80,628,094

 

 $      80,628

 

                    -

 

 $                          -

 

 $      12,264,162

 

 $       (14,071,678)

 

 $        (1,726,888)


See accompanying notes to consolidated financial statements



31




LYFE Communications, Inc.

Consolidated Statements of Cash Flows

For the years ended December 31, 2011 and 2010






 

Period Ended 12/31/2011

 

Period Ended 12/31/2010

 

 Cash flows from operating activities:

 

 

 

 

Net loss

 $              (3,886,431)

 

 $             (9,444,040)

 

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

 

 

 

 

Depreciation and amortization expense

                      165,652

 

                      97,429

 

Services provided in exchange for Shareholders' equity

                      342,831

 

                                -

 

Share - Based Compensation Expense

                   1,170,959

 

                 5,183,372

 

Non-Cash Interest Expense

                      360,294

 

                      49,374

 

Loss on Asset Disposal

                          7,387

 

                                 -

 

Changes in assets and liabilities:

 

 

 

 

Accounts Receivable, net

                             972

 

                     (59,611)

 

Prepaid expenses

                          2,112

 

                    273,957

 

Other assets

                        30,083

 

                     (85,799)

 

Accounts payable

                      369,543

 

                    693,098

 

Taxes Payable

                          9,588

 

                    245,188

 

Deferred Revenue

                        (3,059)

 

                      18,641

 

Accrued liabilities

                      757,703

 

                    271,458

 

Other long-term liabilities - Deferred Rent

                        (4,526)

 

                        4,286

 

Net cash used in operating activities

                    (676,892)

 

                (2,752,647)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Proceeds from sale of property and equipment

                          1,895

 

                                -

 

Purchases of property and equipment

                           (499)

 

                   (310,076)

 

Payments for other intangible assets

                       (38,714)

 

                   (233,979)

 

Payments for other assets

                                  -

 

                   (800,000)

 

Net cash used in investing activities

                       (37,318)

 

                (1,344,055)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Note Payable

                      378,900

 

                    370,000

 

Issuance of Common Stock

                      338,000

 

                 3,345,955

 

Proceeds for Stock not issued

                                 -

 

                    115,000

 

Net cash provided by financing activities

                      716,900

 

                 3,830,955

 

 

 

 

 

 

Net Increase/(decrease) in cash and cash equivalents

                          2,690

 

                   (265,747)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

                         1,010

 

                    266,757

 

Cash and cash equivalents at end of period

 $                      3,700

 

 $                     1,010

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

Cash paid for Interest

 $                              -

 

 $                             -

 

Cash paid for Income Taxes

                                 -

 

                                -

 

Common stock issued for conversion of notes

426,971      

 

-     

 

 

See accompanying notes to consolidated financial statements



32







LYFE Communications, Inc.

Notes to Consolidated Financial Statements


1.  Organization and Nature of Business


On April 12, 2010, LYFE Communications, Inc (formerly Hangman Productions, Inc.) (the “Company” or “LYFE”), and Connected Lyfe, Inc. (“Connected Lyfe”) entered into an Agreement and Plan of Merger (the “Merger Agreement”).  Under the Merger Agreement, LYFE merged with and into Connected Lyfe with Connected Lyfe remaining as the surviving corporation and a wholly-owned subsidiary of the Company (the “Merger”).  Going forward, the Company is a holding company parent of Connected Lyfe, and the Company’s business operations following the Merger will be those of Connected Lyfe.


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


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


2.   Significant Accounting Policies


These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and reflect the significant accounting polices described below:


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.


Principles of Consolidation


The consolidated financial statements include the accounts of LYFE Communications, Inc. and its wholly-owned subsidiary, Connected Lyfe Inc.  All inter-company balances and transactions are eliminated.


Cash and Cash Equivalents


The Company considers all deposit accounts and investment accounts with an original maturity of 90 days or less to be cash equivalents.  




33







Concentrations


Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents and accounts receivable.


We rely on terms with our suppliers to continue to provide access to telecommunication services. Payables to UTOPIA, our provider of video and data services on the UTOPIA network was $345,565 and $136,594 as of December 31, 2011 and 2010, respectively.  Additionally, Ygnition Networks provides the services to manage and operate properties acquired in the acquisition of properties on June 1, 2011 and provides billing functions for customers on the UTOPIA network. We rely on Ygnition’s ability to continue to manage and supply data and phone services to those properties.  As of December 31, 2011, there was a receivable of approximately 10% of accounts receivable from Ygnition for the income from the managed properties and no amounts payable to Ygnition.


Fair Value


For asset and liabilities measured at fair value, the Company uses the following hierarchy of inputs:


Level one - Quoted market prices in active markets for identical assets or liabilities;


Level two - Inputs other than level one inputs that are either directly or indirectly observable; and


Level three - Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.


All cash and cash equivalents, accounts payable, and accrued liabilities are carried at fair value.


Accounts Receivable


Accounts receivable are reflected at estimated net realizable value, do not bear interest and do not generally require collateral. The Company provides an allowance for doubtful accounts equal to the estimated collection losses based on historical experience coupled with a review of the current status of existing receivables.  Customer accounts are reviewed and written off as they are determined to be uncollectible.


Property and Equipment, Net

 

Property and equipment are recorded at cost. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Assets recorded under leasehold improvements are amortized using the straight-line method over the lesser of their useful lives or the related lease term. The Company uses the following estimated useful lives:



34








Computer Equipment

3 Years

Furniture and Fixtures

5 Years

Software

 

3 Years


Upon retirement or other disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts. The resulting gain or loss is included in the determination of operating income (loss) in the period incurred. Depreciation expense on property and equipment was $160,452 and $97,429, for the years ended December 31, 2011, and 2010 respectively.


Fixed assets and related accumulated depreciation as of December 31, 2011 and 2010 are as follows:


 

2011

 

2010

Computer Equipment

        511,526

 

 $     298,025

Furniture and Fixtures

          78,604

 

          88,774

Leasehold Improvements

          14,513

 

          14,624

Software

            9,549

 

            9,549

Accumulated Depreciation

      (250,897)

 

        (93,342)

Total Fixed Assets

 $     363,295

 

 $     317,630


Intangible Assets


Intangible assets include internally developed software.  The Company accounts for the costs of developing software in accordance with the provisions of FASB ASC Topic 350.  The Company records the Company’s internal and external costs to develop software to be used internally for the deployment of the next generation video systems.  The Company capitalizes the costs during the application development stage when it is probable that the project will be completed and the software will be used to perform the function intended.  The Company capitalized $38,714 and $232,247 of development costs related to the application development of the next generation video systems in 2011 and 2010 respectively.  The Company assesses the projects for impairment when it is no longer probable that the project will be competed and placed in service.  The Company did not impair any projects in 2011 or 2010.  


Rights of entry agreements were acquired in the acquisition of properties from a telecom and video service provider (Note 4) on June 1, 2011.  The right of entry agreements were recorded at fair value and amortized over a five year life on a straight line basis.  The amortization of rights of entry was $5,200 in 2011.  The Company assesses the agreements for impairment when the properties that the agreements cover are no longer providing contribution margin.  The Company did not impair any agreements in 2011.


Goodwill


Goodwill is the excess of the purchase price over the fair value of the net assets acquired. Goodwill is tested for impairment annually as of December 31, or more frequently if indications of impairment arise.



35








Other Assets


Other assets includes right of entry agreements acquired from a telecom and video service provider, payments made for video distribution and content rights and security deposits.  As of December 31, 2011, payments for the video distribution and content rights was $350,000 and security deposits were $13,025.


Accrued Liabilities


Accrued liabilities consist of costs the Company incurred for payroll and vacation amounts due to employees.


Deferred Revenue


The Company’s line item of deferred revenue represents payments by subscribers in advance of the delivery of services.  Subscribers are on a monthly billing cycle and payments are made monthly, with some subscribers paying the monthly bill in the middle of the billing cycle.  The Company defers the revenue until the services have been rendered.


Taxes


At December 31, 2011, management had recorded a full valuation allowance against the net deferred tax assets related to temporary differences and operating losses in the current period because there is significant uncertainty as to the realizability of the deferred tax assets. Based on a number of factors, the currently available, objective evidence indicates that it is more-likely-than-not that the net deferred tax assets will not be realized.


The Company elected to classify income tax penalties and interest as general and administrative and interest expenses, respectively.  


The Company has accrued for unremitted payroll taxes, employee withholdings, and sales taxes due to various state and federal agencies along with accrued interest and penalties on the amounts outstanding as of December 31, 2011 and 2010.


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.


The Company records revenues on a net basis which excludes taxes and fees that are collected from the customer to be remitted to the taxing and regulatory agencies.  




36







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.


Advertising


The Company follows the policy of charging the costs of advertising to expense as incurred.  The Company recognized $4,358 and $44,839 of advertising expense during the years ended December 31, 2011 and 2010, respectively.


Net Loss Per Common Share


Basic (loss) per common share is based on the net loss divided by weighted average number of common shares outstanding.


Diluted earnings per share are computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method.  As the Company has a loss for the years ended December 31, 2011 and 2010, the potentially dilutive shares are anti-dilutive and are thus not included into the earnings per share calculation.


As of the years ended December 31, 2011 and 2010 there were 10,000,000 and 162,338, respectively, potentially dilutive shares resulting from the issuances of convertible promissory notes.  As of the years ended December 31, 2011 and 2010 there were  13,267,000 and 9,261,000, respectively outstanding stock options issued under the Company stock option plan that are potentially dilutive.  As of the years ended December 31, 2011 and 2010 there were  1,095,000 and 0, respectively outstanding warrants issued that are potentially dilutive.


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.  This amendment impacts testing steps only, and therefore its adoption should not have an impact on the Company’s 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



37







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 an accumulated deficit as of December 31, 2011 of ($14,071,678) and has had reoccurring negative cash flows from operating activities. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  


The Company anticipates increasing subscriptions in 2012, which will require further financing for operating costs, capital expenditures and general expenses.  We anticipate that the funds received from subscribers throughout 2012 will not be sufficient to fund operations and would require additional debt or equity financing in order to meet planned expenditures over the next 12 months. If the Company is unsuccessful with their plans, there is a possibility of discontinuance of operations.


Subsequent to December 31, 2011, the Company received proceeds of $198,000 from the purchase of common shares to fund continuing operations.


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.




38







4. Acquisitions


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, LYFE Communications 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 effective June 1, 2011.  The Company accounted for the transaction as a business combination in accordance with ASC 805.


The allocation of total consideration to the assets acquired and liabilities assumed based on the estimated fair value of the acquisition was as follows:


Assets:

 

Estimated Life

Property and equipment

 $     214,900

3 Years

Rights of Entry Agreements

          52,000

5 Years

Goodwill

        233,100

Indefinite

Total assets acquired

        500,000

 

 

 

 

Total consideration

 $     500,000

 


The business combination was a result of the acquisition of the assets from Ygnition Networks, a long-standing partner and operator in the Multiple Dwelling Unit (“MDU”) space. Services and subscribers from forty-four 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.


The consolidated financial statements as of December 31, 2011 include the accounts of the acquired Ygnition properties and results of operations since the dates of acquisition. The consolidated financial statements as of December 31, 2011 include the accounts of the acquired properties and results of operations since the dates of acquisition on June 1, 2011. 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).  It is impracticable to disclose the pro forma revenues and expenses for 2010 as if the acquisition occurred on January 1, 2010 as the accounting is unavailable and impracticable to obtain.


 

 

For the year ended

 

 

December 31, 2011

Revenue

 

 $                 454,450

Direct Costs

 

412,243

Gross Profit

 

42,207

 

 

 

Operating, General and Administrative Costs

 

50,286

Net Income

 

 $                    (8,079)





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 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 average vesting period and contractual period.  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 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.





40










 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

Weighted Average Exercise Price

 

Weighted Average Grant Date Fair Value

Intrinsic Value

Outstanding, January 1, 2010

-

 

$

-

 

$                            -

$                            -

Granted

12,276,500

 

 

0.34

 

                         0.21

                              -

Vested

-

 

 

-

 

                              -

                              -

Expired/Cancelled/Forfeited

(3,015,500)

 

 

0.44

 

                         0.22

                              -

Exercised

-

 

 

-

 

                              -

                              -

Exercisable

-

 

 

-

 

                              -

                              -

Outstanding, December 31, 2010

9,261,000

 

$

0.30

 

$                       0.21

$                            -

Outstanding, January 1, 2011

9,261,000

 

$

0.30

 

$                       0.21

$                            -

Granted

15,588,000

 

 

0.08

 

                         0.13

                              -

Expired/Cancelled

(11,582,000)

 

 

0.28

 

                         0.22

                              -

Exercised

-

 

 

-

 

                              -

                              -

Outstanding, December 31, 2011

13,267,000

 

 

0.20

 

$                       0.11

$                            -

Exercisable

6,404,750

 

$

0.14

 

$                       0.15

$                            -


Range of Exercise

Number Outstanding

Remaining

Number Exercisable at

Prices

at December 30, 2011

Contractual Life

December 31, 2011

$                                     0.04

5,196,000

4.57

5,196,000

$                                     0.25

8,055,000

1.27

1,208,750

$                                     0.75

8,000

2.05

                             -

$                                     1.10

8,000

3.40

-

 

 

 

 

 



 

Nonvested Options

 

 

 

Weighted Average Exercise Price

January 1, 2011

9,261,000

  

 

$

0.34

 

 

 

 

 

 

Granted

15,588,000

  

 

 

0.08

Vested

(6,404,750)

 

 

 

0.14

Forfeited

(11,582,000)

 

 

 

0.28

 

 

 

 

 

 

Nonvested at December 31, 2011

6,862,250

  

 

$

0.25


Option-based compensation expense totaled $1,170,959 and $4,946,729 for the twelve months ended December 31, 2011 and 2010, respectively. As of December 31, 2011 and 2010, the Company had $475,412 and $1,063,844 in unrecognized compensation costs related to non-vested stock options granted under the Plan, respectively.


During the year ended December 31, 2011, the Company issued 4,207,273 shares for services performed by consultants, promoters, investor relations and fundraisers.  The value of the services was determined based on the closing price of the Company’s stock on the date the services were performed which was valued at $330,807 for the year ended December 31, 2011.


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



41







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. Intangible Assets


Rights of entry agreements were acquired in the acquisition of properties from a telecom and video service provider (Note 4) on June 1, 2011.  The rights of entry agreements are negotiated with property owners at multiple dwelling properties such as apartment and condo complexes. The agreements allow the telecom service provider access to the customers on the property or exclusive marketing rights in exchange for a fee paid to the property owners.  The agreements are typically for a five year period with options to renew at the end of the period.  The rights of entry agreements were recorded at the assessed fair value of $52,000 and are amortized over a five year life on a straight line basis.  The amortization of rights of entry was $5,200 for the year ending December 31, 2011 and the residual value of the asset was $46,800 as of December 31, 2011.  The Company assesses the agreements for impairment when the properties that the agreements cover are no longer providing contribution margin.  The Company did not impair any agreements in 2011.  Future cash flows associated with the rights of entry are impacted by the Company’s ability to obtain customers at the properties where the rights of entry are in place, to provide services to customers, and the Company’s ability or intent to renew or extend the rights of entry agreements.  The amortization expenses for the rights of entry are as follows:


 

 

December 31

 

 

2011

 

2010

Property access agreements, including subscriber lists

 

 $       52,000

 

 $                 -

Less: Accumulated amortization

 

          (5,200)

 

                    -

Totals

 

 $       46,800

 

 $                 -


Year

 

Amount

2012

 

          10,400

2013

 

          10,400

2014

 

          10,400

2015

 

          10,400

2016

 

            5,200

Total

 

          46,800

 

 

 


8. Goodwill


Goodwill is as follows:

 

Reported balance at December 31, 2010

 

 $                              -

Adjustment

 

                       233,100

Impairment

 

                                 -

Reported balance at December 31, 2011

 

 $                    233,100


As of December 31, 2011, the gross profit and contribution margin from the acquired properties and customer attrition rates did not indicate that there was an indication that its recorded goodwill associated with its acquisitions of Multiple Dwelling Unit (“MDU”) properties might be impaired. Accordingly, the Company performed an impairment analysis analyzing future projected income and cash flows and future market value and determined that the goodwill associated with the properties was not impaired as of December 31, 2011.   


9. Employment Agreements


The Company has employment agreements with certain of its executive officers providing for severance payments in the event of termination of their employment without cause.  If all of these employees were terminated the Company would be required to make payments totaling approximately $1.2 million plus accrued and unpaid salaries from 2011 & 2010 of $525,000.


10.  Equity


On January 1, 2010 Acclivity Media LLC was converted into a corporation under the laws of the state of Utah with 100,000,000 common shares authorized with a par value of one mill ($0.001). After the merger with LYFE Communications, the authorized shares of the combined entity were that of LYFE Communications in the amount of 200,000,000 common shares authorized.  The member interest was converted into 50,760,000 common shares on January 1, 2010 when the LLC was converted to a corporation under the laws of the state of Utah.  All members of the LLC had their member interest converted to common shares equal to their member interest.


During 2011, the Company issued 18,100,757 shares.  The Company received $338,000 in proceeds for the issuance of 2,736,072 shares.  The Company issued 4,748,941 shares for services provided to the Company.  The Company issued 10,519,911 shares on the conversion of convertible notes payable.  In 2011 the Company issued 95,833 shares where the proceeds were received in 2010.


During 2010, the Company issued 3,524,859 shares for cash of $3,345,955.   As of December 31, 2010, there were 95,833 shares to be issued for proceeds of $115,000 received by the Company.


For the year ended December 31, 2011, the Company issued 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.  The warrants issued had an exercise price of $0.40 per share with a three year expiration and immediate vesting.   Additionally, the Company issued warrants to purchase 100,000 shares of common stock with a fair value of $12,024.  The warrants had an exercise price of $0.50 per share with a three year expiration and immediate vesting.


The fair value of each issuance is estimated on the date of grant using the Black-

Scholes option pricing model. The Black-Scholes option pricing model incorporates ranges of assumptions for each input. Expected volatilities are based on the historical volatility of an appropriate industry sector index, comparable companies in the index and other factors. The Company estimates expected life of each warrant based on the midpoint between the dates the warrant vests and the contractual term of the warrant. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related warrant. Forfeitures are estimated based on historical experience rates.



43








The warrants were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date $0.30; expected term of 1.5 years; expected volatility of 115.2%; and discount rate of 1.36%. The total fair value of the warrants issued in exchange for services was calculated at $12,024.


A summary of warrant activity for the fiscal years ended December 31, 2011 and 2010 is presented below:


 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

Shares

 

Average

 

Remaining

 

Aggregate

 

 

Under

 

Exercise

 

Contractual

 

Intrinsic

 

 

Warrants

 

Price

 

Life

 

Value

Outstanding as of December 31, 2010

                    -

 

 $               -   

 

 

 

 

 

Granted

     1,095,000

 

 $           0.41

 

 

 

 

 

Expired

                    -

 

 $               -   

 

 

 

 

 

Converted

                    -

 

 $               -   

 

 

 

 

Outstanding as of December 31, 2011

     1,095,000

 

 $           0.41

 

2.71 Years

 

 $               -   

Exercisable as of December 31, 2011

     1,095,000

 

 $           0.41

 

2.71 Years

 

 $               -   


The year-end intrinsic values are based on a December 31, 2011 closing price of $0.04 per share.


11.  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 $7,221 interest on the note as of December 31, 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 extinguishment and new debt agreement where the interest rate on the new note was  12%; the maturity date was  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 applied ASC 480 and wrote up the note by $65,000 and charged the write-up to interest expense. The Company issued 2,186,922 shares in exchange for the $130,000 in debt and $1,173 in accrued interest.  


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 December 31, 2011 LYFE has accrued $11,268 in interest on the note payable and recorded $9,000 and $2,268 in interest expense for the year ending December 31, 2011 and 2010, respectively.  The Company is currently in default as no payments have been made on the note and the note has not been converted.




44







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. The Company applied ASC 480 and wrote up the note by $32,727 and charged the write-up to interest expense.  In June, 2011, the Company issued 1,201,032 common shares in exchange for the $72,727 in debt 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. The Company applied ASC 480 and wrote up the note by $32,727 and charged the write-up to interest expense. In August, 2011, the Company issued 2,320,463 common shares in exchange for the $72,727 in debt and $1,600 in accrued interest.  

 

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 $1,035 interest on the note payable and recorded $1,035 in interest expense for the year ending December 31, 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.  The Company applied ASC 480 and wrote up the note by $20,000 and charged the write-up to interest expense. In December 2011, the Company issued 1,432,006 common shares in exchange for $40,000 in debt and $2,790 in accrued interest.


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.  In December 2011, the Company issued 651,598 common shares in exchange for $21,333 in debt and $1,419 in accrued interest.


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.  The Company applied ASC 480 and wrote up the note by $40,000 and charged the write-up to interest expense.   In December



45







2011, the Company issued 2,727,891 common shares in exchange for $80,000 in debt and $1,600 in accrued interest.


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 December 31, 2011, the Company had accrued interest of $234 and recorded interest expense of $234 for the year ending December 31, 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 December 31, 2011, the Company had accrued interest of $1,252 and recorded interest expense of $1,232 for the year ending December 31, 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 year ended December 31, 2011, the Company recorded approximately, $15,000 in amortization. As of December 31, 2011 LYFE has accrued $3,118 in interest on the note payable and recorded $3,118 in interest expense for the year ending December 31, 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, $9,750 in amortization.  As of September 30, 2011 LYFE has accrued $2,026 in interest on the note payable and recorded $2,026 in interest expense for the year ending December 31, 2011.


12.  Related Party Transactions


On May 28, 2010 LYFE 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 December 31, 2011 and 2010 LYFE has accrued $25,114 and $9,397 interest on the note payable to Robert Bryson. As of April 16, 2011 the note has not been repaid.


On February 16, 2011 an officer of the Company loaned the company $100,000 bearing an interest rate of12%.   The Company recognized $10,414 in interest and accrued interest for the year ending December 31, 2011.



46








13.  Income Taxes


The Company has available net operating losses of $6,743,886 which can be utilized to offset future earnings of the Company. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.  The valuation allowance decreased by $69,619 during the year end December 31, 2011.


The Company has the following carryforwards available at December 31, 2011:


Operating Losses

Expires

Amount

2020

$          4,744

2021

557

2022

2,139

2023

1,757

2024

21,897

2025

28,388

2026

19,914

2027

19,651

2028

10,258

2029

26,565

2030

3,877,874

2031

2,730,142

Total

$     6,743,886


The tax effects of temporary differences that give rise to significant portions of the deferred tax asset at December 31, 2011 and 2010 are summarized below.  


 

2011

2010

 

Current Deferred tax asset:

 

 

 

  Accounts Receivable

$                      14,678

$                      2,467

 

 Payroll & vacation accruals

364,485

122,631

 

 Restricted stock issued for services

53,636

1,845,130

 

Non-Current Deferred tax asset:

 

 

 

  Net operating losses

    2,515,468

    1,497,126

 

  Nonstatutory stock options

525,036

88,268

 

  Intangible Assets

(1,754)

-

 

  Fixed Assets

24,086

12,531

 

Preliminary deferred tax asset

3,495,635

3,568,153

 

Deferred tax asset valuation allowance

(3,495,635)

(3,568,153)

 

Net deferred tax asset

$                             -

$                             -

 

 



47







The effective tax rate for continuing operations differs from the statutory rate [34%] as follows:


 

 

2011

 

 

2010

Federal Statutory Rate

 

      34.00%

 

 

      34.00%

Effects of:

 

 

 

 

 

State Income Taxes

 

3.30%

 

 

   3.30%

Losses from Hangman

 

 

 

 

.54%

Change in Valuation Allowance

 

1.87%

 

 

-37.78%

Permanent Differences

 

-39.17%

 

 

-.06%

Provision for Income Tax (Benefit)

 

               -   

 

 

               -   


Uncertain Tax Positions


The Company has evaluated for uncertain tax positions and determined that there were none as of December 31, 2011.


The Company did not recognize any penalties or interest related to uncertain tax positions during the years ended December 31, 2011 and 2010.  No penalties or interest for unrecognized tax benefits had been accrued as of December 31, 2011 and 2010.


The Company has filed income tax returns in the US and other state jurisdictions.   The years ended December 31, 2011, 2010, and 2009 are open for examination.


14.  Contingency


On June 15, 2011 the Company was served with a judgment for the collection of fees from a vendor for $191,160 which was settled for $75,000 on November 15, 2011.  The Company paid $20,000 and has accrued for the remaining fees in accounts payable.  The Company intends to pay the amount owed when funds are available.


The Company was served with a complaint for the collection of fees from a vendor for $43,672 of unpaid invoices accrued for in accounts payable, which was settled for $36,000 on March 27, 2012 and paid by the Company.  

 

The Company was served with complaints from former employees for unpaid payroll in the amount of $11,725.  The company has settled and paid $10,000 of the unpaid payroll and is complying with the regulatory agencies to settle the remaining $1,725.  The unpaid payroll was accrued for in accrued liabilities.


On July 19, 2011 the Company was notified by the Internal Revenue Service of intent to lien in the amount of $258,668.74 for unpaid taxes.  Since that time the Company has made payments to the IRS in the amount of $163,464.21 to reduce the tax liability, and the Company has had $25,302.84 in liability abated by the IRS.  The Company has accrued for the liability in taxes payable.  As of April 1, 2012 the company owes $69,901.66 to the IRS and continues to make monthly payments.




48







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.  


15.  Subsequent Events


The Company received $198,000 for the issuance of 990,000 common shares valued at $0.20 per share.


The Company issued 950,000 shares for services to consultants and contractors.  The fair value of the services was $38,000.


The Company issued 6,813,862 common shares in exchange for $132,000 in principal and $5,290 in accrued interest.

















49







ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


We have had no disagreements with our independent auditors on accounting or financial disclosures.


ITEM 9A. CONTROLS AND PROCEDURES


Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.


Our management, with the participation of our Chief Executive Officer and Chief Accounting Officer evaluated the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework.  Based on this evaluation, our management, with the participation of the principal executive officer and principal accounting officer, concluded that, as of December 31, 2011, our internal control over financial reporting was not effective.


As of December 31, 2011, 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.  


This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report.


Changes in Internal Control Over Financial Reporting


There have been no changes in internal control over financial reporting during the last fiscal quarter of our fiscal year ended December 31, 2011.


ITEM 9B. OTHER INFORMATION


Not Applicable


PART III


ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


The following sets forth information about our directors and executive officers as of the date of this report:



50







 

Name

Age

Title

Term Commencing

Gregory Smith

39

Chief Executive Officer

3/28/2011

 

 

 Director

1/1/2010

Garrett Daw

36

Executive Vice President

1/1/2010

 

 

Director

1/1/2010

Robert Bryson

52

Director

3/28/2011

 

 

 

 


Gregory Smith, 38, Chief Executive Officer and Director:

Greg has more than 15 years of technology and product development experience in digital media. Before co-founding Connected Lyfe, Greg was the Chief Technology Officer at DG FastChannel, where he directed its product innovation through a new broadcaster distribution network for advertisements and syndication. Prior to that, Greg was the Chief Technology Officer at Move Networks. A digital media technologies and services company, Move created the world’s first adaptive streaming protocol for video. He also served as VP of Technologies and Products and VP of Sales at All Media Guide, a business-to-business provider of descriptive entertainment media technology. Additionally, Greg was the Senior Product Manager and Director of Technologies at Edgix and was also part of the Business Development and Product Teams at PanAmSat and Space Systems/Loral. Greg earned bachelor degrees in Aerospace and Mechanical Engineering at Princeton University and continued studies in Control Theory and Advanced Dynamics at Stanford University.


Garrett Daw, 35 Executive Vice President, Chief Accounting Officer and Director:

Garrett Daw has more than 12 years in sales, management, and business development.  Prior to co-founding Connected Lyfe, Daw was Vice President of Business Development at Infinidi Media a specialty content IPTV service.  Before Infinidi, he owned and operated his own Dish Network and DirecTV satellite dealership where he recruited, hired, trained and managed several hundred direct sales reps. He was one of Dish Network’s and DirecTV’s Top 50 Dealers in the U.S.  He also served as Vice President of Sales at USDTV where he oversaw all sales activities, and managed distribution relationships with companies such as WalMart and RC Willey.  He was responsible for building and managing a sales force of over 350 associates in 3 states.  Garrett also has extensive experience in real estate development, and residential and commercial construction.  As a Senior Project Manager at Daw Inc., he managed projects from $1,000,000 to $15,000,000 for clients such as Novell, NuSkin, Amoco BP, and the Salt Lake Olympic Committee.  Garrett graduated from the University of Utah where he earned a double major in Economics and Political Science.

 

Robert Bryson, 51, President, Director:  

Robert Bryson has more than 26 years experience in telecom, technology, and media, business development, sales, and marketing.  Robert co-founded Connected Lyfe to accelerate the delivery of the next generation of television, serving the demands of consumers to view, share, and manage their television from any device at any time and location, fully integrated with their connected lives.  Prior to founding Connected Lyfe, Robert was SVP of sales and business development at Digital Smiths, responsible for corporate development, strategic partnerships, and developing customer relationships. Before joining Digital Smiths, Robert was SVP of sales and business development at Move Networks, where he led all sales and business development as well as the commercial deals and strategic relationships with Disney ABC Television Group, ESPN Media Networks, Fox Interactive Media, My Space, Fox Broadcasting, The CW Network,



51







Warner Brothers, and Televisa.  Previously, he served as SVP of sales and marketing for Knowledge Universe and I-Link, and as SVP of business development for Media Station.  He also held senior management positions with Novell and IBM/Rolm Systems


Family Relationships


There are no family relationships among any of our officers or directors.


Election of Directors and Officers


Directors are elected to serve for a 1 year term and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified.


Involvement in Certain Legal Proceedings


To the best of our knowledge, none of our directors or executive officers has, during the past five years:


been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);


had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;


been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;


been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;


been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or


been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26)



52







of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member


Section 16(a) Beneficial Ownership Reporting Compliance


Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires executive officers and directors, and persons who beneficially own more than ten percent of an issuer's common stock that has been registered under Section 12 of the Exchange Act, to file initial reports of ownership and reports of changes in ownership with the SEC.


As a company with securities registered under Section 15(d) of the Exchange Act, our executive officers and directors and persons who beneficially own more than ten percent of our common stock are not required to file Section 16(a) reports.


Corporate Governance


           We currently do not have standing audit, nominating or compensation committees of the Board of Directors, or committees performing similar functions. Until formal committees are established, our entire Board of Directors, perform the same functions as an audit, nominating and compensation committee.


ITEM 11.  EXECUTIVE COMPENSATION


Overview of Compensation Program


We currently have not appointed members to serve on the Compensation Committee of the Board of Directors. Until a formal committee is established, our entire Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy.  The Board of Directors ensures that the total compensation paid to the executives is fair, reasonable and competitive.


Role of Executive Officers in Compensation Decisions


The Board of Directors makes all compensation decisions for, and approves recommendations regarding equity awards to, the executive officers and Directors of the Company.  Decisions regarding the non-equity compensation of other employees of the Company are made by management.


SUMMARY COMPENSATION TABLE


The table below summarizes the total compensation paid to or earned by our Executive Officers, for the year ended December 31, 2011.




53








2011 Summary Compensation Table

 

 

 

 

Non-Equity

 

 

Name and Principal

 

 

Stock

Incentive Plan

All Other

 

Positions

Salary

Bonus

Awards

Compensation

Compensation

Total

Gregory Smith

 

 

 

 

 

 

Chief Executive Officer

 $     225,000

 $                 -

 $                 -

 $                 -

 $                 -

 $   225,000

Garrett Daw

 

 

 

 

 

 

Executive Vice President and

 

 

 

 

 

 

Principal Accounting Officer

 $     175,000

 $                 -

 $                 -

 $                 -

 $                 -

 $     175,000

Robert Bryson

 

 

 

 

 

 

Director

 $      52,083

 $                 -

 $                 -

 $                 -

 $                 -

 $     52,083


Employment Agreements


Refer to Note 8 to the Financial Statements.


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


The following table sets forth the share holdings of beneficial owners owning in excess of 5% of our outstanding voting securities as of December 31, 2011, based upon 80,628,094 shares of our common stock being outstanding on such date:


Security Ownership of Beneficial Owners

  

 

Name and Address of

 

Percent of

Title of Class

Beneficial Owner (1)

Amount

Class

Common Stock

Robert Bryson

  14,683,000

18.21%

Common Stock

Gregory Smith

  15,086,055

18.71%

Common stock

Garrett Daw

  15,000,000

18.60%


 (1)  

Each Parties’ address is in care of the Company at  P.O Box 961026 South Jordan, Utah 84095.


SEC Rule 13d-3 generally provides that beneficial owners of securities include any person who, directly or indirectly, has or shares voting power and/or investment power with respect to such securities, and any person who has the right to acquire beneficial ownership of such security within 60 days.  Any securities not outstanding which are subject to such options, warrants or conversion privileges exercisable within 60 days are treated as outstanding for the purpose of computing the percentage of outstanding securities owned by that person.  Such securities are not treated as outstanding for the purpose of computing the percentage of the class owned by any other person.  At the present time there are no outstanding options or warrants.




54







Changes in Control


There are no present arrangements or pledges of our securities which may result in a change in control of our Company.


Item 13.  Certain Relationships and related Transactions, and Director Independence.


Transactions with Related Persons


Except as indicated below, there were no other material transactions, or series of similar transactions, during our last three fiscal years, or any currently proposed transactions, or series of similar transactions, to which we or any of our subsidiaries was or is to be a party, in which the amount involved exceeded the lesser of $120,000 or 1% of the average of our total assets at year-end for the last three completed fiscal years and in which any director, executive officer or any security holder who is known to us to own of record or beneficially more than five percent of any class of our common stock, or any member of the immediate family of any of the foregoing persons, had an interest.


On May 28, 2010 LYFE 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 December 31, 2011 and 2010 LYFE has accrued $25,114 and $9,397 interest on the note payable to Robert Bryson. As of April 16, 2011 the note has not been repaid.


On February 16, 2011 an officer of the company loaned the company $100,000 bearing an interest rate of12%.   The company recognized $10,414 in interest and accrued interest for the year ending December 31, 2011.


Item 14.  Principal Accounting Fees and Services.


The following is a summary of the fees billed to us by our principal accountants during the fiscal years ended December 31, 2011, and 2010:


 

 

 

 

 

 

Fee Category

 

2011

 

2010

Audit Fees

     $

57,892

 

$

41,600

Audit-related Fees

     $

-

 

$

-

Tax Fees

     $

-

 

$

-

All Other Fees

     $

-

 

$

-

Total Fees

     $

57,892

 

$

41,600


Audit Fees - Consists of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.


Audit-related Fees - Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.”


Tax Fees - Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.



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All Other Fees - Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit fees,” “Audit-related fees,” and “Tax fees” above.


Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors


We have not adopted an Audit Committee; therefore, there is no Audit Committee policy in this regard. However, we do require approval in advance of the performance of professional services to be provided to us by our principal accountant. Additionally, all services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant.


PART IV


Item 15.  Exhibits, Financial Statement Schedules.


(a)(1)(2)    Financial Statements.  See the audited financial statements for the year ended December 31, 2011 contained in Item 8 above which are incorporated herein by this reference.


Description of Exhibits


 

 

 

Exhibit No.

Title of Document

Location if other than attached hereto*

 

 

 

31.1

Certification of Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

Certification of Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

32.2

Certification of Principal Executive and Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 


*  Previously filed with the SEC as Exhibits to our initially filed Form 10, on April 14, 2011.


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LYFE Communications, Inc.


 

 

 

 

 

Date:

April 16, 2011

 

By:

/s/Gregory Smith

 

 

 

 

Gregory Smith

 

 

 

 

Chief Executive Officer





Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


LYFE Communications, Inc.


 

 

 

 

 

Date:

April 16, 2012

 

By:

/s/Gregory Smith

 

 

 

 

Gregory Smith

 

 

 

 

Chief Executive Officer and Chairman of the Board

 

 

 

 

 

 

 

 

 

 

Date:

April 16, 2012

 

By:

/s/Garrett Daw

 

 

 

 

Garrett Daw

 

 

 

 

Executive Vice President, Chief Accounting Officer, Secretary and Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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