10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 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

Securities registered pursuant to Section 12(b) of the Act

Title of each class	Name of each exchange on which registered
None	N/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.001

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes ¨  No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter ($0.12) was $1,423,561. Solely for the purposes of this calculation, shares held by directors, executive officers and 10% owners of the registrant have been excluded. Such exclusion should not be deemed a determination or an admission by the registrant that such individuals are, in fact, affiliates of the registrant.

As of March 27, 2013, there were 22,086,641 shares of the issuer’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None

Lightyear Network Solutions, Inc. and Subsidiaries

Form 10-K

Table of Contents

PART I
FORWARD-LOOKING STATEMENTS		1
ITEM 1.	Business.	1
ITEM 1A.	Risk Factors.	5
ITEM 1B.	Unresolved Staff Comments.	13
ITEM 2.	Properties.	14
ITEM 3.	Legal Proceedings.	14
ITEM 4.	Mine Safety Disclosures	14
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	15
ITEM 6.	Selected Financial Data.	16
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk.	22
ITEM 8.	Financial Statements and Supplementary Data.	22
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	24
ITEM 9A	Controls and Procedures.	24
ITEM 9B.	Other Information.	25
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance.	26
ITEM 11.	Executive Compensation.	29
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	31
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence.	32
ITEM 14.	Principal Accounting Fees and Services.	33
PART IV
ITEM 15.	Exhibits, Financial Statement Schedules.	35

PART I

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K filed by Lightyear Network Solutions, Inc. (“LNSI”) contains or may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include information that is based upon our beliefs and information currently available to us, as well as our estimates and assumptions with respect to future events. When used, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan” or the negative of these terms and similar expressions identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to risks, uncertainties, assumptions and other factors relating to our industry, our operations and results of operations, and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Item 1. Business.

The Company

LNSI, through its wholly owned subsidiaries, Lightyear Network Solutions, LLC, a Kentucky limited liability company (“Lightyear LLC”), and SE Acquisitions, LLC d/b/a Lightyear Network Solutions of Kentucky, a Kentucky limited liability company (“Lightyear-KY”) (collectively, “Lightyear” or the “Company”) provides telecommunications services throughout the United States primarily through a distribution network of authorized agents. In addition to long distance and local service, we currently offer a wide array of telecommunications products and services including internet/intranet, calling cards, advanced data, conferencing, Voice over Internet Protocol (“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, whose operations are insignificant.

Business History and Description

LNSI, through its wholly-owned subsidiaries, currently serves approximately 65,000 customer locations.

Lightyear LLC, formerly a wholly-owned subsidiary of LY Holdings, LLC (“LY Holdings”), has conducted operations in substantially its present form since 2004.

In February 2010, LY Holdings entered into a reverse merger transaction with Libra Alliance Corporation (“Libra”). Libra was incorporated in the state of Nevada on May 5, 1997 to become an Internet service provider for small- to mid-sized businesses, but ceased operations in 2001. Through the reverse merger transaction, LY Holdings exchanged 100% of the equity of Lightyear LLC for 10,000,000 shares of common stock and 9,500,000 shares of convertible preferred stock of Libra, and certain holders of debt securities of LY Holdings exchanged those securities for 3,242,533 shares of common stock of Libra. As a result of these transactions, LY Holdings and the former holders of LY Holdings’ debt securities held approximately 69% and 11.5%, respectively, of Libra’s then outstanding common stock on a fully-diluted, as-converted basis and Libra held all of the equity of Lightyear LLC.

Upon completion of the reverse merger transaction, Libra began operating Lightyear’s business of providing telecommunications services. On April 12, 2010, Libra was renamed “Lightyear Network Solutions, Inc.”

The reverse merger transaction was accounted for as a reverse acquisition in accordance with generally accepted accounting principles in the United States of America, with Lightyear LLC being treated as the acquiring company for accounting purposes. Accordingly, the assets and liabilities and the historical operations that are reflected in the financial statements are those of Lightyear LLC and were recorded at the historical cost basis of Lightyear LLC. Reports filed by Libra prior to February 2010 do not reflect our current operations.

1

On October 1, 2010, LNSI, along with its wholly-owned subsidiary, Lightyear-KY, purchased the business assets of SouthEast Telephone, Inc. (“SETEL”), a Kentucky corporation, from SETEL’s bankruptcy estate for approximately $9.3 million , consisting of approximately $0.4 million in cash, 200,000 shares of LNSI common stock, valued at approximately $1.0 million, and the assumption of $7.9 million of liabilities, which included approximately $4.3 million of indebtedness and capital lease obligations. Lightyear-KY initially operated under the d/b/a SouthEast Telephone until October 1, 2011, when the entity started operating as Lightyear Network Solutions of Kentucky in order to consolidate operations under one brand name.

On November 4, 2011, LNSI, LY Holdings and Chris Sullivan, an LNSI director (“Sullivan”), entered into an Intercompany Obligations Settlement Agreement (the “Intercompany Agreement”). Pursuant to the Intercompany Agreement, LY Holdings surrendered all 9,500,000 shares of the LNSI convertible preferred stock owned by it (plus its right to $2,232,110 of accrued but undeclared and unpaid preferred stock dividends), which shares of convertible preferred stock have been canceled and retired, in complete satisfaction of LY Holdings’ principal indebtedness to LNSI of $12,899,980. Immediately after the consummation of the Intercompany Agreement, LY Holdings owned 10,000,000 shares, or 45.27%, of LNSI’s outstanding common stock.

Operations

We sell our services primarily through our direct sales force and agents.

Direct Sales

Our direct sales force focuses on selling our services to residential and small office/home office customers and currently has more than 6,300 representatives nationwide. Direct sales accounted for approximately 15% of our revenue for the year ended December 31, 2012.

Direct sales representatives execute a non-exclusive representative agreement with us with no geographic restriction and a one-year term, renewable annually. Representatives pay a nominal fee to be our representative and are compensated based on the customers and other representatives that they bring to Lightyear. Representative agreements contain non-solicitation provisions designed to prevent representatives from moving Lightyear end users to different carriers and from soliciting other Lightyear representatives.

Agents

Our agents range from one-person shops to large, multi-office companies. Agents use relationship sales efforts to increase distribution of our products to the small-to-medium-sized business market. Agents serve as telecom consultants for their customers who often lack the budgetary means to employ personnel to manage their telecom resources. As of December 31, 2012, we had approximately 150 authorized agents. Our agents accounted for approximately 85% of our revenue for the year ended December 31, 2012.

Agents execute agreements with us, providing for them to earn one-time up-front payments and monthly commissions based on the type of service sold and the length of the term of the agreement. Agent agreements are non-exclusive and contain no geographic restrictions; however, the agreements contain non-solicitation provisions designed to prevent agents from moving Lightyear end users to a different carrier. Agent agreements are typically for a three-to five-year term and are subject to termination if the agent fails to follow our policies and procedures or if the agent fails to satisfy a certain revenue target.

Products and Services

We offer a broad range of telecommunications products for both residential and business customers including:

· Switched and dedicated long distance

· Local phone service

· VoIP

· Digital Subscriber Line (“DSL”)

· Integrated Access services

· Frame relay

· Nationwide Internet access (dial-up and dedicated access)

· Web hosting and development services

· Call analysis software for customized billing reports

· Multimedia conferencing services

· Direct Sales services for organizations who wish to sell telecom products within a private label program

— Wireless telephones and comprehensive service plans offered through our wholesale agreements.

2

Telecommunications Services Agreements

We have maintained a telecommunications service agreement (the “TSA”) and a digital service agreement (collectively with the TSA, the “Service Agreements”) with Verizon Business Services (“Verizon”) since 1994 for switched services, data services and other associated services, including most of the products which we provide, as listed above. Each of the Service Agreements has been amended multiple times, primarily for the purpose of updating available calling or usage rates, but also for purposes of changing the provisions of those documents relating to such items as offering additional products or extending their terms.

In November 2010, we entered an agreement with Sprint allowing us to work directly with Sprint to sell both pre-paid and post-paid wireless services utilizing the Sprint network. Under this agreement, we may receive marketing allowances and sales credits if certain sales thresholds are satisfied. We also maintain a wholesale agreement with ZefCom, LLC d/b/a Telispire (“Telispire”) that allows us to sell wireless services utilizing the Sprint and Verizon Wireless Networks. Neither the Sprint nor Telispire agreement contains any minimum purchase requirements.

As part of the acquisition of the assets of SETEL (the “Sale Transaction”) on October 1, 2010, we assumed certain of SETEL’s agreements with BellSouth Telecommunications, Inc., d/b/a AT&T of Kentucky (“AT&T”) and with Windstream Kentucky East, LLC (“Windstream”), described as follows:

Under the AT&T Interconnection Agreement, which terminates on February 12, 2014, the parties established terms for the provision of certain services and functions for the purpose of determining the rates, terms, and conditions for the interconnection of the parties’ telecommunications networks within the Commonwealth of Kentucky. Under the AT&T Commercial Agreement, which terminates on December 31, 2014 (as amended on December 15, 2011), the parties established the rates, terms, and conditions under which local exchange services are provided to our customers. We make weekly prepayments for services (less anticipated credits) which are reconciled on a monthly basis. We maintain a deposit of $0.6 million with AT&T which covers both the AT&T Interconnection Agreement and the AT&T Commercial Agreement.

The Windstream Interconnection Agreement, which terminates on October 31, 2013 (as amended on August 27, 2012), establishes terms for the provision of certain services and functions for the purpose of determining the rates, terms, and conditions for the interconnection of the parties’ telecommunications networks within certain areas in the Commonwealth of Kentucky. The Windstream Commercial Agreement establishes the rates, terms, and conditions under which Windstream provides access to its switching capability which we, in turn, use to provide local exchange service to our customers. We maintain a deposit of $85,000 with Windstream covering both the Windstream Interconnection Agreement and the Windstream Commercial Agreement.

Customers

Our customers range from residential customers to large businesses. Our target customers are small to medium sized businesses, often with multiple locations with average monthly telecom billings of approximately $500 to $1,000. In addition, we market our services to residential customers with average billings of $50 per month, using our local service, long distance, calling card and VoIP services, as well as VoIP hardware under the brand Lightyear XStream. We market our wireless telephone voice and data services to business and residential customers as well as to large enterprise customers with average monthly billings of approximately $70 per wireless unit.

Vendor Companies

We work with a number of companies to provide products and services to our customers. We have relationships with Verizon, AT&T, Sprint, Windstream, XO Communications, Level 3, Qwest and Cisco.

These vendor agreements do not in general contain material minimum purchase requirements and generally provide that the vendor can change the rates charged upon 30 days’ or 60 days’ notice to us.

3

Regulatory Matters

We are regulated by the Federal Communications Commission (“FCC”) as a non-dominant carrier subject to regulation under the Communications Act of 1934, as amended, with respect to our interstate services, including the use of our local phone lines and Integrated Access services to originate or terminate interstate long-distance calls for other carriers. The FCC requires all telecommunications service providers, including non-dominant carriers such as Lightyear, to maintain authorizations to provide or resell domestic long distance and international services. In most states, we may not begin to provide local and intrastate telecommunications services until we obtain a certificate of public convenience and necessity from the state public utility commission and comply with applicable state regulations, including, in most states, the requirement to file tariffs setting forth our terms and conditions for providing services. Several of the states in which we operate require public utility commission approval before the transfer of a carrier’s authority to operate within the state, the transfer of its assets to a new entity, or a change in the control of an entity that controls a carrier operating within the state. The FCC also prohibits carriers from selling, assigning, or transferring control of their interstate and international operating authorizations without its prior approval. In addition, our direct sales efforts are subject to a number of federal and state regulations administered by the FTC and various state agencies in the United States.

Growth Strategy

We continue to work 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 also intend to continue to search for combinations with small to mid-sized competitors that can enhance shareholder value. These combinations may take the form of an acquisition, sale or merger. Potential combination candidates are expected to meet specific criteria including combinations of the following:

· Supporting or providing Cloud based services;

· EBITDA positive;

· Ability to remove duplicative overhead costs;

· Increasing our gross margin by layering our customer base on an owned network.

Upon locating a suitable combination candidate, we anticipate entering into a non-binding letter of intent to set forth the basic business terms of the potential combination, which could be subject to various closing conditions, including due diligence, the negotiation of definitive combination documents, regulatory consents and other customary matters. Factors which may affect future combination decisions include the quality and potential profitability of the business under consideration, our profitability and impact on shareholder value.

Competition

The telecommunications industry is very competitive. In general, we compete with national facilities-based and non-facilities based telecom service providers, wireless and otherwise, and their pre-paid affiliates or brands, local and regional carriers, non-facilities-based mobile virtual network operators (MVNOs), VoIP service providers and traditional landline service providers.

In the wireless segment we compete with regional and national providers including AT&T, Sprint Nextel, T-Mobile and Verizon Wireless, all of which sell products and services to consumers in our markets.

Employees

As of December 31, 2012, we employed 140 people on a full-time basis. No employees are covered by a collective bargaining agreement.

Intellectual Property

We maintain various intellectual properties, including technology, trade secrets, copyrights and trademarks in the United States. Lightyear has several registered trademarks, including the Lightyear name and logo.

4

Website

We maintain a website at www.lightyear.net. The reference to this web address does not constitute incorporation by reference of the information contained at this site, should not be deemed to constitute a part of this filing, and should not be relied upon in any manner whatsoever by any potential investor.

Item 1A. Risk Factors.

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this report that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of Lightyear Common Stock could decline, and stockholders may lose all or part of their investment.

In this discussion of the “Risks Related To Lightyear’s Business And Financial Condition,” unless otherwise noted or required by the context, references to “ us ,” “ we ,” “ our ,” “ Lightyear, ” “ the Company ,” and similar terms refer to Lightyear Network Solutions, Inc. and its wholly owned subsidiaries, Lightyear Network Solutions, LLC, and SE Acquisitions, LLC d/b/a Lightyear Network Solutions of Kentucky.

Risks Related to Lightyear’s Business and Financial Condition

Lightyear has Experienced Net Losses, and May Not Be Profitable in the Future.

Lightyear’s business has incurred significant losses since inception. We may continue to incur losses in the current year and possibly thereafter. Such losses would likely have an adverse effect on our stockholders’ deficiency and working capital deficit.

Because of the various risks and uncertainties associated with our business, Lightyear cannot predict the extent of any future losses or when it will become profitable, if at all. Unless Lightyear can execute a business combination or become profitable, Lightyear may be forced to cease operations or to seek insolvency protection.

To Fund Its Working Capital Needs and Capital Expenditures, Lightyear May Require Additional Cash Beyond What is Generated from Operations, and the Ability to Generate Cash Depends on Many Factors Beyond Lightyear’s Control

Lightyear’s ability to fund its working capital needs and capital expenditures will depend upon future operating performance and on the ability to generate cash flow in the future, which are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond Lightyear’s control. The business may not generate sufficient cash flow from operations, and future financings may not be available in amounts sufficient to enable Lightyear to fund its liquidity needs. If the cash flow from operating activities is insufficient, Lightyear may take actions, such as delaying or reducing capital expenditures, selling assets or operations or seeking debt financing or additional equity capital. Any or all of these actions may be insufficient to allow Lightyear to fund its capital needs. Further, Lightyear may be unable to take any of these actions on commercially reasonable terms, or at all. If Lightyear is unable to fund its working capital needs, Lightyear may be forced to cease operations or to seek insolvency protection. 

Lightyear’s May Be Unable to Obtain Debt or Equity Financing On Reasonable Terms (or At All) Which Could Have Adverse Effects.

Lightyear could need to raise significant capital to finance business expansion activities in the future. Our ability to raise debt or equity capital in the public or private markets could be impaired by various factors. For example, U.S. credit markets have experienced significant dislocations and liquidity disruptions which have caused the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases have resulted in the unavailability of certain types of debt financing. Continued uncertainty in the credit markets may negatively impact the ability to access debt financing. These events in the credit markets have also had an adverse effect on other financial markets in the U.S., which may make it more difficult or costly to raise capital through the issuance of equity securities. Any of these risks could impair Lightyear’s ability to fund operations or limit its ability to expand its business, which could have a material adverse effect on financial results.

5

Lightyear’s Ability to Execute a Business Combination May Be Subject to Serious Setbacks and May Be More Expensive or Time-Consuming Than Expected.

Lightyear currently plans to explore business combinations. Business combinations are subject to serious legal and operational risks, including the inability of the acquirer to combine the target’s business with its own in an efficient manner, the assumption of liabilities (whether known or unknown, disclosed or undisclosed) of the target and the incurrence of substantial transaction costs. Regulatory clearances and other issues may result in the business combinations taking more time than currently projected.

Lightyear’s Revenues for VoIP and Wireless Services are Subject to Third Party Obligations Which are Likely to Reduce Lightyear’s Profitability.

In consideration of their lending funds to LY Holdings for investment in Lightyear’s VoIP and wireless services products, LY Holdings and Lightyear LLC executed letter agreements with certain of the LY Holdings members providing for, in addition to principal and interest payments on LY Holdings’ accompanying notes, an amount each month equal to 4.0% of the gross commissionable monthly revenue from the sales of VoIP service offerings and 3.0% of the gross commissionable monthly revenue from the sales of wireless service offerings.  The wireless letter agreements have terms of ten years, beginning in 2008, and the VoIP letter agreements have terms of ten years, beginning in 2004, unless such agreements are terminated early due to a sale of all or substantially all of LY Holdings. Upon an early termination event, Lightyear LLC would be obligated to pay the respective LY Holdings member a termination fee in the amount totaling the sum of the payments under each contract for the immediately preceding twelve full months.

Lightyear May Not Be Successful in Increasing Its Customer Base Which Would Negatively Affect Its Business Plans and Financial Outlook.

Lightyear’s growth reflects general economic trends in customer activity, promotional activity, competition in the telecommunications market, pace of new product launches, and varying national economic conditions. Lightyear’s current business plans assume that it will increase its customer base over time. If Lightyear is unable to attract and retain a growing customer base, our current business plans and financial outlook may be harmed.

Lightyear Is the Holder of a Note from LY Holdings in the Amount of Approximately $1.2 Million That May Not Be Collectible. Lightyear Is Also Obligated on a Promissory Note to Sullivan Which Could Allow Him to Exert Disproportionate Influence Over Our Activities.

Lightyear holds a note issued by LY Holdings, its largest shareholder. LY Holdings has no significant assets other than Lightyear equity. If LY Holdings is unable to pay principal and interest when due, then the LY Holdings promissory note may have a fair market value of significantly less than the principal amount of approximately $1.2 million and may be uncollectible in the ordinary course of business, if at all.

Additionally, Lightyear is obligated to make payments of principal and interest to Sullivan under a note issued by Lightyear These payments represent a significant cash expenditure for Lightyear. If Lightyear defaulted on these payments, payment of the accelerated indebtedness would have a significant adverse impact upon Lightyear’s cash reserves and could affect Lightyear’s ability to fund its operations. 

As a result of the substantial indebtedness owed to Sullivan, Sullivan may be able to exert disproportionate influence over Lightyear’s activities and operations.

Directors and Affiliated Entities Have Substantial Influence over Lightyear’s Affairs, and Ownership of Lightyear’s Largest Shareholder Is Highly Concentrated.

Lightyear’s directors and entities affiliated with its directors in the aggregate beneficially own a significant amount of the equity of Lightyear. These individuals have direct influence over all matters requiring approval by Lightyear’s stockholders. These individuals will be able to influence the election and removal of directors and any merger, consolidation or sale of all or substantially all of Lightyear’s assets and other matters. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control or impeding a merger or consolidation, takeover or other business combination.

6

Lightyear’s Business Could Be Adversely Affected By General Economic Conditions; If Lightyear Experiences Low Rates of Customer Acquisition or High Rates of Customer Turnover, Its Ability to Become Profitable Will Decrease.

Business could be adversely affected in a number of ways by general economic conditions, including interest rates, consumer credit conditions, unemployment and other macro-economic factors. In addition, Lightyear’s rate of customer acquisition and turnover may be affected by other factors, including the size of its calling areas, network performance and reliability issues, handset or service offerings (including the ability of customers to cost-effectively roam onto other wireless networks), customer care concerns, phone number portability, and other competitive factors. A high rate of customer turnover or low rate of new customer acquisition would reduce revenues and increase the total marketing expenditures required to attract the minimum number of customers required to sustain the business plan which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

Increasing Competition Could Have a Material Adverse Effect on Demand for the Products and Services Offered by Lightyear.

The telecommunications industry is very competitive. In general, Lightyear competes with national facilities-based wireless providers and their prepaid affiliates or brands, local and regional carriers, non-facilities-based mobile virtual network operators, VoIP service providers and traditional landline service providers.

Many of these competitors often have greater name and brand recognition, access to greater amounts of capital and established relationships with a larger base of current and potential customers. Because of their size and bargaining power, larger competitors may be able to purchase equipment, supplies and services at lower prices than Lightyear can.

These competitors may also offer potential customers more features and options in their service plans than those currently provided by Lightyear, as well as new technologies and/or alternative delivery plans.

These competitive offerings could adversely affect Lightyear’s ability to maintain pricing and increase or maintain market penetration and may have a material adverse effect on financial results.

Failure to Keep Pace with Rapidly Changing Markets for Wireless Communications would Significantly Harm Lightyear’s Business.

The technology and markets for wireless communications services change rapidly. Lightyear’s success depends, in part, on its ability to respond and adapt to change. Lightyear may be unable to compete effectively under, or adjust its contemplated plan of development to meet, changing market conditions. Lightyear cannot guarantee that it will be able to implement its strategy or that its strategy will be successful in these rapidly evolving markets. The markets for wireless communications services are also marked by the continuous introduction of new products and services and increased capacity for services similar to those Lightyear provides. Technological advances may also increase the efficiency of existing products or services. If a technology becomes available that is more cost-effective or creates a superior product, Lightyear may be unable to access this technology or finance the necessary substantial capital expenditures that may be required. Lightyear’s technology may be rendered less profitable or less viable by existing, proposed or as yet undeveloped technologies. Lightyear cannot guarantee that it will have the financial and other resources available to compete effectively against companies possessing such technologies. Lightyear cannot guarantee that it can adapt to technological changes or offer products or services on a timely basis to establish or maintain a competitive position.

If Lightyear Is Unable to Manage Planned Growth, Its Operations Could Be Adversely Impacted.

The management of planned growth will require, among other things, continued development of financial and management controls and management information systems, stringent control of costs and handset inventories, diligent management of network infrastructure and its growth, increased spending associated with marketing activities and acquisition of new customers, the ability to attract and retain qualified management personnel and the training of new personnel. In addition, continued growth will eventually require the expansion of billing, customer care and sales systems and platforms, which will require additional capital expenditures and may divert the time and attention of management personnel who oversee any such expansion. Furthermore, the implementation of any such systems or platforms, including the transition to such systems or platforms from existing infrastructure, could result in unpredictable technological or other difficulties. Failure to successfully manage expected growth and development, to enhance processes and management systems or to timely and adequately resolve any such difficulties could have a material adverse effect on Lightyear’s business, financial condition and results of operations.

7

The Loss of Key Personnel and Difficulty Attracting and Retaining Qualified Personnel Could Harm The Business.

Lightyear’s success depends heavily on the contributions of its employees and on attracting, motivating and retaining officers and other management and technical personnel. If we are unable to attract and retain the qualified employees that we need, the business may be harmed. The loss of key individuals in the future may have a material adverse impact on Lightyear’s ability to effectively manage and operate its business.

Risks Associated With Wireless Handsets Could Pose Product Liability, Health and Safety Risks That Could Adversely Affect Lightyear’s Wireless Business.

Lightyear does not manufacture the handsets or other equipment that it sells and generally relies on its suppliers to provide it with safe equipment. Lightyear’s suppliers are required by applicable law to manufacture their handsets to meet certain governmentally imposed safety criteria. However, even if the handsets it sells meet the regulatory safety criteria, Lightyear could be held liable, along with the equipment manufacturers and suppliers, for any harm caused by products it sells if such products are later found to have design or manufacturing defects. Lightyear generally has indemnification agreements with the manufacturers who supply it with handsets to protect it from direct losses associated with product liability, but it cannot guarantee that it will be fully protected against all losses associated with a product that is found to be defective.

Lightyear Relies Heavily on Third Parties to Provide Specialized Services, so a Failure by Such Parties to Provide the Agreed Upon Services Could Materially Adversely Affect our Business, Results of Operations and Financial Condition.

Lightyear depends heavily on suppliers and contractors with specialized expertise in order to efficiently operate its business. If key suppliers, contractors or third-party agents fail to comply with their contracts, fail to meet performance expectations or refuse or are unable to supply Lightyear in the future, business could be severely disrupted. Because of the costs and time lags that can be associated with transitioning from one supplier to another, business could be substantially disrupted if Lightyear were required to replace the products or services of one or more major suppliers with products or services from another source, especially if the replacement became necessary on short notice. Any such disruption could have a material adverse effect on Lightyear’s business, results of operations and financial condition.

System Failures Could Result in Higher Churn Rate, Reduced Revenue and Increased Costs, and Could Harm Lightyear’s Reputation.

Lightyear’s technical infrastructure (including functions such as service activation, billing and customer care) is vulnerable to damage or interruption from technology failures, power loss, floods, windstorms, fires, human error, terrorism, intentional wrongdoing, or similar events. Unanticipated problems at its facilities, system failures, hardware or software failures, computer viruses or hacker attacks could affect the quality of services and cause network service interruptions. If any of the above events were to occur, Lightyear could experience higher churn rate, reduced revenues and increased costs, any of which could harm its reputation and have a material adverse effect on business.

Security Breaches Could Damage our Reputation and Harm our Operating Results.

We are subject to cyber security risks and may incur increasing costs in an effort to minimize those risks. The services we offer involve the storage and transmission of customers’ proprietary information. Security breaches, such as unauthorized access, accidents, employee error or malfeasance, computer viruses, computer hackings or other disruptions, can occur that could compromise the security of our infrastructure, thereby exposing such information to unauthorized access by third parties. Techniques used to obtain unauthorized access to, or to sabotage systems, change frequently and generally are not recognized until launched against a target. We may be required to expend significant capital and other resources to remedy, protect against or alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. Any security breaches that occur could damage our reputation, increase our security costs, expose us to litigation and lead to the loss of existing or potential customers. If our services are perceived as not being secure, our business may be adversely impacted.

Lightyear and Its Suppliers May Be Subject to Claims of Infringement Regarding Telecommunications Technologies That Are Protected By Patents and Other Intellectual Property Rights.

Telecommunications technologies are protected by a wide array of patents and other intellectual property rights. As a result, third parties may assert infringement claims against Lightyear or its suppliers from time to time based on general business operations, the equipment, software or services that are used or provided, or the specific operation of Lightyear’s wireless networks. Lightyear generally has indemnification agreements with the manufacturers, licensors and suppliers who provide it with the equipment, software and technology that it uses in its business to protect it against possible infringement claims, but Lightyear cannot guarantee that it will be fully protected against all losses associated with infringement claims. Lightyear’s suppliers may be subject to infringement claims that could prevent or make it more expensive for them to supply Lightyear with the products and services required to run Lightyear’s business.

8

If Lightyear Experiences High Rates of Credit Card, Subscription or Dealer Fraud, Its Ability to Generate Cash Flow Will Decrease.

Lightyear’s operating costs can increase substantially as a result of customer credit card, subscription or dealer fraud. Lightyear has implemented a number of strategies and processes to detect and prevent efforts to defraud it, and it believes that its efforts will substantially reduce these types of fraud. However, if its strategies are not successful in detecting and controlling fraud in the future, the resulting loss of revenue or increased expenses could have a material adverse impact on Lightyear’s financial condition and results of operations.

Federal and State Telecommunications Regulations May Limit Lightyear’s Business Flexibility and Increase Costs.

Lightyear is regulated by the FCC as a non-dominant carrier subject to regulation under the Communications Act of 1934, as amended, with respect to its interstate services, including the use of its local phone lines and Integrated Access services to originate or terminate interstate long-distance calls for other carriers. The FCC requires all telecommunications service providers, including non-dominant carriers such as Lightyear, to maintain authorizations to provide or resell domestic long distance and international services. The FCC generally has the power to modify or terminate a carrier’s authority to provide domestic long distance or international services for failure to comply with federal laws or FCC regulations and may impose fines or other penalties for violations. In addition, the FCC maintains jurisdiction to act upon complaints filed against any telecommunications service provider for failure to comply with statutory or regulatory obligations.

In most states, Lightyear may not begin to provide local and intrastate telecommunications services until it obtains a certificate of public convenience and necessity from the state public utility commission and complies with applicable state regulations, including, in most states, the requirement to file tariffs setting forth Lightyear’s terms and conditions for providing services. Certificates of authority can be conditioned, modified, canceled, terminated or revoked by state regulatory authorities for a carrier’s failure to comply with state laws or rules, regulations and policies of state regulatory authorities. State utility commissions generally have authority to supervise telecommunications service providers in their states and to enforce state utility laws and regulations. Fines or other penalties also may be imposed for violations.

Both the FCC and the state public utility commissions have the legal authority to regulate Lightyear’s prices for telecommunications services within their respective jurisdictions. In practice, because the services Lightyear offers generally are competitive, pricing is usually not restricted by regulators. However, the FCC and several states have adopted rules prohibiting Lightyear from increasing its prices for some services above the levels charged by the incumbent local telephone companies for the same services.

Both the FCC and the state public utility commissions typically require Lightyear to file periodic reports, pay various regulatory fees and assessments, and comply with regulations governing service quality, billing, consumer protection and other similar issues. Because complying with these regulations can be costly and burdensome, the imposition of new regulations by the FCC or in a particular state may adversely affect the profitability of Lightyear’s services.

Several of the states in which Lightyear operates require public utility commission approval before the transfer of a carrier’s authority to operate within the state, the transfer of its assets to a new entity, or a change in the control of an entity that controls a carrier operating within the state. The FCC also prohibits carriers from selling, assigning, or transferring control of their interstate and international operating authorizations without its prior approval. Some states also regulate a carrier’s issuance of securities, incurrence of debt, or pledges of security in support of such debt. These requirements can delay, and increase the cost to complete, various financing transactions, including future stock or debt offerings, the sale of part or all of the regulated business, or the acquisition of assets and other entities to be used in the regulated business.

The regulatory framework under which Lightyear operates is subject to change by new federal or state legislation, regulatory agency decisions, and court rulings. Changes in regulation could affect Lightyear’s ability to raise or lower prices, to introduce new services, or to enter new markets, as well as affecting the cost of the underlying services that Lightyear resells and the prices for regulated services offered by larger carriers against which Lightyear competes. Also, compliance with changes in regulation may increase Lightyear’s cost of operations. Any of these factors may affect Lightyear’s profit margins in ways that are impossible to predict.

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Lightyear’s Revenue Could Be Adversely Affected By Access Reform At Either the Federal or State Level.

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. Because Lightyear-KY meets the standards of this definition, it is permitted 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. The Order has two major provisions: (i) the elimination of terminating switched access rates and other per-minute charges between service providers by 2020, through annual reduction in rates, and (ii) a framework for reform aiming to provide future funding based on an efficient forward-looking model and redirect support to drive broadband expansion in high-cost areas.

In addition, the Kentucky Public Service Commission initiated a proceeding regarding access reform in November of 2010. The current Lightyear-KY intrastate rates are based on the costs of providing telecommunications services to rural areas. The PSC established the above mentioned administrative case to examine the intrastate access rates of all local exchange carriers. In November 2012, the PSC closed the proceeding after concluding that the FCC Order had preempted the PSC from acting on access reform.

Lightyear Relies on Other Carriers to provide it with Critical Parts of its Network under a Regulatory Framework that May Change.

Lightyear purchases a majority of its services and facilities from other telecommunications carriers to resell to its customers. In some cases, Lightyear depends on existing laws and regulations that require incumbent local exchange carriers to provide particular services and facilities to competitive carriers and that control the prices that the incumbent carriers may charge for these services. Regulatory developments may reduce the extent to which incumbent carriers are required to lease these network facilities to Lightyear or may permit incumbent carriers to increase the prices they charge for such lines or impose unacceptable terms and conditions. Changes in law or regulation could limit or terminate Lightyear’s affordable access to the network components it needs to provide voice and data services.

Failure to Comply with Laws or Regulations Could Result in Fines and Harm Lightyear’s Financial Condition.

The FCC has established a universal service subsidy regime known as the “Universal Service Fund,” which provides subsidies for the provision of telecommunications and information services to rural and other high-cost areas. Providers of interstate telecommunications services such as Lightyear must pay contributions that fund these subsidies. The FCC currently assesses Universal Service Fund contributions based on a percentage of each telecommunications provider’s projected interstate and international telecommunications gross revenue from sales to end users. Carriers are permitted to pass through their Universal Service Fund contribution assessment to their customers in a manner consistent with FCC billing regulations. The FCC also imposes other periodic fees based on revenue on carriers like Lightyear. If the FCC were to determine that Lightyear has not properly reported its gross revenues from telecommunication services or has not paid all universal service contributions for which it is liable, Lightyear could be subject to substantial penalties and fines.

In July 2008, the Enforcement Bureau of the FCC notified Lightyear that it was investigating allegations that Lightyear may have violated certain FCC rules related to the payment of regulatory fees since January 2005. Lightyear responded to the data request in September 2008 and provided information concerning Lightyear’s Universal Service Fund contributions and other regulatory fees. In August 2012, the FCC asked for updated information and Lightyear responded in October 2012. Lightyear believes that it has paid all applicable regulatory fees. In May 2012, Lightyear executed a tolling agreement with the FCC extending the statute of limitations until April 15, 2013 with respect to the investigation.

Federal regulations protect the privacy of certain subscriber data that telecommunications carriers such as Lightyear acquire in the course of providing their services. This information is referred to as “Customer Proprietary Network Information,” or “CPNI,” and includes information related to the quantity, technological configuration, type, destination and the amount of use of a communications service. FCC rules require all telecommunications carriers to adopt safeguards to prevent unauthorized release of customer information and impose restrictions on the use of CPNI for marketing purposes. Federal regulations also require Lightyear to provide certain technical capabilities in its network, including its VoIP services, to enable law enforcement agencies to monitor communications using its services when authorized by a subpoena or other court order. If Lightyear is unable to comply with a law enforcement agency's request for network access, or for specific information about communications using its services, due to its failure to maintain the required technical capabilities, it could be subject to FCC enforcement action and potential financial penalties.

Lightyear is also required to comply with various other FCC regulations affecting its services, such as rules prescribing the manner and form of its bills. A violation of any of these regulatory requirements by Lightyear could subject it to significant fines or other regulatory penalties, up to and including the revocation of its ability to provide services as a telecommunications carrier.

10

Lightyear’s E-911 VoIP Calling Services May Expose it to Significant Liability.

Lightyear’s E-911 calling service for its VoIP services is different, in significant respects, from the emergency calling services offered by traditional wireline telephone companies. In each case, those differences may cause significant delays, or even failures, in callers’ receipt of the emergency assistance they need.

The FCC has issued several orders and regulations since 2005 requiring VoIP providers to ensure their customers receive emergency services and E-911 services. Lightyear utilizes a nationally recognized third-party provider to furnish emergency services and E-911 services to its VoIP customers and Lightyear believes that it is in compliance with all applicable orders and regulations related to providing emergency services and E-911 services. However, failure to comply with FCC regulations requiring provision of E-911 emergency calling could subject Lightyear to fines and penalties, including disconnection of our service to certain customers and prohibitions on marketing of our services and accepting new customers in certain areas. Lightyear may also be liable directly to customers for failures of emergency calling services.

Inability to Retain Existing Independent Agents and Representatives and to Recruit Additional Agents and Representatives Could Result in Flat or Decreasing Revenue.

Lightyear distributes almost all of its products through independent agents and representatives and it depends on them to generate virtually all of Lightyear’s revenue. Agents and representatives that have committed time and effort to build a sales organization will generally stay for longer periods. There is a high rate of turnover among Lightyear’s representatives which is characteristic of the Direct Sales business, and Lightyear has experienced periodic declines in both active agents and representatives in the past. As a result, in order to maintain sales and increase sales in the future, Lightyear needs to continue to retain existing agents and representatives and recruit additional agents and representatives to increase Lightyear’s revenue.

Improper Agent or Representative Actions in Violation of Laws or Regulations Could Harm Lightyear’s Business.

Agent and representative activities in Lightyear’s existing markets that violate governmental laws or regulations could result in governmental actions against Lightyear in markets where it operates, which would harm Lightyear’s business. Lightyear’s agents and representatives are not employees and act independently of Lightyear. Lightyear implements strict policies and procedures to ensure its agents and representatives will comply with legal requirements. However, given the size of Lightyear’s agent and representative force, Lightyear does experience problems with agents and representatives from time to time, which could result in a material adverse effect on Lightyear’s business and results of operations.

Changes to Lightyear’s Compensation Arrangements with its Agents and Distributors Could Harm Agent and Representative Productivity.

Lightyear modifies components of its compensation plan from time to time in an attempt to keep its compensation plan competitive and attractive to existing and potential agents and representatives, to address changing market dynamics, to provide incentives to agents and representatives that Lightyear believes will help grow the business, and to address other business needs. Because of the size of Lightyear’s agent and representative force and the complexity of Lightyear’s compensation plans, it is difficult to predict whether such changes will achieve their desired results.

Adverse Publicity Could Harm Lightyear’s Business and Reputation.

The size of Lightyear’s distribution force and the results of Lightyear’s operations can be particularly impacted by adverse publicity regarding Lightyear, the nature of Lightyear’s agent and representative network, Lightyear’s products or the actions of Lightyear’s agents or representatives. Specifically, Lightyear is susceptible to adverse publicity concerning:

· Suspicions about the legality and ethics of network marketing;

· Regulatory investigations of Lightyear or its competitors;

· The actions of Lightyear’s current or former agents or representatives; and

· Public perceptions of direct selling business generally.

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Failure of Lightyear’s Network Marketing Program to Comply with Laws and Regulations in One or More Markets Could Prevent Lightyear from Conducting its Business in those Markets.

Lightyear’s direct sales/network marketing program is subject to a number of federal and state regulations administered by the FTC and various state agencies in the United States. Lightyear is subject to the risk that, in one or more markets, its direct sales/network marketing program could be found not to be in compliance with applicable law or regulations. Regulations applicable to network marketing organizations generally are directed at preventing fraudulent or deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization’s products rather than investments in the organization or other non-retail sales-related criteria. The regulatory requirements concerning network marketing programs do not include “bright line” rules and are inherently fact-based, and thus, even in jurisdictions where Lightyear believes that its network marketing program is in full compliance with applicable laws or regulations governing network marketing systems, Lightyear is subject to the risk that these laws or regulations or the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change. The failure of Lightyear’s network marketing program to comply with current or newly adopted regulations could negatively impact Lightyear’s business in a particular market or in general.

Lightyear is also subject to the risk of private party challenges to the legality of its network marketing program. The multi-level marketing programs of other companies have been successfully challenged in the past, resulting in monetary damages and injunctive relief.

Lightyear May Be Held Responsible for Taxes and Assessments Relating to the Activities of Its Agents and Representatives.

Lightyear’s agents and representatives are subject to taxation, and in some instances, legislation or governmental agencies impose an obligation on Lightyear to collect taxes, such as value added taxes, and to maintain appropriate records. In addition, Lightyear is subject to the risk in some jurisdictions of being responsible for social security and similar taxes with respect to Lightyear’s agents and representatives. If local laws and regulations or the interpretation of local laws and regulations change to require Lightyear to treat its independent agents and representatives as employees, or if Lightyear’s agents or representatives are deemed by local regulatory authorities in one or more of the jurisdictions in which Lightyear operates to be employees rather than independent contractors under existing laws and interpretations, Lightyear may be held responsible for social security and related taxes in those jurisdictions, plus any related assessments and penalties, which could harm Lightyear’s financial condition and operating results.

Current Insurance May Not Provide Adequate Levels of Coverage Against Claims.

Lightyear currently maintains insurance customary for businesses of its size and type. However, there are types of losses Lightyear may incur that cannot be insured against or that Lightyear believes are not economically reasonable to insure. Such damages could have a material adverse effect on Lightyear’s business and results of operations.

Risks Relating To Ownership of Lightyear Common Stock.

There May Not Be a Public Market for Lightyear Common Stock.

There is not and has never been an active trading market for Lightyear Common Stock. Currently, Lightyear Common Stock trades on the OTC Markets and is very thinly traded. A trading market may never develop in Lightyear Common Stock. Investors must be prepared to bear the economic risk of holding the securities for an indefinite period of time.

Lightyear’s Business Is Subject to the Reporting Requirements of the Federal Securities Laws.

Lightyear is a public reporting company and, accordingly, subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders cause business expenses to be higher than they would be if the business were privately-held.

The Sarbanes-Oxley Act and rules implemented by the SEC require us to maintain certain corporate governance practices as a public company.  Furthermore, Lightyear must maintain sufficient internal accounting and disclosure controls under the Sarbanes-Oxley Act. If Lightyear is unable to comply with the corporate governance and internal controls requirements of the Sarbanes-Oxley Act, then it may preclude Lightyear from keeping its filings current with the SEC.

12

Lightyear Common Stock May Be Subject to Penny Stock Rules, Which Could Affect Trading.

As long as the trading price of Lightyear’s common stock is below $5 per share, the open-market trading of Lightyear’s common stock will be subject to the “penny stock” rules, unless Lightyear otherwise qualifies for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets, excluding the value of the investor’s primary residence, in excess of $1.0 million or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if applicable, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of the Lightyear’s common stock, reducing the liquidity of an investment in Lightyear’s common stock and increasing the transaction costs for sales and purchases of Lightyear’s common stock as compared to other securities.

Securities Regulations May Limit the Number of Securities That May Be Registered Pursuant to the Exercise of Registration Rights by Investors.

Purchasers of Lightyear securities in previous offerings of securities have the right to demand registration of those securities. Based upon the current interpretation of Rule 415 promulgated by the SEC under the Securities Act of 1933, as amended, it is not likely that we could register all such securities in a single registration, if all such holders demanded such registration.

Because Lightyear was Formerly a Shell Company, Shares of Its Common Stock May Remain Indefinitely Restricted in the Hands of the Initial Investor.

Rule 144 is unavailable for the resale of securities of a former shell company unless (i) that company has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act, excluding Current Reports on Form 8-K, for the previous 12 months (the “Evergreen Provision”), and (ii) one year has elapsed since the company filed “Form 10 information” with the SEC. Libra became a shell company on June 30, 1998 and ceased to be a shell company in the reverse merger transaction with Lightyear.

Lightyear filed Form 10 Information with the SEC on March 31, 2010 and, since that date, has satisfied the Evergreen Provision. However, because the Evergreen Provision’s filing requirements are perpetual, if Lightyear failed to make such a filing or if our board or stockholders, as applicable, voted to take Lightyear private, securities issued by Lightyear since the date it became a shell would again become unavailable for the Rule 144 safe harbor.

Because Some of Lightyear’s Directors Are Members of LY Holdings, They Can Exert Significant Control Over Lightyear’s Business and Affairs and Have Actual or Potential Interests That May Depart From Those of Lightyear’s Other Stockholders.

Two of Lightyear’s directors are members of LY Holdings which is Lightyear’s largest stockholder. The interests of such persons may differ from the interests of Lightyear’s other Common Stockholders. As a result, in addition to their board seats, such persons have significant influence over corporate actions.

LY Holdings’ ownership of Lightyear stock may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of Lightyear, which in turn could reduce Lightyear’s stock price or prevent stockholders from realizing a premium over the stock price.

Item 1B. Unresolved Staff Comments.

Not applicable.

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Item 2. Properties.

We lease approximately 75,000 square feet of an office building in Louisville, Kentucky which houses approximately 85 employees and serves as our corporate headquarters. We lease an office building in Pikeville, Kentucky which houses approximately 55 employees for customer care and administrative functions.

On January 17, 2013, we exercised an option under a prior lease on the Pikeville property. The option gave us the right to purchase the leased premises for $841,872. Pursuant to its terms, the prior lease was terminated upon exercise of the option. Immediately following our purchase of the leased premises, we sold the Pikeville premises along with five additional adjacent properties to the City of Pikeville, Kentucky for a cash purchase price of $1,275,000. Concurrently, we entered into an agreement to lease the Pikeville premises back from the new owner until April 30, 2013. In consideration of our sale of the leased premises to the landlord, the landlord agreed not to charge rent during the term of the lease. On February 18, 2013, we entered into an agreement to lease approximately 17,000 square feet of an office building in Pikeville, Kentucky which will house the aforementioned customer care and administrative functions.

We believe that our properties are adequate and suitable for our business as presently conducted.

Item 3. 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 have denied the allegations. Mr. Halpern claimed damages of $750,000. On September 26, 2012, the Court granted our Motion to Dismiss, but provided Mr. Halpern with 30 days to amend his complaint to provide more details concerning the claim. On October 25, 2012, Mr. Halpern filed a motion to file the First Amended Complaint and we objected. On January 23, 2013, the Court granted Mr. Halpern’s Motion for Leave to Amend the Complaint. On February 11, 2013, we filed our Answer to the Amended Complaint. We notified our insurance carriers concerning this matter and continue to contest the allegations vigorously. We have not recorded a provision as we are unable to state that an outcome in this matter will be unfavorable or estimate the amount or range of a potential loss.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock has been listed and quoted on the OTCQB marketplace or its predecessors under the symbol “LYNS” since April 13, 2010. From February 12, 2010 to April 13, 2010, our common stock was listed and quoted on the OTCBB under the symbol “LBAL”. There is not an established public trading market for shares of our common stock, and, as a result, our common stock is thinly traded. The high and low bid prices below may not reflect a true market value of shares of our common stock.

The following table sets forth the high and low bid prices for our common stock for the periods indicated, as reported by the OTCQB:

	High		Low
Fiscal Year 2011
First Quarter	$	3.25	$	1.55
Second Quarter		2.25		0.51
Third Quarter		1.00		0.16
Fourth Quarter		0.45		0.15
Fiscal Year 2012
First Quarter	$	0.55	$	0.20
Second Quarter		0.45		0.10
Third Quarter		0.19		0.07
Fourth Quarter		0.10		0.04

We have 208 holders of record of our common stock as of March 27, 2013.

We have not declared or paid any cash dividends on our common stock and do not anticipate declaring or paying any cash dividends in the foreseeable future. Dividends may be paid on our common stock only if and when declared by our board of directors.

Securities Authorized for Issuance under Equity Compensation Plans

The following table contains information about our common stock that may be issued upon the exercise of options and upon the vesting of restricted stock awards under our equity compensation plan as of December 31, 2012. See “Executive Compensation – 2010 Stock and Incentive Compensation Plan” for a description of our equity compensation plan.

			Weighted-average		Number of securities
	Number of securities		exercise price of		remaining available for
	to be issued upon		outstanding options		future issuance under
	exercise of		(does not include		equity compensation plans
	outstanding options		restricted stock awards)		(excluding securities
	(a)		(b)		reflected in column (a))
Equity compensation plans approved by security holders		738,832	$	0.29		248,181
Total		738,832	$	0.29		248,181

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Recent Sales of Unregistered Securities

During the fourth quarter of the fiscal year covered by this report, we did not issue any securities that were not registered under the Securities Act of 1933, as amended, (the “Securities Act”) except as previously reported in a quarterly report on Form 10-Q or on a current report on Form 8-K.

Recent Repurchases of Common Stock

There were no repurchases of our common stock during the fourth quarter of the fiscal year covered by this report.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of results of operations and financial condition is based upon, and should be read in conjunction with, our consolidated financial statements and accompanying notes thereto included elsewhere in this Form 10-K. This discussion contains forward-looking statements. Actual results could differ materially from the results discussed in the forward-looking statements. Please see “Forward-Looking Statements” and “Risk Factors” for a discussion of some of the uncertainties, risks and assumptions associated with these statements.

Overview

Lightyear, through its wholly owned subsidiaries, Lightyear Network Solutions, LLC, a Kentucky limited liability company (“Lightyear LLC”) and 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, whose operations are insignificant.

Lightyear provides telecommunications services in 49 states and Puerto Rico and is a licensed local carrier in 43 states. We sell our products and services primarily through a distribution network of approximately 150 authorized independent agents and more than 6,300 independent representatives.

Lightyear provides service to approximately 65,000 customer locations as of December 31, 2012. 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 continue to work 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 also intend to continue to search for combinations with small to mid-sized competitors that can enhance shareholder value. These combinations may take the form of an acquisition, sale or merger. Potential combination candidates are expected to meet specific criteria including combinations of the following:

· Supporting or providing Cloud based services;

· EBITDA positive;

· Ability to remove duplicative overhead costs;

· Increasing our gross margin by layering our customer base on an owned network.

Upon locating a suitable combination candidate, we anticipate entering into a non-binding letter of intent to set forth the basic business terms of the potential combination, which could be subject to various closing conditions, including due diligence, the negotiation of definitive combination documents, regulatory consents and other customary matters. Factors which may affect future combination decisions include the quality and potential profitability of the business under consideration, our profitability and impact on shareholder value.

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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 estimate that the Order could have the impact of reducing our base year rates by less than 1% during 2012 and 2013, and by approximately 1.5% and 2.8% in 2014 and 2015, respectively.

Results of Operations

Revenues

Our revenues are primarily derived from the sales and provision of the following services:

· Voice Services

· Local Services

· VoIP Services

· Data Services

· Wireless Services

· Representative Fees

· Regulatory Revenue

· Other 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:

· 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;

· depreciation and amortization, including depreciation of long-lived property, plant and equipment and amortization of intangible assets where applicable;

· bad debt expense represents an estimate of the incremental non-collectible receivables; and

· 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; and 

· impairment expense represents the writedown of the carrying value of intangible assets or property and equipment to their fair market value.

Other (Expense) Income

Other (expense) income includes:

· interest income – related parties represents interest earned on the notes receivable from LY Holdings that were extinguished in November 2011;

· interest expense represents interest payable on notes payable to financial institutions or on capital lease obligations;

· interest expense – related parties represents interest payable on a non-current note payable to a Company director;

· gain on sale of fixed assets represents the excess of sale proceeds over the carrying value of the related fixed assets; and

· loss on abandonment of property represents the writedown of the carrying value of the abandoned property and equipment.

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Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Overview

Loss from operations was $1.8 million and $0.9 million for the years ended December 31, 2012 and 2011, respectively. Profitability decreased $0.9 million, due to a $3.1 million reduction in gross profit (due to a 6% decline in revenues and a 3% decline in the gross profit percentage) partially offset by a $2.2 million reduction in operating expenses (primarily headcount and related costs).

Revenues

Revenues were approximately $66.4 million and $70.5 million, respectively, for the years ended December 31, 2012 and 2011, a decrease of $4.1 million or 6%. The decrease of $4.1 million resulted primarily from continued market pressures, including heightened competition and a market shift toward lower revenue technologies (e.g. VoIP and wireless), partially offset by the benefits of an increase in wireless subscribers. The following table presents our operating revenues by product category for the years ended December 31, 2012 and 2011.

	(in millions)
	For The Years Ended
	December 31,
	2012		2011
Voice service	$	16.2	$	17.5
Local service		27.0		29.7
VoIP		3.4		3.5
Data services		7.1		7.3
Wireless services		5.2		4.0
Representative fees		1.5		3.7
Regulatory revenue		3.0		3.2
Other services		3.0		1.6
	$	66.4	$	70.5

Cost of Revenues

Cost of revenues for the years ended December 31, 2012 and 2011 amounted to approximately $44.3 million (67% of revenue) and $45.2 million (64% of revenue), respectively, a decrease of $0.9 million or 2%. See gross profit discussion.

Gross Profit

Gross profits were approximately $22.2 million (33% of revenue) and $25.3 million (36% of revenue), respectively, for the years ended December 31, 2012 and 2011, a decrease of $3.1 million or 13%, or a 3% change in the gross margin percentage. The decline in revenues has been concentrated in the higher-margin revenue streams, such that the decline in the gross margin percentage is a function of the revenue mix, plus recent unfavorable charges and fewer credits from carriers.

Operating Expenses

Operating expenses decreased $2.2 million, or 9%, to $24.0 million from $26.2 million for the years ended December 31, 2012 and 2011, respectively. The decrease was primarily attributable to a 19% decline in full-time employees from 173 at December 31, 2011 to 140 at December 31, 2012. In addition, lesser declines in commission expense (due to the revenue decline) and depreciation/amortization expense (primarily due to 2011 asset sales) were offset by an impairment charge of approximately $938,000 associated with long-lived assets (resulting from the January 2013 asset sale).

Other (Expense) Income

Interest income declined 96% from $0.6 million due to the elimination of certain notes receivable due from related parties. Interest expense decreased $0.2 million or 25% to $0.5 million from $0.7 million, due principally to lower rates on indebtedness and lower aggregate principal balances on existing facilities, which declined from approximately $11.5 million at December 31, 2011 to approximately $10.5 million at December 31, 2012.

18

Liquidity and Capital Resources

Overview

Lightyear has a stockholders’ deficiency of approximately $4.5 million. As a result, we have carefully managed our cash receipts and disbursements, as well as our operating costs in order to maintain our level of cash. As of December 31, 2012, Lightyear had a cash balance of $48,424 and a working capital deficit of $2.1 million.

We have instituted cost reductions, raised our customer credit requirements, and implemented efforts to increase revenues through targeted promotions, all toward the goal of achieving positive cash flow from operations. During the year ended December 31, 2012, we generated $1.4 million of cash flow from operating activities and used $0.3 million and $1.1 million to purchase property and equipment and to service debt, respectively.

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, 2013, the Company director agreed to forbear from demanding payment of the principal balance until February 28, 2014.

In addition, we have a secured promissory note arrangement with a bank with a principal balance of approximately $1.6 million at December 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 November 6, 2012, the bank waived two third quarter 2012 debt covenant violations that resulted from earnings forecast shortfalls. In addition, the bank waived the same two debt covenants for the fourth quarter of 2012. On March 29, 2013, the bank elected to eliminate the earnings-related debt covenants effective January 1, 2013 for the balance of the loan term.

Years Ended December 31, 2012 and 2011

Operating Activities

Net cash provided by operating activities was $1.4 million for the year ended December 31, 2012 compared to less than $0.1 million of net cash provided for the year ended December 31, 2011. The amount provided during the year ended December 31, 2012 was primarily due to a net loss of $2.3 million, positively adjusted for non-cash expenses in the aggregate amount of $4.0 million, and $0.3 million of cash used to fund changes in operating assets and liabilities. The amount provided during the year ended December 31, 2011 was primarily due to a net loss of $0.6 million, positively adjusted for non-cash expenses in the aggregate amount of $2.7 million, and $2.1 million of cash used to fund changes in operating assets and liabilities.

Investing Activities

Net cash used in investing activities was $0.3 million for the year ended December 31, 2012 compared to $0.8 million for the year ended December 31, 2011. The usage of cash during the year ended December 31, 2012 was attributable to purchases of property and equipment. The usage of cash during the year ended December 31, 2011 was attributable to $1.1 million of purchases of property and equipment, partially offset by $0.3 million of proceeds from the sale of fixed assets.

Financing Activities

Net cash used in financing activities was $1.1 million for the year ended December 31, 2012 compared to $0.1 million for the year ended December 31, 2011. The cash used in financing activities for the year ended December 31, 2012 related to principal payments made on the Company’s notes payable and capital lease obligations. The cash used in financing activities for the year ended December 31, 2011 included repayments of $2.4 million against various obligations partially offset by $2.0 million of net proceeds from a new credit facility and $0.3 million of proceeds from the cash surrender value of a life insurance policy.

Potential Future Requirements and Sources of Liquidity

We believe that our current cash and cash expected to be generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements until at least the end of 2013. If we require additional funds, we might initiate additional cost reductions or seek additional capital through debt or equity financings. We may also seek extensions of the scheduled payment obligations, attempt to refinance our outstanding debt, or consider a sale of our net assets. No assurance can be provided that we will be successful with any of our efforts.

19

Our future capital requirements are expected to be driven by debt reduction and debt service. Our note payable – related party with an outstanding balance of $6.25 million as of December 31, 2012 currently is scheduled to mature on February 28, 2014. The related party has historically renegotiated the maturity date on the note, most recently on March 20, 2013. Prior to the maturity date of February 28, 2014, we may seek an additional extension from the related party, although no assurance can be provided that we will be successful.

Off Balance Sheet Arrangements

As of December 31, 2012, we have provided irrevocable standby letters of credit, aggregating approximately $100,000 to five states, which automatically renew for terms not longer than one year, unless notified otherwise. As of December 31, 2012 and December 31, 2011, these letters of credit had not been drawn upon.

Critical Accounting Policies

Our significant accounting policies, including the assumptions, estimates and judgments underlying them, are more fully described in our “Notes to Consolidated Financial Statements” included in this Form 10-K. Some of our accounting policies require the application of significant judgment by management in the preparation of the consolidated financial statements, and as a result, they are subject to a greater degree of uncertainty. In applying these policies, management uses its judgment to determine the appropriate assumptions to be used in calculating estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Lightyear has identified certain of its accounting policies as being most important to our consolidated financial condition and results of operations and which require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our 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.

Our critical accounting policies include the following:

Accounts Receivable

We have 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. Our 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.

Property and Equipment

Property and equipment is recorded at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value. The cost of additions and substantial betterments to property and equipment are capitalized. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. Improvements to leased assets or fixtures are amortized over their estimated useful lives or lease period, whichever is shorter. Leased property meeting certain criteria is capitalized and the present value of the related payments is recorded as a liability. Depreciation of capitalized leased assets is computed on the straight-line method over the lesser of the term of the lease or its economic life. Upon retirement or other disposition of these assets, the costs and related accumulated depreciation and amortization of these assets are removed from the accounts and the resulting gains or losses are reflected in the consolidated results of operations. Expenditures for maintenance and repairs are charged to operations as incurred.

Intangible Assets

Intangible assets are recorded at cost except for assets acquired using acquisition accounting, which are initially recorded at their estimated fair value. Intangible assets with definite lives include proprietary technology, covenants not to compete, a trade name and customer and agent relationships. Amortization is computed on a straight-line basis over the estimated useful lives of the intangible assets.

Intangible assets with indefinite lives include VoIP licenses and a trade name. VoIP licenses provide us with certain rights in connection with our VoIP products. We have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of the VoIP licenses. We acquired the rights to the Lightyear trade name and effectively have the ability to retain this exclusive right permanently at a nominal cost.

20

Impairment of Long-Lived Assets

We review the carrying value of intangibles and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

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. We provide administrative and support services to our agents and pay commissions based on revenues from the agents’ accounts. Amounts invoiced to customers in advance of services are reflected as deferred revenues.

We pay certain agents an initial lump sum commission. A portion of this commission is deferred and is amortized over a three month period.

Cost of revenue 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. We do not include excise and other sales related taxes in our revenues.

Income Taxes

Lightyear began being taxed as a corporation effective February 12, 2010, the date of our recapitalization. Our subsidiaries are organized as limited liability companies, and have elected to be treated as disregarded entities for income tax purposes, with taxable income or loss passing through to LNSI, the parent. Prior to February 12, 2010, we were organized as a partnership for income tax purposes and all income tax attributes were passed up to the member of Lightyear LLC.

We recognize deferred tax liabilities and assets for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax liabilities and assets are determined on the basis of the difference between the tax basis of liabilities and assets and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. As of December 31, 2012, we have recorded a valuation allowance for the amount of deferred tax assets that are not more than likely to be realized.

We account for uncertain tax positions based upon authoritative guidance that prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on derecognition, classification, interest and penalties, accounting in interim periods and related disclosure. We have evaluated and concluded that there were no material uncertain tax positions requiring recognition in our consolidated financial statements as of December 31, 2012. We file income tax returns with most states.

It is our policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses.

Stock-Based Compensation

We measure 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 vesting date and 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.

21

Recently Issued and Adopted Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, “Intangibles—Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment." This ASU simplifies the impairment testing of indefinite-lived intangible assets by eliminating the requirement to perform an annual quantitative test for impairment, unless a qualitative assessment reveals that impairment is likely. While the update is effective for impairment tests performed for fiscal years beginning after September 15, 2012, early adoption is permitted. We elected to adopt this ASU during the fourth quarter of 2012, which has altered our annual procedures, but did not have a material impact on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

Our consolidated financial statements and the related notes begin on Page F-1, which are included in this Annual Report on Form 10-K.

22

Lightyear Network Solutions, Inc. and Subsidiaries

Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of December 31, 2012 and 2011	F-2
Consolidated Statements of Operations for the Years Ended December 31, 2012 and 2011	F-3
Consolidated Statements of Changes in Stockholders' Deficiency for the Years Ended December 31, 2012 and 2011	F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011	F-5
Notes to Consolidated Financial Statements	F-7

23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the

Board of Directors and Shareholders

of Lightyear Network Solutions, Inc.

We have audited the accompanying consolidated balance sheets of Lightyear Network Solutions, Inc. and Subsidiaries (the “Company”) as of December 31, 2012 and 2011 and the related consolidated statements of operations, changes in stockholders’ deficiency, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lightyear Network Solutions, Inc. and Subsidiaries as of December 31, 2012 and 2011 and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcum LLP

Marcum LLP

New York, NY

April 1, 2013

F-1

Lightyear Network Solutions, Inc. and Subsidiaries

Consolidated Balance Sheets

	December 31,
	2012			2011
Assets
Current Assets:
Cash	$	48,424		$	108,133
Accounts receivable, net		4,694,100			5,237,404
Vendor deposits		1,894,522			1,771,028
Inventories, net		267,427			335,964
Prepaid expenses and other current assets		1,137,654			2,523,039
Total Current Assets		8,042,127			9,975,568
Property and equipment, net		5,511,426			7,161,057
Intangible assets, net		1,492,083			1,928,749
Total Assets	$	15,045,636		$	19,065,374
Liabilities and Stockholders' Deficiency
Current Liabilities:
Accounts payable	$	6,212,388		$	7,216,117
Interest payable - related parties		114,972			47,282
Accrued agent commissions		459,712			530,268
Accrued agent commissions - related parties		847			1,069
Deferred revenue		473,957			427,715
Other liabilities		1,667,724			1,876,163
Other liabilities - related parties		142,330			81,718
Current portion of notes payable		934,529			895,918
Current portion of capital lease obligations		164,662			239,203
Total Current Liabilities		10,171,121			11,315,453
Notes payable, non-current portion		2,400,441			3,334,992
Note payable - related party, non-current portion		6,250,000			6,250,000
Capital lease obligations, non-current portion		711,255			758,750
Deferred tax liability, non-current portion, net		37,830			326,683
Total Liabilities		19,570,647			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 December 31, 2012 and December 31, 2011		22,087			22,087
Note receivable from affiliate		(1,223,203	)		(1,223,203	)
Additional paid-in capital		10,148,545			9,490,226
Accumulated deficit		(13,472,440	)		(11,209,614	)
Total Stockholders' Deficiency		(4,525,011	)		(2,920,504	)
Total Liabilities and Stockholders' Deficiency	$	15,045,636		$	19,065,374

See Notes to these Consolidated Financial Statements

F-2

Lightyear Network Solutions, Inc. and Subsidiaries

Consolidated Statements of Operations

	For The Years Ended
	December 31,
	2012			2011
Revenues	$	66,440,789		$	70,495,597
Cost of revenues		44,281,234			45,158,389
Gross Profit		22,159,555			25,337,208
Operating Expenses
Commission expense		5,416,415			5,979,886
Commission expense - related parties		72,747			55,647
Depreciation and amortization		1,303,709			1,691,845
Bad debt expense		1,039,270			940,277
Selling, general and administrative expenses		15,100,955			17,104,471
Selling, general and administrative expenses - related party		96,769			199,231
Impairment of intangible assets		-			237,750
Impairment of property and equipment		938,270			-
Total Operating Expenses		23,968,135			26,209,107
Loss From Operations		(1,808,580	)		(871,899	)
Other (Expense) Income
Interest income		25,533			45,731
Interest income - related parties		-			570,967
Interest expense		(236,471	)		(310,581	)
Interest expense - related parties		(278,587	)		(376,734	)
Gain on sale of fixed assets		-			192,284
Loss on abandonment of property		-			(107,540	)
Other income		35,279			140,495
Total Other (Expense) Income		(454,246	)		154,622
Loss before income taxes		(2,262,826	)		(717,277	)
Income tax benefit		-			123,800
Net Loss		(2,262,826	)		(593,477	)
Deemed dividends to convertible preferred stockholders		-			(11,835,530	)
Loss Attributable to Common Stockholders	$	(2,262,826	)	$	(12,429,007	)
Net Loss Per Common Share - Basic and Diluted	$	(0.10	)	$	(0.57	)
Weighted Average Number of Common Shares Outstanding - Basic and Diluted		22,328,205			21,796,111

See Notes to these Consolidated Financial Statements

F-3

Lightyear Network Solutions, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Deficiency

For The Years Ended December 31, 2012 and 2011

													Notes
													And						Retained
	Convertible												Receivables			Additional			Earnings
	Preferred Stock						Common Stock						From			Paid-In			(Accumulated
	Shares			Amount			Shares			Amount			Affiliate			Capital			Deficit)			Total
Balance - December 31, 2010		9,500,000		$	9,500			20,306,292		$	20,306		$	(13,478,920	)	$	8,898,069		$	2,314,627		$	(2,236,418	)
Interest receivable associatedwith notes receivable from affiliate		-			-			-			-			(644,263	)		-			-			(644,263	)
Issuance of common stock inconnection with the cashlessexercise of milestone warrants		-			-			1,783,596			1,784			-			(1,784	)		-			-
Exchange of notes receivable asconsideration for redemption ofpreferred stock		(9,500,000	)		(9,500	)		-			-			12,899,980			-			(12,930,764	)		(40,284	)
Stock-based compensation		-			-			(3,247	)		(3	)		-			593,941			-			593,938
Net loss		-			-			-			-			-			-			(593,477	)		(593,477	)
Balance - December 31, 2011		-			-			22,086,641			22,087			(1,223,203	)		9,490,226			(11,209,614	)		(2,920,504	)
Stock-based compensation		-			-			-			-			-			658,319			-			658,319
Net loss		-			-			-			-			-			-			(2,262,826	)		(2,262,826	)
Balance - December 31, 2012		-		$	-			22,086,641		$	22,087		$	(1,223,203	)	$	10,148,545		$	(13,472,440	)	$	(4,525,011	)

See Notes to these Consolidated Financial Statements

F-4

Lightyear Network Solutions, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	For The Years Ended
	December 31,
	2012			2011
Cash Flows From Operating Activities
Net loss	$	(2,262,826	)	$	(593,477	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		1,303,709			1,691,845
Provision for bad debt expense		1,039,270			940,277
Provision for inventory reserve		-			17,205
Stock-based compensation		658,319			593,938
Interest income from affiliate		-			(570,967	)
Deferred taxes		-			(123,800	)
Gain on sale of fixed assets		-			(192,284	)
Loss on abandonment of property		-			107,540
Impairment of intangible assets		-			237,750
Impairment of property and equipment, net		938,270			-
Changes in operating assets and liabilities:
Accounts receivable		(495,966	)		(27,257	)
Other assets		-			(5,254	)
Vendor deposits		(123,494	)		(84,117	)
Inventories		68,537			(19,614	)
Prepaid expenses and other current assets		1,385,385			(235,164	)
Accounts payable		(1,003,729	)		56,001
Interest payable - related parties		67,690			(66,536	)
Accrued agent commissions		(70,556	)		(39,565	)
Accrued agent commissions - related parties		(222	)		(23,967	)
Deferred revenue		46,242			(1,589,473	)
Other liabilities		(208,439	)		(10,061	)
Other liabilities - related parties		60,612			(15,665	)
Total Adjustments		3,665,628			640,832
Net Cash Provided by Operating Activities		1,402,802			47,355
Cash Flows From Investing Activities
Purchases of property and equipment		(318,305	)		(1,145,994	)
Proceeds from sale of fixed assets		-			321,277
Net Cash Used in Investing Activities		(318,305	)		(824,717	)
Cash Flows From Financing Activities
Repayments of obligations payable - related party		-			(1,000,000	)
Repayments of capital lease obligations		(248,266	)		(336,096	)
Repayments of notes payable		(895,940	)		(670,346	)
Repayments of short term borrowings		-			(320,428	)
Proceeds from notes payable		-			2,000,000
Proceeds from cash surrender value of life insurance		-			316,736
Payments of preferred stock redemption costs		-			(113,580	)
Net Cash Used In Financing Activities		(1,144,206	)		(123,714	)
Net Decrease In Cash		(59,709	)		(901,076	)
Cash - Beginning		108,133			1,009,209
Cash - Ending	$	48,424		$	108,133

See Notes to these Consolidated Financial Statements

F-5

Lightyear Network Solutions, Inc. and Subsidiaries

Consolidated Statements of Cash Flows - Continued

	For The Years Ended
	December 31,
	2012		2011
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	436,404	$	758,269
Non-cash investing and financing activites:
Convertible preferred stock redemption	$	-	$	(9,500	)
Stock issued in connection with cashless milestone warrant exercise	$	-	$	1,784
Purchase of property and equipment via capital lease	$	126,230	$	143,370

See Notes to these Consolidated Financial Statements

F-6

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note A – Description of Business

Lightyear Network Solutions, Inc., a Nevada corporation (“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”) (collectively, “Lightyear” or the “Company”).

Lightyear LLC, the original operating subsidiary of the Company, had formerly been a wholly-owned subsidiary of LY Holdings, LLC (“LY Holdings”) and has conducted operations in substantially their present form since 2004.

In February 2010, LY Holdings entered into a reverse merger transaction with Libra Alliance Corporation (“Libra”), accounted for as a recapitalization of Lightyear LLC, with the result that Lightyear became a public company and began trading on the OTC Bulletin Board. Libra was then renamed “Lightyear Network Solutions, Inc.” and began operating Lightyear’s business of providing telecommunications service.

On October 1, 2010, Lightyear, through Lightyear-KY, purchased the business assets of Southeast Telephone, Inc. (“SETEL”), a Kentucky corporation, from SETEL’s bankruptcy estate.

Lightyear provides telecommunications services throughout the United States and Puerto Rico primarily through a distribution network of authorized independent agents and representatives. 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 is a licensed local carrier in 43 states and provides long distance service in 49 states and Puerto Rico. Lightyear delivers service to approximately 65,000 customer locations. 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”), 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.

Note B – Summary of Significant Accounting Policies

Liquidity Plan

As of December 31, 2012, Lightyear had a cash balance of $48,424 and a working capital deficit of $2.1 million. For the year ended December 31, 2012, the Company’s operating activities provided $1.4 million of cash, while $0.3 million and $1.1 million were used to purchase property and equipment and to service debt, respectively. 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 until at least the end of 2013. If the Company requires additional funds, the Company might initiate additional cost reductions or seek additional capital through debt or equity financings. The Company may also seek extensions of the scheduled payment obligations, attempt to refinance its outstanding debt, or consider a sale of the net assets of the Company. No assurance can be provided that the Company will be successful with any of its efforts.

The Company’s future capital requirements are expected to be driven by debt reduction and debt service. The Company’s note payable – related party with an outstanding balance of $6.25 million as of December 31, 2012 currently is scheduled to mature on February 28, 2014. As disclosed in Note I, the related party has historically renegotiated the maturity date on the note, most recently on March 20, 2013. Prior to the maturity date of February 28, 2014, the Company may seek an additional extension from the related party, although no assurance can be provided that the Company will be successful.

Principles of Consolidation

The balance sheets, statements of operations and cash flows of the Company and its wholly-owned subsidiaries have been included in the 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.

F-7

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note B – Summary of Significant Accounting Policies – Continued

Estimates

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“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 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.

Cash

The Company maintains cash in bank accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible. As of December 31, 2012 and 2011, accounts payable included approximately $1,344,000 and $1,159,000, respectively, of checks that had been issued but had not cleared the bank.

Accounts Receivable

Accounts receivable are shown net of an allowance for doubtful accounts of $772,479 and $1,215,735 as of December 31, 2012 and 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.

Property and Equipment

Property and equipment is recorded at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value. The cost of additions and substantial betterments to property and equipment are capitalized. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. Improvements to leased assets or fixtures are amortized over their estimated useful lives or lease period, whichever is shorter. Leased property meeting certain criteria is capitalized and the present value of the related payments is recorded as a liability. Depreciation of capitalized leased assets is computed on the straight-line method over the lesser of the term of the lease or its economic life. Upon retirement or other disposition of these assets, the costs and related accumulated depreciation and amortization of these assets are removed from the accounts and the resulting gains or losses are reflected in the consolidated results of operations. Expenditures for maintenance and repairs are charged to operations as incurred.

Intangible Assets

Intangible assets are recorded at cost except for assets acquired using acquisition accounting, which are initially recorded at their estimated fair value. Intangible assets with definite lives include proprietary technology, covenants not to compete, a trade name and customer and agent relationships. Amortization is computed on a straight-line basis over the estimated useful lives of the intangible assets.

Intangible assets with indefinite lives include VoIP licenses and a trade name. VoIP licenses provide us with certain rights in connection with our VoIP products. The Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of the VoIP licenses. The Company acquired the rights to the Lightyear trade name and effectively has the ability to retain this exclusive right permanently at a nominal cost.

F-8

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note B – Summary of Significant Accounting Policies – Continued

Impairment of Long-Lived Assets

The Company’s reviews the carrying value of intangibles and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value.

Advertising Costs

Advertising costs are expensed when incurred. Advertising costs, which are included in selling, general and administrative expenses in the accompanying consolidated statements of operations, were approximately $494,000 and $538,000 for the years ended December 31, 2012 and 2011, respectively.

Inventories

The Company maintains inventories, consisting of wireless telephones and telecommunications equipment, which are available for sale. Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. At December 31, 2012 and 2011, the Company had reserves for obsolete inventory of approximately $39,000 and $42,000, respectively.

The Company continually analyzes its slow-moving, excess and obsolete inventories. Products that are determined to be obsolete are written down to net realizable value.

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 statements of operations. 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.

Income Taxes

Effective February 12, 2010, the date of the Company’s recapitalization, Lightyear began being taxed as a corporation. The Company’s subsidiaries are organized as limited liability companies, and have elected to be treated as disregarded entities for income tax purposes, with taxable income or loss passing through to LNSI, the parent.

F-9

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note B – Summary of Significant Accounting Policies – Continued

Income Taxes – Continued

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax liabilities and assets are determined on the basis of the difference between the tax basis of liabilities and assets and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. As of December 31, 2012, the Company has recorded a valuation allowance for the amount of deferred tax assets that are not more likely than not to be realized.

The Company accounts for uncertain tax positions based upon authoritative guidance that prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on derecognition, classification, interest and penalties, accounting in interim periods and related disclosure.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2012. The Company files income tax returns with most states. The tax years ended December 31, 2010 and forward remain subject to examination for federal, state, and local income tax purposes by various taxing authorities.

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses.

Fair Value of Financial Instruments

The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy that gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1   Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2   Inputs to the valuation methodology include:

· Quoted prices for similar assets and liabilities in active markets.

· Quoted prices for identical or similar assets or liabilities in inactive markets.

· Inputs other than quoted market prices that are observable for the asset or liability.

· Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3   Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Fair value is often based on internally developed models in which there are few, if any, external observations.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company’s short term financial instruments include 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 and capital lease obligations. 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.

F-10

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note B – Summary of Significant Accounting Policies – Continued

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 is re-measured at each vesting date and 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.

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; See Note I – Related Party Transactions). 

The following table reconciles the numerator and denominator for the calculation:

	For The Years Ended
	December 31,
	2012			2011
Basic and diluted loss per share:
Numerator:
Net loss	$	(2,262,826	)	$	(593,477	)
Deemed preferred stock dividends		-			(11,835,530	)
Numerator for basic and diluted loss per share:
Net loss attributable to common stockholders	$	(2,262,826	)	$	(12,429,007	)
Denominator:
Weighted average common stock shares outstanding		22,086,641			21,667,374
Weighted average warrants outstanding with an exercise price of $0.01 or less		241,564			128,737
Weighted average basic and diluted shares outstanding		22,328,205			21,796,111
Loss per basic and diluted share:
Net loss	$	(0.10	)	$	(0.03	)
Deemed preferred stock dividends		-			(0.54	)
Net loss attributable to common stockholders	$	(0.10	)	$	(0.57	)

The following securities are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive:

	December 31,
	2012		2011
Employee stock options		738,832		96,666
Warrants		1,062,422		1,049,740
Total potentially dilutive shares		1,801,254		1,146,406

F-11

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note B – Summary of Significant Accounting Policies – Continued

Recently Issued and Adopted Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, “Intangibles—Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment." This ASU simplifies the impairment testing of indefinite-lived intangible assets by eliminating the requirement to perform an annual quantitative test for impairment, unless a qualitative assessment reveals that impairment is likely. While the update is effective for impairment tests performed for fiscal years beginning after September 15, 2012, early adoption is permitted. The Company elected to adopt ASU 2012-02 during the fourth quarter of 2012, which altered the Company’s annual procedures, but did not have a material impact on the Company’s consolidated financial statements.

Note C – Property and Equipment

Property and equipment consists of the following:

	December 31,						Range of Estimated
	2012			2011			Useful Lives
Land	$	313,875		$	628,510		Not depreciable
Equipment and computers		7,223,733			7,054,883		1 - 25 years
Buildings		985,352			1,904,206		10 - 30  years
Furniture and fixtures		67,781			68,286		1 - 5 years
Vehicles		331,033			331,033		5 - 7 years
Leasehold improvements		866,055			739,826		[A]
		9,787,829			10,726,744
Less: accumulated depreciation and amortization		(4,276,403	)		(3,565,687	)
Property and equipment, net	$	5,511,426		$	7,161,057

[A] Leasehold improvements are amortized over the lesser of the term of the lease or the asset's economic useful life

As of December 31, 2012, the Company determined that the value of certain buildings and land were impaired based on a subsequent asset sale and recorded an approximate $938,000 impairment charge. See Note N – Subsequent Events for additional details.

Depreciation and amortization expense for the years ended December 31, 2012 and 2011 was approximately $867,000 and $1,095,000, respectively.

F-12

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note D – Intangible Assets

Intangible assets consist of the following:

	Finite Lives														Indefinite Lives
	Proprietary Technology		Customer Relationships		Agent Relationships		Non-Compete Agreement		Trade Names			Accumulated Amortization			Trade Names		VoIP Licenses		Total
Balance, December 31, 2010	$	2,200,000	$	2,610,000	$	410,000	$	609,000	$	317,000		$	(4,546,917	)	$	920,000	$	244,583	$	2,763,666
Amortization expense		-		-		-		-		-			(597,167	)		-		-		(597,167	)
Impairment		-		-		-		-		(317,000	)		79,250			-		-		(237,750	)
Balance, December 31, 2011		2,200,000		2,610,000		410,000		609,000		-			(5,064,834	)		920,000		244,583		1,928,749
Amortization expense		-		-		-		-		-			(436,666	)		-		-		(436,666	)
Balance, December 31, 2012	$	2,200,000	$	2,610,000	$	410,000	$	609,000	$	-		$	(5,501,500	)	$	920,000	$	244,583	$	1,492,083
Net Book Value,
December 31, 2012	$	-	$	327,500	$	-	$	-	$	-					$	920,000	$	244,583	$	1,492,083
Total - Intangible Assets
- Finite Lives									$	5,829,000		$	(5,501,500	)					$	327,500
Weighted average amortization period at December 31, 2012 in years		0.0		0.8		0.0		0.0		0.0

Amortization of intangible assets consists of the following:

	Finite Lives
	Proprietary Technology		Customer Relationships		Agent Relationships		Non-Compete Agreement		Trade Names			Accumulated Amortization
Balance, December 31, 2010	$	2,200,000	$	1,393,817	$	410,000	$	527,250	$	15,850		$	4,546,917
Amortization expense		-		452,017		-		81,750		63,400			597,167
Impairment		-		-		-		-		(79,250	)		(79,250	)
Balance, December 31, 2011		2,200,000		1,845,834		410,000		609,000		-			5,064,834
Amortization expense		-		436,666		-		-		-			436,666
Balance, December 31, 2012	$	2,200,000	$	2,282,500	$	410,000	$	609,000	$	-		$	5,501,500
Range of estimated useful lives in years		5.0		3.0		5.0		1.0 - 1.5		5.0

During the fourth quarter of 2011, the Company determined that the trade name acquired from SETEL was impaired, as it was no longer in use, and recorded a $237,750 impairment charge.

Amortization of amortizable assets for the year ending December 31, 2013 is as follows:

For The Years Ending	Customer
December 31,	Relationships		Total
2013	$	327,500	$	327,500
	$	327,500	$	327,500

Amortization is computed on a straight-line basis over the lives of the intangible assets with finite lives, which ranged from one to five years. Amortization expense related to intangible assets was approximately $437,000 and $597,000 for the years ended December 31, 2012 and 2011, respectively.

Note E – Other Liabilities

Other liabilities consist of the following:

	December 31,
	2012		2011
Excise, state, local and property taxes payable	$	729,118	$	843,671
Other accrued expenses		126,426		165,485
Payroll, payroll taxes and bonuses		300,139		373,398
Deferred rent		200,066		260,086
Regulatory fees		205,527		132,133
Customer security deposits		106,448		101,390
	$	1,667,724	$	1,876,163

F-13

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note F – Capital Lease Obligations

During 2012, the Company leased land, a building and equipment under the provisions of long-term capital leases. As of December 31, 2012, the leased property under capital leases had a cost basis of $2,824,334, consisting of land of $216,000, building of $1,784,000 and equipment of $824,334. As of December 31, 2011, the leased property under capital leases had a cost basis of $2,949,293, consisting of land of $216,000, building of $1,784,000 and equipment of $949,293. Accumulated amortization was $464,717 and $474,989 at December 31, 2012 and 2011, respectively. Amortization of the leased property is included in depreciation and amortization expense in the accompanying consolidated statements of operations.

The Company leased a building and land (the “Leased Premises”) which Lightyear-KY used as its Administrative and Customer Care Headquarters. The original term of the lease was 10 years through December 31, 2013. As of December 31, 2012, the monthly rent was $7,509. Lightyear-KY had an option to purchase the Leased Premises at any time during the term of the Lease upon written notice to the lessor at least 30 days before the date on which Lightyear-KY desired to exercise the option and purchase the Leased Premises. On January 17, 2013, the Company exercised the option to purchase the Leased Premises for approximately $842,000, which, pursuant to its terms, resulted in the termination of the lease. Pursuant to its terms, the capitalized lease obligation, which had a principal balance of approximately $737,000, of which approximately $79,000 was current, was terminated upon exercise of the option. See Note N – Subsequent Events for additional details.

After taking into account the impact of the transaction that occurred on January 17, 2013, minimum payments under the building and equipment capital lease obligations consist of the following:

For The Years Ending
December 31,
2013	$	94,479
2014		48,548
2015		8,781
Total minimum payments		151,808
Less: Amount representing interest		(12,401	)
Present value of net minimum payments	$	139,407
Current portion	$	85,652
Non-current portion		53,755
	$	139,407

F-14

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note G – Notes Payable

Notes payable are as follows:

	December 31,
	2012		2011
Note payable - variable interest rate (5.00% as of December 31, 2012). The note has monthly principal and interest payments of $47,874. Principal and unpaid interest due on September 30, 2015. The note payable is secured by a first priority security interest in Lightyear-KY's assets. The note is further secured by a first priority perfected security interest in the membership interests in Lightyear-KY held by LNSI.	$	1,473,218	$	1,960,539
Note payable - fixed interest rate of 6.50%. Principal and unpaid interest due on October 1, 2012. The note payable is secured by motor vehicles owned by Lightyear-KY.		-		14,204
Note payable - variable interest rate (4.25% as of December 31, 2012). The note has monthly principal and interest payments of $871. Principal and unpaid interest due on January 26, 2014. The note payable was secured by a mortgage on a specific real property and is  further secured by the assignment of future rents. [1]		11,041		20,783
Note payable - variable interest rate (4.25% as of December 31, 2012). The note has monthly principal and interest payments of $970. Principal and unpaid interest due on October 18, 2024. The note payable was secured by a mortgage on a specific real property. [1]		102,375		109,420
Note payable - fixed interest rate of 6.99%. The note has monthly principal and interest payments of $935. Principal and unpaid interest due on October 1, 2020.The note payable was secured by a mortgage on a specific real property. [1]		65,936		72,307
Note payable - fixed interest rate of 6.25%. The note has monthly principal and interest payments of $2,882. Principal and unpaid interest due on April 4, 2015.The note payable is secured by motor vehicles owned by Lightyear-KY.		74,831		103,657
Note payable - fixed interest rate of 6.00%. The note has monthly principal and interest payments of $37,780. Unpaid principal and interest due on January 25, 2014.The note payable is secured by Lightyear LLC’s lockbox bank account, business operating bank account,  other tangible and intangible assets, the pledge of two million shares  of the Company’s common stock owned by LY Holdings, as well as the  personal guaranties of certain directors of the Company and a guaranty by Lightyear LLC. [2]		1,607,569		1,950,000
Total Notes Payable		3,334,970		4,230,910
Less: Current Portion		934,529		895,918
Non-Current Portion of Notes Payable	$	2,400,441	$	3,334,992

[1] On January 17, 2013, the Company repaid notes payable with an aggregate principal balance of $179,352 in connection with the sale of certain property and equipment, of which approximately $24,000 was deemed to be current. See Note N – Subsequent Events for additional details.

[2] The Company is required to make a balloon payment, consisting of unpaid principal and interest, of approximately $1,247,000 on January 25, 2014. On November 6, 2012, the bank waived two debt covenants for the fourth quarter of 2012, relating to this note. On March 29, 2013, the bank elected to eliminate the earnings-related debt covenants effective January 1, 2013 for the balance of the loan term.

F-15

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note G – Notes Payable – Continued

After taking into account the note repayments that occurred on January 17, 2013, future maturities of notes payable are as follows:

For The Years Ending
December 31,
2013	$	910,155
2014		1,812,147
2015		433,316
	$	3,155,618

On December 19, 2012, the Company entered into a revolving $500,000 secured commercial promissory note (the "Credit Facility") with a bank. The Company may draw on the Credit Facility from time to time to fund ongoing working capital needs. The Credit Facility matures on December 19, 2013 and bears interest at an annual rate equal to the bank’s index rate plus 1.75%, but not more than 5.00% per annum. The Company is required to make monthly interest payments on any outstanding amounts through December 19, 2013, with the outstanding principal amount payable at maturity. On December 19, 2012, the index rate was 3.25%. Payments under the Credit Facility are subject to a 5% late fee and, in cases of default, the interest rate of the Credit Facility will be increased by 5%. The Credit Facility is secured by a subordinated security interest in all of Lightyear’s assets and the personal guaranty of a director (Chris Sullivan or “Sullivan”). As of December 31, 2012, the Credit Facility had not been drawn upon. Subsequent to December 31, 2012, the Company had drawn down $500,000 of the note and repaid approximately $253,000.

Note H – Employee Benefits

The Company maintains a profit-sharing plan qualified under Section 401(k) of the Internal Revenue Code. The Company may make discretionary matching contributions to the profit-sharing plan, subject to certain limitations. The Company did not contribute during the years ended December 31, 2012 and 2011.

Note I – Related Party Transactions

Lightyear has significant transactions with its largest shareholder, LY Holdings and members of LY Holdings. Lightyear also 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, relatives of members of LY Holdings, directors of the Company and/or officers of the Company. Aggregate related party transactions are segregated on the face of the consolidated balance sheets and statements of operations.

Letter Agreements

In July 2004 and July 2008, LY Holdings borrowed funds, most of the proceeds of which were ultimately provided to Lightyear LLC. The lenders were all affiliates of LY Holdings and are all associated with directors or former directors of the Company. In connection with these loans, LY Holdings and Lightyear executed agreements (the “Letter Agreements”) to pay the lenders (the “Letter Agreement Holders”), in addition to principal and interest payments on the accompanying notes, an amount each month equal to an aggregate of 3% and 4% of the gross commissionable monthly revenues from Lightyear’s sales of wireless and VoIP service offerings (the “Revenue Payments”), respectively. The Letter Agreements have a term of ten years unless terminated early due to a sale of all or substantially all of LY Holdings. Upon an early termination event, Lightyear would be obligated to pay the respective Letter Agreement Holders a termination fee in the amount of the sum of the Revenue Payments for the immediately preceding twelve full months. On February 11, 2010, LY Holdings, Lightyear and each of the Letter Agreement Holders entered into a modification (the “First Modification to Letter Agreements”), pursuant to which the Letter Agreements were modified to, among other things, release and discharge LY Holdings from all obligations under the Letter Agreements.

F-16

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note I – Related Party Transactions – Continued

Letter Agreements – Continued

On June 22, 2011, all but one holder of the Revenue Payments 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 Revenue Payments rights waived their right to such payments for the year 2012. During the years ended December 31, 2012 and 2011, Lightyear recorded approximately $61,000 and $12,000 of Revenue Payments expense, respectively, which were classified as commission expense – related parties in the consolidated statements of operations.

Intercompany Agreement

On November 4, 2011, the Company, LY Holdings and Sullivan entered into an Intercompany Obligations Settlement Agreement (the “Intercompany Agreement”). Pursuant to the Intercompany Agreement, LY Holdings surrendered all 9,500,000 shares of the Company’s convertible preferred stock owned by it (plus its right to $2,232,110 of accrued but undeclared and unpaid preferred stock dividends), which were canceled and retired, in complete satisfaction of LY Holdings' principal indebtedness to LNSI of $12,899,980, which was recorded on the books of LNSI as Notes Receivable – Affiliate and was the source of the 2011 interest income – related parties on the consolidated statements of operations. In addition, the Intercompany Agreement terminated Lightyear’s (a) security interest in the Letter Agreements; and (b) option to purchase the Letter Agreements for $8,000,000 at any time before May 1, 2012. The remaining Interest Receivable – Affiliate was restructured, with LY Holdings issuing LNSI a note with a face principal amount of $1,223,203 (the “Interest Note”), which is secured by two million shares of the Company’s common stock owned by LY Holdings. The Interest Note bears interest at the one-year LIBOR rate plus 2% per annum and all principal and interest will be due at the November 4, 2016 maturity date. The Interest Note contains customary events of default, including a default upon a change of control of LY Holdings, and may be accelerated upon any event of default. The redemption of the preferred stock was accounted for by treating the excess of the fair value of the consideration (the Notes Receivable – Affiliate) over the carrying value of the preferred stock as a dividend on the preferred stock which will be deducted from earnings available to common stockholders. The $11,835,530 net 2011 preferred stock dividend is the deemed preferred stock dividend at redemption of $12,930,764, less the reversal of the cumulative dividend of $1,095,234 recorded in 2010. The $12,930,764 deemed preferred stock dividend is primarily equal to the amount of the LY Holdings’ principal indebtedness of $12,899,980 satisfied pursuant to the agreement, plus $30,784 of adjustments, which primarily relate to transaction costs. The Company has not recorded any interest income on the Interest Note since its inception as a result of certain risks of non-collection.

Contemporaneously, LNSI amended and restated its obligation payable to Sullivan under the Settlement Agreement by issuing a note with a face principal amount of $6,250,000 (the “Settlement Note”), which was the source of the interest expense – related parties on the consolidated statements of operations. The Settlement Note bears interest at the three-month LIBOR rate plus 4% per annum, which is paid quarterly commencing on February 10, 2012. The principal was due to be repaid at the January 10, 2013 maturity date. The Settlement Note contains customary events of default, including a default upon a change of control of either of LNSI or Lightyear LLC, and may be accelerated upon any event of default at a default interest rate that imposes a 5% penalty. On March 20, 2012, October 29, 2012, and March 20, 2013, Sullivan agreed to forbear from demanding repayment ultimately until February 28, 2014. During the years ended December 31, 2012 and 2011, the Company recorded interest expense of approximately $279,000 and $377,000, respectively. As of December 31, 2012, the Company had accrued approximately $115,000 of unpaid interest related to the Settlement Note, which was paid in January 2013.

The Settlement Note is secured by: (i) a Security Agreement dated as of November 4, 2011 among LNSI, Lightyear LLC and Sullivan through which LNSI and Lightyear LLC granted Sullivan a subordinated security interest in substantially all of the assets of LNSI and of Lightyear LLC; (ii) the personal guaranty of a former director; (iii) a Security Agreement between an entity affiliated with a former director and Sullivan whereby the entity grants to Sullivan a security interest in its membership interest in thirty percent (30%) of LY Holdings; and (iv) a Security Agreement between an entity affiliated with a current director and Sullivan whereby the entity grants to Sullivan a security interest in the entity’s ten percent (10%) membership interest in LY Holdings. As of the closing of the Intercompany Agreement, LY Holdings owned 10,000,000 shares, or 45.27%, of LNSI’s outstanding common stock.

On November 4, 2011, LNSI entered into a Collateral Release Agreement with LY Holdings and a bank whereby LY Holdings was released from its pledge of 2,000,000 shares of LNSI convertible preferred stock as collateral for the $2,000,000 note owed by LNSI to the bank. Concurrent with the Collateral Release Agreement, LY Holdings and the bank entered into a Stock Pledge Agreement whereby LY Holdings pledged 2,000,000 shares of LNSI common stock owned by LY Holdings as collateral for the note.

At December 31, 2012, the Company had outstanding $6,250,000 on the Settlement Note.

F-17

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note I – Related Party Transactions – Continued

Other

A former director of the Company owns an indirect interest in a Lightyear agency. The agency has a standard Lightyear agent agreement and earned approximately $12,000 and $15,000 in commissions from Lightyear during the years ended December 31, 2012 and 2011, respectively, which were classified as commission expense – related parties in the consolidated statements of operations.

From 2008 until October 7, 2011, a former employee (and son of a former director) of the Company maintained a representative position in a direct selling entity which earned approximately $0 and $29,000 in commissions from Lightyear during the years ended December 31, 2012 and 2011, respectively, which were classified as commission expense – related parties in the consolidated statements of operations. This representative position was terminated voluntarily on October 7, 2011.

The Company obtained consulting services from a former officer and director, pursuant to a one year consulting agreement which terminated on April 30, 2012. Aggregate consulting expense was approximately $97,000 and $199,000 for the years ended December 31, 2012 and 2011, respectively, which were classified as selling, general and administrative expenses – related party in the consolidated statements of operations.

Note J – Supplier Concentration

Of the telecommunications services used in its operations, Lightyear acquired approximately 32%, 22%, and 13% during the year ended December 31, 2012 from three suppliers and 28%, 24% and 10% during the year ended December 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 negatively affect operating results.

Note K – Income Taxes

Effective on February 12, 2010, in connection with its reverse merger, the Company became subject to federal and state income taxes. Prior to the reverse merger, Lightyear LLC was a limited liability corporation which passed its tax attributes to its members.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:

	For The Years Ended
	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	2,037,103		$	1,547,861
Stock-based compensation		-			88,653
Allowance for doubtful accounts		293,233			474,796
Allowance for obsolete inventory		32,993			34,542
Goodwill and intangible assets		2,685,939			3,132,224
Total deferred tax assets		5,049,268			5,278,076
Less: Valuation allowance		(4,120,781	)		(3,928,893	)
Deferred tax assets, net	$	928,487		$	1,349,183
Deferred tax liabilities:
Excess of book over tax basis of:
Property and equipment	$	841,998		$	1,385,789
Intangible assets		124,319			290,077
Total deferred tax liabilities	$	966,317		$	1,675,866
Deferred tax liabilities - non-current, net	$	37,830		$	326,683

F-18

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note K – Income Taxes – Continued

The Company’s deferred tax assets recognized, net of the valuation allowance, were based solely upon the tax value of deferred tax liabilities that are expected to reverse over the period in which the deferred tax assets would be realized. The ultimate realization of deferred tax assets depends on the generation of taxable income during the periods in which those net operating losses are available. The Company considers projected future taxable income and tax planning strategies in making its assessment. For the years ended December 31, 2012 and 2011, the change in the valuation allowance was $191,888 and ($276,656), respectively.

As of December 31, 2012 and 2011, the Company had $5,366,447 and $3,915,663, respectively, of aggregate federal and state net operating losses (“NOL”) available for income tax purposes that may be carried forward to offset future taxable income, if any. The federal net operating loss carryforwards begin to expire in the year 2030.

As of December 31, 2012, the net deferred tax liability of approximately $38,000 represented the excess of the book basis over the tax basis of certain property and equipment whose useful life is greater than the twenty-year life of the NOL’s that could have been offset against them when they were realized (the “Long Lived Assets”). As of December 31, 2012, the net deferred tax liability was reduced by approximately $289,000 to approximately $38,000 as certain Long Lived Assets became subject to an impairment charge. See Note N – Subsequent Events - Asset Sale.

The income tax provision (benefit) consists of the following:

	For The Years Ended
	December 31,
	2012			2011
Federal
Current	$	-		$	-
Deferred		(171,870	)		136,910
State and local
Current		-			-
Deferred		(20,018	)		15,946
		(191,888	)		152,856
Change in valuation allowance		191,888			(276,656	)
Income tax provision (benefit)	$	-		$	(123,800	)

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the loss from continuing operations for the years ended December 31, 2012 and 2011 are as follows:

	For The Years Ended
	December 31,
	2012			2011
Tax benefit at federal statutory rate		(34.0	)%		(34.0	)%
State income taxes, net of federal benefit		(4.0	)		(4.0	)
Permanent differences:
Stock-based compensation		10.0			33.9
Life insurance premiums		0.0			7.3
Meals and entertainment		0.6			1.4
Fines and penalties		0.9			1.4
Tax effect of asset impairment		11.6			0.0
Effect of true-ups and other		7.2			15.3
Change in valuation allowance		7.7			(38.6	)
Effective income tax rate		0.0	%		(17.3	)%

F-19

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note L – Stockholders’ Deficiency

See Note I – Related Party Transactions for details on the Intercompany Agreement.

Warrants

Milestone Warrants

In connection with a prior equity financing, the Company issued warrants to investors to purchase shares of common stock at an exercise price of $0.01 per share with a three year term, which became exercisable if specified milestones were not met (the “Milestone Warrants”). In the event that the specified milestones were not met, the Company was also obligated to issue to the selling agent exercisable five-year warrants to purchase shares of common stock at an exercise price of $4.00 per share (the “Selling Agent Milestone Warrants”).

On February 26, 2011, the Company did not meet the third milestone included in the outstanding Milestone Warrants. As a result of not meeting the third milestone, the warrants associated with that milestone were immediately vested and automatically exercised on a cashless basis. In addition, the Company issued 42,210 Selling Agent Milestone Warrants. The Company issued 445,564 shares of its common stock to investors on February 26, 2011 in connection with the cashless exercise of 447,075 Milestone Warrants.

On March 28, 2011, the Company did not meet the fourth and fifth milestones included in the outstanding Milestone Warrants. As a result of not meeting the fourth and fifth milestones, the warrants associated with those milestones were immediately vested and automatically exercised on a cashless basis. In addition, the Company issued 84,512 Selling Agent Milestone Warrants. The Company issued 892,456 shares of its common stock to investors on March 28, 2011 in connection with the cashless exercise of 895,449 Milestone Warrants.

On April 27, 2011, the Company did not meet the sixth milestone included in the outstanding Milestone Warrants. As a result of not meeting the sixth milestone, the warrants associated with this milestone were immediately vested and automatically exercised on a cashless basis. In addition, the Company issued 42,332 Selling Agent Milestone Warrants. The Company issued 445,576 shares of its common stock to investors on April 27, 2011 in connection with the cashless exercise of 448,374 Milestone Warrants.

As of December 31, 2012 and 2011, there were no remaining Milestone Warrants outstanding and there were 169,084 Selling Agent Milestone Warrants outstanding.

Fixed Warrants

In connection with a prior equity financing, the Company issued exercisable five-year warrants to purchase shares of common stock to investors and selling agents with an exercise price of $4.00 per share (the “Fixed Warrants”). As of December 31, 2012 and 2011, there were 861,401 Fixed Warrants outstanding, of which 671,271 were issued to investors and 190,130 were issued to selling agents.

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 continue to be held by the original investor. The Additional Warrants are eligible to be issued for a period of five years from the original equity financing, which ends in September 2015. The Company issued 139,501 Additional Warrants (126,819 were issued to investors and 12,682 were issued to selling agents) during the year ended December 31, 2012. As of December 31, 2012, there were 351,313 Additional Warrants outstanding, of which 319,376 were issued to investors and 31,937 were issued to selling agents. As of December 31, 2011, there were 211,813 Additional Warrants outstanding, of which 192,557 were issued to investors and 19,256 were issued to selling agents. See Note M – Commitments and Contingencies – Warrant Dispute.

F-20

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note L – Stockholders’ Deficiency – Continued

Warrants – Continued

Summary

A summary of the warrant activity for years ended December 31, 2012 and 2011 is as follows:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Warrants			Price		In Years		Value
Outstanding at December 31, 2010		2,732,425		$	1.28
Granted		300,770			2.41
Exercised		(1,790,898	)		0.01
Cancelled		-			-
Outstanding at December 31, 2011		1,242,297		$	3.38		3.8	$	46,214
Granted		139,501			0.37
Exercised		-			-
Cancelled		-			-
Outstanding at December 31, 2012		1,381,798		$	3.08		3.0	$	9,581
Exercisable at December 31, 2012		1,381,798		$	3.08		3.0	$	9,581

The following table presents information related to warrants at December 31, 2012:

Warrants Outstanding				Warrants Exercisable
				Weighted
		Outstanding		Average		Exercisable
Exercise		Number of		Remaining Life		Number of
Price		Warrants		In Years		Warrants
$	0.01		319,376		3.8		319,376
$	4.00		1,062,422		2.7		1,062,422
			1,381,798		3.0		1,381,798

Stock Plan

The LNSI 2010 Stock and Incentive Compensation Plan (the “2010 Plan”), which was approved by the board of directors and the majority stockholder of the Company on May 18, 2010, provides for grants of stock options, restricted stock, and other stock-based or cash awards to the Company’s employees, directors, and independent contractors. The number of shares of the Company’s common stock that may be issued under the 2010 Plan is 1,000,000. As of December 31, 2012 and 2011, 248,181 and 890,347 shares are available to be issued under the 2010 Plan, respectively.

Stock Option Grants

On June 7, 2011, the Company’s board of directors approved the repricing of each of the then outstanding stock options under the Company’s 2010 Stock and Incentive Compensation Plan to an exercise price of $1.25 per share, subject to shareholder approval, which was obtained on July 19, 2011. Since the members of the board of directors controlled enough votes to ensure shareholder approval, the shareholder approval was a formality. As such, the modification was recognized on the date of board approval. As a result of the modification, the Company recorded incremental expense of approximately $84,000 immediately and was scheduled to record another incremental $185,000 over the remaining vesting period.

On July 19, 2011, the Company granted incentive stock options to purchase an aggregate of 100,000 shares of common stock at an exercise price of $1.25 per share to two employees, pursuant to the 2010 Plan. The options vest ratably over a three year period and expire after ten years. The aggregate $36,000 grant date fair value is being amortized over the three year vesting term.

F-21

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note L – Stockholders’ Deficiency – Continued

Stock Option Grants – Continued

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 was added to the approximate $663,000 of unrecognized compensation cost as of December 28, 2011 associated with the original options and the combined amount of $726,000 is being amortized proportionate to the vesting period of the new options.

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.

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:

	December 31,
	2012			2011
Risk free interest rate		0.95	%		1.58	%
Expected term (years)		5.25			6.00
Expected volatility		42.90	%		43.10	%
Expected dividends		0.00	%		0.00	%

The weighted average estimated fair value of the stock options granted during the years ended December 31, 2012 and 2011 was $0.09 and $0.36 per share, respectively.

F-22

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note L – Stockholders’ Deficiency – Continued

Stock Option Grants – Continued

A summary of the status of options issued under the 2010 Plan during the years ended December 31, 2012 and 2011 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Balance, December 31, 2010		912,500		$	4.04
Granted		100,000			1.25
Exercised		-			-
Cancelled		(687,500	)		1.25
Forfeited		(228,334	)		3.34
Balance, December 31, 2011		96,666		$	1.25		8.5	$	-
Granted		806,500			0.22
Exercised		-			-
Cancelled		-			-
Forfeited		(164,334	)		0.50
Balance, December 31, 2012		738,832		$	0.29		9.0	$	-
Exercisable, December 31, 2012		380,066		$	0.33		9.0	$	-

The following table presents information related to stock options at December 31, 2012:

Options Outstanding				Options Exercisable
				Weighted
		Outstanding		Average		Exercisable
Exercise		Number of		Remaining Life		Number of
Price		Options		In Years		Options
$	0.21		68,500		9.2		34,000
	0.22		607,500		9.2		303,750
	1.25		62,832		7.4		42,316
			738,832		9.0		380,066

The Company recognized approximately $658,000 and $548,000 of stock-based compensation expense during years ended December 31, 2012 and 2011, respectively, related to stock option grants, which is reflected as selling, general and administrative expense in the consolidated statements of operations. As of December 31, 2012, there was approximately $81,000 of unrecognized employee stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 0.4 years.

F-23

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note L – Stockholders’ Deficiency – Continued

Restricted Stock Grants

The Company recognized approximately $0 and $46,000 of stock-based compensation during the years ended December 31, 2012 and 2011, respectively, related to director restricted stock grants issued on October 12, 2010, which is reflected as selling, general and administrative expense in the consolidated statements of operations. As of December 31, 2012 and 2011, there were no unvested restricted stock grants and, accordingly, there was no unrecognized stock-based compensation expense related to restricted stock grants.

A summary of restricted stock activity for the years ended December 31, 2012 and 2011 is presented in the table below:

				Weighted
				Average		Total
	Number of			Grant Date		Grant Date
	Shares			Fair Value		Fair Value
Non-vested, December 31, 2010		16,234		$	4.75	$	77,112
Granted		-			-		-
Vested		(12,987	)		4.75		(61,689	)
Forfeited		(3,247	)		4.75		(15,423	)
Non-vested, December 31, 2011		-		$	-	$	-
Granted		-			-		-
Vested		-			-		-
Forfeited		-			-		-
Non-vested, December 31, 2012		-		$	-	$	-

Note M – Commitments and Contingencies

Operating Lease

The Company leases its office space in Louisville, Kentucky under terms classified as an operating lease. In April 2009, the Company entered into a new lease agreement. The term of the lease was for six years, ending on March 31, 2015. Commencing in October 2009, the Company and the landlord informally agreed to reduce the rent by $15,000 per month. On June 30, 2011, the Company and the landlord agreed to formalize this understanding by modifying the lease agreement. The modified lease agreement has a monthly base rent of approximately $60,000 and the lease term was extended until September 30, 2015. In addition, the landlord formally agreed to forgive the previously unpaid rent and maintenance charges as a lease concession. The resulting deferred rent is being recognized over the remaining life of the lease. See Note E - Other Liabilities.

The Company leases equipment under a printing service agreement. In August 2010, the Company entered into a new printing service agreement whereby the Company agreed to pay $25,000 per month for a term of three years ending on August 31, 2013.

Lightyear-KY leases land and property under non-cancelable operating leases with aggregate monthly payments of approximately $5,000 which expire at various times through 2015.

Rent expense related to these operating lease agreements, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations, was approximately $495,000 and $496,000 for the years ended December 31, 2012 and 2011, respectively. The Company subleased office facilities to a tenant on a month to month basis and collected approximately $245,000 and $189,000 in rental fees for the years ended December 31, 2012 and 2011, respectively.

Future minimum payments under these operating lease agreements are as follows:

For The Years Ending
December 31,	Amount
2013	$	1,054,171
2014		844,703
2015		611,094
	$	2,509,968

F-24

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note M – Commitments and Contingencies – Continued

Litigation and Regulatory

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. On September 26, 2012, the Court granted Lightyear’s Motion to Dismiss, but provided Mr. Halpern with 30 days to amend his complaint to provide more details concerning the claim. On October 25, 2012, Mr. Halpern filed a motion to file the First Amended Complaint and Lightyear objected. On January 23, 2013, the Court granted Mr. Halpern’s Motion for Leave to Amend the Complaint. On February 11, 2013, Lightyear filed its Answer to the Amended Complaint. Lightyear notified its insurance carriers concerning this matter and continues to contest the allegations vigorously. Lightyear has not recorded a provision as the Company is unable to state that an outcome in this matter will be unfavorable or estimate the amount or range of a potential loss.

In July 2008, the Enforcement Bureau of the Federal Communications Commission (“FCC”) notified Lightyear that it was investigating allegations that Lightyear may have violated certain FCC rules related to the payment of regulatory fees since January 2005. Lightyear responded to the data request in September 2008 and provided information concerning Lightyear’s Universal Service Fund contributions and other regulatory fees. In August 2012, the FCC asked for updated information and Lightyear responded in October 2012. Lightyear believes that it has paid all applicable regulatory fees. In May 2012, Lightyear executed a tolling agreement with the FCC extending the statute of limitations until April 15, 2013 with respect to the investigation. If the FCC determines that the Company has violated these obligations, the Company could be subject to a fine.

Billing Disputes

As of December 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 consolidated financial statements of the Company.

Letters of Credit

As of December 31, 2012, the Company has provided irrevocable standby letters of credit, aggregating $100,000 to five states, which automatically renew for terms not longer than one year, unless notified otherwise. As of December 31, 2012, these letters of credit had not been drawn upon.

Warrant Dispute

The Company’s former selling agent, on behalf of certain investors in the Company’s private placement, has disputed the Company’s methodology for computing the quantity of Additional Warrants that are issuable at each quarter end. The Company has issued Additional Warrants to purchase an insignificant number of common shares 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 consolidated financial statements of the Company.

Employment Agreements

On April 29, 2010, the Company’s entered into an employment agreement with an officer of the Company that provides the officer with a salary of $125,000 per annum, a discretionary bonus and an expectation to receive options to purchase shares of the Company’s common stock, upon the approval of a Company stock incentive plan (See Note L - Stockholders’ Deficiency), which were subsequently granted. The term of the employment agreement is three years. The agreement provides that, in the event of a termination without cause or a resignation for good reason, as defined in his employment agreement, the officer will continue to: (i) be paid his salary in accordance with the Company’s regular payment schedule until the end of twelve months after termination; be entitled to receive any incentive payments earned and accrued but not yet paid; (ii) receive continued medical coverage at the Company’s expense until the end of twelve months after termination; and (iii) receive, through the termination date, all accrued and unpaid salary, all unused vacation time, and all unreimbursed business expenses incurred. Effective May 11, 2011, the officer’s salary was increased to $180,000 annually.

F-25

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note N – Subsequent Events

Subsequent Events

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 non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except as disclosed below.

Asset Sale

On January 17, 2013, Lightyear-KY exercised an option under a lease to purchase certain Leased Premises (see Note F – Capital Lease Obligations) for approximately $842,000 (the principal balance of the capital lease obligation was approximately $737,000). Immediately following its purchase of the Leased Premises, Lightyear-KY sold the Leased Premises and five additional adjacent properties for a cash purchase price of $1,275,000 (the “Asset Sale”). The net book value of the buildings, land and equipment included in the Asset Sale, along with the associated deferred tax liability recorded, was approximately $2,396,000 and $289,000 as of December 31, 2012, respectively. As a result of the value received in the Asset Sale, the Company recorded a net impairment charge of approximately $938,000, which included the write-off of the deferred tax liability, at December 31, 2012.

In connection with the Asset Sale, the related indebtedness in the form of notes payable with an aggregate principal balance of approximately $179,000 at December 31, 2012 that had been secured by the adjacent properties (see Note G – Notes Payable) was repaid. The Asset Sale resulted in net proceeds to the Company of approximately $254,000.

Concurrently, Lightyear-KY entered into an agreement to lease the Leased Premises from the new owner until April 30, 2013. In consideration of Lightyear-KY’s sale of the Leased Premises to the landlord, the landlord agreed not to charge rent during the term of the lease.

Operating Lease

On February 18, 2013, Lightyear-KY entered into an agreement to lease approximately 17,000 square feet of an office building in Pikeville, Kentucky which will house the operations formerly located at the Lease Premises discussed above. The lease, which has rent of $2,917 per month, expires on September 7, 2014.

F-26

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13(a) -15(e)) are controls and other procedures that are designed to ensure that information required to be disclosed by a public company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a public company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures include many aspects of internal control over financial reporting.

Based on their evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that our disclosure controls and procedures were effective at December 31, 2012.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting refers to a process designed by, or under the supervision of, our Chief Executive Officer and Interim Chief Financial Officer and effected by our board of directors, management and other personnel, 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, including those policies and procedures that:

· pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

It should be noted, however, that because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of the prevention or detection of misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of this Annual Report on Form 10-K for the year ended December 31, 2012, management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, pursuant to Rule 13a-15 under the Exchange Act, based on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on their evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that our internal control over financial reporting was effective as of December 31, 2012.

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 fourth quarter ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

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Item 9B. Other Information.

On October 29, 2012 and March 20, 2013, Christopher Sullivan, a director of the Company, executed agreements whereby he agreed to forebear from demanding repayment of his $6.25 million note until August 30, 2013 and February 28, 2014, respectively.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The following table sets forth information regarding the members of our board of directors and our executive officers as of December 31, 2012.

Name	Age	Position
Stephen M. Lochmueller	60	Chief Executive Officer
Randy Ammon	52	President, Chief Operating Officer and Interim Chief Financial Officer
John Greive	47	VP/General Counsel
Chris T. Sullivan	64	Director
W. Brent Rice	59	Director
Ronald L. Carmicle	63	Director
W. Bruce Lunsford	65	Director
Jeffrey T. Hardesty	48	Director

The principal occupations for the past five years (and, in some instances, for prior years) of each of our directors and officers are as follows:

Stephen Lochmueller has been Chief Executive Officer of Lightyear since May 1, 2011. Before that, Mr. Lochmueller served as Lightyear’s President, beginning on April 29, 2010. Previously, Mr. Lochmueller served as our Chief Operating Officer. Mr. Lochmueller has more than 30 years of entrepreneurial business experience. His management and leadership skills include startups, multi-channel distribution, P & L, turnarounds and executive level oversight. His entry into the telecommunications industry began in 1985 when he joined McCaw Cellular as a General Manager. In 1992, Mr. Lochmueller was appointed as the Commonwealth of Kentucky’s Technology & Communications Liaison to state agencies by then governor Brereton Jones. In 1993, Mr. Lochmueller became Vice-President of Horizon Cellular until he was recruited to be an Area General Manager for startup Nextel Partners. In the early 2000s, Mr. Lochmueller served as Regional Vice President for Leap Wireless, a spin-off of Qualcomm. Mr. Lochmueller is a graduate of the University of Kentucky with a BGS degree.

Randy Ammon has been Lightyear’s President since May 1, 2011, its Interim Chief Financial Officer since July 25, 2012 and its Chief Operating Officer since April 29, 2010. Mr. Ammon was previously affiliated with Lightyear as a consultant. From 2005 until he joined Lightyear, Mr. Ammon owned and operated PWE Inc., a consulting firm focused on business and project budget development, project management, and business systems process redefinition and implementation. Before PWE, Mr. Ammon spent seven years as Director of Business Operations for Nextel Partners, Inc. Mr. Ammon received his B.A. in Accounting from Gustavus Adolphus College.

John Greive has been Vice President of Regulatory Affairs and General Counsel of Lightyear since its inception. Mr. Greive also serves as Lightyear’s Corporate Secretary. Before joining UniDial in 1996, he was a partner at Chandler, Saksefski & Greive and worked as an associate in the corporate section of a mid-sized law firm in Louisville. Mr. Greive has remained with the Lightyear entities since 1996. Mr. Greive received his B.S. in Mathematics from Bellarmine University and his Juris Doctor from the University of Louisville. In 2000, UniDial changed its name to Lightyear Communications, Inc. On April 29, 2002, Lightyear Communications, Inc. (and its parent company Lightyear Holdings, Inc.) filed for bankruptcy to reorganize under Chapter 11 but sold its assets. In 2004, LY Holdings acquired the majority of the operating assets of the predecessor companies.

Chris T. Sullivan has been a director of Lightyear since March 4, 2010. Mr. Sullivan is a founder of the Outback Steakhouse restaurant company and, until 2007, served as CEO and Chairman of the Board of OSI Restaurant Partners, Inc. Mr. Sullivan is currently employed by KHI Holdings LLC and MVP Holdings LLC. Both companies are privately owned, and Mr. Sullivan serves on the boards of both. Mr. Sullivan is a graduate of the University of Kentucky with a degree in Business and Economics.

Mr. Sullivan brings to the board entrepreneurial success. As a founder and former chairman of Outback Steakhouse, Mr. Sullivan provides to the board an entrepreneurial spirit and strong business acumen.

W. Brent Rice has been a director of Lightyear since March 4, 2010. Mr. Rice is an attorney, a long-time partner in the firm of McBrayer, McGinnis, Leslie and Kirkland in Lexington, Kentucky, and a real estate developer. His practice is concentrated in business law, utility law, sports and entertainment, and governmental relations. Mr. Rice received his undergraduate degree from the University of Kentucky and his law degree from the University of Louisville Law School.

Mr. Rice’s legal background brings a different perspective to the board. His expertise in business and utility law provides the board important governance and regulatory experience.

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Ronald L. Carmicle has been a director of Lightyear since March 4, 2010. Mr. Carmicle has been the President of River City Development Corporation for over 30 years. River City specializes in the construction and installation of brick, concrete block, limestone and architectural precast. Mr. Carmicle currently serves as Chairman of Central Bank of Jefferson County, Chairman of Construction Training Institute, Vice Chair of the Kentucky State Fair Board, and Board Member of Daniel Pitino Foundation. Mr. Carmicle is a graduate of Western Kentucky University.

Mr. Carmicle brings extensive leadership experience as an executive and a director of a private company. He also provides the board with his experience gained as a director of several non-profit companies.

W. Bruce Lunsford has been a director of Lightyear since October 12, 2010. Mr. Lunsford is a member of the Audit Committee and serves as Chair of the Compensation Committee. Mr. Lunsford is Chairman and CEO of Lunsford Capital, LLC, a private investment company in Louisville, KY. He is the founder, former Chairman and CEO of Ventas, Inc., a healthcare real estate investment company (REIT) listed on the NY Stock Exchange, the founder, former Chairman, President and CEO of Vencor, Inc., now known as Kindred Healthcare, and the founder and former Chairman of the assisted living company known as Atria Communities Inc. In addition, Mr. Lunsford formerly served on the board of directors of Churchill Downs Incorporated, National City Corporation in Cleveland, Ohio, ResCare, Inc. and Valor Healthcare, Inc. He presently serves on the board of directors of AeroCare Holdings, Inc., the Breeders’ Cup Limited and Zirmed, Inc. and he serves as Chairman of the board of Arcadia, LLC and Deyta, Inc. Mr. Lunsford received his undergraduate degree from the University of Kentucky and his law degree from the Salmon P. Chase College of Law.

Mr. Lunsford brings substantial experience as an executive of several public companies. His business and legal background provides the board with a unique perspective.

Jeffrey T. Hardesty has been a director of Lightyear since October 12, 2010 and is the Chair of the Audit Committee. From 2008 to present, Mr. Hardesty has served as Managing Member of EMI Advisors which provides merchant banking and consulting services to early stage platform companies. Also during this period, Mr. Hardesty founded Desert iNET, LLC, a wireless broadband provider in Arizona. From 2006 to 2008, Mr. Hardesty served as COO at Sparkplug, a wireless broadband services provider. From 2005 to 2006, Mr. Hardesty served as CEO/CFO at Telespectra, a provider of facilities-based communications backhaul services. From 2002 to 2005, Mr. Hardesty served as CFO of Extend America, a telecommunications provider that was sold to Nextel in 2005. Mr. Hardesty spent the first 11 years of his career in private equity and investment banking, working closely with leading institutional capital markets participants, investing more than $1.5 billion across 50 middle-market growth companies. Mr. Hardesty received a Bachelor’s degree in Finance from Wichita State University and an MBA from Duke University Fuqua School of Business.

Mr. Hardesty’s brings to the board his background in finance and telecommunications. His experience as an executive and a CFO of several companies provides the board with important financial knowledge.

Director Qualifications

The board of directors believes that each of its current directors possesses particular attributes which qualify him to serve on the board. In addition to the attributes specifically identified for each director in his respective biography above, the board believes that all of the directors possess the following attributes enabling the board to function effectively as a collective body: integrity, collegial spirit, sound business judgment, professionalism, ability to generate public confidence, ability to act independently, and availability and commitment to serve.

Board Committees

Our board of directors has two standing committees to assist it with its responsibilities. The functions traditionally provided by a nominating committee are provided by the full board.

The Audit Committee is governed by a board-approved charter that contains, among other things, the committee’s membership requirements and responsibilities. The Audit Committee oversees our accounting, financial reporting process, internal controls and audits, and consults with management and our independent auditors on, among other items, matters related to our annual audit, our published financial statements and the accounting principles applied. As part of its duties, the Audit Committee appoints, evaluates and retains our independent auditors. It maintains direct responsibility for the compensation, termination and oversight of our independent auditors and evaluates the independent auditors’ qualifications, performance and independence. The committee is also charged with monitoring compliance with our policies on ethical business practices and reporting on these items to the board of directors. The Audit Committee has established policies and procedures for the pre-approval of all services provided by the independent auditors. Our Audit Committee is comprised of Messrs. Hardesty and Lunsford, both independent directors as defined by the rules of the NASDAQ. Mr. Hardesty is the chairman of the committee. The board of directors has determined that Mr. Hardesty is the Audit Committee financial expert, as defined under the Exchange Act. The board of directors made a qualitative assessment of Mr. Hardesty’s level of knowledge and experience based on a number of factors, including his formal education and experience.

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Pursuant to its board-approved charter, the Compensation Committee determines all compensation for our Chief Executive Officer and our President; reviews and approves corporate goals relevant to the compensation of these officers and evaluates these officers’ performance in light of those goals and objectives; reviews and approves objectives relevant to other executive officer compensation; reviews and approves the compensation of other executive officers in accordance with those objectives; administers our stock option plans; approves severance arrangements and other applicable agreements for executive officers; and consults generally with management on matters concerning executive compensation and benefit plans where board of directors or stockholder action is contemplated with respect to the adoption of or amendments to such plans. The committee makes recommendations on organization, succession, the election of officers, consultantships and similar matters where board approval is required. Our Compensation Committee is comprised of Messrs. Lunsford and Carmicle, and Mr. Lunsford is the chairman of the committee. The board considers that the members of the Compensation Committee are generally sufficiently experienced to conduct committee functions without external third party advisors.

LNSI does not have a standing nominating committee or committee performing similar functions. Because of our small size, the board of directors believes that it is appropriate for LNSI not to have such a committee. All the directors participate in the consideration of director nominees.

When evaluating director nominees, the board of directors considers the following factors:

· The appropriate size of the board.

· The company’s needs with respect to the particular talents and experience of company directors.

· Knowledge, skills and experience of prospective nominees, including experience in finance, administration and telecommunications.

· Experience with accounting rules and practices.

· The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new board members.

The Company’s goal is to assemble a board that brings together a variety of perspectives and skills derived from high quality business and professional experience. The board of directors does not have a specific policy with regard to the consideration of any director candidates recommended by security holders.

Code of Ethics for Senior Financial Officers

Our board of directors has adopted a Code of Ethics for Senior Financial Officers applying to our senior financial advisors, including the principal executive officer and principal financial officer (the “Code”). The Code is reasonably designed to deter wrongdoing and promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure in reports and documents filed with, or submitted to, the SEC and in other public communications made by us, (iii) compliance with applicable governmental laws, rules and regulations, (iv) the prompt internal reporting of violations of the Code to appropriate persons identified in the Code, and (v) accountability for adherence to the Code. The Code is posted to our website at www.lightyear.net. Information contained on the Company’s website is not incorporated in and is not part of this annual report. In addition, the Company intends to disclose on its website (1) the nature of any amendment to a provision of the Code that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions and (2) the nature of any waiver from provisions of the Code that is granted to one of these specified individuals, the name of the person to whom the waiver was granted and the date of the waiver.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of any publicly traded class of our equity securities, to file reports of ownership and changes in ownership of our equity securities with the SEC. Officers, directors, and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms that they file.

Based solely on the reports received and on the representations of the reporting persons, we believe that these persons have complied with all applicable filing requirements of Section 16(a) of the Exchange Act during 2012, except that W. Bruce Lunsford filed a late Form 4 on January 9, 2012 for warrants to purchase Lightyear common stock that he received on December 31, 2011.

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Item 11. Executive Compensation.

Summary Compensation Table

The following Summary Compensation Table indicates the cash and non-cash compensation earned during the years 2012 and 2011 by the Company’s principal executive officer, plus the two most highly compensated executive officers at the end of 2012.

							Equity			All Other
		Salary		Bonus			Awards			Compensation			Total
Name and Principal Position	Year	($)		($)			($)			($)			($)
Stephen M. Lochmueller,	2012	$	240,000	$	-		$	17,200	(4)	$	12,396	(3)	$	269,596
Chief Executive Officer	2011	$	216,462	$	1	(1)	$	55,500	(2)	$	11,796	(3)	$	283,759
Randy Ammon, (6)	2012	$	180,000	$	-		$	17,200	(4)	$	138	(7)	$	197,338
President, Chief Operating Officer	2011	$	158,423	$	1	(1)	$	74,000	(2)	$	138	(7)	$	232,562
and Interim Chief Financial Officer
John Greive,	2012	$	135,000	$	-		$	5,400	(5)	$	90	(7)	$	140,490
Vice President of Regulatory Affairs
& General Counsel

(1) Represents bonuses of $1.00 paid in connection with option termination agreements entered into with these executive officers on December 28, 2011.

(2) On June 7, 2011, the Company’s board of directors approved the repricing of each of the outstanding stock options under the Company’s 2010 Stock and Incentive Compensation Plan to an exercise price of $1.25 per share. These amounts represent the incremental fair value of the repriced stock options as compared to the original stock options, both valued as of the modification date.

(3) Includes $12,000 and $11,538 of automobile allowance paid and $396 and $258 of premiums paid by the Company for life insurance for the benefit of the named executive officer, for 2012 and 2011, respectively.

(4) Represents the grant date fair value, computed in accordance with FASB ASC Topic 718, of the award of an option to purchase 200,000 shares of common stock, with an exercise price of $0.22, scheduled vesting 50% immediately and 50% on the first anniversary of the date of grant and a term of ten years.

(5) Represents the grant date fair value, computed in accordance with FASB ASC Topic 718, of the award of an option to purchase 62,500 shares of common stock, with an exercise price of $0.22, scheduled vesting 50% immediately and 50% on the first anniversary of the date of grant and a term of ten years.

(6) Mr. Ammon was appointed President on May 1, 2011 and Interim Chief Financial Officer on July 25, 2012.

(7) Represents premiums paid by the Company for life insurance for the benefit of the named executive officer.

Narrative Disclosure to Summary Compensation Table

Mr. Lochmueller’s annual salary was $240,000 as of December 31, 2012. Mr. Lochmueller was appointed as Chief Executive Officer of Lightyear on May 1, 2011 and previously served as our President since April 29, 2010. Mr. Lochmueller does not have an employment agreement with the Company.

Mr. Ammon’s annual salary was $180,000 as of December 31, 2012. Mr. Ammon was appointed as President of Lightyear on May 1, 2011, Interim Chief Financial Officer on July 25, 2012 and Chief Operating Officer on April 29, 2010. Mr. Ammon has a three-year employment agreement which commenced on April 29, 2010. The agreement provides that, in the event of a termination without cause or a resignation for good reason, as defined in his employment agreement, Mr. Ammon will continue to: (i) be paid his salary in accordance with our regular payment schedule until the end of twelve months; be entitled to receive any incentive payments earned and accrued but not yet paid; (ii) receive continued medical coverage at the Company’s expense until the end of twelve months; and (iii) receive, through the termination date, all accrued and unpaid salary, all unused vacation time, and all unreimbursed business expenses incurred.

Mr. Greive’s annual salary was $135,000 as of December, 31, 2012. Mr. Greive does not have an employment agreement with the Company.

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Lightyear Network Solutions, Inc. 2010 Stock and Incentive Compensation Plan

The Lightyear Network Solutions, Inc. 2010 Stock and Incentive Compensation Plan (the “2010 Plan”), which was approved by the stockholders on May 18, 2010, is administered by the board of directors. The 2010 Plan is available for the issuance of awards of up to an aggregate of 1,000,000 shares of common stock to our employees, directors, and independent contractors in the form of stock options, restricted stock, and other stock-based or cash awards. The 2010 Plan is intended to (a) increase our profitability and growth, (b) provide competitive compensation to employees, (c) attract and retain exceptional personnel and encourage excellence in the performance of individual responsibilities, and (d) motivate key employees and directors to contribute to our success.

As of December 31, 2012, there were 738,832 options and 0 shares of unvested restricted stock outstanding under the 2010 Plan and 248,181 shares remained available for issuance under the plan.

Outstanding Equity Awards at Fiscal Year-End

The following table provides information on outstanding equity awards as of December 31, 2012 to the Named Executive Officers:

	Option Awards
Name	Number of securities underlying unexercised options exercisable		Number of securities underlying unexercised options unexercisable		Equity Incentive plan awards: Number of securities underlying unexercised unearned options		Option exercise price		Option expiration date
Stephen M. Lochmueller		100,000		100,000		-	$	0.22	3/1/2022
Randy Ammon		100,000		100,000		-	$	0.22	3/1/2022
John Greive		31,250		31,250		-	$	0.22	3/1/2022

The Named Executive Officers had no outstanding stock awards as of the end of the fiscal year ended December 31, 2012.

401(k) Plan

Lightyear maintains a profit-sharing plan qualified under Section 401(k) of the Internal Revenue Code. We may make discretionary matching contributions to the profit-sharing plan, subject to certain limitations. During 2012 and 2011, we did not make any matching contributions.

Other Compensation

We provide our executive officers with medical, life, dental and vision insurance coverage consistent with that provided to our other employees except that certain executive officers had received additional life insurance coverage.

Director Compensation

The Company’s policy with respect to compensation of directors provides that non-employee directors who are not members of LY Holdings will be compensated on an annual basis, payable in quarterly installments following the end of each quarter of service, according to the following table:

Annual Retainer	$	15,000
Chairman of Audit Committee additional retainer	$	10,000
Chairman of Compensation additional retainer	$	5,000

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In addition, non-employee directors who are not members of LY Holdings will be compensated $2,000 per board committee meeting attended, payable following the end of each quarter of service, for each committee meeting held on a day other than a day on which a board meeting is also attended. The Company reimburses all directors for the reasonable expenses they incur to attend meetings of the board of directors, a board committee and the shareholders.

The following table summarizes compensation earned by non-employee directors of Lightyear during the year ended December 31, 2012:

			Fees Earned
			or Paid in		Equity		All Other
Name	Year		Cash		Awards		Compensation			Total
Ronald L. Carmicle		2012	$	15,000	$	-	$	5,000	(2)	$	20,000
Jeffrey T. Hardesty		2012	$	27,000	$	-	$	-		$	27,000
W. Bruce Lunsford		2012	$	22,000	$	-	$	-		$	22,000
Chris T. Sullivan (1)		2012	$	-	$	-	$	-		$	-
W. Brent Rice (1)		2012	$	-	$	-	$	-		$	-

(1) Messrs. Sullivan and Rice are members of LY Holders and therefore are not entitled to compensation for their services on the board of directors for the year ended December 31, 2012.

(2) Payment for loan guarantee.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Securities Authorized for Issuance under Equity Compensation Plans

See Part II, Item 5, “Securities Authorized for Issuance under Equity Compensation Plans” for information regarding our equity compensation plans.

Security Ownership of Certain Beneficial Owners

The following tables set forth information as of March 29, 2013 regarding beneficial ownership of LNSI and of LY Holdings by the following groups: (i) each of our directors, (ii) each of our named executive officers, (iii) all of our directors and named executive officers as a group, and (iv) each stockholder known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock. The business address of each of the persons listed below is 1901 Eastpoint Parkway, Louisville, KY 40223.

LY Holdings may be deemed to be a "parent" of LNSI as such term is defined in the rules promulgated under the Exchange Act; LY Holdings has disclaimed status as a “parent”. LY Holdings’ sole business currently is to hold shares of LNSI.

	LNSI					LY Holdings
	Common Stock					Membership Units
Name of Beneficial Owner	Beneficially Owned					Beneficially Owned
	Shares		% (1)			Shares		% (2)
5% or Greater Stockholders
LY Holdings, LLC (3)		10,000,000		45.3	%		N/A		N/A
Directors and Named Executive Officers
Stephen M. Lochmueller (4)		200,000			*		-			*
Randy Ammon (4)		200,000			*		-			*
John Greive (4)		62,500			*		-			*
Chris T. Sullivan (5)		-			*		3,733,750		29.9	%
W. Brent Rice (6)		-			*		1,250,000		10.0	%
Ronald L. Carmicle		39,247			*		-			*
W. Bruce Lunsford (7)		236,771		1.1	%		-			*
Jeffrey T. Hardesty		5,411			*		-			*
All executive officers and directors as a group (8 persons) (8)		743,929		3.3	%		4,983,750		39.9	%

 *Represents holdings of less than 1% of shares outstanding.

(1) Based upon 22,086,641 shares of our common stock, and with respect to each individual holder, rights to acquire our common stock exercisable within 60 days of March 29, 2013.

(2) Based upon 12,500,000 membership units of LY Holdings outstanding at March 29, 2013.

(3) LY Holdings, LLC owns 10,000,000 shares of our common stock.

(4) Consists of shares of our common stock issuable upon the exercise of stock options.

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(5) The membership units of LY Holdings beneficially owned by Mr. Sullivan include 3,733,750 units held by Sullivan LY, LLC (a limited liability company managed by Mr. Sullivan). Mr. Sullivan may be deemed to be the beneficial owner of the membership units held by Sullivan LY, LLC.

(6) The membership units of LY Holdings beneficially owned by Mr. Rice include 1,250,000 units held by Rice-LY Ventures, LLC (a limited liability company managed by Mr. Rice). Mr. Rice may be deemed to be the beneficial owner of the membership units held by Rice-LY Ventures.

(7) Consists of 178,972 shares of our common stock and 57,799 shares of our common stock issuable upon the exercise of warrants owned by Lunsford Capital, LLC. Mr. Lunsford is the voting manager of Lunsford Capital, LLC, and may be deemed to be the beneficial owner of the shares of our common stock held by Lunsford Capital, LLC. Mr. Lunsford disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.

(8) Consists of 223,630 shares of our common stock, 462,500 shares of our common stock issuable upon the exercise of stock options and 57,799 shares of our common stock issuable upon the exercise of warrants.

Pledged Securities

LY Holdings has pledged 2,000,000 shares of LNSI common stock as a security interest against its obligations under the Interest Note pursuant to the Intercompany Agreement (see details further on). LY Holdings has also pledged 2,000,000 shares of LNSI common stock as a security interest for Lightyear’s $2,000,000 secured promissory note with First Savings Bank, F.S.B.

Rice-LY Ventures, LLC, a Kentucky limited liability company managed by W. Brent Rice, has pledged 1,250,000 shares, a 10% beneficial interest, of LY Holdings to Sullivan as collateral on the Settlement Note pursuant to the Intercompany Agreement (see details further on).

LANJK, LLC, a Kentucky limited liability company managed by a former director and wholly owned by his wife, has pledged 3,750,000 shares, a 30% beneficial interest, of LY Holdings to Sullivan as collateral on the Settlement Note pursuant to the Intercompany Agreement (see details further on).

Item 13. Certain Relationships and Related Transactions, and Director Independence

This section describes transactions with Lightyear, its subsidiaries and LY Holdings that have occurred since the beginning of the last fiscal year or that have been proposed to which a director or executive officer of Lightyear, a beneficial owner of more than 5% of any class of the securities of Lightyear, or any member of the immediate families of the foregoing persons had or will have a direct or indirect material interest which exceeds $120,000.

Lightyear has adopted policies and procedures under which the Audit Committee will review and approve, or ratify related party transactions.

For information regarding the basis of control of, and the percentage of voting securities owned by LY Holdings, please refer to Item 12 of this annual report on Form 10-K.

Intercompany Agreement

On November 4, 2011, the Company, LY Holdings and Sullivan entered into an Intercompany Obligations Settlement Agreement (the “Intercompany Agreement”). Pursuant to the Intercompany Agreement, LY Holdings surrendered all 9,500,000 shares of the Company’s convertible preferred stock owned by it (plus its right to $2,232,110 of accrued but undeclared and unpaid preferred stock dividends), which was canceled and retired, in complete satisfaction of LY Holdings' principal indebtedness to LNSI of $12,899,980, which was recorded on the books of LNSI as Notes Receivable – Affiliate.

The remaining Interest Receivable – Affiliate was restructured, with LY Holdings issuing LNSI a note with a face principal amount of $1,223,203 (the “Interest Note”), which is secured by two million shares of the Company’s common stock owned by LY Holdings. The Interest Note bears interest at the one-year LIBOR rate plus 2% per annum and all principal and interest is due at the November 4, 2016 maturity date. The Interest Note contains customary events of default, including a default upon a change of control of LY Holdings, and may be accelerated upon any event of default.

Contemporaneously, LNSI amended and restated its obligation payable to Sullivan by issuing a note with a face principal amount of $6,250,000 (the “Settlement Note”). The Settlement Note bears interest at the three-month LIBOR rate plus 4% per annum, which will be paid quarterly commencing on February 10, 2012. The principal was scheduled to be repaid at the January 10, 2013 maturity date. The Settlement Note contains customary events of default, including a default upon a change of control of either of LNSI or Lightyear LLC, and may be accelerated upon any event of default at a default interest rate that imposes a 5% penalty. On March 20, 2012, October 29, 2012, and March 20, 2013, Sullivan agreed to forbear from demanding repayment ultimately until February 28, 2014.

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The Settlement Note is secured by: (i) a Security Agreement dated as of November 4, 2011 among LNSI, Lightyear LLC and Sullivan through which LNSI and Lightyear LLC grant Sullivan a subordinated security interest in substantially all of the assets of LNSI and of Lightyear LLC; (ii) the personal guaranty of a director; (iii) a Security Agreement between an entity affiliated with a director and Sullivan whereby the entity grants to Sullivan a security interest in its membership interest in thirty percent (30%) of LY Holdings; and (iv) a Security Agreement between an entity affiliated with a different director and Sullivan whereby the entity grants to Sullivan a security interest in the entity’s ten percent (10%) membership interest in LY Holdings. As of the closing of the Intercompany Agreement, LY Holdings owned 10,000,000 shares, or 45.27%, of LNSI’s outstanding common stock.

On November 4, 2011, LNSI entered into a Collateral Release Agreement with LY Holdings and a bank whereby LY Holdings was released from its pledge of 2,000,000 shares of LNSI convertible preferred stock as collateral for the $2,000,000 note owed by LNSI to the bank. Concurrent with the Collateral Release Agreement, LY Holdings and the bank entered into a Stock Pledge Agreement whereby LY Holdings pledged 2,000,000 shares of LNSI common stock owned by LY Holdings as collateral for the note.

Director Independence

The board of directors has determined that W. Bruce Lunsford and Jeffrey T. Hardesty are considered independent directors. The board of directors has adopted the NASDAQ rules regarding director independence which define persons as “independent” who are neither officers nor employees of the company and have no relationships that, in the opinion of the board, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors. The board of directors has determined that Ronald L. Carmicle, a member of the Compensation Committee, is not “independent” under the NASDAQ rules for director independence.

Item 14. Principal Accounting Fees and Services.

Marcum LLP (“Marcum”) was our independent registered public accounting firm (“Principal Accountant”) at the years ended December 31, 2012 and 2011. Marcum was responsible for performing independent audits of the consolidated financial statements in accordance with generally accepted auditing standards in the United States of America.

Fees incurred related to our Principal Accountant for each of the past two years are set forth below. All fees incurred related to our Principal Accountant were pre-approved by the Audit Committee.

	For The Years Ended
	December 31,
	2012		2011
Audit fees	$	152,750	$	153,000
Audit-related fees		-		8,630
Tax fees		-		-
All other fees		-		-
Total fees paid to Principal Accountant	$	152,750	$	161,630

Audit Fees

The aggregate fees incurred for audit services were $152,750 and $153,000 for the years ended December 31, 2012 and 2011, respectively, which included the cost of the audits of the consolidated financial statements included in our annual Form 10-K’s for each respective year and the reviews of the related quarterly Form 10-Q’s.

Audit-Related Fees

The aggregate fees incurred for audit related services were $0 and $8,630, primarily for discussions related to a proxy statement during the years ended December 31, 2012 and 2011.

Tax Fees

None.

All Other Fees

None.

33

Audit Committee Policies and Procedures

Effective with the formation of our Audit Committee, all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent auditors will be pre-approved, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, which should nonetheless be approved by the board of directors prior to the completion of the audit. At the beginning of the fiscal year, the Audit Committee will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor's independence from management. At each such subsequent meeting, the auditor and management may present subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year.

34

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(1) Consolidated Financial Statements.

See Table of Contents to Consolidated Financial Statements.

(2) Financial Statement Schedules.

See Table of Contents to Consolidated Financial Statements.

35

(3) Exhibits.

Exhibit No.	Description
2.1	Master Transaction Agreement by and between LY Holdings, LLC, Registrant and various debtholders of LY Holdings, LLC dated as of February 12, 2010. (2)
2.2	Securities Exchange Agreement by and between LY Holdings, LLC and Registrant dated as of February 12, 2010. (2)
2.3	Form of Securities Contribution Agreements by and between Registrant and various debtholders of LY Holdings, LLC dated as of February 12, 2010. (2)
2.4	Asset Purchase Agreement by and among SouthEast Telephone, Inc., Registrant and SE Acquisitions, LLC, dated as of June 30, 2010. (6)
3.1	Amended and Restated Articles of Incorporation of Registrant, dated April 12, 2010. (3)
3.2	Bylaws of Registrant. (1)
4.1	Form of Subscription Agreement. (6)
4.2	Form of Fixed Warrant. (6)
4.3	Form of Milestone Warrant. (6)
4.4	Form of Additional Warrant. (7)
4.5	Form of Selling Agent Warrant. (7)
10.1	Executive Employment Agreement by and between Registrant and Randy Ammon dated as of April 29, 2010. (4)
10.2	Form of Wireless Letter Agreement. (2)
10.3	Form of VoIP Letter Agreement. (2)
10.4	First Modification to Letter Agreements. (2)
10.5	Promissory Note of LY Holdings, LLC to Registrant. (2)
10.6	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 April 29, 2010. (4)
10.7	Fifth Amended and Restated Commercial Note made by LY Holdings, LLC in favor of Chris T. Sullivan on February 11, 2010. (4)
10.8	First 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 executed August 12, 2010, but effective as of April 29, 2010. (7)
10.9	Registrant 2010 Stock and Incentive Compensation Plan, including a form of Employee Stock Option Agreement. (5)
10.10	Form of Restricted Stock Award Agreement pursuant to the 2010 Stock and Incentive Compensation Plan. (8)
10.11	Registration Rights Agreement by and among Registrant and Certain Purchasers. (7)
10.12	Forbearance Agreement by and among LY Holdings, LLC and Registrant, dated as of November 11, 2010. (8)
10.13	Agreement by and between Bellsouth Telecommunications, Inc., d/b/a AT&T Kentucky and Southeast Telephone, Inc. dated as of July 25, 2008.*** (11)
10.14	Commercial Agreement by and between various AT&T ILECs and Southeast Telephone, Inc.*** (11)
10.15	Private Commercial Agreement between Southeast Telephone, Inc. and Windstream Kentucky East, Inc. effective May 1, 2007.*** (11)
10.16	Agreement between Southeast Telephone, Inc. and Windstream Kentucky East, Inc. effective May 1, 2007.*** (11)
10.17	Lease and Option to Purchase Agreement by and between Pike County, KY and Southeast Telephone, Inc. dated as of January 1, 2004.*** (11)
10.18	Promissory Note by the Registrant and SE Acquisitions, LLC in favor of Community Trust Bank, Inc. dated October 1, 2010. (11)
10.19	Security Agreement by and among Registrant, SE Acquisitions, LLC and Community Trust Bank, Inc. dated as of October 1, 2010. (11)
10.20	Lightyear Forbearance Agreement by and among LY Holdings, LLC and Registrant, dated as of March 29, 2011. (11)

36

Exhibit No.	Description
10.21	Promissory Note, dated as of January 21, 2011 by Registrant to First Savings Bank, F.S.B. (9)
10.22	Absolute Continuing Guaranty Agreement, dated January 21, 2011, by J. Sherman Henderson III in favor of First Savings Bank, F.S.B. (9)
10.23	Absolute Continuing Guaranty Agreement, dated January 21, 2011, by Ronald L.Carmicle in favor of First Savings Bank, F.S.B. (9)
10.24	Absolute Continuing Guaranty Agreement, dated January 21, 2011, by Lightyear Network Solutions, LLC in favor of First Savings Bank, F.S.B. (9)
10.25	Security Agreement, dated January 21, 2011, by and between Lightyear Network Solutions, LLC and First Savings Bank, F.S.B. (9)
10.26	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. (9)
10.27	Stock Pledge Agreement, dated January 21, 2011, by LY Holdings, LLC in favor of First Savings Bank, F.S.B. (9)
10.28	Agreement dated January 21, 2011 by and between Registrant and Ronald L Carmicle. (9)
10.29	Subordination and Security Agreement dated as of February 12, 2010 by and between LYH and Registrant. (9)
10.30	Collateral Release Agreement dated January 21, 2011, by and among LYH, Lightyear Network Solutions, LLC, Registrant, Chris T. Sullivan, CTS Equities, Limited Partnership, and Rigdon O. Dees. (9)
10.31	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. (10)
10.32	Consulting and Non-Competition Agreement dated as of May 1, 2011 by and between Registrant, LY Holdings, LLC and J. Sherman Henderson III. (12)
10.33	Lightyear Forbearance Agreement by and among LY Holdings, LLC and Registrant, dated as of May 11, 2011. (13)
10.34	Lightyear Forbearance Agreement by and among Chris T. Sullivan and Lightyear Network Solutions, LLC, dated as of August 9, 2011. (14)
10.35	Intercompany Obligations Settlement Agreement, dated as of November 4, 2011, by and among LY Holdings, LLC, Registrant and Chris Sullivan. (15)
10.36	Term Note, dated as of November 4, 2011, by LY Holdings, LLC to Registrant (15)
10.37	Security Agreement, dated November 4, 2011, by and between LY Holdings, LLC and Registrant (15)
10.38	Stock Pledge Agreement, dated November 4, 2011, by LY Holdings, LLC in favor of First Savings Bank, F.S.B. (15)
10.39	Stock Pledge Agreement, dated November 4, 2011, by LY Holdings, LLC in favor of Registrant (15)
10.40	Collateral Release Agreement dated November 4, 2011, by and among LY Holdings, LLC, Registrant and First Savings Bank, F.S.B. (15)
10.41	Term Note, dated as of November 4, 2011, by Registrant and Lightyear Network Solutions, LLC to Chris T. Sullivan. (15)
10.42	Security Agreement, dated November 4, 2011, by and between Registrant, Lightyear Network Solutions, LLC and Chris T. Sullivan. (15)
10.43	Guaranty, dated November 4, 2011, by J. Sherman Henderson in favor of Chris T. Sullivan. (15)
10.44	Promissory Note, dated as of December 16, 2011 by Registrant to First Savings Bank, F.S.B. (16)
10.45	Absolute Continuing Guaranty Agreement, dated December 16, 2011, by Lightyear Network Solutions, LLC in favor of First Savings Bank, F.S.B. (16)
10.46	Absolute Continuing Guaranty Agreement, dated December 16, 2011, by J. Sherman Henderson III in favor of First Savings Bank, F.S.B. (16)
10.47	Absolute Continuing Guaranty Agreement, dated December 16, 2011, by Ronald L. Carmicle in favor of First Savings Bank, F.S.B. (16)
10.48	Absolute Continuing Guaranty Agreement, dated December 16, 2011, by Chris T. Sullivan in favor of First Savings Bank, F.S.B. (16)
10.49	Absolute Continuing Guaranty Agreement, dated December 16, 2011, by W. Brent Rice in favor of First Savings Bank, F.S.B. (16)
10.50	Form of Option Termination Agreement. (17)
10.51	Forbearance Agreement by and among Chris T. Sullivan and Lightyear Network Solutions, LLC, dated as of March 20, 2012. (18)
10.52	Commercial Note, dated as of December 19, 2012 by Lightyear Network Solutions, LLC to Central Bank of Jefferson County, Inc. (19)
10.53	Security Agreement, dated December 19, 2012 between Lightyear Network Solutions, LLC to Central Bank of Jefferson County, Inc. (19)
10.54	Guaranty, dated December 19, 2012, by Chris T. Sullivan in favor of Central Bank of Jefferson County, Inc. (19)
10.55	Forbearance Agreement by and among Chris T. Sullivan and Lightyear Network Solutions, LLC, dated as of October 29, 2012. *

37

Exhibit No.	Description
10.56	Forbearance Agreement by and among Chris T. Sullivan and Lightyear Network Solutions, LLC, dated as of March 20, 2013. *
21.1	List of Subsidiaries of Registrant *
23.1	Consent of Marcum, LLP *
31.1	Chief Executive Officer Certification *
31.2	Chief Financial Officer Certification *
32	Section 1350 Certification **
101.INS	XBRL Instance Document **
101.SCH	XBRL Schema Document **
101.CAL	XBRL Calculation Linkbase Document **
101.DEF	XBRL Definition Linkbase Document **
101.LAB	XBRL Label Linkbase Document **
101.PRE	XBRL Presentation Linkbase Document **
*	Filed herewith
**	Furnished herewith
***	Assumed by SE Acquisitions, LLC on October 1, 2010
(1)	Incorporated by reference to the exhibits included with our Quarterly Report on Form 10-QSB filed with the SEC on March 15, 2001.
(2)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on February 12, 2010.
(3)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on April 12, 2010.
(4)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on April 29, 2010.
(5)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on May 18, 2010.
(6)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on June 28, 2010.
(7)	Incorporated by reference to the exhibits included with our Quarterly Report on Form 10-Q filed with the SEC on August 16, 2010.
(8)	Incorporated by reference to the exhibits included with our Quarterly Report on Form 10-Q filed with the SEC on November 12, 2010.
(9)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on January 25, 2011.
(10)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on February 11, 2011.
(11)	Incorporated by reference to the exhibits included with our Annual Report on Form 10-K filed with the SEC on March 30, 2011.
(12)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on April 27, 2011.
(13)	Incorporated by reference to the exhibits included with our Quarterly Report on Form 10-Q filed with the SEC on May 13, 2011.
(14)	Incorporated by reference to the exhibits included with our Quarterly Report on Form 10-Q filed with the SEC on August 15, 2011.
(15)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on November 7, 2011.
(16)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on December 22, 2011.
(17)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on January 4, 2012.
(18)	Incorporated by reference to the exhibits included with our Annual Report on Form 10-K filed with the SEC on March 30, 2012.
(19)	Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on December 26, 2012.

38

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:	/s/ Stephen M. Lochmueller
	Stephen M. Lochmueller
	Chief Executive Officer

By:	/s/ Randy Ammon
	Randy Ammon
	President, Chief Operating Officer and
	Interim Chief Financial Officer

Date: April 1, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Stephen M. Lochmueller	Chief Executive Officer	April 1, 2013
Stephen M. Lochmueller	(Principal Executive Officer)
/s/ Randy Ammon	President, Chief Operating Officer and	April 1, 2013
Randy Ammon	Interim Chief Financial Officer
	(Principal Financial Officer and Principal Accounting
	Officer)
/s/ Chris T. Sullivan	Director	April 1, 2013
Chris T. Sullivan
/s/ Brent Rice	Director	April 1, 2013
Brent Rice
/s/ Ronald L. Carmicle	Director	April 1, 2013
Ronald L. Carmicle
/s/ W. Bruce Lunsford	Director	April 1, 2013
W. Bruce Lunsford
/s/ Jeffrey T. Hardesty	Director	April 1, 2013
Jeffrey T. Hardesty

39

EX-10.55

EXHIBIT 10.55

FORBEARANCE AGREEMENT

This Forbearance Agreement (this “Agreement”) is made and entered into this 29th day of October, 2012, by and among Lightyear Network Solutions, Inc., a Nevada corporation, Lightyear Network Solutions, LLC, a Kentucky limited liability company (collectively, the “Borrowers”) and Chris T. Sullivan, an individual resident of Nevada (“Lender”).

WITNESSETH:

WHEREAS, Borrowers are currently indebted to Lender in the principal amount of $6,250,000 pursuant to the Term Note dated November 4, 2011, executed in favor of Lender in the principal amount of $6,250,000 (the “Note”);

WHEREAS, as of the date hereof, a total of $6,250,000 of principal is currently outstanding under the Note, all of which is due and payable on January 10, 2013 (the “Principal”), subject to a Forbearance Agreement dated March 20, 2012 between the parties whereby the Lender agreed to forbear from demanding payment of Principal until August 30, 2013;

WHEREAS, the Borrowers desire Lender to forbear from exercising his rights and remedies to collect any Principal on the terms and conditions set forth herein; and

WHEREAS, Lender is willing to presently forbear from exercising its rights and remedies to collect the Principal, on the terms and subject to the conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the foregoing, the mutual promises and understandings of the parties hereto set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lender and the Borrowers each hereby agree as set forth in this Agreement.

1.          Use of Defined Terms.  Except as expressly set forth in this Agreement, all terms which have an initial capital letter where not required by the rules of grammar are defined in the Note.

2.          Forbearance.  For good and valuable consideration, Lender agrees to forbear from demanding payment of Principal under the Note or commencing any action against the Borrowers with respect to the payment of Principal until November 30, 2013, or such later date agreed upon by the parties, except that the Lender may exercise his rights and remedies under the Note at any time in connection with the occurrence of a Change of Control of the Company.

3.          Authority to Execute this Agreement.  Each of the Borrowers and the Lender represents and warrants to each other party hereto that it has the right, power and capacity and is duly authorized and empowered to enter into, execute, deliver and perform this Agreement.

4.          Reservation of Rights.  Lender continues to reserve all of its rights and remedies pursuant to this Agreement and the Note, as well as any rights and remedies at law, in equity or otherwise.  Nothing contained in this Agreement shall be or be deemed a waiver of any hereafter arising or occurring breach, default or event of default, including, nor shall preclude the subsequent exercise of any of Lender’s rights or remedies (including, without limitation, demand for payment of accrued but unpaid interest), subject to Section 2 hereof.

5.          Construction.

A. This Agreement shall be interpreted, construed and governed by and under the laws of the Commonwealth of Kentucky, without regard to its conflicts of law doctrine.

B. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be valid and enforceable under applicable law, but if any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, such provision shall be served herefrom and such invalidity or unenforceability shall not affect any other provision of this Agreement, the balance of which shall remain in and have its intended full force and effect; provided, however, if such provision may be reasonably modified so as to be valid and enforceable as a matter of law, such provision shall be deemed to be modified so as to be valid and enforceable to the maximum extent permitted by law.

C. The Paragraph headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement between the Borrowers and Lender, and shall not in any way affect the meaning or interpretation of this Agreement, any Paragraph or provision thereof.

D. This Agreement shall be binding on the Borrowers and their respective successors and heirs, and shall inure to the benefit of Lender, his successors, assigns, affiliates, divisions and parent.

E. This Agreement may not be altered, changed, amended or modified, except by written agreement signed by Lender and the Borrowers.

F. Whenever required by context, the masculine pronouns will include the feminine and neuter genders, and the singular will include the plural, and vice versa.

G. This Agreement constitutes the entire agreement between the Borrowers and Lender with regard to the subject matter hereof.

IN WITNESS WHEREOF, the Borrowers and Lender have executed this Forbearance Agreement as of the date first set forth above.

Lender:

/S/ Chris T Sullivan

Chris T. Sullivan

Borrowers:

Lightyear Network Solutions, Inc.

By:	/S/ Stephen M Lochmueller
Name:	Stephen M. Lochmueller
Title:	CEO

Lightyear Network Solutions, LLC

By:	/S/ Stephen M Lochmueller
Name:	Stephen M Lochmueller
Title:	CEO

EX-10.56

EXHIBIT 10.56

FORBEARANCE AGREEMENT

This Forbearance Agreement (this “Agreement”) is made and entered into this 20th day of March, 2013, by and among Lightyear Network Solutions, Inc., a Nevada corporation, Lightyear Network Solutions, LLC, a Kentucky limited liability company (collectively, the “Borrowers”) and Chris T. Sullivan, an individual resident of Nevada (“Lender”).

WITNESSETH:

WHEREAS, Borrowers are currently indebted to Lender in the principal amount of $6,250,000 pursuant to the Term Note dated November 4, 2011, executed in favor of Lender in the principal amount of $6,250,000 (the “Note”);

WHEREAS, as of the date hereof, a total of $6,250,000 of principal is currently outstanding under the Note, all of which is due and payable on January 10, 2013 (the “Principal”), subject to a Forbearance Agreement dated , October 29, 2012 between the parties whereby the Lender agreed to forbear from demanding payment of Principal until November 30, 2013;

WHEREAS, the Borrowers desire Lender to forbear from exercising his rights and remedies to collect any Principal on the terms and conditions set forth herein; and

WHEREAS, Lender is willing to presently forbear from exercising its rights and remedies to collect the Principal, on the terms and subject to the conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the foregoing, the mutual promises and understandings of the parties hereto set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lender and the Borrowers each hereby agree as set forth in this Agreement.

1.          Use of Defined Terms.  Except as expressly set forth in this Agreement, all terms which have an initial capital letter where not required by the rules of grammar are defined in the Note.

2.          Forbearance.  For good and valuable consideration, Lender agrees to forbear from demanding payment of Principal under the Note or commencing any action against the Borrowers with respect to the payment of Principal until February 28, 2014, or such later date agreed upon by the parties, except that the Lender may exercise his rights and remedies under the Note at any time in connection with the occurrence of a Change of Control of the Company

3.          Authority to Execute this Agreement.  Each of the Borrowers and the Lender represents and warrants to each other party hereto that it has the right, power and capacity and is duly authorized and empowered to enter into, execute, deliver and perform this Agreement.

4.          Reservation of Rights.  Lender continues to reserve all of its rights and remedies pursuant to this Agreement and the Note, as well as any rights and remedies at law, in equity or otherwise.  Nothing contained in this Agreement shall be or be deemed a waiver of any hereafter arising or occurring breach, default or event of default, including, nor shall preclude the subsequent exercise of any of Lender’s rights or remedies (including, without limitation, demand for payment of accrued but unpaid interest), subject to Section 2 hereof.

5.          Construction.

A. This Agreement shall be interpreted, construed and governed by and under the laws of the Commonwealth of Kentucky, without regard to its conflicts of law doctrine.

B. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be valid and enforceable under applicable law, but if any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, such provision shall be served herefrom and such invalidity or unenforceability shall not affect any other provision of this Agreement, the balance of which shall remain in and have its intended full force and effect; provided, however, if such provision may be reasonably modified so as to be valid and enforceable as a matter of law, such provision shall be deemed to be modified so as to be valid and enforceable to the maximum extent permitted by law.

C. The Paragraph headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement between the Borrowers and Lender, and shall not in any way affect the meaning or interpretation of this Agreement, any Paragraph or provision thereof.

D. This Agreement shall be binding on the Borrowers and their respective successors and heirs, and shall inure to the benefit of Lender, his successors, assigns, affiliates, divisions and parent.

E. This Agreement may not be altered, changed, amended or modified, except by written agreement signed by Lender and the Borrowers.

F. Whenever required by context, the masculine pronouns will include the feminine and neuter genders, and the singular will include the plural, and vice versa.

G. This Agreement constitutes the entire agreement between the Borrowers and Lender with regard to the subject matter hereof.

IN WITNESS WHEREOF, the Borrowers and Lender have executed this Forbearance Agreement as of the date first set forth above.

Lender:

/S/ Chris T Sullivan

Chris T. Sullivan

Borrowers:

Lightyear Network Solutions, Inc.

By:	/S/ Randy Ammon
Name:	Randy Ammon
Title:	President

Lightyear Network Solutions, LLC

By:	/S/ Stephen M. Lochmueller
Name:	Stephen M. Lochmueller
Title:	CEO

EX-21.1

EXHIBIT 21.1

Lightyear Network Solutions, Inc. and Subsidiaries

List of Subsidiaries as of December 31, 2012

Name of Entity	State of Incorporation
I.      Lightyear Network Solutions, Inc.	Nevada
A.      Lightyear Network Solutions, LLC	Kentucky
B.      SE Acquisitions, LLC	Kentucky
C.      Lightyear Alliance of Puerto Rico, LLC	Kentucky

EX-23.1

EXHIBIT 23.1

Independent Registered Public Accounting Firm’s Consent

We consent to the incorporation by reference in the Registration Statement of Lightyear Network Solutions, Inc. on Form S-8 (File No. 333-169678) of our report dated April 1, 2013, with respect to our audits of the consolidated financial statements of Lightyear Network Solutions, Inc. and Subsidiaries as of December 31, 2012 and 2011 and for the years then ended, which report is included in this Annual Report on Form 10-K of Lightyear Network Solutions, Inc. for the year ended December 31, 2012.

/s/ Marcum LLP

Marcum LLP

New York, NY

April 1, 2013

EX-31.1

EXHIBIT 31.1

SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Stephen M. Lochmueller, certify that:

1) I have reviewed this Annual Report on Form 10-K of Lightyear Network Solutions, Inc.;

2) 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;

3) 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;

4) 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:

(a) 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;

(b) 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;

(c) 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

(d) 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

5) 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):

(a) 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

(b) 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.

Date: April 1, 2013

 /s/ Stephen M. Lochmueller

Stephen M. Lochmueller

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Randy Ammon, certify that:

1) I have reviewed this Annual Report on Form 10-K of Lightyear Network Solutions, Inc.;

2) 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;

3) 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;

4) 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:

(a) 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;

(b) 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;

(c) 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

(d) 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

5) 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):

(a) 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

(b) 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.

Date: April 1, 2013

/s/	Randy Ammon
	Randy Ammon
	President, Chief Operating Officer
	and Interim Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

Pursuant to 18 U.S.C. § 1350, the undersigned officers of Lightyear Network Solutions, Inc. (the “Company”), hereby certify that the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 1, 2013	/s/ Stephen M. Lochmueller
	Stephen M. Lochmueller
	Chief Executive Officer
Date: April 1, 2013	/s/ Randy Ammon
	Randy Ammon
	President, Chief Operating Officer
	and Interim Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.

XML

Intangible Assets - Additional Information (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Goodwill and Intangible Assets Disclosure [Line Items]
Impairment Charges	$ 0	$ 237,750
Amortization expense	$ 436,666	$ 597,167

XML

Shedule Of Warrant Outstanding By Exercise Price Range (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Warrant Activity Note [Line Items]
Number of Warrants, Outstanding	1,381,798	1,242,297	2,732,425
Weighted Average Remaining Life In Years Outstanding	3 years	3 years 9 months 18 days
Number of Warrants, Exercisable	$ 1,381,798
Exercise Price 0.01
Warrant Activity Note [Line Items]
Number of Warrants, Outstanding	319,376
Weighted Average Remaining Life In Years Outstanding	3 years 9 months 18 days
Number of Warrants, Exercisable	319,376
Exercise Price 4.00
Warrant Activity Note [Line Items]
Number of Warrants, Outstanding	1,062,422
Weighted Average Remaining Life In Years Outstanding	2 years 8 months 12 days
Number of Warrants, Exercisable	$ 1,062,422

XML

Supplier Concentration - Additional Information (Detail) (Supplier Concentration Risk [Member])	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Supplier One [Member]
Concentration Risk [Line Items]
Percentage of purchases	32.00%	28.00%
Supplier Two [Member]
Concentration Risk [Line Items]
Percentage of purchases	22.00%	24.00%
Supplier Three [Member]
Concentration Risk [Line Items]
Percentage of purchases	13.00%	10.00%

XML

Weighted Average Assumptions Using Black-Scholes Option Pricing Model (Detail)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate	0.95%	1.58%
Expected term (years)	5 years 3 months	6 years
Expected volatility	42.90%	43.10%
Expected dividends	0.00%	0.00%

XML

Notes Payable - Additional Information (Detail) (USD $)	0 Months Ended	12 Months Ended
	Dec. 19, 2012	Dec. 31, 2012	Dec. 31, 2011
Secured Debt	$ 500,000
Debt Instrument, Interest Rate During Period	5.00%
Repayments of notes payable		895,940	670,346
Subsequent Event [Member]
Debt borrowed		500,000
Repayments of notes payable		$ 253,000
Maximum [Member]
Debt Instrument, Interest Rate During Period	5.00%	5.00%
Minimum [Member]
Debt Instrument, Interest Rate During Period	3.25%	1.75%

XML

Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Significant Accounting Policies [Line Items]
Allowance for doubtful accounts	$ 772,479	$ 1,215,735
Outstanding checks included in accounts payable	1,344,000	1,159,000
Accounts receivable days outstanding	180 days
Advertising Costs	494,000	538,000
Inventory, LIFO Reserve	39,000	42,000
Cash	48,424	108,133	1,009,209
Working capital deficit	2,100,000
Proceeds from Operating Activities	1,400,000
Payments for Purchase of Other Assets	300,000
Payments for Loans	1,100,000
Note payable - related party, non-current portion	$ 6,250,000

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Options Issued Under The 2010 Plan By Exercise Price Range (Detail)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Options Issued Under 2010 Plan [Line Items]
Option outstanding	738,832	96,666	912,500
Weighted Average Remaining Life In Years	9 years	8 years 6 months
Exercisable Number of Options	380,066
Exercise Price 1.25
Options Issued Under 2010 Plan [Line Items]
Option outstanding	62,832
Weighted Average Remaining Life In Years	7 years 4 months 24 days
Exercisable Number of Options	42,316
Exercise Price 0.21 [Member]
Options Issued Under 2010 Plan [Line Items]
Option outstanding	68,500
Weighted Average Remaining Life In Years	9 years 2 months 12 days
Exercisable Number of Options	34,000
Exercise Price 0.22 [Member]
Options Issued Under 2010 Plan [Line Items]
Option outstanding	607,500
Weighted Average Remaining Life In Years	9 years 2 months 12 days
Exercisable Number of Options	303,750

XML

Other Liabilities (Tables)

12 Months Ended

Dec. 31, 2012

Other Liabilities [Abstract]

Other Liabilities

Other liabilities consist of the following:

	December 31,
	2012		2011
Excise, state, local and property taxes payable	$	729,118	$	843,671
Other accrued expenses		126,426		165,485
Payroll, payroll taxes and bonuses		300,139		373,398
Deferred rent		200,066		260,086
Regulatory fees		205,527		132,133
Customer security deposits		106,448		101,390
	$	1,667,724	$	1,876,163

XML

Income Tax Benefit (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Current	$ 0	$ 0
Deferred	(171,870)	136,910
Current	0	0
Deferred	(20,018)	15,946
Income Tax Expense (Benefit), Continuing Operations	(191,888)	152,856
Change in valuation allowance	191,888	(276,656)
Income tax provision (benefit)	$ 0	$ (123,800)

XML

Capital Lease Obligations - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Capital Leased Assets, Gross	$ 2,824,334	$ 2,949,293
Lease Term	10 years
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation	464,717	474,989
Purchase Options, Land	842,000
Principal balance of capitalized lease obligation	737,000
Capital Lease Principal Balance Current	79,000
Eighty Full Time Employees [Member]
Monthly rent expense	7,509
Land [Member]
Capital Leased Assets, Gross	216,000	216,000
Building [Member]
Capital Leased Assets, Gross	1,784,000	1,784,000
Equipment [Member]
Capital Leased Assets, Gross	$ 824,334	$ 949,293

XML

Intangible Assets Amortization (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization, Begining Balance	$ 0	$ 15,850
Amortization expense	436,666	597,167
Accumulated Amortization, Ending Balance	0	0
Patented Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization, Begining Balance	2,200,000	2,200,000
Amortization expense	0	0
Impairment		0
Accumulated Amortization, Ending Balance	2,200,000	2,200,000
Range of estimated useful lives in years	5 years
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization, Begining Balance	1,845,834	1,393,817
Amortization expense	436,666	452,017
Impairment		0
Accumulated Amortization, Ending Balance	2,282,500	1,845,834
Range of estimated useful lives in years	3 years
Agent Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization, Begining Balance	410,000	410,000
Amortization expense	0	0
Impairment		0
Accumulated Amortization, Ending Balance	410,000	410,000
Range of estimated useful lives in years	5 years
Noncompete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization, Begining Balance	609,000	527,250
Amortization expense	0	81,750
Impairment		0
Accumulated Amortization, Ending Balance	609,000	609,000
Noncompete Agreements [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Range of estimated useful lives in years	1 year 6 months
Noncompete Agreements [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Range of estimated useful lives in years	1 year
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization, Begining Balance	0	15,850
Amortization expense	0	63,400
Impairment		(79,250)
Accumulated Amortization, Ending Balance	0	0
Range of estimated useful lives in years	5 years
Accumulated Amortization [Member]
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization, Begining Balance	5,064,834	4,546,917
Amortization expense	436,666	597,167
Impairment		(79,250)
Accumulated Amortization, Ending Balance	$ 5,501,500	$ 5,064,834

XML

Income Taxes - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Operating Loss Carryforwards	$ 5,366,447	$ 3,915,663
Operating Loss Carryforwards, Expiration Dates	2030
Deferred Tax Liabilities, Impairment Charges	38,000
Property and equipment	841,998	1,385,789
Asset Sale [Member]
Property and equipment	$ 289,000

XML

Commitments and Contingencies - Additional Information (Detail) (USD $)	12 Months Ended		8 Months Ended	1 Months Ended	12 Months Ended	1 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	May 31, 2011 Chief Executive Officer [Member]	Apr. 29, 2010 Chief Operating Officer [Member]	Dec. 31, 2012 Printing Servise Agreement [Member]	Jun. 30, 2011 Landlord [Member]	Oct. 31, 2009 Landlord [Member]
Lease Expiration Date	Dec. 31, 2015
Operating Leases, Rent Expense	$ 495,000	$ 496,000			$ 25,000	$ 60,000	$ 15,000
Proceeds from Sale of Lease Receivables	245,000	189,000
Total amount claimed for damages	750,000
Letters of Credit Outstanding, Amount	100,000
Officers' Compensation				125,000
Officer Compensation Increased			180,000
Non Cancelable Operating Leases With Aggregate Monthly Payments	$ 5,000

XML

Related Party Transactions - Additional Information (Detail) (USD $)	0 Months Ended	12 Months Ended			12 Months Ended		0 Months Ended	12 Months Ended	49 Months Ended	0 Months Ended	12 Months Ended	49 Months Ended	0 Months Ended	12 Months Ended				0 Months Ended	12 Months Ended		0 Months Ended		12 Months Ended
	Dec. 19, 2012	Dec. 31, 2012	Dec. 31, 2011	Nov. 04, 2011	Dec. 31, 2011 Letter Agreement [Member]	Nov. 04, 2011 First Ly Holdings Note and Second Ly Holdings Note [Member]	Dec. 19, 2012 Maximum [Member]	Dec. 31, 2012 Maximum [Member]	Jul. 31, 2008 Maximum [Member]	Dec. 19, 2012 Minimum [Member]	Dec. 31, 2012 Minimum [Member]	Jul. 31, 2008 Minimum [Member]	Nov. 04, 2011 Ly Holdings [Member]	Dec. 31, 2012 Ly Holdings [Member]	Dec. 31, 2011 Ly Holdings [Member]	Dec. 31, 2010 Ly Holdings [Member]	Dec. 31, 2011 Ly Holdings [Member] Security Agreement [Member]	Nov. 04, 2011 Ly Holdings [Member] Collateral Release Agreement [Member]	Dec. 31, 2012 Ly Holdings [Member] Standard Lightyear Agent Agreement [Member]	Dec. 31, 2011 Ly Holdings [Member] Standard Lightyear Agent Agreement [Member]	Nov. 04, 2011 Ly Holdings [Member] Interest Note [Member]	Feb. 10, 2012 Light Year Solution [Member] Settlement Note [Member] Subsequent Event [Member]	Dec. 31, 2012 Related Party [Member]	Dec. 31, 2011 Related Party [Member]
Related Party Transaction [Line Items]
Interest Payable		$ 115,000
Equity Method Investment, Ownership Percentage															45.27%
Monthly Percentage Of Commission Payable On Revenue									4.00%			3.00%
Debt Instrument, Maturity Date															Nov. 04, 2016							Jan. 10, 2013
Debt Instrument, Description of Variable Rate Basis															One-year LIBOR rate plus 2% per annum							Three-month LIBOR rate plus 4% per annum.
Selling, general and administrative expenses		15,100,955	17,104,471																				97,000	199,000
Principal payment due to a related party																					1,223,203
Long-term Purchase Commitment, Amount					8,000,000
Long Term Purchase Commitment Maturity Date					May 01, 2012
Debt Instrument, Interest Rate During Period	5.00%						5.00%	5.00%		3.25%	1.75%
Stock Surrendered During Period													9,500,000
Preferred Stock, Amount of Preferred Dividends in Arrears													2,232,110
Long-term Debt, Fair Value				12,899,980		12,899,980
Deemed preferred stock dividends		0	11,835,530												(11,835,530)	1,095,234
Exchange of notes receivable as consideration for redemption of preferred stock (in shares)															12,930,764
Transaction Charges															30,784
Common stock, shares outstanding		22,086,641	22,086,641										10,000,000
Notes Payable, Fair Value Disclosure																						6,250,000
Agreed Additional Acquisition Percentage																	30.00%
Business Acquisition, Percentage of Voting Interests Acquired																	10.00%
Shares Released From Collateral																		2,000,000
Loans Pledged as Collateral																		2,000,000
Shares Pledged																		2,000,000
Note payable - related party, non-current portion		6,250,000	6,250,000
Noninterest Expense Commission Expense														0	29,000				12,000	15,000
Interest expense		$ 236,471	$ 310,581																				$ 279,000	$ 377,000

XML

Property and Equipment

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property and Equipment

Note C – Property and Equipment

Property and equipment consists of the following:

	December 31,						Range of Estimated
	2012			2011			Useful Lives
Land	$	313,875		$	628,510		Not depreciable
Equipment and computers		7,223,733			7,054,883		1 - 25 years
Buildings		985,352			1,904,206		10 - 30  years
Furniture and fixtures		67,781			68,286		1 - 5 years
Vehicles		331,033			331,033		5 - 7 years
Leasehold improvements		866,055			739,826		[A]
		9,787,829			10,726,744
Less: accumulated depreciation and amortization		(4,276,403	)		(3,565,687	)
Property and equipment, net	$	5,511,426		$	7,161,057

[A] Leasehold improvements are amortized over the lesser of the term of the lease or the asset's economic useful life

As of December 31, 2012, the Company determined that the value of certain buildings and land were impaired based on a subsequent asset sale and recorded an approximate $938,000 impairment charge. See Note N – Subsequent Events for additional details.

Depreciation and amortization expense for the years ended December 31, 2012 and 2011 was approximately $867,000 and $1,095,000, respectively.

XML

Subsequent Events - Addional Information (Detail) (USD $)	12 Months Ended			2 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Asset Sale [Member]	Feb. 18, 2013 Subsequent Event [Member]	Dec. 31, 2012 Subsequent Event [Member] sqft
Book Value Of Tangible Assets			$ 2,396,000
Property and equipment	841,998	1,385,789	289,000
Tangible Asset Impairment Charges	938,000
Purchase Options, Land	842,000
Capital Lease Obligations	139,407
Proceeds from Sale of Lease Receivables	245,000	189,000
Debt Instrument, Face Amount	179,000
Current portion of capital lease obligations	164,662	239,203			737,000
Cash purchase price of leased premises	1,275,000
Net proceeds from asset sale					254,000
Operating Leases, Rent Expense	$ 495,000	$ 496,000		$ 2,917
Lease Expiration Date	Dec. 31, 2015			Sep. 07, 2014
Area of Land					17,000

XML

Portion Of Notes Payable (Detail) (USD $)	Dec. 31, 2012		Dec. 31, 2011
Total Notes Payable	$ 3,155,618		$ 4,230,910
Less: Current Portion	934,529		895,918
Non-Current Portion of Notes Payable	2,400,441		3,334,992
Variable Interest Rate Five Point Zero Zero Percentage Due On September Thirty Two Thousand Fifteen [Member]
Total Notes Payable	1,473,218		1,960,539
Fixed Interest Rate Six Point Five Zero Percentage Due On October One Two Thousand and Twelve [Member]
Total Notes Payable	0		14,204
Variable Interest Rate Four Point Two Five Percentage Due On January Twenty Six Two Thousand and Fourteen [Member]
Total Notes Payable	11,041	[1]	20,783	[1]
Variable Interest Rate Four Point Two Five Percentage Due On October Eighteen Two Thousand and Twenty Four [Member]
Total Notes Payable	102,375	[1]	109,420	[1]
Fixed Interest Rate Six Point Nine Nine Percentage Due On October One Two Thousand and Twenty [Member]
Total Notes Payable	65,936	[1]	72,307	[1]
Fixed Interest Rate Six Point Two Five Percentage Due On April Four Two Thousand and Fifteen [Member]
Total Notes Payable	74,831		103,657
Fixed Interest Rate Six Point Zero Zero Percentage Due On January Twenty Five Two Thousand and Fourteen [Member]
Total Notes Payable	$ 1,607,569	[2]	$ 1,950,000	[2]

[1] On January 17, 2013, the Company repaid notes payable with an aggregate principal balance of $179,352 in connection with the sale of certain property and equipment, of which approximately $24,000 was deemed to be current. See Note N Subsequent Events for additional details.

[2] The Company is required to make a balloon payment, consisting of unpaid principal and interest, of approximately $1,247,000 on January 25, 2014. On November 6, 2012, the bank waived two debt covenants for the fourth quarter of 2012, relating to this note. On March 29, 2013, the bank elected to eliminate the earnings-related debt covenants effective January 1, 2013 for the balance of the loan term

XML

Stockholders' Deficiency (Tables)

12 Months Ended

Dec. 31, 2012

Stockholders' Deficiency [Abstract]

Schedule Of Stockholders Equity Note Warrants

A summary of the warrant activity for years ended December 31, 2012 and 2011 is as follows:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Warrants			Price		In Years		Value
Outstanding at December 31, 2010		2,732,425		$	1.28
Granted		300,770			2.41
Exercised		(1,790,898	)		0.01
Cancelled		-			-
Outstanding at December 31, 2011		1,242,297		$	3.38		3.8	$	46,214
Granted		139,501			0.37
Exercised		-			-
Cancelled		-			-
Outstanding at December 31, 2012		1,381,798		$	3.08		3.0	$	9,581
Exercisable at December 31, 2012		1,381,798		$	3.08		3.0	$	9,581

The following table presents information related to warrants at December 31, 2012:

Warrants Outstanding				Warrants Exercisable
				Weighted
		Outstanding		Average		Exercisable
Exercise		Number of		Remaining Life		Number of
Price		Warrants		In Years		Warrants
$	0.01		319,376		3.8		319,376
$	4.00		1,062,422		2.7		1,062,422
			1,381,798		3.0		1,381,798

Weighted Average Assumptions Using Black-Scholes Option Pricing Model

In applying the Black-Scholes option pricing model, the Company used the following weighted average assumptions:

	December 31,
	2012			2011
Risk free interest rate		0.95	%		1.58	%
Expected term (years)		5.25			6.00
Expected volatility		42.90	%		43.10	%
Expected dividends		0.00	%		0.00	%

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range

A summary of the status of options issued under the 2010 Plan during the years ended December 31, 2012 and 2011 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Balance, December 31, 2010		912,500		$	4.04
Granted		100,000			1.25
Exercised		-			-
Cancelled		(687,500	)		1.25
Forfeited		(228,334	)		3.34
Balance, December 31, 2011		96,666		$	1.25		8.5	$	-
Granted		806,500			0.22
Exercised		-			-
Cancelled		-			-
Forfeited		(164,334	)		0.50
Balance, December 31, 2012		738,832		$	0.29		9.0	$	-
Exercisable, December 31, 2012		380,066		$	0.33		9.0	$	-

The following table presents information related to stock options at December 31, 2012:

Options Outstanding				Options Exercisable
				Weighted
		Outstanding		Average		Exercisable
Exercise		Number of		Remaining Life		Number of
Price		Options		In Years		Options
$	0.21		68,500		9.2		34,000
	0.22		607,500		9.2		303,750
	1.25		62,832		7.4		42,316
			738,832		9.0		380,066

Schedule of Nonvested Restricted Stock Units Activity

A summary of restricted stock activity for the years ended December 31, 2012 and 2011 is presented in the table below:

				Weighted
				Average		Total
	Number of			Grant Date		Grant Date
	Shares			Fair Value		Fair Value
Non-vested, December 31, 2010		16,234		$	4.75	$	77,112
Granted		-			-		-
Vested		(12,987	)		4.75		(61,689	)
Forfeited		(3,247	)		4.75		(15,423	)
Non-vested, December 31, 2011		-		$	-	$	-
Granted		-			-		-
Vested		-			-		-
Forfeited		-			-		-
Non-vested, December 31, 2012		-		$	-	$	-

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Schedule of Deferred Tax Assets and Liabilities

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:

	For The Years Ended
	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	2,037,103		$	1,547,861
Stock-based compensation		-			88,653
Allowance for doubtful accounts		293,233			474,796
Allowance for obsolete inventory		32,993			34,542
Goodwill and intangible assets		2,685,939			3,132,224
Total deferred tax assets		5,049,268			5,278,076
Less: Valuation allowance		(4,120,781	)		(3,928,893	)
Deferred tax assets, net	$	928,487		$	1,349,183
Deferred tax liabilities:
Excess of book over tax basis of:
Property and equipment	$	841,998		$	1,385,789
Intangible assets		124,319			290,077
Total deferred tax liabilities	$	966,317		$	1,675,866
Deferred tax liabilities - non-current, net	$	37,830		$	326,683

Schedule of Components of Income Tax Expense (Benefit)

The income tax provision (benefit) consists of the following:

	For The Years Ended
	December 31,
	2012			2011
Federal
Current	$	-		$	-
Deferred		(171,870	)		136,910
State and local
Current		-			-
Deferred		(20,018	)		15,946
		(191,888	)		152,856
Change in valuation allowance		191,888			(276,656	)
Income tax provision (benefit)	$	-		$	(123,800	)

Schedule of Effective Income Tax Rate Reconciliation

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the loss from continuing operations for the years ended December 31, 2012 and 2011 are as follows:

	For The Years Ended
	December 31,
	2012			2011
Tax benefit at federal statutory rate		(34.0	)%		(34.0	)%
State income taxes, net of federal benefit		(4.0	)		(4.0	)
Permanent differences:
Stock-based compensation		10.0			33.9
Life insurance premiums		0.0			7.3
Meals and entertainment		0.6			1.4
Fines and penalties		0.9			1.4
Tax effect of asset impairment		11.6			0.0
Effect of true-ups and other		7.2			15.3
Change in valuation allowance		7.7			(38.6	)
Effective income tax rate		0.0	%		(17.3	)%

XML

Options Issued Under The 2010 Plan (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Options Issued Under 2010 Plan [Line Items]
Number of Options, Opening Balance	96,666	912,500
Number of Options, Granted	806,500	100,000
Number of Options, Exercised	0	0
Number of Options, Cancelled	0	(687,500)
Number of Options, Forfeited	(164,334)	(228,334)
Number of Options, Ending Balance	738,832	96,666
Exercisable Number of Options	380,066
Weighted Average Exercise Price, Opening Balance	$ 1.25	$ 4.04
Weighted Average Exercise Price, Granted	$ 0.22	$ 1.25
Weighted Average Exercise Price, Exercised	$ 0	$ 0
Weighted Average Exercise Price, Cancelled	$ 0	$ 1.25
Weighted Average Exercise Price, Forfeited	$ 0.50	$ 3.34
Weighted Average Exercise Price, Ending Balance	$ 0.29	$ 1.25
Weighted Average Exercise Price, Exercisable	$ 0.33
Weighted Average Remaining Life In Years	9 years	8 years 6 months
Weighted Average Remaining Life In Years, Exercisable	9 years
Intrinsic Value, Ending Balance	$ 0	$ 0
Intrinsic Value, exercisable	$ 0

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Portion Of Notes Payable (Parenthetical) (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Line of Credit Facility, Periodic Payment	$ 1,247,000
Less: Current Portion	934,529	895,918
Repayments of notes payable	895,940	670,346
Property and Equipment [Member]
Less: Current Portion	24,000
Repayments of notes payable	179,352
Variable Interest Rate Five Point Zero Zero Percentage Due On September Thirty Two Thousand Fifteen [Member]
Long-term Debt, Percentage Bearing Variable Interest, Percentage Rate	5.00%
Debt Instrument, Maturity Date	Sep. 30, 2015
Line of Credit Facility, Periodic Payment	47,874
Fixed Interest Rate Six Point Five Zero Percentage Due On October One Two Thousand and Twelve [Member]
Debt Instrument, Maturity Date	Oct. 01, 2012
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate	6.50%
Variable Interest Rate Four Point Two Five Percentage Due On January Twenty Six Two Thousand and Fourteen [Member]
Long-term Debt, Percentage Bearing Variable Interest, Percentage Rate	4.25%
Debt Instrument, Maturity Date	Jan. 26, 2014
Line of Credit Facility, Periodic Payment	871
Variable Interest Rate Four Point Two Five Percentage Due On October Eighteen Two Thousand and Twenty Four [Member]
Long-term Debt, Percentage Bearing Variable Interest, Percentage Rate	4.25%
Debt Instrument, Maturity Date	Oct. 18, 2024
Line of Credit Facility, Periodic Payment	970
Fixed Interest Rate Six Point Nine Nine Percentage Due On October One Two Thousand and Twenty [Member]
Debt Instrument, Maturity Date	Oct. 01, 2020
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate	6.99%
Line of Credit Facility, Periodic Payment	935
Fixed Interest Rate Six Point Two Five Percentage Due On April Four Two Thousand and Fifteen [Member]
Debt Instrument, Maturity Date	Apr. 04, 2015
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate	6.25%
Line of Credit Facility, Periodic Payment	2,882
Fixed Interest Rate Six Point Zero Zero Percentage Due On January Twenty Five Two Thousand and Fourteen [Member]
Debt Instrument, Maturity Date	Jan. 25, 2014
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate	6.00%
Line of Credit Facility, Periodic Payment	$ 37,780

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Schedule of Gain Contingencies by Contingency

Future minimum payments under these operating lease agreements are as follows:

For The Years Ending
December 31,	Amount
2013	$	1,054,171
2014		844,703
2015		611,094
	$	2,509,968

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Reconciliation of Numerators and Denominators of Basic and Diluted Loss per Share Calculation (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Earnings Per Share Disclosure [Line Items]
Net loss	$ (2,262,826)	$ (593,477)
Deemed dividends to convertible preferred stockholders	0	(11,835,530)
Net loss attributable to common stockholders	$ (2,262,826)	$ (12,429,007)
Weighted average common stock shares outstanding	22,086,641	21,667,374
Weighted average warrants outstanding with an exercise price of $0.01 or less	241,564	128,737
Weighted average basic and diluted shares outstanding	22,328,205	21,796,111
Net loss	$ (0.10)	$ (0.03)
Deemed preferred stock dividends	$ 0	$ (0.54)
Net loss attributable to common stockholders	$ (0.10)	$ (0.57)

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note B – Summary of Significant Accounting Policies

Liquidity Plan

As of December 31, 2012, Lightyear had a cash balance of $48,424 and a working capital deficit of $2.1 million. For the year ended December 31, 2012, the Company’s operating activities provided $1.4 million of cash, while $0.3 million and $1.1 million were used to purchase property and equipment and to service debt, respectively. 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 until at least the end of 2013. If the Company requires additional funds, the Company might initiate additional cost reductions or seek additional capital through debt or equity financings. The Company may also seek extensions of the scheduled payment obligations, attempt to refinance its outstanding debt, or consider a sale of the net assets of the Company. No assurance can be provided that the Company will be successful with any of its efforts.

The Company’s future capital requirements are expected to be driven by debt reduction and debt service. The Company’s note payable – related party with an outstanding balance of $6.25 million as of December 31, 2012 currently is scheduled to mature on February 28, 2014. As disclosed in Note I, the related party has historically renegotiated the maturity date on the note, most recently on March 20, 2013. Prior to the maturity date of February 28, 2014, the Company may seek an additional extension from the related party, although no assurance can be provided that the Company will be successful.

Principles of Consolidation

The balance sheets, statements of operations and cash flows of the Company and its wholly-owned subsidiaries have been included in the 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 consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“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 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.

Cash

The Company maintains cash in bank accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible. As of December 31, 2012 and 2011, accounts payable included approximately $1,344,000 and $1,159,000, respectively, of checks that had been issued but had not cleared the bank.

Accounts Receivable

Accounts receivable are shown net of an allowance for doubtful accounts of $772,479 and $1,215,735 as of December 31, 2012 and 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.

Property and Equipment

Property and equipment is recorded at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value. The cost of additions and substantial betterments to property and equipment are capitalized. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. Improvements to leased assets or fixtures are amortized over their estimated useful lives or lease period, whichever is shorter. Leased property meeting certain criteria is capitalized and the present value of the related payments is recorded as a liability. Depreciation of capitalized leased assets is computed on the straight-line method over the lesser of the term of the lease or its economic life. Upon retirement or other disposition of these assets, the costs and related accumulated depreciation and amortization of these assets are removed from the accounts and the resulting gains or losses are reflected in the consolidated results of operations. Expenditures for maintenance and repairs are charged to operations as incurred.

Intangible Assets

Intangible assets are recorded at cost except for assets acquired using acquisition accounting, which are initially recorded at their estimated fair value. Intangible assets with definite lives include proprietary technology, covenants not to compete, a trade name and customer and agent relationships. Amortization is computed on a straight-line basis over the estimated useful lives of the intangible assets.

Intangible assets with indefinite lives include VoIP licenses and a trade name. VoIP licenses provide us with certain rights in connection with our VoIP products. The Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of the VoIP licenses. The Company acquired the rights to the Lightyear trade name and effectively has the ability to retain this exclusive right permanently at a nominal cost.

Impairment of Long-Lived Assets

The Company’s reviews the carrying value of intangibles and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value.

Advertising Costs

Advertising costs are expensed when incurred. Advertising costs, which are included in selling, general and administrative expenses in the accompanying consolidated statements of operations, were approximately $494,000 and $538,000 for the years ended December 31, 2012 and 2011, respectively.

Inventories

The Company maintains inventories, consisting of wireless telephones and telecommunications equipment, which are available for sale. Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. At December 31, 2012 and 2011, the Company had reserves for obsolete inventory of approximately $39,000 and $42,000, respectively.

The Company continually analyzes its slow-moving, excess and obsolete inventories. Products that are determined to be obsolete are written down to net realizable value.

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 statements of operations. 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.

Income Taxes

Effective February 12, 2010, the date of the Company’s recapitalization, Lightyear began being taxed as a corporation. The Company’s subsidiaries are organized as limited liability companies, and have elected to be treated as disregarded entities for income tax purposes, with taxable income or loss passing through to LNSI, the parent.

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax liabilities and assets are determined on the basis of the difference between the tax basis of liabilities and assets and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. As of December 31, 2012, the Company has recorded a valuation allowance for the amount of deferred tax assets that are not more likely than not to be realized.

The Company accounts for uncertain tax positions based upon authoritative guidance that prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on derecognition, classification, interest and penalties, accounting in interim periods and related disclosure.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2012. The Company files income tax returns with most states. The tax years ended December 31, 2010 and forward remain subject to examination for federal, state, and local income tax purposes by various taxing authorities.

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses.

Fair Value of Financial Instruments

The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy that gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1   Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2   Inputs to the valuation methodology include:

· Quoted prices for similar assets and liabilities in active markets.

· Quoted prices for identical or similar assets or liabilities in inactive markets.

· Inputs other than quoted market prices that are observable for the asset or liability.

· Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3   Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Fair value is often based on internally developed models in which there are few, if any, external observations.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company’s short term financial instruments include 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 and capital lease obligations. 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 is re-measured at each vesting date and 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.

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; See Note I – Related Party Transactions). 

The following table reconciles the numerator and denominator for the calculation:

	For The Years Ended
	December 31,
	2012			2011
Basic and diluted loss per share:
Numerator:
Net loss	$	(2,262,826	)	$	(593,477	)
Deemed preferred stock dividends		-			(11,835,530	)
Numerator for basic and diluted loss per share:
Net loss attributable to common stockholders	$	(2,262,826	)	$	(12,429,007	)
Denominator:
Weighted average common stock shares outstanding		22,086,641			21,667,374
Weighted average warrants outstanding with an exercise price of $0.01 or less		241,564			128,737
Weighted average basic and diluted shares outstanding		22,328,205			21,796,111
Loss per basic and diluted share:
Net loss	$	(0.10	)	$	(0.03	)
Deemed preferred stock dividends		-			(0.54	)
Net loss attributable to common stockholders	$	(0.10	)	$	(0.57	)

The following securities are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive:

	December 31,
	2012		2011
Employee stock options		738,832		96,666
Warrants		1,062,422		1,049,740
Total potentially dilutive shares		1,801,254		1,146,406

Recently Issued and Adopted Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, “Intangibles—Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment." This ASU simplifies the impairment testing of indefinite-lived intangible assets by eliminating the requirement to perform an annual quantitative test for impairment, unless a qualitative assessment reveals that impairment is likely. While the update is effective for impairment tests performed for fiscal years beginning after September 15, 2012, early adoption is permitted. The Company elected to adopt ASU 2012-02 during the fourth quarter of 2012, which altered the Company’s annual procedures, but did not have a material impact on the Company’s consolidated financial statements.

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Securities Excluded From Calculation of Weighted Average Dilutive Common Shares (Detail)	Dec. 31, 2012	Dec. 31, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount	1,801,254	1,146,406
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount	738,832	96,666
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount	1,062,422	1,049,740

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Other Liabilities (Detail) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Other Liabilities [Line Items]
Excise, state, local and property taxes payable	$ 729,118	$ 843,671
Other accrued expenses	126,426	165,485
Payroll, payroll taxes and bonuses	300,139	373,398
Deferred rent	200,066	260,086
Regulatory fees	205,527	132,133
Customer security deposits	106,448	101,390
Totals	$ 1,667,724	$ 1,876,163

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Warrant Activity (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Warrant Activity Note [Line Items]
Number of Warrants, Outstanding	1,242,297	2,732,425
Number of Warrants, Granted	139,501	300,770
Number of Warrants, Exercised	$ 0	$ (1,790,898)
Number of Warrants, Cancelled	0	0
Number of Warrants, Outstanding	1,381,798	1,242,297
Number of Warrants, Exercisable	1,381,798
Weighted Average Exercise Price, Outstanding	3.38	1.28
Weighted Average Exercise Price, Granted	$ 0.37	$ 2.41
Weighted Average Exercise Price, Exercised	$ 0	$ 0.01
Weighted Average Exercise Price, Cancelled	$ 0
Weighted Average Exercise Price, Outstanding	3.08	3.38
Weighted Average Exercise Price, Exercisable	$ 3.08
Weighted Average Remaining Life In Years Outstanding	3 years	3 years 9 months 18 days
Weighted Average Remaining Life In Years, Exercisable	3 years
Intrinsic value, outstanding	9,581	46,214
Intrinsic value, Exercisable	$ 9,581

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Consolidated Balance Sheets (USD $)	Dec. 31, 2012	Dec. 31, 2011
Current Assets:
Cash	$ 48,424	$ 108,133
Accounts receivable, net	4,694,100	5,237,404
Vendor deposits	1,894,522	1,771,028
Inventories, net	267,427	335,964
Prepaid expenses and other current assets	1,137,654	2,523,039
Total Current Assets	8,042,127	9,975,568
Property and equipment, net	5,511,426	7,161,057
Intangible assets, net	1,492,083	1,928,749
Total Assets	15,045,636	19,065,374
Current Liabilities:
Accounts payable	6,212,388	7,216,117
Interest payable - related parties	114,972	47,282
Accrued agent commissions	459,712	530,268
Accrued agent commissions - related parties	847	1,069
Deferred revenue	473,957	427,715
Other liabilities	1,667,724	1,876,163
Other liabilities - related parties	142,330	81,718
Current portion of notes payable	934,529	895,918
Current portion of capital lease obligations	164,662	239,203
Total Current Liabilities	10,171,121	11,315,453
Notes payable, non-current portion	2,400,441	3,334,992
Note payable - related party, non-current portion	6,250,000	6,250,000
Capital lease obligations, non-current portion	711,255	758,750
Deferred tax liability, non-current portion, net	37,830	326,683
Total Liabilities	19,570,647	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 December 31, 2012 and December 31, 2011	22,087	22,087
Note receivable from affiliate	(1,223,203)	(1,223,203)
Additional paid-in capital	10,148,545	9,490,226
Accumulated deficit	(13,472,440)	(11,209,614)
Total Stockholders' Deficiency	(4,525,011)	(2,920,504)
Total Liabilities and Stockholders' Deficiency	$ 15,045,636	$ 19,065,374

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Notes Payable - Future Maturities (Detail) (USD $)	Dec. 31, 2012	Dec. 31, 2011
2013	$ 910,155
2014	1,812,147
2015	433,316
Total	$ 3,155,618	$ 4,230,910

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash Flows From Operating Activities
Net loss	$ (2,262,826)	$ (593,477)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	1,303,709	1,691,845
Provision for bad debt expense	1,039,270	940,277
Provision for inventory reserve	0	17,205
Stock-based compensation	658,319	593,938
Interest income from affiliate	0	(570,967)
Deferred taxes	0	(123,800)
Gain on sale of fixed assets	0	(192,284)
Loss on abandonment of property	0	107,540
Impairment of intangible assets	0	237,750
Impairment of property and equipment, net	938,270	0
Changes in operating assets and liabilities:
Accounts receivable	(495,966)	(27,257)
Other assets	0	(5,254)
Vendor deposits	(123,494)	(84,117)
Inventories	68,537	(19,614)
Prepaid expenses and other current assets	1,385,385	(235,164)
Accounts payable	(1,003,729)	56,001
Interest payable - related parties	67,690	(66,536)
Accrued agent commissions	(70,556)	(39,565)
Accrued agent commissions - related parties	(222)	(23,967)
Deferred revenue	46,242	(1,589,473)
Other liabilities	(208,439)	(10,061)
Other liabilities - related parties	60,612	(15,665)
Total Adjustments	3,665,628	640,832
Net Cash Provided by Operating Activities	1,402,802	47,355
Cash Flows From Investing Activities
Purchases of property and equipment	(318,305)	(1,145,994)
Proceeds from sale of fixed assets	0	321,277
Net Cash Used in Investing Activities	(318,305)	(824,717)
Cash Flows From Financing Activities
Repayments of obligations payable - related party	0	(1,000,000)
Repayments of capital lease obligations	(248,266)	(336,096)
Repayments of notes payable	(895,940)	(670,346)
Repayments of short term borrowings	0	(320,428)
Proceeds from notes payable	0	2,000,000
Proceeds from cash surrender value of life insurance	0	316,736
Payments of preferred stock redemption costs	0	(113,580)
Net Cash Used In Financing Activities	(1,144,206)	(123,714)
Net Decrease In Cash	(59,709)	(901,076)
Cash - Beginning	108,133	1,009,209
Cash - Ending	48,424	108,133
Cash paid during the period for:
Interest	436,404	758,269
Non-cash investing and financing activites:
Convertible preferred stock redemption	0	(9,500)
Stock issued in connection with cashless milestone warrant exercise		0
Purchase of property and equipment via capital lease	$ 126,230	$ 143,370

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Stockholders' Deficiency - Additional Information (Detail) (USD $)	1 Months Ended	12 Months Ended							12 Months Ended								12 Months Ended							12 Months Ended		0 Months Ended			12 Months Ended				0 Months Ended
	Jun. 30, 2011	Dec. 31, 2012	Dec. 31, 2011	Mar. 20, 2012	Dec. 28, 2011	Jul. 19, 2011	Jun. 07, 2011	Mar. 01, 2011	Dec. 31, 2012 Restricted Stock [Member]	Dec. 31, 2011 Restricted Stock [Member]	Dec. 31, 2012 Investors [Member]	Apr. 27, 2011 Investors [Member]	Mar. 28, 2011 Investors [Member]	Feb. 26, 2011 Investors [Member]	Dec. 31, 2012 Selling Agent Milestone Warrants [Member]	Dec. 31, 2011 Selling Agent Milestone Warrants [Member]	Dec. 31, 2012 Selling Agents [Member]	Dec. 31, 2012 Employee Stock Option [Member]	Dec. 31, 2011 Employee Stock Option [Member]	Dec. 31, 2010 Employee Stock Option [Member]	Dec. 31, 2012 Additional Warrants [Member]	Dec. 31, 2011 Additional Warrants [Member]	Dec. 31, 2012 Additional Warrants [Member] Common Stock and Warrants Issued [Member]	Dec. 31, 2012 Additional Warrants [Member] Investors [Member]	Dec. 31, 2011 Additional Warrants [Member] Investors [Member]	Apr. 27, 2011 Additional Warrants [Member] Selling Agents [Member]	Mar. 28, 2011 Additional Warrants [Member] Selling Agents [Member]	Feb. 26, 2011 Additional Warrants [Member] Selling Agents [Member]	Dec. 31, 2012 Additional Warrants [Member] Selling Agents [Member]	Dec. 31, 2011 Additional Warrants [Member] Selling Agents [Member]	Dec. 31, 2012 Fixed Warrants [Member]	Dec. 31, 2011 Fixed Warrants [Member]	Apr. 27, 2011 Milestone Warrant [Member]	Mar. 28, 2011 Milestone Warrant [Member]	Feb. 26, 2011 Milestone Warrant [Member]
Stockholders Equity Note [Line Items]
Exercise price of warrants, per share																							$ 0.01
Common stock warrants term																								$ 0.01	$ 0.01				$ 4.00	$ 4.00
Warrants issued		139,501									671,271						190,130							126,819		42,332	84,512	42,210	12,682
Exercise price of stock options granted		$ 0.22	$ 1.25
Weighted average estimated fair value of stock options granted		$ 0.09	$ 0.36
Stock-based compensation expense		$ 658,000	$ 548,000						$ 0	$ 46,000
Unrecognized stock-based compensation expense		81,000			663,000
Unrecognized stock-based compensation expense amortization Period		4 months 24 days
Shares, Issued												445,576	892,456	445,564
Warrants Exercised On Cash Less Basis																																	448,374	895,449	447,075
Warrants outstanding		241,564	128,737												0	169,084					351,313	211,813		319,376	192,557				31,937	19,256	861,401	861,401
Stock Issued During Period, Shares, Employee Benefit Plan																		248,181	890,347	1,000,000
Stock Options Purchase Of Shares				74,000		100,000		732,500
Stock Option Exercise Price				0.21		1.25	1.25	0.22
Stock Option Grant Date Fair Value				3,000		36,000		63,000
Stock or Unit Option Plan Expense	84,000
Stock Option Plan Additional Incremenetal Expenses	$ 185,000
Per Unit Value Of Consideration Stock Option Plan					$ 1.00
Consideration For Termination Stock Options Outstanding					687,500

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Property and Equipment - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Depreciation	$ 867,000	$ 1,095,000
Impairement Of Land and Building	$ 938,000

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Reconciliation of Numerators and Denominators of Basic and Diluted Loss per Share Calculation

The following table reconciles the numerator and denominator for the calculation:

	For The Years Ended
	December 31,
	2012			2011
Basic and diluted loss per share:
Numerator:
Net loss	$	(2,262,826	)	$	(593,477	)
Deemed preferred stock dividends		-			(11,835,530	)
Numerator for basic and diluted loss per share:
Net loss attributable to common stockholders	$	(2,262,826	)	$	(12,429,007	)
Denominator:
Weighted average common stock shares outstanding		22,086,641			21,667,374
Weighted average warrants outstanding with an exercise price of $0.01 or less		241,564			128,737
Weighted average basic and diluted shares outstanding		22,328,205			21,796,111
Loss per basic and diluted share:
Net loss	$	(0.10	)	$	(0.03	)
Deemed preferred stock dividends		-			(0.54	)
Net loss attributable to common stockholders	$	(0.10	)	$	(0.57	)

Securities Excluded From Calculation of Weighted Average Dilutive Common Shares

The following securities are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive:

	December 31,
	2012		2011
Employee stock options		738,832		96,666
Warrants		1,062,422		1,049,740
Total potentially dilutive shares		1,801,254		1,146,406

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Schedule Intangible Assets (Detail) (USD $)	12 Months Ended								12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Voip Licenses [Member]	Dec. 31, 2011 Voip Licenses [Member]	Dec. 31, 2010 Voip Licenses [Member]	Dec. 31, 2012 Trade Names Infinite [Member]	Dec. 31, 2011 Trade Names Infinite [Member]	Dec. 31, 2010 Trade Names Infinite [Member]	Dec. 31, 2012 Patented Technology [Member]	Dec. 31, 2011 Patented Technology [Member]	Dec. 31, 2012 Customer Relationships [Member]	Dec. 31, 2011 Customer Relationships [Member]	Dec. 31, 2012 Agent Relationships [Member]	Dec. 31, 2011 Agent Relationships [Member]	Dec. 31, 2012 Noncompete Agreements [Member]	Dec. 31, 2011 Noncompete Agreements [Member]	Dec. 31, 2012 Trade Names Finite [Member]	Dec. 31, 2011 Trade Names Finite [Member]	Dec. 31, 2012 Accumulated Amortization [Member]	Dec. 31, 2011 Accumulated Amortization [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible Assets, Beginning Balance	$ 1,928,749	$ 2,763,666		$ 244,583			$ 0	$ 317,000	$ 2,200,000	$ 2,200,000	$ 2,610,000	$ 2,610,000	$ 410,000	$ 410,000	$ 609,000	$ 609,000	$ 0	$ 317,000	$ (5,064,834)	$ (4,546,917)
Accumulated Amortization, Begining Balance	0	15,850				0	0	15,850	2,200,000	2,200,000	1,845,834	1,393,817	410,000	410,000	609,000	527,250	0	15,850	5,064,834	4,546,917
Indefinite Lives Trade Names, Beginning Balance	920,000	920,000		244,583	244,583	920,000	920,000	920,000,000									920,000
Indefinite Lives VoIP Licenses, Beginning Balance			244,583	244,583	244,583	244,583	244,583										244,583
Intangible Assets Net, Beginning Balance	1,928,749		244,583			0	0		2,200,000		2,610,000		410,000		609,000		0		(5,064,834)
Amortization expense	(436,666)	(597,167)							0	0	(436,666)	(452,017)	0	0	0	(81,750)	0	(63,400)	(436,666)	(597,167)
Net Book Value	920,000										327,500						920,000
Impairment Charges	0	237,750								0		0		0		0		(317,000)		79,250
Weighted average amortization period	0 years								0 years		9 months 18 days		0 years		0 years		0 years		0 years
Intangible Assets Gross, Ending Balance		1,928,749		244,583			0	317,000		2,200,000		2,610,000		410,000		609,000		0		(5,064,834)
Accumulated Amortization, Ending Balance	0	0				0	0	15,850	2,200,000	2,200,000	2,282,500	1,845,834	410,000	410,000	609,000	609,000	0	0	5,501,500	5,064,834
Indefinite Lives Trade Names, Ending Balance		920,000		244,583	244,583	920,000	920,000	920,000,000									920,000	920,000
Indefinite Lives VoIP Licenses, Ending Balance			244,583	244,583	244,583	244,583	244,583										244,583	244,583
Intangible Assets Net, Ending Balance	1,492,083	1,928,749	244,583			0	0		2,200,000	2,200,000	2,610,000	2,610,000	410,000	410,000	609,000	609,000	0	0	(5,064,834)	(5,064,834)
Total - Intangible Assets - Finite Lives	$ 327,500					$ 5,829,000					$ 327,500						$ 5,829,000		$ (5,501,500)

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Intangible assets consist of the following:

	Finite Lives														Indefinite Lives
	Proprietary Technology		Customer Relationships		Agent Relationships		Non-Compete Agreement		Trade Names			Accumulated Amortization			Trade Names		VoIP Licenses		Total
Balance, December 31, 2010	$	2,200,000	$	2,610,000	$	410,000	$	609,000	$	317,000		$	(4,546,917	)	$	920,000	$	244,583	$	2,763,666
Amortization expense		-		-		-		-		-			(597,167	)		-		-		(597,167	)
Impairment		-		-		-		-		(317,000	)		79,250			-		-		(237,750	)
Balance, December 31, 2011		2,200,000		2,610,000		410,000		609,000		-			(5,064,834	)		920,000		244,583		1,928,749
Amortization expense		-		-		-		-		-			(436,666	)		-		-		(436,666	)
Balance, December 31, 2012	$	2,200,000	$	2,610,000	$	410,000	$	609,000	$	-		$	(5,501,500	)	$	920,000	$	244,583	$	1,492,083
Net Book Value,
December 31, 2012	$	-	$	327,500	$	-	$	-	$	-					$	920,000	$	244,583	$	1,492,083
Total - Intangible Assets
- Finite Lives									$	5,829,000		$	(5,501,500	)					$	327,500
Weighted average amortization period at December 31, 2012 in years		0.0		0.8		0.0		0.0		0.0

Intangible Assets Amortization

Amortization of intangible assets consists of the following:

	Finite Lives
	Proprietary Technology		Customer Relationships		Agent Relationships		Non-Compete Agreement		Trade Names			Accumulated Amortization
Balance, December 31, 2010	$	2,200,000	$	1,393,817	$	410,000	$	527,250	$	15,850		$	4,546,917
Amortization expense		-		452,017		-		81,750		63,400			597,167
Impairment		-		-		-		-		(79,250	)		(79,250	)
Balance, December 31, 2011		2,200,000		1,845,834		410,000		609,000		-			5,064,834
Amortization expense		-		436,666		-		-		-			436,666
Balance, December 31, 2012	$	2,200,000	$	2,282,500	$	410,000	$	609,000	$	-		$	5,501,500
Range of estimated useful lives in years		5.0		3.0		5.0		1.0 - 1.5		5.0

Finite-Lived Intangible Assets, Future Amortization Expense

Amortization of amortizable assets for the year ending December 31, 2013 is as follows:

For The Years Ending	Customer
December 31,	Relationships		Total
2013	$	327,500	$	327,500
	$	327,500	$	327,500

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Description of Business

12 Months Ended

Dec. 31, 2012

Organization, Operations and Basis Of Presentation [Abstract]

Description of Business

Note A – Description of Business

Lightyear Network Solutions, Inc., a Nevada corporation (“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”) (collectively, “Lightyear” or the “Company”).

Lightyear LLC, the original operating subsidiary of the Company, had formerly been a wholly-owned subsidiary of LY Holdings, LLC (“LY Holdings”) and has conducted operations in substantially their present form since 2004.

In February 2010, LY Holdings entered into a reverse merger transaction with Libra Alliance Corporation (“Libra”), accounted for as a recapitalization of Lightyear LLC, with the result that Lightyear became a public company and began trading on the OTC Bulletin Board. Libra was then renamed “Lightyear Network Solutions, Inc.” and began operating Lightyear’s business of providing telecommunications service.

On October 1, 2010, Lightyear, through Lightyear-KY, purchased the business assets of Southeast Telephone, Inc. (“SETEL”), a Kentucky corporation, from SETEL’s bankruptcy estate.

Lightyear provides telecommunications services throughout the United States and Puerto Rico primarily through a distribution network of authorized independent agents and representatives. 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 is a licensed local carrier in 43 states and provides long distance service in 49 states and Puerto Rico. Lightyear delivers service to approximately 65,000 customer locations. 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”), 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.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	70,000,000	70,000,000
Common stock, shares issued	22,086,641	22,086,641
Common stock, shares outstanding	22,086,641	22,086,641

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Taxes

Note K – Income Taxes

Effective on February 12, 2010, in connection with its reverse merger, the Company became subject to federal and state income taxes. Prior to the reverse merger, Lightyear LLC was a limited liability corporation which passed its tax attributes to its members.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:

	For The Years Ended
	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	2,037,103		$	1,547,861
Stock-based compensation		-			88,653
Allowance for doubtful accounts		293,233			474,796
Allowance for obsolete inventory		32,993			34,542
Goodwill and intangible assets		2,685,939			3,132,224
Total deferred tax assets		5,049,268			5,278,076
Less: Valuation allowance		(4,120,781	)		(3,928,893	)
Deferred tax assets, net	$	928,487		$	1,349,183
Deferred tax liabilities:
Excess of book over tax basis of:
Property and equipment	$	841,998		$	1,385,789
Intangible assets		124,319			290,077
Total deferred tax liabilities	$	966,317		$	1,675,866
Deferred tax liabilities - non-current, net	$	37,830		$	326,683

The Company’s deferred tax assets recognized, net of the valuation allowance, were based solely upon the tax value of deferred tax liabilities that are expected to reverse over the period in which the deferred tax assets would be realized. The ultimate realization of deferred tax assets depends on the generation of taxable income during the periods in which those net operating losses are available. The Company considers projected future taxable income and tax planning strategies in making its assessment. For the years ended December 31, 2012 and 2011, the change in the valuation allowance was $191,888 and ($276,656), respectively.

As of December 31, 2012 and 2011, the Company had $5,366,447 and $3,915,663, respectively, of aggregate federal and state net operating losses (“NOL”) available for income tax purposes that may be carried forward to offset future taxable income, if any. The federal net operating loss carryforwards begin to expire in the year 2030.

As of December 31, 2012, the net deferred tax liability of approximately $38,000 represented the excess of the book basis over the tax basis of certain property and equipment whose useful life is greater than the twenty-year life of the NOL’s that could have been offset against them when they were realized (the “Long Lived Assets”). As of December 31, 2012, the net deferred tax liability was reduced by approximately $289,000 to approximately $38,000 as certain Long Lived Assets became subject to an impairment charge. See Note N – Subsequent Events - Asset Sale.

The income tax provision (benefit) consists of the following:

	For The Years Ended
	December 31,
	2012			2011
Federal
Current	$	-		$	-
Deferred		(171,870	)		136,910
State and local
Current		-			-
Deferred		(20,018	)		15,946
		(191,888	)		152,856
Change in valuation allowance		191,888			(276,656	)
Income tax provision (benefit)	$	-		$	(123,800	)

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the loss from continuing operations for the years ended December 31, 2012 and 2011 are as follows:

	For The Years Ended
	December 31,
	2012			2011
Tax benefit at federal statutory rate		(34.0	)%		(34.0	)%
State income taxes, net of federal benefit		(4.0	)		(4.0	)
Permanent differences:
Stock-based compensation		10.0			33.9
Life insurance premiums		0.0			7.3
Meals and entertainment		0.6			1.4
Fines and penalties		0.9			1.4
Tax effect of asset impairment		11.6			0.0
Effect of true-ups and other		7.2			15.3
Change in valuation allowance		7.7			(38.6	)
Effective income tax rate		0.0	%		(17.3	)%

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 27, 2013	Jun. 30, 2012
Document Documentand Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Trading Symbol	LYNS
Entity Registrant Name	LIGHTYEAR NETWORK SOLUTIONS, INC.
Entity Central Index Key	0001130888
Current Fiscal Year End Date	--12-31
Entity Well-Known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Common Stock Shares Outstanding		22,086,641
Entity Public Float			$ 1,423,561

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Stockholders' Deficiency

12 Months Ended

Dec. 31, 2012

Stockholders' Deficiency [Abstract]

Stockholders' Deficiency

Note L – Stockholders’ Deficiency

See Note I – Related Party Transactions for details on the Intercompany Agreement.

Warrants

Milestone Warrants

In connection with a prior equity financing, the Company issued warrants to investors to purchase shares of common stock at an exercise price of $0.01 per share with a three year term, which became exercisable if specified milestones were not met (the “Milestone Warrants”). In the event that the specified milestones were not met, the Company was also obligated to issue to the selling agent exercisable five-year warrants to purchase shares of common stock at an exercise price of $4.00 per share (the “Selling Agent Milestone Warrants”).

On February 26, 2011, the Company did not meet the third milestone included in the outstanding Milestone Warrants. As a result of not meeting the third milestone, the warrants associated with that milestone were immediately vested and automatically exercised on a cashless basis. In addition, the Company issued 42,210 Selling Agent Milestone Warrants. The Company issued 445,564 shares of its common stock to investors on February 26, 2011 in connection with the cashless exercise of 447,075 Milestone Warrants.

On March 28, 2011, the Company did not meet the fourth and fifth milestones included in the outstanding Milestone Warrants. As a result of not meeting the fourth and fifth milestones, the warrants associated with those milestones were immediately vested and automatically exercised on a cashless basis. In addition, the Company issued 84,512 Selling Agent Milestone Warrants. The Company issued 892,456 shares of its common stock to investors on March 28, 2011 in connection with the cashless exercise of 895,449 Milestone Warrants.

On April 27, 2011, the Company did not meet the sixth milestone included in the outstanding Milestone Warrants. As a result of not meeting the sixth milestone, the warrants associated with this milestone were immediately vested and automatically exercised on a cashless basis. In addition, the Company issued 42,332 Selling Agent Milestone Warrants. The Company issued 445,576 shares of its common stock to investors on April 27, 2011 in connection with the cashless exercise of 448,374 Milestone Warrants.

As of December 31, 2012 and 2011, there were no remaining Milestone Warrants outstanding and there were 169,084 Selling Agent Milestone Warrants outstanding.

Fixed Warrants

In connection with a prior equity financing, the Company issued exercisable five-year warrants to purchase shares of common stock to investors and selling agents with an exercise price of $4.00 per share (the “Fixed Warrants”). As of December 31, 2012 and 2011, there were 861,401 Fixed Warrants outstanding, of which 671,271 were issued to investors and 190,130 were issued to selling agents.

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 continue to be held by the original investor. The Additional Warrants are eligible to be issued for a period of five years from the original equity financing, which ends in September 2015. The Company issued 139,501 Additional Warrants (126,819 were issued to investors and 12,682 were issued to selling agents) during the year ended December 31, 2012. As of December 31, 2012, there were 351,313 Additional Warrants outstanding, of which 319,376 were issued to investors and 31,937 were issued to selling agents. As of December 31, 2011, there were 211,813 Additional Warrants outstanding, of which 192,557 were issued to investors and 19,256 were issued to selling agents. See Note M – Commitments and Contingencies – Warrant Dispute.

Summary

A summary of the warrant activity for years ended December 31, 2012 and 2011 is as follows:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Warrants			Price		In Years		Value
Outstanding at December 31, 2010		2,732,425		$	1.28
Granted		300,770			2.41
Exercised		(1,790,898	)		0.01
Cancelled		-			-
Outstanding at December 31, 2011		1,242,297		$	3.38		3.8	$	46,214
Granted		139,501			0.37
Exercised		-			-
Cancelled		-			-
Outstanding at December 31, 2012		1,381,798		$	3.08		3.0	$	9,581
Exercisable at December 31, 2012		1,381,798		$	3.08		3.0	$	9,581

The following table presents information related to warrants at December 31, 2012:

Warrants Outstanding				Warrants Exercisable
				Weighted
		Outstanding		Average		Exercisable
Exercise		Number of		Remaining Life		Number of
Price		Warrants		In Years		Warrants
$	0.01		319,376		3.8		319,376
$	4.00		1,062,422		2.7		1,062,422
			1,381,798		3.0		1,381,798

Stock Plan

The LNSI 2010 Stock and Incentive Compensation Plan (the “2010 Plan”), which was approved by the board of directors and the majority stockholder of the Company on May 18, 2010, provides for grants of stock options, restricted stock, and other stock-based or cash awards to the Company’s employees, directors, and independent contractors. The number of shares of the Company’s common stock that may be issued under the 2010 Plan is 1,000,000. As of December 31, 2012 and 2011, 248,181 and 890,347 shares are available to be issued under the 2010 Plan, respectively.

Stock Option Grants

On June 7, 2011, the Company’s board of directors approved the repricing of each of the then outstanding stock options under the Company’s 2010 Stock and Incentive Compensation Plan to an exercise price of $1.25 per share, subject to shareholder approval, which was obtained on July 19, 2011. Since the members of the board of directors controlled enough votes to ensure shareholder approval, the shareholder approval was a formality. As such, the modification was recognized on the date of board approval. As a result of the modification, the Company recorded incremental expense of approximately $84,000 immediately and was scheduled to record another incremental $185,000 over the remaining vesting period.

On July 19, 2011, the Company granted incentive stock options to purchase an aggregate of 100,000 shares of common stock at an exercise price of $1.25 per share to two employees, pursuant to the 2010 Plan. The options vest ratably over a three year period and expire after ten years. The aggregate $36,000 grant date fair value is being amortized over the three year vesting term.

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 was added to the approximate $663,000 of unrecognized compensation cost as of December 28, 2011 associated with the original options and the combined amount of $726,000 is being amortized proportionate to the vesting period of the new options.

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.

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:

	December 31,
	2012			2011
Risk free interest rate		0.95	%		1.58	%
Expected term (years)		5.25			6.00
Expected volatility		42.90	%		43.10	%
Expected dividends		0.00	%		0.00	%

The weighted average estimated fair value of the stock options granted during the years ended December 31, 2012 and 2011 was $0.09 and $0.36 per share, respectively.

A summary of the status of options issued under the 2010 Plan during the years ended December 31, 2012 and 2011 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Balance, December 31, 2010		912,500		$	4.04
Granted		100,000			1.25
Exercised		-			-
Cancelled		(687,500	)		1.25
Forfeited		(228,334	)		3.34
Balance, December 31, 2011		96,666		$	1.25		8.5	$	-
Granted		806,500			0.22
Exercised		-			-
Cancelled		-			-
Forfeited		(164,334	)		0.50
Balance, December 31, 2012		738,832		$	0.29		9.0	$	-
Exercisable, December 31, 2012		380,066		$	0.33		9.0	$	-

The following table presents information related to stock options at December 31, 2012:

Options Outstanding				Options Exercisable
				Weighted
		Outstanding		Average		Exercisable
Exercise		Number of		Remaining Life		Number of
Price		Options		In Years		Options
$	0.21		68,500		9.2		34,000
	0.22		607,500		9.2		303,750
	1.25		62,832		7.4		42,316
			738,832		9.0		380,066

The Company recognized approximately $658,000 and $548,000 of stock-based compensation expense during years ended December 31, 2012 and 2011, respectively, related to stock option grants, which is reflected as selling, general and administrative expense in the consolidated statements of operations. As of December 31, 2012, there was approximately $81,000 of unrecognized employee stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 0.4 years.

Restricted Stock Grants

The Company recognized approximately $0 and $46,000 of stock-based compensation during the years ended December 31, 2012 and 2011, respectively, related to director restricted stock grants issued on October 12, 2010, which is reflected as selling, general and administrative expense in the consolidated statements of operations. As of December 31, 2012 and 2011, there were no unvested restricted stock grants and, accordingly, there was no unrecognized stock-based compensation expense related to restricted stock grants.

A summary of restricted stock activity for the years ended December 31, 2012 and 2011 is presented in the table below:

				Weighted
				Average		Total
	Number of			Grant Date		Grant Date
	Shares			Fair Value		Fair Value
Non-vested, December 31, 2010		16,234		$	4.75	$	77,112
Granted		-			-		-
Vested		(12,987	)		4.75		(61,689	)
Forfeited		(3,247	)		4.75		(15,423	)
Non-vested, December 31, 2011		-		$	-	$	-
Granted		-			-		-
Vested		-			-		-
Forfeited		-			-		-
Non-vested, December 31, 2012		-		$	-	$	-

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Consolidated Statements of Operations (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Revenues	$ 66,440,789	$ 70,495,597
Cost of revenues	44,281,234	45,158,389
Gross Profit	22,159,555	25,337,208
Operating Expenses
Commission expense	5,416,415	5,979,886
Commission expense - related parties	72,747	55,647
Depreciation and amortization	1,303,709	1,691,845
Bad debt expense	1,039,270	940,277
Selling, general and administrative expenses	15,100,955	17,104,471
Selling, general and administrative expenses - related party	96,769	199,231
Impairment of intangible assets	0	237,750
Impairment of property and equipment	938,270	0
Total Operating Expenses	23,968,135	26,209,107
Loss From Operations	(1,808,580)	(871,899)
Other (Expense) Income
Interest income	25,533	45,731
Interest income - related parties	0	570,967
Interest expense	(236,471)	(310,581)
Interest expense - related parties	(278,587)	(376,734)
Gain on sale of fixed assets	0	192,284
Loss on abandonment of property	0	(107,540)
Other income	35,279	140,495
Total Other (Expense) Income	(454,246)	154,622
Loss before income taxes	(2,262,826)	(717,277)
Income tax benefit	0	123,800
Net Loss	(2,262,826)	(593,477)
Deemed dividends to convertible preferred stockholders	0	(11,835,530)
Loss Attributable to Common Stockholders	$ (2,262,826)	$ (12,429,007)
Net Loss Per Common Share - Basic and Diluted	$ (0.10)	$ (0.57)
Weighted Average Number of Common Shares Outstanding - Basic and Diluted	22,328,205	21,796,111

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Capital Lease Obligations

12 Months Ended

Dec. 31, 2012

Leases [Abstract]

Capital Lease Obligations

Note F – Capital Lease Obligations

During 2012, the Company leased land, a building and equipment under the provisions of long-term capital leases. As of December 31, 2012, the leased property under capital leases had a cost basis of $2,824,334, consisting of land of $216,000, building of $1,784,000 and equipment of $824,334. As of December 31, 2011, the leased property under capital leases had a cost basis of $2,949,293, consisting of land of $216,000, building of $1,784,000 and equipment of $949,293. Accumulated amortization was $464,717 and $474,989 at December 31, 2012 and 2011, respectively. Amortization of the leased property is included in depreciation and amortization expense in the accompanying consolidated statements of operations.

The Company leased a building and land (the “Leased Premises”) which Lightyear-KY used as its Administrative and Customer Care Headquarters. The original term of the lease was 10 years through December 31, 2013. As of December 31, 2012, the monthly rent was $7,509. Lightyear-KY had an option to purchase the Leased Premises at any time during the term of the Lease upon written notice to the lessor at least 30 days before the date on which Lightyear-KY desired to exercise the option and purchase the Leased Premises. On January 17, 2013, the Company exercised the option to purchase the Leased Premises for approximately $842,000, which, pursuant to its terms, resulted in the termination of the lease. Pursuant to its terms, the capitalized lease obligation, which had a principal balance of approximately $737,000, of which approximately $79,000 was current, was terminated upon exercise of the option. See Note N – Subsequent Events for additional details.

After taking into account the impact of the transaction that occurred on January 17, 2013, minimum payments under the building and equipment capital lease obligations consist of the following:

For The Years Ending
December 31,
2013	$	94,479
2014		48,548
2015		8,781
Total minimum payments		151,808
Less: Amount representing interest		(12,401	)
Present value of net minimum payments	$	139,407
Current portion	$	85,652
Non-current portion		53,755
	$	139,407

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Other Liabilities

12 Months Ended

Dec. 31, 2012

Other Liabilities [Abstract]

Other Liabilities

Note E – Other Liabilities

Other liabilities consist of the following:

	December 31,
	2012		2011
Excise, state, local and property taxes payable	$	729,118	$	843,671
Other accrued expenses		126,426		165,485
Payroll, payroll taxes and bonuses		300,139		373,398
Deferred rent		200,066		260,086
Regulatory fees		205,527		132,133
Customer security deposits		106,448		101,390
	$	1,667,724	$	1,876,163

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

Property and equipment consists of the following:

	December 31,						Range of Estimated
	2012			2011			Useful Lives
Land	$	313,875		$	628,510		Not depreciable
Equipment and computers		7,223,733			7,054,883		1 - 25 years
Buildings		985,352			1,904,206		10 - 30  years
Furniture and fixtures		67,781			68,286		1 - 5 years
Vehicles		331,033			331,033		5 - 7 years
Leasehold improvements		866,055			739,826		[A]
		9,787,829			10,726,744
Less: accumulated depreciation and amortization		(4,276,403	)		(3,565,687	)
Property and equipment, net	$	5,511,426		$	7,161,057

[A] Leasehold improvements are amortized over the lesser of the term of the lease or the asset's economic useful life

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note M – Commitments and Contingencies

Operating Lease

The Company leases its office space in Louisville, Kentucky under terms classified as an operating lease. In April 2009, the Company entered into a new lease agreement. The term of the lease was for six years, ending on March 31, 2015. Commencing in October 2009, the Company and the landlord informally agreed to reduce the rent by $15,000 per month. On June 30, 2011, the Company and the landlord agreed to formalize this understanding by modifying the lease agreement. The modified lease agreement has a monthly base rent of approximately $60,000 and the lease term was extended until September 30, 2015. In addition, the landlord formally agreed to forgive the previously unpaid rent and maintenance charges as a lease concession. The resulting deferred rent is being recognized over the remaining life of the lease. See Note E - Other Liabilities.

The Company leases equipment under a printing service agreement. In August 2010, the Company entered into a new printing service agreement whereby the Company agreed to pay $25,000 per month for a term of three years ending on August 31, 2013.

Lightyear-KY leases land and property under non-cancelable operating leases with aggregate monthly payments of approximately $5,000 which expire at various times through 2015.

Rent expense related to these operating lease agreements, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations, was approximately $495,000 and $496,000 for the years ended December 31, 2012 and 2011, respectively. The Company subleased office facilities to a tenant on a month to month basis and collected approximately $245,000 and $189,000 in rental fees for the years ended December 31, 2012 and 2011, respectively.

Future minimum payments under these operating lease agreements are as follows:

For The Years Ending
December 31,	Amount
2013	$	1,054,171
2014		844,703
2015		611,094
	$	2,509,968

Litigation and Regulatory

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. On September 26, 2012, the Court granted Lightyear’s Motion to Dismiss, but provided Mr. Halpern with 30 days to amend his complaint to provide more details concerning the claim. On October 25, 2012, Mr. Halpern filed a motion to file the First Amended Complaint and Lightyear objected. On January 23, 2013, the Court granted Mr. Halpern’s Motion for Leave to Amend the Complaint. On February 11, 2013, Lightyear filed its Answer to the Amended Complaint. Lightyear notified its insurance carriers concerning this matter and continues to contest the allegations vigorously. Lightyear has not recorded a provision as the Company is unable to state that an outcome in this matter will be unfavorable or estimate the amount or range of a potential loss.

In July 2008, the Enforcement Bureau of the Federal Communications Commission (“FCC”) notified Lightyear that it was investigating allegations that Lightyear may have violated certain FCC rules related to the payment of regulatory fees since January 2005. Lightyear responded to the data request in September 2008 and provided information concerning Lightyear’s Universal Service Fund contributions and other regulatory fees. In August 2012, the FCC asked for updated information and Lightyear responded in October 2012. Lightyear believes that it has paid all applicable regulatory fees. In May 2012, Lightyear executed a tolling agreement with the FCC extending the statute of limitations until April 15, 2013 with respect to the investigation. If the FCC determines that the Company has violated these obligations, the Company could be subject to a fine.

Billing Disputes

As of December 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 consolidated financial statements of the Company.

Letters of Credit

As of December 31, 2012, the Company has provided irrevocable standby letters of credit, aggregating $100,000 to five states, which automatically renew for terms not longer than one year, unless notified otherwise. As of December 31, 2012, these letters of credit had not been drawn upon.

Warrant Dispute

The Company’s former selling agent, on behalf of certain investors in the Company’s private placement, has disputed the Company’s methodology for computing the quantity of Additional Warrants that are issuable at each quarter end. The Company has issued Additional Warrants to purchase an insignificant number of common shares 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 consolidated financial statements of the Company.

Employment Agreements

On April 29, 2010, the Company’s entered into an employment agreement with an officer of the Company that provides the officer with a salary of $125,000 per annum, a discretionary bonus and an expectation to receive options to purchase shares of the Company’s common stock, upon the approval of a Company stock incentive plan (See Note L - Stockholders’ Deficiency), which were subsequently granted. The term of the employment agreement is three years. The agreement provides that, in the event of a termination without cause or a resignation for good reason, as defined in his employment agreement, the officer will continue to: (i) be paid his salary in accordance with the Company’s regular payment schedule until the end of twelve months after termination; be entitled to receive any incentive payments earned and accrued but not yet paid; (ii) receive continued medical coverage at the Company’s expense until the end of twelve months after termination; and (iii) receive, through the termination date, all accrued and unpaid salary, all unused vacation time, and all unreimbursed business expenses incurred. Effective May 11, 2011, the officer’s salary was increased to $180,000 annually.

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Related Party Transactions

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Related Party Transactions

Note I – Related Party Transactions

Lightyear has significant transactions with its largest shareholder, LY Holdings and members of LY Holdings. Lightyear also 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, relatives of members of LY Holdings, directors of the Company and/or officers of the Company. Aggregate related party transactions are segregated on the face of the consolidated balance sheets and statements of operations.

Letter Agreements

In July 2004 and July 2008, LY Holdings borrowed funds, most of the proceeds of which were ultimately provided to Lightyear LLC. The lenders were all affiliates of LY Holdings and are all associated with directors or former directors of the Company. In connection with these loans, LY Holdings and Lightyear executed agreements (the “Letter Agreements”) to pay the lenders (the “Letter Agreement Holders”), in addition to principal and interest payments on the accompanying notes, an amount each month equal to an aggregate of 3% and 4% of the gross commissionable monthly revenues from Lightyear’s sales of wireless and VoIP service offerings (the “Revenue Payments”), respectively. The Letter Agreements have a term of ten years unless terminated early due to a sale of all or substantially all of LY Holdings. Upon an early termination event, Lightyear would be obligated to pay the respective Letter Agreement Holders a termination fee in the amount of the sum of the Revenue Payments for the immediately preceding twelve full months. On February 11, 2010, LY Holdings, Lightyear and each of the Letter Agreement Holders entered into a modification (the “First Modification to Letter Agreements”), pursuant to which the Letter Agreements were modified to, among other things, release and discharge LY Holdings from all obligations under the Letter Agreements.

On June 22, 2011, all but one holder of the Revenue Payments 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 Revenue Payments rights waived their right to such payments for the year 2012. During the years ended December 31, 2012 and 2011, Lightyear recorded approximately $61,000 and $12,000 of Revenue Payments expense, respectively, which were classified as commission expense – related parties in the consolidated statements of operations.

Intercompany Agreement

On November 4, 2011, the Company, LY Holdings and Sullivan entered into an Intercompany Obligations Settlement Agreement (the “Intercompany Agreement”). Pursuant to the Intercompany Agreement, LY Holdings surrendered all 9,500,000 shares of the Company’s convertible preferred stock owned by it (plus its right to $2,232,110 of accrued but undeclared and unpaid preferred stock dividends), which were canceled and retired, in complete satisfaction of LY Holdings' principal indebtedness to LNSI of $12,899,980, which was recorded on the books of LNSI as Notes Receivable – Affiliate and was the source of the 2011 interest income – related parties on the consolidated statements of operations. In addition, the Intercompany Agreement terminated Lightyear’s (a) security interest in the Letter Agreements; and (b) option to purchase the Letter Agreements for $8,000,000 at any time before May 1, 2012. The remaining Interest Receivable – Affiliate was restructured, with LY Holdings issuing LNSI a note with a face principal amount of $1,223,203 (the “Interest Note”), which is secured by two million shares of the Company’s common stock owned by LY Holdings. The Interest Note bears interest at the one-year LIBOR rate plus 2% per annum and all principal and interest will be due at the November 4, 2016 maturity date. The Interest Note contains customary events of default, including a default upon a change of control of LY Holdings, and may be accelerated upon any event of default. The redemption of the preferred stock was accounted for by treating the excess of the fair value of the consideration (the Notes Receivable – Affiliate) over the carrying value of the preferred stock as a dividend on the preferred stock which will be deducted from earnings available to common stockholders. The $11,835,530 net 2011 preferred stock dividend is the deemed preferred stock dividend at redemption of $12,930,764, less the reversal of the cumulative dividend of $1,095,234 recorded in 2010. The $12,930,764 deemed preferred stock dividend is primarily equal to the amount of the LY Holdings’ principal indebtedness of $12,899,980 satisfied pursuant to the agreement, plus $30,784 of adjustments, which primarily relate to transaction costs. The Company has not recorded any interest income on the Interest Note since its inception as a result of certain risks of non-collection.

Contemporaneously, LNSI amended and restated its obligation payable to Sullivan under the Settlement Agreement by issuing a note with a face principal amount of $6,250,000 (the “Settlement Note”), which was the source of the interest expense – related parties on the consolidated statements of operations. The Settlement Note bears interest at the three-month LIBOR rate plus 4% per annum, which is paid quarterly commencing on February 10, 2012. The principal was due to be repaid at the January 10, 2013 maturity date. The Settlement Note contains customary events of default, including a default upon a change of control of either of LNSI or Lightyear LLC, and may be accelerated upon any event of default at a default interest rate that imposes a 5% penalty. On March 20, 2012, October 29, 2012, and March 20, 2013, Sullivan agreed to forbear from demanding repayment ultimately until February 28, 2014. During the years ended December 31, 2012 and 2011, the Company recorded interest expense of approximately $279,000 and $377,000, respectively. As of December 31, 2012, the Company had accrued approximately $115,000 of unpaid interest related to the Settlement Note, which was paid in January 2013.

The Settlement Note is secured by: (i) a Security Agreement dated as of November 4, 2011 among LNSI, Lightyear LLC and Sullivan through which LNSI and Lightyear LLC granted Sullivan a subordinated security interest in substantially all of the assets of LNSI and of Lightyear LLC; (ii) the personal guaranty of a former director; (iii) a Security Agreement between an entity affiliated with a former director and Sullivan whereby the entity grants to Sullivan a security interest in its membership interest in thirty percent (30%) of LY Holdings; and (iv) a Security Agreement between an entity affiliated with a current director and Sullivan whereby the entity grants to Sullivan a security interest in the entity’s ten percent (10%) membership interest in LY Holdings. As of the closing of the Intercompany Agreement, LY Holdings owned 10,000,000 shares, or 45.27%, of LNSI’s outstanding common stock.

On November 4, 2011, LNSI entered into a Collateral Release Agreement with LY Holdings and a bank whereby LY Holdings was released from its pledge of 2,000,000 shares of LNSI convertible preferred stock as collateral for the $2,000,000 note owed by LNSI to the bank. Concurrent with the Collateral Release Agreement, LY Holdings and the bank entered into a Stock Pledge Agreement whereby LY Holdings pledged 2,000,000 shares of LNSI common stock owned by LY Holdings as collateral for the note.

At December 31, 2012, the Company had outstanding $6,250,000 on the Settlement Note.

Other

A former director of the Company owns an indirect interest in a Lightyear agency. The agency has a standard Lightyear agent agreement and earned approximately $12,000 and $15,000 in commissions from Lightyear during the years ended December 31, 2012 and 2011, respectively, which were classified as commission expense – related parties in the consolidated statements of operations.

From 2008 until October 7, 2011, a former employee (and son of a former director) of the Company maintained a representative position in a direct selling entity which earned approximately $0 and $29,000 in commissions from Lightyear during the years ended December 31, 2012 and 2011, respectively, which were classified as commission expense – related parties in the consolidated statements of operations. This representative position was terminated voluntarily on October 7, 2011.

The Company obtained consulting services from a former officer and director, pursuant to a one year consulting agreement which terminated on April 30, 2012. Aggregate consulting expense was approximately $97,000 and $199,000 for the years ended December 31, 2012 and 2011, respectively, which were classified as selling, general and administrative expenses – related party in the consolidated statements of operations.

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Future Minimum Operating Lease Payments Under These (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
2013	$ 1,054,171
2014	844,703
2015	611,094
Total	$ 2,509,968

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Notes Payable

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Notes Payable

Note G – Notes Payable

Notes payable are as follows:

	December 31,
	2012		2011
Note payable - variable interest rate (5.00% as of December 31, 2012). The note has monthly principal and interest payments of $47,874. Principal and unpaid interest due on September 30, 2015. The note payable is secured by a first priority security interest in Lightyear-KY's assets. The note is further secured by a first priority perfected security interest in the membership interests in Lightyear-KY held by LNSI.	$	1,473,218	$	1,960,539
Note payable - fixed interest rate of 6.50%. Principal and unpaid interest due on October 1, 2012. The note payable is secured by motor vehicles owned by Lightyear-KY.		-		14,204
Note payable - variable interest rate (4.25% as of December 31, 2012). The note has monthly principal and interest payments of $871. Principal and unpaid interest due on January 26, 2014. The note payable was secured by a mortgage on a specific real property and is  further secured by the assignment of future rents. [1]		11,041		20,783
Note payable - variable interest rate (4.25% as of December 31, 2012). The note has monthly principal and interest payments of $970. Principal and unpaid interest due on October 18, 2024. The note payable was secured by a mortgage on a specific real property. [1]		102,375		109,420
Note payable - fixed interest rate of 6.99%. The note has monthly principal and interest payments of $935. Principal and unpaid interest due on October 1, 2020.The note payable was secured by a mortgage on a specific real property. [1]		65,936		72,307
Note payable - fixed interest rate of 6.25%. The note has monthly principal and interest payments of $2,882. Principal and unpaid interest due on April 4, 2015.The note payable is secured by motor vehicles owned by Lightyear-KY.		74,831		103,657
Note payable - fixed interest rate of 6.00%. The note has monthly principal and interest payments of $37,780. Unpaid principal and interest due on January 25, 2014.The note payable is secured by Lightyear LLC’s lockbox bank account, business operating bank account,  other tangible and intangible assets, the pledge of two million shares  of the Company’s common stock owned by LY Holdings, as well as the  personal guaranties of certain directors of the Company and a guaranty by Lightyear LLC. [2]		1,607,569		1,950,000
Total Notes Payable		3,334,970		4,230,910
Less: Current Portion		934,529		895,918
Non-Current Portion of Notes Payable	$	2,400,441	$	3,334,992

[1] On January 17, 2013, the Company repaid notes payable with an aggregate principal balance of $179,352 in connection with the sale of certain property and equipment, of which approximately $24,000 was deemed to be current. See Note N – Subsequent Events for additional details.

[2] The Company is required to make a balloon payment, consisting of unpaid principal and interest, of approximately $1,247,000 on January 25, 2014. On November 6, 2012, the bank waived two debt covenants for the fourth quarter of 2012, relating to this note. On March 29, 2013, the bank elected to eliminate the earnings-related debt covenants effective January 1, 2013 for the balance of the loan term.

After taking into account the note repayments that occurred on January 17, 2013, future maturities of notes payable are as follows:

For The Years Ending
December 31,
2013	$	910,155
2014		1,812,147
2015		433,316
	$	3,155,618

On December 19, 2012, the Company entered into a revolving $500,000 secured commercial promissory note (the "Credit Facility") with a bank. The Company may draw on the Credit Facility from time to time to fund ongoing working capital needs. The Credit Facility matures on December 19, 2013 and bears interest at an annual rate equal to the bank’s index rate plus 1.75%, but not more than 5.00% per annum. The Company is required to make monthly interest payments on any outstanding amounts through December 19, 2013, with the outstanding principal amount payable at maturity. On December 19, 2012, the index rate was 3.25%. Payments under the Credit Facility are subject to a 5% late fee and, in cases of default, the interest rate of the Credit Facility will be increased by 5%. The Credit Facility is secured by a subordinated security interest in all of Lightyear’s assets and the personal guaranty of a director (Chris Sullivan or “Sullivan”). As of December 31, 2012, the Credit Facility had not been drawn upon. Subsequent to December 31, 2012, the Company had drawn down $500,000 of the note and repaid approximately $253,000.

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Employee Benefits

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Employee Benefits

Note H – Employee Benefits

The Company maintains a profit-sharing plan qualified under Section 401(k) of the Internal Revenue Code. The Company may make discretionary matching contributions to the profit-sharing plan, subject to certain limitations. The Company did not contribute during the years ended December 31, 2012 and 2011.

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Supplier Concentration

12 Months Ended

Dec. 31, 2012

Supplier Concentration [Abstract]

Supplier Concentration

Note J – Supplier Concentration

Of the telecommunications services used in its operations, Lightyear acquired approximately 32%, 22%, and 13% during the year ended December 31, 2012 from three suppliers and 28%, 24% and 10% during the year ended December 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 negatively affect operating results.

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Schedule Of Property And Equipment (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 9,787,829		$ 10,726,744
Less: accumulated depreciation and amortization	(4,276,403)		(3,565,687)
Property and equipment, net	5,511,426		7,161,057
Land [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	313,875		628,510
Equipment and computers [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	7,223,733		7,054,883
Equipment and computers [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Range of Estimated Useful Lives	25 years
Equipment and computers [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Range of Estimated Useful Lives	1 year
Building [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	985,352		1,904,206
Building [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Range of Estimated Useful Lives	30 years
Building [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Range of Estimated Useful Lives	10 years
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	67,781		68,286
Furniture and Fixtures [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Range of Estimated Useful Lives	5 years
Furniture and Fixtures [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Range of Estimated Useful Lives	1 year
Vehicles [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	331,033		331,033
Vehicles [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Range of Estimated Useful Lives	7 years
Vehicles [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Range of Estimated Useful Lives	5 years
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 866,055		$ 739,826
Range of Estimated Useful Lives	0 years	[1]

[1] Leasehold improvements are amortized over the lesser of the term of the lease or the asset's economic useful life

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Reconciliation Of The Statutory Federal Income Tax Rate (Detail)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Tax benefit at federal statutory rate	(34.00%)	(34.00%)
State income taxes, net of federal benefit	(4.00%)	(4.00%)
Permanent differences:
Stock-based compensation	10.00%	33.90%
Life insurance premiums	0.00%	7.30%
Meals and entertainment	0.60%	1.40%
Fines and penalties	0.90%	1.40%
Tax effect of asset impairment	11.60%	0.00%
Effect of true-ups and other	7.20%	15.30%
Change in valuation allowance	7.70%	(38.60%)
Effective income tax rate	0.00%	(17.30%)

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Liquidity Plan

Liquidity Plan

As of December 31, 2012, Lightyear had a cash balance of $48,424 and a working capital deficit of $2.1 million. For the year ended December 31, 2012, the Company’s operating activities provided $1.4 million of cash, while $0.3 million and $1.1 million were used to purchase property and equipment and to service debt, respectively. 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 until at least the end of 2013. If the Company requires additional funds, the Company might initiate additional cost reductions or seek additional capital through debt or equity financings. The Company may also seek extensions of the scheduled payment obligations, attempt to refinance its outstanding debt, or consider a sale of the net assets of the Company. No assurance can be provided that the Company will be successful with any of its efforts.

The Company’s future capital requirements are expected to be driven by debt reduction and debt service. The Company’s note payable – related party with an outstanding balance of $6.25 million as of December 31, 2012 currently is scheduled to mature on February 28, 2014. As disclosed in Note I, the related party has historically renegotiated the maturity date on the note, most recently on March 20, 2013. Prior to the maturity date of February 28, 2014, the Company may seek an additional extension from the related party, although no assurance can be provided that the Company will be successful.

Principles of Consolidation

Principles of Consolidation

The balance sheets, statements of operations and cash flows of the Company and its wholly-owned subsidiaries have been included in the 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

Estimates

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“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 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.

Cash

Cash

The Company maintains cash in bank accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible. As of December 31, 2012 and 2011, accounts payable included approximately $1,344,000 and $1,159,000, respectively, of checks that had been issued but had not cleared the bank.

Accounts receivable

Accounts Receivable

Accounts receivable are shown net of an allowance for doubtful accounts of $772,479 and $1,215,735 as of December 31, 2012 and 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.

Property and Equipment

Property and Equipment

Property and equipment is recorded at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value. The cost of additions and substantial betterments to property and equipment are capitalized. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. Improvements to leased assets or fixtures are amortized over their estimated useful lives or lease period, whichever is shorter. Leased property meeting certain criteria is capitalized and the present value of the related payments is recorded as a liability. Depreciation of capitalized leased assets is computed on the straight-line method over the lesser of the term of the lease or its economic life. Upon retirement or other disposition of these assets, the costs and related accumulated depreciation and amortization of these assets are removed from the accounts and the resulting gains or losses are reflected in the consolidated results of operations. Expenditures for maintenance and repairs are charged to operations as incurred.

Intangible Assets

Intangible Assets

Intangible assets are recorded at cost except for assets acquired using acquisition accounting, which are initially recorded at their estimated fair value. Intangible assets with definite lives include proprietary technology, covenants not to compete, a trade name and customer and agent relationships. Amortization is computed on a straight-line basis over the estimated useful lives of the intangible assets.

Intangible assets with indefinite lives include VoIP licenses and a trade name. VoIP licenses provide us with certain rights in connection with our VoIP products. The Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of the VoIP licenses. The Company acquired the rights to the Lightyear trade name and effectively has the ability to retain this exclusive right permanently at a nominal cost.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company’s reviews the carrying value of intangibles and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value.

Advertising Costs

Advertising Costs

Advertising costs are expensed when incurred. Advertising costs, which are included in selling, general and administrative expenses in the accompanying consolidated statements of operations, were approximately $494,000 and $538,000 for the years ended December 31, 2012 and 2011, respectively.

Inventories

Inventories

The Company maintains inventories, consisting of wireless telephones and telecommunications equipment, which are available for sale. Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. At December 31, 2012 and 2011, the Company had reserves for obsolete inventory of approximately $39,000 and $42,000, respectively.

The Company continually analyzes its slow-moving, excess and obsolete inventories. Products that are determined to be obsolete are written down to net realizable value.

Revenue Recognition

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 statements of operations. 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.

Income Taxes

Income Taxes

Effective February 12, 2010, the date of the Company’s recapitalization, Lightyear began being taxed as a corporation. The Company’s subsidiaries are organized as limited liability companies, and have elected to be treated as disregarded entities for income tax purposes, with taxable income or loss passing through to LNSI, the parent.

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax liabilities and assets are determined on the basis of the difference between the tax basis of liabilities and assets and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. As of December 31, 2012, the Company has recorded a valuation allowance for the amount of deferred tax assets that are not more likely than not to be realized.

The Company accounts for uncertain tax positions based upon authoritative guidance that prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on derecognition, classification, interest and penalties, accounting in interim periods and related disclosure.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2012. The Company files income tax returns with most states. The tax years ended December 31, 2010 and forward remain subject to examination for federal, state, and local income tax purposes by various taxing authorities.

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy that gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1   Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2   Inputs to the valuation methodology include:

· Quoted prices for similar assets and liabilities in active markets.

· Quoted prices for identical or similar assets or liabilities in inactive markets.

· Inputs other than quoted market prices that are observable for the asset or liability.

· Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3   Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Fair value is often based on internally developed models in which there are few, if any, external observations.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company’s short term financial instruments include 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 and capital lease obligations. 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

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 is re-measured at each vesting date and 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.

(Loss) Earnings Per Common Share

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; See Note I –Related Party Transactions). 

The following table reconciles the numerator and denominator for the calculation:

	For The Years Ended
	December 31,
	2012			2011
Basic and diluted loss per share:
Numerator:
Net loss	$	(2,262,826	)	$	(593,477	)
Deemed preferred stock dividends		-			(11,835,530	)
Numerator for basic and diluted loss per share:
Net loss attributable to common stockholders	$	(2,262,826	)	$	(12,429,007	)
Denominator:
Weighted average common stock shares outstanding		22,086,641			21,667,374
Weighted average warrants outstanding with an exercise price of $0.01 or less		241,564			128,737
Weighted average basic and diluted shares outstanding		22,328,205			21,796,111
Loss per basic and diluted share:
Net loss	$	(0.10	)	$	(0.03	)
Deemed preferred stock dividends		-			(0.54	)
Net loss attributable to common stockholders	$	(0.10	)	$	(0.57	)

The following securities are excluded from the calculation of weighted average dilutive common shares, because their inclusion would have been antidilutive:

	December 31,
	2012		2011
Employee stock options		738,832		96,666
Warrants		1,062,422		1,049,740
Total potentially dilutive shares		1,801,254		1,146,406

Recently Issued and Adopted Accounting Pronouncements

Recently Issued and Adopted Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, “Intangibles—Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment." This ASU simplifies the impairment testing of indefinite-lived intangible assets by eliminating the requirement to perform an annual quantitative test for impairment, unless a qualitative assessment reveals that impairment is likely. While the update is effective for impairment tests performed for fiscal years beginning after September 15, 2012, early adoption is permitted. The Company elected to adopt ASU 2012-02 during the fourth quarter of 2012, which altered the Company’s annual procedures, but did not have a material impact on the Company’s consolidated financial statements.

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Capital Lease Obligations (Tables)

12 Months Ended

Dec. 31, 2012

Leases [Abstract]

Future Minimum Lease Payments for Capital Leases

After taking into account the impact of the transaction that occurred on January 17, 2013, minimum payments under the building and equipment capital lease obligations consist of the following:

For The Years Ending
December 31,
2013	$	94,479
2014		48,548
2015		8,781
Total minimum payments		151,808
Less: Amount representing interest		(12,401	)
Present value of net minimum payments	$	139,407
Current portion	$	85,652
Non-current portion		53,755
	$	139,407

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Significant Components Of The Company's Deferred Tax Assets And Liabilities (Detail) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Deferred tax assets:
Net operating loss carryforwards	$ 2,037,103	$ 1,547,861
Stock-based compensation	0	88,653
Allowance for doubtful accounts	293,233	474,796
Allowance for obsolete inventory	32,993	34,542
Goodwill and intangible assets	2,685,939	3,132,224
Total deferred tax assets	5,049,268	5,278,076
Less: Valuation allowance	(4,120,781)	(3,928,893)
Deferred tax assets, net	928,487	1,349,183
Deferred tax liabilities:
Property and equipment	841,998	1,385,789
Intangible assets	124,319	290,077
Total deferred tax liabilities	966,317	1,675,866
Deferred tax liabilities - non-current, net	$ 37,830	$ 326,683

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Future Minimum Lease Payments For Capital Leases (Detail) (USD $)	Dec. 31, 2012	Dec. 31, 2011
2013	$ 94,479
2014	48,548
2015	8,781
Total minimum payments	151,808
Less: Amount representing interest	(12,401)
Present value of net minimum payments	139,407
Current portion	164,662	239,203
Non-current portion	711,255	758,750
Capital Lease Obligations	139,407
Post Lease Purchase and Sale [Member]
Current portion	85,652
Non-current portion	53,755
Capital Lease Obligations	$ 139,407

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Consolidated Statement of Changes in Stockholders' Equity Deficiency (USD $)	Convertible Preferred Stock [Member]	Common Stock [Member]	Notes Receivable From Affiliate [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2010	$ 9,500	$ 20,306	$ (13,478,920)	$ 8,898,069	$ 2,314,627	$ (2,236,418)
Balance (in shares) at Dec. 31, 2010	9,500,000	20,306,292
Interest receivable associated with notes receivable from affiliate	0	0	(644,263)	0	0	(644,263)
Issuance of common stock in connection with the cashless exercise of milestone warrants	0	1,784	0	(1,784)	0	0
Issuance of common stock in connection with the cashless exercise of milestone warrants (in shares)	0	1,783,596
Exchange of notes receivable as consideration for redemption of preferred stock	(9,500)	0	12,899,980	0	(12,930,764)	(40,284)
Exchange of notes receivable as consideration for redemption of preferred stock (in shares)	(9,500,000)	0
Stock-based compensation	0	(3)	0	593,941	0	593,938
Stock-based compensation (in shares)	0	(3,247)
Net loss	0	0	0	0	(593,477)	(593,477)
Balance at Dec. 31, 2011	0	22,087	(1,223,203)	9,490,226	11,209,614	(2,920,504)
Balance (in shares) at Dec. 31, 2011	0	22,086,641
Stock-based compensation	0	0	0	658,319	0	658,319
Stock-based compensation (in shares)	0	0
Net loss	0	0	0	0	(2,262,826)	(2,262,826)
Balance at Dec. 31, 2012	$ 0	$ 22,087	$ (1,223,203)	$ 10,148,545	$ (13,472,440)	$ (4,525,011)
Balance (in shares) at Dec. 31, 2012	0	22,086,641

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Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Note D – Intangible Assets

Intangible assets consist of the following:

	Finite Lives														Indefinite Lives
	Proprietary Technology		Customer Relationships		Agent Relationships		Non-Compete Agreement		Trade Names			Accumulated Amortization			Trade Names		VoIP Licenses		Total
Balance, December 31, 2010	$	2,200,000	$	2,610,000	$	410,000	$	609,000	$	317,000		$	(4,546,917	)	$	920,000	$	244,583	$	2,763,666
Amortization expense		-		-		-		-		-			(597,167	)		-		-		(597,167	)
Impairment		-		-		-		-		(317,000	)		79,250			-		-		(237,750	)
Balance, December 31, 2011		2,200,000		2,610,000		410,000		609,000		-			(5,064,834	)		920,000		244,583		1,928,749
Amortization expense		-		-		-		-		-			(436,666	)		-		-		(436,666	)
Balance, December 31, 2012	$	2,200,000	$	2,610,000	$	410,000	$	609,000	$	-		$	(5,501,500	)	$	920,000	$	244,583	$	1,492,083
Net Book Value,
December 31, 2012	$	-	$	327,500	$	-	$	-	$	-					$	920,000	$	244,583	$	1,492,083
Total - Intangible Assets
- Finite Lives									$	5,829,000		$	(5,501,500	)					$	327,500
Weighted average amortization period at December 31, 2012 in years		0.0		0.8		0.0		0.0		0.0

Amortization of intangible assets consists of the following:

	Finite Lives
	Proprietary Technology		Customer Relationships		Agent Relationships		Non-Compete Agreement		Trade Names			Accumulated Amortization
Balance, December 31, 2010	$	2,200,000	$	1,393,817	$	410,000	$	527,250	$	15,850		$	4,546,917
Amortization expense		-		452,017		-		81,750		63,400			597,167
Impairment		-		-		-		-		(79,250	)		(79,250	)
Balance, December 31, 2011		2,200,000		1,845,834		410,000		609,000		-			5,064,834
Amortization expense		-		436,666		-		-		-			436,666
Balance, December 31, 2012	$	2,200,000	$	2,282,500	$	410,000	$	609,000	$	-		$	5,501,500
Range of estimated useful lives in years		5.0		3.0		5.0		1.0 - 1.5		5.0

During the fourth quarter of 2011, the Company determined that the trade name acquired from SETEL was impaired, as it was no longer in use, and recorded a $237,750 impairment charge.

Amortization of amortizable assets for the year ending December 31, 2013 is as follows:

For The Years Ending	Customer
December 31,	Relationships		Total
2013	$	327,500	$	327,500
	$	327,500	$	327,500

Amortization is computed on a straight-line basis over the lives of the intangible assets with finite lives, which ranged from one to five years. Amortization expense related to intangible assets was approximately $437,000 and $597,000 for the years ended December 31, 2012 and 2011, respectively.

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Summary Of Restricted Stock Activity (Detail) (Restricted Stock [Member], USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	0	16,234
Nunber of Non Vested Shares, Granted	0	0
Nunber of Non Vested Shares, Vested	0	(12,987)
Nunber of Non Vested Shares, Forfeited	0	(3,247)
Nunber of Non Vested Shares, Ending Balance	0	0
Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Nonvested Weighted Average Exercise Price	$ 0	$ 4.75
Weighted Average Grant Date Dair Value, Granted	$ 0	$ 0
Weighted Average Grant Date Dair Value, Vested	$ 0	$ 4.75
Weighted Average Grant Date Dair Value, Forfeited	$ 0	$ 4.75
Weighted Average Grant Date Dair Value, Ending Balance	$ 0	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 0	$ 77,112
Total Grant Date Fair Value, Granted	$ 0	$ 0
Total Grant Date Fair Value, Vested	$ 0	$ (61,689)
Total Grant Date Fair Value, Forfeited	$ 0	$ (15,423)
Total Grant Date Fair Value, Ending Balance	$ 0	$ 0

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Notes Payable (Tables)

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Schedule of Debt

Notes payable are as follows:

	December 31,
	2012		2011
Note payable - variable interest rate (5.00% as of December 31, 2012). The note has monthly principal and interest payments of $47,874. Principal and unpaid interest due on September 30, 2015. The note payable is secured by a first priority security interest in Lightyear-KY's assets. The note is further secured by a first priority perfected security interest in the membership interests in Lightyear-KY held by LNSI.	$	1,473,218	$	1,960,539
Note payable - fixed interest rate of 6.50%. Principal and unpaid interest due on October 1, 2012. The note payable is secured by motor vehicles owned by Lightyear-KY.		-		14,204
Note payable - variable interest rate (4.25% as of December 31, 2012). The note has monthly principal and interest payments of $871. Principal and unpaid interest due on January 26, 2014. The note payable was secured by a mortgage on a specific real property and is  further secured by the assignment of future rents. [1]		11,041		20,783
Note payable - variable interest rate (4.25% as of December 31, 2012). The note has monthly principal and interest payments of $970. Principal and unpaid interest due on October 18, 2024. The note payable was secured by a mortgage on a specific real property. [1]		102,375		109,420
Note payable - fixed interest rate of 6.99%. The note has monthly principal and interest payments of $935. Principal and unpaid interest due on October 1, 2020.The note payable was secured by a mortgage on a specific real property. [1]		65,936		72,307
Note payable - fixed interest rate of 6.25%. The note has monthly principal and interest payments of $2,882. Principal and unpaid interest due on April 4, 2015.The note payable is secured by motor vehicles owned by Lightyear-KY.		74,831		103,657
Note payable - fixed interest rate of 6.00%. The note has monthly principal and interest payments of $37,780. Unpaid principal and interest due on January 25, 2014.The note payable is secured by Lightyear LLC’s lockbox bank account, business operating bank account,  other tangible and intangible assets, the pledge of two million shares  of the Company’s common stock owned by LY Holdings, as well as the  personal guaranties of certain directors of the Company and a guaranty by Lightyear LLC. [2]		1,607,569		1,950,000
Total Notes Payable		3,334,970		4,230,910
Less: Current Portion		934,529		895,918
Non-Current Portion of Notes Payable	$	2,400,441	$	3,334,992

[1] On January 17, 2013, the Company repaid notes payable with an aggregate principal balance of $179,352 in connection with the sale of certain property and equipment, of which approximately $24,000 was deemed to be current. See Note N – Subsequent Events for additional details.

[2] The Company is required to make a balloon payment, consisting of unpaid principal and interest, of approximately $1,247,000 on January 25, 2014. On November 6, 2012, the bank waived two debt covenants for the fourth quarter of 2012, relating to this note. On March 29, 2013, the bank elected to eliminate the earnings-related debt covenants effective January 1, 2013 for the balance of the loan term.

Schedule of Maturities of Long-term Debt

After taking into account the note repayments that occurred on January 17, 2013, future maturities of notes payable are as follows:

For The Years Ending
December 31,
2013	$	910,155
2014		1,812,147
2015		433,316
	$	3,155,618

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Finite Lived Intangible Assets Future Amortization Expense (Detail) (USD $)	Dec. 31, 2012
Finite-Lived Intangible Assets [Line Items]
2013	$ 327,500
Total - Intangible Assets - Finite Lives	327,500
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
2013	327,500
Total - Intangible Assets - Finite Lives	$ 327,500

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Subsequent Events

12 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

Subsequent Events

Note N – Subsequent Events

Subsequent Events

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 non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except as disclosed below.

Asset Sale

On January 17, 2013, Lightyear-KY exercised an option under a lease to purchase certain Leased Premises (see Note F – Capital Lease Obligations) for approximately $842,000 (the principal balance of the capital lease obligation was approximately $737,000). Immediately following its purchase of the Leased Premises, Lightyear-KY sold the Leased Premises and five additional adjacent properties for a cash purchase price of $1,275,000 (the “Asset Sale”). The net book value of the buildings, land and equipment included in the Asset Sale, along with the associated deferred tax liability recorded, was approximately $2,396,000 and $289,000 as of December 31, 2012, respectively. As a result of the value received in the Asset Sale, the Company recorded a net impairment charge of approximately $938,000, which included the write-off of the deferred tax liability, at December 31, 2012.

In connection with the Asset Sale, the related indebtedness in the form of notes payable with an aggregate principal balance of approximately $179,000 at December 31, 2012 that had been secured by the adjacent properties (see Note G – Notes Payable) was repaid. The Asset Sale resulted in net proceeds to the Company of approximately $254,000.

Concurrently, Lightyear-KY entered into an agreement to lease the Leased Premises from the new owner until April 30, 2013. In consideration of Lightyear-KY’s sale of the Leased Premises to the landlord, the landlord agreed not to charge rent during the term of the lease.

Operating Lease

On February 18, 2013, Lightyear-KY entered into an agreement to lease approximately 17,000 square feet of an office building in Pikeville, Kentucky which will house the operations formerly located at the Lease Premises discussed above. The lease, which has rent of $2,917 per month, expires on September 7, 2014.