Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: November 14, 2012 – 98,189,904 shares of common stock ($0.001 par value) outstanding.

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LYFE Communications, Inc.

Index to Report

See accompanying notes to condensed consolidated financial statements

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LYFE Communications, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2012

(Unaudited)

1.  Business

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

2.  Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  These interim financial statements include all adjustments consisting of normal recurring entries, which in the opinion of management, are necessary to present a fair statement of the results for the period. The results of operations for the period ended September 30, 2012, are not necessarily indicative of the operating results for the full year.

Use of Accounting Estimates

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

Recently Enacted Accounting Pronouncements

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

3.  Going Concern and Liquidity

The Company has an accumulated deficit through September 30, 2012 of $15,151,677, and has had negative cash flows from operating activities. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  

In 2011 sources of funding did not materialize as committed and as a result the Company received insufficient funding to execute its business plan. The Company accrued significant liabilities for which the Company does not have liquidity or committed funding to meet its current obligations.  If new sources of financing are insufficient or unavailable, we will modify our growth and operating plans to the extent of available funding, if any.  If we cease or stop operations, our shares could become valueless. Historically, we have funded operating, administrative and development costs through the sale of equity capital and short term related party and other shareholder loans. If our plans and/or assumptions change or prove inaccurate, and we are unable to obtain further financing, or such financing and other capital 

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resources, in addition to projected cash flow, if any, prove to be insufficient to fund operations, our continued viability could be at risk. To the extent that any such financing involves the sale of our equity, our current stockholders could be substantially diluted. There is no assurance that we will be successful in achieving any or all of these objectives in 2012.

4. Acquisitions

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

The condensed consolidated financial statements as of September 30, 2012 include the accounts of the acquired Ygnition properties and results of operations since the date of acquisition. The following summary, prepared on a pro forma basis, presents the results of operations as if the acquisition had occurred on January 1, 2011 (unaudited).  

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

5. Equity-Based Compensation

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

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

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A summary of option activity for the nine months ended September 30, 2012 is presented below:

The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between Company’s closing stock price on September 28, 2012 of $0.06 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2012. The intrinsic value amount changes based on the fair market value of the Company’s stock.

Option-based compensation expense totaled $42,312 and $57,562 for the three months ended September 30, 2012 and 2011, respectively.  Option-based compensation expense totaled $155,063 and $1,116,624 for the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012 the Company had $215,904 in unrecognized compensation costs related to non-vested stock options granted under the Plan.

6. Composition of Certain Financial Statement Captions

Other Assets

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

On March 3, 2011 the Company received a “notice of exercise of video system reversionary rights.”  Currently, there is a dispute between UTOPIA and Connected Lyfe as to who has not performed under the existing contract.  As stated in the notice, UTOPIA had been working with Connected Lyfe on a resolution.  At this time, due to the dispute based on “performance” of the

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contract, legal notices have been received and the company plans to either continue to work with UTOPIA on a solution or follow through with the legal proceedings and counter actions. 

7.  Equity

During the nine months ended September 30, 2012 the Company issued 9,825,916 shares which included 1,450,000 shares for services provided to the Company valued at $88,000, 990,000 shares for cash proceeds of $198,000, and 7,385,916 shares for debt of $224,439 and a loss of $1,670.

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 in exchange for services.  The warrants had an exercise price of $0.50 per share with a three year expiration and immediate vesting. As of September 30, 2012 no warrants have been exercised.

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

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

The year-end intrinsic values are based on a September 28, 2012 closing price of $0.06 per share.

8.  Related Party Transactions

On May 28, 2010 the Company entered into a short-term note payable of $175,000 with a former officer of the Company.  The note has a 60 day maturity and 9% interest rate. As of September 30, 2012 and December 31, 2011 the Company has accrued $38,621 and $25,114 interest on the note payable, respectively.  The Company recorded $4,503 and $3,938 in interest expense for the three months ended September 30, 2012 and 2011, respectively. As of November 2012 the note has not been repaid and is in default.

On February 16, 2011 an officer of the Company loaned the Company $100,000 bearing an interest rate of 12%.  The note matured on February 16, 2012.  As of September 30, 2012 and December 31, 2011 the Company has accrued $20,351 and $10,414 interest on the note payable, respectively. The Company recorded $3,312 and $3,000 in interest expense for the three months

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ended September 30, 2012 and 2011, respectively. As of November 2012 the note has not been repaid and is in default.

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

On April 3, 2012 the Company signed a $90,000 convertible promissory note payable to the relative of an officer of the Company. The note is due on October 3, 2012 and has a 10% interest rate.  The note provides for the conversion of principal plus interest into the Company’s common stock at a price equal to 90% of the market price on date of conversion.  Consequently, the liability has been recorded at $100,000 on the balance sheet.  The difference between the face value and fair value of the note has been recognized as interest expense.  As of September 30, 2012, the Company had accrued interest of $4,355 and recorded $2,250 in interest expense for the three months ended September 30, 2012.  As of November 2012 no payments have been made on this note.

9.  Notes Payable

On July 1, 2010 the Company entered into a short-term note payable of $40,000 with Smith Consulting Services (SCS) and affiliates.  On April 30, 2012 the Company converted $20,000 of the note principal and $9,850 of payables to that party as well as $4,551 in interest payable in stock totaling 300,000 shares.  On June 21, 2012 the Company converted $5,000 as well as $1,000 in interest payable in stock totaling 66,667 shares.  The remaining balance of the note is $15,000 with $4,301 in interest as of September 30, 2012.  The Company recorded $531 and $1,175 in interest expense for the three months ended September 30, 2012 and 2011, respectively.  As of November 2012 the remaining balance on the note has not been repaid.

On October 1, 2010, the Company signed a $50,000 convertible promissory note with a third party. The note bears interest at 18% per annum and was due on November 5, 2010.  The note has conversion rights that allow the holder of the note at any time to convert all or any part of the remaining principal balance into the Company’s common stock at a price of $0.70 per share.  As of September 30, 2012 the Company has accrued $19,540 in interest on the note payable and recorded $2,757 and $2,250 in interest expense for the three months ending September 30, 2012 and 2011, respectively.  As of November 2012 the Company is currently in default as no payments have been made on the note and the note has not been converted.

On March 25, 2011 the Company entered into a short-term note payable of $7,500 with Smith Consulting Services (SCS) and affiliates.  The note is due on demand with an 18% interest rate. As of September 30, 2012 the Company accrued $2,187 interest on the note payable. The Company recorded $384 and $338 in interest expense for the three months ended September 30, 2012 and 2011, respectively.  As of November 2012 no payments have been made on this note and the note is in default.

On May 31, 2011, a shareholder loaned the Company $5,000 on a short-term convertible note payable.  The note was due on February 10, 2012 and has an 8% interest rate.  The note provides for the conversion of principal plus interest into the Company’s common stock at a price equal to 50% of the market price on date of conversion.  Consequently, the liability has been recorded at $10,000 on the balance sheet.  The difference between the face value and fair value of the note has been recognized as interest expense.  As of September 30, 2012, the Company had accrued

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interest of $548.  The Company recorded $105 and $100 in interest expense for the three months ended September 30, 2012 and 2011, respectively.  As of November 2012 no payments have been made on this note and the note is in default.

On August 10, 2011, the Company signed a $65,000 convertible promissory note with a third party. The note bears interest at 8% per annum and was due on February 10, 2012.  The note has conversion rights that allow the holder of the note at any time to convert all or any part of the remaining principal balance into the Company’s common stock at a price of $0.02.  The Company calculated the value of the beneficial conversion feature (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 nine months ended September 30, 2012, the Company recorded approximately, $3,250 in amortization.  As of September 30, 2012 the Company has accrued $6,048 in interest on the note payable and recorded $1,340 in interest expense for the three months ending September 30, 2012.  As of November 2012 no payments have been made on this note and the note is in default.

On June 22, 2012, the Company signed a $200,000 convertible promissory note payable to a third party. The note is due on December 22, 2012 and has a 10% interest rate.  The note provides for the conversion of principal plus interest into the Company’s common stock at a price equal to 90% of the market price on date of conversion.  Consequently, the liability has been recorded at $222,222 on the balance sheet.  The difference between the face value and the fair value of the note has been recognized as interest expense.  As of September 30, 2012, the Company had accrued interest of $5,438 and recorded $5,000 in interest expense for the three months ended September 30, 2012.   As of November 2012 no payments have been made on this note.

10.  Subsequent Events

In October 2012, the Company issued 7,735,894 common shares in exchange for $290,000 in principal and $11,700 in accrued interest on two notes payable.

In October 2012, the Company signed a $53,000 convertible promissory note with a third party.  The note bears interest at 8% per annum and is due on July 18, 2013.

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

Forward-looking Statements

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

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

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

Overview

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

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

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

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

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

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

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

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited Financial Statements and accompanying notes.  Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.  The Company believes there have been no significant changes during the period ended September 30, 2012, to the items disclosed as significant accounting policies in management's Notes to the Financial Statements in the Company's Form 10-K, filed on April 16, 2012, for the year ended December 31, 2011.

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

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Stock-Based Compensation

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

Revenue Recognition

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

Results of Operations

Revenue - During the three and nine months ended September 30, 2012, we recorded $133,107 and $458,654, respectively.  This compared to $215,052 and $426,311 in revenues during the three and nine months ended September 30, 2011, respectively.  The change in revenue was a result of both the acquisition of properties from a regional provider in June 2011, as well as a decline in subscriber base of both our customers on the UTOPIA network and the properties associated with the acquisition in 2011.

Direct Costs - Direct costs are comprised of programming costs, monthly recurring Internet broadband connections and VOIP costs.  During the three and nine months ended September 30, 2012 direct costs were $97,779 and $330,458, respectively.  This compared to $164,032 and $278,401 for the three and nine months ended September 30, 2011, respectively. The increase in direct costs during the nine months period were a result of the acquisition of properties from a regional provider in June 2011.  The decrease in direct costs during the three months period were a result of a decline in subscriber base of both our customers on the UTOPIA network and the properties associated with the acquisition in 2011.

Selling, General and Administrative – Selling, General and Administrative costs decreased by $602,911 and $2,362,575 for the three and nine months ended September 30, 2012 and 2011, respectively.  This decrease is due to a reduction in employee head count, as well as a decrease in operating costs related to a decline in the customer base. Due to a lack of liquidity and funding resources, the Company has reduced all non-essential costs.    

Net Loss - We had a net loss of $322,534 and $1,079,999 during the three and nine months ended September 30, 2012, respectively.  This is compared to a net loss of $1,006,010 and $3,550,579 for the three and nine months ended September 30, 2011, respectively.  The Company has reduced expenditures due to a lack of liquidity and funding.  As a result of decreased expenditures, revenue growth has slowed.  The Company is actively seeking additional funding which will be used to further the development of the IPTV technology the Company has been developing, search for strategic alliances, and grow current customer bases.

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Liquidity and Capital Resources

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

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

During the nine months ended September 30, 2012, the current assets increased by $5,143 when compared to December 31, 2011 due to an increase in accounts receivable and cash.

During the nine months ended September 30, 2012, the current liabilities increased by $264,988 when compared to December 31, 2011.  The increase was due to the increase in notes payable used to fund operations as well as an increase in accrued interest and liabilities partially offset by a decrease in accounts and taxes payable.  The Company used financing provided by the sale of common shares and short term borrowing to pay down some of the outstanding payables and tax liabilities.

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

If new sources of financing are insufficient or unavailable, we will modify our growth and operating plans to the extent of available funding, if any. Any decision to modify our business plans would harm our ability to pursue our growth plans. If we cease or stop operations, our shares could become valueless. Historically, we have funded operating, administrative and development costs through the sale of equity capital and short term related party and other shareholder loans. If our plans and/or assumptions change or prove inaccurate, and we are unable to obtain further financing, or such financing and other capital resources, in addition to projected cash flow, if any, prove to be insufficient to fund operations, our continued viability could be at risk. To the extent that any such financing involves the sale of our equity, our current stockholders could be substantially diluted. There is no assurance that we will be successful in achieving any or all of these objectives in 2012 and 2013.

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Management is currently seeking sources of equity and debt financing from current and potential investors.  The Company has signed agreements with AT&T to upgrade services to all the existing Ygnition properties acquired in the June 2011 acquisition.  The Company considers the upgrades to potentially increase revenue by offering improved services.  The potential for increased revenue does not include a large capital investment.  The Company will improve services without increasing but reducing the direct costs of providing services to each of the properties.  There can however be no assurance that improving services will lead to increased revenue.  To address the risks involved, the Company has to increase the customer base at each of the properties.  Additionally, the Company has to receive more funding to provide sales and marketing, and increase the revenues in the properties.   

Going Concern

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

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4.  Controls and Procedures.

Evaluation of disclosure controls and procedures

Our management, with the participation of our chief financial and executive officers evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on that evaluation, our chief accounting and chief executive officers concluded that, as of September 30, 2012, our disclosure controls and procedures were, subject to the limitations noted above, not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms,

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and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2012, the Company did not have the capital and staffing resources to maintain the operating effectiveness of internal controls over financial reporting.  Since the evaluation, management has been attempting to secure capital and resources to improve the operating effectiveness of internal controls over financial reporting.  

Changes in internal control over financial reporting

There have been no changes in internal control over financial reporting during period ended September 30, 2012.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

On March 2, 2011, the Company received from UTOPIA a notice of termination in conjunction with the agreement between Connected Lyfe and UTOPIA entitled Non-Exclusive Network Access and Use Agreement.  According to the notice, Connected Lyfe had until May 2, 2011 to transition its customers to another service provider on the UTOPIA network or cure the breach by working out an arrangement with UTOPIA that is acceptable.  The notice of termination is due to non-payment of network access fees.

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 had been working with Connected Lyfe on a resolution.  

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 September 30, 2012, $40,000 in payment have been made on the liability and $3,930 of interest has been accrued on the outstanding $35,000.

On July 19, 2011, the Company was notified by the Internal Revenue Service of intent to lien in the amount of $258,668 for unpaid taxes.  Since that time the Company has made payments to the IRS in the amount of $178,464 to reduce the tax liability, and the Company has had $25,302 in liability abated by the IRS.  On August 21, 2012 the Company paid the remaining balance owed to the IRS.  On September 12, 2012, the Company received a “Certificate of Release of Federal Tax Lien”.

On January 20, 2012, a former employee residing in Utah filed a complaint with the State of Utah Labor Commission against the Company for unpaid payroll in the amount of $1,725.  The Company is currently complying with the requests from the Labor Commission to settle the dispute.  As of September 30, 2012 no payments have been made and no settlement has been reached.

On September 26, 2012, the Company received a “Summons & Complaint” from Ned P. Siegfried and Mitchell R. Jensen in conjunction with an outstanding $50,000 “Convertible Promissory Note.”  Under the complaint Siegfried and Jensen are asking for $68,000, interest to date and attorney fees.  The $50,000 Convertible Promissory Note was signed on October 1, 2010 and had a conversion price of $.70.  Throughout the duration of the note, the Company has tried several times to reach out to Siegfried & Jensen to settle this debt.  The Company has even offered reduced conversion prices, none of which were satisfactory to Siegfried & Jensen.  On October 23, 2012, the Company filed an “Answer to Complaint”, in the Third Judicial District Court in the State of Utah.

On September 28, 2012, the Company received a “notice of transfer of customers” from UTOPIA to transfer the existing customer base to another provider on their network.  

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On October 2, 2012, the Company received a “Summons & Complaint” from UTOPIA in conjunction with their claim that the Company failed to comply with both the “Network Access Agreement” and the “Video Systems Agreement”.  Under the complaint UTOPIA is asking for $495,000 in relief from Connected Lyfe Inc.

On October 10, 2012, the Company signed an agreement with Veracity Networks to transfer those customers remaining on the UTOPIA network.  

On November 2, 2012, the company filed its official answer and subsequent counter complaint to the UTOPIA allegations.  The company alleges in its answer and counter claim to the court that UTOPIA failed to deliver the Video Head End as per the “Video Systems Agreement” which was executed on June 21, 2010, and seeks reimbursement of $375,000.  Further, the company alleges in its answer and counter claim that UTOPIA has consistently overbilled for services, and prevented the company from managing its customer accounts on the UTOPIA network, resulting in $240,000 of damages.  Further, the company is also claiming the full value of its customers that were transferred as a result of UTOPIAs actions in October 2012. The company is seeking $1,900,000 in damages. Finally, the company is claiming substantial additional consequential and punitive damages. These actions came after years of failed negotiations between the company and UTOPIA.  The company decided it was in the best interest of its shareholders to take decisive action in a court of law against UTOPIA in order to recover any losses that UTOPIA has caused the company to incur.   

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Item 1A.  Risk Factors.

For a discussion of the Company’s risk factors, please refer to Part 1, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed on April 16, 2012. There have been no material changes in the Company’s assessment of its risk factors during the quarter ended June 30, 2012.

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

The Company issued 205,387 shares of restricted common stock during the three months ended September 30, 2012 in exchange for $8,600 of principal and $1,669 of interest in accounts payable.

Item 3. Defaults Upon Senior Securities.

None; not applicable.

Item 4. Mine Safety Disclosures.

None, not applicable.

Item 5. Other Information.

None

Item 6. Exhibits.

Exhibit No.                         Identification of Exhibit

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SIGNATURES

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

LYFE COMMUNICATIONS, INC.

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