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LFAP > SEC Filings for LFAP > Form 10-Q on 19-Aug-2014All Recent SEC Filings

Show all filings for LIFEAPPS DIGITAL MEDIA INC.

Form 10-Q for LIFEAPPS DIGITAL MEDIA INC.


19-Aug-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial information included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"), including our unaudited condensed consolidated financial statements as of June 30, 2014 and December 31, 2013 and for the periods ended June 30, 2014 and 2013 and the related notes. References in this Management's Discussion and Analysis of Financial Condition and Results of Operations section to "us," "we," "our," and similar terms refer to LifeApps Digital Media Inc., a Delaware corporation. This discussion includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as "anticipate," "estimate," "plan," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions are used to identify forward-looking statements.

We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect our results include, but are not limited to, the risk factors in Item 2.01 in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on April 14, 2014. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.

Overview

We are an emerging growth company and developer and designer of applications, fitness products, new media, digital magazines, publications, and next-generation social networks for sports, health, fitness and entertainment enthusiasts. We have a multimarket revenue strategy that incorporates mobile apps, digital magazines, publications, fitness training devices, web, social media and internet TV to engage consumers in multiple areas of sports, health, fitness and entertainment interests including medical, yoga, golf, tennis, running, soccer, cycling, and other health, fitness and sports topics.

According to Gartner: Top 10 Strategic Technology Trends for 2014, mobile devices surpassed PCs as the most common access tools for the Internet in 2013. By 2015, it is projected that over 80% of handsets in mature markets will be smartphones. Fierce Mobile IT reports that mobile commerce retail revenue jumped 97% in the past year. Because of these trends, we will continue to expand our current eCommerce offerings to mobile platforms allowing our customers to order products and/or services through their mobile devices.

We expect to create a website in the near term to be known as LifeApps Health and to be dedicated to LifeApps mobile health applications. This site will serve as a marketing and informational hub for our mobile products dedicated to our health care related applications. This will include LifeApps current IOS Apple application MDWorkout (R) and additional LifeApps applications related to health care providers.

LifeApps Health will aim to reduce overall healthcare costs and improve lives through mHealth (mobile health) technology and the promotion of healthy lifestyle changes. We plan to increase our product development focus in the areas of lifestyle medicine including diabetes, cardiovascular disease, cancer, obesity and medicinal cannabis use. According to a landmark study by the Diabetes Prevention Program, exercise, 30 minutes a day, five days a week, in certain circumstances, can act as a substitute for medicine and can result in a loss of 5-7% of one's body weight and the reduction of the incidence of type 2 diabetes by 58%. In addition, exercise has been shown to reduce heart disease by 40%, to lower the risk of stroke by 27%, and reduce the incidence of high blood pressure by 50%, according to ExerciseIsMedicine.org. Under the Affordable Care Act, compliant health insurance plans can now include weight-loss services, in addition to company-sponsored health initiatives. Plans may now include obesity screening, referral and counseling as required essential health benefits.

With LifeApps Health, we continue to build relationships with medical professionals in an effort to provide a foundation for our future product offerings. According to ExerciseIsMedicine.org, 65% of patients would be more interested in exercising to stay healthy if advised accordingly by their doctors or health care professionals.


MDWorkout® currently provides mobile content by board certified medical doctors and features over 100 exercises, 80 video demonstrations, recording capability and healthy living tips. We are researching the ability to update applications with interactive rewards systems through game-ification, sensor capabilities, and a video counseling exchange. Apple's forthcoming release of its iOS 8 operating system for mobile devices includes new health and medicine APIs that can be incorporated into future releases of MDWorkout®.

We believe that revenue streams can be derived from all of the following avenues: Individuals - purchases of LifeApps products and services by healthy lifestyle minded individuals, Employers - purchases of LifeApps products and services by companies for corporate wellness initiatives, Insurance related - purchases of products and services by individuals and corporations through health insurance programs, and Medical facilities - purchases of products and services by hospitals, clinics, healthcare organizations and medical practices. Due to the nature of platform software development cycles such as the Apple iOS operating system and our internal software development timelines, future updates to our software are dependent on multiple variables. Our best estimates lead us to anticipate these updates to our software occurring as late 2014 or early 2015 developments.

We are building health, fitness and sports communities across multiple digital platforms including mobile apps, digital sports and fitness publications, sports and fitness products, sporting events, gateway platforms, online websites and social media. We believe that we will drive revenues by targeting sports, health and fitness specific communities and developing a relationship with its participants, delivering lifestyle content, social networking, skills and drills training, consumer fitness devices and nutritional content across multiple platforms including, but not limited to, Apple iOS and Google Android systems. LifeApps will invest in these sports, health and fitness communities to build customer loyalty and increase brand awareness by delivering digital content of interest and digitally enhanced physical consumer products that enrich and improve the user's sports, health and fitness lifestyle.

LifeApps sports and fitness products continue to function to improve users' health through mobile applications, publications, physical products and training videos. Providing our health, fitness and sports enthusiasts entertaining resources for improving their quality of life. We continue to expand our niche eCommerce product offerings through various promotional channels. We seek channels that provide higher margin opportunities and visibility rather than traditional brick-and-mortar retail opportunities.

We were in the development stage from July 15, 2009 through March 31, 2013. Our fiscal year ending December 31, 2013 is the first year during which we were considered an operating company and we are no longer in the development stage.

Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which contemplates our continuation as a going concern. We have incurred losses to date of $1,369,003. To date we have funded our operations through advances from a related party, issuance of convertible debt, and the sale of our common stock. We intend to raise additional funding through third party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations.

On April 1, 2013, we entered into an Asset Purchase Agreement with Sports One Group and Performance Gear ("Sports One Group"), a sole proprietorship, to purchase certain assets related to a gateway platform which matches sports apparel manufacturers with distributors and purchasers. The purchase price of the Sports One Group assets was $99,500. In accordance with the guidance of ASC Topic 805, Business Combinations ("ASC 8058"), we determined that the assets acquired constitute a business and we acquired 100% of the business. We acquired the Sports One Group business to expand our electronic and mobile commerce (e-commerce and m-commerce) businesses to include health fitness and sports apparel.


Recent Developments

Sports One Group recently completed a six-month (January - June 2014), multi-platform, product database overhaul improving the accuracy and visibility of our products to our customers through multiple online outlets. The database updates improved efficiencies and search engine optimizations across our eCommerce partner platforms. We also increased the availability of our products to these multiple platforms to over 1500 searchable items. In addition to the database update we undertook a multi-month evaluation of internal processes and have implemented new workflows to improve our efficiencies.

We continue to research developments in the upcoming release of Apple's iOS 8 operating system and the new Healthkit APIs for iPhone and iPad development. Our digital magazine YouWorkout is now available for the Amazon Fire phone.

Plan of Operations

We are a licensed developer and publisher of apps for the Apple App Store for iPhone, iPod touch, iPad and iPad mini. LifeApps is also a licensed developer on both Google Play and Amazon Appstore for Android. We have distributed apps/publications on all three platforms. Moving forward we are developing new apps, and exploring new opportunities pairing apps with physical retail and e-commerce/mobile-commerce products.

We are also expanding our revenue generating power through the creation of new gateway digital platforms that combine e-commerce with mobile-commerce solutions for sports, health and fitness communities, to act as conduits or meeting places for users to engage in the commerce of sports, health and fitness products and services. These gateway platforms can also be utilized and distributed across the broader base of tour suite of products.

We expect to create a website in the near term to be known as LifeApps Health that will act as a marketing and services hub dedicated to LifeStyle Medicine and health care professionals for our mobile applications that are dedicated to our health care related applications. We will include our current MDWorkout (R) on this website and we will also include our future planned applications that relate to chronic disease and the effects of exercise, nutrition, and lifestyle on health care cost and an individual's quality of life.

LifeApps Health will provide health care professionals, insurance companies, employers and individual's insight into our health and healthy lifestyle related applications and future services.

We have begun operating Sports One Inc., a wholly owned subsidiary of the Company after the acquisition of certain assets related to a gateway platform which matches sports apparel manufacturers with distributors and purchasers. Our current customer base are primarily companies in the promotional advertising business that represent small and large companies. We expect to expand these operations by the addition of new product lines and the inclusion of our own products discussed above as well as expanding our customer base.

Critical Accounting Policies

Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.


Accounts Receivable
A significant majority of our sales are through credit cards and other electronic payment methods. When we do grant credit to our customers it is generally in the form of short term accounts receivables, normally due in 30 days. The credit worthiness of the customer is evaluated prior to the sale. Currently there is no allowance for doubtful accounts as all of accounts are deemed collectable.

Inventory
Inventory consists of finished goods, sports and fitness products, and is stated at the lower of cost or net realizable value, with cost being determined on a first-in first-out basis.

Intangibles
Intangibles, which include websites and databases acquired, internet domain name costs, and customer lists, are being amortized over the expected useful lives which we estimate to be three to five years. In accordance with Financial Accounting Standards Board ("FASB"), Accounting Standards Codification ("ASC") Topic 350 Intangibles - Goodwill and Other ("ASC 350"), the costs to obtain and register internet domain names were capitalized.

Fixed Assets
Fixed assets are stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is calculated on a straight line basis over the estimated useful lives of the assets. The estimated useful lives used for financial statement purposes are:

Furniture and equipment: 3 years

Revenue Recognition
Revenue is derived primarily from the sale of sports and fitness apparel and equipment, and software applications designed for use on mobile devices such as smart phones and tablets. Revenue is recognized only when persuasive evidence of an arrangement exists, the fee is fixed or determinable, the product or service has been delivered, and collectability is probable.

We sell our software directly via Internet download through third party agents. We recognize revenue when payment is received from the agent. Payment is received net of commission paid to the agent, usually 70% to us and 30% to the agent. We record the net amount received as revenue.

We also publish and sell digital magazines through the internet. Magazines can be purchased as individual volumes.

Cost of Revenue
Cost of revenue includes the cost of amounts paid for articles, photography, editorial and production cost of the magazine and ongoing web hosting costs. Cost of revenue related to product sales includes the direct cost of those products sold.

Research and development, Website Development Costs, and Software Development Costs
All research and development costs are expensed as incurred. Software development costs eligible for capitalization under ASC 350-50, Website Development Cost, and ASC 985-20, Software-Costs of Software to be Sold, Leased or Marketed, were not material to our financial statements for the three and six months ended June, 2014 and 2013. Research and development expenses amounted to $2,561 and $26,732 for six months ended June 30, 2014 and 2013, respectively and $1,026 and $10,041 for the three months ended June 30, 2014 and 2013, respectively. Research and development expenses were included in general and administrative expenses.


Results of Operations

Three months ended June 30, 2014, compared with the respective period ended June 30, 2013

Revenues for the three months ended June, 2014 and 2013 were $83,589 and $93,338, respectively. Revenues for both periods was derived primarily from the sale of sports apparel and health and fitness products. The decrease in revenue is due to timing. We believe that future revenue will be more in line with the prior periods.

Cost of revenue normally includes our cost of products sold and amounts paid for articles, photography, editorial and production cost of the magazine. In the future we will incur direct cost related to revenue such as webhosting and direct cost for our customer support. For the foreseeable future we anticipate outsourcing such costs. Cost of revenue related to product sales includes the direct cost of those products sold.

Cost of revenue for the three months ended June 30, 2014 and 2013 was $54,845 (65.6%) and $65,362 (70.0%), respectively. This resulted in a gross profit for three months ended June 30, 2014 and 2013 of $28,744 (33.4%) and $27,976 (30.0%), respectively. Costs were primarily the cost of products sold.

We had net losses of $58,444 and $214,520 for the three months ended June 30, 2014 and 2013, respectively.

The following is a breakdown of our selling, general and administrative expenses for the three months ended June 30, 2014 and 2013:

                                Three months Ended June 30,
                                2014                 2013           Difference
Personnel costs             $       8,971       $        71,593     $   (62,622 )
Professional fees                  35,765                49,280         (13,515 )
Equity based payments               7,103                58,393         (51,290 )
Marketing and advertising           4,607                 8,283          (3,676 )
Travel and entertainment            2,703                 5,001          (2,298 )
Research and development              799                10,041          (9,242 )
Other expenses                     13,564                31,373         (17,809 )
                            $      73,512       $       233,964     $  (160,452 )

We had from 1 to 3 employees in the three months ended June 30, 2014, one of which were part time. We had a total of 4 employees, 3 of whom were full time employees during the three months ended June 30, 2013.

Professional fees decreased $13,515 (27.4%) from $49,280 for the three months ended June 30, 2013 to $35,765 for the three months ended June 30, 2014. The decrease is a result of being a reduction in our cost of SEC compliance and reduced activity that required legal counsel.

During the three months ended June 30, 2014, the Board of Directors did not authorized the issuance of any options to purchase shares of our common stock to employees and directors or to non-employees of the Company who provide consulting services. During the three months ended June 30, 2013, the Board of Directors authorized the issuance, under the 2012 Plan, 3,600,000 options to purchase shares of our common stock to employees and directors, and 375,000 options to purchase our common stock to non-employees of the Company who provide consulting services.

The expense for the three months ended June 30, 2014 relates to options previously granted.

The decrease in all of our other expenses was planned as we were preserving our cash.


Six months ended June 30, 2014, compared with the respective period ended June 30, 2013

We were in the development stage from July 15, 2009 through March 31, 2013.

Revenues for the six months ended June 30, 2014 and 2013 were $204,882 and $93,678, respectively. Revenues for both periods was derived primarily from the sale of sports apparel and health and fitness products. We acquired Sports One Group Inc. our wholly owned subsidiary in April, 2013 and accordingly there were no revenues from Sports One Group for the first three months of the six month period ending June 30, 2013

Cost of revenue normally includes our cost of products sold and amounts paid for articles, photography, editorial and production cost of the magazine. In the future we will incur direct cost related to revenue such as webhosting and direct cost for our customer support. For the foreseeable future we anticipate outsourcing such costs. Cost of revenue related to product sales includes the direct cost of those products sold.

Cost of revenue for the six months ended June 30, 2014 and 2013 was $163,625 (79.9%) and $65,362 (69.8%), respectively. This resulted in a gross profit for the six months ended June 30, 2014 and 2013 of $41,257 (20.1%) and $28,316 (30.2%), respectively. Our margins are dependent upon the products sold, i.e. jackets vs. hats, and the size of the individual order. We believe that the cost of revenue will vary between 70% to 80% in future periods.

We had net losses of $130,110 and $415,351 for the six months ended June 30, 2014 and 2013, respectively.

The following is a breakdown of our selling, general and administrative expenses for the six months ended June 30, 2014 and 2013:

                              Six months Ended June 30,
                                2014               2013        Difference
Personnel costs             $      27,665       $  140,730     $  (113,065 )
Professional fees                  47,625           82,457         (34,832 )
Equity based payments              14,876           85,864         (70,988 )
Marketing and advertising           9,278           43,040         (33,762 )
Travel and entertainment            6,283           14,849          (8,566 )
Research and development            2,561           26,732         (24,171 )
Other expenses                     39,109           40,081            (972 )
                            $     147,397       $  433,753     $  (286,356 )

We had from 1 to 3 employees in the six months ended June 30, 2014, one of which were part time. We had a total of 4 employees, 3 of whom were full time employees during the six months ended June 30, 2013.

Professional fees decreased $34,832 (42.2%) from $82,457 for the six months ended June 30, 2013 to $47,625 for the six months ended June 30, 2014. The decrease is a result of a reduction in our cost of SEC compliance and reduced activity that required legal counsel.


During the six months ended June 30, 2014, the Board of Directors did not authorized the issuance of any options to purchase shares of our common stock to employees and directors or to non-employees of the Company who provide consulting services. During the six months ended June 30, 2013, the Board of Directors authorized the issuance, under the 2012 Plan, 3,600,000 options to purchase shares of our common stock to employees and directors, and 375,000 options to purchase our common stock to non-employees of the Company who provide consulting services.
The expense for the three months ended June 30, 2014 relates to options previously granted.

The decrease in all of our other expenses was planned as we were preserving our cash.

Liquidity and Capital Resources

We were financed primarily by capital contributions from members of LifeApps LLC, the predecessor to LifeApps, from short term borrowings, and through our private placement which we completed in October 2012. Our existing sources of liquidity may not be sufficient for us to implement our initial business plan. Our need for future capital will be dependent upon the speed at which we expand our product offerings. There are no assurances that we will be able raise additional capital as needed.

As of June 30, 2014, we had working capital of $78,640 as compared to $97,783 at December 31, 2013.

During the six months ended June 30, 2014, operations used cash of $112,641 and for the six months ended June 30, 2013 used cash of $426,436.

During the six months ended June 30, 2014 financing activates provided cash of $94,377. The cash was provided primarily from borrowing activities. In March 2014, we executed a Promissory Note (the "Note") and received $75,000. The Note is due March 17, 2016 and provides for an original issue discount of $8,437 and face interest rate of 12% per annum. The Lender has the right, at any time at its election to convert all or part of the outstanding and unpaid principal and accrued interest. The conversion price is the lesser of $0.0485 or 60% of the lowest trading price in the 25 trading days prior the conversion. The Note provides for additional penalties if we cannot deliver the underlying common stock on a timely basis. The Note also provides that the principal amount may be increase, at the option of the lender to $445,000. In addition an officer and director of ours advanced $31,377 to the Company and was repaid $12,000. During the six months ended June 30, 2013, financing activities used cash of $347.

We had no investing activities during the six months ended June 30, 2014. During the six months ended June 30, 2013 investing activities used cash of $114,778, primarily for acquisition of Sports One Group. Sports One Group utilizes a gateway platform which matches sports apparel manufacturers with distributors and purchasers and sells sports and fitness apparel.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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