UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended ~~September~~March 3031, ~~2012~~2013

£¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ~~from_______to_______~~from to

Commission file number: 000-32451

LIGHTYEAR NETWORK SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Nevada		91-1829866
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1901 Eastpoint Parkway Louisville, Kentucky		40223
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: 502-244-6666

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £¨ Accelerated filer £¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company Sx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ¨ No x

As of ~~November~~May 914, ~~2012~~2013, there were 22,086,641 shares of the issuer’s common stock outstanding.

Lightyear Network Solutions, Inc. and Subsidiaries

Table of Contents

PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011		1
Condensed Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012	1
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011		2
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012	2
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficiency for the Nine Months Ended September 30, 2012		3
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficiency for the Three Months Ended March 31, 2013	3
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011		4
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012	4
Notes to Unaudited Condensed Consolidated Financial Statements	5	5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16	13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.	21	18
ITEM 4. Controls and Procedures.	21	18
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings.	22	19
ITEM 1A. Risk Factors.	22	19
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.	22	19
ITEM 3. Defaults Upon Senior Securities.	22	19
ITEM 4. Mine Safety Disclosures.	22	19
ITEM 5. Other Information.	22	19
ITEM 6. Exhibits.	23	19
Signatures.	24	20

Lightyear Network Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	September 30,			December 31,
	March 31,			December 31,
	2012			2011
	2013			2012
	(unaudited)
Assets
Current Assets:
Cash	$	2746,~~841~~092		$	~~108~~48,~~133~~424
Accounts receivable, net		4,~~730~~492,~~574~~368			54,~~237~~694,~~404~~100
Vendor deposits		1,~~898~~906,~~788~~895			1,~~771~~894,~~028~~522
Inventories, net		~~244~~208,~~707~~484			~~335~~267,~~964~~427
Prepaid expenses and other current assets		1978,~~525,112~~517			21,~~523~~137,~~039~~654
Total Current Assets		87,~~427~~632,~~022~~356			98,~~975~~042,~~568~~127
Property and equipment, net		64,~~862~~216,~~059~~647			75,~~161~~511,~~057~~426
Intangible assets, net		1,~~601~~382,~~249~~916			1,~~928~~492,~~749~~083
Total Assets	$	1613,~~890~~231,~~330~~919		$	1915,~~065~~045,~~374~~636
Liabilities and Stockholders' Deficiency
Current Liabilities:
Accounts payable	$	65,~~781~~335,~~160~~882		$	76,~~216~~212,~~117~~388
Interest payable - related parties		4643,~~370~~397			47114,~~282~~972
Accrued agent commissions		~~520~~470,~~717~~051			~~530~~459,~~268~~712
Accrued agent commissions - related parties		~~986~~762			~~1,069~~847
Deferred revenue		~~489~~484,~~636~~193			~~427~~473,~~715~~957
Other liabilities		12,~~616~~161,~~476~~034			1,~~876~~667,~~163~~724
Other liabilities - related parties		~~127~~188,~~111~~307			81142,~~718~~330
Current portion of notes payable		~~921~~2,~~907~~317,331			~~895~~934,~~918~~529
Current portion of capital lease obligations		174,355			239,203
Current portion of note payable - related party		6,250,000			-
Total Current Liabilities		10,678,718			11,315,453
Current portion of capital lease obligations		81,278			164,662
Notes payable, non-current portion		2,638,783			3,334,992
Total Current Liabilities		17,332,235			10,171,121
Capital lease obligation, non-current portion		741,730			758,750
Notes payable, non-current portion		864,478			2,400,441
Note payable - related party		6,250,000			6,250,000
Note payable - related party, non-current portion		-			6,250,000
Deferred tax liability, non-current portion, net		326,683			326,683
Capital lease obligations, non-current portion		37,877			711,255
Total Liabilities		20,635,914			21,985,878
Deferred tax liability		37,830			37,830
Total Liabilities		18,272,420			19,570,647
Commitments and contingencies
Stockholders' Deficiency:
Common stock, $0.001 par value; 70,000,000 shares authorized; 22,086,641 shares issued and outstanding at September 30, 2012 and December 31, 2011		22,087			22,087
Common stock, $0.001 par value; 70,000,000 shares authorized;
22,086,641 shares issued and outstanding at
March 31, 2013 and December 31, 2012		22,087			22,087
Note receivable from affiliate		(1,223,203	)		(1,223,203	)
Additional paid-in capital		10,~~067~~205,~~172~~911			910,~~490~~148,~~226~~545
Accumulated deficit		(1214,~~611~~045,~~640~~296	)		(1113,~~209~~472,~~614~~440	)
Total Stockholders' Deficiency		(35,~~745~~040,~~584~~501	)		(24,~~920~~525,~~504~~011	)
Total Liabilities and Stockholders' Deficiency	$	1613,~~890~~231,~~330~~919		$	1915,~~065~~045,~~374~~636

See Notes to these Condensed Consolidated Financial Statements

-1-

Lightyear Network Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited)

	For The Three Months						For The Nine Months
	For The Three Months Ended
	Ended September 30,						Ended September 30,
	March 31,
	2012			2011			2012			2011
	2013			2012
Revenues	$	1615,~~690~~589,~~248~~727		$	1716,~~409~~974,~~514~~839		$	~~50,484,592~~		$	~~53,886,561~~
Cost of revenues		1110,~~535~~852,~~727~~244			11,~~089~~065,~~139~~757			~~33,786,834~~			~~34,735,187~~
Gross Profit		54,~~154~~737,~~521~~483			65,~~320~~909,~~375~~082			~~16,697,758~~			~~19,151,374~~
Operating Expenses
Commission expense		1,~~355~~166,~~499~~603			1,~~544~~504,~~955~~214			~~4,246,221~~			~~4,581,358~~
Commission expense - related parties		1848,~~435~~400			1317,~~734~~824			~~54,912~~			~~(2,834~~	)
Depreciation and amortization		~~332~~284,~~423~~607			~~437~~334,~~182~~570			~~999,335~~			~~1,282,970~~
Bad debt expense		~~314~~240,~~423~~735			~~195~~227,~~429~~733			~~774,301~~			~~698,937~~
Selling, general and administrative expenses		3,~~677~~464,~~626~~814			4,~~098~~242,~~751~~483			~~11,578,934~~			~~13,341,507~~
Selling, general and administrative expenses - related party		-			7574,~~159~~000			~~96,769~~			~~125,231~~
Total Operating Expenses		5,~~698~~205,~~406~~159			6,~~365~~400,~~210~~824			~~17,750,472~~			~~20,027,169~~
Loss From Operations		(~~543~~467,~~885~~676	)		(44491,~~835~~742	)		~~(1,052,714~~	)		~~(875,795~~	)
Other (Expense) Income
Other Income (Expense)
Interest income		~~5,704~~113			83,~~151~~013			~~8,779~~			~~24,183~~
Interest income - related parties		-			192,664			-			570,967
Interest expense		(48,887	)		(63,856	)
Interest expense		(57,424	)		(77,180	)		(182,256	)		(234,878	)
Interest expense - related parties		(66,284	)		(70,027	)
Interest expense - related parties		(70,075	)		(98,459	)		(209,985	)		(296,276	)
Other income		9,878			1,393
Other income		32,723			122,304			34,150			233,372
Total Other Expense		(105,180	)		(129,477	)
Total Other (Expense) Income		(89,072	)		147,480			(349,312	)		297,368
Net Loss	$	(572,856	)	$	(621,219	)
(Loss) income before income taxes		(632,957	)		102,645			(1,402,026	)		(578,427	)
Net Loss Per Common Share - Basic and Diluted	$	(0.03	)	$	(0.03	)
Income tax benefit		-			-			-			123,800
Weighted Average Number of Common Shares Outstanding - Basic and Diluted		22,406,351			22,279,558
Net (Loss) Income		(632,957	)		102,645			(1,402,026	)		(454,627	)
Cumulative Preferred Stock Dividends		-			(383,122	)		-			(1,136,877	)
Loss Attributable to Common Stockholders	$	(632,957	)	$	(280,477	)	$	(1,402,026	)	$	(1,591,504	)
Net Loss Per Common Share - Basic and Diluted	$	(0.03	)	$	(0.01	)	$	(0.06	)	$	(0.07	)
Weighted Average Number of Common Shares Outstanding - Basic and Diluted		22,344,829			22,242,475			22,312,119			21,641,444

See Notes to these Condensed Consolidated Financial Statements

-2-

Lightyear Network Solutions, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Stockholders' Deficiency

For The ~~Nine~~Three Months Ended March ~~September 30~~31, ~~2012~~ 2013

(unaudited)

					Note
					Receivable			Additional
	Common Stock				From			Paid-In		Accumulated
	Shares		Amount		Affiliate			Capital		Deficit			Total
Balance - December 31, 2011		22,086,641	$	22,087	$	(1,223,203	)	$	9,490,226	$	(11,209,614	)	$	(2,920,504	)
Balance - December 31, 2012		22,086,641	$	22,087	$	(1,223,203	)	$	10,148,545	$	(13,472,440	)	$	(4,525,011	)
Stock-based compensation		-		-		-			~~576~~57,~~946~~366		-			~~576~~57,~~946~~366
Net loss		-		-		-			-		(1572,~~402,026~~856	)		(1572,~~402,026~~856	)
Balance - September 30, 2012		22,086,641	$	22,087	$	(1,223,203	)	$	10,067,172	$	(12,611,640	)	$	(3,745,584	)
Balance - March 31, 2013		22,086,641	$	22,087	$	(1,223,203	)	$	10,205,911	$	(14,045,296	)	$	(5,040,501	)

See Notes to these Condensed Consolidated Financial Statements

-3-

Lightyear Network Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For The Nine Months
	For The Three Months Ended
	Ended September 30,
	March 31,
	2012			2011
	2013			2012
Cash Flows From Operating Activities
Net loss	$	(1572,~~402,026~~856	)	$	(~~454~~621,~~627~~219	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		~~999~~284,~~335~~607			1334,~~282,970~~570
Provision for bad debt expense		~~774~~240,~~301~~735			~~698~~227,~~937~~733
Stock-based compensation		~~576~~57,~~946~~366			~~473~~406,~~345~~408
Interest income from affiliate		-			(570,967	)
Gain on sale of property and equipment		(9,878	)		-
Deferred taxes		-			(123,800	)
Gain on sale of fixed assets		-			(121,619	)
Changes in operating assets and liabilities:
Accounts receivable		(~~267~~39,~~471~~003	)		~~259~~186,~~032~~179
Other assets		-			(5,254	)
Vendor deposits		(12,373	)		(60,855	)
Vendor deposits		(127,760	)		(240,528	)
Inventories		58,943			24,078
Inventories		91,257			(162,435	)
Prepaid expenses and other current assets		159,137			110,756
Prepaid expenses and other current assets		997,927			(70,232	)
Accounts payable		(876,506	)		(31,175	)
Accounts payable		(434,957	)		290,968
Interest payable – related parties		(71,575	)		(810	)
Interest payable - related parties		(912	)		(48,535	)
Accrued agent commissions		10,339			23,237
Accrued agent commissions		(9,551	)		(22,137	)
Accrued agent commissions – related parties		(85	)		57
Accrued agent commissions - related parties		(83	)		(22,279	)
Deferred revenue		10,236			20,823
Deferred revenue		61,921			(1,531,659	)
Other liabilities		493,310			(97,398	)
Other liabilities		(259,687	)		11,849
Other liabilities – related parties		45,977			14,438
Other liabilities - related parties		45,393			(5,049	)
Total Adjustments		351,230			1,158,041
Total Adjustments		2,446,659			92,607
Net Cash (Used In) Provided By Operating Activities		(221,626	)		536,822
Net Cash Provided by (Used in) Operating Activities		1,044,633			(362,020	)
Cash Flows From Investing Activities
Purchases of property and equipment		(~~246~~37,~~607~~223	)		(1112,~~054,972~~268	)
Proceeds from sale of fixed assets		-			191,511
Proceeds from the sale of property and equipment		1,295,167			-
Net Cash Used in Investing Activities		(246,607	)		(863,461	)
Net Cash Provided By (Used In) Investing Activities		1,257,944			(112,268	)
Cash Flows From Financing Activities
Repayments of obligations payable - related party		-			(1,000,000	)
Repayments of capital lease obligations		(885,489	)		(67,398	)
Repayments of capital lease obligations		(208,098	)		(256,020	)
Repayments of notes payable		(653,161	)		(222,687	)
Repayments of notes payable		(670,220	)		(320,428	)
Proceeds from note payable		500,000			-
Repayments of short term borrowings		-			(481,342	)
Net Cash Used In Financing Activities		(1,038,650	)		(290,085	)
Proceeds from notes payable		-			2,000,000
Net (Decrease) Increase In Cash		(2,332	)		134,469
Proceeds from cash surrender value of life insurance		-			316,736
Cash – Beginning		48,424			108,133
Net Cash (Used In) Provided by Financing Activities		(878,318	)		258,946
Cash – Ending	$	46,092		$	242,602
Net Decrease In Cash		(80,292	)		(966,535	)
Cash - Beginning		108,133			1,009,209
Cash - Ending	$	27,841		$	42,674
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	~~384~~181,~~255~~644		$	~~498~~130,~~095~~437
Non-cash investing and financing activites:
Purchase of property and equipment via capital lease	$	126,230		$	143,370
Acquisition of property and equipment via capital lease	$	23,006		$	90,930

See Notes to these Condensed Consolidated Financial Statements

-4-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note A – Organization, Operations and Basis of Presentation

Organization and Operations

Lightyear Network Solutions, Inc. (“LNSI”) was ~~incorporated~~ 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”). The Company was organized for the purpose of selling and marketing telecommunication services and solutions, and owning other companies which sell and market telecommunication services and solutions. Lightyear provides telecommunications services throughout the United States and Puerto Rico primarily through a distribution network of authorized independent agents and representatives. Lightyear is a licensed local carrier in 42 states and provides long distance service in 49 states and Puerto Rico. Lightyear delivers service to approximately 70,000 customer locations with a significant concentration in the five state area of Kentucky, Ohio, Indiana, Florida and Georgia. In addition to long distance and local service, Lightyear currently offers a wide array of telecommunications services including internet/intranet, calling cards, advanced data, wireless, Voice over Internet Protocol (“VoIP”) and conference calling. Lightyear is a licensed local carrier in 43 states and provides long distance service in 49 states and Puerto Rico. Lightyear delivers service to approximately 54,000 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”) ~~and~~ , state and local governmental agencies. Regulations by the FCC as well as state agencies include limitations on types of services and service areas offered to the public.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial statements of ~~Lightyear Network Solutions, Inc. and Subsidiaries (“Lightyear,” or~~ the “Company”) as of ~~September~~March 3031, ~~2012~~2013 and for the three ~~and nine~~ months then ended. The results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013 are not necessarily indicative of the operating results for the full year. ItThese ~~is suggested that these~~ unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related disclosures of Lightyear for the year ended December 31, ~~2011~~2012 which were filed with the Securities and Exchange Commission on ~~March~~ 30April 1, ~~2012~~2013. The Company evaluates events that have occurred after the balance sheet date but before the financial statements ~~are~~ are issued. Based upon the evaluation, the Company did not identify any recognized or nonrecognized subsequent events that would ~~have~~ have required further adjustment or disclosure in the unaudited condensed consolidated financial statements.

~~Liquidity~~Note ~~Plan~~B – Going Concern and Management Plans

~~Since~~As ~~February~~of ~~12,~~March ~~2010~~31, ~~the date of the Company’s reverse merger transaction~~2013, Lightyear had ancash ~~accumulated deficit~~ of approximately $~~12.6 million. As of September 30~~46, ~~2012~~000, ~~Lightyear had~~ a ~~cash balance of $27,841, a~~ working capital deficit of approximately $~~2.3~~9,700,000 ~~million~~ and ~~was~~an inaccumulated ~~violation~~deficit of ~~two~~approximately ~~of its debt covenants. On November 6~~$14, ~~2012~~045, ~~a noteholder waived two third quarter 2012 debt covenant violations that resulted from earnings forecast shortfalls~~000. ~~In addition, the noteholder waived the same two debt covenants for the fourth quarter of 2012 (see Note D).~~

~~For~~The ~~the nine months ended September 30, 2012, the~~ Company’s ~~operating~~ ~~activities~~principal ~~provided~~sources ~~$1.0~~of ~~million~~liquidity consist of ~~cash,~~available ~~while~~borrowings ~~$0.2~~under ~~million~~its ~~and~~revolving ~~$0.9~~credit ~~million were used to purchase property and equipment and to service debt~~line, ~~respectively.~~potential ~~The~~cash ~~Company’s~~provided ~~future capital requirements are expected to be driven~~ by ~~(i) network build-out costs; (ii) debt reduction and debt service (including a $6.3 million principal payment due to a related party on November 30~~operations, ~~2013~~ ~~– see Note E); (iii) public/investor relations costs; (iv) acquisition opportunities;~~ and ~~(v) the need to supplement working capital levels. The Company believes that its current~~ cash ~~and~~on ~~cash expected to be generated from operating activities will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months~~hand. InAs ~~addition, the Company continues to investigate the capital markets for sources~~ of ~~funding~~March 31, ~~which could take the form of additional debt or equity financings~~2013, ~~however there can be no assurance that~~ the Company ~~will~~has beapproximately ~~successful in securing such capital. If the Company is unable to raise additional funds~~$250,000 ~~the Company might (a) initiate additional cost reductions; (b) forego acquisition or network build-out opportunities; and/or (c) seek extensions~~ of the ~~scheduled payment obligations~~$500,000 ~~including~~revolving ~~the~~credit ~~long~~line ~~term~~limit ~~related party note payable~~outstanding.

The Company has a significant amount of notes payable due within the next year. The revolving credit line matures on December 19, 2013. Currently, the Company has approximately $250,000 that will be due on this note. The Company has a bank loan that matures on January 25, 2014, at which time a balloon payment of approximately $1,247,000 will be due. Additionally, the Company has a loan with a related party that will mature on February 28, 2014. At the time of maturity, a balloon payment of $6,250,000 will be due.

Until recently, the cash and cash generated from operations have been sufficient to fund the Company’s capital needs and operating expenses. However, the Company believes that there will be insufficient cash generated to pay the balloon payments that are due in the next twelve months on the various notes. If the Company is unable to refinance the maturing notes by the time they are due, it may be forced to sell its assets, restructure its indebtedness, submit to foreclosure proceedings, cease operations or seek bankruptcy or reorganization protection. As a result of these actual and anticipated events, the lower than desired working capital and the likely settlement payments due to the FCC (see Note K – Commitments and Contingencies), there is substantial doubt about the Company’s ability to continue as a going concern.

-5-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note B – ~~Summary~~Going ofConcern ~~Significant~~and ~~Accounting~~Management ~~Policies~~Plans – Continued

On May 13, 2013, effective May 10, 2013, the Company entered into an Asset Purchase Agreement (the “APA”) whereby, subject to certain approvals and conditions, substantially all of the Company’s assets will be sold to Birch Communications, Inc. for $22 million (subject to certain purchase price adjustments) (the “Asset Sale”). In addition, the Company’s Board of Directors also approved a Plan of Dissolution, whereby, subject to the closing of the Asset Sale, the Company will utilize the proceeds from the Asset Sale to satisfy the Company’s liabilities to creditors and will wind down and liquidate the Company, with all remaining funds, if any, being distributed to the Company’s common stockholders. See Note L – Subsequent Events for additional details.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustment that might be necessary should the Company be unable to continue as a going concern or be required to apply the liquidation basis of accounting should the Asset Sale be consummated.

Note C – Summary of Significant Accounting Policies

Principles of Consolidation

The balance sheets, statements of operations, changes in stockholders’ deficiency, and cash flows of the Company and its wholly-owned subsidiaries have been included in our condensed consolidated financial statements. All intercompany accounts and transactions have been eliminated. The Company and its wholly-owned subsidiaries are managed as a single business and a single segment. Activity with its wholly-owned subsidiary, Lightyear Alliance of Puerto Rico, LLC, is insignificant.

Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include the reserves related to receivables, the recoverability and useful lives of long lived assets, anticipated carrier credits, the valuation allowance related to deferred tax assets and the valuation of equity instruments.

Accounts Receivable

Accounts receivable are shown net of an allowance for doubtful accounts of $1871,~~623,954~~629 and $1772,~~215,735~~479 as of ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, respectively. The Company’s management ~~has~~ has established an allowance for doubtful accounts sufficient to cover probable and reasonably estimable losses. The allowance ~~for~~ 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 is deemed to be no longer effective.

Revenue Recognition

Telecommunications services income such as access revenue and usage revenue are recognized on the accrual basis as services are provided. In general, access revenue is billed one month in advance and is recognized when earned. Wireless handheld devices are sold at a discount when bundled with a long-term wireless service contract. We recognize the equipment revenue and associated costs when title has passed and the equipment has been accepted by the customer. The Company provides administrative and support services to its agents and pays commissions based on revenues from the agents’ accounts. Amounts invoiced to customers in advance of services are reflected as deferred revenues.

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

Cost of revenues represents primarily the direct costs associated with the cost of transmitting and terminating traffic on other carriers’ facilities.

Commissions paid to acquire customer call traffic are expensed in the period when associated call revenues are recognized.

The accounting standards guidance provides for how taxes collected from customers and remitted to governmental authorities should be presented in the income statement. The guidance states that if taxes are reported on a gross basis (included as revenue) a company should disclose those amounts, if significant. The Company does not include excise and other sales related taxes in its revenues.

Fair Value of Financial Instruments

The Company’s financial instruments are cash, accounts receivable and accounts payable each of which approximate their fair values based upon their short term nature. The Company’s other financial instruments include notes payable, capital lease obligations and obligations payable. The carrying value of these instruments approximates fair value, as they bear terms and conditions comparable to market for obligations with similar terms and maturities.

-6-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note BC – Summary of Significant Accounting Policies – Continued

Revenue Recognition – Continued

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.

Fair Value of Financial Instruments

The Company’s financial instruments are cash, accounts receivable and accounts payable, each of which approximate their fair values based upon their short term nature. The Company’s other financial instruments include notes payable 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 ~~non-vested~~is ~~amounts are~~ re-measured at each ~~financial~~ 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 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)~~.

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

	For The Three Months						For The Nine Months
	For The Three Months Ended
	Ended September 30,						Ended September 30,
	March 31
	2012			2011			2012			2011
	2013			2012
Basic and diluted loss per share:
Numerator:
Net (loss) income	$	(632,957	)	$	102,645		$	(1,402,026	)	$	(454,627	)
Net loss	$	(572,856	)	$	(621,219	)
Cumulative preferred stock dividends		-			(383,122	)		-			(1,136,877	)
Denominator:
Numerator for basic and diluted loss per share:
Weighted average common shares outstanding		22,086,641			22,086,641
Net loss attributable to common stockholders	$	(632,957	)	$	(280,477	)	$	(1,402,026	)	$	(1,591,504	)
Weighted average warrants outstanding with an exercise price of $0.01 or less		319,710			192,917
Denominator:
Weighted average basic and diluted shares outstanding		22,406,351			22,279,558
Weighted average common stock shares outstanding		22,086,641			22,089,888			22,086,641			21,528,021
Loss per basic and diluted share	$	(0.03	)	$	(0.03	)
Weighted average warrants outstanding with an exercise price of $0.01 or less		258,188			152,587			225,478			113,423
Weighted average basic and diluted shares outstanding		22,344,829			22,242,475			22,312,119			21,641,444
Loss per basic and diluted share:
Net (loss) income	$	(0.03	)	$	0.01		$	(0.06	)	$	(0.02	)
Cumulative preferred stock dividends		-			(0.02	)		-			(0.05	)
Net loss attributable to common stockholders	$	(0.03	)	$	(0.01	)	$	(0.06	)	$	(0.07	)

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

	As of
	March 31,
	September 30,
	2013		2012
	2012		2011
Employee stock options		732,500		891,500
Employee stock options		780,500		820,333
Warrants		1,065,429		1,053,014
Warrants		1,059,327		1,047,883
Total potentially dilutive shares		1,797,929		1,944,514
Convertible preferred stock		-		9,500,000
Unvested restricted stock		-		12,987
Total potentially dilutive shares		1,839,827		11,381,203

-7-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note BC – Summary of Significant Accounting Policies – Continued

Recently Issued ~~and Adopted~~ Accounting Pronouncements

In ~~July~~April ~~2012~~2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2012~~2013-0207, “~~Intangibles—Goodwill~~Presentation ~~and~~of ~~Other~~Financial Statements (Topic ~~350~~205) - ~~Testing~~Liquidation ~~Indefinite-Lived~~Basis ~~Intangible~~of ~~Assets for Impairment~~Accounting." This ASU ~~simplifies~~addresses the ~~impairment~~requirements ~~testing~~and methods of ~~indefinite-lived intangible~~applying ~~assets~~the byliquidation ~~eliminating~~basis of accounting and the ~~requirement~~disclosure torequirements ~~perform~~within anAccounting ~~annual~~Standards ~~quantitative~~Codification ~~test~~("ASC") ~~for~~Topic ~~impairment,~~205 ~~unless~~for athe ~~qualitative~~purpose ~~assessment~~of providing ~~reveals~~consistency ~~that~~between ~~impairment~~the isfinancial ~~likely.~~reporting ~~While~~of ~~the~~U.S. ~~update~~GAAP isliquidating ~~effective~~entities. ~~for~~Generally, ~~impairment~~this ~~tests~~ASU ~~performed~~provides guidance for ~~fiscal~~the ~~years~~preparation of ~~beginning~~financial ~~after September~~statements ~~15,~~and ~~2012,~~disclosures ~~early~~when ~~adoption~~liquidation is ~~permitted~~imminent. ~~The~~This ~~Company~~ASU ~~expects~~is toeffective ~~early~~for ~~adopt~~periods ~~ASU~~beginning ~~2012-02~~after ~~during~~December 15, ~~the~~2013 ~~fourth~~and ~~quarter~~would ofonly ~~2012, which~~have isan ~~expected~~impact toon ~~alter~~ the Company’s ~~annual~~condensed ~~procedures,~~consolidated ~~but~~financial isstatements ~~not~~or ~~expected~~disclosures toif ~~have~~liquidation of ~~a material impact on~~ the Company~~’s consolidated~~ ~~financial~~became ~~statements~~imminent.

Note CD – ~~Other~~Property ~~Liabilities~~and Equipment

~~Other~~Property ~~liabilities~~and ~~consist~~equipment consists of the following:

	September 30,			December 31,
	March 31,			December 31,			Range of Estimated
	2012			2011
	2013			2012			Useful Lives
	(unaudited)
Excise, state, local and property taxes payable	$	846,521		$	843,671
Land	$	-		$	313,875		Not depreciable
Other accrued expenses		141,050			165,485
Equipment and computers		7,269,502			7,223,733		1 - 25 years
Payroll, payroll taxes and bonuses		171,707			373,398
Buildings		68,716			985,352		10 - 30 years
Deferred rent		215,071			260,086
Furniture and fixtures		67,781			67,781		1 - 5 years
Regulatory fees		130,464			132,133
Vehicles		330,540			331,033		5 - 7 years
Customer security deposits		111,663			101,390
Leasehold improvements		866,055			866,055		[A]
	$	1,616,476		$	1,876,163
		8,602,594			9,787,829
Less: accumulated depreciation and amortization		(4,385,947	)		(4,276,403	)
Property and equipment, net	$	4,216,647		$	5,511,426

~~Note~~[A] DLeasehold –improvements ~~Notes~~are ~~Payable~~amortized over the lesser of the term of the lease or the asset's economic useful life

~~The~~Depreciation ~~Company~~and ~~has~~amortization aexpense ~~secured~~for ~~promissory~~the ~~note~~three ~~arrangement with~~months aended ~~bank~~March ~~with a principal balance of approximately $1.7 million at September 30~~31, ~~2012.~~2013 Asand ~~of September 30,~~ 2012, ~~Lightyear~~ was ~~in violation~~approximately ~~of two of its debt covenants that resulted from earnings shortfalls. On November 6~~$175,000 ~~2012,~~and ~~a noteholder waived two third quarter 2012 debt covenant violations that resulted from earnings forecast shortfalls. In addition~~$220, ~~the noteholder waived the same two debt covenants for the fourth quarter of 2012. The Company is in discussions with the bank with regard to resetting the debt covenants on a go forward basis~~000, ~~however, there is no assurance the bank will agree to reset the covenants~~respectively.

On January 17, 2013, Lightyear-KY exercised an option under a lease to purchase certain leased property (the “Leased Premises”, see Note EF – ~~Related~~Capital ~~Party~~Lease ~~Transactions~~Obligations). 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 “Pikeville Sale”). See Note G – Notes Payable for details of the repayment of the related indebtedness. There was no gain or loss recorded in conjunction with the Pikeville Sale because the Company recorded an impairment charge of approximately $938,000 in connection with the assets being sold as of December 31, 2012.

Lightyear has significant transactions with its largest shareholder, LY Holdings, LLC (“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, the directors and/or officers of the Company or by 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 balance sheets and statements of operations.

Commission expense – related parties includes certain VoIP and wireless revenue override payments due to directors of the Company and/or members of LY Holdings. On June 22, 2011, all but one holder of the override rights waived their right to such payments for the second half of 2010 and the full year 2011, which resulted in the Company reversing approximately $86,000 of liabilities. On February 7, 2012, the same holders of the override rights waived their right to such payments for the year 2012. During the three and nine months ended September 30, 2012, Lightyear recorded approximately $16,000 and $45,000 of VoIP and wireless revenue override expense, respectively. During the three and nine months ended September 30, 2011, Lightyear recorded an immaterial amount of expense related to VoIP and wireless revenue overrides.

-8-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note E – ~~Related~~Other ~~Party Transactions – Continued~~Liabilities

~~The~~Other ~~Company~~liabilities ~~obtained~~consist ~~consulting~~of ~~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 $0 and $97,000 for~~ the ~~three and nine months ended September 30, 2012, respectively, and was approximately $75,000 and $125,000 for the three and nine months ended September 30, 2011, respectively.~~following:

On October 29, 2012, a Company director agreed to forbear from demanding payment until November 30, 2013 of the $6,250,000 principal payment currently scheduled to be paid on August 30, 2013.

	March 31,		December 31,
	2013		2012
	(unaudited)

Excise, state, local and property taxes payable	$	742,984	$	729,118
Other accrued expenses		198,003		126,426
Payroll, payroll taxes and bonuses		142,966		300,139
Deferred rent		185,061		200,066
FCC settlement		477,000		-
Regulatory fees		314,923		205,527
Customer security deposits		100,097		106,448

	$	2,161,034	$	1,667,724

Note F – ~~Supplier~~Capital ~~Concentration~~Lease Obligations

OfThe ~~the~~Company ~~telecommunications~~leased ~~services~~a ~~used~~building inand ~~its~~land ~~operations,~~ which Lightyear-KY ~~acquired~~used as ~~approximately~~its ~~33%,~~Administrative ~~21%,~~ and ~~13%~~Customer ~~during~~Care ~~the~~Headquarters. ~~three~~The ~~months~~original ~~ended~~term ~~September~~of ~~30,~~the ~~2012~~lease ~~from~~was ~~three~~10 ~~suppliers~~years ~~and~~through December 31%, 2013. Lightyear-KY ~~22%~~had ~~and~~an ~~13%~~option ~~during~~to purchase the ~~nine~~Leased ~~months~~Premises ~~ended~~at ~~September~~any ~~30,~~time ~~2012~~during ~~from~~the term of the ~~same~~Lease ~~three~~upon ~~suppliers.~~written ~~The~~notice ~~Company~~to ~~acquired~~the ~~approximately 32%~~lessor ~~and~~at ~~24%~~least 30 ~~during~~days before the ~~three~~date ~~months~~on ~~ended~~which ~~September~~Lightyear-KY ~~30,~~desired ~~2011~~to ~~from~~exercise ~~two~~the ~~suppliers~~option and ~~30%~~purchase the Leased Premises. On January 17, 2013, ~~24%~~the ~~and~~Company ~~10%~~exercised ~~during~~the option to purchase the ~~nine~~Leased ~~months~~Premises, ~~ended September~~which, 30pursuant to its terms, ~~2011~~resulted ~~from~~in ~~three~~the ~~suppliers~~termination of the lease. ~~Although~~Pursuant ~~there~~to ~~are~~its ~~other~~terms, ~~suppliers~~the ofcapitalized ~~these~~lease ~~services~~obligation, which had a ~~change~~principal inbalance ~~suppliers~~of ~~could~~approximately ~~have~~$737,000, anwas ~~adverse~~terminated ~~effect~~upon onexercise of the ~~business~~option. ~~which~~See ~~could~~Note ~~ultimately~~D ~~negatively~~– ~~affect~~Property ~~operating~~and ~~results~~Equipment and Note G – Notes Payable for additional details.

~~Note G – Stockholders’ Deficiency~~-9-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note G – Notes Payable

Notes payable are as follows:

	March 31,		December 31,
	2013		2012
	(unaudited)
Note payable - variable interest rate (5.00% as of March 31, 2013). 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.	$	1,347,242	$	1,473,218

Note payable - variable interest rate (4.25% as of December 31, 2012). The note had monthly principal and interest payments of $871. Principal and unpaid interest was 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

Note payable - variable interest rate (4.25% as of December 31, 2012). The note had monthly principal and interest payments of $970. Principal and unpaid interest was due on October 18, 2024. The note payable was secured by a mortgage on a specific real property. [1]		-		102,375

Note payable - fixed interest rate of 6.99%. The note had monthly principal and interest payments of $935. Principal and unpaid interest was due on October 1, 2020.The note payable was secured by a mortgage on a specific real property. [1]		-		65,936

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.		67,317		74,831

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]		1,517,584		1,607,569

Revolving $500,000 secured commercial promissory note (the "Credit Facility"). 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, with the outstanding principal amount payable at maturity. 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”).		249,666		-

Total Notes Payable		3,181,809		3,334,970
Less: Current Portion		2,317,331		934,529
Non-Current Portion of Notes Payable	$	864,478	$	2,400,441

-10-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note G – Notes Payable – Continued

[1]

On January 17, 2013, the Company repaid notes payable with an aggregate principal balance of approximately $179,000 in connection with the Pikeville Sale because the assets sold had been collateralizing these loans. See Note D – Property and Equipment and Note E – Capital Lease Obligations 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 March 29, 2013, the bank elected to eliminate certain earnings-related debt covenants effective January 1, 2013 for the balance of the loan term.

Note H – Related Party Transactions

Lightyear has significant transactions with its largest stockholder, LY Holdings, LLC (“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, the directors and/or officers of the Company or by 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 balance sheets and statements of operations.

On March 20, 2013, Chris Sullivan agreed to forbear from demanding repayment of a note with a principal amount of $6,250,000 (the “Settlement Note”) until February 28, 2014.

Commission expense – related parties includes certain VoIP and wireless revenue override payments due to directors of the Company and/or members of LY Holdings (the “Letter Agreement Holders”). During the three months ended March 31, 2013 and 2012, Lightyear recorded approximately $46,000 and $14,000 of VoIP and wireless revenue override expense, respectively, which was classified as commission expense – related parties in the condensed consolidated statements of operations. All of the Letter Agreement Holders (with the exception of one holder) agreed to waive their rights to revenue override payments during 2012. As of March 31, 2013, the Company has accrued approximately $188,000 related to VoIP and wireless revenue override payments.

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 $0 and $74,000 for the three months ended March 31, 2013 and 2012, respectively, which was classified as selling, general and administrative expenses – related party in the condensed consolidated statements of operations.

Note I – Supplier Concentration

Of the telecommunications services used in its operations, Lightyear secured approximately 32%, 21%, and 13% during the three months ended March 31, 2013 from three suppliers and 31%, 21% and 12% during the three months ended March 31, 2012 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 J – Stockholders’ Deficiency

Warrants

Additional Warrants

In connection with a prior equity financing, the Company is required to periodically issue exercisable five-year warrants to purchase shares of common stock to investors with an exercise price of $0.01 per share and to selling agents with an exercise price of $4.00 per share (the “Additional Warrants”). The Additional Warrants are issued pursuant to a pre-determined formula at the end of each calendar quarter during which shares originally purchased in the equity financing are held by the original investor. The Additional Warrants are eligible to be issued for a period of five years from the equity financing. The Company issued ~~105~~33,~~455~~077 Additional Warrants (9530,~~868~~070 were issued to investors and 93,~~587~~007 were issued to selling agents) during the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. As of ~~September~~March 3031, ~~2012~~2013, there were ~~317,267~~ 384,390 Additional Warrants outstanding, of which ~~288~~349,~~425~~446 were issued to investors and 2834,~~842~~944 were issued to selling agents. ~~See Note H – Commitments and Contingencies – Warrant Dispute.~~

~~Summary~~-11-

A summary of the warrant activity for the nine months ended September 30, 2012 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining
	Number of		Exercise		Life		Intrinsic
	Warrants		Price		In Years		Value
Outstanding at December 31, 2011		1,242,297	$	3.38
Granted		105,455		0.37
Exercised		-		-
Cancelled		-		-
Outstanding at September 30, 2012		1,347,752	$	3.15		3.2	$	20,190
Exercisable at September 30, 2012		1,347,752	$	3.15		3.2	$	20,190

-9-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note GJ – Stockholders’ Deficiency – Continued

Warrants – Continued

Summary

A summary of the warrant activity for the three months ended March 31, 2013 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining
	Number of		Exercise		Life		Intrinsic
	Warrants		Price		In Years		Value
Outstanding at December 31, 2012		1,381,798	$	3.08
Granted		33,077		0.37
Exercised		-		-
Cancelled		-		-
Outstanding at March 31, 2013		1,414,875	$	3.01		2.8	$	24,461

Exercisable at March 31, 2013		1,414,875	$	3.01		2.8	$	24,461

Stock Option Grants

On December 28, 2011, the Company entered into Option Termination Agreements with certain members of its management team (the “Optionees”), including each of the Company’s executive officers, through which the Company agreed to terminate all of the outstanding stock options that were previously issued to the Optionees pursuant to the Company’s 2010 Stock and Incentive Compensation Plan. The Optionees each received a total of $1.00 in consideration for the termination of their options, which accounted for 687,500 of the Company’s options outstanding. Such options were deemed to have negligible value as of the termination date. On March 1, 2012, the Company granted ten-year incentive stock options to the Optionees to purchase an aggregate of 732,500 shares of common stock at an exercise price of $0.22 per share. Of the total, 50% of the options vest immediately and 50% vest on the one-year anniversary of the grants. Since cancellation and issuance of new options is deemed to represent a modification of the original options, the approximate incremental $63,000 value of the new options was added to the approximate $663,000 of unrecognized compensation cost associated with the original options and the combined amount of $726,000 is being amortized proportionate to the vesting period.

On March 20, 2012, the Company granted ten-year incentive stock options to new and existing employees to purchase an aggregate of 74,000 shares of common stock at an exercise price of $0.21 per share. The options vest as follows: (i) options to purchase an aggregate of 71,000 shares of common stock granted to existing employees vest 50% immediately and 50% vest on the one-year anniversary of the grants; and (ii) an option to purchase 3,000 shares of common stock granted to a new employee vests ratably on an annual basis over a three-year term. The aggregate grant date value of approximately $6,200 is being amortized proportionate to the respective vesting periods.

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:

	Three Months Ended September 30,					Nine Months Ended September 30,
	For The Three Months Ended
	2012		2011			2012			2011
	March 31,
Risk free interest rate		n/a		1.58	%		0.95	%		1.58	%
	2013		2012
Expected term (years)		n/a		6.00			5.25			6.00
Risk free interest rate		n/a		0.95	%
Expected volatility		n/a		43.10	%		42.90	%		43.10	%
Expected term (years)		n/a		5.25
Expected dividends		n/a		0.00	%		0.00	%		0.00	%
Expected volatility		n/a		42.90	%
Expected dividends		n/a		0.00	%

The weighted average estimated fair value of the stock options granted during the ~~nine~~three months ended ~~September~~March 3031, 2012 was $0.09 per share. ~~The weighted average estimated fair value of the stock options granted during the three and nine months ended September 30, 2011 was $0.36 per share.~~

The Company recognized approximately $57,000 and $406,000 of stock-10based compensation expense during the three months ended March 31, 2013 and 2012, respectively, related to stock option grants, which is reflected as selling, general and administrative expense in the condensed consolidated statements of operations. As of March 31, 2013, there was approximately $23,000 of unrecognized employee stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 0.1 years.

-12-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note GJ – Stockholders’ Deficiency – Continued

Stock Option Grants – Continued

~~The~~A ~~Company~~summary ~~recognized~~of ~~approximately~~the ~~$68,000~~status ~~and $577,000~~ of ~~stock-based~~ ~~compensation~~options ~~expense~~issued ~~during~~under the ~~three~~2010 ~~and nine months ended September 30, 2012, respectively, and approximately $133,000~~Stock and ~~$430,000~~Incentive ofCompensation ~~stock-based~~Plan ~~compensation expense~~ during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011,~~2013 ~~respectively, related to stock option grants, which~~ is ~~reflected~~presented as selling, general and administrative expense in the condensed consolidated statements of operations. As of September 30, 2012, there was approximately $164,000 of unrecognized employee stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 0.6 years.below:

A summary of the status of options issued under the 2010 Plan during the nine months ended September 30, 2012 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Balance, December 31, 2012		738,832		$	0.31
Granted		-			-
Exercised		-			-
Forfeited		(6,332	)		0.43
Balance, March 31, 2013		732,500		$	0.31		8.7	$	-

Exercisable, March 31, 2013		709,984		$	0.28		8.8	$	-

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Balance, December 31, 2011		96,666		$	1.25
Granted		806,500			0.22
Exercised		-			-
Forfeited		(122,666	)		0.49
Balance, September 30, 2012		780,500		$	0.30		9.3	$	-
Exercisable, September 30, 2012		418,566		$	0.33		9.2	$	-

Note K – Commitments and Contingencies

~~Restricted~~Operating ~~Stock Grants~~Lease

~~The~~On ~~Company~~February ~~recognized approximately $15~~18,~~000~~ ~~and $43~~2013,~~000~~ ~~of stock~~Lightyear-~~based~~KY ~~compensation~~entered ~~during~~into ~~the~~an ~~three~~agreement to ~~and~~lease ~~nine~~approximately ~~months ended September 30~~17,000 ~~2011,~~square ~~respectively,~~feet ~~related~~of toan ~~director~~office ~~restricted stock~~building ~~grants~~in ~~issued on October 12~~Pikeville, ~~2010,~~Kentucky which iswill ~~reflected~~house asthe ~~selling,~~operations ~~general~~formerly located ~~and~~at ~~administrative expense in~~ the ~~condensed~~Lease ~~consolidated statements~~Premises ofdiscussed ~~operations~~above. AsThe ~~of September 30~~lease, ~~2012,~~which ~~there~~has ~~were~~rent noof ~~unvested~~$2,917 ~~restricted~~per ~~stock grants and~~month, ~~accordingly,~~expires ~~there~~on ~~was no~~September ~~unrecognized~~7, ~~stock-based compensation expense related to restricted stock grants~~2014.

~~Note~~Litigation ~~H – Commitments~~ and ~~Contingencies~~Regulatory

~~Litigation~~Alden Halpern v. Lightyear Network Solutions, Inc. fka Libra Alliance Corporation was filed in Nevada District Court on March 1, 2012. The plaintiff alleges violations of federal and state securities laws with respect to his purchase of Lightyear securities. Mr. Halpern alleges that Lightyear falsely represented that the shares he was purchasing were “free-trading.” Lightyear denied the allegations. Mr. Halpern claimed damages of $750,000. 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.

~~Alden~~In ~~Halpern~~July v.2008, ~~Lightyear~~the ~~Network~~Enforcement ~~Solutions,~~Bureau ~~Inc.~~of ~~fka~~the ~~Libra~~Federal Communications ~~Alliance~~Commission ~~Corporation~~ (“FCC”) notified Lightyear that it was ~~filed~~investigating inallegations ~~Nevada~~that ~~District~~Lightyear ~~Court~~may onhave ~~March~~violated 1,certain FCC ~~2012.~~rules ~~The~~related ~~plaintiff~~to ~~alleges~~the ~~violations~~payment of ~~federal and~~certain ~~state~~regulatory ~~securities~~fees ~~laws~~since ~~with~~January ~~respect~~2005. Lightyear responded to ~~his~~the ~~purchase~~data ofrequest ~~Lightyear~~in ~~securities.~~September 2008 ~~Mr.~~and ~~Halpern~~provided ~~alleges~~information ~~that~~concerning Lightyear’s ~~falsely~~Universal ~~represented~~Service Fund contributions and other regulatory fees. In ~~that~~August 2012, the ~~shares~~FCC heasked ~~was~~for ~~purchasing~~updated ~~were~~information ~~“free-trading.”~~and Lightyear ~~denied~~responded ~~the~~in ~~allegations~~October 2012. ~~Mr.~~ ~~Halpern~~In ~~claimed damages~~March ~~of $750~~2013,~~000.~~ OnLightyear ~~September~~executed a ~~26,~~tolling ~~2012,~~agreement with the ~~Court~~FCC ~~granted~~extending ~~Lightyear’s~~the ~~Motion~~statute toof ~~Dismiss,~~limitations ~~but~~until ~~provided~~June ~~Mr.~~14, ~~Halpern~~2013 with 30 ~~days~~respect to ~~amend~~the ~~his~~investigation. ~~complaint~~Lightyear believes tothat ~~provide~~it ~~more~~has ~~details~~paid ~~concerning~~all ~~the~~applicable ~~claim.~~regulatory Onfees, ~~October~~but ~~25,~~has ~~2012,~~learned ~~Mr.~~that ~~Halpern~~the ~~filed~~FCC’s ainvestigation ~~motion~~primarily torelates ~~file~~to the ~~First~~timing ~~Amended~~of ~~Complaint~~the Company’s payments. ~~Lightyear~~While ~~notified~~there ~~its~~is ~~insurance carriers~~no ~~concerning~~final ~~this~~agreement, ~~matter~~based ~~and~~on ~~continues~~conversations towith ~~contest~~ the ~~allegations~~FCC, ~~vigorously.~~on ~~Lightyear~~April 22, ~~has~~2013, ~~not~~Lightyear ~~recorded~~believes athis ~~provision~~matter ~~for~~will ~~any~~most ~~loss~~likely ~~that could~~ be ~~incurred~~settled aswith a ~~result~~voluntary ofcontribution to the ~~matter~~Universal Service Fund asof approximately $477,000. Accordingly, Lightyear ~~believes~~has ~~the~~recorded ~~allegations~~this ~~are~~estimated ~~without~~liability ~~merit~~and recognized an increase in cost of goods sold.

As of September 30, 2012, other claims have been asserted against Lightyear which arose in the normal course of business. While there can be no assurance, management believes that the ultimate outcome of these legal claims will not have a material adverse effect on the condensed consolidated financial statements of the Company.-13-

-11-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note HL – ~~Commitments~~Subsequent ~~and Contingencies – Continued~~Events

~~Warrant~~Asset ~~Dispute~~Purchase Agreement

~~The~~On ~~Company’s~~May ~~former~~13, ~~selling~~2013, ~~agent~~effective May 10, on2013, ~~behalf~~the ofCompany ~~certain~~entered ~~investors~~into inan ~~the~~APA ~~Company’s~~with ~~private~~Birch ~~placement~~Communications, ~~has~~Inc. ~~disputed~~(“Birch”) pursuant to which the Company’s ~~methodology~~will ~~for~~sell, ~~computing~~and ~~the~~Birch ~~quantity~~will ofacquire, ~~Additional~~substantially ~~Warrants~~all ~~that~~of ~~are~~the ~~issuable~~assets at(the ~~each~~“Assets”) ~~quarter~~of ~~end~~the Company. The ~~Company~~base ~~has~~purchase ~~issued~~price ~~Additional~~for ~~Warrants~~the toAssets ~~purchase~~under anthe ~~insignificant~~APA ~~number~~is of$22 ~~common~~million, ~~shares~~and inis ~~partial~~subject ~~settlement~~primarily ofto ~~this~~downward ~~dispute~~adjustment ~~with~~depending ~~some~~on ofwhether the ~~investors.~~Company ~~While~~meets ~~there~~certain ~~can~~pre-closing befinancial targets noor ~~assurance~~on account of specified working capital adjustments, ~~management believes~~as ~~that~~described in more detail in the ~~ultimate~~APA. ~~outcome~~The ofproposed ~~this~~transaction is ~~dispute~~subject ~~with~~to ~~the~~Company ~~remaining~~stockholder ~~investors~~approval, ~~will~~customary ~~not~~regulatory ~~have~~approvals aand ~~material~~other ~~adverse~~closing ~~effect~~conditions. onThe ~~the~~Company intends to ~~condensed~~call ~~consolidated~~a ~~financial~~Special ~~statements~~Meeting of the ~~Company~~stockholders to seek approval of the APA and will file proxy materials with the Securities and Exchange Commission as soon as practicable.

The Company expects to use the net proceeds from the transaction to fund (a) repayment of the Company’s approximately $9.4 million of outstanding secured indebtedness, including but not limited to the $6.25 million Settlement Note and (b) satisfaction of an estimated amount of approximately $9.5 million of other Company obligations, including vendor obligations, transaction costs, severance and other post-12closing costs. At closing, $2.2 million of the purchase price will be placed into escrow to serve as security for payments in satisfaction of (a) any post-closing adjustment; or (b) the Company’s indemnification obligations under the APA. Any remaining amounts will be released from escrow no later than December 15, 2013. The Company estimates transaction costs will total approximately $0.5 million.

Under the APA, the Company must pay Birch a termination fee of $0.5 million if the Company terminates the APA to enter into a “superior proposal” (as that term is defined in the APA) or if the Company’s stockholders do not approve the Asset Sale. Birch may terminate the APA at any time upon payment to the Company of a $0.5 million termination fee.

On May 13, 2013, effective May 10, 2013, as a condition to Birch entering into the APA, Birch and LY Holdings (an affiliate and 45% beneficial owner of the Company) entered into a voting agreement, pursuant to which, among other things, LY Holdings has agreed, subject to the terms thereof, to vote all of its shares of common stock in favor of approval of the APA at the Company’s stockholder meeting.

Plan of Dissolution

On May 9, 2013, the Company’s board of directors approved the liquidation and dissolution of the Company pursuant to a Plan of Dissolution (the “Plan of Dissolution”), subject to stockholder approval. The Company intends to call a Special Meeting of the stockholders to seek approval of the Plan of Dissolution and will file proxy materials with the Securities and Exchange Commission as soon as practicable. The Plan of Dissolution provides for the liquidation and dissolution of the Company only upon consummation of the transactions contemplated by the APA. Following payment of all debt and other liabilities of the Company, including vendor obligations, severance, transaction costs and other post-closing expenses, the Company expects to distribute the remaining proceeds, if any, to its common stockholders.

Amendment to Interest Note

On May 10, 2013, in connection with the APA, the Company and LY Holdings agreed to amend the terms of a note receivable with a principal amount of $1,223,203 (the “Interest Note”). The maturity date for that portion of indebtedness under the Interest Note to be set off against any distribution in connection with the APA was amended to be the earlier of (i) the date LY Holdings will be due a monetary distribution, if any, from the Company following consummation of the transactions contemplated by the APA or (ii) November 4, 2016, the original maturity date. The amendment states that any potential distribution to LY Holdings in connection with a distribution to common stockholders associated with the dissolution of the Company following the closing of the Asset Sale, will first be offset against the outstanding principal and interest on the Interest Note.

-14-

Lightyear Network Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note L – Subsequent Events – Continued

Retention Agreements

On May 13, 2013, in connection with the APA, the Company also entered into retention agreements with each of the three named executive officers. Under the terms of the retention agreements, each of the named executive officers has agreed to remain employed in his current capacity for purposes of consummating the transactions contemplated by the APA (“Closing”) and to complete the liquidation, winding up and dissolution of the Company pursuant to the Plan of Dissolution.

Under the retention agreements, each named executive officer is entitled to a one-time payment equal to his current annual base salary (potentially an aggregate of $555,000) upon either (i) his termination by the Company without cause or (ii) the consummation of the transactions contemplated by the APA and the subsequent liquidation, winding up and dissolution of the Company. Each named executive officer is entitled to a one-time payment equal to one-half his current annual base salary upon his voluntary termination of employment with the Company (or his death) following the consummation of the transactions contemplated by the APA but before the liquidation, winding up and dissolution of the Company. No named executive officer will be entitled to any payments under the retention agreements if any such officer (i) voluntarily terminates his employment with the Company (or dies) before consummation of the transactions contemplated by the APA or (ii) is terminated by the Company for cause.

Acceleration of Additional Warrants

On May 9, 2013, in connection with the APA, the Board approved the acceleration of the issuance (prior to the record date of the Special Meeting) of all of the Additional Warrants (see Note J – Stockholders’ Deficiency – Warrants – Additional Warrants for additional details) that are issuable in future periods. As a result, warrants to purchase approximately 297,000 shares of common stock at an exercise price of $0.01 per share will be issued.

Amendment to Articles of Incorporation

On May 9, 2013, pursuant to the terms of the APA, the Board approved, subject to stockholder approval, an amendment to the Company’s Articles of Incorporation to change the name of the Company to “LYNS INC.” following the consummation of the transactions contemplated by the APA.

-15-

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the results of operations and financial condition of Lightyear Network Solutions, Inc. and Subsidiaries (“Lightyear” or the “Company”) for the three ~~and nine~~ months ended ~~September~~March 3031, 2013 and 2012 and ~~2011~~as of March 31, 2013 and should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to Lightyear. References to Lightyear LLC refer to the Company’s wholly-owned subsidiary Lightyear Network Solutions, LLC. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. See “Risk Factors” under Item 1A of Part I of Lightyear’s Form 10-K filed ~~March~~April 301, ~~2012~~2013.

Recent Developments

Asset Purchase Agreement

On May 13, 2013, effective May 10, 2013, we entered into an Asset Purchase Agreement (the “APA”) with Birch Communications, Inc. (“Birch”) pursuant to which we will sell, and Birch will acquire, substantially all of our assets (the “Assets”). The base purchase price for the Assets under the APA is $22 million, and is subject primarily to downward adjustment depending on whether we meet certain pre-closing financial targets or on account of specified working capital adjustments, as described in more detail in the APA. The proposed transaction is subject to our stockholder approval, customary regulatory approvals and other closing conditions. We intend to call a Special Meeting of the stockholders to seek approval of the APA and will file proxy materials with the Securities and Exchange Commission as soon as practicable.

We expect to use the net proceeds from the transaction to fund (a) repayment of our approximately $9.4 million of outstanding secured indebtedness, including but not limited to the $6.25 million Settlement Note and (b) satisfaction of an estimated amount of approximately $9.5 million of our other obligations, including vendor obligations, transaction costs, severance and other post-closing costs. At closing, $2.2 million of the purchase price will be placed into escrow to serve as security for payments in satisfaction of (a) any post-closing adjustment; or (b) our indemnification obligations under the APA. Any remaining amounts will be released from escrow no later than December 15, 2013. We estimate transaction costs will total approximately $0.5 million.

Under the APA, we must pay Birch a termination fee of $0.5 million if we terminate the APA to enter into a “superior proposal” (as that term is defined in the APA) or if our stockholders do not approve the Asset Sale. Birch may terminate the APA at any time upon payment to us of a $0.5 million termination fee.

On May 13, 2013, effective May 10, 2013, as a condition to Birch entering into the APA, Birch and LY Holdings, LLC (“LY Holdings”) (an affiliate and 45% beneficial owner of us) entered into a voting agreement, pursuant to which, among other things, LY Holdings has agreed, subject to the terms thereof, to vote all of its shares of common stock in favor of approval of the APA at our stockholder meeting.

Plan of Dissolution

On May 9, 2013, our board of directors approved the liquidation and dissolution of Lightyear pursuant to a Plan of Dissolution (the “Plan of Dissolution”), subject to stockholder approval. We intend to call a Special Meeting of the stockholders to seek approval of the Plan of Dissolution and will file proxy materials with the Securities and Exchange Commission as soon as practicable. The Plan of Dissolution provides for the liquidation and dissolution of Lightyear only upon consummation of the transactions contemplated by the APA. Following payment of all of our debt and other liabilities, including vendor obligations, severance, transaction costs and other post-closing expenses, we expect to distribute the remaining proceeds, if any, to our common stockholders.

Amendment to Interest Note

On May 10, 2013, in connection with the APA, we and LY Holdings agreed to amend the terms of a note receivable with a principal amount of $1,223,203 (the “Interest Note”). The maturity date for that portion of indebtedness under the Interest Note to be set off against any distribution in connection with the APA was amended to be the earlier of (i) the date LY Holdings will be due a monetary distribution, if any, from us following consummation of the transactions contemplated by the APA or (ii) November 4, 2016, the original maturity date. The amendment states that any potential distribution to LY Holdings in connection with a distribution to common stockholders associated with the dissolution of Lightyear following the closing of the Asset Sale, will first be offset against the outstanding principal and interest on the Interest Note.

-16-

Retention Agreements

On May 13, 2013, in connection with the APA, we also entered into retention agreements with each of our three named executive officers. Under the terms of the retention agreements, each of the named executive officers has agreed to remain employed in his current capacity for purposes of consummating the transactions contemplated by the APA (“Closing”) and to complete the liquidation, winding up and dissolution of Lightyear pursuant to the Plan of Dissolution.

Under the retention agreements, each named executive officer is entitled to a one-time payment equal to his current annual base salary (potentially an aggregate of $555,000) upon either (i) his termination by us without cause or (ii) the consummation of the transactions contemplated by the APA and the subsequent liquidation, winding up and dissolution of Lightyear. Each named executive officer is entitled to a one-time payment equal to one-half his current annual base salary upon his voluntary termination of employment with us (or his death) following the consummation of the transactions contemplated by the APA but before the liquidation, winding up and dissolution of Lightyear. No named executive officer will be entitled to any payments under the retention agreements if any such officer (i) voluntarily terminates his employment with us (or dies) before consummation of the transactions contemplated by the APA or (ii) is terminated by us for cause.

Acceleration of Additional Warrants

On May 9, 2013, in connection with the APA, our board of directors approved the acceleration of the issuance (prior to the record date of the Special Meeting) of all of the Additional Warrants (see Note J – Stockholders’ Deficiency – Warrants – Additional Warrants for additional details) that are issuable in future periods. As a result, warrants to purchase approximately 297,000 shares of common stock at an exercise price of $0.01 per share will be issued.

Amendment to Articles of Incorporation

On May 9, 2013, pursuant to the terms of the APA, our board of directors approved, subject to stockholder approval, an amendment to our Articles of Incorporation to change our name to “LYNS INC.” following the consummation of the transactions contemplated by the APA.

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 4243 states. We sell our products and services primarily through a distribution network of ~~more~~approximately ~~than~~ 150 authorized independent agents and more than 76,~~000~~500 independent representatives.

Lightyear provides service to approximately 7054,000 customer locations as of ~~September~~March 3031, ~~2012, with a significant concentration in the five state area of Kentucky, Ohio, Indiana, Florida and Georgia~~2013. 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.

WeLightyear-KY ~~intend~~falls towithin ~~increase~~the ~~our~~FCC’s definition ~~revenue~~of ~~and~~a ~~earnings via~~rural aCompetitive ~~combination~~Local ofExchange ~~organic~~Carrier ~~and~~(CLEC) ~~acquisition~~because ~~growth~~its entire service area falls within rural markets. WeThis allows ~~intend~~us to ~~grow~~charge ~~organically~~a bypremium ~~expanding~~“rural ~~our~~exempt” ~~revenue~~rate ~~base~~for ~~from~~interstate ~~agents~~switched ~~through creative~~access ~~marketing~~services. ~~and~~On ~~incentive~~November ~~plans~~18, ~~new~~2011, ~~carrier~~the FCC ~~partnerships~~released ~~and~~an ~~enhancements~~order to(the ~~our~~“Order”) ~~wireless,~~which ~~VoIP~~established ~~and~~a ~~data~~framework ~~products~~for ~~lines~~reform of the intercarrier compensation system ~~which~~and ~~complement~~Federal ~~our~~Universal ~~history~~Service Fund. We estimate that the Order could have the impact of ~~selling~~reducing ~~landline~~our ~~services~~2012/2013 base year rates by approximately 1% and 2.3% during 2014 and 2015, respectively.

~~We continue to search for combinations with small to mid~~-sized competitors and thereby aggregate revenue, and increase earnings through the elimination of duplicate costs. Each series of combinations will be followed by a period of integration and consolidation. Potential acquisition candidates are expected to meet specific criteria including the following:17-

· Supporting or providing Cloud based services;

· EBITDA positive; and

· Trained technical staff meeting our internal requirements and the requirements of our customers.

Upon locating suitable target candidates, we anticipate entering into non-binding letters of intent to set forth the basic business terms of potential acquisitions, which will usually be subject to various closing conditions, including due diligence, the negotiation of definitive acquisition documents, regulatory consents and other customary matters. Factors which may affect future acquisition decisions include the quality and potential profitability of the business under consideration, and our profitability and ability to finance the transaction.

We continue to review opportunities for expansion of our network. Criteria for future builds would include the immediate and substantial reduction of cost of goods sold or support of a committed revenue stream.

Lightyear-KY falls within the FCC’s definition of a rural Competitive Local Exchange Carrier (CLEC) because its entire service area falls within rural markets. This allows us to charge a premium “rural exempt” rate for interstate switched access services. On November 18, 2011, the FCC released an order (the “Order”) which established a framework for reform of the intercarrier compensation system and Federal Universal Service Fund. We estimate that the Order could have the impact of reducing our revenues by less than 1% during 2012 and 2013, and by approximately 1.5% and 2.8% in 2014 and 2015, respectively.

-13-

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.

Other Income (Expense) ~~Income~~

·Other ~~Interest~~ income –(expense) ~~related parties represents interest earned on the notes receivable from LY Holdings that were extinguished in November 2011.~~includes:

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

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

-1418-

Three Months Ended ~~September~~March 3031, ~~2012~~2013 Compared to Three Months Ended ~~September~~March 3031, ~~2011~~2012

Overview

Loss from operations was $0.545 million ~~and $0.04 million~~ for the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011,~~March ~~respectively~~31, an2012. ~~increase~~A of $01.52 million, ~~due~~reduction toin operating expenses (primarily headcount and related costs) was offset by a $10.2 7 million reduction in gross profit (due to a 48% decline in revenues and 5a 1% decline in the gross profit percentage) ~~partially~~and ~~offset by~~ a $0.75 million ~~reduction~~provision infor ~~operating~~a ~~expenses~~FCC ~~(primarily headcount and related costs)~~settlement.

Revenues

Revenues were approximately $1615.76 million and $17.40 million, respectively, for the ~~quarters~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, a decrease of $01.74 million or 48%. The decrease of $01.74 million resulted primarily from continued market pressures, including heightened competition. The following table presents our operating revenues by product category for the ~~quarters~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012.

	(in millions)
	For The Three Months
	For The Three Months Ended
	Ended September 30,
	March 31,
	2012		2011
	2013		2012
Voice service	$	43.27	$	4.31
Local service		6.6		76.39
VoIP		0.8		0.8
Data services		1.89		1.8
Wireless services		1.40		1.13
Representative fees		0.43		0.45
Regulatory revenue		0.76		0.78
Other services		0.87		1.0.8
TOTAL	$	1615.76	$	17.40

Cost of Revenues

Cost of revenues for the ~~quarters~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 amounted to approximately $1110.59 million (6970% of revenue) and $11.1 million (6465% of revenue), respectively, ana ~~increase~~decrease of $0.42 million or 42%. See gross profit discussion.

Gross Profit

Gross profits were approximately $54.27 million (3130% of revenue) and $65.39 million (3635% of revenue), respectively, for the ~~quarters~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, a decrease of $1.12 million or 1820%, or a 5.0% change in the gross margin percentage. The decline in revenues has been concentrated in the higher-margin ~~revenue~~ revenue streams, such that the decline in the gross margin percentage is a function of the revenue mix, ~~plus~~a ~~recent~~2013 ~~unfavorable~~FCC ~~charges~~settlement ~~and~~provision, plus fewer credits from carriers.

Operating Expenses

Operating expenses decreased $01.72 million, or 1019%, to $5.72 million from $6.4 million for the ~~quarters~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, respectively. The decrease was ~~attributable~~primarily attributable to ~~the~~a 2417% ~~decrease~~decline in ~~depreciation~~full-time ~~expense~~employees ~~due~~from 162 at March 31, 2012 to ~~the~~134 ~~sale~~at ofMarch ~~fixed~~31, ~~assets~~2013, declines in ~~2011~~commission expense ~~and~~(mainly ~~reductions~~due to the decline in ~~headcount~~revenues and ~~related~~promotional ~~costs due~~programs), tothe a2012 9%run ~~decline~~off inof ~~full-time~~the ~~employees~~former ~~from~~CEO’s ~~173~~consulting arrangement atand ~~September~~less ~~30,~~depreciation/amortization ~~2011~~expense to(primarily ~~158~~due atto ~~September~~the ~~30,~~2013 ~~2012~~asset sales).

Other Income (Expense) ~~Income~~

Interest ~~income~~expense ~~declined~~for ~~97% from $0.2 million due to~~ the ~~elimination~~three ofmonths ~~certain notes receivable due from related parties. Interest expense decreased $0.05 million or 27% to~~ended ~~$0.1~~March ~~million from $0.2 million~~31, ~~due~~2013 ~~principally~~remained toconsistent ~~lower~~with ~~rates~~the onthree ~~indebtedness~~months ~~and~~ended ~~lower~~March ~~principal balances on existing facilities~~31, ~~which~~ ~~declined from approximately $12 million at September 30, 2011 to approximately $11 million at September 30,~~ 2012.

-1519-

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Overview

Loss from operations was $1.1 million and $0.9 million for the nine months ended September 30, 2012 and 2011, respectively, an increase of $0.2 million, due to a $2.5 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 $50.5 million and $53.9 million, respectively, for the nine months ended September 30, 2012 and 2011, a decrease of $3.4 million or 6%. The decrease of $3.4 million resulted primarily from continued market pressures, including heightened competition. The following table presents our operating revenues by product category for the nine months ended September 30, 2012 and 2011.

	(in millions)
	For The Nine Months
	Ended September 30,
	2012		2011
Voice service	$	12.5	$	13.6
Local service		20.2		22.7
VoIP		2.5		2.7
Data services		5.2		5.6
Wireless services		4.1		2.9
Representative fees		1.3		1.5
Regulatory revenue		2.3		2.4
Other services		2.4		2.5
TOTAL	$	50.5	$	53.9

Cost of Revenues

Cost of revenues for the nine months ended September 30, 2012 and 2011 amounted to approximately $33.8 million (67% of revenue) and $34.7 million (64% of revenue), respectively, a decrease of $0.9 million or 3%. See gross profit discussion.

Gross Profit

Gross profits were approximately $16.7 million (33% of revenue) and $19.2 million (36% of revenue), respectively, for the nine months ended September 30, 2012 and 2011, a decrease of $2.5 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 11%, to $17.8 million from $20.0 million for the nine months ended September 30, 2012 and 2011, respectively. The decrease was attributable to the 22% decrease in depreciation expense due to the sale of fixed assets in 2011, a 6.0% decrease in commissions due to the 6% decline in revenues, and reductions in headcount and related costs due to a 9% decline in full-time employees from 173 at September 30, 2011 to 158 at September 30, 2012.

Other (Expense) Income

Interest income declined 99% from $0.6 million due to the elimination of certain notes receivable due from related parties. Interest expense decreased $0.1 million or 26% to $0.4 million from $0.5 million, due principally to lower rates on indebtedness and lower aggregate principal balances on existing facilities, which declined from approximately $12 million at September 30, 2011 to approximately $11 million at September 30, 2012.

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Liquidity and Capital Resources

~~Overview~~Sources of Liquidity and Future Liquidity Requirements

~~Since~~As ~~February 12, 2010, the date~~ of ~~the~~March ~~Company’s reverse merger transaction~~31, ~~Lightyear had an accumulated deficit of approximately $12.6 million. As a result~~2013, we ~~have~~ ~~managed our cash receipts and disbursements, as well as our operating costs in order to maintain an adequate level of cash. As of September 30, 2012, Lightyear~~ had a cash ~~balance~~ of approximately $2746,~~841~~000, a working capital deficit of approximately $~~2.3~~9,700,000 ~~million~~ and ~~was~~an ~~in violation~~accumulated ofdeficit ~~two~~ of ~~its~~approximately ~~debt covenants~~$14,045,000.

WeOur ~~have~~principal ~~instituted~~sources ~~cost~~of ~~reductions,~~liquidity ~~raised~~consist ~~our~~of ~~customer~~available ~~credit~~borrowings ~~requirements,~~under ~~and~~our ~~implemented~~revolving ~~efforts~~credit toline, ~~increase~~potential ~~revenues~~cash ~~through~~provided ~~targeted~~by ~~promotions over the past 21 months~~operations, ~~all~~ ~~toward~~and ~~the goal of achieving positive~~ cash ~~flow~~on ~~from operations~~hand. ~~During~~As ~~the~~of ~~nine months ended September 30~~March 31, ~~2012,~~2013 we ~~generated $1.0~~have ~~million~~approximately ~~of cash flow from operating activities and used~~ $~~0.2~~250,000 ~~million~~of ~~and~~our $~~0.9~~500,000 ~~million~~revolving tocredit ~~purchase~~line ~~property~~limit ~~and equipment and to service debt, respectively~~outstanding.

We have a significant amount of notes payable due within the next year. Our revolving credit line matures on December 19, 2013. Currently, ~~the~~we ~~most~~have ~~significant~~approximately ~~item~~$250,000 ~~impacting~~that ~~Lightyear’s~~will ~~liquidity~~be isdue aon this note. ~~and~~We ~~interest~~have ~~payable~~a tobank loan that matures on January 25, 2014, at which time we expect a ~~Company~~balloon ~~director~~payment of approximately $~~6.3~~1,247,000 ~~million.~~will Onbe ~~October~~due. 29Additionally, ~~2012,~~we have a loan with a related party (the ~~Company director~~Settlement ~~agreed~~Note) tothat ~~forbear~~will ~~from~~mature ~~demanding~~on ~~payment~~February of28, 2014. At the ~~principal~~time ~~balance~~of ~~until~~maturity, ~~November~~we 30expect a balloon payment of $6,250,000 ~~2013~~will be due.

InUntil ~~addition~~recently, weour ~~have~~cash aand ~~secured~~cash ~~promissory~~generated ~~note~~from ~~arrangement~~operations ~~with~~have abeen ~~bank~~sufficient ~~with~~to afund ~~principal~~our ~~balance~~capital ofneeds ~~approximately~~and $1operating expenses.7 ~~million at September 30~~However, ~~2012.~~we Webelieve ~~are~~that ~~currently~~there ~~making~~will be ~~principal~~insufficient ~~and~~cash ~~interest~~generated ~~payments~~to ~~totaling~~pay ~~$37,780~~the ~~per~~balloon ~~month~~payments ~~and~~that ~~all~~are ~~remaining~~due ~~principal~~in ~~and~~the ~~interest~~next istwelve ~~due~~months on the ~~January~~various ~~25,~~notes. ~~2014~~If we are ~~maturity~~unable ~~date.~~to Onrefinance ~~November~~the 6,maturing ~~2012,~~notes by the ~~bank~~time ~~waived~~they ~~two~~are ~~third~~due, ~~quarter~~we ~~2012~~may ~~debt~~be ~~covenant~~forced ~~violations~~to ~~that~~sell ~~resulted~~our ~~from~~assets, ~~earnings~~restructure our indebtedness, ~~forecast~~submit ~~shortfalls.~~to Inforeclosure ~~addition~~proceedings, ~~the~~cease ~~bank~~operations ~~waived~~or ~~the~~seek ~~same~~bankruptcy ~~two~~or ~~debt~~reorganization ~~covenants~~protection. ~~for~~As ~~the~~a ~~fourth~~result ~~quarter~~ of ~~2012.~~these Weactual and ~~are~~anticipated inevents, ~~discussions with~~our ~~the~~lower ~~bank~~than ~~with~~desired ~~regards~~working tocapital ~~resetting~~and the ~~debt~~likely ~~covenants~~settlement onpayments adue goto ~~forward~~the ~~basis~~FCC, ~~however,~~ there is nosubstantial doubt ~~assurance~~about ~~the~~our ~~bank~~ability ~~will agree~~ to ~~reset~~continue ~~the~~as ~~covenants~~a going concern.

~~Nine~~The ~~Months~~asset ~~Ended~~sale ~~September~~to 30Birch is the result of a review of strategic alternatives for our company by the Board in light of financial exigencies facing us. While we continue to manage near term liquidity and capital needs, ~~2012~~management has not developed any plan to improve our long term liquidity and capital resource position apart from the sale of assets to Birch followed by the complete dissolution and ~~2011~~liquidation of Lightyear Network Solutions, Inc. after the consummation of the transaction with Birch. In this respect, the Board of Directors approved the Plan of Dissolution on May 9, 2013. The Plan of Dissolution is conditioned on the consummation of the transaction with Birch and obtaining approval of the Plan of Dissolution by our stockholders at the Special Meeting of stockholders to approve the transaction with Birch.

The sale to Birch is contingent on receiving approval from a number of sources including our stockholders, the FCC, as well as certain state regulatory authorities. If we receive the approvals, complete the asset sale to Birch and our stockholders approve the Plan of Dissolution, the Plan of Dissolution will become effective. Thereafter, we will cease to do business and will not engage in any business activities except for the purpose of liquidating our remaining assets, paying any debts and obligations, distributing the remaining assets to stockholders, and doing other acts required to liquidate and wind up our business and affairs.

Three Months Ended March 31, 2013 and 2012

Operating Activities

Net cash ~~provided~~used in by operating activities was $1.0.2 million for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013 compared to $0.45 million of net cash ~~used~~provided for the ~~nine~~quarter ~~months~~ ended ~~September~~ 30March 31, ~~2011~~2012. The amount ~~provided~~used during the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013 was primarily due to ~~cash used to fund our operations which generated~~ a net loss of $10.4 6 million, positively adjusted for non-cash expenses in the aggregate amount of $20.46 million, and $0.12 million of cash used to fund changes in operating assets and liabilities., ~~The~~which ~~amount~~included $0.9 million used ~~during~~to ~~the~~fund ~~nine months~~a ~~ended~~reduction ~~September~~of 30accounts payable, ~~2011~~partially offset ~~was~~by ~~primarily~~$0.5 ~~due~~million toprovided ~~cash~~by ~~used~~an toincrease ~~fund~~in ~~our~~other ~~operations~~liabilities. ~~which~~The ~~generated~~amount provided during the quarter ended March 31, 2012 was primarily due to a net loss of $0.56 million, positively adjusted for non-cash expenses in the aggregate amount of $10.6 9 million, and $10.52 million of cash ~~used~~generated tofrom ~~fund~~ changes in operating assets and liabilities, primarily due to improved collections of accounts receivable.

Investing Activities

Net cash ~~used~~provided by in investing activities was $01.23 million for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013 compared to net cash used of $0.91 million for the quarter ~~nine months~~ ended ~~September~~March 3031, ~~2011~~2012. The ~~usage~~generation of cash during the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013 was attributable to the proceeds from the sale of property and equipment of $1.3 million partially offset by purchases of property and equipment of less than $0.1 million. The usage of cash during the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2011~~2012 was attributable to $10.1 million of purchases of property and equipment~~, partially offset by $0~~.~~2 million of proceeds from the sale of fixed assets.~~

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Financing Activities

Net cash used in financing activities was $01.90 million for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013 compared to $0.3 million ~~of net cash provided by financing activities~~ for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2011~~2012. The cash used in financing activities for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~ 2013 related to ~~principal~~$1.5 million of payments made on ~~the~~various ~~Company’s~~ notes payable and capital lease obligations. ~~The~~offset ~~cash provided~~ by ~~financing activities for the nine months ended September 30, 2011 included~~ $2.0.5 million of ~~net~~initial proceeds from a new credit facility ~~and $0~~.~~3 million~~ ofThe ~~proceeds~~cash ~~from~~used ~~the~~in ~~cash~~financing activities ~~surrender~~for ~~value~~the ofquarter aended ~~life~~March ~~insurance policy~~31, ~~offset~~2012 byincluded repayments of ~~$2.1~~various ~~million~~notes ~~against~~payable ~~the obligation to related party~~ and ~~other~~capital lease obligations.

-17-

Potential Future Requirements and Sources of Liquidity

We expect our 2012 operating activities to be self-sufficient from a cash perspective, but there can be no assurance that this objective will be met. Our future capital requirements are expected to be driven by (i) network build-out costs; (ii) debt reduction and debt service; (iii) public/investor relations costs; (iv) acquisition opportunities; and (v) the need to supplement working capital levels. We are currently investigating the capital markets for sources of funding, which could take the form of additional debt or equity financings. There can be no assurance that the Company will be successful in securing additional capital. If the Company is unable to raise additional funds, the Company might (a) initiate additional cost reductions; (b) forego acquisition or network build-out opportunities; and/or (c) seek extensions of our scheduled payment obligations, including the non-current note payable to a Company director.

Off Balance Sheet Arrangements

As of ~~September~~March 3031, ~~2012~~2013 and 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 ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, these letters of credit had not been drawn upon.

Critical Accounting Policies

There are no material changes from the ~~critical~~ critical accounting policies set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our December 31, ~~2011~~2012 financial statements filed on Form 10-K ~~dated~~filed ~~March~~on 30April 1, ~~2012~~2013. Please refer to that document for disclosures regarding the critical accounting policies related to our business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this quarterly report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation of our condensed consolidated financial statements in conformity with United States generally accepted accounting principles.

In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2012~~2013, management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls or in other factors that could significantly affect these controls, during our quarter ended ~~September~~March 3031, ~~2012~~2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On July 9, 2012, Elaine G. Bush notified us that, effective July 20, 2012, she was resigning her position as our Chief Financial Officer and all other positions she held with Lightyear. On July 25, 2012, we appointed Randy Ammon as our Interim Chief Financial Officer.

Limitations of the Effectiveness of Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

-1821-

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Alden Halpern v. Lightyear Network Solutions, Inc. fka Libra Alliance Corporation was filed in Nevada District Court on March 1, 2012. The plaintiff alleges violations of federal and state securities laws with respect to his purchase of ~~our~~Lightyear securities. Mr. Halpern alleges that weLightyear falsely represented that the shares he was purchasing were “free-trading.” WeLightyear ~~have~~ denied the allegations. Mr. Halpern claimed damages of of $750,000. On September 26, 2012, the Court granted ~~our~~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. WeOn February 11, 2013, Lightyear filed its Answer to the Amended Complaint. Lightyear notified ~~our~~its insurance carriers concerning this matter and ~~continue~~continues to contest the allegations vigorously. ~~We have~~Lightyear has not recorded a provision ~~for~~as the ~~any~~Company ~~loss~~is ~~that~~unable ~~could~~to bestate ~~incurred~~that asan aoutcome ~~result~~in ofthis ~~the~~ matter aswill webe ~~believe~~unfavorable or estimate the ~~allegations~~amount ~~are~~or ~~without~~range of a potential ~~merit~~loss.

AsIn July 2008, the Enforcement Bureau of the Federal Communications Commission (“FCC”) notified us that it was investigating allegations that we may have violated certain FCC rules related to the payment of certain regulatory fees since January 2005. We responded to the data request in September 302008 and provided information concerning our Universal Service Fund contributions and other regulatory fees. In August 2012, the FCC asked for updated information and we responded in October 2012. In March 2013, ~~other~~we ~~claims~~executed a tolling agreement with the FCC extending the statute of limitations until June 14, 2013 with respect to the investigation. We believe that we have ~~been~~paid ~~asserted~~all ~~against~~applicable regulatory fees, usbut ~~which~~have ~~arose~~learned inthat the ~~normal~~FCC’s ~~course~~investigation primarily relates to the timing of ~~business~~our payments. While there ~~can~~is be no ~~assurance~~final agreement, based ~~management~~on ~~believes~~conversations ~~that~~with the ~~ultimate~~FCC, ~~outcome of~~on ~~these~~April ~~legal~~22, ~~claims~~2013, we believe this matter will ~~not~~most ~~have~~likely be settled with a ~~material~~voluntary ~~adverse~~contribution to ~~effect~~the onUniversal ~~our~~Service ~~consolidated~~Fund ~~financial~~of ~~statements~~approximately $477,000.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a)

Not applicable.

(b)

Not applicable.

(c)

Not applicable.

Item 3. Defaults Upon Senior Securities.

(a)

There has been no material default in the payment of principal or interest with respect to any of our indebtedness.

(b)

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.

Exhibit		Description
Exhibit No.		Description
10.1		Forbearance Agreement by and among Chris T. Sullivan and Lightyear Network Solutions, LLC, dated as of March 20, 2013 (Incorporated by reference to Exhibit 10.56 to our Annual Report on Form 10-K filed with the SEC on April 1, 2013).
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

-1923-

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: November 14, 2012

LIGHTYEAR NETWORK SOLUTIONS, INC.

-20-

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: May 16, 2013

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Filing Compare · Lightyear Network Solutions, Inc.