10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

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

For the transition period from ____________ to ____________

Commission file number: 001-32521

NTS, INC.

(Exact name of registrant as specified in its charter)

Nevada	11-3618510
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1220 Broadway

Lubbock, Texas 79401

(Address of principal executive offices)

806-771-5212

(Registrant’s telephone number, including area code)

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   þ    No   o

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   þ    No   o

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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No   þ

As of November 13, 2013, 42,068,055 shares of the Company’s common stock, $0.001 par value, were outstanding.

NTS, INC. AND SUBSIDIARIES

Index

		Page
PART I:	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements and Notes (Unaudited) - Period Ended September 30, 2013	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	32
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
SIGNATURES		36

2

 PART I:  FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES (UNAUDITED) - PERIOD ENDED SEPTEMBER 30, 2013

NTS, Inc. and Subsidiaries

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2013

CONTENTS	Page
Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012	4
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (unaudited)	7
Notes to Condensed Consolidated Financial Statements (unaudited)	9

3

NTS, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2013		2012
	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	3,301,783	$	3,908,620
Accounts receivable, net		4,726,938		5,156,598
Prepaid expenses and other receivables		3,983,837		3,808,718
Deferred taxes		984,922		815,563
Inventories		189,582		222,735
Total current assets		13,187,062		13,912,234
BONDS ISSUANCE COSTS, NET		347,708		853,847
OTHER LONG-TERM ASSETS		2,400,886		2,783,083
FIXED ASSETS, NET		100,222,077		89,468,282
INTANGIBLE ASSETS, NET		1,184,352		1,465,553
Total assets	$	117,342,085	$	108,482,999

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NTS, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2013		2012
	(unaudited)
CURRENT LIABILITIES:
Short-term bank credit and current maturities of notes payable	$	4,933,522	$	2,541,703
Trade payables		7,624,977		8,498,688
Other liabilities and accrued expenses		4,814,026		5,068,640
Current maturities of obligations under capital leases		305,716		424,719
Current maturities of bonds		4,367,838		3,627,205
Total current liabilities		22,046,079		20,160,955
DEFERRED TAXES, NET		1,280,311		2,073,530
NOTES PAYABLE TO THE UNITED STATES DEPARTMENT OF AGRICULTURE, NET OF CURRENT MATURITIES		40,699,208		35,519,847
NOTES PAYABLE, NET OF CURRENT MATURITIES		18,132,659		14,410,774
BONDS PAYABLES, NET OF CURRENT MATURITIES		7,696,269		7,026,523
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT MATURITIES		444,402		207,883
OTHER LONG-TERM LIABILITIES		26,931		1,679,619
Total liabilities		90,325,859		81,079,131
COMMITMENTS AND CONTINGENT LIABILITIES

SHAREHOLDERS' EQUITY:
Common stock of $0.001 par value per share: 150,000,000 shares authorized; 41,641,266 and  41,186,596 issued and outstanding at September 30, 2013 and December 31, 2012, respectively		41,641		41,187
Additional paid-in capital		55,407,820		54,669,894
Foreign currency translation adjustment		(1,805,791)		(1,805,791	)
Retained earnings (deficit)		(26,627,444)		(25,501,422	)
Total Equity		27,016,226		27,403,868
Total liabilities and shareholders' equity	$	117,342,085	$	108,482,999

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NTS, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2013			2012			2013			2012
Revenues
Services on Fiber-To-The-Premise network	$	6,095,658		$	4,755,779		$	17,094,428		$	13,341,551
Leased local loop services and other		8,710,044			10,170,267			27,833,694			31,592,883
Total Revenues		14,805,702			14,926,046			44,928,122			44,934,434
Expenses
Cost of services (excluding depreciation and amortization shown below)		6,085,114			6,734,583			19,456,379			20,677,513
Selling, general and administrative		5,121,467			5,165,190			16,509,564			15,738,473
Depreciation and amortization		2,078,396			1,813,006			5,426,366			4,799,447
Financing expenses, net		1,930,333			1,324,054			4,793,306			3,884,990
Other expenses, net		205,031			69,701			638,704			447,577
Total Expenses		15,420,341			15,106,534			46,824,319			45,548,000
Loss before taxes		(614,639	)		(180,488	)		(1,896,197	)		(613,566	)
Income tax benefit		286,367			148,913			770,175			315,735
Net loss	$	(328,272	)	$	(31,575	)	$	(1,126,022	)	$	(297,831	)
Basic and diluted loss per share	$	(0.01	)	$	(0.00	)*	$	(0.03	)	$	(0.01	)
Basic and diluted weighted average number of shares outstanding		41,571,167			41,186,596			41,316,192			41,186,596

* Represents amount less than $0.01.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NTS, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended
	September 30,
	2013			2012
Cash flow from operating activities:
Net loss	$	(1,126,022	)	$	(297,831	)
Adjustments required to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		5,426,366			4,799,447
Compensation  in connection with the issuance of warrants and options issued for professional services		282,033			143,535
Increase in bad debt provision		300,868			295,903
Accrued interest and exchange rate on bonds		1,410,379			(147,219	)
Unearned  loss due to hedging		-			56,648
Expense of discounted debt from related party and related warrants		-			237,454
Gain on buy back of bonds		-			(221,643	)
Amortization of bonds issuance cost		506,139			217,035
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		128,792			(2,094,475	)
Decrease (increase) in inventories		33,153			(23,972	)
Decrease (increase) in long-term receivables		382,197			(12,880	)
Increase in prepaid expenses and other receivables		(175,119)			(887,704	)
Increase (decrease) in other long-term liabilities		(1,652,688)			598,597
Decrease in trade payables		(873,711)			(2,191,948	)
Decrease in other liabilities and accrued expenses		(254,614)			(270,356	)
Deferred tax provision		(962,578)			(493,906	)
Net cash  provided by  (used in) operating activities		3,425,195			(293,315	)
Cash flow from investing activities:
Purchase of equipment		(6,745,403)			(2,571,638	)
Purchase of equipment for the projects under the United States Department of Agriculture, net of grants received		(8,659,745)			(8,994,079	)
Net cash used in investing activities		(15,405,148)			(11,565,717	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

NTS, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	Nine months ended
	September 30,
	2013			2012
Cash flow from financing activities:
Repayment of short-term loans from banks and others		(615,183	)			(4,112,329	)
Proceeds from long-term loans		6,374,087				7,178,742
Repayment of capital lease obligation		(376,296	)			(420,358	)
Proceeds from long-term loans from the United States Department of Agriculture		7,236,532				14,203,853
Repayment of long-term loans from United States Department of Agriculture		(1,702,371	)			(1,111,706	)
Proceeds from exercise of options		456,347				-
Decrease (increase) in restricted cash		-				(1,756,982	)
Net cash provided by financing activities		11,373,116				13,981,220
Net increase (decrease) in cash and cash equivalents		(606,837	)			2,122,188
Cash and cash equivalents at the beginning of the period		3,908,620				6,563,514
Cash and cash equivalents at the end of period	$	3,301,783			$	8,685,702
Supplemental disclosure of cash flows activities:
Cash paid for:
Interest	$	3,134,302			$	2,339,289
Tax	$	98,387			$	166,000
Purchase of fixed assets by capital lease arrangements	$	493,812			$	298,532
Purchase of fixed assets included in accounts payable	$	1,753,317			$	4,484,615

The accompanying notes are an integral part of these condensed consolidated financial statements

8

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 1 - Organization and Nature of Business

A. NTS, Inc. (“NTSI” or “the Company”) was incorporated in the State of Nevada, U.S.A. in September 2000 as Xfone, Inc. The Company provides through its subsidiaries, integrated communications services which include voice, video and data over its Fiber-To-The-Premise (“FTTP”) and other networks. The Company currently has operations in Texas, Mississippi and Louisiana. Effective as of February 1, 2012, the Company changed its name to “NTS, Inc.” and as of February 2, 2012 the Company's common shares began trading on the NYSE MKT (f/k/a NYSE Amex) and the Tel Aviv Stock Exchange (“TASE”) under a new ticker symbol “NTS”. The name change is a reflection of the Company's refined and enhanced business strategy which began with its acquisition of NTS Communications, Inc. (“NTSC”) in 2008 and its focus on the build out of its high-speed FTTP network.

NTSI’s wholly-owned subsidiaries as of September 30, 2013 were as follows:

● NTSC and its seven wholly-owned subsidiaries, NTS Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona, Inc., Communications Brokers Inc., NTS Telephone Company, LLC, NTS Management Company, LLC and PRIDE Network, Inc.

● Xfone USA, Inc. and its two wholly-owned subsidiaries, eXpeTel Communications, Inc. and Gulf Coast Utilities, Inc. (collectively, “Xfone USA”).

B. Liquidity

As of September 30, 2013, the Company reported a working capital deficit of $8,859,017 compared to a working capital deficit of $6,248,721 as of December 31, 2012. On February 12, 2013, the Company entered into a further amendment to the Original ICON Agreement providing for an additional secured delayed draw term loan in the amount of $6,000,000 for the purchase of equipment in connection with the Company’s project to expand its fiber network in the region of West Texas and the delay of the amortization schedules of the previously drawn down loans by six months. As of September 30, 2013 the Company drew down the full amount of the term loan.

The Company believes that increased revenues from the higher margin Fiber-To-The-Premise network together with increasing operating efficiency will result in increased profitability and cash flows, which will lead to improvement in the working capital deficit to meet its anticipated cash requirements for at least the next 12 months. If, however, the Company does not generate sufficient cash from operations, or if the Company incurs additional unanticipated liabilities or the Company is unable to renew and extend a portion of its short-term liabilities, the Company may be required to seek additional financing or sell equity or debt on terms which may not be as favorable as it could have otherwise obtained. No assurance can be given that any refinancing, additional borrowing or sale of equity or debt will be possible when needed or that the Company will be able to negotiate acceptable terms. In addition, the Company’s access to capital is affected by prevailing conditions in the financial and equity capital markets, as well as the Company’s own financial condition. While management believes that the Company will be able to meet its liquidity needs for at least the next 12 months, no assurance can be given that the Company will be able to do so.

9

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 2 - Significant Accounting Policies

The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The significant accounting policies followed in the preparation of the financial statements, applied on a consistent basis, are as follows:

A. Principles of Consolidation and Basis of Financial Statement Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the US Securities and Exchange Commission. Certain information, including note disclosures, normally included in financial statements which are prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.

In management’s opinion, the condensed consolidated balance sheets as of September 30, 2013 (unaudited) and December 31, 2012 (audited), the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2013 and 2012, and the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2013 and 2012, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company's financial position, results of operations and cash flows on a basis consistent with that of the Company's prior audited consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore these financial statements should be read in conjunction with the audited financial statements and notes thereto and summary of significant accounting policies included in the Company’s Form 10-K for the year ended December 31, 2012.

The Company has evaluated subsequent events occurring through the date on which this Quarterly Report on Form 10-Q was filed.

B. Foreign Currency Translation

Foreign currency transactions gains and losses are included in the results of operations.

C. Cash and Cash Equivalents

Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when purchased.

10

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 2 - Significant Accounting Policies (cont.)

D. Accounts Receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less the allowance for uncollectible accounts.

The Company uses the allowance method to account for uncollectible accounts receivable balances. Under the allowance method, the estimate of uncollectible customer balances is made using factors such as the credit quality of the customer and the economic conditions in the market. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. When an account balance is past due and attempts have been made to collect the receivable through legal or other means the amount is considered uncollectible and is written off against the allowance balance.

Accounts receivable are presented net of an allowance for doubtful accounts of $1,381,828 and $1,080,960 at September 30, 2013 and December 31, 2012, respectively.

E. Other Intangible Assets

Other intangible assets consist of a license to provide communication services in the US.

Customer relations related to mergers and acquisitions are amortized over a period between 2-13 years from the date of the purchase.

F. Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Warrants and options were excluded from the calculation of diluted loss per share since they would have an anti-dilutive effect due to the Company's net loss which were reported for the nine months and three months ended September 30, 2013 and 2012.

G. Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC No. 718-10, "Compensation - Stock Compensation".  Stock-based compensation expense recognized during the period is based on the value of the portion of share-based awards that are ultimately expected to vest during the period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock is determined based on the number of shares granted and the closing price of the Company’s common stock on the date of grant. Compensation expense for all share-based payment awards is recognized using the straight-line amortization method over the vesting period.

11

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 2 - Significant Accounting Policies (cont.)

H. Income Taxes

The Company and its subsidiaries account for income taxes in accordance with FASB ASC No. 740, “Income Taxes.” This topic prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

Deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting, or according to the expected reversal dates of the specific temporary differences if not related to an asset or liability for financial reporting.

The Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The first step is recognition: the Company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability.

12

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 2 - Significant Accounting Policies (cont.)

I. Derivative Instruments

The Company and its subsidiaries account for derivative instruments and hedging activities in accordance with FASB ASC No. 815, "Derivatives and Hedging". ASC 815 requires entities to provide qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of any gains and losses on derivative contracts, and details of credit risk related contingent features in their hedged positions. ASC 815 also requires entities to disclose more information about the location and amounts of derivative instruments in financial statements; how derivatives and related hedges are accounted for; and how the hedges affect the entity's financial position, financial performance, and cash flows.

The Company recognizes all of its derivative instruments as either assets or liabilities on the balance sheet at fair value. For derivative instruments that are designated and qualify as a cash flows hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change. For the period ended September 30, 2013, the Company’s forward contracts did not qualify for hedge accounting and as such, changes in the fair value of the derivative instrument were reported in current period earnings. During January 2012, the Company entered into two foreign currency hedging transactions of $596,842 maturing on May 29, 2012 to buy NIS 2,303,809, and $4,306,570 maturing on November 28, 2012 to buy NIS 16,640,591, in order to hedge against the risk of principal and interest payments of its bonds during 2012.

J. Recent Accounting Pronouncements

Balance Sheet (Topic 210). In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-11 “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities” which requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, with interim periods therein, and is to be implemented retrospectively.  Accordingly, adoption of the new guidance has not impacted the Company’s consolidated financial statements.

13

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 3 – Notes payable

1. On October 6, 2011, the Company entered into a term loan, guarantee and security agreement (the “Original ICON Agreement”), as amended by the Amended & Restated Consent, Waiver & Amendment Agreement dated November 1, 2011 by and  between the following: (1) ICON Agent, LLC (the “Agent”), acting as agent for the Lenders signatory thereto; (2) the Company, as Guarantor; (3) Xfone USA, Inc., NTS Communications, Inc., Gulf Coast Utilities, Inc., eXpeTel Communications, Inc., NTS Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona, Inc., Communications Brokers, Inc., and NTS Management Company, LLC, acting as Borrowers and Guarantors; and (4) PRIDE Network, Inc., and NTS Telephone Company, LLC (together with the Borrowers and Guarantors acting as Credit Parties) that provided for a secured term loan in the amount of $7,500,000 (the "First ICON Loan"). On June 22, 2012, the Company entered into Amendment No. 1 to the Original ICON Agreement (“Amendment No. 1”) providing for: (i)  An additional secured term loan in the amount of $3,500,000, for the payment of all liabilities owed to Burlingame (the "Second ICON Loan"), (ii)  A secured delayed draw loan in the amount of $3,100,000, for the purchase of equipment in connection with the Company's project to construct a fiber network in Wichita Falls, Texas (the "Third ICON Loan"), and (iii)  Certain other amendments to the Original ICON Agreement and the First ICON Loan as described in Amendment No. 1. Each of the First ICON Loan, Second ICON Loan and Third ICON Loan bear interest at 12.75% per annum. The fundings of the First ICON Loan and Second ICON Loan were made on October 27, 2011 and June 22, 2012, respectively.   On August 9, 2012, the Company entered into Amendment No. 2 to the Original ICON Agreement providing for revised amortization schedules of the First ICON Loan and the Second ICON Loan (“Amendment No. 2”). On September 27, 2012, the Company drew down the Third ICON Loan in the amount of $3,100,000.   On February 12, 2013, the Company entered into Amendment No. 3 to the Original ICON Agreement (“Amendment No. 3”) providing for:   (i)An additional secured delayed draw term loan in the aggregate amount of $6,000,000, bearing interest of 12.75% per annum for the purchase of equipment in connection with the Company’s project to expand its fiber network in the region of West Texas (the “Fourth ICON Loan”),   (ii)Revised amortization schedules of the First ICON Loan, Second ICON Loan and Third ICON Loan (as described below), and   (iii)Certain other amendments to the Original ICON Agreement (as amended by Amendment No. 1 and Amendment No. 2), described in Amendment No. 3.

14

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 3 - Notes payable (Cont.)

Pursuant to Amendment No. 3, the principal amount of the First ICON Loan is payable in 69 consecutive monthly installments with the first 27 monthly payments being payments of accrued interest only.  The principal amount of the Second ICON Loan is payable in 61 consecutive monthly installments with the first 19 monthly payments being payments of accrued interest only.  The principal amount of the Third ICON Loan is payable in 58 consecutive monthly installments with the first 16 monthly payments being payments of accrued interest only.

On March 28, 2013, the Company entered into Amendment No. 4 to the Original ICON Agreement which contains some definitional clarifications.  On the same day, the Company drew down under the Fourth ICON Loan in the aggregate amount of $1,700,000 which was the first draw down under the Fourth ICON Loan.  The principal amount of the first draw down under the Fourth ICON Loan is payable in 51 consecutive monthly installments with the first nine monthly payments being payments of accrued interest only.

On June 27, 2013, the Company entered into Amendment No. 5 to the Original ICON Agreement which makes certain technical amendments to the Original ICON Agreement and waives a certain condition for the availability of the Fourth ICON Loan.

In addition, on June 27, 2013, the Company drew down on the Fourth ICON Loan in the aggregate amount of $4,300,000 which was the second draw down under the Fourth ICON Loan.  The principal amount of the second draw down under the Fourth ICON Loan is payable in 48 consecutive monthly installments with the first six monthly payments being payments of accrued interest only.

Each of the foregoing loans are secured by a lien against all of each Borrower's and Guarantor's property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title, or interest; provided, however, that none of the assets of PRIDE Network, Inc. and NTS Telephone Company are being used as collateral for the loans and are specifically excluded.

Pursuant to the Original ICON Agreement (as amended), the Company is required to maintain fixed charge coverage ratio of not less than 1.15 to 1.00 for the trailing four fiscal quarter period most recently ended if at any time cash was less than $3,000,000 as of the last day of any fiscal quarter. In addition, senior leverage ratio should not exceed 2.25 to 1.00 from June 30, 2012 through March 31, 2013, 2.00 to 1.00 from June 30, 2013 through December 31, 2013, and 1.75 to 1.00 from March 31, 2014 and thereafter.  As of September 30, 2013, the Company complied with the foregoing financial covenants.

The total outstanding amount of the loans as of September 30, 2013 is $20,100,000.  As of September 30, 2013, there are no amounts available for future draws.

15

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(Unaudited)

Note 3 - Notes payable (Cont.)

2. NTS Telephone Company, LLC, a wholly-owned subsidiary of NTSC, received from the Rural Utilities Service (“RUS”), a division of the United States Department of Agriculture, $11.5 million debt facility to complete a telecommunications overbuild project in Levelland, Texas. The principal of the RUS loan is repaid monthly starting one year from the advance date until full repayment after 17 years. Each advance bears interest that will become fixed at the date of advance at the average yield on outstanding marketable obligations of the United States having the final maturity comparable to the final maturity of the advance. The loans are non-recourse to NTSC and all other NTSC subsidiaries and are secured by NTS Telephone's assets which were $15.0 million at September 30, 2013. As of September 30, 2013, the current average weighted interest rate on the outstanding advances was 3.52%. The total outstanding amount of these loans as of September 30, 2013 and December 31, 2012 are $9,030,097 and $9,589,321, respectively. The loans are to be repaid in monthly installments until 2023.

3.

PRIDE Network, Inc., a wholly-owned subsidiary of NTSC, received approval from the Broadband Initiative Program of the American Recovery and Reinvestment Act, for a total $99.9 million funding in the form of $45.9 million in grants and $54 million in 19 to 20 year loans. The total aggregate amount of these loans and grants as of September 30, 2013 is $35,931,355 and $30,016,629, respectively.  Each advance bears interest that will become fixed at the date of the advance at the average yield on outstanding marketable obligations of the United States having the final maturity comparable to the final maturity of the advance.  The funding created an opportunity for the Company to expand the rollout of its FTTP infrastructure, known as the PRIDE Network to northwestern Texas and southern Louisiana. Construction work of PRIDE Network's FTTP infrastructure started in October 2010. The loans are non-recourse to NTSC and all other NTSC subsidiaries and are secured by PRIDE Network's assets which were $48.9 million at September 30, 2013. As of September 30, 2013, the current average weighted interest rate on the outstanding advances was 2.84%. As of September 30, 2013, the total amount of loans and grants available in the future was $18,061,683 and $15,860,291, respectively.

The loans are to be repaid in monthly installments until 2030.  The total outstanding amounts of these loans as of September 30, 2013 and December 31, 2012 are $33,841,727 and $27,748,342, respectively.

16

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 4- Bonds payable

On December 13, 2007, the Company issued a total of NIS 100,382,100 (approximately $25,562,032, based on the exchange rate as of December 13, 2007) unsecured Series A Bonds (the “Bonds”) to Israeli institutional investors. The principal of the Bonds is repaid in 8 equal annual payments on the 1st of December of every year from 2008 until 2015 (inclusive). On November 11, 2008 (the “Date of Listing”), the Bonds commenced trading on the TASE. From the date of issuance until the Date of Listing, the Bonds accrued annual interest at a rate of 9%. As of the Date of Listing, the interest rate for the unpaid balance of the Bonds was reduced by 1% to an annual interest rate of 8%. The interest on the Bonds is paid semi-annually on the 1st of June and on the 1st of December of every year from 2008 until 2015 (inclusive). The principal and interest of the Bonds are linked to the Israeli Consumer Price Index (“CPI”). The known adjusted CPI at September 30, 2013 was 120.0.

The components of the bonds payable are as follows:

	September 30, 2013
Outstanding balance (in NIS)		37,643,288
Accrued Interest (in NIS)		998,321
Increase in debt due to CPI adjustments (in NIS)		7,046,021
Total outstanding debt (in NIS)		45,687,630
Exchange rate		3.537
Total outstanding debt (USD)	$	12,917,057
Debt discount related to warrants		(268,056	)
Bonds held by subsidiary		(584,894	)
Total outstanding debt		12,064,107
Less current portion		4,367,838
Long-term portion	$	7,696,269

17

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 

 (Unaudited)

Note 4- Bonds payable (Cont.)

The Company issued the holders of the Bonds, for no additional consideration, 956,020 (non-tradable) Warrants, each exercisable at an exercise price of $3.50 with a term of 4 years, beginning on September 2, 2008. In November 2011, following the completion of the rights offering, the exercise price of these warrants was adjusted to $2.04 per share.  The warrants expired in September 2012.

The Company attributed the composition of the proceeds from the Bonds offering as follows:

Bonds Series A	$	24,588,726
Stock Purchase Warrants (1)		973,306
Total	$	25,562,032

(1) Presented as part of Additional Paid-in Capital.

The resulting debt discount and bonds issuance costs are being amortized into interest expense over the life of the Bonds.

On November 5, 2013, Midroog Limited, an Israeli rating company which is a subsidiary of Moody’s Investor Services (“Midroog”) filed with the TASE an annual monitoring report, reaffirming the Ba1 rating of the Series A Bonds, however, Midroog’s rating committee decided on a developing outlook on the rating of the Series A Bonds in light of the Company’s recently announced merger agreement entered into with Tower Three as described in Note 7 below.

18

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 5 – Capital Structure

On May 8, 2013, the Company granted, under and subject to the Company’s 2007 Stock Incentive Plan, to several of the Company’s directors and employee options to purchase 269,780 shares of common stock (the “Options”).  The Options are exercisable at $1.10 per share and expire five years from the date of grant.  Commencing on June 8, 2013, 250,000 options vest in equal monthly installments of 10,000.  The remaining 19,780 vest over a period of 4 years, 25% of the options after 12 months from the grant date and the remaining 75% of the options shall vest over the following 3 years in equal quarterly installments beginning 15 months from the grant date.

During the second and third quarters of 2013, options holders exercised their right to purchase 271,372 and 183,298, respectively, of the Company’s Common Stocks at an average exercise price of $1.10 per share. At September 30, 2013, the total issued and outstanding Common Stock of $0.001 par value per share is 41,641,266.

 Note 6 – Legal proceedings

1. Eliezer Tzur et al. vs. 012 Telecom Ltd. et al.

On January 19, 2010, Eliezer Tzur et al. (the “Petitioners”) filed a request to approve a claim as a class action (the “Class Action Request”) against Xfone 018 Ltd. (“Xfone 018”), the Company’s former 69% Israel-based subsidiary, and four other Israeli telecom companies, all of which are entities unrelated to the Company (collectively with Xfone 018, the “Defendants”), in the Central District Court, Israel (the “Israeli Court”).  The Petitioners’ claim alleges that the Defendants have not fully fulfilled their alleged legal requirement to bear the cost of telephone calls by customers to the Defendants’ respective technical support centers. One of the Petitioners, Mr. Eli Sharvit (“Mr. Sharvit”), seeks damages from Xfone 018 for the cost such telephone calls allegedly made by him during the 5.5-year period preceding the filing of the Class Action Request, which he assessed at NIS 54.45 (approximately $15). The Class Action Request, to the extent it pertains to Xfone 018, states total damages of NIS 7,500,000 (approximately $2,099,076) which reflects the Petitioners’ estimation of damages caused to all customers that (pursuant to the Class Action Request) allegedly called Xfone 018’s technical support number during a certain period defined in the Class Action Request.

19

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 6 – Legal proceedings (Cont.)

1. Eliezer Tzur et al. vs. 012 Telecom Ltd. et al. (Cont.)

On February 22, 2011, Xfone 018 and Mr. Sharvit entered into a settlement agreement, which following the instructions of the Israeli Court was supplemented on May 3, 2011 and amended on July 18, 2011 and on March 21, 2012 (the “Settlement Agreement”). Pursuant to the Settlement Agreement, Xfone 018 agreed to compensate its current and past registered customers of international calling services who called its telephone service center from July 4, 2004 until February 21, 2010, due to a problem with the international calling services, and were charged for such calls. The compensation includes a right for a single, up to ten minutes, free of charge, international call to one landline destination around the world, and shall be valid for a period of six months. In addition, Xfone 018 agreed to pay Mr. Sharvit a one-time special reward in the amount of NIS 10,000 (approximately $2,827) (the “Reward”). Xfone 018 further agreed to pay Mr. Sharvit attorneys' fee for professional services in the amount of NIS 40,000 (approximately $11,309) plus VAT (the “Attorneys Fee”). In return, Mr. Sharvit and the members of the Represented Group (as defined in the Settlement Agreement) agreed to waive any and all claims in connection with the Class Action Request. As required by Israeli law in such cases, the Settlement Agreement is subject to the approval of the Israeli Court. On April 30, 2012, the Israeli Court appointed a CPA as an examiner to review and assess the Settlement Agreement (the “Examiner”). The Examiner was instructed to advise the Israeli Court whether in his opinion the Settlement Agreement is reasonable. On October 18, 2012 the Examiner submitted his assessment to the Israeli Court. According to the Examiner's assessment, there are a number of impediments that will deter the Represented Group from making use of the right to a free call described above including the low value of the call and its limited utility. According to the Examiner, the appropriate solution would have been to compensate the specific affected customers for the damage caused. However, since the Examiner recognizes that, pursuant to Xfone 018's claims, the foregoing solution is impractical, the Examiner proposes to consider revising the manner in which the alleged damage, which he estimates at NIS 98,000 (approximately $27,707), will be paid for by Xfone 018. Following the Examiner’s assessment, Xfone 018 and Mr. Sharvit have agreed to amend the Settlement Agreement, by giving the Israeli Court the discretion to decide whether Xfone 018 shall grant the free call benefit described above or donate a sum of NIS 49,000 (approximately $13,854) to Ezer Mizion, a non-profit organization (“Ezer Mizion”) (the “Amended Settlement Agreement”).  The Amended Settlement Agreement has been submitted to the Israeli Court, which ruled that a notice to the general public concerning the Amended Settlement Agreement shall be published in two daily papers.  The said notices have been published and the period for submitting objections to the Amended Settlement Agreement has expired.  On July 2, 2013, the Israeli Court requested that the Attorney General submit its position with respect to the Amended Settlement Agreement, after which it is expected that the Israeli Court will issue its final decision.

On May 14, 2010, the Company entered into an agreement (including any amendment and supplement thereto, the “Agreement”) with Marathon Telecom Ltd. for the sale of the Company’s majority (69%) holdings in Xfone 018. Pursuant to Section 10 of the Agreement, the Company is fully and exclusively liable for any and all amounts, payments or expenses incurred by Xfone 018 as a result of the Class Action Request. Section 10 of the Agreement provides that the Company shall bear any and all expenses or financial costs which are entailed by conducting the defense on behalf of Xfone 018 and/or the financial results thereof, including pursuant to a judgment or settlement (it was agreed that in the event that Xfone 018 will be obligated to provide services at a reduced price, the Company shall bear only the cost of such services). Section 10 of the Agreement further provides that the defense by Xfone 018 shall be performed in full cooperation with the Company and with mutual assistance. It is agreed between the Company and Xfone 018 that subject to and upon the approval of the Settlement Agreement by the Israeli Court, the Company shall bear and/or pay: (i) the costs of the free call benefit or donation described above; (ii) the Reward; (iii) the Attorneys Fee; (iv) Xfone 018 attorneys' fees for professional services in connection with the Class Action Request, estimated at approximately NIS 75,000 (approximately $21,204); (v) any other related costs (such as publication expenses and the Examiner’s fees).

In the event the Amended Settlement Agreement is not approved by the Israeli Court, Xfone 018 intends to vigorously defend the Class Action Request.

20

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

Note 7 – Subsequent Event

Merger Agreement

On October 20, 2013, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with T3 North Intermediate Holdings, LLC, a Nevada limited liability company (“Holdings”) and North Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of Holdings (“Merger Sub”).  Upon the terms and subject to the conditions set forth in the Merger Agreement, the Company will become a wholly-owned subsidiary of Holdings through a merger of Merger Sub with and into the Company, with the Company as the surviving corporation (the “Merger”).  Holdings and Merger Sub are affiliates of Tower Three Partners LLC (“Tower Three”).

Upon the terms and subject to the conditions set forth in the Merger Agreement, by virtue of the Merger, each share of the Company’s common stock, par value $0.001 per share (the “Company Common Stock”), issued and outstanding  immediately prior to the effective time of the Merger (other than the Rollover Shares, as described below), shall be cancelled and the holders thereof shall be entitled to receive $2.00 with respect to each such share (the “Merger Consideration”), without interest and subject to any applicable tax withholding.  Guy Nissenson, the Company’s chairman, President and Chief Executive Officer, has entered into a separate rollover agreement (the “Rollover Agreement”) whereby certain shares of Company Common Stock beneficially owned by Mr. Nissenson (the “Rollover Shares”) will be contributed to or exchanged with an affiliate of Holdings immediately prior to the effective time of the Merger in exchange for shares of capital stock of such entity in accordance with the Rollover Agreement.

Consummation of the Merger  is subject to a number of closing conditions, including, among other things: (i) the adoption and approval of the Merger Agreement by the requisite vote of the Company’s stockholders; (ii) receipt of certain third party consents; (iii) the absence of any law or order prohibiting the Merger; (iv) the accuracy of the representations and warranties, subject to customary materiality qualifiers; and (v) the absence of a Material Adverse Effect (as defined in the Merger Agreement).  The Merger Agreement does not contain a financing condition.

Class Actions Related to the Merger Agreement

Between October 23, 2013 and November 5, 2013, four complaints styled as class actions and relating to the Merger were filed in Nevada state court (Eighth Judicial District, Clark County) against some or all of the following: Guy Nissenson, Niv Kirkov, Shemer S. Schwarz, Arie Rosenfeld, Timothy M. Farrar, Alan Bazaar, Don Carlos Bell III, Andrew J. Macmillan, Jeffery E. Eberwein, Richard K. Coleman, Jr., the Company, Tower Three, Holdings and Merger Sub.

21

NTS, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 (Unaudited)

The cases are captioned Wender v. NTS, Case No. Case No. A-13-690634-C (referred to herein as the "Wender Complaint"), Cowart v. NTS, Inc., Case No. A-13-690982-C (referred to herein as the "Cowart Complaint"), Billet v. NTS, Case No. A-13-691059-B (referred to herein as the "Billet Complaint") and Albritton v. NTS, Inc., Case No. A-13-691247-C (referred to herein as the "Albritton Complaint") (the Wender Complaint, the Cowart Complaint, the Billet Complaint and the Albritton Complaint are collectively referred to herein as the "Shareholder Complaints").

Each of the Shareholder Complaints is a putative class action filed on behalf of the shareholders of the Company (other than the defendants and their affiliates), and alleges breaches of fiduciary duties by the individual defendants and aiding and abetting breaches of fiduciary duty by one or more of the Company, Tower Three, Holdings and Merger Sub.

Each of the Shareholder Complaints presents essentially the same allegations and seeks the same relief. The Wender Complaint alleges, among other things, that (i) the individual defendants failed to exercise due care and breached their duties of loyalty, good faith and independence owed to the Company’s shareholders by ignoring alleged conflicts of interest posed by the merger and by failing to get fair consideration for the Company’s shareholders in the Merger, and (ii) Merger Sub aided and abetted these alleged breaches of fiduciary duty. The Wender Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, a declaration that the merger is unjust, unfair and inequitable to the Company's shareholders, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the Merger proceeds, an accounting of damages and an award of counsel and expert fees.

The Cowart Complaint alleges, among other things, that (i) the individual defendants breached their fiduciary duties by placing their personal interests ahead of those of the Company's shareholders, and by failing to maximize the value of the Company, taking steps to avoid competitive bidding and ignoring alleged conflicts of interest, and (ii) the Company, Tower Three, Holdings and Merger Sub  aided and abetted these alleged breaches of fiduciary duty. The Cowart Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the merger proceeds, an accounting of damages and an award of counsel and expert fees.

The Billet Complaint alleges, among other things, that (i) the individual defendants acted in bad faith and breached their fiduciary duties of care, loyalty, good faith, independence and candor by putting their personal interests ahead of the Company's shareholders and by failing to properly value NTS and (ii) Tower Three, Holdings and Merger Sub aided and abetted these alleged breaches of fiduciary duty. The Billet Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the merger proceeds, a jury trial, an accounting of damages and an award of counsel and expert fees.

The Albritton Complaint alleges, among other things, that (i) the individual defendants breached their fiduciary duties of care, loyalty, candor and good faith by failing to properly value the Company, ignoring alleged conflicts of interest and failing to disclose material information to the shareholders and (ii) Tower Three, Holdings and Merger Sub aided and abetting these alleged breaches of fiduciary duty. The Albritton Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, a declaration that the defendants have committed or participated in a breach of fiduciary duty, an order to the individual defendants to adopt and implement procedures and processes to obtain the highest available price for the Company’s shares, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the Merger proceeds, a jury trial, an accounting of damages and an award of counsel and expert fees.

The Company believes that the claims in the Shareholder Complaints are without merit and intends to defend against them vigorously. As with all litigation, the outcome of these lawsuits is not certain. A preliminary injunction could delay or jeopardize the completion of the Merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the Merger. An adverse judgment for monetary damages could have an adverse effect on the operations and liquidity of the Company.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The information set forth in this Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in NTS, Inc.'s (referred to herein as the "Company", or "NTSI", "we", "our", "ours" and "us") revenues and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, objectives and expectations for future operations. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

You should read the following discussion and analysis in conjunction with the Condensed Consolidated Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Quarterly Report.

Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of the Company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our businesses.

US Dollars are denoted herein by “USD”, New Israeli Shekels are denoted herein by “NIS”.

OVERVIEW

NTSI was incorporated in the State of Nevada, U.S.A. in September 2000 under the name Xfone, Inc. We provide, through our subsidiaries, integrated communications services which include voice, video and data over our Fiber-To-The-Premise (“FTTP”) and other networks. We currently have operations in Texas, Mississippi and Louisiana. Effective as of February 1, 2012, we changed our name to “NTS, Inc.” and as of February 2, 2012 our shares of Common Stock are traded on the NYSE MKT and the TASE under the new ticker symbol “NTS”. The name change is a reflection of our refined and enhanced business strategy which began with our acquisition of NTSC in 2008 and our focus on the build out of our high-speed FTTP network.

23

RESULTS OF OPERATIONS

Financial Information – Percentage of Revenues:

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Revenues:
Services on Fiber-To-The-Premise network		41.2	%		31.9	%		38.0	%		29.7	%
Leased local loop services and other		58.8	%		68.1	%		62.0	%		70.3	%
Total Revenues		100	%		100	%		100	%		100	%
Expenses:
Cost of services (excluding depreciation and amortization)		41.1	%		45.1	%		43.3	%		46.0	%
Selling, general and administrative		34.6	%		34.6	%		36.7	%		35.0	%
Depreciation and amortization		14.1	%		12.1	%		12.1	%		10.7	%
Financing expenses, net		13.0	%		8.9	%		10.7	%		8.6	%
Other expenses, net		1.4	%		0.5	%		1.4	%		1.1	%
Total expenses		104.2	%		101.2	%		104.2	%		101.4	%
Loss before taxes		(4.2)	%		(1.2)	%		(4.2)	%		(1.4)	%
Income tax benefit		2.0	%		1.0	%		1.7	%		0.7	%
Net loss		(2.2)	%		(0.2)	%		(2.5)	%		(0.7)	%

24

COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

Revenues. Revenues for the nine month period ended September 30, 2013 decreased slightly to $44,928,122 from $44,934,434 for the same period in 2012.

Revenues from our Fiber-To-The-Premise ("FTTP") network include revenues from the delivery of products and services via our fully owned FTTP network.  These products and services include video, high speed Internet and voice as well as broadband connectivity for private network within the footprint of our FTTP network.  Revenues from our FTTP network in the nine months ended September 30, 2013 increased 28.1% to $17,094,428 from $13,341,551 in the same period in 2012. As percentage of total sales, FTTP revenues in the nine months period ended September 30, 2013 increased to 38.0% from 29.7% for the same period in 2012. The growth of FTTP revenues is expected to continue due to the progress in the build out of our FTTP network in the communities which are located in the areas of the PRIDE Network projects, a subsidiary of NTSC and other communities in the region of West Texas.

Revenues from our leased local loop services include revenues from wholesale, other carriers and other non-FTTP customers. Revenues from leased local loop in the nine month period ended September 30, 2013 decreased 11.9% to $27,833,694 from $31,592,883 for the same period in 2012. As percentage of total sales, leased local loop revenues in the nine months period ended September 30, 2013 decreased to 62.0% from 70.3% for the same period in 2012. The decrease in revenues was caused by the aggressive competition in our non-FTTP markets. We expect that the decline in revenues from non-FTTP residential customers will continue in 2013, but will be offset by the increase in revenues in FTTP from business and residential customers.

Cost of services (excluding depreciation and amortization). Cost of services consists primarily of facilities and traffic time purchased from other telephone companies and content for our video services. Cost of services for the nine month period ended September 30, 2013, decreased 5.9% to $19,456,379 from $20,677,513 for the same period in 2012. Cost of services, as a percentage of revenues in the nine month period ended September 30, 2013, decreased to 43.3% from 46.0% in the same period in 2012. We expect that the trend of decline in cost of services, as a percentage of revenues, will continue as we increase the portion of revenues generated from our high-margin FTTP services. FTTP services are provided over our fully owned fiber network and therefore we do not incur third party costs for leased network lines. As the revenue mix changes towards greater percentage of the high-margin FTTP revenues, and a lesser percentage of the low-margin revenues from non-FTTP residential customers and wholesale, the cost of services, as a percentage of revenues, is expected to decline.

Selling, General and Administrative Expenses. Selling, General and Administrative expenses consist primarily of compensation costs for our sales, administrative and management employees. Selling, general and administrative expenses for the nine month period ended September 30, 2013 increased 4.9% to $16,509,564 from $15,738,473 for the same period in 2012. The increase was the result of the write-off of $519,435 of assets acquired during various acquisitions in which management had determined they would not be able to obtain successful resolution and the continued assessment by management of the allowance for doubtful accounts which resulted in an increase of bad debt expense of $921,379 during the second quarter of 2013. This was offset by a decrease in payroll expenses which resulted mainly from outsourcing most of our installation and maintenance work in the FTTP markets to subcontractors, which was offset by an increase in sales commission related to the increase in new FTTP revenues and an increase in compensation in connection with the issuance of options to our directors and employees.  As a percentage of revenues, selling, general and administrative expense increased by 1.7%.

Depreciation and amortization. Depreciation and amortization expense for the nine month period ended September 30, 2013, increased 13.1% to $5,426,366 from $4,799,447 for the same period in 2012. The increase was due to the large investments in the development of the FTTP networks.

Financing Expenses. Financing expenses, net, for the nine month period ended September 30, 2013, increased 23.4% to $4,793,306 from $3,884,990 for the same period in 2012. Financing expenses consist of interest payable on our financial obligations, and the measurement of the Bonds, which are stated in NIS and linked to the Israeli Consumer Price Index (the “CPI”).  The increase in financing expense is a result of the increase in outstanding loans from the United States Department of Agriculture and ICON Agent, LLC which was offset by a non-recurring amortization of deferred compensation related to the repayment of the term loan from Burlingame Equity Investors LP.

25

Other Expenses. Other expenses, net for the nine month period ended September 30, 2013, increased 42.7% to $638,704 from $447,577 for the same period in 2012. Other expenses consist of real estate taxes, which were offset in 2012 with the gain of $221,643 from the purchase of our bonds by NTSC and expense of $88,400 due to adjustment of the final purchase price of Cobridge. We expect that real estate taxes will increase as we continue to expand our operations in the PRIDE Network markets.

Income taxes. We conduct our business in several states in the US. Therefore, our operating income is subject to varying rates of state tax in the US. Consequently, our effective tax rate is dependent upon the geographic distribution of our earnings or losses. However, we expect that our income taxes will not materially vary in relation to the geographic distribution of our profits inside the US. Due to non-deductible expenses, non-deductible compensation related to stock options and non-deductible amortization of intangible assets, we had a tax benefit for the nine month period ended September 30, 2013 and 2012 and our effective tax rate was 40.6% and 51.5% for the nine month period ended September 30, 2013 and 2012, respectively.

COMPARISON OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

Revenues. Revenues for the quarter ended September 30, 2013, decreased 0.8% to $14,805,702 from $14,926,046 for the same period in 2012.

Revenues from our Fiber-To-The-Premise ("FTTP") network include revenues from the delivery of products and services via our fully owned FTTP network.  These products and services include video, high speed Internet and voice as well as broadband connectivity for private network within the footprint of our FTTP network.  Revenues from our FTTP network for the quarter ended September 30, 2013, increased 28.2% to $6,095,658 from $4,755,779 in the same period in 2012. As percentage of total sales, FTTP revenues in the quarter ended September 30, 2013, increased to 41.2% from 31.9% for the same period in 2012. The growth of FTTP revenues is expected to continue due to the progress in the build out of our FTTP network in the communities which are located in the areas of the PRIDE Network projects and other communities in the region of West Texas.

Revenues from our leased local loop include revenues from wholesale, other carriers and other non-FTTP customers. Revenues from leased local loop services for the quarter ended September 30, 2013, decreased 14.4% to $8,710,044 from $10,170,267 for the same period in 2012. As a percentage of total sales, leased local loop revenues in the quarter ended September 30, 2013 decreased to 58.8% from 68.1% for the same period in 2012. The decrease in revenues was caused by the aggressive competition in our non-FTTP markets. We expect that the decline in revenues from non-FTTP customers will continue in the last quarter of 2013, but will be offset by the increase in revenues in FTTP from business and residential customers.

Cost of services (excluding depreciation and amortization). Cost of services consists primarily of facilities and traffic time purchased from other telephone companies and content for our video services. Cost of services for the quarter ended September 30, 2013, decreased 9.6% to $6,085,114 from $6,734,583 for the same period in 2012. Cost of services, as a percentage of revenues in the quarter ended September 30, 2013, decreased to 41.1% from 45.1% in the same period in 2012. We expect that the cost of services, as a percentage of revenues, will decline as we increase the portion of revenues generated from our high-margin FTTP services. FTTP services are provided over our fully owned fiber optic network and therefore we do not incur third party costs for leased network lines. As the revenue mix changes towards a higher percentage of the high-margin FTTP revenues and a lesser percentage of the low-margin revenues from non-FTTP residential customers and wholesale, the cost of services, as a percentage of revenues, is expected to decline.

Selling, General and Administrative Expenses. Selling, General and Administrative expenses consist primarily of compensation costs for our sales, administrative and management employees. Selling, general and administrative expenses for the quarter ended September 30, 2013, decreased 0.8% to $5,121,467 from $5,165,190 for the same period in 2012. The decrease in the expenses resulted mainly from outsourcing most of our installation and maintenance work in the FTTP markets to subcontractors, which was offset by an increase in sales commission related to the increase in new FTTP revenues. As a percentage of revenues, selling, general and administrative expenses stayed consistent at 34.6%. We expect that these changes will allow us to be more efficient on our operations and construction work.

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Depreciation and amortization. Depreciation and amortization expenses for the quarter ended September 30, 2013, increased 14.6% to $2,078,396 from $1,813,006 for the same period in 2012. The increase was due to the large investments in the development of the FTTP networks.

Financing Expenses. Financing expenses, net, for the quarter ended September 30, 2013, increased 45.8% to $1,930,333 from $1,324,054 for the same period in 2012. Financing expenses consist of interest payable on our financial obligations, and the measurement of the Bonds, which are stated in NIS and linked to the Israeli CPI. The increase in financing expenses is a result of the increase in outstanding loans from the United States Department of Agriculture and ICON Agent, LLC.

Other Expenses. Other expenses for the quarter ended September 30, 2013, increased to $205,031 from $69,701 for the same period in 2012.  Other expenses consist of real estate taxes, which were offset in 2012 with the gain of $221,643 from the purchase of our bonds by NTSC and expense of $88,400 due to adjustment of the final purchase price of Cobridge. We expect that real estate taxes will increase as we continue to expand our operations in the PRIDE Network markets.

Income taxes. We conduct our business in several states in the US. Therefore, our operating income is subject to varying rates of state tax in the US. Consequently, our effective tax rate is dependent upon the geographic distribution of our earnings or losses. However, we expect that our income taxes will not materially vary in relation to the geographic distribution of our profits inside the US. Due to non-deductible expenses, non-deductible compensation related to stock options and non-deductible amortization of intangible assets, we had a tax benefit for the quarter ended September 30, 2013 and 2012 and our effective tax rate was 46.6% and 82.5% for the quarter ended September 30, 2013 and 2012, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of September 30, 2013, amounted to $3,301,783, compared to $3,908,620 as of December 31, 2012, a decrease of $606,837. Net cash provided by operating activities during the nine months ended September 30, 2013, was $3,425,195, an increase of $3,718,510 compared to net cash used in operating activities of $293,315 for the nine months ended September 30, 2012. The increase in cash flow provided by operating activities is related to the following changes in working capital: (1) a decrease in accounts receivable of $128,792 during the nine months ended September 30, 2013, compared to an increase of $2,094,475 in the same period of 2012; (2) an increase in prepaid expenses and other receivables of $175,119 in the nine months ended September 30, 2013, compared to an increase of $887,704 in the same period of 2012; (3) a decrease in trade payables of $873,711 during the nine months ended September 30, 2013, compared to a decrease of $2,191,948 during the same period of 2012. Cash used in investing activities for the nine months ended September 30, 2013, was $15,405,148 compared to $11,565,717 for the same period of 2012. Of that amount, $8,659,745 is attributable to the build out of our PRIDE Network projects and FTTP projects in Levelland, TX in nine months ended September 30, 2013, compared to $8,994,079 for the same period of 2012 and $6,745,403 is attributable to the purchase of other equipment in nine months ended September 30, 2013, compared to $2,571,638 for the same period of 2012. Net cash provided by financing activities for the nine months ended September 30, 2013, was $11,373,116 compared to $13,981,220 for the same period of 2012 and is primarily attributable to proceeds from long-term loans from the United States Department of Agriculture, and the Loan Agreement with ICON, which are offset by repayment of the long-term loans from the United States Department of Agriculture.

Capital lease obligations. We are the lessee of switching, other telecom equipment and vehicles under capital leases expiring on various dates through 2016.

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As of September 30, 2013, we reported a working capital deficit of $8,859,017 compared to a working capital deficit of $6,248,721 on December 31, 2012. On February 12, 2013, we entered into a further amendment to the Original ICON Agreement providing for an additional secured delayed draw term loan in the amount of $6,000,000 for the purchase of equipment in connection with our project to expand our fiber network in the region of West Texas and the delay of the amortization schedules of the previously drawn down loans by six months. As of September 30, 2013, we drew down the full amount of the term loan.

We believe that increased revenues from our high margin Fiber-To-The-Premise network together with increasing operating efficiency will result in increased profitability and cash flows, which will lead to improvement in the working capital deficit to meet our anticipated cash requirements for at least the next 12 months. If, however, we do not generate sufficient cash from operations, or if we incur additional unanticipated liabilities or we are unable to renew and/or extend a portion of our short-term liabilities, we may be required to seek additional financing or sell equity or debt on terms which may not be as favorable as we could have otherwise obtained. No assurance can be given that any refinancing, additional borrowing or sale of equity or debt will be possible when needed or that we will be able to negotiate acceptable terms. In addition, our access to capital is affected by prevailing conditions in the financial and equity capital markets, as well as our own financial condition. While management believes that we will be able to meet our liquidity needs for at least the next 12 months, no assurance can be given that we will be able to do so.

The following table represents our contractual obligations and commercial commitments, excluding interest expense, as of September 30, 2013:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Domestic Note Payable	$	20,893,565	$	2,760,907	$	6,072,658	$	12,060,000	$	-
Notes Payable from the United States Department of Agriculture		42,871,824		2,172,616		4,345,233		4,345,233		32,008,742
Bonds		12,064,838		4,367,838		7,696,269		-		-
Capital leases		750,118		305,716		270,029		174,373		-
Operating leases		789,793		325,875		397,935		65,982		-
Total contractual cash obligations	$	77,369,407	$	9,932,952	$	18,782,124	$	16,645,588	$	32,008,742

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NTS, Inc.

The Series A Bonds

On December 13, 2007 (the “Date of Issuance”), we issued non-convertible bonds to Israeli institutional investors, for total gross proceeds of NIS 100,382,100 (approximately $25,562,032, based on the exchange rate as of December 13, 2007) (the “Series A Bonds”). The Series A Bonds were issued for an amount equal to their par value.

The Series A Bonds accrue interest annually that is paid semi-annually on the 1st of June and on the 1st of December of every year from 2008 until 2015 (inclusive). The principal of the Series A Bonds is repaid in eight equal annual payments on the 1st of December of every year from 2008 until 2015 (inclusive). The principal and interest of the Series A Bonds are linked to the Israeli CPI.

On November 4, 2008, we filed a public prospectus (the “Prospectus”) with the Israel Securities Authority and the TASE for listing of the Series A Bonds for trading on the TASE. On November 11, 2008 (the “Date of Listing”), the Series A Bonds commenced trading on the TASE. From the Date of Issuance until the Date of Listing, the Series A Bonds accrued annual interest at a rate of 9%. As of the Date of Listing, the interest rate for the unpaid balance of the Series A Bonds was reduced by 1% to an annual interest rate of 8%.

On March 25, 2008, we issued the holders of the Series A Bonds, for no additional consideration, 956,020 (non-tradable) warrants, each exercisable at an exercise price of $2.04 (as adjusted in November 2011) with a term of 4 years, commencing on September 2, 2008. These warrants expired in September 2012.

The Series A Bonds may only be traded in Israel. On November 5, 2013, Midroog Limited, an Israeli rating company which is a subsidiary of Moody’s Investor Services (“Midroog”) filed with the TASE an annual monitoring report, reaffirming the Ba1 rating of the Series A Bonds, however, Midroog’s rating committee decided on a developing outlook on the rating of the Series A Bonds in light of the Company’s recently announced merger agreement entered into with Tower Three as described in Note 7 of the Condensed Consolidated Financial Statements for the period ended September 30, 2013.

Loan agreement with ICON Agent, LLC

On October 6, 2011, we entered into a term loan, guarantee and security agreement (the “Original ICON Agreement”) as amended by the Amended & Restated Consent, Waiver & Amendment Agreement dated November 1, 2011 by and between the following: (1) ICON Agent, LLC (the “Agent”), acting as agent for the Lenders signatory thereto; (2) us, as Guarantor; (3) Xfone USA, Inc., NTS Communications, Inc., Gulf Coast Utilities, Inc., eXpeTel Communications, Inc., NTS Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona, Inc., Communications Brokers, Inc., and NTS Management Company, LLC, acting as Borrowers and Guarantors; and (4) PRIDE Network, Inc., and NTS Telephone Company, LLC (together with the Borrowers and Guarantors acting as Credit Parties) that provided for a secured term loan in the amount of $7,500,000 (the “First ICON Loan”).

On June 22, 2012, we entered into Amendment No. 1 to the Original ICON Agreement (“Amendment No. 1”) providing for:

(i)	An additional secured term loan in the amount of $3,500,000, for the payment of all liabilities owed to Burlingame (the “Second ICON Loan”),
(ii)	A secured delayed draw loan in the amount of $3,100,000, for the purchase of equipment in connection with our project to construct a fiber network in Wichita Falls, Texas (the "Third ICON Loan"), and
(iii)	Certain other amendments to the Original ICON Agreement and the First ICON Loan as described in Amendment No. 1.

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Each of the First ICON Loan, Second ICON Loan and Third ICON Loan bear interest at 12.75% per annum.

The fundings of the First ICON Loan and Second ICON Loan were made on October 27, 2011 and June 22, 2012, respectively.

On August 9, 2012, we entered into Amendment No. 2 to the Original ICON Agreement providing for revised amortization schedules of the First ICON Loan and the Second ICON Loan (“Amendment No. 2”).

On September 27, 2012, we drew down the Third ICON Loan in the amount of $3,100,000.

On February 12, 2013, we entered into Amendment No. 3 to the Original ICON Agreement (“Amendment No. 3”) providing for:

(i)	An additional secured delayed draw term loan in the aggregate amount of $6,000,000, bearing interest of 12.75% per annum for the purchase of equipment in connection with our project to expand our fiber network in the region of West Texas (the “Fourth ICON Loan”),
(ii)	Revised amortization schedules of the First ICON Loan, Second ICON Loan and Third ICON Loan (as described below), and
(iii)	Certain other amendments to the Original ICON Agreement (as amended by Amendment No. 1 and Amendment No. 2), described in Amendment No. 3.

Pursuant to Amendment No. 3, the principal amount of the First ICON Loan is payable in 69 consecutive monthly installments with the first 27 monthly payments being payments of accrued interest only.  The principal amount of the Second ICON Loan is payable in 61 consecutive monthly installments with the first 19 monthly payments being payments of accrued interest only.  The principal amount of the Third ICON Loan is payable in 58 consecutive monthly installments with the first 16 monthly payments being payments of accrued interest only.

On March 28, 2013, we entered into Amendment No. 4 to the Original ICON Agreement which contains some definitional clarifications.  On the same day, we drew down under the Fourth ICON Loan in the aggregate amount of $1,700,000 which was the first draw down under the Fourth ICON Loan.  The principal amount of the first draw down under the Fourth ICON Loan is payable in 51 consecutive monthly installments with the first nine monthly payments being payments of accrued interest only.

On June 27, 2013, we entered into Amendment No. 5 to the Original ICON Agreement which makes certain technical amendments to the Original ICON Loan Agreement and waives a certain condition for the availability of the Fourth ICON Loan.

In addition, on June 27, 2013, we drew down on the Fourth ICON Loan in the aggregate amount of $4,300,000 which was the second draw down under the Fourth ICON Loan. The principal amount of the second draw down under the Fourth ICON Loan is payable in 48 consecutive monthly installments with the first six monthly payments being payments of accrued interest only.

Each of the foregoing loans are secured by a lien against all of each Borrower's and Guarantor's property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title, or interest; provided, however, that none of the assets of PRIDE Network and NTS Telephone Company are being used as collateral for the loans and are specifically excluded.

Pursuant to the Original ICON Agreement (as amended), we are required to maintain a fixed charge coverage ratio of not less than 1.15 to 1.00 for the trailing four fiscal quarter period most recently ended if at any time cash was less than $3,000,000 as of the last day of any fiscal quarter. In addition, senior leverage ratio should not exceed 2.25 to 1.00 from June 30, 2012 through March 31, 2013, 2.00 to 1.00 from June 30, 2013 through December 31, 2013, and 1.75 to 1.00 from March 31, 2014 and thereafter.  As of September 30, 2013, we complied with the foregoing financial covenants.

The total outstanding amount of the loans as of September 30, 2013 is $20,100,000. As of September 30, 2013, there are no amounts available for future draws.

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US subsidiaries

NTS Telephone Company, LLC, a wholly-owned subsidiary of NTSC, received from the Rural Utilities Service (“RUS”), a division of the United States Department of Agriculture, $11.5 million debt facility to complete a telecommunications overbuild project in Levelland, Texas. The principal of the RUS loan is repaid monthly starting one year from the initial advance date until full repayment after 17 years. Each advance bears interest that will become fixed at the date of the advance at the average yield on outstanding marketable obligations of the United States having the final maturity comparable to the final maturity of the advance. The loans are non-recourse to NTSC and all other NTSC subsidiaries and are secured by NTS Telephone’s assets which were $15.0 million at September 30, 2013. As of September 30, 2013, the annual average weighted interest rate on the outstanding advances was 3.52%.

The total outstanding amount of these loans as of September 30, 2013 and December 31, 2012 is $9,030,097 and $9,589,321, respectively. The loans are to be repaid in monthly installments until 2023.

PRIDE Network, Inc., a wholly-owned subsidiary of NTSC has received approval from the Broadband Initiative Program of the American Recovery and Reinvestment Act, for a total $99.9 million funding in the form of $45.9 million in grants and $54 million in 19 to 20-year loans. The aggregate amount of these loans and grants received by the Company as of September 30, 2013 is $35,931,355 and $30,016,629, respectively.  Each advance bears interest that will become fixed at the date of the advance at the average yield on outstanding marketable obligations of the United States having the final maturity comparable to the final maturity of the advance.  The funding created an opportunity for the Company to expand the rollout of its FTTP infrastructure, known as the PRIDE Network, and bring broadband services to northwestern Texas southern Louisiana. Construction work of PRIDE Network's FTTP infrastructure started in October 2010. The loans are non-recourse to NTSC and all other NTSC subsidiaries and are secured by PRIDE Network's assets which were $48.9 million at September 30, 2013. As of September 30, 2013, the annual average weighted interest rate on the outstanding advances was 2.84%. As of September 30, 2013, the total amount of loan and grant to be available in the future is $18,061,683 and $15,860,291, respectively.

The loans are to be repaid in monthly installments until 2030. The total outstanding amounts of these loans as of September 30, 2013 and December 31, 2012 are $33,841,727 and $27,748,342, respectively.

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IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

All of our assets, liabilities (except the Series A Bonds and other insignificant costs), revenues and expenditures are in USD.

Notwithstanding having our Series A Bonds stated in NIS and linked to the Israeli CPI, during the nine months ended September 30, 2013, our outstanding liability was increased by 5.3% as a result of the devaluation of the NIS in relation with the USD and an increase of 2.0% adjustment to the Israeli CPI.  We may use foreign currency exchange contracts and other derivative instruments to be the appropriate tool for managing such exposure.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

(a)     Management’s Quarterly Report on Internal Control over Financial Reporting.

As of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer/Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer/Principal Accounting Officer have concluded that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer/Principal Accounting Officer, to allow for timely decisions regarding required disclosure of material information required to be disclosed in the reports that we file or submit under the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving these objectives and our Chief Executive Officer and Chief Financial Officer/Principal Accounting Officer have concluded that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives. However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

(b)     Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting identified in connection with the evaluation described above during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Eliezer Tzur et al. vs. 012 Telecom Ltd. et al.

On January 19, 2010, Eliezer Tzur et al. (the “Petitioners”) filed a request to approve a claim as a class action (the “Class Action Request”) against Xfone 018 Ltd. (“Xfone 018”), the Company’s former 69% Israel-based subsidiary, and four other Israeli telecom companies, all of which are entities unrelated to the Company (collectively with Xfone 018, the “Defendants”), in the Central District Court, Israel (the “Israeli Court”).  The Petitioners’ claim alleges that the Defendants have not fully fulfilled their alleged legal requirement to bear the cost of telephone calls by customers to the Defendants’ respective technical support centers. One of the Petitioners, Mr. Eli Sharvit (“Mr. Sharvit”), seeks damages from Xfone 018 for the cost such telephone calls allegedly made by him during the 5.5-year period preceding the filing of the Class Action Request, which he assessed at NIS 54.45 (approximately $15). The Class Action Request, to the extent it pertains to Xfone 018, states total damages of NIS 7,500,000 (approximately $2,099,076) which reflects the Petitioners’ estimation of damages caused to all customers that (pursuant to the Class Action Request) allegedly called Xfone 018’s technical support number during a certain period defined in the Class Action Request.

On February 22, 2011, Xfone 018 and Mr. Sharvit entered into a settlement agreement, which following the instructions of the Israeli Court was supplemented on May 3, 2011 and amended on July 18, 2011 and on March 21, 2012 (the “Settlement Agreement”). Pursuant to the Settlement Agreement, Xfone 018 agreed to compensate its current and past registered customers of international calling services who called its telephone service center from July 4, 2004 until February 21, 2010, due to a problem with the international calling services, and were charged for such calls. The compensation includes a right for a single, up to ten minutes, free of charge, international call to one landline destination around the world, and shall be valid for a period of six months. In addition, Xfone 018 agreed to pay Mr. Sharvit a one-time special reward in the amount of NIS 10,000 (approximately $2,827) (the “Reward”). Xfone 018 further agreed to pay Mr. Sharvit attorneys' fee for professional services in the amount of NIS 40,000 (approximately $11,309) plus VAT (the “Attorneys Fee”). In return, Mr. Sharvit and the members of the Represented Group (as defined in the Settlement Agreement) agreed to waive any and all claims in connection with the Class Action Request. As required by Israeli law in such cases, the Settlement Agreement is subject to the approval of the Israeli Court. On April 30, 2012, the Israeli Court appointed a CPA as an examiner to review and assess the Settlement Agreement (the “Examiner”). The Examiner was instructed to advise the Israeli Court whether in his opinion the Settlement Agreement is reasonable. On October 18, 2012 the Examiner submitted his assessment to the Israeli Court. According to the Examiner's assessment, there are a number of impediments that will deter the Represented Group from making use of the right to a free call described above including the low value of the call and its limited utility. According to the Examiner, the appropriate solution would have been to compensate the specific affected customers for the damage caused. However, since the Examiner recognizes that, pursuant to Xfone 018's claims, the foregoing solution is impractical, the Examiner proposes to consider revising the manner in which the alleged damage, which he estimates at NIS 98,000 (approximately $27,707), will be paid for by Xfone 018. Following the Examiner’s assessment, Xfone 018 and Mr. Sharvit have agreed to amend the Settlement Agreement, by giving the Israeli Court the discretion to decide whether Xfone 018 shall grant the free call benefit described above or donate a sum of NIS 49,000 (approximately $13,854) to Ezer Mizion, a non-profit organization (“Ezer Mizion”) (the “Amended Settlement Agreement”).  The Amended Settlement Agreement has been submitted to the Israeli Court, which ruled that a notice to the general public concerning the Amended Settlement Agreement shall be published in two daily papers.  The said notices have been published and the period for submitting objections to the Amended Settlement Agreement has expired.  On July 2, 2013, the Israeli Court requested that the Attorney General submit its position with respect to the Amended Settlement Agreement, after which it is expected that the Israeli Court will issue its final decision.

On May 14, 2010, the Company entered into an agreement (including any amendment and supplement thereto, the “Agreement”) with Marathon Telecom Ltd. for the sale of the Company’s majority (69%) holdings in Xfone 018. Pursuant to Section 10 of the Agreement, the Company is fully and exclusively liable for any and all amounts, payments or expenses incurred by Xfone 018 as a result of the Class Action Request. Section 10 of the Agreement provides that the Company shall bear any and all expenses or financial costs which are entailed by conducting the defense on behalf of Xfone 018 and/or the financial results thereof, including pursuant to a judgment or settlement (it was agreed that in the event that Xfone 018 will be obligated to provide services at a reduced price, the Company shall bear only the cost of such services). Section 10 of the Agreement further provides that the defense by Xfone 018 shall be performed in full cooperation with the Company and with mutual assistance. It is agreed between the Company and Xfone 018 that subject to and upon the approval of the Settlement Agreement by the Israeli Court, the Company shall bear and/or pay: (i) the costs of the free call benefit or donation described above; (ii) the Reward; (iii) the Attorneys Fee; (iv) Xfone 018 attorneys' fees for professional services in connection with the Class Action Request, estimated at approximately NIS 75,000 (approximately $21,204); (v) any other related costs (such as publication expenses and the Examiner’s fees).

In the event the Amended Settlement Agreement is not approved by the Israeli Court, Xfone 018 intends to vigorously defend the Class Action Request.

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Class Actions Related to the Merger Agreement

As reported in our Current Report on Form 8-K filed with the SEC on October 21, 2013, on October 20, 2013, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with T3 North Intermediate Holdings, LLC, a Nevada limited liability company (“Holdings”) and North Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of Holdings (“Merger Sub”).  Upon the terms and subject to the conditions set forth in the Merger Agreement, we will become a wholly-owned subsidiary of Holdings through a merger of Merger Sub with and into the Company, with the Company as the surviving corporation (the “Merger”). Holdings and Merger Sub are affliates of Tower Three Partners, LLC ("Tower Three").

Between October 23, 2013 and November 5, 2013, four complaints styled as class actions and relating to the Merger were filed in Nevada state court (Eighth Judicial District, Clark County) against some or all of the following: Guy Nissenson, Niv Kirkov, Shemer S. Schwarz, Arie Rosenfeld, Timothy M. Farrar, Alan Bazaar, Don Carlos Bell III, Andrew J. Macmillan, Jeffery E. Eberwein, Richard K. Coleman, Jr., the Company, Tower Three, Holdings and North Merger Sub.

The cases are captioned Wender v. NTS, Case No. Case No. A-13-690634-C (referred to herein as the "Wender Complaint"), Cowart v. NTS, Inc., Case No. A-13-690982-C (referred to herein as the "Cowart Complaint"), Billet v. NTS, Case No. A-13-691059-B (referred to herein as the "Billet Complaint") and Albritton v. NTS, Inc., Case No. A-13-691247-C (referred to herein as the "Albritton Complaint") (the Wender Complaint, the Cowart Complaint, the Billet Complaint and the Albritton Complaint are collectively referred to herein as the "Shareholder Complaints").

Each of the Shareholder Complaints is a putative class action filed on behalf of our shareholders (other than the defendants and their affiliates), and alleges breaches of fiduciary duties by the individual defendants and aiding and abetting breaches of fiduciary duty by one or more of us, Tower Three, Holdings and Merger Sub.

Each of the Shareholder Complaints presents essentially the same allegations and seeks the same relief. The Wender Complaint alleges, among other things, that (i) the individual defendants failed to exercise due care and breached their duties of loyalty, good faith and independence owed to our shareholders by ignoring alleged conflicts of interest posed by the merger and by failing to get fair consideration for our shareholders in the Merger, and (ii) Merger Sub aided and abetted these alleged breaches of fiduciary duty. The Wender Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, a declaration that the merger is unjust, unfair and inequitable to our shareholders, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the Merger proceeds, an accounting of damages and an award of counsel and expert fees.

The Cowart Complaint alleges, among other things, that (i) the individual defendants breached their fiduciary duties by placing their personal interests ahead of those of our shareholders, and by failing to maximize our value, taking steps to avoid competitive bidding and ignoring alleged conflicts of interest, and (ii) we, Tower Three, Holdings and Merger Sub  aided and abetted these alleged breaches of fiduciary duty. The Cowart Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the merger proceeds, an accounting of damages and an award of counsel and expert fees.

The Billet Complaint alleges, among other things, that (i) the individual defendants acted in bad faith and breached their fiduciary duties of care, loyalty, good faith, independence and candor by putting their personal interests ahead of our shareholders and by failing to properly value us and (ii) Tower Three, Holdings and Merger Sub aided and abetted these alleged breaches of fiduciary duty. The Billet Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the merger proceeds, a jury trial, an accounting of damages and an award of counsel and expert fees.

The Albritton Complaint alleges, among other things, that (i) the individual defendants breached their fiduciary duties of care, loyalty, candor and good faith by failing to properly value us, ignoring alleged conflicts of interest and failing to disclose material information to the shareholders and (ii) Tower Three, Holdings and Merger Sub aided and abetting these alleged breaches of fiduciary duty. The Albritton Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, a declaration that the defendants have committed or participated in a breach of fiduciary duty, an order to the individual defendants to adopt and implement procedures and processes to obtain the highest available price for our shares, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the Merger proceeds, a jury trial, an accounting of damages and an award of counsel and expert fees.

We believe that the claims in the Shareholder Complaints are without merit and intends to defend against them vigorously. As with all litigation, the outcome of these lawsuits is not certain. A preliminary junction could delay or jeopardize the completion of the Merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the Merger. An adverse judgment for monetary damages could have an adverse effect on our operations and liquidity.

34

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number	Description
31.1	Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.
31.2	Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.
32.1	Certification pursuant to section 906 of the Sarbanes - Oxley Act of 2002.
32.2	Certification pursuant to section 906 of the Sarbanes - Oxley Act of 2002.
101	The following materials from NTS, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flow, and (iv) Notes to Consolidated Financial Statements. *

35

SIGNATURES

Pursuant to the requirements 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.

	NTS, INC.
Date: November 14, 2013	By:	/s/ Guy Nissenson
		Guy Nissenson
		President, Chief Executive Officer and Chairman of the Board
		(principal executive officer)

Date: November 14, 2013	By:	/s/ Niv Krikov
		Niv Krikov
		Principal Accounting Officer, Treasurer and Chief Financial Officer
		(principal accounting and financial officer)

36

EXHIBIT INDEX

Exhibit Number	Description
31.1	Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.
31.2	Certification pursuant to section 302 of the Sarbanes - Oxley Act of 2002.
32.1	Certification pursuant to section 906 of the Sarbanes - Oxley Act of 2002.
32.2	Certification pursuant to section 906 of the Sarbanes - Oxley Act of 2002.
101	The following materials from NTS, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flow, and (iv) Notes to Consolidated Financial Statements. *

37

EX-31.1

Exhibit 31.1

Section 302 Certification

CERTIFICATIONS

I, Guy Nissenson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NTS, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant‘s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 14, 2013	By:	/s/ Guy Nissenson
		Guy Nissenson
		President, Chief Executive Officer and Chairman of the Board

EX-31.2

Exhibit 31.2

Section 302 Certification

CERTIFICATIONS

I, Niv Krikov, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NTS, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant‘s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 14, 2013	By:	/s/ Niv Krikov
		Niv Krikov
		Treasurer, Chief Financial Officer and Principal Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NTS, Inc. (the “Company”) for the fiscal period ended September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 14, 2013	By:	/s/ Guy Nissenson
		Guy Nissenson
		President, Chief Executive Officer and Chairman of the Board

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NTS, Inc. (the “Company”) for the fiscal period ended September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 14, 2013	By:	/s/ Niv Krikov
		Niv Krikov
		Treasurer, Chief Financial Officer and Principal Accounting Officer

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3. Notes payable (Details Narrative) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Outstanding amount of the loans	$ 20,100,000
Assets	117,342,085	108,482,999
NtsTelephone [Member]
Outstanding amount of the loans	9,030,097	9,589,321
Assets	15,000,000
Current average weighted interest rate on the outstanding advances	3.52%
PrideNetwork [Member]
Outstanding amount of the loans	33,841,727	27,748,342
Assets	48,900,000
Current average weighted interest rate on the outstanding advances	2.84%
Aggregate Amount of loans	35,931,355
Aggregate amount of grants	30,016,629
Aggregate amount of loan available in future	18,061,683
Aggregate amount of grant available in future	$ 15,860,291

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Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenues
Services on Fiber-To-The-Premise network	$ 6,095,658	$ 4,755,779	$ 17,094,428	$ 13,341,551
Leased local loop services and other	8,710,044	10,170,267	27,833,694	31,592,883
Total Revenues	14,805,702	14,926,046	44,928,122	44,934,434
Expenses
Cost of services (excluding depreciation and amortization shown below)	6,085,114	6,734,583	19,456,379	20,677,513
Selling, general and administrative	5,121,467	5,165,190	16,509,564	15,738,473
Depreciation and amortization	2,078,396	1,813,006	5,426,366	4,799,447
Financing expenses, net	1,930,333	1,324,054	4,793,306	3,884,990
Other expenses, net	205,031	69,701	638,704	447,577
Total Expenses	15,420,341	15,106,534	46,824,319	45,548,000
Loss before taxes	(614,639)	(180,488)	(1,896,197)	(613,566)
Income tax benefit	286,367	148,913	770,175	315,735
Net loss	$ (328,272)	$ (31,575)	$ (1,126,022)	$ (297,831)
Basic and diluted loss per share	$ (0.01)	$ 0.00	$ (0.03)	$ (0.01)
Basic and diluted weighted average number of shares outstanding:	41,571,167	41,186,596	41,316,192	41,186,596

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Capital Structure

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

5. Capital Structure

On May 8, 2013, the Company granted, under and subject to the Company’s 2007 Stock Incentive Plan, to several of the Company’s directors and employee options to purchase 269,780 shares of common stock (the “Options”).  The Options are exercisable at $1.10 per share and expire five years from the date of grant.  Commencing on June 8, 2013, 250,000 options vest in equal monthly installments of 10,000.  The remaining 19,780 vest over a period of 4 years, 25% of the options after 12 months from the grant date and the remaining 75% of the options shall vest over the following 3 years in equal quarterly installments beginning 15 months from the grant date.

During the second and third quarters of 2013, options holders exercised their right to purchase 271,372 and 183,298, respectively, of the Company’s Common Stocks at an average exercise price of $1.10 per share. At September 30, 2013, the total issued and outstanding Common Stock of $0.001 par value per share is 41,641,266.

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4. Bonds payable (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Notes to Financial Statements
Outstanding balance (in NIS)	$ 37,643,288
Accrued Interest (in NIS)	998,321
Increase in debt due to CPI adjustments (in NIS)	7,046,021
Unearned gain due to hedging (in NIS)	45,687,630
Total outstanding debt (in NIS)	3.537
Total outstanding debt (USD)	12,917,057
Debt discount related to warrants	(268,056)
Bonds held by subsidiary	(584,894)
Total outstanding debt	12,064,107
Less current portion	4,367,838	3,627,205
Long-term portion	$ 7,696,269	$ 7,026,523

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1. Organization and Nature of Business

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

1. Organization and Nature of Business

A. NTS, Inc. (“NTSI” or “the Company”) was incorporated in the State of Nevada, U.S.A. in September 2000 as Xfone, Inc. The Company provides through its subsidiaries, integrated communications services which include voice, video and data over its Fiber-To-The-Premise (“FTTP”) and other networks. The Company currently has operations in Texas, Mississippi and Louisiana. Effective as of February 1, 2012, the Company changed its name to “NTS, Inc.” and as of February 2, 2012 the Company's common shares began trading on the NYSE MKT (f/k/a NYSE Amex) and the Tel Aviv Stock Exchange (“TASE”) under a new ticker symbol “NTS”. The name change is a reflection of the Company's refined and enhanced business strategy which began with its acquisition of NTS Communications, Inc. (“NTSC”) in 2008 and its focus on the build out of its high-speed FTTP network.

NTSI’s wholly-owned subsidiaries as of September 30, 2013 were as follows:

● NTSC and its seven wholly-owned subsidiaries, NTS Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona, Inc., Communications Brokers Inc., NTS Telephone Company, LLC, NTS Management Company, LLC and PRIDE Network, Inc.

● Xfone USA, Inc. and its two wholly-owned subsidiaries, eXpeTel Communications, Inc. and Gulf Coast Utilities, Inc. (collectively, “Xfone USA”).

B. Liquidity

As of September 30, 2013, the Company reported a working capital deficit of $8,859,017 compared to a working capital deficit of $6,248,721 as of December 31, 2012. On February 12, 2013, the Company entered into a further amendment to the Original ICON Agreement providing for an additional secured delayed draw term loan in the amount of $6,000,000 for the purchase of equipment in connection with the Company’s project to expand its fiber network in the region of West Texas and the delay of the amortization schedules of the previously drawn down loans by six months. As of September 30, 2013 the Company drew down the full amount of the term loan.

The Company believes that increased revenues from the higher margin Fiber-To-The-Premise network together with increasing operating efficiency will result in increased profitability and cash flows, which will lead to improvement in the working capital deficit to meet its anticipated cash requirements for at least the next 12 months. If, however, the Company does not generate sufficient cash from operations, or if the Company incurs additional unanticipated liabilities or the Company is unable to renew and extend a portion of its short-term liabilities, the Company may be required to seek additional financing or sell equity or debt on terms which may not be as favorable as it could have otherwise obtained. No assurance can be given that any refinancing, additional borrowing or sale of equity or debt will be possible when needed or that the Company will be able to negotiate acceptable terms. In addition, the Company’s access to capital is affected by prevailing conditions in the financial and equity capital markets, as well as the Company’s own financial condition. While management believes that the Company will be able to meet its liquidity needs for at least the next 12 months, no assurance can be given that the Company will be able to do so.

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3. Notes payable

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

3. Notes payable

1. On October 6, 2011, the Company entered into a term loan, guarantee and security agreement (the “Original ICON Agreement”), as amended by the Amended & Restated Consent, Waiver & Amendment Agreement dated November 1, 2011 by and  between the following: (1) ICON Agent, LLC (the “Agent”), acting as agent for the Lenders signatory thereto; (2) the Company, as Guarantor; (3) Xfone USA, Inc., NTS Communications, Inc., Gulf Coast Utilities, Inc., eXpeTel Communications, Inc., NTS Construction Company, Garey M. Wallace Company, Inc., Midcom of Arizona, Inc., Communications Brokers, Inc., and NTS Management Company, LLC, acting as Borrowers and Guarantors; and (4) PRIDE Network, Inc., and NTS Telephone Company, LLC (together with the Borrowers and Guarantors acting as Credit Parties) that provided for a secured term loan in the amount of $7,500,000 (the "First ICON Loan").   On June 22, 2012, the Company entered into Amendment No. 1 to the Original ICON Agreement (“Amendment No. 1”) providing for:   (i)  An additional secured term loan in the amount of $3,500,000, for the payment of all liabilities owed to Burlingame (the "Second ICON Loan"),   (ii)  A secured delayed draw loan in the amount of $3,100,000, for the purchase of equipment in connection with the Company's project to construct a fiber network in Wichita Falls, Texas (the "Third ICON Loan"), and   (iii)  Certain other amendments to the Original ICON Agreement and the First ICON Loan as described in Amendment No. 1.   Each of the First ICON Loan, Second ICON Loan and Third ICON Loan bear interest at 12.75% per annum.   The fundings of the First ICON Loan and Second ICON Loan were made on October 27, 2011 and June 22, 2012, respectively.   On August 9, 2012, the Company entered into Amendment No. 2 to the Original ICON Agreement providing for revised amortization schedules of the First ICON Loan and the Second ICON Loan (“Amendment No. 2”).   On September 27, 2012, the Company drew down the Third ICON Loan in the amount of $3,100,000.   On February 12, 2013, the Company entered into Amendment No. 3 to the Original ICON Agreement (“Amendment No. 3”) providing for:   (i)An additional secured delayed draw term loan in the aggregate amount of $6,000,000, bearing interest of 12.75% per annum for the purchase of equipment in connection with the Company’s project to expand its fiber network in the region of West Texas (the “Fourth ICON Loan”),   (ii)Revised amortization schedules of the First ICON Loan, Second ICON Loan and Third ICON Loan (as described below), and   (iii)Certain other amendments to the Original ICON Agreement (as amended by Amendment No. 1 and Amendment No. 2), described in Amendment No. 3.

Pursuant to Amendment No. 3, the principal amount of the First ICON Loan is payable in 69 consecutive monthly installments with the first 27 monthly payments being payments of accrued interest only.  The principal amount of the Second ICON Loan is payable in 61 consecutive monthly installments with the first 19 monthly payments being payments of accrued interest only.  The principal amount of the Third ICON Loan is payable in 58 consecutive monthly installments with the first 16 monthly payments being payments of accrued interest only.

On March 28, 2013, the Company entered into Amendment No. 4 to the Original ICON Agreement which contains some definitional clarifications.  On the same day, the Company drew down under the Fourth ICON Loan in the aggregate amount of $1,700,000 which was the first draw down under the Fourth ICON Loan.  The principal amount of the first draw down under the Fourth ICON Loan is payable in 51 consecutive monthly installments with the first nine monthly payments being payments of accrued interest only.

On June 27, 2013, the Company entered into Amendment No. 5 to the Original ICON Agreement which makes certain technical amendments to the Original ICON Agreement and waives a certain condition for the availability of the Fourth ICON Loan.

In addition, on June 27, 2013, the Company drew down on the Fourth ICON Loan in the aggregate amount of $4,300,000 which was the second draw down under the Fourth ICON Loan.  The principal amount of the second draw down under the Fourth ICON Loan is payable in 48 consecutive monthly installments with the first six monthly payments being payments of accrued interest only.

Each of the foregoing loans are secured by a lien against all of each Borrower's and Guarantor's property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title, or interest; provided, however, that none of the assets of PRIDE Network, Inc. and NTS Telephone Company are being used as collateral for the loans and are specifically excluded.

Pursuant to the Original ICON Agreement (as amended), the Company is required to maintain fixed charge coverage ratio of not less than 1.15 to 1.00 for the trailing four fiscal quarter period most recently ended if at any time cash was less than $3,000,000 as of the last day of any fiscal quarter. In addition, senior leverage ratio should not exceed 2.25 to 1.00 from June 30, 2012 through March 31, 2013, 2.00 to 1.00 from June 30, 2013 through December 31, 2013, and 1.75 to 1.00 from March 31, 2014 and thereafter.  As of September 30, 2013, the Company complied with the foregoing financial covenants.

The total outstanding amount of the loans as of September 30, 2013 is $20,100,000.  As of September 30, 2013, there are no amounts available for future draws.

2. NTS Telephone Company, LLC, a wholly-owned subsidiary of NTSC, received from the Rural Utilities Service (“RUS”), a division of the United States Department of Agriculture, $11.5 million debt facility to complete a telecommunications overbuild project in Levelland, Texas. The principal of the RUS loan is repaid monthly starting one year from the advance date until full repayment after 17 years. Each advance bears interest that will become fixed at the date of advance at the average yield on outstanding marketable obligations of the United States having the final maturity comparable to the final maturity of the advance. The loans are non-recourse to NTSC and all other NTSC subsidiaries and are secured by NTS Telephone's assets which were $15.0 million at September 30, 2013. As of September 30, 2013, the current average weighted interest rate on the outstanding advances was 3.52%.   The total outstanding amount of these loans as of September 30, 2013 and December 31, 2012 are $9,030,097 and $9,589,321, respectively. The loans are to be repaid in monthly installments until 2023.

3.

PRIDE Network, Inc., a wholly-owned subsidiary of NTSC, received approval from the Broadband Initiative Program of the American Recovery and Reinvestment Act, for a total $99.9 million funding in the form of $45.9 million in grants and $54 million in 19 to 20 year loans. The total aggregate amount of these loans and grants as of September 30, 2013 is $35,931,355 and $30,016,629, respectively.  Each advance bears interest that will become fixed at the date of the advance at the average yield on outstanding marketable obligations of the United States having the final maturity comparable to the final maturity of the advance.  The funding created an opportunity for the Company to expand the rollout of its FTTP infrastructure, known as the PRIDE Network to northwestern Texas and southern Louisiana. Construction work of PRIDE Network's FTTP infrastructure started in October 2010. The loans are non-recourse to NTSC and all other NTSC subsidiaries and are secured by PRIDE Network's assets which were $48.9 million at September 30, 2013. As of September 30, 2013, the current average weighted interest rate on the outstanding advances was 2.84%. As of September 30, 2013, the total amount of loans and grants available in the future was $18,061,683 and $15,860,291, respectively.

The loans are to be repaid in monthly installments until 2030.  The total outstanding amounts of these loans as of September 30, 2013 and December 31, 2012 are $33,841,727 and $27,748,342, respectively.

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6. Legal Proceedings

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

6. Legal Proceedings

1. Eliezer Tzur et al. vs. 012 Telecom Ltd. et al.

On January 19, 2010, Eliezer Tzur et al. (the “Petitioners”) filed a request to approve a claim as a class action (the “Class Action Request”) against Xfone 018 Ltd. (“Xfone 018”), the Company’s former 69% Israel-based subsidiary, and four other Israeli telecom companies, all of which are entities unrelated to the Company (collectively with Xfone 018, the “Defendants”), in the Central District Court, Israel (the “Israeli Court”).  The Petitioners’ claim alleges that the Defendants have not fully fulfilled their alleged legal requirement to bear the cost of telephone calls by customers to the Defendants’ respective technical support centers. One of the Petitioners, Mr. Eli Sharvit (“Mr. Sharvit”), seeks damages from Xfone 018 for the cost such telephone calls allegedly made by him during the 5.5-year period preceding the filing of the Class Action Request, which he assessed at NIS 54.45 (approximately $15). The Class Action Request, to the extent it pertains to Xfone 018, states total damages of NIS 7,500,000 (approximately $2,099,076) which reflects the Petitioners’ estimation of damages caused to all customers that (pursuant to the Class Action Request) allegedly called Xfone 018’s technical support number during a certain period defined in the Class Action Request.

On February 22, 2011, Xfone 018 and Mr. Sharvit entered into a settlement agreement, which following the instructions of the Israeli Court was supplemented on May 3, 2011 and amended on July 18, 2011 and on March 21, 2012 (the “Settlement Agreement”). Pursuant to the Settlement Agreement, Xfone 018 agreed to compensate its current and past registered customers of international calling services who called its telephone service center from July 4, 2004 until February 21, 2010, due to a problem with the international calling services, and were charged for such calls. The compensation includes a right for a single, up to ten minutes, free of charge, international call to one landline destination around the world, and shall be valid for a period of six months. In addition, Xfone 018 agreed to pay Mr. Sharvit a one-time special reward in the amount of NIS 10,000 (approximately $2,827) (the “Reward”). Xfone 018 further agreed to pay Mr. Sharvit attorneys' fee for professional services in the amount of NIS 40,000 (approximately $11,309) plus VAT (the “Attorneys Fee”). In return, Mr. Sharvit and the members of the Represented Group (as defined in the Settlement Agreement) agreed to waive any and all claims in connection with the Class Action Request. As required by Israeli law in such cases, the Settlement Agreement is subject to the approval of the Israeli Court. On April 30, 2012, the Israeli Court appointed a CPA as an examiner to review and assess the Settlement Agreement (the “Examiner”). The Examiner was instructed to advise the Israeli Court whether in his opinion the Settlement Agreement is reasonable. On October 18, 2012 the Examiner submitted his assessment to the Israeli Court. According to the Examiner's assessment, there are a number of impediments that will deter the Represented Group from making use of the right to a free call described above including the low value of the call and its limited utility. According to the Examiner, the appropriate solution would have been to compensate the specific affected customers for the damage caused. However, since the Examiner recognizes that, pursuant to Xfone 018's claims, the foregoing solution is impractical, the Examiner proposes to consider revising the manner in which the alleged damage, which he estimates at NIS 98,000 (approximately $27,707), will be paid for by Xfone 018. Following the Examiner’s assessment, Xfone 018 and Mr. Sharvit have agreed to amend the Settlement Agreement, by giving the Israeli Court the discretion to decide whether Xfone 018 shall grant the free call benefit described above or donate a sum of NIS 49,000 (approximately $13,854) to Ezer Mizion, a non-profit organization (“Ezer Mizion”) (the “Amended Settlement Agreement”).  The Amended Settlement Agreement has been submitted to the Israeli Court, which ruled that a notice to the general public concerning the Amended Settlement Agreement shall be published in two daily papers.  The said notices have been published and the period for submitting objections to the Amended Settlement Agreement has expired.  On July 2, 2013, the Israeli Court requested that the Attorney General submit its position with respect to the Amended Settlement Agreement, after which it is expected that the Israeli Court will issue its final decision.

On May 14, 2010, the Company entered into an agreement (including any amendment and supplement thereto, the “Agreement”) with Marathon Telecom Ltd. for the sale of the Company’s majority (69%) holdings in Xfone 018. Pursuant to Section 10 of the Agreement, the Company is fully and exclusively liable for any and all amounts, payments or expenses incurred by Xfone 018 as a result of the Class Action Request. Section 10 of the Agreement provides that the Company shall bear any and all expenses or financial costs which are entailed by conducting the defense on behalf of Xfone 018 and/or the financial results thereof, including pursuant to a judgment or settlement (it was agreed that in the event that Xfone 018 will be obligated to provide services at a reduced price, the Company shall bear only the cost of such services). Section 10 of the Agreement further provides that the defense by Xfone 018 shall be performed in full cooperation with the Company and with mutual assistance. It is agreed between the Company and Xfone 018 that subject to and upon the approval of the Settlement Agreement by the Israeli Court, the Company shall bear and/or pay: (i) the costs of the free call benefit or donation described above; (ii) the Reward; (iii) the Attorneys Fee; (iv) Xfone 018 attorneys' fees for professional services in connection with the Class Action Request, estimated at approximately NIS 75,000 (approximately $21,204); (v) any other related costs (such as publication expenses and the Examiner’s fees).

In the event the Amended Settlement Agreement is not approved by the Israeli Court, Xfone 018 intends to vigorously defend the Class Action Request.

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4. Bonds payable

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

4. Bonds payable

On December 13, 2007, the Company issued a total of NIS 100,382,100 (approximately $25,562,032, based on the exchange rate as of December 13, 2007) unsecured Series A Bonds (the “Bonds”) to Israeli institutional investors. The principal of the Bonds is repaid in 8 equal annual payments on the 1st of December of every year from 2008 until 2015 (inclusive). On November 11, 2008 (the “Date of Listing”), the Bonds commenced trading on the TASE. From the date of issuance until the Date of Listing, the Bonds accrued annual interest at a rate of 9%. As of the Date of Listing, the interest rate for the unpaid balance of the Bonds was reduced by 1% to an annual interest rate of 8%. The interest on the Bonds is paid semi-annually on the 1st of June and on the 1st of December of every year from 2008 until 2015 (inclusive). The principal and interest of the Bonds are linked to the Israeli Consumer Price Index (“CPI”). The known adjusted CPI at September 30, 2013 was 120.0.

The components of the bonds payable are as follows:

	September 30, 2013
Outstanding balance (in NIS)		37,643,288
Accrued Interest (in NIS)		998,321
Increase in debt due to CPI adjustments (in NIS)		7,046,021
Total outstanding debt (in NIS)		45,687,630
Exchange rate		3.537
Total outstanding debt (USD)	$	12,917,057
Debt discount related to warrants		(268,056	)
Bonds held by subsidiary		(584,894	)
Total outstanding debt		12,064,107
Less current portion		4,367,838
Long-term portion	$	7,696,269

The Company issued the holders of the Bonds, for no additional consideration, 956,020 (non-tradable) Warrants, each exercisable at an exercise price of $3.50 with a term of 4 years, beginning on September 2, 2008. In November 2011, following the completion of the rights offering, the exercise price of these warrants was adjusted to $2.04 per share.  The warrants expired in September 2012.

The Company attributed the composition of the proceeds from the Bonds offering as follows:

Bonds Series A	$	24,588,726
Stock Purchase Warrants (1)		973,306
Total	$	25,562,032

(1) Presented as part of Additional Paid-in Capital.

The resulting debt discount and bonds issuance costs are being amortized into interest expense over the life of the Bonds.

On November 5, 2013, Midroog Limited, an Israeli rating company which is a subsidiary of Moody’s Investor Services (“Midroog”) filed with the TASE an annual monitoring report, reaffirming the Ba1 rating of the Series A Bonds, however, Midroog’s rating committee decided on a developing outlook on the rating of the Series A Bonds in light of the Company’s recently announced merger agreement entered into with Tower Three as described in Note 7 below.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Stockholders' equity:
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized shares	150,000,000	150,000,000
Common stock, issued shares	41,641,266	41,186,596
Common stock, outstanding shares	41,641,266	41,186,596

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4. Bonds payable (Tables)

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Components Of Bonds Payable

The components of the bonds payable are as follows:

	September 30, 2013
Outstanding balance (in NIS)		37,643,288
Accrued Interest (in NIS)		998,321
Increase in debt due to CPI adjustments (in NIS)		7,046,021
Total outstanding debt (in NIS)		45,687,630
Exchange rate		3.537
Total outstanding debt (USD)	$	12,917,057
Debt discount related to warrants		(268,056	)
Bonds held by subsidiary		(584,894	)
Total outstanding debt		12,064,107
Less current portion		4,367,838
Long-term portion	$	7,696,269

Composition Of Proceeds From Bonds Offering

The Company attributed the composition of the proceeds from the Bonds offering as follows:

Bonds Series A	$	24,588,726
Stock Purchase Warrants (1)		973,306
Total	$	25,562,032

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash flow from operating activities:
Net loss	$ (1,126,022)	$ (297,831)
Adjustments required to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	5,426,366	4,799,447
Compensation in connection with the issuance of warrants and options issued for professional services	282,033	143,535
Increase in bad debt provision	300,868	295,903
Accrued interest and exchange rate on bonds	1,410,379	(147,219)
Unearned loss due to hedging		56,648
Expense of discounted debt from related party and related warrants		237,454
Gain on buy back of bonds		(221,643)
Amortization of bonds issuance cost	506,139	217,035
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	128,792	(2,094,475)
Decrease (increase) in inventories	33,153	(23,972)
Decrease (increase) in long-term receivables	382,197	(12,880)
Increase in prepaid expenses and other receivables	(175,119)	(887,704)
Increase (decrease) in other long-term liabilities	(1,652,688)	598,597
Decrease in trade payables	(873,711)	(2,191,948)
Decrease in other liabilities and accrued expenses	(254,614)	(270,356)
Deferred tax provision	(962,578)	(493,906)
Net cash provided by (used in) operating activities	3,425,195	(293,315)
Cash flow from investing activities:
Purchase of equipment	(6,745,403)	(2,571,638)
Purchase of equipment for the projects under the United States Department of Agriculture, net of grants received	(8,659,745)	(8,994,079)
Net cash used in investing activities	(15,405,148)	(11,565,717)
Cash flow from financing activities:
Repayment of short-term loans from banks and others	(615,183)	(4,112,329)
Proceeds from long-term loans	6,374,087	7,178,742
Repayment of capital lease obligation	(376,296)	(420,358)
Proceeds from long-term loans from the United States Department of Agriculture	7,236,532	14,203,853
Repayment of long-term loans from United States Department of Agriculture	(1,702,371)	(1,111,706)
Proceeds from exercise of options	456,347
Decrease (increase) in restricted cash		(1,756,982)
Net cash provided by financing activities	11,373,116	13,981,220
Net increase (decrease) in cash and cash equivalents	(606,837)	2,122,188
Cash and cash equivalents at the beginning of the period	3,908,620	6,563,514
Cash and cash equivalents at the end of period	3,301,783	8,685,702
Cash paid for:
Interest	3,134,302	2,339,289
Tax	98,387	166,000
Purchase of fixed assets by capital lease arrangements	493,812	298,532
Purchase of fixed assets included in accounts payable	$ 1,753,317	$ 4,484,615

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Condensed Consolidated Balance Sheets (USD $)	Sep. 30, 2013	Dec. 31, 2012
CURRENT ASSETS:
Cash and cash equivalents	$ 3,301,783	$ 3,908,620
Accounts receivable, net	4,726,938	5,156,598
Prepaid expenses and other receivables	3,983,837	3,808,718
Deferred taxes	984,922	815,563
Inventories	189,582	222,735
Total current assets	13,187,062	13,912,234
BONDS ISSUANCE COSTS, NET	347,708	853,847
OTHER LONG-TERM ASSETS	2,400,886	2,783,083
FIXED ASSETS, NET	100,222,077	89,468,282
INTANGIBLE ASSETS, NET	1,184,352	1,465,553
Total assets	117,342,085	108,482,999
CURRENT LIABILITIES:
Short-term bank credit and current maturities of notes payable	4,933,522	2,541,703
Trade payables	7,624,977	8,498,688
Other liabilities and accrued expenses	4,814,026	5,068,640
Current maturities of obligations under capital leases	305,716	424,719
Current maturities of bonds	4,367,838	3,627,205
Total current liabilities	22,046,079	20,160,955
DEFERRED TAXES, NET	1,280,311	2,073,530
NOTES PAYABLE TO THE UNITED STATES DEPARTMENT OF AGRICULTURE, NET OF CURRENT MATURITIES	40,699,208	35,519,847
NOTES PAYABLE, NET OF CURRENT MATURITIES	18,132,659	14,410,774
BONDS PAYABLES, NET OF CURRENT MATURITIES	7,696,269	7,026,523
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT MATURITIES	444,402	207,883
OTHER LONG-TERM LIABILITIES	26,931	1,679,619
Total liabilities	90,325,859	81,079,131
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Common stock of $0.001 par value per share: 150,000,000 shares authorized; 41,641,266 and 41,186,596 issued and outstanding at September 30, 2013 and December 31, 2012, respectively	41,641	41,187
Additional paid-in capital	55,407,820	54,669,894
Foreign currency translation adjustment	(1,805,791)	(1,805,791)
Retained earnings (deficit)	(26,627,444)	(25,501,422)
Total Equity	27,016,226	27,403,868
Total liabilities and shareholders' equity	$ 117,342,085	$ 108,482,999

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2. Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

A. Principles of Consolidation and Basis of Financial Statement Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the US Securities and Exchange Commission. Certain information, including note disclosures, normally included in financial statements which are prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.

In management’s opinion, the condensed consolidated balance sheet as of September 30, 2013 (unaudited) and December 31, 2012 (audited), the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2013 and 2012, and the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2013 and 2012, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company's financial position, results of operations and cash flows on a basis consistent with that of the Company's prior audited consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore these financial statements should be read in conjunction with the audited financial statements and notes thereto and summary of significant accounting policies included in the Company’s Form 10-K for the year ended December 31, 2012.

The Company has evaluated subsequent events occurring through the date on which this Quarterly Report on Form 10-Q was filed.

B. Foreign Currency Translation

Foreign currency transactions gains and losses are included in the results of operations.

C. Cash and Cash Equivalents

Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when purchased.

D. Accounts Receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less the allowance for uncollectible accounts.

The Company uses the allowance method to account for uncollectible accounts receivable balances. Under the allowance method, the estimate of uncollectible customer balances is made using factors such as the credit quality of the customer and the economic conditions in the market. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. When an account balance is past due and attempts have been made to collect the receivable through legal or other means the amount is considered uncollectible and is written off against the allowance balance.

Accounts receivable are presented net of an allowance for doubtful accounts of $1,381,828 and $1,080,960 at September 30, 2013 and December 31, 2012, respectively.

E. Other Intangible Assets

Other intangible assets consist of a license to provide communication services in the US.

Customer relations related to mergers and acquisitions are amortized over a period between 2-13 years from the date of the purchase.

F. Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Warrants and options were excluded from the calculation of diluted loss per share since they would have an anti-dilutive effect due to the Company's net loss which were reported for the nine months and three months ended September 30, 2013 and 2012.

G. Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC No. 718-10, "Compensation - Stock Compensation".  Stock-based compensation expense recognized during the period is based on the value of the portion of share-based awards that are ultimately expected to vest during the period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock is determined based on the number of shares granted and the closing price of the Company’s common stock on the date of grant. Compensation expense for all share-based payment awards is recognized using the straight-line amortization method over the vesting period.

H. Income Taxes

The Company and its subsidiaries account for income taxes in accordance with FASB ASC No. 740, “Income Taxes.” This topic prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

Deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting, or according to the expected reversal dates of the specific temporary differences if not related to an asset or liability for financial reporting.

The Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The first step is recognition: the Company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability.

I. Derivative Instruments

The Company and its subsidiaries account for derivative instruments and hedging activities in accordance with FASB ASC No. 815, "Derivatives and Hedging". ASC 815 requires entities to provide qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of any gains and losses on derivative contracts, and details of credit risk related contingent features in their hedged positions. ASC 815 also requires entities to disclose more information about the location and amounts of derivative instruments in financial statements; how derivatives and related hedges are accounted for; and how the hedges affect the entity's financial position, financial performance, and cash flows.

The Company recognizes all of its derivative instruments as either assets or liabilities on the balance sheet at fair value. For derivative instruments that are designated and qualify as a cash flows hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change. For the period ended September 30, 2013, the Company’s forward contracts did not qualify for hedge accounting and as such, changes in the fair value of the derivative instrument were reported in current period earnings. During January 2012, the Company entered into two foreign currency hedging transactions of $596,842 maturing on May 29, 2012 to buy NIS 2,303,809, and $4,306,570 maturing on November 28, 2012 to buy NIS 16,640,591, in order to hedge against the risk of principal and interest payments of its bonds during 2012.

J. Recent Accounting Pronouncements

Balance Sheet (Topic 210). In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-11 “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities” which requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, with interim periods therein, and is to be implemented retrospectively.  Accordingly, adoption of the new guidance has not impacted the Company’s consolidated financial statements.

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2. Significant Accounting Policies (Details Narrative) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Significant Accounting Policies Details Narrative
Allowance for doubtful accounts	$ 1,381,828	$ 1,080,960

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Subsequent Event

9 Months Ended

Sep. 30, 2013

Subsequent Events [Abstract]

Subsequent Event

Merger Agreement

On October 20, 2013, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with T3 North Intermediate Holdings, LLC, a Nevada limited liability company (“Holdings”) and North Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of Holdings (“Merger Sub”).  Upon the terms and subject to the conditions set forth in the Merger Agreement, the Company will become a wholly-owned subsidiary of Holdings through a merger of Merger Sub with and into the Company, with the Company as the surviving corporation (the “Merger”).  Holdings and Merger Sub are affiliates of Tower Three Partners LLC (“Tower Three”).

Upon the terms and subject to the conditions set forth in the Merger Agreement, by virtue of the Merger, each share of the Company’s common stock, par value $0.001 per share (the “Company Common Stock”), issued and outstanding  immediately prior to the effective time of the Merger (other than the Rollover Shares, as described below), shall be cancelled and the holders thereof shall be entitled to receive $2.00 with respect to each such share (the “Merger Consideration”), without interest and subject to any applicable tax withholding.  Guy Nissenson, the Company’s chairman, President and Chief Executive Officer, has entered into a separate rollover agreement (the “Rollover Agreement”) whereby certain shares of Company Common Stock beneficially owned by Mr. Nissenson (the “Rollover Shares”) will be contributed to or exchanged with an affiliate of Holdings immediately prior to the effective time of the Merger in exchange for shares of capital stock of such entity in accordance with the Rollover Agreement.

Consummation of the Merger  is subject to a number of closing conditions, including, among other things: (i) the adoption and approval of the Merger Agreement by the requisite vote of the Company’s stockholders; (ii) receipt of certain third party consents; (iii) the absence of any law or order prohibiting the Merger; (iv) the accuracy of the representations and warranties, subject to customary materiality qualifiers; and (v) the absence of a Material Adverse Effect (as defined in the Merger Agreement).  The Merger Agreement does not contain a financing condition.

Class Actions Related to the Merger Agreement

Between October 23, 2013 and November 5, 2013, four complaints styled as class actions and relating to the Merger were filed in Nevada state court (Eighth Judicial District, Clark County) against some or all of the following: Guy Nissenson, Niv Kirkov, Shemer S. Schwarz, Arie Rosenfeld, Timothy M. Farrar, Alan Bazaar, Don Carlos Bell III, Andrew J. Macmillan, Jeffery E. Eberwein, Richard K. Coleman, Jr., the Company, Tower Three, Holdings and Merger Sub.

The cases are captioned Wender v. NTS, Case No. Case No. A-13-690634-C (referred to herein as the "Wender Complaint"), Cowart v. NTS, Inc., Case No. A-13-690982-C (referred to herein as the "Cowart Complaint"), Billet v. NTS, Case No. A-13-691059-B (referred to herein as the "Billet Complaint") and Albritton v. NTS, Inc., Case No. A-13-691247-C (referred to herein as the "Albritton Complaint") (the Wender Complaint, the Cowart Complaint, the Billet Complaint and the Albritton Complaint are collectively referred to herein as the "Shareholder Complaints").

Each of the Shareholder Complaints is a putative class action filed on behalf of the shareholders of the Company (other than the defendants and their affiliates), and alleges breaches of fiduciary duties by the individual defendants and aiding and abetting breaches of fiduciary duty by one or more of the Company, Tower Three, Holdings and Merger Sub.

Each of the Shareholder Complaints presents essentially the same allegations and seeks the same relief. The Wender Complaint alleges, among other things, that (i) the individual defendants failed to exercise due care and breached their duties of loyalty, good faith and independence owed to the Company’s shareholders by ignoring alleged conflicts of interest posed by the merger and by failing to get fair consideration for the Company’s shareholders in the Merger, and (ii) Merger Sub aided and abetted these alleged breaches of fiduciary duty. The Wender Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, a declaration that the merger is unjust, unfair and inequitable to the Company's shareholders, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the Merger proceeds, an accounting of damages and an award of counsel and expert fees.

The Cowart Complaint alleges, among other things, that (i) the individual defendants breached their fiduciary duties by placing their personal interests ahead of those of the Company's shareholders, and by failing to maximize the value of the Company, taking steps to avoid competitive bidding and ignoring alleged conflicts of interest, and (ii) the Company, Tower Three, Holdings and Merger Sub  aided and abetted these alleged breaches of fiduciary duty. The Cowart Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the merger proceeds, an accounting of damages and an award of counsel and expert fees.

The Billet Complaint alleges, among other things, that (i) the individual defendants acted in bad faith and breached their fiduciary duties of care, loyalty, good faith, independence and candor by putting their personal interests ahead of the Company's shareholders and by failing to properly value NTS and (ii) Tower Three, Holdings and Merger Sub aided and abetted these alleged breaches of fiduciary duty. The Billet Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the merger proceeds, a jury trial, an accounting of damages and an award of counsel and expert fees.

The Albritton Complaint alleges, among other things, that (i) the individual defendants breached their fiduciary duties of care, loyalty, candor and good faith by failing to properly value the Company, ignoring alleged conflicts of interest and failing to disclose material information to the shareholders and (ii) Tower Three, Holdings and Merger Sub aided and abetting these alleged breaches of fiduciary duty. The Albritton Complaint seeks, among other relief, a declaration that the action may be prosecuted as a class action and that the plaintiff be certified as the class representative, a declaration that the defendants have committed or participated in a breach of fiduciary duty, an order to the individual defendants to adopt and implement procedures and processes to obtain the highest available price for the Company’s shares, preliminary and permanent injunctive relief against the Merger or, in the alternative, rescission and rescissory damages if the Merger proceeds, a jury trial, an accounting of damages and an award of counsel and expert fees.

The Company believes that the claims in the Shareholder Complaints are without merit and intends to defend against them vigorously. As with all litigation, the outcome of these lawsuits is not certain. A preliminary injunction could delay or jeopardize the completion of the Merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the Merger. An adverse judgment for monetary damages could have an adverse effect on the operations and liquidity of the Company.

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2. Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

2. Significant Accounting Policies

The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The significant accounting policies followed in the preparation of the financial statements, applied on a consistent basis, are as follows:

A. Principles of Consolidation and Basis of Financial Statement Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the US Securities and Exchange Commission. Certain information, including note disclosures, normally included in financial statements which are prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.

In management’s opinion, the condensed consolidated balance sheets as of September 30, 2013 (unaudited) and December 31, 2012 (audited), the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2013 and 2012, and the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2013 and 2012, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company's financial position, results of operations and cash flows on a basis consistent with that of the Company's prior audited consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore these financial statements should be read in conjunction with the audited financial statements and notes thereto and summary of significant accounting policies included in the Company’s Form 10-K for the year ended December 31, 2012.

The Company has evaluated subsequent events occurring through the date on which this Quarterly Report on Form 10-Q was filed.

B. Foreign Currency Translation

Foreign currency transactions gains and losses are included in the results of operations.

C. Cash and Cash Equivalents

Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when purchased.

D. Accounts Receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less the allowance for uncollectible accounts.

The Company uses the allowance method to account for uncollectible accounts receivable balances. Under the allowance method, the estimate of uncollectible customer balances is made using factors such as the credit quality of the customer and the economic conditions in the market. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. When an account balance is past due and attempts have been made to collect the receivable through legal or other means the amount is considered uncollectible and is written off against the allowance balance.

Accounts receivable are presented net of an allowance for doubtful accounts of $1,381,828 and $1,080,960 at September 30, 2013 and December 31, 2012, respectively.

E. Other Intangible Assets

Other intangible assets consist of a license to provide communication services in the US.

Customer relations related to mergers and acquisitions are amortized over a period between 2-13 years from the date of the purchase.

F. Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Warrants and options were excluded from the calculation of diluted loss per share since they would have an anti-dilutive effect due to the Company's net loss which were reported for the nine months and three months ended September 30, 2013 and 2012.

G. Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC No. 718-10, "Compensation - Stock Compensation".  Stock-based compensation expense recognized during the period is based on the value of the portion of share-based awards that are ultimately expected to vest during the period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock is determined based on the number of shares granted and the closing price of the Company’s common stock on the date of grant. Compensation expense for all share-based payment awards is recognized using the straight-line amortization method over the vesting period.

H. Income Taxes

The Company and its subsidiaries account for income taxes in accordance with FASB ASC No. 740, “Income Taxes.” This topic prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

Deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting, or according to the expected reversal dates of the specific temporary differences if not related to an asset or liability for financial reporting.

The Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The first step is recognition: the Company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability.

I. Derivative Instruments

The Company and its subsidiaries account for derivative instruments and hedging activities in accordance with FASB ASC No. 815, "Derivatives and Hedging". ASC 815 requires entities to provide qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of any gains and losses on derivative contracts, and details of credit risk related contingent features in their hedged positions. ASC 815 also requires entities to disclose more information about the location and amounts of derivative instruments in financial statements; how derivatives and related hedges are accounted for; and how the hedges affect the entity's financial position, financial performance, and cash flows.

The Company recognizes all of its derivative instruments as either assets or liabilities on the balance sheet at fair value. For derivative instruments that are designated and qualify as a cash flows hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change. For the period ended September 30, 2013, the Company’s forward contracts did not qualify for hedge accounting and as such, changes in the fair value of the derivative instrument were reported in current period earnings. During January 2012, the Company entered into two foreign currency hedging transactions of $596,842 maturing on May 29, 2012 to buy NIS 2,303,809, and $4,306,570 maturing on November 28, 2012 to buy NIS 16,640,591, in order to hedge against the risk of principal and interest payments of its bonds during 2012.

J. Recent Accounting Pronouncements

Balance Sheet (Topic 210). In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-11 “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities” which requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, with interim periods therein, and is to be implemented retrospectively.  Accordingly, adoption of the new guidance has not impacted the Company’s consolidated financial statements.

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4. Bonds payable (Details 1) (USD $)	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements
Bonds Series A	$ 24,588,726
Stock Purchase Warrants (1)	973,306
Total	$ 25,562,032

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1. Organization and Nature of Business (Details Narrative) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Notes to Financial Statements
Working capital deficit	$ 8,859,017	$ 6,248,721

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Capital Structure (Details Nerrative) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Notes to Financial Statements
Common Stock Par Value	$ 0.001	$ 0.001
Common stock, issued shares	41,641,266	41,186,596
Common stock, outstanding shares	41,641,266	41,186,596

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Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 13, 2013
Document And Entity Information
Entity Registrant Name	NTS, INC.
Entity Central Index Key	0001126216
Document Type	10-Q
Document Period End Date	Sep. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		42,068,055
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2013