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**U.S. SECURITIES AND EXCHANGECOMMISSION****WASHINGTON,D.C.  20549**

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**FORM 10-Q**
| **ý** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

**FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001**

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

**FOR THE QUARTERLY PERIOD ENDED _______________**

**Commission File Number 0-25171**

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**LIFEF/X, INC.**(Exact Name of registrant as Specified inits Charter)

| **NEVADA**                                                   | **84-1385529**                        |
|--------------------------------------------------------------|---------------------------------------|
| (State of  Incorporation)                                    | (I.R.S. Employer  Identification No.) |
|                                                         |                                  |
| **153  NEEDHAM STREET, BUILDING ONE, NEWTON, MASSACHUSETTS** | **02464**                             |
| (Address of Principal  Executive Offices)                    | (Zip Code)                            |
|                                                              |                                       |  |

Registrant'sTelephone Number           **(617) 964-4200**

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Check whether the registrant (1) filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the past 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.   Yes ý   No o

As of August 10, 2001, there were33,615,724 shares of common stock of Lifef/x, Inc. outstanding.

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LIFEF/X,INC.FORM 10-QFOR THE QUARTER ENDED JUNE 30, 2001TABLE OF CONTENTS
| Part  I - Financial Information |                                                               |
|---------------------------------|--------------------------------------------------------------------|
|                            |                                                               |
|                            | Item  1. Consolidated Financial Statements                         |   |
|                            |                                                               |   |
|                            | Item  2. Management's Discussion and Analysis or Plan of Operation |   |
|                            |                                                               |   |
| Part II - Other Information     |                                                               |
|                            |                                                               |   |
|                            | Item 1. Legal Proceedings                                          |   |
|                            |                                                               |   |
|                            | Item  4. Submission of Matters to a Vote of Security Holders       |   |
|                            |                                                               |   |
|                            | Item 6.  Exhibits and Reports on Form 8-K                          |   |
|                            |                                                               |   |
|                            | Signatures                                                         |   |
|                                 |                                                                    |  |  |

**LIFEF/X, INC. AND SUBSIDIARY**

**CONSOLIDATED BALANCE SHEETS**

|                                              | June  30,                                                                                                                                           |        | December  31, |        |
|---------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|-------------|---------------|-------------|
|                                              | 2001                                                                                                                                                |        | 2000          |        |
|                                              |                                                                                                                                                     |        |               |        |
|                                              | (Unaudited)                                                                                                                                         |        |          |        |
|                                              |                                                                                                                                                |        |          |        |
| Assets                                            |                                                                                                                                                |        |          |        |
|                                              |                                                                                                                                                |        |          |        |
| Current assets:                                   |                                                                                                                                                |        |          |        |
|                                              | Cash and cash  equivalents                                                                                                                          | $           | 2,747,108     |        | $ | 5,150,629 |   |
|                                              | Interest receivable                                                                                                                                 | 6,431       |          | 17,265      |   |
|                                              | Other receivables                                                                                                                                   | 280         |          | 4,836       |   |
|                                              | Prepaid expenses                                                                                                                                    | 74,960      |          | 84,953      |   |
|                                              |                                                                                                                                                     |        |               |        |
|                                              | Total current assets                                                                                                                                | 2,828,779   |          | 5,257,683   |   |
|                                              |                                                                                                                                                |        |          |        |   |
| Property, plant and  equipment (net)              | 1,993,905                                                                                                                                           |        | 2,282,839     |        |
| Investments                                       | 217,500                                                                                                                                             |        | 217,500       |        |
| Deposits                                          | 5,958                                                                                                                                               |        | 28,910        |        |
|                                              |                                                                                                                                                     |        |               |        |
|                                              | $                                                                                                                                                   | 5,046,142   |          | $           | 7,786,932 |   |
|                                              |                                                                                                                                                     |        |               |        |
|                                              |                                                                                                                                                |        |          |        |
| Liabilities  and Shareholders' Equity             |                                                                                                                                                |        |          |        |
| Current liabilities:                              |                                                                                                                                                |        |          |        |
|                                              | Accounts payable and  accrued expenses                                                                                                              | $           | 1,312,193     |        | $ | 1,408,033 |   |
|                                              | Current portion of  capital lease obligation                                                                                                        | 73,694      |          | 89,232      |   |
|                                              |                                                                                                                                                     |        |               |        |
|                                              | Total current  liabilities                                                                                                                          | 1,385,887   |          | 1,497,265   |   |
|                                              |                                                                                                                                                |        |          |        |
| Capital lease  obligation, net of current portion | 26,945                                                                                                                                              |        | 57,822        |        |
| Other long-term  liabilities                      | 100,723                                                                                                                                             |        | 192,597       |        |
|                                              |                                                                                                                                                     |        |               |        |
|                                              | 1,513,555                                                                                                                                           |        | 1,747,684     |        |
|                                              |                                                                                                                                                     |        |               |        |
| Shareholders' equity:                             |                                                                                                                                                |        |          |        |
|                                              | Common stock, $.001  par value.  Authorized 100,000,000  shares: issued and outstanding 33,115,724 shares (2001) and 19,207,401 shares  (2000) | 33,115      |          | 19,207      |   |
|                                              | Additional paid-in  capital                                                                                                                         | 72,976,386  |          | 59,271,858  |   |
|                                              | Deferred compensation  related to stock options                                                                                                     | (1,828,374  | )             | (2,530,682  | ) |
|                                              | Accumulated deficit                                                                                                                                 | (67,648,540 | )             | (50,721,135 | ) |
|                                              |                                                                                                                                                     |        |               |        |
|                                              | Total shareholders'  equity                                                                                                                         | 3,532,587   |          | 6,039,248   |   |
|                                              |                                                                                                                                                     |        |               |        |
|                                              | $                                                                                                                                                   | 5,046,142   |          | $           | 7,786,932 |   |
|                                              |                                                                                                                                                     |        |               |        |
|                                                   |                                                                                                                                                     |             |               |             |  |  |  |  |

See accompanying notes to consolidatedfinancial statements.

LIFEF/X,INC. AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF OPERATIONS

|                                                     | Three  months ended June 30,        |       | Six  months ended June 30, |       |
|----------------------------------------------------------|-------------------------------------|------------|----------------------------|------------|
|                                                     |                                     |       |                            |       |
|                                                     | 2001                                |       | 2000                       |       | 2001 |   | 2000 |   |
|                                                     |                                     |       |                            |       |  |   |  |   |
|                                                     | (Unaudited)                         |       | (Unaudited)                |       |
|                                                     |                                |       |                       |       |
| Revenue                                                  | $                                   | 6,325      |                       | —     |   | $ | 13,825 |   | — |   |
|                                                     |                                     |       |                            |       |  |   |  |   |
| Operating costs and  expenses:                           |                                |       |                       |       |   |   |   |   |
|                                                     | General and administrative          | 2,058,399  |                       | 1,583,890  |   | 3,864,152 |   | 2,826,860 |   |
|                                                     | Research and  development           | 1,660,770  |                       | 1,143,124  |   | 13,151,152 |   | 1,820,841 |   |
|                                                     |                                     |       |                            |       |  |   |  |   |
|                                                     | Total operating costs  and expenses | 3,719,169  |                       | 2,727,014  |   | 17,015,304 |   | 4,647,701 |   |
|                                                     |                                |            |                       |            |   |  |   |  |   |
|                                                     | Loss from operations                | (3,712,844 | )                          | (2,727,014 | ) | (17,001,479 | ) | (4,647,701 | ) |
|                                                     |                                |       |                       |       |   |   |   |   |   |
| Non operating (income)  expense:                         |                                |       |                       |       |   |   |   |   |
| Interest expense                                         | 11,405                              |       | 12,394                     |       | 25,782 |   | 24,668 |   |
| Other income                                             | —                              |       | (3,250                     | )          | — |   | (3,250 | ) |
| Interest income                                          | (38,334                             | )          | (211,334                   | )          | (104,156 | ) | (420,687 | ) |
|                                                     |                                     |       |                            |       |  |   |  |   |
|                                                     | Loss before income tax  expense     | (3,685,915 | )                          | (2,524,824 | ) | (16,923,105 | ) | (4,248,432 | ) |
|                                                     |                                |       |                       |       |   |   |   |   |   |
| Income tax expense                                       | —                              |       | 2,500                      |       | 4,300 |   | 4,556 |   |
|                                                     |                                     |       |                            |       |  |   |  |   |
|                                                     | Net loss                            | $          | (3,685,915                 | )          | (2,527,324 | ) | (16,927,405 | ) | (4,252,988 | ) |
|                                                     |                                     |       |                            |       |  |   |  |   |
|                                                     |                                |       |                       |       |   |   |   |   |
| Net loss per common  share on a basic and diluted basis: | $                                   | (0.11      | )                          | (0.13      | ) | (0.59 | ) | (0.22 | ) |
|                                                     |                                     |       |                            |       |  |   |  |   |
|                                                     |                                |       |                       |       |   |   |   |   |
| Weighted average  common shares outstanding              | 32,873,966                          |       | 19,168,582                 |       | 28,674,245 |   | 19,084,355 |   |
|                                                     |                                     |       |                            |       |  |   |  |   |
|                                                          |                                     |            |                            |            |  |  |  |  |  |  |  |  |  |  |

See accompanying notes to consolidatedfinancial statements.

LIFEF/X,INC. AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

 

|                                                      | Three  months ended June 30,                                                                |       | Six  months ended June 30, |          |
|-----------------------------------------------------------|---------------------------------------------------------------------------------------------|------------|----------------------------|---------------|
|                                                      |                                                                                             |       |                            |          |
|                                                      | 2001                                                                                        |       | 2000                       |          | 2001 |   | 2000 |   |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
|                                                      | (Unaudited)                                                                                 |       | (Unaudited)                |          |
|                                                      |                                                                                        |       |                       |          |
| Cash flows from  operating activities:                    |                                                                                        |       |                       |          |   |   |   |   |
|                                                      | Net loss                                                                                    | $          | (3,685,915                 | )             | $ | (2,527,324 | ) | $ | (16,927,405 | ) | $ | (4,252,988 | ) |
|                                                      | Adjustments to  reconcile net loss to net cash provided by (used in) operating activities:  |       |                       |          |   |   |   |   |   |
|                                                      | Depreciation expense                                                                        | 215,055    |                       | 52,815        |   | 419,907 |   | 59,225 |   |
|                                                      | Noncash professional  services expense - stock and warrants                                 | 41,750     |                       | —        |   | 9,850,025 |   | — |   |
|                                                      | Noncash compensation  expense - stock options                                               | 395,284    |                       | 292,869       |   | 820,718 |   | 585,738 |   |
|                                                      | Noncash rent expense –  stock warrants                                                 | —     |                       | 40,000        |   | — |   | 40,000 |   |
|                                                      | Changes in operating  assets and liabilities:                                               |       |                       |          |   |   |   |   |   |
|                                                      | Other receivables,  prepaid expenses and other assets                                       | 98,504     |                       | (8,952        | ) | 48,334 |   | (210,286 | ) |
|                                                      | Accounts payable,  accrued expenses and other long-term liabilities                         | 216,668    |                       | (370,067      | ) | (187,714 | ) | 328,748 |   |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
|                                                      | Net cash (used in)  operating activities                                                    | (2,718,654 | )                          | (2,520,659    | ) | (5,976,135 | ) | (3,449,563 | ) |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
|                                                      |                                                                                        |       |                       |          |   |   |   |   |
| Cash flows from  investing activities:                    |                                                                                        |       |                       |          |   |   |   |   |
|                                                      | Purchases of property,  plant and equipment                                                 | (71,261    | )                          | (629,656      | ) | (130,972 | ) | (967,231 | ) |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
|                                                      | Net cash (used in)  investing activities                                                    | (71,261    | )                          | (629,656      | ) | (130,972 | ) | (967,231 | ) |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
|                                                      |                                                                                        |       |                       |          |   |   |   |   |
| Cash flows from  financing activities:                    |                                                                                        |       |                       |          |   |   |   |   |
|                                                      | Proceeds from exercise  of stock warrants                                                   | 1,250,000  |                       | —        |   | 3,750,001 |   | — |   |
|                                                      | Payment on capital  lease obligations                                                       | (22,018    | )                          | —        |   | (46,415 | ) | — |   |
|                                                      | Proceeds from sale of  stock through private placement related to common stock subscribed   | —     |                       | —        |   | — |   | 579,000 |   |
|                                                      | Restricted cash from  stock subscriptions                                                   | —     |                       | —        |   | — |   | 9,051,000 |   |
|                                                      | Proceeds from exercise  of stock options                                                    | —     |                       | 177,049       |   | — |   | 187,049 |   |
|                                                      | Net cash provided by  (used in) financing activities - discontinued operation               | —     |                       | —        |   | — |   | (720,644 | ) |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
|                                                      | Net cash provided by  financing activities                                                  | 1,227,982  |                       | 177,049       |   | 3,703,586 |   | 9,096,405 |   |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
|                                                      |                                                                                        |       |                       |          |   |   |   |   |
|                                                      | Net increase  (decrease) in cash and cash equivalents                                       | (1,561,933 | )                          | (2,973,266    | ) | (2,403,521 | ) | 4,679,611 |   |
|                                                      |                                                                                        |       |                       |          |   |   |   |   |   |
| Cash and cash  equivalents at beginning of period         | 4,309,041                                                                                   |       | 15,430,917                 |          | 5,150,629 |   | 7,778,040 |   |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
| Cash and cash  equivalents at end of period               | $                                                                                           | 2,747,108  |                       | $             | 12,457,651 |   | $ | 2,747,108 |   | 12,457,651 |   |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
| Supplemental  disclosures of cash flow information:       |                                                                                        |       |                       |          |   |   |   |   |
|                                                      | Cash paid during the  period for:                                                           |       |                       |          |   |   |   |   |   |
|                                                      | Interest, including  discontinued operation                                                 | $          | 11,405                     |          | $ | 12,394 |   | $ | 25,782 |   | 201,606 |   |
|                                                      | Income taxes                                                                                | —     |                       | 2,500         |   | 4,300 |   | 4,556 |   |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
| Supplemental  disclosure of noncash financing activities: |                                                                                        |       |                       |          |   |   |   |   |
|                                                      | Transfer of assets and  liabilities of discontinued operation to PTM Productions, Inc., net | $          | —                     |     | $ | — |     | — |     | 3,704,867 |   |
|                                                      |                                                                                             |       |                            |          |  |   |  |   |
|                                                           |                                                                                             |            |                            |               |  |  |  |  |  |  |  |  |  |  |  |  |

See accompanying notes to consolidatedfinancial statements.

LIFEF/X,INC. AND SUBSIDIARY

Notesto Consolidated Financial Statements

Forthe three months and six months ended June 30, 2001 and 2000

(Unaudited)

Basis of Presentation

             Theinformation furnished is unaudited but reflects all adjustments which are, inthe opinion of management, necessary for a fair statement of results for theinterim periods.  Results for interimperiods are not necessarily indicative of results to be expected for the entireyear.

             Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or omitted.  Reference shouldbe made to the Notes to the Consolidated Financial Statements in the AnnualReport on Form 10-K for the year ended December 31, 2000 filed by Lifef/x, Inc.for a further discussion of accounting policies and other significant matters.

(1)         Summaryof Significant Accounting Policies

             (a)         Organization and Description ofBusiness

             Lifef/x, Inc. (the “Company” or“LifeF/X”) and its wholly-owned subsidiary, LifeF/X Networks, Inc., have beenengaged in the following operations: (1) the development of LifeF/X technology,a mathematically based technology capable of creating photo-realistic computeranimation of biological entities, including humans animated in real time, and(2) the non-LifeF/X operations, which provides film title, credits, specialeffects, digital effects and related services to the motion picture andtelevision industry.

             The Company has continued to incurlosses since it discontinued certain operations. It has funded its lossesthrough an $18 million equity round of financing received in early 2000.Safeguard has committed to fund an additional $5 million, of which $3.75million has been received through the period ending June 30, 2001. Managementbelieves that this additional financing, coupled with existing cash and cashequivalents and cash generated from revenue, will be sufficient to supportoperations through 2001. However, subsequent to fiscal year 2001 additionalfinancing will be needed and no assurances can be given that additionalfinancing will be available, or if available, on terms satisfactory to theCompany.

             (b)        Earnings (Loss) per Share

             Basic earnings (loss) per share iscomputed by dividing net income (loss) available to common shareholders by theweighted average number of common shares outstanding during the period inaccordance with SFAS No. 128, "Earnings Per Share."  Diluted earnings (loss) per share reflectsthe potential dilution that could occur if securities or other contracts toissue common stock were exercised or converted into common stock or resulted inthe issuance of common stock that then shared in the earnings of the entity.Diluted earnings (loss) per share is computed similarly to fully dilutedearnings (loss) per share pursuant to APB Opinion No. 15.

             There were 9,217,235 and 5,576,523common stock options outstanding at June 30, 2001 and 2000, respectively, and18,812,212 and 27,950,365 warrants to purchase shares of common stock at June30, 2001 and 2000, respectively, which were not included in the computation ofdiluted loss per share because the impact would have been antidilutive.

(2)         StockholdersEquity

             InFebruary 2001, the Company granted Eastman Kodak Company a warrant to purchaseup to the lesser of 1,650,000 shares or 4.9% of the Company’s outstandingstock. The warrant, which expires on September 30, 2001, has an exercise priceof $3.75 per share until July 17, 2001, and $4.50 per share thereafter. As ofJune 30, 2001 the warrant had not been exercised.

             InJune 2001, the Company granted stock options for 243,000 shares to itsemployees in lieu of cash compensation for merit salary increases. The optionsare exercisable at $.01 per share and vest in four equal installments over oneyear. For financial reporting purposes, the Company recorded deferred stockcompensation of $143,000, representing the difference between the exerciseprice and the fair value of the Company's common stock on the grant date. Thisamount is being amortized by a charge to operations ratably over the vestingperiod.

(3)         Commitments

             Welicense a portion of the LifeF/X technology from Auckland UniServices Limited(UniServices) under a licensing agreement. Under the UniServices licensing agreement,we have been granted an exclusive, worldwide, perpetual license to useUniServices' continuum modeling technology in all communications applications.The license required quarterly license fees and development payments to be madeto the licensor. These payments totaled approximately $0 and $112,500 for thethree months ended June 30, 2001 and 2000, respectively, and $12,500 and$225,000 for the six months ended June 30, 2001 and 2000.

             InJanuary 2001, the Company amended its agreements with UniServices. Theagreements were amended in part to compensate UniServices for servicespreviously rendered under a fundamental business relationship with the Companywhich commenced in 1997 and to grant the Company an exclusive license to expandinto further markets including professional medical, scientific andengineering. UniServices and the Company began negotiations in January 2000. Inaddition, UniServices will provide certain development services for theCompany.

             Inconsideration of the agreements, the Company issued 2,250,000 shares of commonstock to UniServices. In addition, the Company granted UniServices warrants topurchase 750,000 shares of common stock as follows: 225,000 shares with a $20exercise price and with a five-year expiration; 225,000 shares with a $20exercise price and a four-year expiration; 225,000 shares with a $20 exerciseprice and a three-year expiration; and 75,000 shares with a $12 exercise priceand a three-year expiration. For financial reporting purposes, the Company hasrecognized $9,000,000 of expense related to the issuance of the stock based onits fair value and $808,275 in expense related to the warrants. Upon issuance,the Company estimated the fair value of the warrants using a Black-Scholesoption pricing model.

             Inconsideration of the development agreement, the Company will pay UniServices abase payment of $200,000 each year for three years. In addition, specificprojects will be billed on a time and materials basis.

(4)         Exerciseof Warrants

             In January 2001, Safeguardcommitted to fund the Company an additional $5 million. The funds are availablethrough Safeguard's exercise of 10,199,119 warrants at $.01 price per share and1,959,204 warrants at $2.50 per share. Safeguard exercised all 10,199,119 ofits $.01 warrants and 959,204 of its $2.50 warrants in February 2001, providing$2.5 million of cash to the Company. Safeguard exercised 500,000 of its $2.50warrants in May 2001, providing $1.25 million of cash to the Company andcompleted the commitment by exercising the remaining 500,000 of its $2.50warrants in July 2001.

Item2.  Management's Discussion and Analysisor Plan of Operation

             Thefollowing discussion should be read with the consolidated financial statementsand the related notes included herein. Certain statements that are not relatedto historical results, including statements regarding LifeF/X's businessstrategy and objectives, future financial position, expectations about pendinglitigation and estimated cost savings, are forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933, as amended (the“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, asamended (the "Exchange Act"), and involve risks and uncertainties.Although management believes that the assumptions on which theseforward-looking statements are based are reasonable, there can be no assurancethat such assumptions will prove to be accurate and actual results could differmaterially from those discussed in the forward-looking statements. Factors thatcould cause or contribute to such differences include regulatory policies,competition from other similar businesses, and market and general economicfactors. All forward-looking statements contained in this Form 10-Q arequalified in their entirety by this statement.

Results of Operations

Quarter Ended June 30, 2001 Compared toQuarter Ended June 30, 2000

             Revenue – Revenue for the quarterended June 30, 2001 was $6,325. Revenue resulted from contracts for theproduction of LifeF/X Stand-in virtual people. Revenue was recognized from boththe production of Stand-in virtual people under limited license agreements fordemonstrations and market testing, and from the sale of Stand-in virtual peopleunder licensing agreements. Revenue related to the production of limited-useStand-in virtual people is recognized upon delivery. Revenue related to thesale of Stand-in virtual people, together with the related licensing revenue,is recognized over the life of the related licensing agreement. LifeF/X did nothave revenue in the quarter ended June 30, 2000. All of our products were inthe research and development or planning stages and there were no sales fromthe LifeF/X technology in 2000.

             Generaland administrative expenses - General and administrative expenses were$2,058,000 for the quarter ended June 30, 2001 compared to $1,584,000 for thequarter ended June 30, 2000, an increase of $474,000, or 30.0%.  This increase is primarily due to thefollowing items:

(1)In September 2000, LifeF/X recorded deferred stock compensation of $1,950,000on stock options issued to key employees. This amount is amortized ratably asthe options vest. The related expense recorded in the quarter ended June 30,2001 and included in general and administrative expenses was $130,000.

(2)Administrative wages, taxes and benefits were $508,000 for the quarter endedJune 30, 2001 compared to $337,000 for the quarter ended June 30, 2000, anincrease of $171,000, or 50.7%. This is a result of the increased number ofemployees employed in the quarter ended June 30, 2001 as compared to thequarter ended June 30, 2000.

(3)Professional services were $306,000 for the quarter ended June 30, 2001compared to $345,000 for the quarter ended June 30, 2000, a decrease of $39,000or 11.3%. This resulted primarily from a decrease in accounting and audit feesof $59,000 offset by an increase in investor and public relations costs of$28,000 for the comparable period. The decrease in audit and accounting feesrelated to the expenses incurred for the registration of LifeF/X common stockand other filings in 2000. The increase in investor and public relationsexpenses for the quarter ended June 30, 2001 resulted from increased stock andinvestor activity and ongoing public relations matters.

(4) Rent expense was$87,000 for the quarter ended June 30, 2001 compared to $126,000 for thequarter ended June 30, 2000, a decrease of $39,000, or 31.0%. The decreaseresulted from the issuance of 25,000 stock warrants to a related party forconsideration of rent in the quarter ended June 30, 2000. The fair value of thewarrants of $40,000 was reflected as rent expense.

(5)Depreciation expense increased by $162,000 for the quarter ended June 30, 2001over the comparable period last year as a result of the addition of computerequipment, software, leasehold improvements and other equipment.

(6)In the quarter ended June 30, 2000, LifeF/X paid liquidated damages toinvestors in its private placement relating to the schedule of its common stockregistration. Damages began on May 13, 2000 and accrued daily through June 30,2000. The related expense recorded in the quarter ended June 30, 2000 andincluded in general and administrative expenses was $146,000.

(7)In June 2001, LifeF/X expensed $275,000 related to its effort to raise capitalthrough a private placement offering. The private placement offering hasstopped and accordingly the deferred charges associated with it have beenexpensed. Expenses were primarily related to legal, audit and printingservices.

(8)Other general and administrative expenses were $244,000 for the quarter endedJune 30, 2001 compared to $283,000 for the quarter ended June 30, 2000, adecrease of $39,000 or 13.8%. This is primarily due to a decrease inrecruitment expense of $55,000, temporary help of $17,000 and travel of$10,000, offset by increases in insurance of $21,000 and registration filingfees of $28,000.

             Researchand development expenses -   Researchand development expenses were $1,661,000 for the quarter ended June 30, 2001 comparedto $1,143,000 for the quarter ended June 30, 2000, an increase of $518,000, or45.3%. Research and development consists of costs related to LifeF/Xdevelopment activities.

Salariesand wages, related personnel benefits and outside contractors expenses includedin research and development were $1,149,000 for the quarter ended June 30, 2001compared to $834,000 for the quarter ended June 30, 2000, an increase of$315,000, or 37.8%.  This reflects anincrease in full-time research and development personnel over the comparableperiod last year.

LifeF/Xhas an exclusive, world-wide, perpetual license and support agreement fromUniServices for the use of certain continuum modeling technology in commercialapplications. Recurring license and development fees paid under the agreementincluded in research and development costs were $0 for the quarter ended June30, 2001 and $112,500 for the quarter ended June 30, 2000.

InJanuary 2001, the Company amended its agreements with UniServices. Theagreements were amended in part to compensate UniServices for servicespreviously rendered under a fundamental business relationship with the Companywhich commenced in 1997 and to grant the Company an exclusive license to expandinto further markets including professional medical, scientific andengineering. UniServices and the Company began negotiations in January 2000. Inaddition, UniServices will provide certain development services for theCompany.

TheCompany paid $50,000 for the quarter ended June 30, 2001, under the terms ofthe UniServices development agreement.

Otherexpenses were $419,000 for the quarter ended June 30, 2001, compared to$197,000 for the quarter ended June 30, 2000, an increase of $222,000, or112.7%. This is primarily due to an increase in service fees of $244,000,related to third party web hosting services and recruitment of $60,000, offsetby a decrease in equipment rentals of $63,000 and travel of $12,000.

             InterestIncome - Interest income for the quarter ended June 30, 2001 was $38,000 as comparedto $211,000 for the quarter ended June 30, 2000, a decrease of $173,000. Thisreflects the decrease in cash and lower interest rates. Cash is invested inhighly liquid short-term investments.

Six Months Ended June 30, 2001 Comparedto Six Months Ended June 30, 2000

             Revenue -  Revenue for the six months ended June 30, 2001 was $13,825.Revenue resulted from contracts for the production of LifeF/X Stand-in virtualpeople. Revenue was recognized from both the production of Stand-in virtualpeople under limited license agreements for demonstrations and market testing,and from the sale of Stand-in virtual people under licensing agreements.Revenue related to the production of limited-use Stand-in virtual people isrecognized upon delivery. Revenue related to the sale of Stand-in virtualpeople, together with the related licensing revenue, is recognized over thelife of the related licensing agreement. LifeF/X did not have revenue in thesix months ended June 30, 2000. All of our products were in the research anddevelopment or planning stages and there were no sales from the LifeF/Xtechnology in 2000.

             Generaland administrative expenses - General and administrative expenses were$3,864,000 for the six months ended June 30, 2001 compared to $2,827,000 forthe six months ended June 30, 2000, an increase of $1,037,000, or 36.7%.  This increase is primarily due to thefollowing items:

(1)In September 2000, LifeF/X recorded deferred stock compensation of $1,950,000on stock options issued to key employees. This amount is amortized ratably asthe options vest. The related expense recorded in the six months ended June 30,2001 and included in general and administrative expenses was $260,000.

(2)Administrative wages, taxes and benefits were $1,037,000 for the six monthsended June 30, 2001 compared to $539,000 for the six months ended June 30,2000, an increase of $498,000 or 92.4%. This is a result of the increasednumber of full time executive, sales, financial and other administrativepersonnel employed in the six months ended June 30, 2001 as compared to the sixmonths ended June 30, 2000.

(3)Professional services were $641,000 for the six months ended June 30, 2001compared to $748,000 for the six months ended June 30, 2000, a decrease of$107,000 or 14.3%. This resulted primarily from a decrease in legal fees of$165,000 and audit fees of $66,000 offset by an increase in investor and publicrelations costs of $162,000 for the comparable period. The decrease in legaland audit fees was attributed to expenses incurred in 2000 for the registrationof LifeF/X common stock and other filings, general corporate matters relatingto corporate organization, and development of administrative infrastructure.The increase in investor and public relations expenses for the six months endedJune 30, 2001 over the comparable period resulted from increased stock andinvestor activity and ongoing public relations matters.

(4)Rent expense was $173,000 for the six months ended June 30, 2001 compared to$184,000 for the six months ended June 30, 2000, a decrease of $11,000, or6.0%. The decrease resulted from the issuance of 25,000 stock warrants to arelated party for consideration of rent in the six months ended June 30, 2000.The fair value of the warrants of $40,000 was reflected as rent expense.

(5)Depreciation expense increased by $361,000 for the six months ended June 30,2001 over the comparable period last year as a result of the addition ofcomputer equipment, software, leasehold improvements and other equipment.

(6)In the quarter ended June 30, 2000, LifeF/X paid liquidated damages toinvestors in its private placement relating to the schedule of its common stockregistration. Damages began on May 13, 2000 and accrued daily through June 30,2000. The related expense recorded in the six months ended June 30, 2000 andincluded in general and administrative expenses was $146,000.

(7)In June 2001, LifeF/X expensed $275,000 related to its effort to raise capitalthrough a private placement offering. The private placement offering hasstopped and accordingly the deferred charges associated with it have beenexpensed. Expenses were primarily related to legal, audit and printingservices.

(8)Other general and administrative expenses were $472,000 for the six monthsended June 30, 2001 compared to $565,000 for the six months ended June 30,2000, a decrease of $93,000, or 16.4%. This is primarily due to a decrease inrecruitment expense of $54,000, temporary help of $30,000 and filing fees of$81,000, offset by increases in insurance of $47,000 and utilities of $16,000.

             Researchand development expenses -   Researchand development expenses were $13,151,000 for the six months ended June 30,2001 compared to $1,821,000 for the six months ended June 30, 2000, an increaseof $11,330,000. Of the $13.2million for the six months ended June 30, 2001, $9.81 million related to thenon-cash expense for the issuance of stock and warrants to UniServices. Researchand development consists of costs related to LifeF/X development activities.

Salariesand wages, related personnel benefits and outside contractors expenses includedin research and development were $2,342,000 for the six months ended June 30,2001 compared to $1,347,000 for the six months ended June 30, 2000, an increaseof $995,000 or 73.9%.  This reflects anincrease in full-time research and development personnel over the comparableperiod last year.

             LifeF/X has an exclusive,world-wide, perpetual license and support agreement from UniServices for theuse of certain continuum modeling technology in commercial applications.Recurring license and development fees paid under the agreement included inresearch and development costs were $12,500 for the six months ended June 30,2001 and $225,000 for the six months ended June 30, 2000.

             In January 2001, the Companyamended its agreements with UniServices. The agreements were amended in part tocompensate UniServices for services previously rendered under a fundamentalbusiness relationship with the Company which commenced in 1997 and to grant theCompany an exclusive license to expand into further markets includingprofessional medical, scientific and engineering. UniServices and the Companybegan negotiations in January 2000. In addition, UniServices will providecertain development services for the Company.

             In consideration of the amendedagreements, the Company issued 2,250,000 shares of common stock to UniServices.In addition, the Company granted UniServices warrants to purchase 750,000shares of common stock as follows: 225,000 shares with a $20 exercise price andwith a five-year expiration; 225,000 shares with a $20 exercise price and afour-year expiration; 225,000 shares with a $20 exercise price and a three-yearexpiration; and 75,000 shares with a $12 exercise price and a three-yearexpiration. The Company has recognized $9,000,000 of expense related to theissuance of the stock based on its fair value and $808,275 in expense relatedto the warrants. Upon issuance, the Company estimated the fair value of thewarrants using a Black-Scholes option pricing model.

             The Company paid $75,000 for thesix months ended June 30, 2001, under the terms of the UniServices developmentagreement.

             Other expenses were $690,000 forthe six months ended June 30, 2001, compared to $249,000 for the six monthsended June 30, 2000, an increase of $441,000 or 177.1%. This is primarily dueto an increase in service fees of $447,000, related to third party web hostingservices and recruitment of $60,000, offset by a decrease in equipment rentalsof $50,000 and supplies of $20,000.

             InterestIncome - Interest income for the six months ended June 30, 2001 was $104,000 ascompared to $421,000 for the six months ended June 30, 2000, a decrease of$317,000. This reflects the decrease in cash and lower interest rates. Cash isinvested in highly liquid short-term investments.

Liquidity and Capital Resources

             OnMarch 20, 2000, LifeF/X sold its non-LifeF/X assets, which consisted of filmtitle and special effects services, to PTM Productions, Inc., an entity ownedby shareholders of its predecessor corporation. The sale included a transfer ofall liabilities associated with the discontinued operation, including all debt.As a result, LifeF/X is presently debt-free, other than accounts payable,accrued expenses and capital lease obligations. In addition, Safeguard hasindemnified LifeF/X against all liabilities associated with the discontinuedoperation. See note 3 to the accompanying consolidated financial statements.Historically, the Company’s revenues have been solely related to itsdiscontinued operation.

             TheCompany expects the cash balance of $2.75 million at June 30, 2001 and theadditional $1.25 million received from the exercise of warrants by Safeguardwill be adequate to satisfy its cash requirements for its operations throughthe end of 2001. The Company continues its efforts to raise additional capital.Cash balances, have been and, until expended, will be invested in highly liquidshort-term investments.

             Netcash used in operating activities was $5,976,000 for six months ended June 30,2001. This use was primarily due to the net loss for the period and a decreaseof $188,000 in accounts payable and accrued expenses, partially offset by anon-cash expense of $9,808,000relating to the issuance of stock and warrants to UniServices and non-cashexpenses of $821,000 relating to stock options and $42,000related to the issuance of stock warrants. Net cash used in operatingactivities for the comparable period of the prior year was $3,450,000. This wasprimarily due to the $4,253,000 net loss for the period, partially offset by anon-cash expense of $586,000 relating to stock options, $40,000 relating tostock warrants and a $330,000 increase in accounts payable and accruedliabilities.

             Netcash used in investing activities was $131,000 for the six months ended June30, 2001, as compared to net cash used in investing activities of $967,000 forthe six months ended June 30, 2000, a decrease of $836,000. Investingactivities represent purchases of computer equipment, furniture and fixturesand miscellaneous equipment.

             Netcash provided by financing activities for the six months ended June 30, 2001was $3.7 million. This primarily represents the receipt of proceeds receivedfrom the exercise of stock warrants by Safeguard. Net cash provided byfinancing activities for the comparable period of the prior year was $9.1million. This primarily representsthe receipt of proceeds of $9.1 million from the sale of stock through aprivate placement that were held in escrow at December 31, 1999.

Quantitative and Qualitative Disclosuresabout Market Risk

             Todate, we have not utilized derivative financial instruments or derivativecommodity instruments.  We do not expectto employ these or other strategies to hedge market risk in the foreseeablefuture.  We invest our cash in moneymarket accounts and short-term marketable securities.  We believe the market risks associated with these financial instrumentsare immaterial.

Inflation

             Wedo not believe that inflation has had any material effect on our business overthe past two years.

PART II - OTHERINFORMATION

Item1.  Legal Proceedings

             TheCompany was not involved in any material claims or legal proceedings, nor hasit been involved in any such proceedings that have had or may have asignificant effect on its financial position.

Item4.  Submission of Matters to a Vote ofSecurity Holders

             TheCompany held its Annual Meeting of Stockholders on April 12, 2001.  Two proposals were submitted to stockholdersas described in the Company’s proxy statement dated March 15, 2001.  The following is a brief description of thematters voted upon, the number of votes cast for and against each proposal, andthe number of abstentions.

(a)         To elect eight (8) directors to servefor the ensuing year and until their successors are duly elected.

| Nominee                     |   | Votes  For |   | Votes  Withheld |   |
|-----------------------------|--------|------------|--------|-----------------|--------|
|                        |   |       |   |            |   |
| Lucille S. Salhany          |   | 13,424,242 |   | 2,000           |   |
| Michael Rosenblatt          |   | 13,415,498 |   | 10,744          |   |
| Richard A. Guttendorf,  Jr. |   | 13,424,242 |   | 2,000           |   |
| Dr. Ian Hunter              |   | 13,424,242 |   | 2,000           |   |
| Raymond Kurzweil            |   | 13,424,242 |   | 2,000           |   |
| Nancy Hawthorne             |   | 13,424,242 |   | 2,000           |   |
| Dr. Leslie Selbovitz        |   | 13,423,892 |   | 2,350           |   |
| Garrett Melby               |   | 13,418,182 |   | 8,060           |   |

(b)        To ratify the selection of the firm KPMGLLP as independent auditors for the fiscal year ending  December 31, 2001.

| **For**    |   | **Against** |   | **Abstain** |   |
|------------|--------|-------------|--------|-------------|--------|
| ****       |   | ****        |   | ****        |   |
| 13,402,642 |   | 2,000       |   | 21,600      |   |

Item 6.   Exhibits and Reports on Form 8-K

(a).        Exhibits

None.

(b).       Reports on Form 8-K

Noreports on Form 8-K were filed during the quarter ended June 30, 2001.

SIGNATURES

In accordance with section 13 or 15(d) ofthe Exchange Act, the registrant has caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

|   | LIFEF/X,  INC.                       |
|--------|--------------------------------------|
|   |                                      |
|   | /s/  Lucille S. Salhany         |
|   |                                      |
|   | Lucille  S. Salhany                  |
|   | Co-President  and Chief              |
|   | Executive  Officer                   |
|   | (Principal  Executive Officer)       |
|   | August  14, 2001                     |
|   |                                 |
|   | /s/  Richard A. Guttendorf, Jr. |
|   |                                      |
|   | Richard  A. Guttendorf, Jr.          |
|   | Chief  Financial Officer             |
|   | and  Secretary                       |
|   | (Principal  Accounting Officer)      |
|   | August  14, 2001                     |