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EX-31 - 302 CERTIFICATION OF GARRETT DAW - LYFE Communications, Inc.ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


____________________


FORM 10-Q

____________________


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2014


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


For the transition period from ____________ to____________


Commission File No. 000-50892



LYFE COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)


 

 

Utah

87-0638511

(State or other jurisdiction of

27-1606216

incorporation or organization)

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


P.O. Box 951026

South Jordan, Utah 84095

 (Address of Principal Executive Offices)


(801) 478-2452

 (Registrant’s telephone number, including area code)


None

(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]


Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes [X ] No [  ]


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):


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




1




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

Yes [  ] No [X]


Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: November 17, 2014 – 187,950,308 shares of common stock ($0.001 par value) outstanding.




2




LYFE Communications, Inc.

Form 10-Q Index

Quarter Ended September 30, 2014


PART I – FINANCIAL INFORMATION

Page

  

  

 

Item 1.

Financial Statements

4

 

Condensed Consolidated Balance Sheets – September 30, 2014

(unaudited) and December 31, 2013

Condensed Consolidated Statements of Operations – Three Months

and Nine Months Ended September 30, 2014 and 2013 (unaudited)


5


6

 

Condensed Consolidated Statements of Cash Flows – Nine Months

Ended September 30, 2014 and 2013 (unaudited)


7

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and

Results of Operations


17

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

23

 

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3.

Defaults upon Senior Securities

25

Item 4.

Mine Safety Disclosures

26

Item 5

Other Information

26

Item 6.

Exhibits

27

Signature Page

 




3





Part I - FINANCIAL INFORMATION


Item 1.  Financial Statements


4




LYFE Communications, Inc.

Condensed Consolidated Balance Sheets


 

September 30, 2014

 

December 31, 2013

 

(unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash

 $                            18

 

 $                       2,590

Accounts receivable, net of allowance of $72,725

18,737

 

17,899

Prepaid expenses

7,393

 

25,937

Total current assets

26,148

 

46,426

 

 

 

 

Property and equipment, net

12,601

 

51,338

Intangible assets, net

301,061

 

308,861

Other assets

11,950

 

361,950

Total assets

 $                   351,760

 

 $                   768,575

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

Current liabilities:

 

 

 

Accounts payable

 $                1,065,597

 

 $                   860,683

Accounts payable – related party

95,210

 

127,951

Accrued payroll and related expenses

1,864,758

 

2,341,800

Deferred revenue

-

 

6,372

Payroll and sales taxes payable

27,575

 

31,807

Notes payable

151,470

 

126,105

Notes payable – related party

190,000

 

292,500

Interest payable

66,841

 

49,595

Interest payable – related party

84,722

 

105,705

Derivative liability

14,364

 

11,475

Total current liabilities

3,560,537

 

3,953,993

Total liabilities

3,560,537

 

3,953,993

 

 

 

 

Stockholders’ deficit:

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 185,450,308 and 139,180,059 shares issued and outstanding, respectively

185,450

 

139,180

Additional paid-in capital

15,894,580

 

14,838,917

Accumulated deficit

(19,288,807)

 

(18,163,515)

Total stockholders’ deficit

(3,208,777)

 

(3,185,418)

Total liabilities and stockholders’ deficit

 $                   351,760

 

 $                   768,575



See accompanying notes to condensed consolidated financial statements




5




LYFE Communications, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)



 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2014

2013

 

2014

2013

 

 

 

 

 

 

Revenues

 $          10,175

 $          46,743

 

 $          50,613

 $         157,001

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

Direct costs

-

22,163

 

-

106,806

Selling, general and administrative

342,989

351,673

 

714,322

1,481,533

Impairment loss

350,000

-

 

350,000

-

Depreciation and amortization

4,982

25,641

 

46,537

93,732

Total operating costs and expenses

697,971

399,477

 

1,110,859

1,682,071

 

 

 

 

 

 

Loss from operations

(687,796)

(352,734)

 

(1,060,246)

(1,525,070)

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Loss on derivative liability

(2,970)

(63,712)

 

(2,889)

(4,518)

Gain (loss) on extinguishment of debt

(16,261)

9,392

 

(15,593)

6,560

Interest expense

(15,153)

(44,665)

 

(46,564)

(177,214)

Total other expense

(34,384)

(98,985)

 

(65,046)

(175,172)

 

 

 

 

 

 

Loss before income taxes

(722,180)

(451,719)

 

(1,125,292)

(1,700,242)

Provision for income taxes

-

-

 

-

-

 

 

 

 

 

 

Net loss

 $       (722,180)

 $       (451,719)

 

 $    (1,125,292)

 $    (1,700,242)

 

 

 

 

 

 

Loss per share – basic and diluted

 $             (0.00)

 $             (0.00)

 

 $             (0.01)

 $             (0.01)

 

 

 

 

 

 

Weighted average shares outstanding –
   basic and diluted

178,925,818

129,402,142

 

162,226,045

116,645,762





See accompanying notes to condensed consolidated financial statements



6




LYFE Communications, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


 

Nine Months Ended
September 30,

 

2014

 

2013

Cash flows from operating activities:

 

 

Net loss

 $          (1,125,292)

 

 $          (1,700,242)

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

 

 

 

      Depreciation and amortization expense

46,537

 

93,732

      Bad debt expense

-

 

(19,252)

      Impairment loss

350,000

 

 

      Amortization of debt discount

365

 

112,482

      Amortization of debt issuance costs

-

 

6,883

      Common stock issued for services

-

 

106,500

      Share-based compensation expense

25,069

 

216,009

      Loss (gain) on derivative liability

2,889

 

4,518

      Loss (gain) on extinguishment of debt

15,593

 

(6,560)

      Changes in assets and liabilities:

 

 

 

Accounts receivable, net

(838)

 

23,817

Prepaid expenses

18,544

 

(2,000)

Accounts payable

172,173

 

(21,633)

Payroll and sales tax payable

(4,232)

 

(3,995)

Deferred revenue

(6,372)

 

26,978

Accrued payroll and related expenses

129,708

 

539,894

Interest payable

46,784

 

44,990

      Net cash used in operating activities

(329,072)

 

(577,879)

 

 

 

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

-

 

(18,106)

      Net cash used in investing activities

-

 

(18,106)

 

 

 

 

Cash flows from financing activities:

 

 

 

Proceeds from notes payable

75,000

 

47,500

Debt issuance costs

-

 

(2,500)

Payment of notes payable

(50,000)

 

-

Payment of notes payable – related party

(6,000)

 

(9,000)

Proceeds from issuance of common stock

307,500

 

687,529

      Net cash provided by financing activities

326,500

 

723,529

 

 

 

 

Net increase (decrease) in cash

(2,572)

 

127,544

Cash at beginning of period

2,590

 

5,481

Cash at end of period

 $                       18

 

 $              133,025

 

 

 

 

See accompanying notes to condensed consolidated financial statements


7




LYFE Communications, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2014

(Unaudited)


1.  Business


The business of LYFE Communications, Inc. (the “Company”) 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


Basis of Presentation


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, 2014 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 impairment, useful lives of fixed assets, capitalization of costs for software developed for internal use, and derivative liabilities.  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 have been eliminated.


Fair Value


Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:


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



8


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, accounts payable and accrued liabilities are carried at fair value.  Additionally, we measure certain financial instruments at fair value on a recurring basis.  Liabilities measured at fair value on a recurring basis are as follows at September 30, 2014 and December 31, 2013:



September 30, 2014

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liability

 

 

$

14,364

 

$

-

 

$

-

 

$

14,364

Total Liabilities Measured at Fair Value

 

 

$

14,364

 

$

-

 

$

-

 

$

14,364



December 31, 2013

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liability

 

 

$

11,475

 

$

-

 

$

-

 

$

11,475

Total Liabilities Measured at Fair Value

 

 

$

11,475

 

$

-

 

$

-

 

$

11,475


Recently Enacted Accounting Pronouncements


In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 310-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  The amendments in this Update provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures.  The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted.  The Company has not determined the impact of the future adoption of the provisions of ASU No. 2014-15 on its consolidated financial statements.


Comprehensive Income (Loss)


Comprehensive income (loss) is the same as net income (loss).


3. Going Concern and Liquidity


The accompanying consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities, and commitments in the normal course of business.  The accompanying consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has an accumulated deficit through September 30, 2014 of $19,288,807, and has had negative cash flows from operating activities since its inception.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.




9



In 2013 and 2014, sources of funding did not materialize as committed, and as a result, we have received insufficient funding to execute our business plan. We have accrued significant liabilities for which we do not have liquidity or committed funding to meet our 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 2014.  



4.  Property and Equipment


Property and equipment consisted of the following:

 

September 30,
2014

December 31,
2013

 

 

 

Computer equipment

$       519,076

$     519,076

Furniture and fixtures

2,824

2,824

Software

9,196

9,196

 

531,096

531,096

Less accumulated depreciation

(518,495)

(479,758)

 

 

 

Property and equipment, net

$         12,601

$       51,338



5.  Intangible Assets


Intangible assets include internally developed software.  We account for the costs of developing software in accordance with the provisions of FASB ASC Topic 350.  We record our internal and external costs to develop software to be used internally for the deployment of the next generation video systems.  We capitalize 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.  We did not capitalize any development costs related to the application development of the next generation video systems in the three months and nine months ended September 30, 2014 and 2013.  We will begin amortizing internally developed software when it is placed into service and will amortize the costs on a straight-line basis over the estimated useful life, as determined by management.  As of September 30, 2014 and December 31, 2013, the software has not been placed in service, no amortization has been recorded, and the software is recorded at cost of $282,861.  We assess the projects for impairment when there are events or changes in circumstances that indicate the carrying amount might not be recoverable or when it is no longer probable that the project will be competed and placed in service. We did not impair any projects during the three months and nine months ended September 30, 2014 and 2013.


Rights of entry agreements were acquired in the acquisition of properties from a telecom and video service provider in June 2011.  The rights of entry agreements are negotiated with property



10



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 right of entry agreements were recorded at their estimated fair value of $52,000 and amortized over a five-year life on a straight-line basis.  Accumulated amortization of rights of entry was $33,800 and $26,000 as of September 30, 2014 and December 31, 2013, respectively. We assess the agreements for impairment when there are events or changes in circumstances that indicate the carrying amount might not be recoverable or when the properties that the agreements cover are no longer providing contribution margin.  We did not impair any agreements during the three months and nine months ended September 30, 2014 and 2013.



6.  Other Assets


Other assets at September 30, 2014 and December 31, 2013 included payments of $11,950 made for security deposits.  In addition, as of December 31, 2013, other assets included payments of $350,000 made under a Video Systems Agreement for video distribution and content rights.  We assess the other assets for impairment when there are events or changes in circumstances that indicate the carrying amount might not be recoverable or when the assets are no longer providing or have the potential to provide contribution margin.  As a consequence of the unfavorable judgment discussed in Note 14, we concluded the amount recorded for the Video Systems Agreement was fully impaired, and we recorded an impairment loss of $350,000 for the three months and nine months ended September 30, 2014.


7.  Notes Payable


Our notes payable consisted of the following at:


 

September 30, 2014

December 31, 2013

Convertible note payable with interest at 18% per annum,

   convertible into shares of common stock at a price of

   $0.70 per share, currently in default



$         50,000



$         50,000

Convertible note payable with interest at 8% per annum,

   convertible along with accrued interest into shares of

   common stock at a price equal to 50% of the market price

   on the date of conversion, currently in default




5,000




5,000

Convertible note payable with interest at 8% per annum,

   convertible into shares of common stock at a price equal

   to $0.02 per share, currently in default



65,000



65,000

Note payable to an institutional investor, dated

   May 23, 2014, interest at 8% per annum and

   maturing on May 23, 2015



25,000



-

Beneficial conversion feature on convertible note payable

6,470

6,105

 

 

 

 

$      151,470

$       126,105




11




We have recorded a liability for the beneficial conversion feature attributed to the $5,000 note payable, which is convertible into shares of our common stock at a price equal to 50% of the market price, and recognized this amount as interest expense.  The liability was $6,470 and $6,105 at September 30, 2014 and December 31, 2013, respectively.


At September 30, 2014 and December 31, 2013, interest payable on notes payable was $66,841 and $49,595, respectively.


8.  Notes Payable – Related Party


Our notes payable – related party consisted of the following at:


 

September 30, 2014

December 31, 2013

Note payable to a former officer of the Company, with

   interest at 9% per annum, currently in default


$       175,000


$       175,000

Convertible note payable to an officer of the Company,

   with interest at 12% per annum, convertible into shares

   of common stock at a discount of 10% to the previous

   three day average market price, currently in default




15,000




15,000

Note payable to an officer of the Company, with interest

   at 12% per annum


-


100,000

Note payable to an officer of the Company, with interest

   at 12% per annum


-


2,500

 

 

 

 

$       190,000

$       292,500


For the convertible note payable to an officer, we recorded a debt discount related to the estimated value of the derivative for the conversion feature of the note, and a derivative liability at the inception of the note.  We amortized the debt discount to interest expense over the life of the note on a straight-line basis.  


On September 4, 2014, $96,500 of the $100,000 note payable to an officer and accrued interest payable of $49,853 were extinguished through the issuance of 9,034,138 shares of the Company’s common stock at a price of $0.0162 per share, representing a 10% discount to the current market price.  The Company recognized a loss on extinguishment of debt of $15,593.


Interest payable – related party was $84,722 and $105,705 at September 30, 2014 and December 31, 2013, respectively.



9.  Derivative Liability


During the nine months ended September 30, 2014, we had the following activity in the accounts related to our convertible notes payable:



12






 


Derivative

Liability

Loss on Derivative

Liability

 

 

 

Balance at December 31, 2013

$       11,475

 

Loss on derivative liability

2,889

$             2,889

 

 

 

Balance at September 30, 2014

$       14,364

$             2,889


We estimated the fair value of the derivative for the conversion feature at September 30, 2014 using the Black-Scholes pricing model with the following assumptions:


Risk-free interest rate

0.03%

Expected life in years

0.67

Dividend yield

0%

Expected volatility

230.02%



10.  Stockholders’ Deficit


During the nine months ended September 30, 2014, we issued a total of 46,270,249 common shares, including 26,000,000 shares for cash proceeds of $307,500, 11,236,111 shares for accrued liabilities of $606,750 (see Note 13) and 9,034,138 shares for payment of notes payable of $96,500, accrued interest of $49,853 and loss on extinguishment of debt of $15,593 (see Note 8).


During the nine months ended September 30, 2013, we issued a total of 36,415,572 common shares, including 25,189,845 shares for cash proceeds of $687,529, 375,450 shares for accounts payable of $22,527, 1,375,000 shares for services valued at $106,500, and 9,475,277 shares for payment of notes payable of $138,000 and accrued interest of $5,520, reduction in debt discount of $15,598, reduction in derivative liability of $172,714 and gain on extinguishment of debt of $6,560.


11.  Warrants


During the year ended December 31, 2013, we issued warrants to purchase 2,000,000 shares of our common stock in connection with a portion of the shares of our common stock we issued for services provided to the Company.



13




A summary of warrant activity for the nine months ended September 30, 2014 is presented below:


 

Warrants

 

 

Weighted Average Exercise Price

 

Average Remaining Contractual Life

 

 

Aggregate Intrinsic Value

 

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2013

3,095,000

 

$

0.34

 

0.58

 

$

-

Granted

 

 

 

 

 

 

 

 

 

Expired/Cancelled

(1,100,000)

 

$

0.23

 

 

 

 

 

Exercised

-

 

$

 

 

 

 

 

 

Outstanding, September 30, 2014

1,995,000

 

$  

0.40

 

0.13

 

$

-

Exercisable, September 30, 2014

1,995,000

 

$  

0.40

 

0.13

 

$

-


The intrinsic values as of September 30, 2014 are based on a September 30, 2014 closing market price of our common stock of $0.035 per share.



12.  Share-Based Compensation


On January 1, 2010, our board of directors approved a stock plan known as the 2010 Stock Plan (the “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 granted were valued based on the Black-Scholes option pricing model.


Share-based compensation expense included in general and administrative expenses related to stock options totaled $25,069 and $216,009 for the nine months ended September 30, 2014 and 2013, respectively.  As of September 30, 2014, we had $71,450 in unrecognized share-based compensation expense related to non-vested stock options granted under the Plan.


A summary of stock option activity for the nine months ended September 30, 2014 is presented below:


 

Options

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Life

 

 

Aggregate Intrinsic Value

Outstanding, December 31, 2013

12,761,000

 

$

0.14

 

 

1.58

 

$

-

Granted

-

 

$

-

 

 

 

 

 

 

Expired/Cancelled

(5,773,000)

 

$

0.25

 

 

 

 

 

 

Exercised

-

 

$

-

 

 

 

 

 

 

Outstanding, September 30, 2014

6,988,000

 

$  

0.05

 

 

2.03

 

$

-

Exercisable, September 30, 2014

5,440,083

 

$  

0.05

 

 

1.93

 

$

-


The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between the closing market price of our common stock on September 30, 2014 of $0.035 and the exercise price, multiplied by the number of in-the-money options) that would



14



have been received by the option holders had all option holders exercised their options on September 30, 2014.  



13.  Assignment Agreement


On May 21, 2014, the Company, Garrett R. Daw, our President and CEO (“Daw”), and Keith and Kent Cornelison (“KC”), a significant stockholder of the Company, entered into an Assignment Agreement (the “Agreement”) where KC assumed $606,750 in accrued payroll to Daw.  As a result, Daw has no further rights or claims for this accrued payroll against the Company.  Further, KC received 11,236,111 shares of the Company’s common stock in exchange for the liability assumption.  



14.  Supplemental Statement of Cash Flows Information


During the nine months ended September 30, 2014 and 2013, we paid no amounts for income taxes and interest.


During the nine months ended September 30, 2014, we had the following non-cash investing and financing activities:


·

Issued common stock in payment of accrued expenses of $606,750.

·

Issued common stock in payment of notes payable of $96,500 and accrued interest payable of $49,853.


During the nine months ended September 30, 2013, we had the following non-cash investing and financing activities:


·

Issued common stock in payment of accounts payable of $22,527.

·

Issued common stock in payment of notes payable of $138,000 and accrued interest payable of $5,520, decrease in debt discount of $15,598 and decrease in derivative liability of $172,714.

·

Increased derivative liability and debt discount by $47,500.


15.  Legal Matters


Siegfried and Jensen


On September 26, 2012, we 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 $0.70. Throughout the duration of the note, we tried several times to reach out to Siegfried & Jensen to settle this debt.  We offered reduced conversion prices, none of which were satisfactory to Siegfried & Jensen.  On October 23, 2012, we filed an “Answer to Complaint”, in the Third Judicial District Court in the State of Utah.  In February 2014, the parties reached a settlement requiring the Company to make the following payments: $10,000 upon execution of the settlement; $15,000 on or before February 24, 2014; $5,000 on or before March 25, 2014; and $5,000 on or before the 25th day of each month thereafter to and including December 25, 2014, for a total of $75,000.   We have made no payments in 2014.



15




UTOPIA


On March 2, 2011, we 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, we received a “notice of exercise of video system reversionary rights” from UTOPIA, resulting from 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 September 28, 2012, we received a “notice of transfer of customers” from UTOPIA to transfer the existing customer base to another provider on their network.  


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


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


On November 2, 2012, we filed our official answer and subsequent counter complaint to the Utopia allegations.  We alleged in our 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 seek reimbursement of $375,000.  Further, we alleged in our answer and counter claim that Utopia consistently overbilled for services, and prevented us from managing our customer accounts on the Utopia network, resulting in $240,000 of damages.  Further, we claimed the full value of our customers that were transferred as a result of Utopia’s actions in October 2012.  We were seeking $1,900,000 in damages.  Finally, we claimed substantial additional consequential and punitive damages.  These actions came after years of failed negotiations between Utopia and us.  We decided it was in the best interest of our shareholders to take decisive action in a court of law against Utopia in order to recover any losses that Utopia has caused us to incur.


On September 23, 2014, a judgment was entered in favor of Utopia and against the Company in the amount of $504,520 in damages and in the amount of $128,453 in attorney fees and costs for a total judgment of $632,973.  Consequently, the Company wrote off to impairment expense a related $350,000 deposit included in other assets and has recorded $632,973 in accounts payable related to this matter.


16.  Subsequent Events


We have evaluated events occurring after the date of our accompanying consolidated balance sheets through the date the financial statements were issued.  We identified the following subsequent event that we believe requires disclosure:

 

Subsequent to September 30, 2014, we issued 2,500,000 shares of our common stock at $0.01 per share for cash of $25,000.




16




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


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


Our 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.


We provide 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, we will deploy our 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.




17



We expect to significantly increase our subscriber base in 2015.  We are currently under contract to provide our Data and Telephony services to 28 MDU properties spanning 6 cities in 2 states.  These properties present a total market opportunity of over 12,000 units.  These contracts can be characterized in one of two ways: bulk, or subscription.  A “bulk” contract allows us to provide services to each and every tenant at the complex.  We currently have 3 bulk contracts with a total customer base of 600. The remaining 25 contracts are “subscription”, meaning we have either an exclusive or non-exclusive marketing contract and/or Right of Entry (ROE) at the property.  Our average penetration rate at the subscription properties is 10%, which represents a tremendous growth opportunity for us. Further, all of these contracts provide us with the opportunity to extend more services in the future.  We are currently negotiating with some of the country’s largest REIT’s and property management groups to provide services to the properties they own and manage.  


Going Concern Uncertainty


Our consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities, and commitments in the normal course of business.  Our consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern.  The Company has an accumulated deficit through September 30, 2014 of $19,288,807, and has had negative cash flows from operating activities since its inception.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.


In 2013 and 2014, sources of funding did not materialize as committed, and as a result, we have received insufficient funding to execute our business plan. We have accrued significant liabilities for which we do not have liquidity or committed funding to meet our 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 2014.  


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.


Fair Value


Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  FASB Accounting Standards Codification (“ASC”) Topic 820 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value.  The hierarchy gives the highest



18



priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:


Level 1 - Quoted market prices in active markets for identical assets or liabilities;


Level 2 - Inputs other than level one inputs that are either directly or indirectly observable; and


Level 3 - 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, accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates fair value due to the short-term nature of these financial instruments.  Additionally, we measure certain financial instruments at fair value on a recurring basis.  Liabilities measured at fair value on a recurring basis are as follows at September 30, 2014 and December 31, 2013:



September 30, 2014

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liability

 

 

$

14,364

 

$

-

 

$

-

 

$

14,364

Total Liabilities Measured at Fair Value

 

 

$

14,364

 

$

-

 

$

-

 

$

14,364



December 31, 2013

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liability

 

 

$

11,475

 

$

-

 

$

-

 

$

11,475

Total Liabilities Measured at Fair Value

 

 

$

11,475

 

$

-

 

$

-

 

$

11,475


Accounts Receivable


Accounts receivable are recorded at estimated net realizable value, do not bear interest and do not generally require collateral.  We provide 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.  The allowance for doubtful accounts was $72,725 at September 30, 2014 and December 31, 2013.


Revenue Recognition


We recognize 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.  We derive our revenue primarily from the sale of Video, Data and Voice over Internet Protocol services and recognize revenues in the period the related services are provided and the amount of revenue is determinable and collection is reasonably assured.


We record 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.



19




Stock-Based Compensation


We have accounted for stock-based compensation under the provisions of FASB ASC 718-10-55.  We measure stock-based compensation at the grant date based on the value of the award granted using the Black-Scholes option pricing model, and recognize the expense over the period in which the award vests.  Option pricing models require the input of highly subjective assumptions, including the expected price volatility and the market price of our common stock during periods of infrequent trades and transactions.  Changes in these assumptions can materially affect the fair value estimate.


Income Taxes


We account for income taxes using the asset and liability method.  Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date.  At September 30, 2014 and December 31, 2013, we have recorded a full valuation allowance against the net deferred tax assets related to temporary differences and operating losses because there is significant uncertainty of the net deferred tax assets being realized.  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.


Impairment of Long-Lived Assets


Our long-lived assets include costs of internally developed software, costs of rights of entry agreements, and costs of video distribution and content rights.  We assess the related projects for impairment when there are events or changes in circumstances that indicate the carrying amount might not be recoverable or when it is no longer probable that the project will be competed and placed in service.  We recorded an impairment of video distribution and content rights of $350,000 for the three months and nine months ended September 30, 2014.


Recently Enacted Accounting Pronouncements


In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 310-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  The amendments in this Update provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures.  The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted.  The Company has not determined the impact of the future adoption of the provisions of ASU No. 2014-15 on its consolidated financial statements.


Results of Operations


Revenues – We recorded revenues of $10,175 and $46,743 in the three months ended September 30, 2014 and 2013, and $50,613 and $157,001 in the nine months ended September 30, 2014 and



20



2013, respectively.  The continuing decline in revenue is both a result of the transition in the subscriber base on the properties acquired in June 2011, which initially resulted in a decline of customers, as well as the sale of the UTOPIA customer base in October of 2012.


Direct Costs - Direct costs are comprised of programming costs, monthly recurring Internet broadband connections and VOIP costs.  Direct costs were $0 and $22,163 in the three months ended September 30, 2014 and 2013, and $0 and $106,806 in the nine months ended September 30, 2014 and 2013, respectively.  The continuing decrease in direct costs is a result of the sale of the UTOPIA customer base in October of 2012, as well as a decrease in the subscriber base on the properties acquired in June 2011.


Selling, General and Administrative Expenses – Selling, general and administrative expenses decreased $8,684 to $342,989 in the three months ended September 30, 2014 from $351,673 in the three months ended September 30, 2013.  Selling, general and administrative expenses decreased $767,211 to $714,322 in the nine months ended September 30, 2014 from $1,481,533 in the nine months ended September 30, 2013.  Due to lack of funding and to the decrease in the subscriber base on the properties acquired in June 2011, we have scaled back our operations and reduced our overhead.  We also had a decrease in our stock-based compensation.  The decreases in selling, general and administrative expenses in the three months and nine months ended September 30, 2014 are partially offset by our recording an increase to the accounts payable related to the unfavorable Utopia judgment.


Depreciation and Amortization Expense – Depreciation and amortization expense was $4,982 and $25,641 in the three months ended September 30, 2014 and 2013, and $46,537 and $93,732 in the nine months ended September 30, 2014 and 2013, respectively.  We have fully depreciation a significant portion of our depreciable assets, resulting in decreasing amounts of depreciation expense.


Other Income (Expense) – We reported a loss on derivative liability of $2,970 and $63,712 in the three months ended September 30, 2014 and 2013, and $2,889 and $4,518 during the nine months ended September 30, 2014 and 2013.  We estimate the fair value of the derivative for the conversion feature of certain convertible notes payable at the inception of notes and at each reporting date, using the Black-Scholes pricing model.  As changes in the derivative liability are recorded at each reporting date, a gain or loss on derivative liability is recorded.


We reported a loss on extinguishment of debt of $16,261 and $15,593 in the three months and nine months ended September 30, 2014, and a gain on extinguishment of debt of $9,392 and $6,560 in the three months and nine months ended September 30, 2013.


Our interest expense was $15,153 and $44,665 in the three months ended September 30, 2014 and 2013, and $46,564 and $177,214 in the nine months ended September 30, 2014 and 2013, respectively.  The decrease in interest expense in the current year is due to reductions of debt and to debt discount being fully amortized prior to the current year.


Net Loss – As a result, our net loss was $722,180 and $451,719 for the three months ended September 30, 2014 and 2013, and $1,125,292 and $1,700,242 for the nine months ended September 30, 2014 and 2013, respectively.



21




Liquidity and Capital Resources


Liquidity is a measure of a company’s ability to meet potential cash requirements.  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 negative cash flows from operations, pending growth in our revenues.  Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings to the extent available or to obtain additional debt 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 debt.  There can be no assurance we will be successful in raising the necessary funds to execute our business plan.


As of September 30, 2014, our total current assets were $26,148 and our total current liabilities were $3,560,537, resulting in a working capital deficit of $3,534,389.  As discussed in the notes to our consolidated financial statements, we are currently in default on several notes payable.  We also had an accumulated deficit of $19,288,807 and a total stockholders’ deficit of $3,208,777 at September 30, 2014.


During the nine months ended September 30, 2014, we used net cash of $329,072 in operating activities as a result of our net loss of $1,125,292, increase in accounts receivable, net of $838, and decreases in payroll and sales tax payable of $4,232 and deferred revenue of $6,372, partially offset by non-cash expenses totaling $440,453, decrease in prepaid expenses of $18,544, and increases in accounts payable of $172,173, accrued payroll and related expenses of $129,708 and interest payable of $46,784.


By comparison, during nine months ended September 30, 2013, we used net cash of $577,879 in operating activities as a result of our net loss of $1,700,242, non-cash gains totaling $25,812, increase in prepaid expenses of $2,000, and decreases in accounts payable of $21,633 and payroll and sales tax payable of $3,995, partially offset by non-cash expenses totaling $540,124, decrease in accounts receivable, net of $23,817 and increases in deferred revenue of $26,978, accrued payroll and related expenses of $539,894 and interest payable of $44,990.


We had no cash provided by or used in investing activities during the nine months ended September 30, 2014.  During the nine months ended September 30, 2013, we used cash of $18,106 in investing activities for the purchase of property and equipment.


During the nine months ended September 30, 2014, we had net cash provided by financing activities of $326,500, comprised of proceeds from notes payable of $75,000 and proceeds from the issuance of common stock of $307,500, partially offset by payment of notes payable of $50,000 and payment of notes payable – related party of $6,000.


During the nine months ended September 30, 2013, we had net cash provided by financing activities of $723,529, comprised of proceeds from notes payable of $47,500 and proceeds from the issuance of common stock of $687,529, partially offset by the payment of debt issuance costs of $2,500, and payment of notes payable – related party of $9,000.


We eliminated substantial accrued liabilities in May 2014 when the Company, Garrett R. Daw, our President and CEO (“Daw”), and Keith and Kent Cornelison (“KC”), a significant shareholder, entered into an Assignment Agreement (the “Agreement”) where KC assumed



22



$606,750 in accrued payroll to Daw.  As a result, Daw has no further rights or claims for this accrued payroll against the Company.  Further, KC received 11,236,111 shares of the Company’s common stock in exchange for the liability assumption.  


We anticipate that we are likely to incur operating losses during the next twelve months.  Our current cash is not sufficient to fund our operations during this period.  Our 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 2014.


Management is currently seeking sources of equity and debt financing from current and potential investors.  We have signed agreements with AT&T to upgrade services to all the existing Ygnition properties acquired in the June 2011 acquisition.  We consider the upgrades to potentially increase revenue by offering improved services.  The potential for increased revenue does not include a large capital investment.  We 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, we have to increase the customer base at each of the properties.  Additionally, we have to receive more funding to provide sales and marketing, and increase the revenues in the properties.



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 principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and



23



procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q.  Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, in a manner that allows timely decisions regarding required disclosure.


Changes in internal control over financial reporting


There was no change in our internal control over financial reporting during the quarter ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II - OTHER INFORMATION


Item 1. Legal Proceedings.


Siegfried and Jensen


On September 26, 2012, we 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 $0.70. Throughout the duration of the note, we tried several times to reach out to Siegfried & Jensen to settle this debt.  We offered reduced conversion prices, none of which were satisfactory to Siegfried & Jensen.  On October 23, 2012, we filed an “Answer to Complaint”, in the Third Judicial District Court in the State of Utah.  In February 2014, the parties reached a settlement requiring the Company to make the following payments: $10,000 upon execution of the settlement; $15,000 on or before February 24, 2014; $5,000 on or before March 25, 2014; and $5,000 on or before the 25th day of each month thereafter to and including December 25, 2014, for a total of $75,000.   We have made no payments in 2014.


UTOPIA



On March 2, 2011, we 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, we received a “notice of exercise of video system reversionary rights” from UTOPIA, resulting from 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.



24




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


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


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


On November 2, 2012, we filed our official answer and subsequent counter complaint to the Utopia allegations.  We alleged in our 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 seek reimbursement of $375,000.  Further, we alleged in our answer and counter claim that Utopia consistently overbilled for services, and prevented us from managing our customer accounts on the Utopia network, resulting in $240,000 of damages.  Further, we claimed the full value of our customers that were transferred as a result of Utopia’s actions in October 2012.  We were seeking $1,900,000 in damages.  Finally, we claimed substantial additional consequential and punitive damages.  These actions came after years of failed negotiations between Utopia and us.  We decided it was in the best interest of our shareholders to take decisive action in a court of law against Utopia in order to recover any losses that Utopia has caused us to incur.


On September 23, 2014, a judgment was entered in favor of Utopia and against the Company in the amount of $504,520 in damages and in the amount of $128,453 in attorney fees and costs for a total judgment of $632,973.  Consequently, the Company wrote off to impairment expense a related $350,000 deposit included in other assets and has recorded $632,973 in accounts payable related to this matter.



Item 1A.  Risk Factors.


For a discussion of our risk factors, please refer to Part 1, “Item 1A. Risk Factors” in the our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed on April 15, 2014.  There have been no material changes in our assessment of our risk factors during the quarter ended September 30, 2014.



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


During the three months ended September 30, 2014, we issued 4,000,000 shares of our restricted common stock in exchange for $50,000 cash and 9,034,138 shares of our restricted common stock for payment of notes payable of $96,500, accrued interest of $49,853 and loss on extinguishment of debt of $16,261.


Item 3. Defaults Upon Senior Securities.


None, not applicable.




25



Item 4. Mine Safety Disclosures.


None, not applicable.


Item 5. Other Information.


None



Item 6. Exhibits.


Exhibit No.                         Identification of Exhibit


 

 

31.1


32

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


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

 

 

101.INS

XBRL Instance**

101.SCH

XBRL Schema**

101.CAL

XBRL Calculations**

101.DEF

XBRL Definitions**

101.LAB

XBRL Label**

101.PRE

XBRL Presentation**


*Filed herewith.

** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.



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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.


 

 

 

 

 

Date:

November 25, 2014

 

By:

/s/Garrett Daw

 

 

 

 

Garrett Daw

 Chief Executive Officer

Principal Executive and Financial Officer





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