x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Nevada
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91-1829866
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1901 Eastpoint Parkway
Louisville, Kentucky
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40223
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(Address of Principal Executive Offices)
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(Zip Code)
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨ (Do not check if a smaller reporting company)
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Smaller reporting company
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x
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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, 2011 (Unaudited) and December 31, 2010
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1
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Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010
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2
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Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficiency for the Three Months Ended March 31, 2011
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3
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Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010
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4
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Notes to Unaudited Condensed Consolidated Financial Statements
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6
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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15
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
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20
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ITEM 4. Controls and Procedures.
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20
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PART II
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OTHER INFORMATION
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ITEM 1. Legal Proceedings.
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22
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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22
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ITEM 3. Defaults Upon Senior Securities.
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22
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ITEM 4. (Removed and Reserved)
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22
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ITEM 5. Other Information.
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22
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ITEM 6. Exhibits.
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23
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Signatures.
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24
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March 31,
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December 31,
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|||||||
2011
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2010
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|||||||
(unaudited)
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||||||||
Assets
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||||||||
Current Assets:
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||||||||
Cash
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$ | 770,673 | $ | 1,009,209 | ||||
Accounts receivable, net
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6,103,184 | 6,150,424 | ||||||
Vendor deposits
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1,885,746 | 1,686,911 | ||||||
Inventories, net
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455,616 | 333,555 | ||||||
Deferred tax asset - current portion, net
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- | 56,939 | ||||||
Prepaid expenses and other current assets
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2,230,324 | 2,287,875 | ||||||
Total Current Assets
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11,445,543 | 11,524,913 | ||||||
Property and equipment, net
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7,263,215 | 7,202,904 | ||||||
Intangible assets, net
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2,626,664 | 2,763,666 | ||||||
Other assets
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318,126 | 311,482 | ||||||
Total Assets
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$ | 21,653,548 | $ | 21,802,965 | ||||
Liabilities and Stockholders' Deficiency
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||||||||
Current Liabilities:
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||||||||
Accounts payable
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$ | 6,594,102 | $ | 7,160,116 | ||||
Interest payable - related parties
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63,206 | 113,818 | ||||||
Accrued agent commissions
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602,894 | 569,833 | ||||||
Accrued agent commissions - related parties
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15,254 | 25,036 | ||||||
Deferred revenue
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2,064,614 | 2,017,188 | ||||||
Other liabilities
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2,360,808 | 1,886,224 | ||||||
Other liabilities - related parties
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133,221 | 97,383 | ||||||
Short term borrowings
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- | 320,428 | ||||||
Current portion of notes payable
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1,036,462 | 529,899 | ||||||
Current portion of capital lease obligations
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316,346 | 348,178 | ||||||
Current portion of obligations payable - related parties
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1,000,000 | - | ||||||
Total Current Liabilities
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14,186,907 | 13,068,103 | ||||||
Notes payable, non-current portion
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3,591,556 | 2,227,987 | ||||||
Capital lease obligation, non-current portion
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925,398 | 985,871 | ||||||
Obligations payable - related parties, non-current portion
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5,250,000 | 7,250,000 | ||||||
Deferred tax liability, non-current portion, net
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326,683 | 507,422 | ||||||
Total Liabilities
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24,280,544 | 24,039,383 | ||||||
Commitments and contingencies
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- | - | ||||||
Stockholders' Deficiency:
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||||||||
Convertible preferred stock, $.001 par value; 9,500,000 shares authorized; 9,500,000 shares issued and outstanding at March 31, 2011 and December 31, 2010; aggregate liquidation preference of $20,470,027 at March 31, 2011
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9,500 | 9,500 | ||||||
Common stock, $.001 par value; 70,000,000 shares authorized; 21,644,312 and 20,306,292 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively
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21,644 | 20,306 | ||||||
Notes and receivables from affiliate
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(13,666,653 | ) | (13,478,920 | ) | ||||
Additional paid-in capital
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9,029,592 | 8,898,069 | ||||||
Retained earnings
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1,978,921 | 2,314,627 | ||||||
Total Stockholders' Deficiency
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(2,626,996 | ) | (2,236,418 | ) | ||||
Total Liabilities and Stockholders' Deficiency
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$ | 21,653,548 | $ | 21,802,965 |
For The Three Months
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||||||||
Ended March 31,
|
||||||||
2011
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2010
|
|||||||
Revenues
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$ | 18,630,391 | $ | 11,267,695 | ||||
Cost of revenues
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12,042,114 | 7,622,442 | ||||||
Gross Profit
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6,588,277 | 3,645,253 | ||||||
Operating Expenses
|
||||||||
Commission expense
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1,554,142 | 1,174,176 | ||||||
Commission expense - related parties
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38,053 | 78,217 | ||||||
Depreciation and amortization
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420,076 | 60,396 | ||||||
Bad debt expense
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309,737 | 395,523 | ||||||
Transaction expenses
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- | 356,087 | ||||||
Selling, general and administrative expenses
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4,847,699 | 2,510,846 | ||||||
Total Operating Expenses
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7,169,707 | 4,575,245 | ||||||
Loss From Operations
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(581,430 | ) | (929,992 | ) | ||||
Other Income (Expense)
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||||||||
Interest income
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7,992 | 13,368 | ||||||
Interest income - related parties
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187,733 | - | ||||||
Interest expense
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(82,596 | ) | (1,069 | ) | ||||
Interest expense - related parties
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(100,428 | ) | (202,892 | ) | ||||
Amortization of deferred financing costs
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- | (68,423 | ) | |||||
Amortization of deferred financing costs - related parties
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- | (69,345 | ) | |||||
Amortization of debt discount - related parties
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- | (100,860 | ) | |||||
Change in fair value of derivative liabilities - related parties
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- | 83,097 | ||||||
Other income
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109,223 | - | ||||||
Total Other Income (Expense)
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121,924 | (346,124 | ) | |||||
Loss before income taxes
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(459,506 | ) | (1,276,116 | ) | ||||
Income tax benefit
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123,800 | - | ||||||
Net Loss
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(335,706 | ) | (1,276,116 | ) | ||||
Cumulative Preferred Stock Dividends
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(374,796 | ) | - | |||||
Loss Attributable to Common Stockholders
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$ | (710,502 | ) | $ | (1,276,116 | ) | ||
Net Loss Per Common Share - Basic and Diluted
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$ | (0.03 | ) | $ | (0.09 | ) | ||
Weighted Average Number of Common Shares Outstanding - Basic and Diluted
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20,587,544 | 14,568,156 |
Notes
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||||||||||||||||||||||||||||||||
And
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||||||||||||||||||||||||||||||||
Convertible
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Receivables
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Additional
|
||||||||||||||||||||||||||||||
Preferred Stock
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Common Stock
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From
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Paid-In
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Retained
|
||||||||||||||||||||||||||||
Shares
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Amount
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Shares
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Amount
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Affiliate
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Capital
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Earnings
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Total
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|||||||||||||||||||||||||
Balance - December 31, 2010
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9,500,000 | $ | 9,500 | 20,306,292 | $ | 20,306 | $ | (13,478,920 | ) | $ | 8,898,069 | $ | 2,314,627 | $ | (2,236,418 | ) | ||||||||||||||||
Interest receivable associated with notes receivable from affiliate
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- | - | - | - | (187,733 | ) | - | - | (187,733 | ) | ||||||||||||||||||||||
Issuance of common stock in connection with the exercise of milestone warrants
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- | - | 1,338,020 | 1,338 | - | (1,338 | ) | - | - | |||||||||||||||||||||||
Stock-based compensation
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- | - | - | - | - | 132,861 | - | 132,861 | ||||||||||||||||||||||||
Net loss
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- | - | - | - | - | - | (335,706 | ) | (335,706 | ) | ||||||||||||||||||||||
Balance - March 31, 2011
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9,500,000 | $ | 9,500 | 21,644,312 | $ | 21,644 | $ | (13,666,653 | ) | $ | 9,029,592 | $ | 1,978,921 | $ | (2,626,996 | ) |
For The
|
||||||||
Three Months Ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Cash Flows From Operating Activities
|
||||||||
Net loss
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$ | (335,706 | ) | $ | (1,276,116 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
420,076 | 60,396 | ||||||
Provision for bad debt expense
|
309,737 | 395,523 | ||||||
Stock-based compensation
|
132,861 | - | ||||||
Interest income from affiliate
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(187,733 | ) | - | |||||
Amortization of deferred financing costs
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- | 68,423 | ||||||
Amortization of deferred financing costs - related party
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- | 69,345 | ||||||
Amortization of debt discount - related party
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- | 100,860 | ||||||
Change in fair value of derivative liabilities - related party
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- | (83,097 | ) | |||||
Deferred taxes
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(123,800 | ) | - | |||||
Gain on sale of fixed asset
|
(109,315 | ) | - | |||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(262,497 | ) | (114,738 | ) | ||||
Other assets
|
(6,644 | ) | (7,160 | ) | ||||
Vendor deposits
|
(198,835 | ) | 164,999 | |||||
Inventories
|
(122,061 | ) | 15,669 | |||||
Prepaid expenses and other current assets
|
57,551 | (37,476 | ) | |||||
Accounts payable
|
(566,014 | ) | (1,210,273 | ) | ||||
Interest payable - related parties
|
(50,612 | ) | 89,751 | |||||
Accrued agent commissions
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33,061 | (6,994 | ) | |||||
Accrued agent commissions - related parties
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(9,782 | ) | (32 | ) | ||||
Deferred revenue
|
47,426 | 1,165 | ||||||
Other liabilities
|
474,584 | 248,283 | ||||||
Other liabilities - related parties
|
35,838 | 34,827 | ||||||
Total Adjustments
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(126,159 | ) | (210,529 | ) | ||||
Net Cash Used in Operating Activities
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(461,865 | ) | (1,486,645 | ) | ||||
Cash Flows From Investing Activities
|
||||||||
Purchases of property and equipment
|
(425,331 | ) | (12,758 | ) | ||||
Proceeds from sale of fixed asset
|
191,261 | - | ||||||
Net Cash Used in Investing Activities
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(234,070 | ) | (12,758 | ) | ||||
Cash Flows From Financing Activities
|
||||||||
Repayments of obligations payable - related parties
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(1,000,000 | ) | - | |||||
Repayments of capital lease obligations
|
(92,305 | ) | (10,526 | ) | ||||
Repayments of short term borrowings
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(320,428 | ) | - | |||||
Repayments of notes payable
|
(129,868 | ) | - | |||||
Proceeds from notes payable
|
2,000,000 | - | ||||||
Proceeds from obligations payable - related parties, net [1]
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- | 1,826,980 | ||||||
Payments of deferred debt financing costs
|
- | (94,300 | ) | |||||
Net Cash Provided by Financing Activities
|
457,399 | 1,722,154 | ||||||
Net (Decrease) Increase In Cash
|
(238,536 | ) | 222,751 | |||||
Cash - Beginning
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1,009,209 | 440 | ||||||
Cash - Ending
|
$ | 770,673 | $ | 223,191 |
For The
Three Months Ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Supplemental Disclosures of Cash Flow Information:
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$ | 229,483 | $ | 113,143 | ||||
Non-cash financing activites:
|
||||||||
Forgiveness of indebtedness to Former Parent
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$ | - | $ | 25,292,175 | ||||
Stock issued in exchange for note receivable
|
$ | - | $ | 5,149,980 |
[1]
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Face value of obligations payable to Former Parent of $2,099,980, less selling commissions withheld of $273,000 during the three months ended March 31, 2010.
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For the
|
||||
Three Months Ended
|
||||
March 31, 2010
|
||||
Revenues
|
$ | 18,265,062 | ||
Net loss attributable to common stockholders
|
$ | (1,250,503 | ) | |
Pro-forma net loss per common share - basic and diluted
|
$ | (0.08 | ) | |
Pro-forma weighted average shares outstanding – basic and diluted
|
14,768,156 |
March 31,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
(unaudited)
|
||||||||
Excise, state and local taxes payable
|
$ | 773,902 | $ | 701,757 | ||||
Other accrued expenses
|
677,016 | 442,367 | ||||||
Payroll, payroll taxes and bonuses
|
616,376 | 507,542 | ||||||
Customer security deposits
|
293,514 | 234,558 | ||||||
Totals
|
$ | 2,360,808 | $ | 1,886,224 |
|
·
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On February 10, 2011 and on the first day of each calendar quarter thereafter (through and including the maturity date) Lightyear LLC will make payment of all accrued but unpaid interest.
|
|
·
|
On January 10, 2012, Lightyear LLC will make a payment of $1,000,000 on Sullivan’s underlying bank loan, as directed by Sullivan.
|
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·
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On the Maturity Date, Lightyear LLC will make a final payment of all remaining principal of $5,250,000.
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·
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Voice Services
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|
·
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Local Services
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|
·
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VoIP Services
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|
·
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Data Services
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|
·
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Wireless Services
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|
·
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Other Services
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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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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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selling, general and administrative expenses which consists 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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|
·
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Interest income – related parties represents interest earned on the First and Second LYH Notes (See discussion – Liquidity and Capital Resources – Overview); and
|
|
·
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Interest expense – related parties currently represents interest payable on the LNS Obligation and formerly on the loans payable to LY Holdings, LLC (“LY Holdings”);
|
Quarter Ended March 31, 2011
|
Quarter Ended
March 31, 2010
|
|||||||||||||||||||
Consolidated
|
Eliminations
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SouthEast
|
Lightyear LLC
|
Lightyear LLC
|
||||||||||||||||
Revenues
|
$ | 18,630,391 | $ | (1,117,222 | ) | $ | 7,472,530 | $ | 12,275,083 | $ | 11,267,695 | |||||||||
Cost of revenues
|
12,042,114 | (1,117,222 | ) | 4,995,888 | 8,163,448 | 7,622,442 | ||||||||||||||
Gross Profit
|
6,588,277 | - | 2,476,642 | 4,111,635 | 3,645,253 | |||||||||||||||
Operating Expenses
|
||||||||||||||||||||
Commission expense
|
1,592,195 | - | 104,506 | 1,487,689 | 1,252,393 | |||||||||||||||
Depreciation expense
|
420,076 | - | 375,202 | 44,874 | 60,396 | |||||||||||||||
Bad debt expense
|
309,737 | - | 66,022 | 243,715 | 395,523 | |||||||||||||||
Transaction expenses
|
- | - | - | - | 356,087 | |||||||||||||||
Selling, general and administrative expenses
|
4,847,699 | - | 1,960,891 | 2,886,808 | 2,510,846 | |||||||||||||||
7,169,707 | - | 2,506,621 | 4,663,086 | 4,575,245 | ||||||||||||||||
Loss From Operations
|
$ | (581,430 | ) | $ | - | $ | (29,979 | ) | $ | (551,451 | ) | $ | (929,992 | ) |
(in millions)
|
||||||||||||||||||||
Quarter Ended
|
||||||||||||||||||||
Quarter Ended March 31, 2011
|
March 31, 2010
|
|||||||||||||||||||
Consolidated
|
Eliminations
|
SouthEast
|
Lightyear LLC
|
Lightyear LLC
|
||||||||||||||||
Voice service
|
$ | 4.9 | $ | (1.2 | ) | $ | 0.4 | $ | 5.7 | $ | 5.0 | |||||||||
Local service
|
5.5 | - | 3.6 | 1.9 | 2.1 | |||||||||||||||
VoIP
|
1.0 | - | - | 1.0 | 1.1 | |||||||||||||||
Data services
|
1.9 | - | 1.0 | 0.9 | 1.0 | |||||||||||||||
Wireless services
|
0.9 | - | - | 0.9 | 0.6 | |||||||||||||||
CABS
|
2.2 | - | 2.2 | - | - | |||||||||||||||
Other services
|
2.2 | - | 0.3 | 1.9 | 1.5 | |||||||||||||||
TOTAL
|
$ | 18.6 | $ | (1.2 | ) | $ | 7.5 | $ | 12.3 | $ | 11.3 |
|
(a)
|
These receivables due from LY Holdings include a $5.15 million note receivable (“First LYH Note”) and a related $0.3 million interest receivable as of March 31, 2011. The First LYH Note was contributed to Lightyear by the LY Holdings Convertible Debtholders in exchange for shares of our common stock, pursuant to the Exchange Transaction. The First LYH Note has a maturity date of December 31, 2011 and interest is payable at each quarter end, beginning June 30, 2010. On March 29, 2011, Lightyear agreed to continue to forbear from demanding payment of past due interest under the First LYH Note or commencing any action until March 31, 2011. On May 11, 2011, LNSI agreed to continue to forbear again from demanding payment of past due interest until June 30, 2011. The obligations under the First LYH Note are secured by a subordinated security interest in certain assets of LY Holdings, specifically including its interests in Lightyear’s common stock and preferred stock.
|
|
(b)
|
The LY Holdings receivables also include a $7.75 million note receivable (“Second LYH Note”) and a related $0.5 million interest receivable as of March 31, 2011, both of which are reflected as contra-equity items on the balance sheet. The Second LYH Note was purchased by Lightyear pursuant to the Settlement Agreement. The Second LYH Note is a demand note. The obligations under this note are secured by a security interest in LY Holdings’ interests in Lightyear’s common stock and preferred stock and certain interests in LY Holdings, excluding Sullivan’s interest.
|
|
(c)
|
The amount payable to Sullivan which represents Lightyear’s consideration for the purchase of the Second LYH Note pursuant to the Settlement Agreement (the “LNS Obligation”) as of March 31, 2011, is $6.3 million plus an interest payable of $0.1 million. On January 12, 2011, the Company repaid $1.0 million of the principal balance on the note. Pursuant to the Second Amendment, effective February 7, 2011, $1.0 million of the principal will be due on January 10, 2012, with the remainder of the principal, $5.3 million, to be paid on January 20, 2013.
|
|
(a)
|
Lightyear previously reported the sale of unregistered securities in Current Reports on Form 8-K filed on March 29, 2011, and on April 28, 2011.
|
(b)
|
Not applicable.
|
(c)
|
Not applicable.
|
|
(a)
|
There has been no material default in the payment of principal or interest with respect to any indebtedness of the Registrant.
|
|
(b)
|
Holders of the Company’s preferred stock are entitled to receive dividends at the rate of 5% of the aggregate Stated Value of preferred stock held by them per annum, which shall accrue and be payable when, as and if declared by the Company’s board of directors. If the Company fails to pay dividends on preferred stock on a quarterly basis, the dividend payment rate will increase to 8% per annum with respect to dividends previously accrued and unpaid and any future dividend payments, until such time as all accrued dividends have been paid and distributed, at which time the rate of 5% per annum shall resume. Through March 31, 2011, the Company’s board of directors did not declare, and the Company did not pay, a dividend on the issued and outstanding shares of its preferred stock, $0.001 par value per share. As disclosed in the Company’s Form 8-K filed on July 1, 2010, the dividend payment rate on the Company’s preferred stock increased from 5% per annum to 8% per annum on all accrued but unpaid dividends on the Company’s preferred stock. Cumulative undeclared dividends on the Company’s preferred stock at the rate of 8% per annum total $1,470,030 as of March 31, 2011.
|
Exhibit
|
Description
|
|
10.1
|
Promissory Note, dated as of January 21, 2011 by Lightyear Network Solutions, Inc. to First Savings Bank, F.S.B. (1)
|
|
10.2
|
Absolute Continuing Guaranty Agreement, dated January 21, 2011, by J. Sherman Henderson III in favor of First Savings Bank, F.S.B. (1)
|
|
10.3
|
Absolute Continuing Guaranty Agreement, dated January 21, 2011, by Ronald L.Carmicle in favor of First Savings Bank, F.S.B. (1)
|
|
10.4
|
Absolute Continuing Guaranty Agreement, dated January 21, 2011, by Lightyear Network Solutions, LLC in favor of First Savings Bank, F.S.B. (1)
|
|
10.5
|
Security Agreement, dated January 21, 2011, by and between Lightyear Network Solutions, LLC and First Savings Bank, F.S.B. (1)
|
|
10.6
|
Lockbox and Account Control Agreement, dated as of January 21, 2011, by and among Lightyear Network Solutions, LLC, Fifth Third Bank and First SavingsBank, F.S.B. (1)
|
|
10.7
|
Stock Pledge Agreement, dated January 21, 2011, by LY Holdings, LLC in favor of First Savings Bank, F.S.B. (1)
|
|
10.8
|
Agreement dated January 21, 2011 by and between Lightyear Network Solutions, Inc. and Ronald L Carmicle. (1)
|
|
10.9
|
Subordination and Security Agreement dated as of February 12, 2010 by and between LYH and the Company. (1)
|
|
10.10
|
Collateral Release Agreement dated January 21, 2011, by and among LYH, Lightyear, the Company, Chris T. Sullivan, CTS Equities, Limited Partnership, and Rigdon O. Dees. (1)
|
|
10.11
|
Second Amendment to Settlement Agreement by and among LY Holdings, LLC, Lightyear Network Solutions, LLC, Chris Sullivan, LANJK, LLC, Rice Realty Company, LLC, Rigdon O. Dees III, CTS Equities Limited Partnership, and Ron Carmicle dated as of February 7, 2011. (2)
|
|
10.12
|
Lightyear Forbearance Agreement by and among LY Holdings, LLC and Lightyear Network Solutions, Inc., dated as of March 29, 2011. (3)
|
|
10.13
|
Lightyear Forbearance Agreement by and among LY Holdings, LLC and Lightyear Network Solutions, Inc., dated as of May 11, 2011. *
|
|
10.14
|
Consulting and Non-Competition Agreement dated as of May 1, 2011 by and between the Company, LY Holdings, LLC and J. Sherman Henderson III. (4)
|
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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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32.1
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Section 1350 Certification *
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99.1
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Lightyear Network Solutions, Inc. Press Release, dated May 13, 2011, related to earnings for the three months ended March, 31, 2011. * | |
*
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Filed 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 January 25, 2011.
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(2)
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Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on February 11, 2011.
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(3)
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Incorporated by reference to the exhibits included with our Annual Report on Form 10-K filed with the SEC on March 30, 2011.
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(4)
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Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on April 27, 2011.
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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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Lender: | ||
LIGHTYEAR NETWORK SOLUTIONS, INC. | ||
By:
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/s/ Elaine G. Bush
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Elaine G. Bush, CFO
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Borrower: | ||
LY HOLDINGS, LLC | ||
By:
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/s/ J. Sherman Henderson
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J. Sherman Henderson, Manager/Member
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1)
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I have reviewed this quarterly report on Form 10-Q of Lightyear Network Solutions, Inc.;
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2)
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3)
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4)
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5)
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Stephen M. Lochmueller
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Stephen M. Lochmueller
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Chief Executive Officer
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1)
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I have reviewed this quarterly report on Form 10-Q of Lightyear Network Solutions, Inc.;
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2)
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3)
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4)
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5)
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Elaine G. Bush
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Elaine G. Bush
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Chief Financial Officer
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Date: May 13, 2011
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/s/ Stephen M. Lochmueller
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Stephen M. Lochmueller
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Chief Executive Officer
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Date: May 13, 2011
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/s/ Elaine G. Bush
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Elaine G. Bush
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Chief Financial Officer
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Contact:
Steve Rush, Marketing Manager
502-410-1397
steve.rush@lightyear.net
Porter, LeVay & Rose, Inc.
Marlon Nurse, D.M., V.P. – Investor Relations
212-564-4700
marlon@plrinvest.com
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·
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Revenue of $18.6 million for the first quarter 2011 increased 65.3% from $11.3 million in the year-ago quarter;
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·
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Gross profit of $6.6 million increased 80.7% over the first quarter 2010;
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·
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Gross profit margins increased 300 basis points for the quarter to 35.4% from 32.4% in the year-ago quarter;
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·
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Loss from operations reduced to $581 thousand from $930 thousand in the year-ago quarter;
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·
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EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) improved to a loss of $161 thousand compared with an EBITDA loss of $870 thousand in the year-ago first quarter; Net loss of $336 thousand compared with a net loss of $1.3 million in the year-ago first quarter;
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·
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Net loss to common stockholders, including $375 thousand of cumulative preferred stock dividends, was $711 thousand, and compared with a net loss of $1.3 million in the year-ago first quarter;
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·
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Net loss per common share, including the cumulative preferred stock dividends, was $0.03 for the quarter, and compared with a net loss of $0.09 per share for the year-ago first quarter.
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Lightyear Network Solutions, Inc. and Subsidiaries
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Condensed Consolidated Balance Sheets
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As of
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March 31,
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December 31,
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2011
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2010
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(unaudited)
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Assets
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Current Assets:
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Cash
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$ | 770,673 | $ | 1,009,209 | ||||
Accounts receivable, net
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6,103,184 | 6,150,424 | ||||||
Vendor deposits
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1,885,746 | 1,686,911 | ||||||
Inventories, net
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455,616 | 333,555 | ||||||
Deferred tax asset - current portion, net
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- | 56,939 | ||||||
Prepaid expenses and other current assets
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2,230,324 | 2,287,875 | ||||||
Total Current Assets
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11,445,543 | 11,524,913 | ||||||
Property and equipment, net
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7,263,215 | 7,202,904 | ||||||
Intangible assets, net
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2,626,664 | 2,763,666 | ||||||
Other assets
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318,126 | 311,482 | ||||||
Total Assets
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$ | 21,653,548 | $ | 21,802,965 | ||||
Liabilities and Stockholders' Deficiency
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Current Liabilities:
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Accounts payable
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$ | 6,594,102 | $ | 7,160,116 | ||||
Interest payable - related parties
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63,206 | 113,818 | ||||||
Accrued agent commissions
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602,894 | 569,833 | ||||||
Accrued agent commissions - related parties
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15,254 | 25,036 | ||||||
Deferred revenue
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2,064,614 | 2,017,188 | ||||||
Other liabilities
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2,360,808 | 1,886,224 | ||||||
Other liabilities - related parties
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133,221 | 97,383 | ||||||
Short term borrowings
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- | 320,428 | ||||||
Current portion of notes payable
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1,036,462 | 529,899 | ||||||
Current portion of capital lease obligations
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316,346 | 348,178 | ||||||
Current portion of obligations payable - related parties
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1,000,000 | - | ||||||
Total Current Liabilities
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14,186,907 | 13,068,103 | ||||||
Notes payable, non-current portion
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3,591,556 | 2,227,987 | ||||||
Capital lease obligation, non-current portion
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925,398 | 985,871 | ||||||
Obligations payable - related parties, non-current portion
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5,250,000 | 7,250,000 | ||||||
Deferred tax liability, non-current portion, net
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326,683 | 507,422 | ||||||
Total Liabilities
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24,280,544 | 24,039,383 | ||||||
Commitments and contingencies
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- | - | ||||||
Stockholders' Deficiency:
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Preferred stock, $.001 par value; 9,500,000 shares authorized;
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9,500,000 shares issued and outstanding at
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March 31, 2011 and December 31, 2010; aggregate liquidation
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preference of $20,470,027 at March 31, 2011
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9,500 | 9,500 | ||||||
Common stock, $.001 par value; 70,000,000 shares authorized;
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21,644,312 and 20,306,292 shares issued and outstanding at
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March 31, 2011 and December 31, 2010, respectively
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21,644 | 20,306 | ||||||
Notes and receivables from affiliate
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(13,666,653 | ) | (13,478,920 | ) | ||||
Additional paid-in capital
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9,029,592 | 8,898,069 | ||||||
Retained earnings
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1,978,921 | 2,314,627 | ||||||
Total Stockholders' Deficiency
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(2,626,996 | ) | (2,236,418 | ) | ||||
Total Liabilities and Stockholders' Deficiency
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$ | 21,653,548 | $ | 21,802,965 |
Lightyear Network Solutions, Inc. and Subsidiaries
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Condensed Consolidated Statements of Operations
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(unaudited)
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For The Three Months
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Ended March 31,
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2011
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2010
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Revenues
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$ | 18,630,391 | $ | 11,267,695 | ||||
Cost of revenues
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12,042,114 | 7,622,442 | ||||||
Gross Profit
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6,588,277 | 3,645,253 | ||||||
Operating Expenses
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Commission expense
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1,554,142 | 1,174,176 | ||||||
Commission expense - related parties
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38,053 | 78,217 | ||||||
Bad debt expense
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309,737 | 395,523 | ||||||
Transaction expenses
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- | 356,087 | ||||||
Selling, general and administrative expenses
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4,847,699 | 2,510,846 | ||||||
Total Operating Expenses
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6,749,631 | 4,514,849 | ||||||
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
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(161,354 | ) | (869,596 | ) | ||||
Depreciation and amortization
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420,076 | 60,396 | ||||||
Loss From Operations
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(581,430 | ) | (929,992 | ) | ||||
Other Income (Expense)
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Interest income
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7,992 | 13,368 | ||||||
Interest income - related parties
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187,733 | - | ||||||
Interest expense
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(82,596 | ) | (1,069 | ) | ||||
Interest expense - related parties
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(100,428 | ) | (202,892 | ) | ||||
Amortization of deferred financing costs
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- | (68,423 | ) | |||||
Amortization of deferred financing costs
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- related parties
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- | (69,345 | ) | |||||
Amortization of debt discount - related parties
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- | (100,860 | ) | |||||
Change in fair value of derivative liabilities
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- related parties
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- | 83,097 | ||||||
Other income
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109,223 | - | ||||||
Total Other Income (Expense)
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121,924 | (346,124 | ) | |||||
Loss before income taxes
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(459,506 | ) | (1,276,116 | ) | ||||
Income tax benefit
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123,800 | - | ||||||
Net Loss
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(335,706 | ) | (1,276,116 | ) | ||||
Cumulative Preferred Stock Dividends
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(374,796 | ) | - | |||||
Loss Attributable to Common Stockholders
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$ | (710,502 | ) | $ | (1,276,116 | ) | ||
Net Loss Per Common Share - Basic and Diluted
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$ | (0.03 | ) | $ | (0.09 | ) | ||
Weighted Average Number of Common Shares Outstanding
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- Basic and Diluted
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20,587,544 | 14,568,156 |
Lightyear Network Solutions, Inc. and Subsidiaries
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Condensed Consolidated Statements of Cash Flows
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(unaudited)
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For The
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Three Months Ended March 31,
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2011
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2010
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Cash Flows From Operating Activities
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Net loss
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$ | (335,706 | ) | $ | (1,276,116 | ) | ||
Adjustments to reconcile net loss to net cash
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used in operating activities:
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Depreciation and amortization
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420,076 | 60,396 | ||||||
Provision for bad debt expense
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309,737 | 395,523 | ||||||
Stock-based compensation
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132,861 | - | ||||||
Interest income from affiliate
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(187,733 | ) | - | |||||
Amortization of deferred financing costs
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- | 68,423 | ||||||
Amortization of deferred financing costs - related party
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- | 69,345 | ||||||
Amortization of debt discount - related party
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- | 100,860 | ||||||
Change in fair value of derivative liabilities - related party
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- | (83,097 | ) | |||||
Deferred taxes
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(123,800 | ) | - | |||||
Gain on sale of fixed asset
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(109,315 | ) | - | |||||
Changes in operating assets and liabilities:
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Accounts receivable
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(262,497 | ) | (114,738 | ) | ||||
Other assets
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(6,644 | ) | (7,160 | ) | ||||
Vendor deposits
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(198,835 | ) | 164,999 | |||||
Inventories
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(122,061 | ) | 15,669 | |||||
Prepaid expenses and other current assets
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57,551 | (37,476 | ) | |||||
Accounts payable
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(566,014 | ) | (1,210,273 | ) | ||||
Interest payable - related parties
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(50,612 | ) | 89,751 | |||||
Accrued agent commissions
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33,061 | (6,994 | ) | |||||
Accrued agent commissions - related parties
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(9,782 | ) | (32 | ) | ||||
Deferred revenue
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47,426 | 1,165 | ||||||
Other liabilities
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474,584 | 248,283 | ||||||
Other liabilities - related parties
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35,838 | 34,827 | ||||||
Total Adjustments
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(126,159 | ) | (210,529 | ) | ||||
Net Cash Used in Operating Activities
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(461,865 | ) | (1,486,645 | ) | ||||
Cash Flows From Investing Activities
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Purchases of property and equipment
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(425,331 | ) | (12,758 | ) | ||||
Proceeds from sale of fixed asset
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191,261 | - | ||||||
Net Cash Used in Investing Activities
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(234,070 | ) | (12,758 | ) | ||||
Cash Flows From Financing Activities
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Repayments of obligations payable - related parties
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(1,000,000 | ) | - | |||||
Repayments of capital lease obligations
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(92,305 | ) | (10,526 | ) | ||||
Repayments of short term borrowings
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(320,428 | ) | - | |||||
Repayments of notes payable
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(129,868 | ) | - | |||||
Proceeds from notes payable
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2,000,000 | - | ||||||
Proceeds from obligations payable - related parties, net [1]
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- | 1,826,980 | ||||||
Payments of deferred debt financing costs
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- | (94,300 | ) | |||||
Net Cash Provided by Financing Activities
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457,399 | 1,722,154 | ||||||
Net (Decrease) Increase In Cash
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(238,536 | ) | 222,751 | |||||
Cash - Beginning
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1,009,209 | 440 | ||||||
Cash - Ending
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$ | 770,673 | $ | 223,191 |
Lightyear Network Solutions, Inc. and Subsidiaries
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Condensed Consolidated Statements of Cash Flows--Continued
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(unaudited)
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For The
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Three Months Ended March 31,
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2011
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2010
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Supplemental Disclosures of Cash Flow Information:
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Cash paid during the period for:
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Interest
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$ | 229,483 | $ | 113,143 | ||||
Non-cash financing activites:
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Forgiveness of indebtedness to Former Parent
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$ | - | $ | 25,292,175 | ||||
Stock issued in exchange for note receivable
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$ | - | $ | 5,149,980 |
[1]
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Face value of obligations payable to Former Parent of $2,099,980, less selling commissions withheld of $273,000 during the three months ended March 31, 2010.
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