UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the Quarterly Period Ended March
31, 2012
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number: 000-32451
LIGHTYEAR NETWORK SOLUTIONS, INC.
(Exact name of registrant as specified
in its charter)
Nevada
|
|
91-1829866
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
1901 Eastpoint Parkway
Louisville, Kentucky
|
|
40223
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
Registrant’s telephone number,
including area code: 502-244-6666
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer
|
|
¨
|
|
Accelerated filer
|
|
¨
|
|
|
|
|
Non-accelerated filer
|
|
¨
(Do not
check if a smaller reporting company)
|
|
Smaller reporting company
|
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes
¨
No
x
As of May 9, 2012, there were 22,086,641 shares of the issuer’s
common stock outstanding.
Lightyear Network Solutions, Inc. and
Subsidiaries
Table of Contents
PART I
|
|
|
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FINANCIAL INFORMATION
|
|
|
|
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ITEM 1. Financial Statements.
|
|
|
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Condensed Consolidated Balance Sheets as of
|
|
|
March 31, 2012 (Unaudited) and December 31, 2011
|
|
1
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Unaudited Condensed Consolidated Statements of Operations for the
|
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|
Three Months Ended March 31, 2012 and 2011
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2
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Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficiency for
the
|
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|
Three Months Ended March 31, 2012
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3
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Unaudited Condensed Consolidated Statements of Cash Flows for the
|
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|
Three Months Ended March 31, 2012 and 2011
|
|
4
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|
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Notes to Unaudited Condensed Consolidated Financial Statements
|
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5
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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12
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|
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
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16
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ITEM 4. Controls and Procedures.
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16
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PART II
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OTHER INFORMATION
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ITEM 1. Legal Proceedings.
|
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17
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
|
|
17
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ITEM 3. Defaults Upon Senior Securities.
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17
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|
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ITEM 4. Mine Safety Disclosures.
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17
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|
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|
ITEM 5. Other Information.
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17
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ITEM 6. Exhibits.
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|
17
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Signatures.
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18
|
Lightyear Network Solutions,
Inc. and Subsidiaries
Condensed Consolidated Balance
Sheets
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
242,602
|
|
|
$
|
108,133
|
|
Accounts receivable, net
|
|
|
4,823,492
|
|
|
|
5,237,404
|
|
Vendor deposits
|
|
|
1,831,883
|
|
|
|
1,771,028
|
|
Inventories, net
|
|
|
311,886
|
|
|
|
335,964
|
|
Prepaid expenses and other current assets
|
|
|
2,412,283
|
|
|
|
2,523,039
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
9,622,146
|
|
|
|
9,975,568
|
|
Property and equipment, net
|
|
|
7,144,135
|
|
|
|
7,161,057
|
|
Intangible assets, net
|
|
|
1,814,299
|
|
|
|
1,928,749
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
18,580,580
|
|
|
$
|
19,065,374
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,184,942
|
|
|
$
|
7,216,117
|
|
Interest payable - related parties
|
|
|
46,472
|
|
|
|
47,282
|
|
Accrued agent commissions
|
|
|
553,505
|
|
|
|
530,268
|
|
Accrued agent commissions - related parties
|
|
|
1,126
|
|
|
|
1,069
|
|
Deferred revenue
|
|
|
448,538
|
|
|
|
427,715
|
|
Other liabilities
|
|
|
1,778,765
|
|
|
|
1,876,163
|
|
Other liabilities - related parties
|
|
|
96,156
|
|
|
|
81,718
|
|
Current portion of notes payable
|
|
|
902,721
|
|
|
|
895,918
|
|
Current portion of capital lease obligations
|
|
|
235,753
|
|
|
|
239,203
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
11,247,978
|
|
|
|
11,315,453
|
|
Notes payable, non-current portion
|
|
|
3,105,502
|
|
|
|
3,334,992
|
|
Capital lease obligation, non-current portion
|
|
|
785,732
|
|
|
|
758,750
|
|
Note payable - related party, non-current portion
|
|
|
6,250,000
|
|
|
|
6,250,000
|
|
Deferred tax liability, non-current portion, net
|
|
|
326,683
|
|
|
|
326,683
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
21,715,895
|
|
|
|
21,985,878
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficiency:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 70,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
22,086,641 shares issued and outstanding at
|
|
|
|
|
|
|
|
|
March 31, 2012 and December 31, 2011
|
|
|
22,087
|
|
|
|
22,087
|
|
Note receivable from affiliate
|
|
|
(1,223,203
|
)
|
|
|
(1,223,203
|
)
|
Additional paid-in capital
|
|
|
9,896,634
|
|
|
|
9,490,226
|
|
Accumulated deficit
|
|
|
(11,830,833
|
)
|
|
|
(11,209,614
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Deficiency
|
|
|
(3,135,315
|
)
|
|
|
(2,920,504
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficiency
|
|
$
|
18,580,580
|
|
|
$
|
19,065,374
|
|
See Notes to these Condensed Consolidated Financial Statements
Lightyear Network Solutions,
Inc. and Subsidiaries
Condensed Consolidated Statements
of Operations
(unaudited)
|
|
For The Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,974,839
|
|
|
$
|
18,630,391
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
11,065,757
|
|
|
|
12,042,114
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
5,909,082
|
|
|
|
6,588,277
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Commission expense
|
|
|
1,504,214
|
|
|
|
1,554,142
|
|
Commission expense - related parties
|
|
|
17,824
|
|
|
|
38,053
|
|
Depreciation and amortization
|
|
|
334,570
|
|
|
|
420,076
|
|
Bad debt expense
|
|
|
227,733
|
|
|
|
309,737
|
|
Selling, general and administrative expenses
|
|
|
4,242,483
|
|
|
|
4,829,111
|
|
Selling, general and administrative expenses - related
party
|
|
|
74,000
|
|
|
|
18,588
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
6,400,824
|
|
|
|
7,169,707
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(491,742
|
)
|
|
|
(581,430
|
)
|
|
|
|
|
|
|
|
|
|
Other (Expense) Income
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,013
|
|
|
|
7,992
|
|
Interest income - related parties
|
|
|
-
|
|
|
|
187,733
|
|
Interest expense
|
|
|
(63,856
|
)
|
|
|
(82,596
|
)
|
Interest expense - related parties
|
|
|
(70,027
|
)
|
|
|
(100,428
|
)
|
Other income
|
|
|
1,393
|
|
|
|
109,223
|
|
|
|
|
|
|
|
|
|
|
Total Other (Expense) Income
|
|
|
(129,477
|
)
|
|
|
121,924
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(621,219
|
)
|
|
|
(459,506
|
)
|
Income tax benefit
|
|
|
-
|
|
|
|
123,800
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(621,219
|
)
|
|
|
(335,706
|
)
|
|
|
|
|
|
|
|
|
|
Cumulative Preferred Stock Dividends
|
|
|
-
|
|
|
|
(374,796
|
)
|
|
|
|
|
|
|
|
|
|
Loss Attributable to Common Stockholders
|
|
$
|
(621,219
|
)
|
|
$
|
(710,502
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Common Share - Basic and Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Common Shares
|
|
|
|
|
|
|
|
|
Outstanding - Basic and Diluted
|
|
|
22,279,558
|
|
|
|
20,587,544
|
|
See Notes to these Condensed Consolidated Financial Statements
Lightyear Network Solutions,
Inc. and Subsidiaries
Condensed Consolidated Statement
of Changes in Stockholders' Deficiency
For The Three Months Ended
March 31, 2012
(unaudited)
|
|
|
|
|
|
|
|
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
From
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Affiliate
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance - December 31, 2011
|
|
|
22,086,641
|
|
|
$
|
22,087
|
|
|
$
|
(1,223,203
|
)
|
|
$
|
9,490,226
|
|
|
$
|
(11,209,614
|
)
|
|
$
|
(2,920,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
406,408
|
|
|
|
-
|
|
|
|
406,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(621,219
|
)
|
|
|
(621,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2012
|
|
|
22,086,641
|
|
|
$
|
22,087
|
|
|
$
|
(1,223,203
|
)
|
|
$
|
9,896,634
|
|
|
$
|
(11,830,833
|
)
|
|
$
|
(3,135,315
|
)
|
See Notes to these Condensed Consolidated Financial Statements
Lightyear Network Solutions,
Inc. and Subsidiaries
Condensed Consolidated Statements
of Cash Flows
(unaudited)
|
|
For The Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(621,219
|
)
|
|
$
|
(335,706
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
334,570
|
|
|
|
420,076
|
|
Provision for bad debt expense
|
|
|
227,733
|
|
|
|
309,737
|
|
Stock-based compensation
|
|
|
406,408
|
|
|
|
132,861
|
|
Interest income from affiliate
|
|
|
-
|
|
|
|
(187,733
|
)
|
Deferred taxes
|
|
|
-
|
|
|
|
(123,800
|
)
|
Gain on sale of fixed assets
|
|
|
-
|
|
|
|
(109,315
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
186,179
|
|
|
|
(262,497
|
)
|
Other assets
|
|
|
-
|
|
|
|
(6,644
|
)
|
Vendor deposits
|
|
|
(60,855
|
)
|
|
|
(198,835
|
)
|
Inventories
|
|
|
24,078
|
|
|
|
(122,061
|
)
|
Prepaid expenses and other current assets
|
|
|
110,756
|
|
|
|
57,551
|
|
Accounts payable
|
|
|
(31,175
|
)
|
|
|
(566,014
|
)
|
Interest payable - related parties
|
|
|
(810
|
)
|
|
|
(50,612
|
)
|
Accrued agent commissions
|
|
|
23,237
|
|
|
|
33,061
|
|
Accrued agent commissions - related parties
|
|
|
57
|
|
|
|
(9,782
|
)
|
Deferred revenue
|
|
|
20,823
|
|
|
|
47,426
|
|
Other liabilities
|
|
|
(97,398
|
)
|
|
|
474,584
|
|
Other liabilities - related parties
|
|
|
14,438
|
|
|
|
35,838
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments
|
|
|
1,158,041
|
|
|
|
(126,159
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating
Activities
|
|
|
536,822
|
|
|
|
(461,865
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(112,268
|
)
|
|
|
(425,331
|
)
|
Proceeds from sale of fixed assets
|
|
|
-
|
|
|
|
191,261
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(112,268
|
)
|
|
|
(234,070
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Repayments of obligations payable - related party
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
Repayments of capital lease obligations
|
|
|
(67,398
|
)
|
|
|
(92,305
|
)
|
Repayments of notes payable
|
|
|
(222,687
|
)
|
|
|
(129,868
|
)
|
Repayments of short term borrowings
|
|
|
-
|
|
|
|
(320,428
|
)
|
Proceeds from notes payable
|
|
|
-
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used In) Provided by Financing
Activities
|
|
|
(290,085
|
)
|
|
|
457,399
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In Cash
|
|
|
134,469
|
|
|
|
(238,536
|
)
|
|
|
|
|
|
|
|
|
|
Cash - Beginning
|
|
|
108,133
|
|
|
|
1,009,209
|
|
|
|
|
|
|
|
|
|
|
Cash - Ending
|
|
$
|
242,602
|
|
|
$
|
770,673
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
130,437
|
|
|
$
|
229,483
|
|
Non-cash investing and financing activites:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment via
|
|
|
|
|
|
|
|
|
capital lease
|
|
$
|
90,930
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
See Notes to these Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
Lightyear Network Solutions, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(unaudited)
Note A – Organization, Operations and Basis of Presentation
Organization and Operations
Lightyear Network Solutions, Inc. (“LNSI”) was
incorporated in 1997 and operates through its wholly owned subsidiaries, Lightyear Network Solutions, LLC, a Kentucky limited
liability company organized in 2003 (“Lightyear LLC”), and SE Acquisitions, LLC d/b/a Lightyear Network Solutions
of Kentucky, a Kentucky limited liability company organized on June 22, 2010, (“Lightyear-KY”). The Company was organized
for the purpose of selling and marketing telecommunication services and solutions, and owning other companies which sell and market
telecommunication services and solutions. Lightyear provides telecommunications services throughout the United States and Puerto
Rico primarily through a distribution network of authorized independent agents and representatives. Lightyear is a licensed local
carrier in 44 states and provides long distance service in 49 states. Lightyear delivers service to approximately 70,000 customer
locations with a significant concentration in the five state area of Kentucky, Ohio, Indiana, Florida and Georgia. In addition
to long distance and local service, Lightyear currently offers a wide array of telecommunications services including internet/intranet,
calling cards, advanced data, wireless, Voice over Internet Protocol (“VoIP”) and conference calling. Lightyear maintains
its own network infrastructure and is a telecommunications reseller and competes, both directly at the wholesale level and through
agents and representatives, at the retail level. Lightyear is subject to regulatory requirements imposed by the Federal Communications
Commission (“FCC”) and state and local governmental agencies. Regulations by the FCC as well as state agencies include
limitations on types of services and service areas offered to the public.
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. In the opinion of management, such statements include all adjustments
(consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated
financial statements of Lightyear Network Solutions, Inc. and subsidiaries (“Lightyear,” or the “Company”)
as of March 31, 2012. The results of operations for the three months ended March 31, 2012 are not necessarily indicative
of the operating results for the full year. It is suggested that these unaudited condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and related disclosures of Lightyear for the year ended December
31, 2011 which were filed with the Securities and Exchange Commission on March 30, 2012. The Company evaluates events that have
occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did
not identify any recognized or nonrecognized subsequent events that would have required further adjustment or disclosure in the
unaudited condensed consolidated financial statements.
Note B – Summary of Significant Accounting Policies
Principles of Consolidation
The balance sheets, statements of operations and cash flows
of the Company and its wholly-owned subsidiaries have been included in our condensed consolidated financial statements. All intercompany
accounts and transactions have been eliminated. The Company and its wholly-owned subsidiaries are managed as a single business
and a single segment. Activity with its wholly-owned subsidiary, Lightyear Alliance of Puerto Rico, LLC, is insignificant.
Estimates
The preparation of condensed consolidated financial statements
in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company’s
significant estimates include the reserves related to receivables, the recoverability and useful lives of long lived assets, anticipated
carrier credits, the valuation allowance related to deferred tax assets and the valuation of equity instruments.
Lightyear Network Solutions, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(unaudited)
Note B – Summary of Significant
Accounting Policies
– Continued
Accounts Receivable
Accounts receivable are shown net of an allowance for doubtful
accounts of $1,408,116 and $1,215,735 as of March 31, 2012 and December 31, 2011, respectively. The Company’s management
has established an allowance for doubtful accounts sufficient to cover probable and reasonably estimable losses. The allowance
for doubtful accounts considers a number of factors, including collection experience, current economic trends, estimates of forecasted
write-offs, aging of the accounts receivable portfolios, industry norms, regulatory decisions and other factors. Management’s
policy is to fully reserve all accounts that are 180-days past due. Accounts are written off after use of a collection agency
is deemed to be no longer effective.
Revenue Recognition
Telecommunications services income such as access revenue and
usage revenue are recognized on the accrual basis as services are provided. In general, access revenue is billed one month in
advance and is recognized when earned. Wireless handheld devices are sold at a discount when bundled with a long-term wireless
service contract. We recognize the equipment revenue and associated costs when title has passed and the equipment has been accepted
by the customer. The Company provides administrative and support services to its agents and pays commissions based on revenues
from the agents’ accounts. Amounts invoiced to customers in advance of services are reflected as deferred revenues.
The Company pays certain agents an initial lump sum commission.
A portion of this commission is deferred and is amortized over a three month period.
Cost of revenues represents primarily the direct costs associated
with the cost of transmitting and terminating traffic on other carriers’ facilities.
Commissions paid to acquire customer call traffic are expensed
in the period when associated call revenues are recognized.
The accounting standards guidance provides for how taxes collected
from customers and remitted to governmental authorities should be presented in the income statement. The guidance states that
if taxes are reported on a gross basis (included as revenue) a company should disclose those amounts, if significant. The Company
does not include excise and other sales related taxes in its revenues.
Fair Value of Financial Instruments
The Company’s financial instruments are cash, accounts
receivable and accounts payable each of which approximate their fair values based upon their short term nature. The Company’s
other financial instruments include notes payable, capital lease obligations and obligations payable. The carrying value, of these
instruments, approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms
and maturities.
Stock-Based Compensation
The Company measures the cost of services received in exchange
for an award of equity instruments based on the fair value of the award. For employees and directors, the award is measured on
the grant date. For non-employees, the award is measured on the grant date and then non-vested amounts are re-measured at each
financial reporting date. The fair value amount is then recognized over the period during which services are required to be provided
in exchange for the award, usually the vesting period.
Lightyear Network Solutions, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(unaudited)
Note B – Summary of Significant
Accounting Policies
– Continued
Loss Per Common Share
Basic loss per share is computed using the weighted average
number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of
common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the
incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method) and the conversion
of the Company’s convertible preferred stock (using the if-converted method).
The following table reconciles the numerator and denominator
for the calculation:
|
|
For The Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(621,219
|
)
|
|
$
|
(335,706
|
)
|
Cumulative preferred stock dividends
|
|
|
-
|
|
|
|
(374,796
|
)
|
Numerator for basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(621,219
|
)
|
|
$
|
(710,502
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common stock shares outstanding
|
|
|
22,086,641
|
|
|
|
20,514,281
|
|
Weighted average warrants outstanding with
|
|
|
|
|
|
|
|
|
an exercise price of $0.01 or less
|
|
|
192,917
|
|
|
|
73,263
|
|
Weighted average basic and diluted shares outstanding
|
|
|
22,279,558
|
|
|
|
20,587,544
|
|
|
|
|
|
|
|
|
|
|
Loss per basic and diluted share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
Cumulative preferred stock dividends
|
|
|
-
|
|
|
|
(0.02
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
The following securities are excluded
from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive:
|
|
As Of
|
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Employee stock options
|
|
|
891,500
|
|
|
|
908,000
|
|
Warrants
|
|
|
1,053,014
|
|
|
|
1,447,838
|
|
Convertible preferred stock
|
|
|
-
|
|
|
|
9,500,000
|
|
Lightyear Network Solutions, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(unaudited)
Note B – Summary of Significant
Accounting Policies
– Continued
Liquidity Plan
Since the Company began operations in 2004, it has historically
incurred significant operating losses. Through February 12, 2010, the date of the reverse merger transaction, Lightyear LLC had
an accumulated member’s deficit of approximately $26.6 million. As of March 31, 2012, Lightyear had a cash balance of $0.2
million, a working capital deficit of $1.6 million and was in violation of two of its debt covenants. On May 8, 2012, a counterparty
waived two first quarter 2012 debt covenant violations that resulted from earnings forecast shortfalls (see Note H).
The Company’s operating activities
for the three months ended March 31, 2012 provided $0.5 million of cash. The Company’s future capital requirements are expected
to be driven by (i) network build-out costs; (ii) debt reduction and debt service; (iii) public/investor relations costs; (iv)
acquisition opportunities; and (v) the need to supplement working capital levels. The Company believes that its current cash and
cash expected to be generated from operating activities will be sufficient to meet its working capital and capital expenditure
requirements for at least the next 12 months. In addition, the Company continues to investigate the capital markets for sources
of funding, which could take the form of additional debt or equity financings, however there can be no assurance that the Company
will be successful in securing such capital. If the Company is unable to raise additional funds, the Company might (a) initiate
additional cost reductions; (b) forego acquisition or network build-out opportunities; and/or (c) seek extensions of the scheduled
payment obligations, including the long term related party note payable.
Note C – Other Liabilities
Other liabilities consist of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Excise, state, local and property taxes payable
|
|
$
|
914,317
|
|
|
$
|
843,671
|
|
Other accrued expenses
|
|
|
153,209
|
|
|
|
165,485
|
|
Payroll, payroll taxes and bonuses
|
|
|
214,250
|
|
|
|
373,398
|
|
Deferred rent
|
|
|
245,081
|
|
|
|
260,086
|
|
Regulatory fees
|
|
|
152,262
|
|
|
|
132,133
|
|
Customer security deposits
|
|
|
99,646
|
|
|
|
101,390
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,778,765
|
|
|
$
|
1,876,163
|
|
Note D – Related Party Transactions
Lightyear has significant transactions with its largest shareholder,
LY Holdings, LLC (“LY Holdings”), members of LY Holdings and conducts business with certain companies or individuals
which are related parties either by having common ownership or because they are controlled by members of LY Holdings, the directors
and/or officers of the Company or by relatives of members of LY Holdings, directors and/or officers of the Company. Aggregate
related party transactions are segregated on the face of the balance sheets and statements of operations.
A director of the Company owns an
indirect interest in a Lightyear agency.
The agency has a standard Lightyear agent agreement and earned approximately
$3,000 and $4,000 in commissions from Lightyear during the three months ended March 31, 2012 and 2011, respectively.
Since 2008, a former employee (and son of a director) of the
Company, has maintained a representative position in a direct selling entity which earned approximately $0 and $13,000 in commissions
from Lightyear during the three months ended March 31, 2012 and 2011, respectively. This representative position was terminated
voluntarily on October 7, 2011.
Commission expense – related parties includes certain
VoIP and wireless revenue override payments due to directors of the Company and/or members of LY Holdings. On June 22, 2011, all
but one holder of the override rights waived their right to such payments for the second half of 2010 and the full year 2011,
which resulted in the Company reversing approximately $86,000 of liabilities. On February 7, 2012, the same holders of the override
rights waived their right to such payments for the year 2012. During the three months ended March 31, 2012 and 2011, Lightyear
recorded approximately $14,000 and $38,000 of VoIP and wireless revenue override expense, respectively.
Lightyear Network Solutions, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(unaudited)
Note D – Related Party Transactions
– Continued
Pursuant to a former officer’s employment agreement,
Lightyear provided life insurance coverage. Aggregate insurance premium expense for these policies was approximately $19,000 for
the three months ended March 31, 2011.
The Company obtained consulting services from a former officer,
pursuant to a consulting agreement. Aggregate consulting expense was approximately $74,000 and $0 for the three months ended March
31, 2012 and 2011, respectively.
Note E – Supplier Concentration
Of the telecommunications services used in its operations,
the Company acquired approximately 31%, 21% and 12% during the three months ended March 31, 2012 from three suppliers. Lightyear
acquired approximately 27%, 25% and 11% during the three months ended March 31, 2011 from the same three suppliers. Although there
are other suppliers of these services, a change in suppliers could have an adverse effect on the business which could ultimately
affect operating results.
Note F – Stockholders’ Deficiency
Warrants
Additional Warrants
In connection with a prior equity financing, the Company is
required to periodically issue exercisable five-year warrants to purchase shares of common stock to investors with an exercise
price of $0.01 per share and to selling agents with an exercise price of $4.00 per share (the “Additional Warrants”).
The Additional Warrants are issued pursuant to a pre-determined formula at the end of each calendar quarter during which shares
originally purchased in the equity financing are held by the original investor. The Additional Warrants are eligible to be issued
for a period of five years from the equity financing. The Company issued 36,017 Additional Warrants (32,743 were issued to investors
and 3,274 were issued to selling agents) during the three months ended March 31, 2012. As of March 31, 2012, there were 247,830
Additional Warrants outstanding, of which 225,300 were issued to investors and 22,530 were issued to selling agents. See Note
G – Commitments and Contingencies – Warrant Dispute.
Summary
As of March 31, 2012, in the aggregate there were 1,278,314
warrants outstanding and exercisable which had a weighted average exercise price of $3.30, a weighted average remaining contractual
life of 3.6 years and an aggregate intrinsic value of approximately $43,000.
Stock Option Grants
On December 28, 2011, the Company entered into Option Termination
Agreements with certain members of its management team (the “Optionees”), including each of the Company’s executive
officers, through which the Company agreed to terminate all of the outstanding stock options that were previously issued to the
Optionees pursuant to the Company’s 2010 Stock and Incentive Compensation Plan. The Optionees each received a total of $1.00
in consideration for the termination of their options, which accounted for 687,500 of the Company’s options outstanding.
Such options were deemed to have negligible value as of the termination date. On March 1, 2012, the Company granted ten-year incentive
stock options to the Optionees to purchase an aggregate of 732,500 shares of common stock at an exercise price of $0.22 per share.
Of the total, 50% of the options vest immediately and 50% vest on the one-year anniversary of the grants. Since cancellation and
issuance of new options is deemed to represent a modification of the original options, the approximate incremental $63,000 value
of the new options has been added to the approximate $663,000 of unrecognized compensation cost associated with the original options
and the combined amount of $726,000 is being amortized proportionate to the vesting period.
On March 20, 2012, the Company granted ten-year incentive stock
options to new and existing employees to purchase an aggregate of 74,000 shares of common stock at an exercise price of $0.21
per share. The options vest as follows: (i) options to purchase an aggregate of 71,000 shares of common stock granted to existing
employees vest 50% immediately and 50% vest on the one-year anniversary of the grants; and (ii) an option to purchase 3,000 shares
of common stock granted to a new employee vests ratably on an annual basis over a three-year term. The aggregate grant date value
of approximately $6,200 is being amortized proportionate to the respective vesting periods.
Lightyear Network Solutions, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(unaudited)
Note F – Stockholders’
Deficiency –
Continued
Stock Option Grants
- Continued
The Company has computed the fair value of options granted
using the Black-Scholes option pricing model. Forfeitures are estimated at the time of valuation and reduce expense ratably
over the vesting period. This estimate will be adjusted periodically based on the extent to which actual forfeitures
differ, or are expected to differ, from the previous estimate, when it is material. The expected term of options granted
represents the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified”
method to develop an estimate of the expected term of “plain vanilla” option grants. Given that LNSI's shares have
only been publicly traded in their current form since February 12, 2010, until such time as LNSI has sufficient trading history
to compute the historical volatility of its common stock, the Company is utilizing an expected volatility figure based on a review
of the historical volatilities, over a period of time equivalent to the expected life of these options, of similarly positioned
public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon
bonds with a remaining term consistent with the expected term of the options.
In applying the Black-Scholes option pricing model, the Company
used the following weighted average assumptions:
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Risk free interest rate
|
|
|
0.95
|
%
|
|
|
n/a
|
|
Expected term (years)
|
|
|
5.25
|
|
|
|
n/a
|
|
Expected volatility
|
|
|
42.90
|
%
|
|
|
n/a
|
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
n/a
|
|
The weighted average estimated fair value of the stock options
granted during the three months ended March 31, 2012 was $0.09 per share. There were no stock options granted during the three
months ended March 31, 2011.
The Company recognized approximately $406,000 and $114,000
of stock-based compensation expense during the three months ended March 31, 2012 and 2011, respectively, related to employee stock
option grants, which is reflected as selling, general and administrative expense in the condensed consolidated statements of operations.
As of March 31, 2012, there was approximately $418,000 of unrecognized employee stock-based compensation expense related to stock
option grants that will be amortized over a weighted average period of 1.1 years. During the three months ended March 31, 2012,
options to purchase 11,666 shares of common stock at a weighted average exercise price of $1.25 per share were forfeited. As of
March 31, 2012, there were 891,500 outstanding stock options with a weighted average exercise price of $0.32 per share, a weighted
average remaining contractual life of 9.7 years and no intrinsic value. As of March 31, 2012, there were 433,403 exercisable stock
options with a weighted average exercise price of $0.29 per share, a weighted average remaining contractual life of 9.8 years
and no intrinsic value.
Restricted Stock Grants
The Company recognized approximately $0 and $19,000 of stock-based
compensation expense during the three months ended March 31, 2012 and 2011, respectively, related to non-employee director restricted
stock grants, which is included in selling, general and administrative expenses in the condensed consolidated statements of operations.
As of March 31, 2012, there were no unvested restricted stock grants and, accordingly, there was no unrecognized non-employee
stock-based compensation expense related to restricted stock grants. There were no restricted stock grants during the three months
ended March 31, 2012.
Lightyear Network Solutions, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(unaudited)
Note G – Commitments and Contingencies
Litigation
Alden Halpern v. Lightyear Network Solutions, Inc. fka Libra
Alliance Corporation
was filed in Nevada District Court on March 1, 2012. The plaintiff alleges violations of federal
and state securities laws with respect to his purchase of Lightyear securities. Mr. Halpern alleges that Lightyear falsely
represented that the shares he was purchasing were “free-trading.” Lightyear denied the allegations. Mr.
Halpern claimed damages of $750,000. Lightyear notified its insurance carriers concerning this matter and continues to contest
the allegations vigorously. Lightyear has not recorded a provision for any loss that could be incurred as a result of the matter
as Lightyear believes the allegations are without merit.
As of March 31, 2012, claims have been asserted against Lightyear
which arose in the normal course of business. While there can be no assurance, management believes that the ultimate outcome of
these legal claims will not have a material adverse effect on the condensed consolidated financial statements of the Company.
Billing Disputes
As of March 31, 2012, Lightyear has disputed certain vendor
billings which arose in the normal course of business. While there can be no assurance, management believes that the ultimate
outcome of these billing disputes will not have a material adverse effect on the condensed consolidated financial statements of
the Company.
Warrant Dispute
The Company’s former selling agent, on behalf of certain
investors in the Company’s private placement (see Note P, Stockholders’ Deficiency – Issuance of Common Stock
and Warrants), has disputed the Company’s methodology for computing the quantity of Additional Warrants that are issuable
at each quarter end. On March 31, 2012, the Company issued 16,136 Additional Warrants, of which 14,669 were issued to investors
and 1,467 were issued to the selling agent, in partial settlement of this dispute with some of the investors. While there can
be no assurance, management believes that the ultimate outcome of this dispute with the remaining investors will not have a material
adverse effect on the condensed consolidated financial statements of the Company.
Note H – Subsequent Events
Note Payable
The Company has a secured promissory note arrangement with
a bank with a principal balance of approximately $1.9 million at March 31, 2012. On May 8, 2012, the bank waived two first quarter
2012 debt covenant violations that resulted from earnings forecast shortfalls. The Company is in discussions with the bank with
regards to resetting the debt covenants on a go forward basis.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis of the results of
operations and financial condition of Lightyear Network Solutions, Inc. and Subsidiaries (“Lightyear” or the “Company”)
for the three months ended March 31, 2012 and 2011 should be read in conjunction with our financial statements and the notes to
those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s
Discussion and Analysis of Financial Condition and Results of Operations to “
us
,” “
we
,”
“
our
,” and similar terms refer to Lightyear. References to Lightyear LLC refer to the Company’s wholly-owned
subsidiary Lightyear Network Solutions, LLC. This discussion includes forward-looking statements based upon current expectations
that involve risks and uncertainties. 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. 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. See “Risk Factors” under Item 1A of Part I of Lightyear’s Form 10-K filed March 30, 2012.
Overview
Lightyear, through its wholly owned subsidiaries,
Lightyear Network Solutions, LLC, a Kentucky limited liability company (“Lightyear LLC”), SE Acquisitions, LLC d/b/a
Lightyear Network Solutions of Kentucky, a Kentucky limited liability company (“Lightyear-KY”), provides telecommunications
services throughout the United States primarily through a distribution network of authorized agents. In addition to long distance
and local service, Lightyear currently offers a wide array of telecommunications products and services including internet/intranet,
calling cards, advanced data, conferencing, VoIP services and wireless services. Lightyear LLC also operates in Puerto Rico through
its wholly-owned subsidiary, Lightyear Alliance of Puerto Rico, LLC, a Kentucky limited liability company.
Lightyear provides telecommunications services
in 49 states and Puerto Rico and is a licensed local carrier in 44 states. We sell our products and services primarily through
a distribution network of more than 150 authorized independent agents and more than 7,000 independent representatives.
Lightyear provides service to approximately
70,000 customer locations as of March 31, 2012, with a significant concentration in the five state area of Kentucky, Ohio, Indiana,
Florida and Georgia. We have built regional customer concentrations which provide a contiguous service area and operational efficiencies,
resulting in higher margins, as well as a nationwide distribution network through which additional new concentrations may be built.
We intend to increase our revenue and earnings
via a combination of organic and acquisition growth. We intend to grow organically by expanding our revenue base from agents through
creative marketing and incentive plans, new carrier partnerships and enhancements to our wireless, VoIP and data products lines
which complement our history of selling landline services.
We intend to combine with small to mid-sized
competitors and thereby aggregate revenue, and increase earnings through the elimination of duplicate costs. Each series of combinations
will be followed by a period of integration and consolidation. Potential acquisition candidates are expected to meet specific
criteria including the following:
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·
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Supporting
or providing Cloud
based services;
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·
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Trained
technical staff
meeting our internal
requirements and
the requirements
of our customers.
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We anticipate entering into non-binding
letters of intent with target candidates to set forth the basic business terms of potential acquisitions, which will usually be
subject to various closing conditions, including due diligence, the negotiation of definitive acquisition documents, regulatory
consents and other customary matters. Factors which may affect future acquisition decisions include the quality and potential
profitability of the business under consideration, and our profitability and ability to finance the transaction.
We continue to review opportunities for
expansion of our network. Criteria for future builds would include the immediate and substantial reduction of cost of goods sold
or support of a committed revenue stream.
Lightyear-KY falls within the FCC’s
definition of a rural Competitive Local Exchange Carrier (CLEC) because its entire service area falls within rural markets. This
allows us to charge a premium “rural exempt” rate for interstate switched access services. On November 18, 2011, the
FCC released an order (the Order) which established a framework for reform of the intercarrier compensation system and Federal
Universal Service Fund. We are estimating that the Order could have the impact of reducing our revenues by less than 1% during
2012 and 2013, 1.5% in 2014 and 2.8% in 2015.
Results of Operations
Revenues
Our revenues are primarily derived from
the sales and provision of the following services:
Cost of Revenues
Cost of revenues consist primarily of carrier
access fees, network costs and usage fees associated with providing our wholesale telecommunications services.
Operating Expenses
Operating expenses include:
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·
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commission
expense which consists
of payments to agents
based on a percentage
of the monthly billings
and upfront payments
to agents at the
time the customer
was acquired;
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·
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depreciation
and amortization,
including depreciation
of long-lived property,
plant and equipment
and amortization
of intangible assets
where applicable;
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·
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bad
debt expense represents
an estimate of the
incremental non-collectible
receivables; and
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·
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selling,
general and administrative
expenses which consist
of selling, advertising,
marketing, billing
and promotion expenses,
plus salaries and
benefits, rent associated
with our office
space, professional
fees, travel and
entertainment, depreciation
and amortization
and other costs.
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Other (Expense) Income
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·
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Interest
income – related
parties represents
interest earned
on the notes receivable
from LY Holdings
that were extinguished
in November 2011.
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·
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Interest
expense –
related parties
represents interest
payable on a note
or interest payable
on a non-current
note payable to
a Company director.
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Quarter Ended March 31, 2012 Compared to Quarter Ended
March 31, 2011
Revenues
Revenues were approximately $17.0 million
and $18.6 million, respectively, for the quarters ended March 31, 2012 and 2011, a decrease of $1.6 million or 9%. The decrease
of $1.6 million resulted primarily from continued market pressures, including heightened competition, as well as the shift away
from lower margin revenue to sales programs designed to capture higher margin, lower turnover revenue, such as dedicated local
services. The following table presents our operating revenues by product category for the quarters ended March 31, 2012 and 2011.
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(in millions)
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For The Three Months
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Ended March 31,
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2012
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2011
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Voice service
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$
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4.1
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$
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4.9
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Local service
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6.9
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7.7
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VoIP
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0.8
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1.0
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Data services
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1.8
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1.9
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Wireless services
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1.3
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0.9
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Representative fees
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0.5
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0.6
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Regulatory revenue
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0.8
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0.9
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Other services
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0.8
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0.7
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TOTAL
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$
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17.0
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$
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18.6
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Cost of Revenues
Cost of revenues for the quarters ended
March 31, 2012 and 2011 amounted to approximately $11.1 million (65% of revenue) and $12.0 million (65% of revenue), respectively,
a decrease of $1.0 million or 8%. The decrease in cost of sales was primarily related directly to the lower revenues.
Gross Profit
Gross profits were approximately $5.9 million
(35% of revenue) and $6.6 million (35%), respectively for the quarters ended March 31, 2012 and 2011, a decrease of $0.7 million
or 10%, or a 0% change in the gross margin percentage. This decrease is directly related to lower revenues discussed above.
Operating Expenses
Operating expenses decreased $0.8 million
or 11% to $6.4 million from $7.2 million for the quarters ended March 31, 2012 and 2011, respectively. The decrease was attributable
to the 20% decrease in depreciation expense due to the sale of fixed assets in 2011 and reductions in headcount and related costs.
Other (Expense) Income
Interest income declined 98% from $0.2
million due to the extinguishment of the notes receivable due from related parties. Interest expense decreased $0.05 million or
27% to $0.1 million from $0.2 million, due principally to lower rates on indebtedness and lower principal balances on existing
facilities.
Liquidity and Capital Resources
Overview
Since Lightyear began operations in 2004,
we have incurred significant operating losses. Through February 12, 2010, the date of the reverse merger transaction, Lightyear
had an accumulated member’s deficit of approximately $26.6 million. As a result, we have managed our cash receipts and disbursements,
as well as our operating costs in order to maintain an adequate level of cash. As of March 31, 2012, Lightyear had a cash balance
of $0.2 million, a working capital deficit of $1.6 million and was in violation of two of its debt covenants.
We have instituted cost reductions, raised
our customer credit requirements, and improved our efforts to increase revenues through targeted promotions over the past 18 months,
all toward the goal of achieving positive cash flow from operations. During the three months ended March 31, 2012, we generated
$0.5 million of cash flow from operating activities.
Currently, the most significant item impacting
Lightyear’s liquidity is a note and interest payable to a Company director of $6.3 million. On March 20, 2012, the Company
director agreed to forbear from demanding payment of the principal balance until August 30, 2013.
In addition, we have a secured promissory note arrangement
with a bank with a principal balance of approximately $1.9 million at March 31, 2012. We are currently making principal and interest
payments totaling $37,780 per month and all remaining principal and interest is due on the January 25, 2014 maturity date. On
May 8, 2012, the bank waived two first quarter debt covenant violations that resulted from earnings forecast shortfalls. We are
in discussions with the bank with regards to resetting the debt covenants on a go forward basis, but there can be no assurance
that the bank will agree to reset the debt covenants.
Quarter Ended March 31, 2012 and 2011
Operating Activities
Net cash provided by operating activities
was $0.5 million for the quarter ended March 31, 2012 compared to $0.5 million net cash used for the quarter ended March 31, 2011.
The amount provided during the quarter ended March 31, 2012 was primarily due to cash used to fund a net loss of $0.6 million,
positively adjusted for non-cash expenses in the aggregate amount of $0.9 million, and $0.2 million of cash generated from changes
in operating assets and liabilities, primarily due to improved collections of accounts receivable. The amount used during the
quarter ended March 31, 2011 was primarily due to cash used to fund a net loss of $0.3 million, positively adjusted for non-cash
expenses in the aggregate amount of $0.4 million, and $0.6 million of cash used from changes in operating assets and liabilities,
primarily due to a build-up of accounts receivable and additional requirements for vendor deposits.
Investing Activities
Net cash used in investing activities was
$0.1 million for the quarter ended March 31, 2012 compared to $0.2 million for the quarter ended March 31, 2011. The usage of
cash during the quarter ended March 31, 2012 was attributable to $0.1 million for purchases of property and equipment. The usage
of cash during the quarter ended March 31, 2011 was attributable to $0.4 million for purchases of property and equipment, partially
offset by the sale of fixed assets totaling $0.2 million.
Financing Activities
Net cash used in financing activities was
$0.3 million for the quarter ended March 31, 2012 compared to $0.5 million net cash provided by financing activities for the quarter
ended March 31, 2011. The cash used in financing for the quarter ended March 31, 2012 related to principal payments made on the
Company’s note payable and capital lease obligations. The cash provided by financing for the quarter ended March 31, 2011
included $2.0 million of net proceeds from a new credit facility, offset by $1.5 million of repayments of short term borrowings,
notes and other obligations.
Potential Future Requirements and
Sources of Liquidity
We expect our 2012 operating activities
to be self-sufficient from a cash perspective, but there can be no assurance that this objective will be met. Our future capital
requirements are expected to be driven by (i) network build-out costs; (ii) debt reduction and debt service; (iii) public/investor
relations costs; (iv) acquisition opportunities; and (v) the need to supplement working capital levels. We are currently investigating
the capital markets for sources of funding, which could take the form of additional debt or equity financings. There can be no
assurance that the Company will be successful in securing additional capital. If the Company is unable to raise additional funds,
the Company might (a) initiate additional cost reductions; (b) forego acquisition or network build-out opportunities; and/or (c)
seek extensions of our scheduled payment obligations, including the non-current note payable to a Company director.
Off Balance Sheet Arrangements
As of March 31, 2012, we have provided
irrevocable standby letters of credit, aggregating approximately $125,000 to five states and one vendor, which automatically renew
for terms not longer than one year, unless notified otherwise. As of March 31, 2012 and December 31, 2011, these letters of credit
had not been drawn upon.
Critical Accounting Policies
There are no material changes from the
critical accounting policies set forth in “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” of our December 31, 2011 financial statements filed on Form 10-K dated March 30, 2012. Please refer to that
document for disclosures regarding the critical accounting policies related to our business.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
.
Not applicable.
Item 4. Controls and Procedures
.
Disclosure Controls and Procedures
Disclosure controls and procedures are
controls and other procedures designed with the objective of ensuring that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this quarterly report, is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure
controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated
to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable
assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded
against unauthorized or improper use, to permit the preparation of our condensed consolidated financial statements in conformity
with United States generally accepted accounting principles.
In connection with the preparation of this
Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure
controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls
or in other factors that could significantly affect these controls, during our first quarter ended March 31, 2012, that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations of the Effectiveness of Control
A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because
of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues,
if any, within a company have been detected.
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings.
Alden Halpern v. Lightyear Network Solutions, Inc. fka Libra
Alliance Corporation
was filed in Nevada District Court on March 1, 2012. The plaintiff alleges violations of federal
and state securities laws with respect to his purchase of our securities. Mr. Halpern alleges that we falsely represented
that the shares he was purchasing were “free-trading.” We denied the allegations. Mr. Halpern claimed damages
of $750,000. We notified our insurance carriers concerning this matter and continue to contest the allegations vigorously.
We have not recorded a provision for any loss that could be incurred as a result of the matter as we believe the allegations are
without merit.
As of March 31, 2012, claims have been asserted against us
which arose in the normal course of business. While there can be no assurance, management believes that the ultimate outcome of
these legal claims will not have a material adverse effect on our consolidated financial statements.
I
tem 2.
Unregistered Sales of Equity Securities and
Use of Proceeds.
Item 3.
Defaults Upon Senior Securities.
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(a)
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There has been no material default in the payment of principal
or interest with respect to any of our indebtedness.
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Item 4.
Mine Safety
Disclosures.
Not applicable.
Item 5.
Other Information.
Not applicable.
Item 6.
Exhibits.
Exhibit
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Description
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10.1
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Forbearance Agreement by and among Chris T. Sullivan and Lightyear Network
Solutions, LLC, dated as of March 20, 2012. (1)
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31.1
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Chief Executive Officer Certification *
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31.2
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Chief Financial Officer Certification *
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32
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Section 1350 Certification **
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101.INS
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XBRL Instance Document **
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101.SCH
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XBRL Schema Document **
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101.CAL
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XBRL Calculation Linkbase Document **
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101.DEF
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XBRL Definition Linkbase Document **
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101.LAB
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XBRL Label Linkbase Document **
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101.PRE
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XBRL Presentation Linkbase Document **
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*
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Filed herewith
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**
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Furnished herewith
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(1)
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Incorporated by reference to the exhibits included with our Current
Report on Form 8-K filed with the SEC on March 30, 2012.
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SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized
LIGHTYEAR NETWORK SOLUTIONS, INC.
By:
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/s/ Stephen M. Lochmueller
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Stephen M. Lochmueller, CEO
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By:
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/s/ Elaine G. Bush
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Elaine G. Bush, CFO
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Date: May 15, 2012
Lightyear Network Soluti... (CE) (USOTC:LYNS)
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