LFAP ~ Quarterly Report ~ 14-Nov-2012

LFAP ~ Quarterly Report ~ 14-Nov-2012

http://biz.yahoo.com/e/121114/lfap10-q.html

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 September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011 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 Current Report on Form 8-K filed with the Securities and Exchange Commission (the "SEC") on September 25, 2012. 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 a digital media company operating through our wholly owned subsidiary, LifeApps Inc. ("LifeApps"), and focused on health, fitness and sports publications, applications (Apps) and next generation social networks.

LifeApps is a digital publisher, delivering a cross-platform suite of products and services that are focused on enthusiast health, fitness and sports topics. Our products are differentiated in the way we motivate and enable the integration of fitness into a consumer's rapidly adopted digital lifestyle with pre-existing areas of health, fitness and sports interest. As a result, our products deliver topically focused content covering news, performance training, healthy diet, fitness equipment, sports medicine, and healthy lifestyle entertainment to consumers on their preferred media consumption device. Our publications and tutorials are delivered through websites, smartphones, and tablets.

We are in the development stage and have not as yet generated significant revenue. We have incurred losses from our inception, July 15, 2009, to September 30, 2012, of $216,639. Our operations are subject to all risks inherent in the establishment of a new business enterprise. Our operations have been limited to acquiring the necessary technology to begin offering health, fitness and sports digital publications in the form of a web-site and cross platform applications for mobile and tablet devices.

Recent Developments

Merger

On September 20, 2012, we entered into the merger agreement with LifeApps and completed the merger with LifeApps on that date. As a result of the merger, we acquired the business of LifeApps and will continue the existing business operations of LifeApps as our wholly owned subsidiary.

Financing Transaction

Concurrently with the closing of the merger and in contemplation of the merger, we completed an initial closing of a private placement offering (the "Offering") of 5,700,000 units of our securities, at a price of $0.20 per unit, for total cash consideration of $1,140,000. Each unit consisted of one share of our common stock and a warrant to purchase one share of our common stock. The warrants are exercisable for a period of five years at a purchase price of $1.00 per share of our common stock and redeemable at our option under certain conditions. On October 12, 2012, we completed an additional closing of the Offering and sold an additional 300,000 units at an aggregate purchase price of $60,000.

The proceeds from the Offering have been used to fund the legal and accounting costs of the merger and will be used for recurring legal and accounting expenses as a result of being a public company and general working capital purposes. We do not currently anticipate any material capital expenditures.

Plan of Operations

Our plan is to expand our digital product offerings to include a digital magazine the contents of which are centered on sports and fitness as well as to continue development and expansion of our mobile platform applications. The first edition of "YouWorkout" magazine is currently available for individual purchase or subscription.

In addition to our magazine and applications we are developing our existing sports, health and fitness enthusiast websites, www.mdworkout.com, www.yogaworkout.com, www.tennisworkout.com, www.golfworkout.com, and www.dietplanworkout.com" with more sites to follow. The websites offers content for sports minded and health conscious individuals. We expect to generate revenue from advertising on the sites and from the sale of products offered on the sites.

Our future plans are to expand into the Smart TV and entertainment device markets.

We utilized approximately $119,000 of the proceeds of the Offering to repay debt and interest and approximately $45,000 for operating. During the next twelve months we anticipate we will utilize the remaining proceeds of the Offering in the following manner: 1) we will utilize approximately $100,000 for marketing cost; 2) approximately $100,000 for future application development; 3) approximately $150,000 for webhosting and other direct costs of revenue and the balance of approximately $686,000 will be used for general operating expenses.

Results of Operations

Three and nine month periods ended September 30, 2012, compared with the respective periods ended September 30, 2011

We are an early stage company that has conducted minimal operations through September 30, 2012 and we have not generated significant revenues during that period.

Revenues for three months ended September 30, 2012 and 2011 were $440 and $596, respectively; revenues for the nine month periods ended September 30, 2012 and 2011 were $1,706 and $2,457, respectively; and revenues from inception, July 15, 2009 to September 30, 2012 were $6,146. During the three months ended September 30, we published the first edition of our digital magazine. The magazine may be purchased on-line as a single issue or as a subscription.

Cost of revenue includes the cost of 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.

We had net losses of $92,773 and $2,102 for the three months ended September 30, 2012 and 2011, respectively; net losses of $173,180 and $4,682 for the nine month periods ended September 30, 2012 and 2011, respectively; and net losses of $216,639 for the period from inception, July 15, 2009, to September 30, 2012.

The following is a breakdown of our selling, general and administrative expenses for the three months ended September 30, 2012 and 2011:

Three Months Ended September 30,
2012 2011 Difference
Professional Fees $ 27,247 $ - $ 27,247
Website Development 2,968 780 2,188
Application Development 6,000 - 6,000
Marketing 8,708 315 8,393
Rent 3,835 - 3,835
Consulting fees 6,065 - 6,065
Other 12,844 848 11,996
$ 67,667 $ 1,943 $ 65,724

The general and administrative expenses may not be indicative of our future operating costs as we are still in the development stage. We anticipate that our general and administrative costs will increase in all areas.

Professional fees increased as a result of being a public company and the cost associated with the merger. We incurred costs of SEC counsel as well as auditing costs.

Website and applications development costs increased as a result of current updating of our websites and applications. A major portion of our development was done in 2010 and earlier and needed updating as a result of newer operating systems. Development is an ongoing cost and we anticipate that our development costs both for website and applications will increase in future periods.

Marketing expenses increased as we began to expand our operations and to develop an awareness of our products.

All of our other costs increased as result our implementation of our business plan.

The following is a breakdown of our general and administrative expenses for the nine months ended September 30, 2012 and 2011:

Nine Months Ended September 30,
2012 2011 Difference
Professional Fees $ 45,447 $ - $ 45,447
Website Development 41,607 780 40,827
Application Development 11,766 1,551 10,215
Marketing 20,257 1,599 18,658
Rent 7,495 - 7,495
Consulting fees 6,065 - 6,065
Other 13,823 944 12,879
$ 146,460 $ 4,874 $ 141,586

The general and administrative expenses may not be indicative of our future operating costs as we are still in the development stage. We anticipate that our general and administrative costs will increase in all areas.

Professional fees increased as a result of being a public company and the cost associated with the merger. We incurred costs of SEC counsel as well as auditing costs.

Website and application development fees increased as we prepared for the launch of our digital magazine and improvements in our website and the updating of our websites and applications. A major portion of our development was done in 2010 and earlier and needed updating as a result of newer operating systems. Development is an ongoing cost and we anticipate that our development costs both for website and applications will increase in future periods.

Marketing expenses increased as we began to expand our operations and to develop an awareness of our products.

All of our other costs increased as result our implementation of our business plan.

Liquidity and Capital Resources

Prior to the merger, we were financed primarily by capital contributions from members of LifeApps LLC, the predecessor to LifeApps, and from short term borrowings. As of the closing of the merger we have now been financed through the Offering. We believe that our existing sources of liquidity will 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.

As of September 30, 2012, we had working capital of $967,080 as compared to negative working capital of $511 at December 31, 2011.

During the nine months ended September 30, 2012 and 2011, operations used cash of $159,520 and $2,417, respectively.

During the nine months ended September 30, 2012 and 2011, financing activities provided cash of $1,136,500 and $1,779, respectively. During the nine months ended September 30, 2012 we engaged in a private placement of 5,700,000 units which included common stock and warrants which provided $1,140,000 in cash. Subsequent to September 30, 2012 we sold an additional 300,000 units for a gross amount of $60,000. Prior to the September 30, 2012 we borrowed $115,000 which was repaid out of the proceeds of the equity offering.

During the nine months ended September 30, 2012 investing activities used cash of $1,630 for the purpose of acquiring and registering domain names.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.