0001315255-14-000009.txt : 20140225 0001315255-14-000009.hdr.sgml : 20140225 20140225145857 ACCESSION NUMBER: 0001315255-14-000009 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20130430 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20140225 DATE AS OF CHANGE: 20140225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GTT Communications, Inc. CENTRAL INDEX KEY: 0001315255 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 202096338 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-35965 FILM NUMBER: 14640172 BUSINESS ADDRESS: STREET 1: 8484 WESTPARK DRIVE STREET 2: SUITE 720 CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: (703) 442-5500 MAIL ADDRESS: STREET 1: 8484 WESTPARK DRIVE STREET 2: SUITE 720 CITY: MCLEAN STATE: VA ZIP: 22102 FORMER COMPANY: FORMER CONFORMED NAME: Global Telecom & Technology, Inc. DATE OF NAME CHANGE: 20061018 FORMER COMPANY: FORMER CONFORMED NAME: Mercator Partners Acquisition Corp. DATE OF NAME CHANGE: 20050124 8-K/A 1 form8-ka.htm 8-K/A FORM 8-K/A





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A
(Amendment No. 1)

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

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): April 30, 2013

 
GTT Communications, Inc.
 
 
(Exact Name of Registrant as Specified in its Charter)
 

Delaware
 
000-51211
 
20-2096338
(State or Other
Jurisdiction of Incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)

 
8484 Westpark Drive
Suite 720
McLean, Virginia 22102
 
 
(Address of principal executive offices) (Zip Code)
 
Registrant’s Telephone Number, Including Area Code: (703) 442-5500
 
N/A
 
 
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))










Explanatory Note

This Current Report on Form 8-K/A (this “Amendment”) is being filed to correct a Current Report on Form 8-K filed by us on February 24, 2014, which was inadvertently submitted to EDGAR under the EDGAR form type for a Form 8-K instead of a Form 8-K/A and inadvertently omitted a conformed signature on the signature page. Additionally, the period of report was tagged as February 24, 2014, however it should have been tagged as April 30, 2013.  The sole purpose of this Amendment is to correct the form type, correct the period of report and add a conformed signature on the signature page. No other changes have been made to the original report.

Item 2.01.
Completion of Acquisition or Disposition of Assets.

In our Current Report on Form 8-K filed on May 6, 2013 (the “Initial 8-K”), we reported that we completed our acquisition (the “Acquisition”) from Neutral Tandem, Inc. (doing business as Inteliquent) (the “Seller”) of all of the equity interests in NT Network Services, LLC and NT Network Services, LLC SCS, which, together with the subsidiaries of such companies, comprise the data transport business of the Seller. As permitted by Item 9.01 of Form 8-K, we indicated in the Initial 8-K that we would file the historical and pro forma financial information required under Item 9.01 of Form 8-K with respect to the Acquisition by amendment to the Initial 8-K. This amendment (“Amendment No. 1”) is being filed to amend and supplement the Initial 8-K to include such financial statements and pro forma financial information.

Item 9.01
Financial Statements and Exhibits

(a) Financial Statements of Business Acquired.
The audited financial statements of NT Network Services, LLC, SCS and subsidiaries for the year ended December 31, 2012 and the audited financial statements for Tinet S.P.A and subsidiaries. for the year ended December 31, 2011 are filed herewith as Exhibit 99.1 and 99.2 to this Amendment No. 1, respectively, and incorporated by reference into this Item 9.01(a).
The reviewed financial statements of NT Network Services, LLC, SCS and subsidiaries for the three-months ended March 31, 2013 and 2012 are filed herewith as Exhibit 99.3 to this Amendment No. 1 and and incorporated by reference into this Item 9.01(a).
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed combined financial information of us and Seller are filed herewith as Exhibit 99.4 to this Amendment No. 1 and incorporated by reference into this Item 9.01(b):
Unaudited Pro Forma Condensed Combined Balance Sheets as of March 31, 2013.
Unaudited Pro Forma Condensed Combined Statement of Operations for the Three Months Ended March 31, 2013.
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2012.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements.








2




(d) Exhibits.

Exhibit No.
 
Description of Exhibit
99.1
 
The audited consolidated financial statements of NT Network Services, LLC, SCS and Subsidiaries for the year ended December 31, 2012.
99.2
 
The audited consolidated financial statements of Tinet S.P.A. and Subsidiaries for the year ended December 31, 2011.
99.3
 
The reviewed consolidated financial statements of NT Network Services, LLC, SCS and Subsidiaries for the three-months ended March 31, 2013 and 2012.
99.4
 
The unaudited pro forma condensed combined financial information for the year ended December 31, 2012 and for the three months ended March 31, 2013, giving effect to the Acquisition.


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 hereunto duly authorized.


  Date: February 25, 2014
GTT COMMUNICATIONS, INC.
 
  
 
 
 
/s/ Michael Bauer
 
 
Michael Bauer
 
 
Chief Financial Officer
 
  
 



3




EXHIBIT INDEX

Exhibit No.
 
Description of Exhibit
99.1
 
The audited consolidated financial statements of NT Network Services, LLC, SCS and Subsidiaries for the year ended December 31, 2012.
99.2
 
The audited consolidated financial statements of Tinet S.P.A. and Subsidiaries for the year ended December 31, 2011.
99.3
 
The reviewed consolidated financial statements of NT Network Services, LLC, SCS and Subsidiaries for the three-months ended March 31, 2013 and 2012.
99.4
 
The unaudited pro forma condensed combined financial information for the year ended December 31, 2012 and for the three months ended March 31, 2013, giving effect to the Acquisition.



4
EX-99.1 2 exhibit991.htm EXHIBIT 99.1 Exhibit 99.1
EXHIBIT 99.1


















NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012







































EXHIBIT 99.1



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES


 
Page
Independent Auditors’ Report
1
Consolidated Financial Statements
 
Consolidated Balance Sheet at December 31, 2012
2
Consolidated Statement of Operations for the Year Ended December 31, 2012
3
Consolidated Statement of Comprehensive Loss for the Year Ended December 31, 2012
4
Consolidated Statement of Changes in Stockholders’ Equity for the Year Ended December 31, 2012
5
Consolidated Statement of Cash Flows for the Year Ended December 31, 2012
6
Notes to Consolidated Financial Statements
7-15




EXHIBIT 99.1



INDEPENDENT AUDITORS' REPORT



To The Stockholders and Board of Directors
NT Network Services, LLC, SCS and Subsidiaries
Cagliari, Italy

We have audited the accompanying consolidated financial statements of NT Network Services, LLC, SCS and Subsidiaries, which comprise the consolidated balance sheet at December 31, 2012, the related consolidated statements of operations, comprehensive loss, changes in members’ equity and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NT Network Services, LLC, SCS, and Subsidiaries at December 31, 2012, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.




GRASSI & CO., CPAs, P.C.

Jericho, New York
February 21, 2014






1

EXHIBIT 99.1



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2012
ASSETS
CURRENT ASSETS:
 
Cash
$
10,114,928

Accounts receivable, net
12,954,733

Investments
6,607

Prepaid expenses and other current assets
4,943,390

 
 
Total Current Assets
28,019,658

 
 
PROPERTY AND EQUIPMENT, NET
9,708,438

 
 
NONCURRENT ASSETS:
 
Intangible assets, net
13,598

Other assets
1,063,846

Total Non-current Assets
1,077,444

 
 
Total Assets
$
38,805,540

 
 
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
 
Accounts payable
$
4,834,816

Accrued expenses and other current liabilities
8,898,939

Income taxes payable - current
1,181,656

Accrued cost of revenue
5,123,370

Deferred tax liabilities
13,557

Deferred revenue
1,316,621

 
 
Total Current Liabilities
21,368,959

 
 
NONCURRENT LIABILITIES:
 
Other non-current liabilities
761,983

 
 
Total Liabilities
22,130,942

 
 
COMMITMENTS AND CONTINGENCIES
 
 
 
MEMBERS' EQUITY
16,674,598

 
 
Total Liabilities and Members' Equity
$
38,805,540



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



2

EXHIBIT 99.1





NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012

REVENUE
$
72,093,800

 
 
OPERATING ACTIVITIES:
 
Cost of telecommunication services provided
40,876,052

Selling, general and administrative expenses
26,348,800

Depreciation and amortization
8,805,081

Loss on disposal of fixed assets
868,796

Impairment of investments
303,893

Impairment of goodwill, fixed and intangible assets
26,482,794

 
 
LOSS FROM OPERATIONS
(31,591,616
)
 
 
OTHER EXPENSE:
 
Interest expense, net
(154,293
)
Other expense, net
(756,716
)
 
 
Total Other Expense
(911,009
)
 
 
LOSS BEFORE PROVISION FOR INCOME TAXES
(32,502,625
)
 
 
PROVISION FOR INCOME TAXES
2,096,803

 
 
NET LOSS
$
(34,599,428
)















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


3

EXHIBIT 99.1



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2012

NET LOSS
$
(34,599,428
)
 
 
OTHER COMPREHENSIVE INCOME:
 
   Change in accumulated foreign currency translation adjustment
2,835,076

 
 
COMPREHENSIVE LOSS
$
(31,764,352
)










































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

4

EXHIBIT 99.1


 
NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2012

 
 
 
Accumulated
 
 
 
 
 
Other Comprehensive
 
 
 
Members'
 
 Income - Translation
 
 
 
 Equity
 
 Adjustment
 
Total
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2011
$

 
$

 
$

 
 
 
 
 
 
CONTRIBUTION OF TINET S.P.A. AND SUBSIDIARIES
 
 
 
 
 
     STOCKHOLDERS' EQUITY
47,357,903

 
1,593,233

 
48,951,136

 
 
 
 
 
 
NET LOSS FOR THE YEAR ENDED DECEMBER 31, 2012
(34,599,428
)
 

 
(34,599,428
)
 
 
 
 
 
 
CONTRIBUTIONS FROM RELATED PARTY
2,144,075

 

 
2,144,075

 
 
 
 
 
 
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
(2,656,261
)
 
2,835,076

 
178,815

 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2012
$
12,246,289

 
$
4,428,309

 
$
16,674,598




























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




5

EXHIBIT 99.1

NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012

CASH FLOWS FROM OPERATING ACTIVITIES:
 
Net loss
$
(34,599,428
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
Depreciation and amortization
8,805,081

Deferred income taxes
1,268,045

Gain on sale of fixed assets
(27,556
)
Bad debt provision
1,758,149

Impairment of investments
303,893

Impairment of goodwill, fixed and intangible assets
27,379,146

Changes in Assets (Increase) Decrease:
 
Accounts receivable
1,011,231

Prepaid expenses and other current assets
19,026

Changes in Liabilities Increase (Decrease):
 
Accounts payable and accrued expenses
457,324

Income taxes payable
741,978

Deferred revenue
227,129

Other non-current liabilities
170,332

NET CASH PROVIDED BY OPERATING ACTIVITIES
7,514,350

 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
Acquisition of property and equipment
(4,764,949
)
 
 
NET CASH USED IN INVESTING ACTIVITIES
(4,764,949
)
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
Cash acquired from contribution from Tinet S.p.A.
5,115,204

Repayments on loans
(1,900,000
)
 
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
3,215,204

 
 
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
4,150,323

 
 
NET INCREASE IN CASH
10,114,928

 
 
CASH, BEGINNING OF YEAR

 
 
CASH, END OF YEAR
$
10,114,928

 
 
SUPPLEMENTAL CASH FLOW INFORMATION:
 
Interest paid
$
8,142

 
 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES :
 
Reclassification of due to related party, net to capital
$
2,144,075

Contribution of Tinet S.p.A. and Subsidiaries, non-cash portion
$
43,835,932


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

6

EXHIBIT 99.1



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012


Note 1 -    Nature of Operations and Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of NT Network Services, LLC, SCS (“NT Network Services” or the “Company”), Inteliquent Holdings S.a.r.l. (“Inteliquent Holdings”), Inteliquent S.a.r.l. (“Inteliquent”), Inteliquent Australia Pty Ltd. (“Inteliquent Australia”), UAB Inteliquent Lithuania (“Inteliquent Lithuania”), Tinet S.p.A. (“Tinet”), Inteliquent Canada Communications Inc. (“Inteliquent Canada”), Inteliquent Istanbul Telekomunikasyon Hizmetleri Limited Sirketi (“Inteliquent Istanbul”), Tiscali International Networks Ltd. (“Tinet UK”), Tinet GmbH, Tinet Hong Kong Limited (“Tinet HK”), and Tinet Singapore Pte. Ltd. (“Tinet Singapore”). All material intercompany balances, revenue and cost transactions have been eliminated in the consolidated financial statements.

Change in Reporting Entity

In 2012, the Company changed its reporting entity structure to contribute certain wholly owned subsidiaries to NT Network Services, LLC, SCS. The contribution of subsidiaries was effected to more efficiently deploy capital across the organization. The consolidated financial statements of the Company include the contributed subsidiaries at December 31, 2012. The contributed subsidiaries resulted in an increase in members’ equity of approximately $49 million at December 31, 2012.

Business Activity

NT Network Services and Subsidiaries provide voice, IP Transit, and Ethernet telecommunications services primarily on a wholesale basis. The Company offers these services using an all-IP network, which enables the Company to deliver global connectivity for a variety of media, including voice, data and video. The Company’s solutions enable carriers and other providers to deliver telecommunications traffic or other services where they do not have their own network or elect not to use their own network. These solutions are sometimes called “off-net” services. The Company also provides solutions to customers, like content providers, who also typically do not have their own network. All of the Company’s operations take place outside the United States of America.

Note 2 -    Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.  These valuations require significant judgment.


7

EXHIBIT 99.1

At December 31, 2012, the fair value of the Company’s financial instruments including cash, accounts receivable, accounts payable and accrued expenses, approximated book value due to the short term maturities of these instruments.

Cost-Method Investments

Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or statement of operations. However, impairment charges are recognized in the consolidated statement of operations. If circumstances suggest that the value of the investee company has subsequently recovered, such recovery is not recorded. At December 31, 2012, investments in the balance sheet consist of the cost of an investment in Topix consortium for the share of Internet traffic for $6,607. The fair value of the cost-method investment was not estimated because there are no identified events or changes in circumstances that may have a significant effect on the fair value. Accordingly, the Company does not estimate its fair value because it is not practicable.

Revenue Recognition

The Company generates revenue from sales of its voice, IP Transit, and Ethernet telecommunications services. The Company maintains executed service agreements with each of its customers in which specific fees and rates are determined. Revenue is recorded each month based upon documented minutes of traffic switched or Internet transit for which service is provided, and when collection is probable.

Deferred Revenue

The Company recognizes revenues as earned. Amounts billed in advance of the period in which service is rendered are recorded as a liability under “Deferred revenue.”

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. The Company reviews accounts receivable on a monthly basis to determine if any receivables will be potentially uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Normally, accounts receivable are due within 30 days after the date of the invoice. The Company treats invoices as past due when they remain unpaid, in whole or in part, beyond the payment time set forth in the applicable service contract. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. At December 31, 2012, the allowance for doubtful accounts was approximately $3,546,000. The Company does not accrue interest on past due receivables.

Property and Equipment

Property and equipment is stated at cost. The costs of additions and improvements are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in income.

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows:
Office equipment
3 to 13 years
Network equipment
5 years
Software
5 years

Leasehold improvements are amortized over the shorter of the remaining term of the lease or the useful life of the improvement utilizing the straight-line method.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 360-10-35, Impairment or Disposal of Long-Lived Assets. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount, if any, exceeds its fair value.

8

EXHIBIT 99.1



During the year ended December 31, 2012, the Company recorded property and equipment impairment charges of approximately $4.9 million, as a result of an impairment test performed during the fourth quarter of 2012. The results of the test are further described in Note 4, “Property and Equipment.” In addition, the Company ceased its hosted services offering during the year ended December 31, 2012. As the equipment has no further use in the Company’s network, the Company recorded an asset impairment charge of approximately $0.9 million to write off the related assets.

Intangible Assets

Definite-lived intangible assets are amortized utilizing the straight-line method over their estimated useful lives as follows:
Patents
5 years
Trademarks
5 years
Indefeasible rights of use
5 to 15 years
Customer list
5 years

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

During the year ended December 31, 2012, the Company recorded intangible assets impairment charges of approximately $8.1 million, as a result of an impairment test performed during the fourth quarter of 2012. The results of the test are further described in Note 5, “Intangibles and Goodwill, Net.”

Goodwill

Goodwill is not amortized, but is tested for impairment at least on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired in accordance with FASB ASC Topic 350, Intangibles - Goodwill and Other. The Company compares each reporting unit’s fair value, by considering comparable company market valuations and estimating expected future discounted cash flows to be generated by the reporting unit, to its carrying value. If the carrying value exceeds the reporting unit’s fair value, the Company performs an additional fair value measurement calculation to determine the impairment loss. The amount of impairment is determined by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the goodwill.

During the year ended December 31, 2012, the Company recorded a goodwill impairment charge of approximately $13.5 million as a result of the impairment test performed during the fourth quarter of 2012 (see Note 5, “Intangibles and Goodwill, Net”).

Income Taxes

Income tax expense includes income taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the difference between the financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Applicable accounting literature requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by taxing authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than a 50% likelihood of being realized upon ultimate settlement. Accounting provisions also require that a change in judgment that results in subsequent recognition, derecognition, or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the period in which the change occurs. The Company regularly evaluates the likelihood of recognizing the benefit from income tax positions taken by considering all relevant facts, circumstances, and information available.



9

EXHIBIT 99.1


Foreign Operations

For all foreign operations, the functional currency is the local currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at the weighted average rates of exchange during the period. Gain or loss on the translation of foreign currency within the consolidated financial statements is recorded directly into a separate component of members’ equity as accumulated other comprehensive income (loss). Gain or loss on re-measurement from the recording currency to the functional currency prior to translation, is recognized in current results of operations.

Advertising, Promotions and Trade Shows

Costs related to advertising, promotions and trade shows are expensed as incurred and amounted to approximately $224,000 for the year ended December 31, 2012.

New Accounting Pronouncements

In July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This update clarifies that an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward and not as a liability except in certain limited circumstances. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The Company does not expect the new guidance to have an impact on its consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (“AOCI”). Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of AOCI by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period.

For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 is effective from January 1, 2013, and the Company does not expect the new guidance to have an impact on its consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which simplifies the guidance for testing the impairment of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses, and distribution rights. The amendment provides the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. Under the option, an entity is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This amendment is effective for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company does not expect the new guidance to have an impact on its 2012 impairment test results.

Note 3 -    Concentration of Credit Risk

At December 31, 2012, the Company had approximately $10,115,000, which is its entire cash balance, in international bank accounts.











10

EXHIBIT 99.1



Note 4 -    Property and Equipment

Property and equipment, net consists of the following:

Office equipment
$
713,456

Network equipment
23,687,759

Leasehold improvements
139,943

Software
1,877,236

Assets under construction
50,503

 
26,468,897

Less: Accumulated depreciation and amortization
16,760,459

 
$
9,708,438



Depreciation and amortization expense amounted to approximately $5,630,000 for the year ended December 31, 2012.

On February 22, 2013, the Company concluded that it was required to record a material impairment charge for goodwill, intangible assets, and fixed assets in the fourth quarter of 2012. The Company utilized FASB ASC Topic 360, Property, Plant and Equipment (“ASC 360”) guidance to test the long-lived assets for realizability and determined that the lowest level of its cash flow generation was its reporting units. During ASC 360 Step 1, the Company compared the undiscounted cash flows attributable to each reporting unit over the projection period of five years based upon the estimated useful life of the primary asset group, which was the parent company’s property and equipment, plus an estimate of terminal value to its book value. The sum of the undiscounted cash flows was less than the carrying value of the net assets for each reporting unit. This indicated that the Company failed Step 1 and was required to complete Step 2 under ASC 360 guidance that would quantify the impairment amount. During ASC 360 Step 2, the Company fair valued the assets using three generally accepted approaches: the cost, income and market approaches. As a result of the Step 2 analysis, the Company recorded a property and equipment impairment charge of approximately $4.9 million noncash write-down of fixed assets.

Note 5 -    Intangibles and Goodwill, Net

Intangible assets, net consist of the following:
 
Useful Life
 
 
Patents
5 years
 
$
2,001

  net of accumulated amortization of $5,248
 
 
 
Trademarks,
5 years
 
11,597

  net of accumulated amortization of $24,048
 
 
 
 
 
 
$
13,598


Amortization expense related to intangible assets for the year ended December 31, 2012 was approximately $3,175,000.

As described in Note 4, in conjunction with the impairment analysis, the Company applied the excess earnings method, a form of the income approach, to estimate the value of the customer based intangible assets. Based on the analysis, the Company concluded that the intangible assets had no value and accordingly an impairment charge of $8.1 million was recorded. Prior to the impairment charges, the intangible assets, which consisted of customer relationships, had a definite life and were amortized on an accelerated basis based on the discounted cash flows recognized over their estimated useful lives (15 years).

Goodwill at December 31, 2012 was $-0-. During the year ended December 31, 2012, the Company, as a result of an impairment test as described in Note 4, recorded an estimated non-cash goodwill impairment charge of approximately $13.5 million, which resulted in no goodwill being carried at December 31, 2012. Factors that the Company considered in the recognition of an impairment included (i) the decline in the parent company’s common stock price beginning in the late third quarter of 2012 and sustained through the following year, which required an increase in the discount rate used in the present value calculation in order to reconcile the

11

EXHIBIT 99.1

parent company’s market capitalization to the aggregate estimated fair value of all of the parent company’s reporting units, and (ii) the carrier settlement that was settled in the fourth quarter of 2012.

Note 6 -    Related Party Transactions

The Company is a wholly-owned subsidiary of Neutral Tandem, Inc. and is also affiliated with NT Network Services, LLC under common ownership. During 2012, the Company entered into several transactions with its parent and affiliate. A summary of the transactions is as follows:
Revenue
$
5,267,747

Cost of telecommunication services
$
11,799,155

Interest expense
$
143,240


During the year ended December 31, 2012, the Company had a revolving line of credit agreement with Neutral Tandem, Inc. in the amount of $20,000,000, which was set to expire on March 31, 2015. Borrowings under the agreement bore interest at 3.5% per annum. At December 31, 2012, all related party payables have been eliminated and recorded as contributions from related party within members’ equity.

Note 7 -    Contingencies

The Company was audited by the Italian Revenue Agency in February 2013. The Italian Revenue Agency disavowed the accounting for client lists as other intangible assets to be amortized over the period of five years considering them instead goodwill, for which the Italian Revenue Code prescribes an amortization period of eighteen years. Corporate income taxes due for the year 2009 in the amount of approximately $330,000 are classified as income taxes payable.

During the year ended December 31, 2012, the Company amended its tax return for the fiscal year ended December 31, 2011 and reduced the corresponding liability for approximately $446,000. As a result, a liability in the amount of approximately $570,000 for the year ended December 31, 2010, is included in accounts payable and accrued expenses and other current liabilities. Accounts payable and accrued expenses and other current liabilities also include an accrual of approximately $327,000 of interest and penalties for the years 2010 and 2011.

During the year ended December 31, 2012, the Company recognized a provision in the amount of approximately $3,300,000 for potential tax liabilities in conjunction with its activities in certain countries where a permanent establishment may give rise to corporate income and value added taxes. At December 31, 2012, contingent tax liabilities amount to approximately $4,280,000 and are classified in accounts payable and accrued expenses and other current liabilities.

In addition, during the year ended December 31, 2012, the Company recorded an accrual of approximately $304,000 as a potential liability for the impairment of the investment in Tinet Singapore. The accrual has been included in results of operations for 2012 and is classified in accounts payable and accrued expenses and other current liabilities.

The Company is subject to various claims and proceedings in the ordinary course of business. During the year ended December 31, 2012, the Company recorded a liability in the amount of $1,190,000 to settle a dispute with a former managing director and CEO as a result of the termination of his employment contract. In October 2013, this amount was paid in full settlement of the dispute.

Based on information currently available, management estimates that no additional claims or proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position or results of operations, although such estimates can change in the future.











12

EXHIBIT 99.1


Note 8 -    Provision for Income Taxes

The components of the income tax expense (benefit) are as follows for the year ended December 31, 2012:

Current:
 
IRES
$
507,750

IRAP
141,995

Foreign
179,013

 
828,758

Deferred:
 
IRES
(5,902,253
)
Change in valuation allowance
7,170,298

 
1,268,045

 
 
Total provision for income taxes
$
2,096,803



The provision for income taxes differs from the amount computed by applying the Italian statutory income tax rate to income before income taxes for the reasons set forth below for the year ended December 31, 2012:

Italian statutory income tax rate
27.5
 %
Permanent items
(10.89
)%
Foreign tax rate differential
0.2
 %
Change in valuation allowance
(22.06
)%
FIN 48
(1.2
)%
Effective Tax Rate
(6.45
)%


For the year ended December 31, 2012, the effective tax rate of (6.45)% differed from the statutory rate of 27.5% due primarily to various permanent differences between taxable income calculated under accounting principles generally accepted in the United States of America and taxable income calculated in accordance with the rules and regulations of applicable taxing authorities. In addition, the Company does not believe it will be able to realize benefits of its deferred tax assets; therefore, a full valuation allowance has been established against net deferred tax assets. At December 31, 2012, the Company has no net operating loss carryforwards.




















13

EXHIBIT 99.1

Deferred income taxes reflect the net effects of net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 2012 are as follows:

Deferred Tax Assets:
 
 
Directors' compensation
 
$
822

Bad debt provision
 
638,616

Tax depreciation on goodwill
 
1,199,275

Maroc Telecom Provision
 
71,012

Miscellaneous
 
23,769

Risk provision
 
452,673

Write-down of tangible assets
 
1,642,263

Write-down of intangible assets
 
3,355,542

Total deferred tax assets before valuation allowance
 
7,383,972

Less: Valuation allowance
 
7,370,415

Total deferred tax assets
 
13,557

 
 
 
Deferred Tax Liabilities:
 
 
Foreign exchange gain/loss
 
(13,557
)
Total deferred tax liabilities
 
(13,557
)
Net deferred tax asset
 
$



FASB ASC Topic 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company believes that it is more likely than not that all of the deferred tax assets will be realized against future taxable income but does not have objective evidence to support this future assumption. Based upon the weight of available evidence, which includes the Company's historical operating performance and the reported accumulated net losses to date, the Company has provided a full valuation allowance against its deferred tax assets, except to the extent that those assets are expected to be realized through continuing amortization of the Company's deferred tax liabilities for intangible assets.

The Company files Italian Corporate Income Tax (“IRES”) and Italian Regional Production Tax (“IRAP”) income tax returns in Italy. Under the Italian Tax Assessment Code, tax assessments (for both IRES and IRAP) can be assessed until the fourth year following of the tax return. Currently, all years 2009 and later are open to assessment and all years prior to 2009 are closed for tax assessment purposes.

The Company performed an analysis of all open years, December 31, 2009 to December 31, 2012 and the expected tax positions to be taken at the balance sheet date. At December 31, 2012, approximately $4,625,000 of unrecognized tax benefits including penalties and interest, could affect the Company's tax provision and effective tax rate. The gross unrecognized tax benefit amount is not expected to materially change in the next 12 months.

Note 9 -    Non-retirement Post-employment Benefits

The Company provides certain post-employment benefits to eligible former employees during the period subsequent to employment but prior to retirement and accrues for the related cost over the service lives of the employees. These benefits include severance benefits. At December 31, 2012, the Company had approximately $762,000 of post-employment benefit liabilities included in other non-current liabilities. Post-employment benefit costs charged to operations in 2012 totaled approximately $186,000.









14

EXHIBIT 99.1


Note 10 -
Leases

The Company has non-cancellable operating leases for three locations. Future annual aggregate minimum lease payments under non-cancellable operating leases are as follows:

Years Ending December 31:
 
2013
$
473,592

2014
549,921

2015
549,921

2016
457,417

2017
338,484

Thereafter
1,579,591

 
$
3,948,926



Rent expense charged to operations amounted to approximately $600,000 for the year ended December 31, 2012.

Note 11 -
Subsequent Events

The Company has evaluated all events or transactions that occurred after December 31, 2012 through the date of these consolidated financial statements, which is the date that the consolidated financial statements were available to be issued.

On April 30, 2013, the Company’s stockholders entered into an agreement to sell, and sold all of the equity interest in the Company to GTT Communications, Inc (“GTT”). In consideration for the equity interest in the Company, GTT paid the sellers $52,500,000 in cash, subject to a capital adjustment, an adjustment based on the cash and cash equivalents in the Company immediately prior to the acquisition and a reduction in an amount equal to the amount of indebtedness of the Company outstanding immediately prior to the acquisition.

Due to the acquisition of the Company by GTT as described above, the line of credit mentioned in the related party footnote was closed.

Except for what is described above and in Note 7, there were no other material subsequent events requiring disclosure during this period.

















15
EX-99.2 3 exhibit992.htm EXHIBIT 99.2 Exhibit 99.2
EXHIBIT 99.2

















TINET S.P.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011





































EXHIBIT 99.2



TINET S.P.A. AND SUBSIDIARIES

CONTENTS


 
Page
Independent Auditors’ Report
1
Consolidated Financial Statements
 
Consolidated Balance Sheet at December 31, 2011
2
Consolidated Statement of Operations for the Year Ended December 31, 2011
3
Consolidated Statement of Comprehensive Loss for the Year Ended December 31, 2011
4
Consolidated Statement of Changes in Stockholders’ Equity for the Year Ended December 31, 2011
5
Consolidated Statement of Cash Flows for the Year Ended December 31, 2011
6
Notes to Consolidated Financial Statements
7-14








EXHIBIT 99.2


Independent Auditors' Report



To The Stockholders and Board of Directors
Tinet S.p.A and Subsidiaries
Cagliari, Italy

We have audited the accompanying consolidated balance sheet of Tinet S.p.A. and Subsidiaries at December 31, 2011, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tinet S.p.A. and Subsidiaries at December 31, 2011, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.




GRASSI & CO., CPAs, P.C.

Jericho, New York
February 21, 2014


























1

EXHIBIT 99.2

TINET S.P.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 2011

ASSETS
CURRENT ASSETS:
 
 
   Cash
 
$
5,115,204

   Accounts receivable, net
 
15,463,055

   Investments
 
6,474

   Prepaid expenses and other current assets
 
4,740,796

   Deferred tax assets
 
1,290,389

       Total Current Assets
 
26,615,918

 
 
 
PROPERTY AND EQUIPMENT, NET
 
17,121,606

 
 
 
NONCURRENT ASSETS:
 
 
   Intangible assets, net
 
10,301,818

   Goodwill
 
13,591,515

   Other assets
 
1,164,407

       Total Non-current Assets
 
25,057,740

 
 
 
       Total Assets
 
$
68,795,264

 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 
 
   Accounts payable
 
$
9,455,594

   Accrued expenses and other current liabilities
 
5,241,731

   Income taxes payable - current
 
415,866

   Accrued cost of revenue
 
3,078,398

   Deferred tax liabilities
 
13,284

   Deferred revenue
 
1,062,960

       Total Current Liabilities
 
19,267,833

 
 
 
NON-CURRENT LIABILITIES:
 
 
   Other non-current liabilities
 
576,295

 
 
 
       Total Liabilities
 
19,844,128

 
 
 
COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
STOCKHOLDERS' EQUITY:
 
 
   Common stock, par value 1.29485; 120,000 shares authorized and issued
 
155,382

   Additional paid-in capital
 
55,729,981

   Accumulated deficit
 
(8,527,460
)
   Accumulated other comprehensive income
 
1,593,233

   Total Stockholders' Equity
 
48,951,136

 
 
 
       Total Liabilities and Stockholders' Equity
 
$
68,795,264


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

2

EXHIBIT 99.2


TINET S.P.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2011


REVENUE
$
68,122,741

 
 
OPERATING ACTIVITIES:
 
Cost of telecommunication services provided
41,386,002

Selling, general and administrative expenses
19,515,198

Depreciation and amortization
10,951,035

Gain on sale of fixed assets
(1,715,913
)
 
 
LOSS FROM OPERATIONS
(2,013,581
)
 
 
OTHER EXPENSE:
 
Interest expense, net
(968,038
)
Other expense, net
(473,735
)
 
 
Total Other Expense
(1,441,773
)
 
 
LOSS BEFORE PROVISION FOR INCOME TAXES
(3,455,354
)
 
 
PROVISION FOR INCOME TAXES
2,021,457

 
 
NET LOSS
$
(5,476,811
)























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



3

EXHIBIT 99.2



TNET S.P.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2011





NET LOSS
$
(5,476,811
)
 
 
OTHER COMPREHENSIVE INCOME:
 
   Change in accumulated foreign currency translation adjustment
1,606,446

 
 
COMPREHENSIVE LOSS
$
(3,870,365
)




































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


4

EXHIBIT 99.2



TINET S.P.A AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2011

 
 
 
 
 
 
 
 
Other Comprehensive
 
 
 
Common Stock
 
Additional Paid-In
 
Accumulated
 
Income - Translation
 
 
 
 Shares
 Amount
 
 Capital
 
 Deficit
 
 Adjustment
 
Total
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2010
120,000

$
159,018

 
$
26,476,497

 
$
(1,464,315
)
 
$
(13,213
)
 
$
25,157,987

 
 
 
 
 
 
 
 
 
 
 
NET LOSS FOR THE YEAR ENDED DECEMBER 31, 2011


 

 
(5,476,811
)
 

 
(5,476,811
)
 
 
 
 
 
 
 
 
 
 
 
CONTRIBUTIONS FROM RELATED PARTY


 
29,858,884

 

 

 
29,858,884

 
 
 
 
 
 
 
 
 
 
 
FOREIGN CURRENCY TRANSLATION ADJUSTMENT

(3,636
)
 
(605,400
)
 
(1,586,334
)
 
1,606,446

 
(588,924
)
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2011
120,000

$
155,382

 
$
55,729,981

 
$
(8,527,460
)
 
$
1,593,233

 
$
48,951,136




























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

5

EXHIBIT 99.2


TINET S.P.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
Net loss
$
(5,476,811
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
Depreciation and amortization
10,951,035

Deferred income taxes
(756,061
)
Gain on sale of fixed assets
(1,715,913
)
Bad debt provision
688,591

Changes in Assets (Increase) Decrease:
 
Accounts receivable
(3,111,247
)
Prepaid expenses and other current assets
(3,973,956
)
Changes in Liabilities Increase (Decrease):
 
Accounts payable and accrued expenses
11,400,045

Income taxes payable
236,311

Deferred revenue
136,151

Other non-current liabilities
231,313

NET CASH PROVIDED BY OPERATING ACTIVITIES
8,609,458

 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
Acquisition of property and equipment
(7,909,480
)
 
 
NET CASH USED IN INVESTING ACTIVITIES
(7,909,480
)
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
Proceeds from related party notes, net
4,789,856

 
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
4,789,856

 
 
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
(3,460,235
)
 
 
NET INCREASE IN CASH
2,029,599

 
 
CASH, BEGINNING OF YEAR
3,085,605

 
 
CASH, END OF YEAR
$
5,115,204

 
 
SUPPLEMENTAL CASH FLOW INFORMATION:
 
Interest paid
$
265,826

Income taxes paid
$
160,840

 
 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES :
 
Contribution from related party
$
20,377,000

Contribution of intracompany loan
$
10,455,000

Reclassification of due to related party, net to capital
$
9,481,884


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




6

EXHIBIT 99.2

TINET S.P.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011


Note 1 -    Nature of Operations and Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of Tinet S.p.A. (“Tinet”), Tiscali International Networks Ltd (“Tinet UK”), Tinet GmbH, Tinet Hong Kong Limited (“Tinet HK”), and Tinet Singapore Pte. Ltd. (“Tinet Singapore”). Also included in the consolidated financial statements is Tinet, Inc., which was dissolved on December 27, 2011. All material intercompany balances, revenue and cost transactions have been eliminated in the consolidated financial statements.

Business Activity

Tinet S.p.A. and Subsidiaries (collectively, the “Company”) provide voice, IP Transit, and Ethernet telecommunications services primarily on a wholesale basis. The Company offers these services using an all-IP network, which enables the Company to deliver global connectivity for a variety of media, including voice, data and video. The Company’s solutions enable carriers and other providers to deliver telecommunications traffic or other services where they do not have their own network or elect not to use their own network. These solutions are sometimes called “off-net” services. The Company also provides solutions to customers, like content providers, who also typically do not have their own network. All of the Company’s operations take place outside the United States of America.

Note 2 -    Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.  These valuations require significant judgment.

At December 31, 2011, the fair value of the Company’s financial instruments including cash, accounts receivable, accounts payable and accrued expenses, approximated book value due to the short term maturities of these instruments.

Cost-Method Investments

Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or statement of operations. However, impairment charges are recognized in the consolidated statement of operations. If circumstances suggest that the value of the investee company has subsequently recovered, such recovery is not recorded. At December 31, 2011, investments in the balance sheet consist of the cost of an investment in Topix consortium for the share of Internet traffic for $6,474. The fair value of the cost-method investment was not estimated

7

EXHIBIT 99.2

because there are no identified events or changes in circumstances that may have a significant effect on the fair value. Accordingly, the Company does not estimate its fair value because it is not practicable.

Revenue Recognition

The Company generates revenue from sales of its voice, IP Transit, and Ethernet telecommunications services. The Company maintains executed service agreements with each of its customers in which specific fees and rates are determined. Revenue is recorded each month based upon documented minutes of traffic switched or Internet transit for which service is provided, and when collection is probable.

Deferred Revenue

The Company recognizes revenues as earned. Amounts billed in advance of the period in which service is rendered are recorded as a liability under “Deferred revenue.”

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. The Company reviews accounts receivable on a monthly basis to determine if any receivables will be potentially uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Normally, accounts receivable are due within 30 days after the date of the invoice. The Company treats invoices as past due when they remain unpaid, in whole or in part, beyond the payment time set forth in the applicable service contract. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. At December 31, 2011, the allowance for doubtful accounts was approximately $1,708,000. The Company does not accrue interest on past due receivables.

Property and Equipment

Property and equipment is stated at cost. The costs of additions and improvements are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in income.

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows:
Office equipment
3 to 13 years
Network equipment
5 years
Software
5 years

Leasehold improvements are amortized over the shorter of the remaining term of the lease or the useful life of the improvement utilizing the straight-line method.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 360-10-35, Impairment or Disposal of Long-Lived Assets. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount, if any, exceeds its fair value. No impairment was deemed to exist at December 31, 2011.

Intangible Assets

Definite-lived intangible assets are amortized utilizing the straight-line method over their estimated useful lives as follows:

The Company reviews the carrying value of definite-lived intangibles and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount, if any, exceeds its fair value. No impairment was deemed to exist at December 31, 2011.

8

EXHIBIT 99.2


Patents
5 years
Trademarks
5 years
Indefeasible rights of use
5 to 15 years
Customer list
5 years
Intangibles in Progress
5 years

Goodwill

Goodwill is not amortized, but is tested for impairment at least on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired in accordance with FASB ASC Topic 350, Intangibles - Goodwill and Other. The Company compares each reporting unit’s fair value, by considering comparable company market valuations and estimating expected future discounted cash flows to be generated by the reporting unit, to its carrying value. If the carrying value exceeds the reporting unit’s fair value, the Company performs an additional fair value measurement calculation to determine the impairment loss. The amount of impairment is determined by comparing the implied fair value of reporting unit goodwill to the carrying value of the goodwill. No impairment was deemed to exist at December 31, 2011.

Income Taxes

Income tax expense includes income taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the difference between the financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Applicable accounting literature requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by taxing authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than a 50% likelihood of being realized upon ultimate settlement. Accounting provisions also require that a change in judgment that results in subsequent recognition, derecognition, or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the period in which the change occurs. The Company regularly evaluates the likelihood of recognizing the benefit from income tax positions taken by considering all relevant facts, circumstances, and information available.

Foreign Operations

For all foreign operations, the functional currency is the local currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at the weighted average rates of exchange during the period. Gain or loss on the translation of foreign currency within the consolidated financial statements is recorded directly into a separate component of shareholders’ equity as accumulated other comprehensive income (loss). Gain or loss on re-measurement from the recording currency to the functional currency prior to translation, is recognized in current results of operations.

Advertising, Promotions and Trade Shows

Costs related to advertising, promotions and trade shows are expensed as incurred and amounted to approximately $605,000 for the year ended December 31, 2011.

New Accounting Pronouncements

In July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This update clarifies that an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward and not as a liability except in certain limited circumstances. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December

9

EXHIBIT 99.2

15, 2014. Early adoption is permitted. The Company does not expect the new guidance to have an impact on its consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (“AOCI”). Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of AOCI by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 is effective from January 1, 2013, and the Company does not expect the new guidance to have an impact on its consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which simplifies the guidance for testing the impairment of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses, and distribution rights. The amendment provides the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. Under the option, an entity is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This amendment is effective for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company does not expect the new guidance to have an impact on its 2011 impairment test results.

In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment, which allows entities to use a qualitative approach to test goodwill for impairment. ASU No. 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU No. 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption did not impact the Company’s consolidated financial position or results of operations.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU No. 2011-05 is effective retrospectively for the interim and annual periods beginning on or after December 15, 2011 (early adoption is permitted), requires presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, an amendment to defer the presentation on the face of the financial statements, the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for annual and interim financial statements. The implementation of the two aforementioned amendments did not have a material impact on the Company’s consolidated financial position and results of operations.

Note 3 -    Concentration of Credit Risk

At December 31, 2011, the Company had approximately $5,115,000, which is its entire cash balance, in foreign bank accounts.

Note 4 -    Property and Equipment

Property and equipment, net is summarized as follows:

Office equipment
$
650,551

Network equipment
24,720,121

Leasehold improvements
149,396

Software
2,642,674

Assets under construction
78,680

 
28,241,422

Less: Accumulated depreciation and amortization
11,119,816

 
$
17,121,606



10

EXHIBIT 99.2


Depreciation and amortization expense amounted to approximately $6,846,000 for the year ended December 31, 2011.

Note 5 -    Intangibles Assets and Goodwill

Intangible assets, net consist of the following:

 
Useful Life
 
 
Patents
5 years
 
$
3,491

  net of accumulated amortization of $3,774
 
 
 
Trademarks,
5 years
 
18,661

  net of accumulated amortization of $24,887
 
 
 
Indefeasible rights of use,
5 to 15 years
 
3,474,559

  net of accumulated amortization of $1,161,386
 
 
 
Customer list,
5 years
 
6,687,527

  net of accumulated amortization of $7,223,874
 
 
 
Intangible in progress
 
117,580

 
 
 
 
 
 
 
$
10,301,818


Amortization expense related to intangible assets for the year ended December 31, 2011 was approximately $4,105,000.

Aggregate amortization expense for each of next five fiscal years is as follows:

Years Ending December 31:
 
2012
$
3,422,237

2013
3,422,237

2014
1,827,048

2015
686,014

2016
553,705

Thereafter
390,577

 
$
10,301,818


Goodwill at December 31, 2011 is as follows:
Goodwill
Indefinite life
$
13,591,515



Note 6 -    Related Party Transactions

The Company is a wholly-owned subsidiary of Neutral Tandem, Inc. and is also affiliated with NT Network Services, LLC under similar ownership. During 2011, the Company entered into several transactions with its parent and affiliate. A summary of the transactions is as follows:
Revenue
$
871,862

Cost of telecommunication services
$
4,480,770

Interest expense
$
873,216


During 2011, Neutral Tandem, Inc. contributed to NT Network Services, LLC the amount of €7,699,342, corresponding to approximately $10,455,000, owed to Neutral Tandem, Inc. by Tinet S.p.A. under an intracompany loan agreement. On the same

11

EXHIBIT 99.2

date, Neutral Tandem, Inc. also assigned to NT Network Services, LLC that portion of the intracompany loan agreement under which Tinet S.p.A. was loaned an amount equal to the intracompany contribution.

As a consequence of the assignment agreement for certain assets entered on October 1, 2011 between Tinet S.p.A. and NT Network Services, LLC for the price of €7,699,342, corresponding to approximately $10,455,000, the parties agreed to discharge the debt owed by NT Network Services, LLC against an equivalent portion of the assigned loan debt owed by Tinet S.p.A. (that was, the amount of €7,699,342). Gain on sale of assets of approximately $1,716,000 is included in the consolidated statement of operations.

During the year ended December 31, 2011, the Company received from Neutral Tandem, Inc. total loans net of repayments in the amount of €3,440,000, corresponding to approximately $4,790,000, under a revolving line of credit in the amount of $10,000,000, set to expire on July 31, 2014. Loans bore interest at 3.5% per annum. On November 1, 2011, the remaining portion of the intracompany loan agreement between the Company and Neutral Tandem, Inc. for the amount of €15,763,954, equivalent to approximately $20,377,000, was waived by Neutral Tandem, Inc. and recorded as additional paid-in capital in the form of a contribution.

At December 31, 2011, all related party payables have been eliminated and recorded as additional paid-in capital.

Note 7 -    Contingencies

The Company was audited by the Italian Revenue Agency in February 2013. The Italian Revenue Agency disavowed the accounting for client lists as other intangible assets to be amortized over the period of five years considering them instead goodwill, for which the Italian Revenue Code prescribes an amortization period of eighteen years. As a result, during the year ended December 31, 2011, the Company recorded an estimated accrual of $323,122 for corporate income taxes due for the fiscal year ended December 31, 2009, and a liability in the amount of approximately $998,000 for the years ended December 31, 2010 and 2011. Corporate income taxes due for the year 2009 are classified as income taxes payable.

During the year ended December 31, 2011, the Company recognized a provision in the amount of approximately $2,000,000 for potential tax liabilities in conjunction with its activities in certain countries where a permanent establishment may give rise to corporate income and value added taxes. The provision has been included in results of operations for 2011.

The Company is subject to various claims and proceedings in the ordinary course of business. Based on information currently available, management estimates that none of these claims or proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position or results of operations, although such estimates can change in the future.

Note 8 -    Provision for Income Taxes

The components of the income tax expense (benefit) are as follows for the year ended December 31, 2011:
Current:
 
IRES
$
2,715,152

Foreign
62,366

 
2,777,518

Deferred:
 
IRES
(756,061
)
 
 
Total provision for income taxes
$
2,021,457












12

EXHIBIT 99.2


The provision for income taxes differs from the amount computed by applying the Italian statutory income tax rate to income before income taxes for the reasons set forth below for the year ended December 31, 2011:

Italian statutory income tax rate
27.5
 %
Permanent items
(7.77
)%
Foreign tax rate differential
0.92
 %
FIN 48
(63.61
)%
Effective Tax Rate
(42.96
)%

For the year ended December 31, 2011, the effective tax rate of (42.96)% differed from the statutory rate of 27.5% due primarily to various permanent differences between taxable income calculated under accounting principles generally accepted in the United States of America and taxable income calculated in accordance with the rules and regulations of applicable taxing authorities. At December 31, 2011 the Company has approximately $237,000 of net operating losses carryforwards.

Deferred income taxes reflect the net effects of net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 2011 are as follows:

Deferred Tax Assets:
 
 
Directors' compensation
 
$
28,589

Bad debt provision
 
177,766

Tax depreciation on goodwill
 
770,028

Maroc Telecom Provision
 
69,581

Miscellaneous
 
6,376

DTA establishment
 
238,049

Total deferred tax assets before valuation allowance
 
1,290,389

Less: Valuation allowance
 

Total deferred tax assets
 
1,290,389

 
 
 
Deferred Tax Liabilities:
 
 
Foreign exchange gain/loss
 
(13,284
)
Total deferred tax liabilities
 
(13,284
)
Net deferred tax asset
 
$
1,277,105


FASB ASC Topic 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company believes that it is more likely than not that all of the deferred tax assets will be realized against future taxable income.

The Company files Italian Corporate Income Tax (“IRES”) and Italian Regional Production Tax (“IRAP”) income tax returns in Italy. Under the Italian Tax Assessment Code, tax assessments (for both IRES and IRAP) can be assessed until the fourth year following the tax return. Currently, all years 2009 and later are open to assessment and all years prior to 2009 are closed for tax assessment purposes.

The Company performed an analysis of all open years, December 31, 2009 to December 31, 2011 and the expected tax positions to be taken at the balance sheet date. At December 31, 2011, approximately $3,000,000 of unrecognized tax benefits including penalties and interest, could affect the Company's tax provision and effective tax rate. The gross unrecognized tax benefit amount is not expected to materially change in the next 12 months.





13

EXHIBIT 99.2


Note 9 -    Non-retirement Post-employment Benefits

The Company provides certain post-employment benefits to eligible former employees during the period subsequent to employment but prior to retirement and accrues for the related cost over the service lives of the employees. These benefits include severance benefits. At December 31, 2011, the Company had approximately $576,000 of post-employment benefit liabilities included in other non-current liabilities. Post-employment benefit costs charged to operations in 2011 totaled approximately $150,000.

Note 10 -
Leases

The Company has non-cancellable operating leases for three locations. Future annual aggregate minimum lease payments under non-cancellable operating leases are as follows:

Years Ending December 31:
 
2012
$
603,840

2013
464,048

2014
538,839

2015
538,839

2016
448,199

Thereafter
1,879,423

 
$
4,473,188


Rent expense charged to operations amounted to approximately $580,000 for the year ended December 31, 2011.

Note 11 -
Subsequent Events

The Company has evaluated all events or transactions that occurred after December 31, 2011 through the date of these consolidated financial statements, which is the date that the consolidated financial statements were available to be issued.

During 2012, subsequent to the issuance of these financial statements, the Company recorded an impairment charge for goodwill and certain intangibles and fixed assets due to events that took place in 2012. This impairment charge resulted in the recording of a valuation allowance for the deferred tax assets that were on the December 31, 2011 financial statements.

During March 2013, the Company received an increase in the available line of credit from Neutral Tandem, Inc. to $20,000,000 which was set to expire on March 31, 2015.

On April 30, 2013, the Company’s stockholders entered into an agreement to sell, and sold all of the equity interest in the Company to GTT Communications, Inc. (“GTT”). In consideration for the equity interests in the Company, GTT paid the sellers $52,500,000 in cash, subject to a capital adjustment, an adjustment based on the cash and cash equivalents in the Company immediately prior to the acquisition and a reduction in an amount equal to the amount of indebtedness of the Company outstanding immediately prior to the acquisition.

Except for what is described above and in Note 7, during this period, there were no other material subsequent events requiring disclosure.


14
EX-99.3 4 exhibit993.htm EXHIBIT 99.3 Exhibit 99.3
EXHIBIT 99.3



















NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013



























EXHIBIT 99.3





NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES

CONTENTS




 
Page
Independent Auditors’ Report
1
Consolidated Financial Statements
 
Consolidated Balance Sheet at March 31, 2013
2
Consolidated Statement of Operations for the Three Months Ended March 31, 2013
3
Consolidated Statement of Comprehensive Loss for the Three Months Ended March 31, 2013
4
Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2013
5
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2013
6
Notes to Consolidated Financial Statements
7-12



EXHIBIT 99.3


INDEPENDENT AUDITORS' REVIEW REPORT


To The Stockholders and Board of Directors
NT Network Services, LLC, SCS and Subsidiaries
Cagliari, Italy

Report on the Financial Statements

We have reviewed the accompanying consolidated balance sheet of NT Network Services, LLC, SCS and Subsidiaries at March 31, 2013, and the related consolidated statements of income, comprehensive loss, changes in members’ equity and cash flows for the three months then ended.

Management’s Responsibility

The Company’s management is responsible for the preparation and fair presentation of the interim consolidated financial information in accordance with accounting principles generally accepted in the United States of America; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim consolidated financial information in accordance with the applicable financial reporting framework.

Auditors’ Responsibility

Our responsibility is to conduct our review in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim consolidated financial information. A review of interim consolidated financial information consists primarily of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the consolidated financial information. Accordingly, we do not express such an opinion.

Conclusion

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial information for it to be in accordance with accounting principles generally accepted in the United States of America.




GRASSI & CO., CPAs, P.C.

Jericho, New York
February 21, 2014















1

EXHIBIT 99.3


NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2013
(UNAUDITED)

ASSETS
CURRENT ASSETS:
 
Cash
$
5,801,247

Accounts receivable, net
11,795,427

Investments
8,971

Prepaid expenses and other current assets
5,541,645

 
 
Total Current Assets
23,147,290

 
 
PROPERTY AND EQUIPMENT, NET
10,128,718

 
 
NONCURRENT ASSETS:
 
Intangible assets, net
11,313

Other assets
1,037,901

Total Non-current Assets
1,049,214

 
 
Total Assets
$
34,325,222

 
 
LIABILITIES AND MEMEBERS' EQUITY
CURRENT LIABILITIES:
 
Accounts payable
$
2,989,079

Accrued expenses and other current liabilities
9,079,501

Income taxes payable - current
939,467

Accrued cost of revenue
6,122,526

Deferred tax liabilities
13,148

Deferred revenue
1,118,513

 
 
Total Current Liabilities
20,262,234

 
 
NONCURRENT LIABILITIES:
 
Other non-current liabilities
769,829

 
 
Total Liabilities
21,032,063

 
 
COMMITMENTS AND CONTINGENCIES
 
 
 
MEMBERS' EQUITY
13,293,159

 
 
Total Liabilities and Members' Equity
$
34,325,222


See independent auditors’ review report and notes to consolidated financial statements.


2

EXHIBIT 99.3


NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(UNAUDITED)



REVENUE
$
21,775,356

 
 
OPERATING ACTIVITIES:
 
Cost of telecommunication services provided
14,118,130

Selling, general and administrative expenses
5,999,749

Depreciation and amortization
932,343

 
 
INCOME FROM OPERATIONS
725,134

 
 
OTHER INCOME (EXPENSE):
 
Other income, net
101,185

Interest expense, net
(11,468
)
 
 
Total Other Income
89,717

 
 
INCOME BEFORE PROVISION FOR INCOME TAXES
814,851

 
 
PROVISION FOR INCOME TAXES
303,027

 
 
NET INCOME
$
511,824






















See independent auditors’ review report and notes to consolidated financial statements.




3

EXHIBIT 99.3



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(UNAUDITED)


NET INCOME
$
511,824

 
 
OTHER COMPREHENSIVE LOSS:
 
   Change in accumulated foreign currency translation adjustment
(2,214,483
)
 
 
COMPREHENSIVE LOSS
$
(1,702,659
)





































See independent auditors’ review report and notes to consolidated financial statements.





4

EXHIBIT 99.3


NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(UNAUDITED)


 
 
 
 
Accumulated
 
 
 
 
 
 
Other Comprehensive
 
 
 
 
Members'
 
Income - Translation
 
 
 
 
 Equity
 
 Adjustment
 
Total
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2013
 
$
12,246,289

 
$
4,428,309

 
$
16,674,598

 
 
 
 
 
 
 
NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2013
 
511,824

 

 
511,824

 
 
 
 
 
 
 
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
 
(1,678,780
)
 
(2,214,483
)
 
(3,893,263
)
 
 
 
 
 
 
 
BALANCE AT MARCH 31, 2013
 
$
11,079,333

 
$
2,213,826

 
$
13,293,159

































See independent auditors’ review report and notes to consolidated financial statements.

5

EXHIBIT 99.3



WORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
 
Net income
$
511,824

Adjustments to reconcile net income to net cash provided by operating activities:
 
Depreciation and amortization
932,343

Bad debt provision
616,394

Changes in Assets (Increase) Decrease:
 
Accounts receivable
176,155

Prepaid expenses and other current assets
(776,890
)
Changes in Liabilities Increase (Decrease):
 
Accounts payable and accrued expenses
(100,399
)
Income taxes payable
(212,979
)
Deferred revenue
(163,330
)
Other non-current liabilities
31,782

 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
1,014,900

 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
Acquisition of property and equipment
(1,665,624
)
 
 
NET CASH USED IN INVESTING ACTIVITIES
(1,665,624
)
 
 
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
(3,662,957
)
 
 
NET DECREASE IN CASH
(4,313,681
)
 
 
CASH, BEGINNING OF PERIOD
10,114,928

 
 
CASH, END OF PERIOD
$
5,801,247















See independent auditors’ review report and notes to consolidated financial statements.

6

EXHIBIT 99.3



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2013
(UNAUDITED)


Note 1 -    Nature of Operations and Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of NT Network Services, LLC, SCS (“NT Network Services”), Inteliquent Holdings S.a.r.l. (“Inteliquent Holdings”), Inteliquent S.a.r.l. (“Inteliquent”), Inteliquent Australia Pty Ltd. (“Inteliquent Australia”), UAB Inteliquent Lithuania (“Inteliquent Lithuania”), Tinet S.p.A. (“Tinet”), Inteliquent Canada Communications Inc. (“Inteliquent Canada”), Inteliquent Istanbul Telekomunikasyon Hizmetleri Limited Sirketi (“Inteliquent Istanbul”), Tiscali International Networks Ltd. (“Tinet UK”), Tinet GmbH, Tinet Hong Kong Limited (“Tinet HK”), and Tinet Singapore Pte. Ltd. (“Tinet Singapore”). All material intercompany balances, revenue and cost transactions have been eliminated in the consolidated financial statements.

Condensed Financial Information

The financial information does not represent complete financial statements and should be read in conjunction with the entity's latest audited annual financial statements.

Business Activity

NT Network Services and Subsidiaries (collectively, the “Company”) provide voice, IP Transit, and Ethernet telecommunications services primarily on a wholesale basis. The Company offers these services using an all-IP network, which enables the Company to deliver global connectivity for a variety of media, including voice, data and video. The Company’s solutions enable carriers and other providers to deliver telecommunications traffic or other services where they do not have their own network or elect not to use their own network. These solutions are sometimes called “off-net” services. The Company also provides solutions to customers, like content providers, who also typically do not have their own network. All of the Company’s operations take place outside the United States of America.

Note 2 -     Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.  These valuations require significant judgment.

7

EXHIBIT 99.3


At March 31, 2013, the fair value of the Company’s financial instruments including cash, accounts receivable, accounts payable and accrued expenses, approximated book value due to the short term maturities of these instruments.

Cost-Method Investments

Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or statement of operations. However, impairment charges are recognized in the consolidated statement of operations. If circumstances suggest that the value of the investee company has subsequently recovered, such recovery is not recorded. At March 31, 2013, investments in the balance sheet consist of the cost of an investment in Topix consortium for the share of Internet traffic for $8,971. The fair value of the cost-method investment was not estimated because there are no identified events or changes in circumstances that may have a significant effect on the fair value. Accordingly, the Company does not estimate its fair value because it is not practicable.

Revenue Recognition

The Company generates revenue from sales of its voice, IP Transit, and Ethernet telecommunications services. The Company maintains executed service agreements with each of its customers in which specific fees and rates are determined. Revenue is recorded each month based upon documented minutes of traffic switched or Internet transit for which service is provided and when collection is probable.

Deferred Revenue

The Company recognizes revenues as earned. Amounts billed in advance of the period in which service is rendered are recorded as a liability under “Deferred revenue.”

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. The Company reviews accounts receivable on a monthly basis to determine if any receivables will be potentially uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Normally, accounts receivable are due within 30 days after the date of the invoice. The Company treats invoices as past due when they remain unpaid, in whole or in part, beyond the payment time set forth in the applicable service contract. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. At March 31, 2013, the allowance for doubtful accounts was approximately $4,036,000. The Company does not accrue interest on past due receivables.

Property and Equipment

Property and equipment is stated at cost. The costs of additions and improvements are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in income.

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows:

Office equipment
3 to 13 years
Network equipment
5 years
Software
5 years

Leasehold improvements are amortized over the shorter of the remaining term of the lease or the useful life of the improvement utilizing the straight-line method.


8

EXHIBIT 99.3

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 360-10-35, Impairment or Disposal of Long-Lived Assets. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount, if any, exceeds its fair value.

Intangible Assets

Definite-lived intangible assets are amortized utilizing the straight-line method over their estimated useful lives as follows:

Patents
5 years
Trademarks
5 years

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

Income Taxes

Income tax expense includes income taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the difference between the financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Applicable accounting literature requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by taxing authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than a 50% likelihood of being realized upon ultimate settlement. Accounting provisions also require that a change in judgment that results in subsequent recognition, derecognition, or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the period in which the change occurs. The Company regularly evaluates the likelihood of recognizing the benefit from income tax positions taken by considering all relevant facts, circumstances, and information available.

Foreign Operations

For all foreign operations, the functional currency is the local currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at the weighted average rates of exchange during the period. Gain or loss on the translation of foreign currency within the consolidated financial statements is recorded directly into a separate component of members’ equity as accumulated other comprehensive income (loss). Gain or loss on re-measurement from the recording currency to the functional currency prior to translation, is recognized in current results of operations.

Advertising, Promotions and Trade Shows

Costs related to advertising, promotions and trade shows are expensed as incurred and amounted to approximately $29,000 for the three months ended March 31, 2013.




9

EXHIBIT 99.3


New Accounting Pronouncements

In February 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (“AOCI”). Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of AOCI by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period.

For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 is effective from January 1, 2013, and the Company does not expect the new guidance to have an impact on its consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which simplifies the guidance for testing the impairment of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses, and distribution rights. The amendment provides the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. Under the option, an entity is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This amendment is effective for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company does not expect the new guidance to have an impact on its 2013 impairment test results.

Note 3 -    Concentration of Credit Risk

At March 31, 2013, the Company had approximately $5,801,000, which is its entire cash balance, in international bank accounts.

Note 4 -    Property and Equipment

Property and equipment, net, consists of the following:
Office equipment
$
686,524

Network equipment
9,502,194

Leasehold improvements
113,124

Software
844,135

Assets under construction
66,531

 
11,212,508

Less: Accumulated depreciation and amortization
1,083,790

 
$
10,128,718



Depreciation and amortization expense amounted to approximately $930,000 for the three months ended March 31, 2013.











10

EXHIBIT 99.3



Note 5 -    Intangibles

Intangible assets, net consist of the following:
 
 
Useful Life
 
 
Patents
 
5 years
 
$
1,629

  net of accumulated amortization of $5,401
 
 
 
 
Trademarks,
 
5 years
 
9,684

  net of accumulated amortization of $24,887
 
 
 
 
 
 
 
 
$
11,313



Amortization expense related to intangible assets for the three months ended March 31, 2013 was approximately $1,900.

Note 6 -    Related Party Transactions

The Company is a wholly-owned subsidiary of Neutral Tandem, Inc. and is also affiliated with NT Network Services, LLC under similar ownership. During the three months ended March 31, 2013, the Company entered into several transactions with its parent and affiliate. A summary of the transactions is as follows:
Revenue
$
462,389

Cost of telecommunication services
$
2,974,541

Interest expense
$
12,263


During the three months ended March 31, 2013, the Company had a revolving line of credit agreement with Neutral Tandem, Inc. in the amount of $20,000,000, which was set to expire on March 31, 2015. Borrowings under the agreement bore interest at 3.5% per annum.

Note 7 -    Contingencies

The Company was audited by the Italian Revenue Agency in February 2013. The Italian Revenue Agency disavowed the accounting for client lists as other intangible assets to be amortized over the period of five years considering them instead goodwill, for which the Italian Revenue Code prescribes an amortization period of eighteen years. Corporate income taxes due for the year 2009 in the amount of approximately $320,000 are classified as income taxes payable. Liabilities in the amount of approximately $555,000 for the year ended December 31, 2010 are classified in accounts payable and accrued expenses and other current liabilities at March 31, 2013. Accounts payable and accrued expenses and other current liabilities also include an accrual of approximately $320,000 of interest and penalties for the years 2010 and 2011.

At March 31, 2013, contingent tax liabilities in the amount of approximately $4,150,000 are classified in accounts payable and other current liabilities as a result of potential tax liabilities in conjunction with its activities in certain countries where a permanent establishment may give rise to corporate income and value added taxes. Accounts payable and accrued expenses and other current liabilities also include an accrual of approximately $315,000 as a potential liability for the impairment of the investment in Tinet Singapore.

The Company is subject to various claims and proceedings in the ordinary course of business. During the year ended December 31, 2012, the Company recorded a liability in the amount of $1,190,000 to settle a dispute with a former managing director and CEO as a result of the termination of his employment contract. In October 2013, this amount was paid in full settlement of the dispute.

Based on information currently available, management estimates that no additional claims or proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position or results of operations, although such estimates can change in the future.



11

EXHIBIT 99.3

Note 8 -    Provision for Income Taxes

The effective income tax rate was 37.19% for the three months ended March 31, 2013.

The effective income tax rate for the three months ended March 31, 2013, was higher than the Italian federal income tax rate of 27.5% due mainly to a change in valuation allowance, risk provisions and adjustments for accounting principles generally accepted in the United States of America (“U.S. GAAP”) purposes.

Note 9 -    Non-retirement Post-employment Benefits

The Company provides certain post-employment benefits to eligible former employees during the period subsequent to employment, but prior to retirement and accrues for the related cost over the service lives of the employees. These benefits include severance benefits. At March 31, 2013, the Company had approximately $770,000 of post-employment benefit liabilities included in other non-current liabilities. Post-employment benefit costs charged to operations for the three months ended March 31, 2013 totaled approximately $38,000.

Note 10 -    Leases

The Company has non-cancellable operating leases for three locations. Future annual aggregate minimum lease payments under non-cancellable operating leases are as follows:
Twelve Months Ending March 31:
 
2014
$
493,120

2015
533,338

2016
510,909

2017
414,787

2018
328,277

Thereafter
1,449,889

 
$
3,730,320


Rent expense charged to operations amounted to approximately $130,000 for the three months ended March 31, 2013.

Note 11 -
Subsequent Events

The Company has evaluated all events or transactions that occurred after March 31, 2013 through the date of these consolidated financial statements, which is the date that the consolidated financial statements were available to be issued.

On April 30, 2013, the Company’s stockholders entered into an agreement to sell, and sold all of the equity interest in the Company to GTT Communications, Inc. (“GTT”). In consideration for the equity interest in the Company, GTT paid the sellers $52,500,000 in cash, subject to a capital adjustment, an adjustment based on the cash and cash equivalents in the Company immediately prior to the acquisition and a reduction in an amount equal to the amount of indebtedness of the Company outstanding immediately prior to the acquisition.

Due to the acquisition of the Company by GTT as described above, the line of credit mentioned in the related party footnote was closed.

Except for what is described above and in Note 7, there were no other material subsequent events requiring disclosure during this period.



12

EXHIBIT 99.3


















NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012







































EXHIBIT 99.3



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES



CONTENTS



 
Page
Independent Auditors’ Report
1
Consolidated Financial Statements
 
Consolidated Balance Sheet at March 31, 2012
2
Consolidated Statement of Operations for the Three Months Ended March 31, 2012
3
Consolidated Statement of Comprehensive Loss for the Three Months Ended March 31, 2012
4
Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2012
5
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2012
6
Notes to Consolidated Financial Statements
7-13



EXHIBIT 99.3


INDEPENDENT ACCOUNTANTS' REPORT



To The Stockholders and Board of Directors
NT Network Services, LLC, SCS and Subsidiaries
Cagliari, Italy

We have reviewed the accompanying consolidated balance sheet of NT Network Services, LLC, SCS and Subsidiaries at March 31, 2012, and the related consolidated statements of income, comprehensive loss, changes in members’ equity and cash flows for the three months then ended. This consolidated financial information is the responsibility of the company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial information taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information referred to above in order for it to be in conformity with accounting principles generally accepted in the United States of America.


GRASSI & CO., CPAs, P.C.

Jericho, New York
February 21, 2014



1

EXHIBIT 99.3



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2012
(UNAUDITED)

ASSETS
CURRENT ASSETS:
 
 
Cash
 
$
7,268,258

Accounts receivable, net
 
15,425,967

Investments
 
6,669

Prepaid expenses and other current assets
 
5,047,080

Deferred tax assets
 
1,329,185

 
 
 
Total Current Assets
 
29,077,159

 
 
 
PROPERTY AND EQUIPMENT, NET
 
18,175,940

 
 
 
NONCURRENT ASSETS:
 
 
Intangible assets, net
 
9,714,827

Goodwill
 
14,137,588

Other assets
 
1,008,503

Total Non-current Assets
 
24,860,918

 
 
 
Total Assets
 
$
72,114,017

 
 
 
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
 
 
Accounts payable
 
$
7,370,572

Accrued expenses and other current liabilities
 
5,047,780

Income taxes payable - current
 
749,738

Accrued cost of revenue
 
4,478,083

Deferred tax liabilities
 
13,683

Deferred revenue
 
982,480

 
 
 
Total Current Liabilities
 
18,642,336

 
 
 
NONCURRENT LIABILITIES:
 
 
Other non-current liabilities
 
624,627

 
 
 
Total Liabilities
 
19,266,963

 
 
 
COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
MEMBERS' EQUITY
 
52,847,054

 
 
 
Total Liabilities and Members' Equity
 
$
72,114,017


See independent accountants’ report and notes to consolidated financial statements.

2

EXHIBIT 99.3


NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(UNAUDITED)

REVENUE
$
20,746,472

 
 
OPERATING ACTIVITIES:
 
Cost of telecommunication services provided
10,389,814

Selling, general and administrative expenses
6,546,877

Depreciation and amortization
2,376,678

Loss on sale of fixed assets
150,279

 
 
INCOME FROM OPERATIONS
1,282,824

 
 
OTHER EXPENSE:
 
Interest expense, net
(41,105
)
Other expense, net
(30,643
)
 
 
Total Other Expense
(71,748
)
 
 
INCOME BEFORE PROVISION FOR INCOME TAXES
1,211,076

 
 
PROVISION FOR INCOME TAXES
677,889

 
 
NET INCOME
$
533,187























See independent accountants’ report and notes to consolidated financial statements.


3

EXHIBIT 99.3



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(UNAUDITED)





NET INCOME
$
533,187

 
 
OTHER COMPREHENSIVE LOSS
 
   Change in accumulated foreign currency translation adjustment
$
(743,082
)
 
 
COMPREHENSIVE LOSS
$
(209,895
)






































See independent accountants’ report and notes to consolidated financial statements.

4

EXHIBIT 99.3


WORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(UNAUDITED)


 
 
 
Accumulated
 
 
 
 
 
Other Comprehensive
 
 
 
Members'
 
 Income - Translation
 
 
 
 Equity
 
 Adjustment
 
Total
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2011
$

 
$

 
$

 
 
 
 
 
 
CONTRIBUTIONS OF TINET S.P.A. AND SUBSIDIARIES
47,357,903

 
1,593,233

 
48,951,136

     STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2012
533,187

 

 
533,187

 
 
 
 
 
 
CONTRIBUTIONS FROM RELATED PARTY
1,924,555

 

 
1,924,555

 
 
 
 
 
 
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
2,181,258

 
(743,082
)
 
1,438,176

 
 
 
 
 
 
BALANCE AT MARCH 31, 2012
$
51,996,903

 
$
850,151

 
$
52,847,054


























See independent accountants’ report and notes to consolidated financial statements.

5

EXHIBIT 99.3



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
 
Net income
$
533,187

 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
Depreciation and amortization
2,376,678

Loss on sale of fixed assets
150,279

Bad debt provision
62,183

Changes in Assets (Increase) Decrease:
 
Accounts receivable
425,154

Prepaid and refundable income taxes
26,368

Changes in Liabilities Increase (Decrease):
 
Accounts payable and accrued expenses
552,099

Income taxes payable
311,990

Deferred revenue
(109,157
)
Other non-current liabilities
30,100

 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
4,358,881

 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
Acquisition of property and equipment
(2,313,662
)
 
 
NET CASH USED IN INVESTING ACTIVITIES
(2,313,662
)
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
Cash acquired from contribution from Tinet S.p.A.
5,115,204

 
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
5,115,204

 
 
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
107,835

 
 
NET INCREASE IN CASH
7,268,258

 
 
CASH, BEGINNING OF PERIOD

 
 
CASH, END OF PERIOD
$
7,268,258

 
 
SUPPLEMENTAL CASH FLOW INFORMATION:
 
Interest paid
$
29,833

 
 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES :
 
Reclassification of due to related party, net to capital
$
1,924,555

Contribution of Tinet S.p.A. and Subsidiaries, non-cash portion
$
43,835,932


See independent accountants’ report and notes to consolidated financial statements.


6

EXHIBIT 99.3



NT NETWORK SERVICES, LLC, SCS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
(UNAUDITED)


Note 1 -    Nature of Operations and Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of NT Network Services, LLC, SCS (“NT Network Services”), Inteliquent Holdings S.a.r.l. (“Inteliquent Holdings”), Inteliquent S.a.r.l. (“Inteliquent”), Inteliquent Australia Pty Ltd. (“Inteliquent Australia”), UAB Inteliquent Lithuania (“Inteliquent Lithuania”), Tinet S.p.A. (“Tinet”), Inteliquent Canada Communications Inc. (“Inteliquent Canada”), Inteliquent Istanbul Telekomunikasyon Hizmetleri Limited Sirketi (“Inteliquent Istanbul”), Tiscali International Networks Ltd. (“Tinet UK”), Tinet GmbH, Tinet Hong Kong Limited (“Tinet HK”), and Tinet Singapore Pte. Ltd. (“Tinet Singapore”). All material intercompany balances, revenue and cost transactions have been eliminated in the consolidated financial statements.

Condensed Financial Information

The financial information does not represent complete financial statements and should be read in conjunction with the entity's latest audited annual financial statements.

Business Activity

NT Network Services and Subsidiaries (collectively, the “Company”) provide voice, IP Transit, and Ethernet telecommunications services primarily on a wholesale basis. The Company offers these services using an all-IP network, which enables the Company to deliver global connectivity for a variety of media, including voice, data and video. The Company’s solutions enable carriers and other providers to deliver telecommunications traffic or other services where they do not have their own network or elect not to use their own network. These solutions are sometimes called “off-net” services. The Company also provides solutions to customers, like content providers, who also typically do not have their own network. All of the Company’s operations take place outside the United States of America.

Change in Reporting Entity

In 2012, the Company changed its reporting entity structure to contribute certain wholly-owned subsidiaries to NT Network Services, LLC, SCS. The contribution of subsidiaries was effected to more efficiently deploy capital across the organization. The consolidated financial statements of the Company include the contributed subsidiaries as of December 31, 2011. The contributed subsidiaries resulted in an increase in members’ equity of approximately $49 million as of March 31, 2012.

Note 2 -    Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:


7

EXHIBIT 99.3

Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.  These valuations require significant judgment.

At March 31, 2012, the fair value of the Company’s financial instruments including cash, accounts receivable, accounts payable and accrued expenses, approximated book value due to the short-term maturities of these instruments.

Cost-Method Investments

Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or statement of operations. However, impairment charges are recognized in the consolidated statement of income. If circumstances suggest that the value of the investee company has subsequently recovered, such recovery is not recorded. At March 31, 2012, investments in the balance sheet consist of the cost of an investment in Topix consortium for the share of Internet traffic for $6,669. The fair value of the cost-method investment was not estimated because there are no identified events or changes in circumstances that may have a significant effect on the fair value. Accordingly, the Company does not estimate its fair value because it is not practicable.

Revenue Recognition

The Company generates revenue from sales of its voice, IP Transit, and Ethernet telecommunications services. The Company maintains executed service agreements with each of its customers in which specific fees and rates are determined. Revenue is recorded each month based upon documented minutes of traffic switched or Internet transit for which service is provided, and when collection is probable.

Deferred Revenue

The Company recognizes revenues as earned. Amounts billed in advance of the period in which service is rendered are recorded as a liability under “Deferred revenue.”

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. The Company reviews accounts receivable on a monthly basis to determine if any receivables will be potentially uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Normally, accounts receivable are due within 30 days after the date of the invoice. The Company treats invoices as past due when they remain unpaid, in whole or in part, beyond the payment time set forth in the applicable service contract. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. At March 31, 2012, the allowance for doubtful accounts was approximately $1,822,000. The Company does not accrue interest on past due receivables.

Property and Equipment

Property and equipment is stated at cost. The costs of additions and improvements are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in income.







8

EXHIBIT 99.3


Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows:

Office equipment
3 to 13 years
Network equipment
5 years
Software
5 years

Leasehold improvements are amortized over the shorter of the remaining term of the lease or the useful life of the improvement utilizing the straight-line method.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 360-10-35, Impairment or Disposal of Long-Lived Assets. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount, if any, exceeds its fair value. No impairment was deemed to exist at March 31, 2012.

Intangible Assets

Definite-lived intangible assets are amortized utilizing the straight-line method over their estimated useful lives as follows:

Patents
5 years
Trademarks
5 years
Indefeasible rights of use
5 to 15 years
Customer list
5 years
Intangibles in Progress
5 years

The Company reviews the carrying value of definite-lived intangibles and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount, if any, exceeds its fair value. No impairment was deemed to exist at March 31, 2012.

Goodwill

Goodwill is not amortized, but is tested for impairment at least on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired in accordance with FASB ASC Topic 350, Intangibles - Goodwill and Other. The Company compares each reporting unit’s fair value, by considering comparable company market valuations and estimating expected future discounted cash flows to be generated by the reporting unit, to its carrying value. If the carrying value exceeds the reporting unit’s fair value, the Company performs an additional fair value measurement calculation to determine the impairment loss. The amount of impairment is determined by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the goodwill. No impairment was deemed to exist at March 31, 2012.

Income Taxes

Income tax expense includes income taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the difference between the financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and

9

EXHIBIT 99.3

liabilities of a change in tax rates is recognized in income in the year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.


Applicable accounting literature requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by taxing authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than a 50% likelihood of being realized upon ultimate settlement. Accounting provisions also require that a change in judgment that results in subsequent recognition, derecognition, or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the period in which the change occurs. The Company regularly evaluates the likelihood of recognizing the benefit from income tax positions taken by considering all relevant facts, circumstances, and information available.

Foreign Operations

For all foreign operations, the functional currency is the local currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at the weighted average rates of exchange during the period. Gain or loss on the translation of foreign currency in the consolidated financial statements is recorded directly into a separate component of shareholders’ equity as accumulated other comprehensive income (loss). Gain or loss on re-measurement from the recording currency to the functional currency prior to translation, is recognized in current results of operations.

Advertising, Promotions and Trade Shows

Costs related to advertising, promotions and trade shows are expensed as incurred and amounted to approximately $68,000 for the three months ended March 31, 2012.

New Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (“AOCI”). Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of AOCI by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 is effective from January 1, 2013, and the Company does not expect the new guidance to have an impact on its consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which simplifies the guidance for testing the impairment of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses, and distribution rights. The amendment provides the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. Under the option, an entity is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This amendment is effective for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company does not expect the new guidance to have an impact on its 2012 impairment test results.

In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment, which allows entities to use a qualitative approach to test goodwill for impairment. ASU No. 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU No. 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption did not impact the Company’s consolidated financial position or results of operations.


10

EXHIBIT 99.3

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU No. 2011-05 is effective retrospectively for the interim and annual periods beginning on or after December 15, 2011 (early adoption is permitted), requires presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, an amendment to defer the presentation on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for annual and interim financial statements. The implementation of the two aforementioned amendments did not have a material impact on the Company’s consolidated financial position and results of operations.

Note 3 -    Concentration of Credit Risk

At March 31, 2012, the Company had approximately $7,268,000, which is its entire cash balance, in foreign bank accounts.

Note 4 -    Property and Equipment

Property and equipment, net is summarized as follows:
Office equipment
$
685,714

Network equipment
27,452,515

Leasehold improvements
153,888

Software
2,779,504

Assets under construction
31,944

 
31,103,565

Less: Accumulated depreciation and amortization
12,927,625

 
$
18,175,940


Depreciation and amortization expense amounted to approximately $1,475,000 for the three months ended March 31, 2012.

Note 5 -    Intangibles Assets and Goodwill

Intangible assets, net consist of the following:

 
Useful Life
 
 
Patents
5 years
 
$
3,221

  net of accumulated amortization of $5,401
 
 
 
Trademarks,
5 years
 
17,562

  net of accumulated amortization of $24,887
 
 
 
Indefeasible rights of use,
5 to 15 years
 
3,402,784

  net of accumulated amortization of $1,372,542
 
 
 
Customer list,
5 years
 
6,171,565

  net of accumulated amortization of $8,160,139
 
 
 
Intangibles in progress
 
 
119,695

 
 
 
$
9,714,827


Amortization expense related to intangible assets for the three months ended March 31, 2012 was approximately $902,000.





11

EXHIBIT 99.3


Aggregate amortization expense for each of next five fiscal years and thereafter is as follows:

Twelve Months Ending March 31,
 
2013
$
2,628,411

2014
3,525,127

2015
1,881,978

2016
706,639

2017
570,352

Thereafter
402,320

 
$
9,714,827


Goodwill at March 31, 2012 is as follows:

Goodwill
Indefinite life
$
14,137,588



Note 6 -    Related Party Transactions

The Company is a wholly-owned subsidiary of Neutral Tandem, Inc. and is also affiliated with NT Network Services, LLC under similar ownership. During the three months ended March 31, 2012, the Company entered into several transactions with its parent and affiliate. A summary of the transactions is as follows:
Revenue
$
1,793,689

Cost of telecommunication services
$
1,373,060

Interest expense
$
37,153


During the three months ended March 31, 2012, the Company had a revolving line of credit from Neutral Tandem, Inc. in the amount of $10,000,000, set to expire on July 31, 2014. Loans bore interest at 3.5% per annum.

At March 31, 2012, all related party payables have been eliminated and recorded as additional paid-in capital.

Note 7 -    Contingencies

The Company was audited by the Italian Revenue Agency in February 2013. The Italian Revenue Agency disavowed the accounting for client lists as other intangible assets to be amortized over the period of five years considering them instead goodwill, for which the Italian Revenue Code prescribes an amortization period of eighteen years. Corporate income taxes due for the year 2009 in the amount of approximately $330,000, are classified as income taxes payable. Liabilities in the amount of approximately $1,029,000 for the years ended December 31, 2010 and 2011, are classified in accounts payable and other current liabilities at March 31, 2012.

At March 31, 2012, a provision in the amount of approximately $2,060,000 for potential tax liabilities in conjunction with the Company’s activities in certain countries where a permanent establishment may give rise to corporate income and value added taxes is included in accounts payable and accrued expenses and other current liabilities.

The Company is subject to various claims and proceedings in the ordinary course of business. Based on information currently available, management estimates that none of these claims or proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position or results of operations, although such estimates can change in the future.

Note 8 -    Provision for Income Taxes

The effective income tax rate was 26.57% for the three months ended March 31, 2012.


12

EXHIBIT 99.3

The effective income tax rate for the three months ended March 31, 2012, was lower than the Italian federal income tax rate of 27.5% due to the recurring impact of foreign operations, risk provisions and adjustments for accounting principles generally accepted in the United States of America (“U.S. GAAP”) purposes.

Note 9 -
Non-retirement Post-employment Benefits

The Company provides certain post-employment benefits to eligible former employees during the period subsequent to employment, but prior to retirement, and accrues for the related cost over the service lives of the employees. These benefits include severance benefits. At March 31, 2012, the Company had approximately $625,000 of post-employment benefit liabilities included in other non-current liabilities. Post-employment benefit costs charged to operations for the three months ended March 31, 2012 totaled approximately $40,000.

Note 10 -
Leases

The Company has non-cancellable operating leases for three locations. Future annual aggregate minimum lease payments under non-cancellable operating leases are as follows:

Twelve Months Ending March 31,
 
2013
$
577,994

2014
513,185

2015
555,039

2016
531,698

2017
431,665

Thereafter
1,850,520

 
$
4,460,101



Rent expense charged to operations amounted to approximately $160,000 for the three months ended March 31, 2012.

Note 11 -
Subsequent Events

The Company has evaluated all events or transactions that occurred after March 31, 2012 through the date of these consolidated financial statements, which is the date that the consolidated financial statements were available to be issued.

Subsequent to March 31, 2012, the Company received an increase in the available line of credit from Neutral Tandem, Inc. to $20,000,000 which was set to expire on March 31, 2015.

On April 30, 2013, the Company’s stockholders entered into an agreement to sell, and sold all of the equity interest in the Company to GTT Communications, Inc (“GTT”). In consideration for the equity interest in the Company, GTT paid the sellers $52,500,000 in cash, subject to a capital adjustment, an adjustment based on the cash and cash equivalents in the Company, immediately prior to the acquisition and a reduction in an amount equal to the amount of indebtedness of the Company outstanding immediately prior to the acquisition.

Due to the acquisition of the Company by GTT as described above, the line of credit mentioned in the related party footnote was closed.

Except for what is described in Note 7, there were no other material subsequent events requiring disclosure, during this period.



13
EX-99.4 5 exhibit994.htm EXHIBIT 99.4 Exhibit 99.4
EXHIBIT 99.4


GTT Communications, Inc.
Unaudited Pro Forma Condensed Combined Financial Information

Introduction

On April 30, 2013, GTT Communications, Inc. (“GTT” or the “Company”) completed the acquisition of NT Network Services, LLC, SCS by acquiring all of the equity interests. In 2012, Neutral Tandem, Inc. (doing business as Inteliquent) contributed Tinet S.p.A. along with certain other wholly owned subsidiaries to NT Network Services, LLC, SCS to more efficiently deploy capital across the organization (together, “Tinet”). Tinet is one of the largest global Ethernet interconnection networks, a top-five global IP Transit service provider and a leading IPv6 network. With this acquisition, GTT enhances its IP, Ethernet cloud networking, and further expands its service portfolio.

Under the terms of the acquisition agreement, consideration consisted of $49.2 million in cash paid at closing and assumption of $34.8 million of liabilities.

The unaudited pro forma condensed combined balance sheet combines (i) the historical consolidated balance sheets of GTT and Tinet, giving effect to the acquisition as if it had been consummated on March 31, 2013, and (ii) the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2013 and for the year ended December 31, 2012, giving effect to the acquisition as if it had occurred on January 1, 2012.
 
The historical consolidated financial statements of GTT and Tinet have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The historical consolidated financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisition, (ii) factually supportable, and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results.

The unaudited pro forma condensed combined financial statements are not necessarily indicative of the operating results or financial position that would have occurred if the acquisition had been completed at the dates indicated. It may be necessary to further reclassify Tinet’s combined financial statements to conform to those classifications that are determined by the combined company to be most appropriate. While some reclassifications of prior periods have been included in the unaudited pro forma condensed combined financial statements, further reclassifications may be necessary.

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting with GTT treated as the acquiring entity. Accordingly, consideration paid by GTT to complete the acquisition of Tinet has been allocated to Tinet’s assets and liabilities based upon their estimated fair values as of the date of completion of the acquisition.
 
The pro forma purchase price allocations are preliminary, subject to further adjustments as additional information becomes available and as additional analyses are performed and have been made solely for the purpose of providing the unaudited pro forma condensed combined financial information presented below. GTT estimated the fair value of Tinet’s assets and liabilities based on discussions with Tinet’s management, due diligence and information presented in financial statements. There can be no assurance that the final determination will not result in material changes. GTT expects to incur significant costs associated with integrating GTT’s and Tinet’s businesses. The unaudited pro forma condensed combined financial statements do not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities. In addition, the unaudited pro forma condensed combined financial statements do not reflect one-time fees and expenses of approximately $7.4 million payable by GTT as a result of the acquisition.

 











1

EXHIBIT 99.4

GTT COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF MARCH 31, 2013
(Amounts in thousands, except for share and per share data)
 GTT
 
Tinet
 
Pro forma Adjustments
 
Pro forma Combined
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
4,607

 
5,801

 
46,565

(c) (h)
2,014

 
 
 
 
 
 
(49,158
)
 (d)
 
 
 
 
 
 
 
(5,801
)
 (e)
 
 
Accounts receivable, net
9,807

 
11,795

 
 
 
21,602

 
Deferred contract costs
1,279

 

 

 
1,279

 
Investments

 
9

 
 
 
9

 
Prepaid expenses and other current assets
3,875

 
5,542

 

 
9,417

 
Total current assets
19,568

 
23,147

 
(8,394
)
 
34,321

Property and equipment, net
6,462

 
10,129

 
5,000

 (f)
21,591

Intangible assets, net
23,851

 
11

 
25,789

 (g)
49,651

Other assets
2,633

 
1,038

 
2,360

 (h)
6,031

Goodwill
50,557

 

 
20,462

 (i)
71,019

 
Total assets
$
103,071

 
$
34,325

 
$
45,217

 
$
182,613

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
Accounts payable
12,844

 
2,989

 

 
15,833

 
Accrued expenses and other current liabilities
12,682

 
16,155

 
 
 
28,837

 
Short-term debt
5,329

 

 
1,235

 (c)
6,564

 
Deferred revenue
6,308

 
1,119

 
2,000

 (j)
9,427

 
Total current liabilities
37,163

 
20,262

 
3,235

 
60,660

 
 
 
 
 
 
 
 
 
Long-term debt
37,334

 

 
43,715

 (c)
81,049

Deferred revenue and other long-term liabilities
6,470

 
770

 
1,505

 (k)
16,330

 
 
 
 
 
 
7,585

 (m)
 
 
Total liabilities
80,967

 
21,032

 
56,040

 
158,039

 
 
 
 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
Common stock, par value $.0001 per share, 80,000,000 shares authorized, 18,921,798 shares issued and outstanding as of March 31, 2012
2

 
1

 
(1
)
 (l)
2

 
Additional paid-in capital
70,817

 

 
2,470

 (c)
73,287

 
Retained earnings (accumulated deficit)
(47,958
)
 
11,078

 
(11,078
)
 (l)
(47,958
)
 
Accumulated other comprehensive income (loss)
(757
)
 
2,214

 
(2,214
)
 (l)
(757
)
 
Total stockholders' equity
22,104

 
13,293

 
(10,823
)
 
24,574

Total liabilities and stockholders' equity
$
103,071

 
$
34,325

 
$
45,217

 
$
182,613


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


2

EXHIBIT 99.4


GTT COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2013

(Amounts in thousands, except for share and per share data)
 
GTT
 
Tinet
 
Pro forma Adjustments
 
Pro forma Combined
Revenue:
 
 
 
 
 
 
 
 
 
Telecommunications services sold
 
$
26,433

 
$
21,775

 

 
$
48,208

 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Cost of telecommunications services provided
 
17,657

 
14,118

 

 
31,775

 
Selling, general and administrative expense
 
5,364

 
6,000

 

 
11,364

 
Restructuring costs, employee termination and other items
 
242

 

 

 

 
Depreciation and amortization
 
2,395

 
932

 
1,290

 (a)
4,617

Total operating expenses
 
25,658

 
21,050

 
1,290

 
47,998

 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
775

 
725

 
(1,290
)
 
210

 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(1,306
)
 
(11
)
 
(894
)
 (b)
(2,212
)
 
Other income (expense), net
 
(1,799
)
 
101

 
(513
)
 (k)
(2,211
)
 
Total other income (expense)
 
(3,105
)
 
90

 
(1,408
)
 
(4,423
)
Income (loss) before taxes
 
(2,330
)
 
815

 
(2,698
)
 
(4,213
)
Provision for income taxes
 
191

 
303

 

 
494

Net income (loss)
 
$
(2,521
)
 
$
512

 
$
(2,698
)
 
$
(4,707
)
Loss per share
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.13
)
 
 
 
 
 
$
(0.24
)
 
Diluted
 
$
(0.13
)
 
 
 
 
 
$
(0.24
)
Weighted average shares:
 
 
 
 
 
 
 
 
 
Basic
 
19,264,481

 
 
 
 
 
19,264,481

 
Diluted
 
19,264,481

 
 
 
 
 
19,264,481

















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

3

EXHIBIT 99.4



GTT COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012

(Amounts in thousands, except for share and per share data)
 
GTT
 
Tinet
 
Pro forma Adjustments
 
Pro forma Combined
Revenue:
 
 
 
 
 
 
 
 
 
Telecommunications services sold
 
$
107,877

 
$
72,094

 

 
$
179,971

 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Cost of telecommunications services provided
 
76,000

 
40,876

 

 
116,876

 
Selling, general and administrative expense
 
18,957

 
26,349

 

 
45,306

 
Loss on disposal of fixed assets
 

 
869

 

 
869

 
Impairment of investments
 

 
304

 

 
304

 
Impairment of goodwill, fixed and intangible assets

 
26,483

 

 
26,483

 
Restructuring costs, employee termination and other items
 
701

 

 

 
701

 
Depreciation and amortization
 
7,296

 
8,805

 
5,160

 (a)
21,261

Total operating expenses
 
102,954

 
103,685

 
5,160

 
211,799

 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
4,923

 
(31,592
)
 
(5,160
)
 
(31,829
)
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(4,686
)
 
(154
)
 
(3,577
)
 (b)
(8,417
)
 
Other income (expense), net
 
(1,054
)
 
(757
)
 
(713
)
 (k)
(2,524
)
 
Total other income (expense)
 
(5,740
)
 
(911
)
 
(4,290
)
 
(10,941
)
Loss before taxes
 
(817
)
 
(32,503
)
 
(9,450
)
 
(42,769
)
Provision for income taxes
 
746

 
2,097

 

 
2,843

Net loss
 
$
(1,563
)
 
$
(34,599
)
 
$
(9,450
)
 
$
(45,612
)
 
 
 
 
 
 
 
 
 
 
Loss per share
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.08
)
 
 
 
 
 
$
(2.41
)
 
Diluted
 
$
(0.08
)
 
 
 
 
 
$
(2.41
)
Weighted average shares:
 
 
 
 
 
 
 
 
 
Basic
 
18,960,347

 
 
 
 
 
18,960,347

 
Diluted
 
18,960,347

 
 
 
 
 
18,960,347










The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

4

EXHIBIT 99.4



GTT Communications, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited pro forma condensed combined financial statements present the pro forma condensed combined financial position and results of operations of the combined company based upon the historical financial statements of GTT and Tinet, after giving effect to the acquisition and adjustments described in these footnotes, and are intended to reflect the impact of the acquisition on GTT.
The accompanying unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not give effect to any cost savings, revenue synergies or restructuring costs which may result from the integration of our and Tinet’s operations.
The unaudited pro forma condensed combined balance sheet reflects the acquisition as if it has been consummated on March 31, 2013 and includes pro forma adjustments for our preliminary valuations of certain intangible assets. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2013 and for the year ended December 31, 2012, reflects the acquisition as if it had occurred on January 1, 2012.
The pro forma condensed combined balance sheet has been adjusted to reflect the allocation of the purchase price to identifiable net assets acquired and the excess purchase price to goodwill. The purchase price allocation included within these unaudited pro forma condensed combined financial statements is based upon a purchase price of approximately $83.9 million. The preliminary consideration is as presented in the following table.

 
 
Amounts in thousands
 
 
 
Purchase Price
 
 
Total cash consideration
$
49,158

 
Fair value of liabilities assumed
34,814

 
Total consideration
$
83,972

 
 
 
Purchase Price Allocation:
 
Acquired Assets
 
 
Current assets
$
17,839

 
Property and equipment
15,004

 
Other assets
1,282

 
Intangible assets
25,800

 
Total fair value of assets acquired
59,925

 
Goodwill
24,047

 
Total consideration
$
83,972




Upon completion of the fair value assessment after the acquisition, we anticipate that the estimated purchase price and its allocation may differ from that outlined above primarily due to changes in assets and liabilities between the date of the preliminary assessment and that of closing.
The current intangible assets acquired were valued based on a preliminary valuation and consist of customer relationships and trade names. Upon completion of the fair value assessment after the acquisition, we anticipate that the ultimate price allocation may differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.

5

EXHIBIT 99.4

Note 2. Pro Forma Adjustments
a.
 
Reflect additional amortization expense related to acquired intangibles as of the beginning of the period.
b.
 
GTT borrowed $65.0 million under a senior term loan from Webster Bank and $8.5 million under a second lien credit facility to finance the transaction and cover additional cash needs involved in the transaction. GTT repaid Silicon Valley Bank $27.0 million with the proceeds of the new loan.
(Dollars in thousands)
Year Ended December 31, 2012
Three Months Ended March 31, 2013
 
 
 
Additional GTT debt under senior term loan
$
65,000

$
65,000

Effective annual interest rate
6.5
%
6.5
%
Estimated GTT interest on senior term loan
$
4,225

$
1,056

Additional GTT debt under second lien credit facility
8,500

8,500

Effective annual interest rate
13.5
%
13.5
%
Estimated GTT interest on second lien facility
$
1,148

$
287

SVB debt under senior term loan
24,045

24,045

Effective annual interest rate
6.75
%
6.75
%
Less: Estimated interest on SVB senior term loan
$
(1,623
)
$
(406
)
SVB debt under line of credit facility
3,000

3,000

Effective annual interest rate
5.75
%
5.75
%
Less: Estimated interest on SVB line of credit facility
$
(173
)
$
(43
)
Interest Expense Adjustment
$
3,577

$
894


c.
GTT borrowed $65.0 million under a senior term loan from Webster Bank and $8.5 million under a second lien credit facility to finance the transaction and cover additional cash needs involved in the transaction. The $8.5 million credit facility was discounted $1.5 million to account for the warrants which are included as a separate liability in other long term liabilities. GTT repaid Silicon Valley Bank $27.0 million with the proceeds of the new loan. GTT raised $2.5 million from the sale of common stock on April 30, 2013 to fund the acquisition.
d.
Cash consideration paid to the seller in the transaction (See Note 1).
e.
The Tinet acquisition agreement included an adjustment based on cash and cash equivalents in Tinet immediately prior to the acquisition.
f.
GTT acquired $5.0 million of telecommunications equipment from Inteliquent at the close of the acquisition.
g.
Intangible assets generated by the transaction represent the customer relationships of $25.0 million and trade name of $0.8 million.
h.
Deferred financing costs of $2.4 million incurred in financing the transaction paid at closing.
i.
The goodwill adjustment of $20.5 million includes goodwill created from the acquisition (See Note 1) and working capital differences.
j.
GTT agreed to provide Inteliquent with certain data services at no charge over a three-year period. The Company values these services at $2.0 million.
k.
Warrants issued in conjunction with second lien credit facility were recognized and measured at fair value of $1.5 million as of March 31, 2013. Other expense of $0.7 million and $0.5 million were recognized in the year ended December 31, 2012 and three months ended March 31, 2013, respectively, due to the mark to market of the warrants issued.
l.
Eliminate the historical stockholders’ equity accounts of Tinet at March 31, 2013.
m.
Deferred tax liability resulting from the tax impact of the intangibles assets acquired in the acquisition.



6
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