LYNS Lightyear Network Solutions Inc (CE)

Item 1A. Risk Factors.

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

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

Risks Related to Lightyear’s Business and Financial Condition

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lightyear-KY falls within the FCC’s definition of a rural Competitive Local Exchange Carrier (“CLEC”) because its entire service area falls within rural markets. Because Lightyear-KY meets the standards of this definition, it is permitted to charge a premium “rural exempt” rate for interstate switched access services. On November 18, 2011, the FCC released an order (the ”Order”) which established a framework for reform of the intercarrier compensation system and Federal Universal Service Fund. The Order has two major provisions: (i) the elimination of terminating switched access rates and other per-minute charges between service providers by 2020, through annual reduction in rates, and (ii) a framework for reform aiming to provide future funding based on an efficient forward-looking model and redirect support to drive broadband expansion in high-cost areas.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Adverse Publicity Could Harm Lightyear’s Business and Reputation.

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

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

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

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

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

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

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

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

Risks Relating To Ownership of Lightyear Common Stock.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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