GTT Communications, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - GTT Communications, Inc.	w78503exv31w1.htm
EX-32.2 - EX-32.2 - GTT Communications, Inc.	w78503exv32w2.htm
EX-32.1 - EX-32.1 - GTT Communications, Inc.	w78503exv32w1.htm
EX-31.2 - EX-31.2 - GTT Communications, Inc.	w78503exv31w2.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended March 31, 2010

Commission File Number 000-51211

Global Telecom & Technology, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		20-2096338

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

8484 Westpark Drive
Suite 720
McLean, Virginia 22102
(703) 442-5500
(Address including zip code, and telephone number, including area
code of principal executive officers)

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

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

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


Large Accelerated Filer o	Accelerated Filer o	Non-Accelerated Filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

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

As of May 13, 2010, 17,298,470 shares of common stock, par value $.0001 per share, of the registrant were outstanding.


	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Operations		4
Condensed Consolidated Statement of Stockholders’ Equity		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3. Quantitative and Qualitative Disclosures about Market Risk		17
Item 4T. Controls and Procedures		18
PART II — OTHER INFORMATION
Item 5. Legal Proceedings		19
Item 5A. Risk Factors		19
Item 6. Exhibits		31
SIGNATURES		32
CERTIFICATIONS

PART 1 – Financial Information

ITEM 1. FINANCIAL STATEMENTS

Global Telecom & Technology, Inc.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except for share and per share data)


	March 31, 2010			December 31, 2009
	(Unaudited)			(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	6,243		$	5,548
Restricted cash		2,519			—
Accounts receivable, net		10,409			9,389
Deferred contract costs		403			454
Prepaid expenses and other current assets		785			937

Total current assets		20,359			16,328
Property and equipment, net		2,016			2,235
Intangible assets, net		7,112			7,613
Other assets		414			429
Goodwill		29,156			29,156

Total assets	$	59,057		$	55,761


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,937		$	12,204
Accrued expenses and other current liabilities		11,316			11,372
Short-term debt		12,537			12,463
Deferred revenue		5,491			6,112
Redemption obligation		2,519			—

Total current liabilities		42,800			42,151

Long-term debt		1,694			244
Deferred revenue and other long-term liabilities		360			352

Total liabilities		44,854			42,747


Commitments and contingencies

Stockholders’ equity:
Common stock, par value $.0001 per share, 80,000,000 shares authorized, 17,298,470 and 15,472,912 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively		2			2
Additional paid-in capital		59,856			58,710
Accumulated deficit		(45,342	)		(45,499	)
Accumulated other comprehensive loss		(313	)		(199	)

Total stockholders’ equity		14,203			13,014

Total liabilities and stockholders’ equity	$	59,057		$	55,761

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Global Telecom & Technology, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except for share and per share data)


	Three Months Ended
	March 31, 2010			March 31, 2009
Revenue	$	20,600		$	15,742

Operating expenses:
Cost of revenue		14,930			11,493
Selling, general and administrative expense		4,276			3,694
Depreciation and amortization		738			445


Total operating expenses		19,944			15,632


Operating income		656			110

Other income (expense):
Interest expense, net		(355	)		(206	)
Other income (expense), net		(123	)		24

Total other income (expense)		(478	)		(182	)


Income (loss) before income taxes		178			(72	)
Provision for income taxes		21			43


Net income (loss)	$	157		$	(115	)


Earnings (loss) per share:
Basic	$	0.01		$	(0.01	)
Diluted	$	0.01		$	(0.01	)

Weighted average shares:
Basic		16,427,275			15,015,587
Diluted		16,682,204			15,015,587

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Global Telecom & Technology, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(Amounts in thousands, except for share data)


										Accumulated
					Additional					Other
	Common Stock				Paid -In		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			Loss			Total
Balance, December 31, 2009		15,472,912	$	2	$	58,710	$	(45,499	)	$	(199	)	$	13,014

Share-based compensation for options issued		—		—		42		—			—			42

Share-based compensation for restricted stock issued		339,152		—		168		—			—			168

Common shares issued (including 559,340 shares redeemed after March 31, 2010)		1,485,000		—		935		—			—			935

Stock options exercised		1,406		—		1		—			—			1

Comprehensive income (loss)
Net income		—		—		—		157			—			157
Change in accumulated foreign currency loss on translation		—		—		—		—			(114	)		(114	)

Comprehensive income														43

Balance, March 31, 2010		17,298,470	$	2	$	59,856	$	(45,342	)	$	(313	)	$	14,203

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Global Telecom & Technology, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)


	Three Months Ended
	March 31, 2010			March 31, 2009
	(Unaudited)
Cash Flows From Operating Activities:
Net income (loss)	$	157		$	(115	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Depreciation and amortization		738			445
Shared-based compensation		211			165

Changes in operating assets and liabilities:
Accounts receivable, net		(1,257	)		1,127
Deferred contract cost, prepaid expenses, income tax refund receivable and other current assets		176			—
Other assets		(41	)		343
Accounts payable		(1,066	)		(1,182	)
Accrued expenses and other current liabilities		52			(193	)
Deferred revenue and other long-term liabilities		(590	)		(13	)

Net cash (used in) provided by operating activities		(1,620	)		577


Cash Flows from Investing Activities:
Purchases of property and equipment		(18	)		(125	)

Net cash used in investing activities		(18	)		(125	)


Cash Flows from Financing Activities:
WBS promissory note repayment		(50	)		—
Principal payments on capital lease		(83	)		—
Borrowing on line of credit		111			—
Issuance of units offering subordinated notes		1,546			—
Issuance of units offering common shares		935			—


Net cash provided by financing activities		2,459			—


Effect of exchange rate changes on cash		(126	)		(603	)


Net decrease in cash and cash equivalents		695			(151	)

Cash and cash equivalents at beginning of period		5,548			5,786


Cash and cash equivalents at end of period	$	6,243		$	5,635


Supplemental disclosure of cash flow information
Cash paid for interest	$	93		$	120

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Global Telecom & Technology, Inc.

Notes to Condensed Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND BUSINESS

Organization and Business

Global Telecom & Technology, Inc. (“GTT”) is a Delaware corporation which was incorporated on January 3, 2005. GTT is a global network integrator providing a broad portfolio of Wide-Area Network (WAN), dedicated Internet access, and managed data services. With over 800 supplier relationships worldwide, GTT combines multiple networks and technologies such as private line, Ethernet, and Multiprotocol Label Switching (MPLS) to deliver cost-effective solutions specifically designed for each client’s unique requirements. GTT enhances customer performance through its proprietary Client Management Database (CMD), which provides a comprehensive client support system for service design and quotation, rapid service implementation, and 24x7 global operations support.

GTT serves as the holding company for two operating subsidiaries, Global Telecom & Technology Americas, Inc. (“GTTA”) and GTT — EMEA Ltd. (“GTTE”) and their respective subsidiaries (collectively, hereinafter, the “Company”).

On December 16, 2009, GTT acquired privately-held WBS Connect LLC, TEK Channel Consulting, LLC and WBS Connect Europe, Ltd. (collectively “WBS Connect”). WBS Connect, based in Denver, Colorado, was a provider of global IP transit and data transport services worldwide.

Headquartered in McLean, Virginia, GTT has offices in London, Düsseldorf and Denver and provides services to more than 700 enterprise, government and carrier clients in over 80 countries worldwide.

Unaudited Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the year ended December 31, 2009, included in the Company’s Annual Report on Form 10-K filed on March 24, 2010. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to prevent the information from being misleading. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial position and the results of operations. The operating results for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the full fiscal year 2010 or for any other interim period. The December 31, 2009 balance sheet has been derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP.

There have been no significant changes in the Company’s significant accounting policies as of March 31, 2010 as compared to the significant accounting policies disclosed in Note 2, “Significant Accounting Policies” in the 2009 Annual Report on Form 10-K.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain 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 revenue and expenses during the reporting period. Actual results can, and in many cases will, differ from those estimates.

Fair Value of Financial Instruments

The fair values of the Company’s assets and liabilities that qualify as financial instruments under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses are carried at cost, which approximates fair value due to the short-term maturity of

these instruments. Long-term obligations approximate fair value, given management’s evaluation of the instruments’ current rates compared to market rates of interest and other factors.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

In September 2009, the FASB ratified the consensus approach reached at the September 9-10 Emerging Issues Task Force (“EITF”) meeting on two EITF issues related to revenue recognition. The first, EITF Issue no. 08-01, Revenue Arrangements with Multiple Deliverables, which applies to multiple-deliverable revenue arrangements that are currently within the scope of FASB ASC Subtopic 605-25 and the second, EITF Issue no. 09-3, Certain Revenue Arrangements That Include Software Elements, which focuses on determining which arrangements are within the scope of the software revenue guidance in ASC Topic 985 and which are not. Both EITF issues are effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.

Management does not believe that this or any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s consolidated financial statements or the Company’s future results of operations.

NOTE 3 — ACQUISITION

On December 16, 2009, GTT acquired privately-held WBS Connect. Based in Denver, Colorado, WBS Connect provides wide area network and dedicated Internet access services to over 400 customers worldwide. The acquisition of WBS Connect will expand the portfolio of dedicated Internet access and Ethernet services. Additionally, GTT will add WBS Connect’s network infrastructure assets with over 60 points of presence in major North American, Asian and European metro centers.

The following schedule presents unaudited consolidated pro forma results of operations as if the Acquisition had occurred on January 1, 2009. This information does not purport to be indicative of the actual results that would have occurred if the Acquisition had actually been completed January 1, 2009, nor is it necessarily indicative of the future operating results or the financial position of the combined company. The unaudited pro forma results of operations do not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities.


	Three months ended March
Amounts in thousands, except per share data	2010		2009
Revenue	$	20,600	$	22,563

Net income (loss)	$	157	$	(25	)

Net income (loss) per share:
Basic	$	0.01	$	(0.00	)
Diluted	$	0.01	$	(0.00	)

NOTE 4 — RESTRICTED CASH, UNITS OFFERING REDEMPTION OBLIGATION

On February 8, 2010, the Company completed a financing transaction in which it sold 500 units consisting of debt and common stock at a purchase price of $10,000 per unit (“Units Offering”), resulting in $5.0 million of proceeds to the Company. The use of the proceeds by the Company was restricted for use in the acquisition of certain customer contracts and other assets related to point-to-point circuits for the transmission of data from Capital Growth Systems, Inc., Global Capacity Group, Inc. and Global Capacity Direct, LLC (collectively “Global Capacity”).

On April 30, 2010 the asset purchase agreement with Global Capacity expired without consummation of the acquisition. As of May 1, 2010, the Company was obligated to refund the Units Offering purchase price paid by the investors without penalty and without premium, unless the right to receive such refund was waived by the investor in lieu of retaining the securities purchased. As of May 13, 2010, investors representing approximately $2.5 million of aggregated proceeds have waived the right to receive their refund and elected to retain some or all of their securities. The Company has commenced disbursement of the remaining $2.5 million which is recorded as restricted cash and also as current redemption obligation on the Company’s balance sheet as of March 31, 2010. The $2.5 million proceeds from securities sold, but retained by investors are recorded in long-term debt and additional paid-in-capital.

NOTE 5 — EMPLOYEE SHARE-BASED COMPENSATION BENEFITS

The Company adopted its 2006 Employee, Director and Consultant Stock Plan (the “Plan”) in October 2006. In addition to stock options, the Company may also grant restricted stock or other stock-based awards under the Plan. The maximum number of shares issuable over the term of the Plan, as amended, is limited to 3,500,000 shares.

Stock Options

The Company recognized compensation expense for stock options of approximately $42,030 and $66,000 for the three months ended March 31, 2010 and 2009, respectively, related to stock options issued to employees and consultants, which is included in selling, general and administrative expense on the accompanying condensed consolidated statements of operations. The Company granted to employees 241,000 and 218,000 stock options with a total fair value of $236,000 and $107,000 during the three months ended March 31, 2010 and 2009, respectively.

Restricted Stock

During the three months ended March 31, 2010, the Company granted to certain employees and members of its Board of Directors restricted stock, as described below. This includes shares issued to non-employee members of the Company’s Board of Directors who elected to be paid a portion of their annual fees in restricted stock.


			Non-Employee
			Members of Board
Amounts in thousands	Employees		of Directors		Total
Three months ended March 31, 2010
Restricted Stock Shares Granted		318		21		339
Fair Value of Shares Granted	$	400	$	27	$	427
Restricted Stock Compensation Expense					$	168

NOTE 6 — DEBT

The following summarizes the debt activity of the Company during the first quarter of 2010 (amounts in thousands):


						Convertible Notes		Subordinated		Promissory Note /			Senior Secured
	Total Debt			Notes Payable		Payable		Notes		Capital Lease			Credit Facility
Debt obligation as of December 31, 2009	$	12,707		$	4,000	$	4,796	$	—	$	833		$	3,078

Subordinated notes issuance		1,546			—		—		1,546		—			—

Draw on senior secured credit facility		111			—		—		—		—			111

WBS promissory note repayment		(50	)		—		—		—		(50	)		—

Principal payments on capital lease		(83	)		—		—		—		(83	)		—


Debt obligation as of March 31, 2010	$	14,231		$	4,000	$	4,796	$	1,546	$	700		$	3,189

The holders of the convertible notes payable (“December 2010 Notes”) can convert the principal due under the December 2010 Notes into shares of the Company’s common stock, at any time, at a price per share equal to $1.70. The Company has the right to require the holders of the December 2010 Notes to convert the principal amount due under the December 2010 Notes at any time after the closing price of the Company’s common stock shall be equal to or greater than $2.64 for 15 consecutive business days. The conversion provisions of the December 2010 Notes include protection against dilutive issuances of the Company’s common stock, subject to certain exceptions. The December 2010 Notes and the $4.0 million in notes payable are subordinate to any future credit facility entered into by the Company, up to an amount of $4.0 million. The Company has agreed to register with the Securities and Exchange Commission the shares of Company’s common stock issued to the holders of the December 2010 Notes upon their conversion, subject to certain limitations.

Included in the December 2010 Notes are notes totaling $1.5 million due to a related party, Universal Telecommunications, Inc. Brian Thompson, the Company’s Executive Chairman of the Board of Directors, is also the head of Universal Telecommunications, Inc, his own private equity investment and advisory firm.

On November 12, 2007, the holders of the $4.0 million of notes payable due on December 29, 2008 agreed to amend those notes to extend the maturity date to December 31, 2010, subject to increasing the interest rate to 10% per annum, beginning January 1, 2009. Under the terms of the notes, as amended (the “Amended Notes”), 50% of all interest accrued during 2008 and 2009 was payable on each of December 31, 2008 and 2009, respectively, and all principal and remaining accrued interest is payable on December 31, 2010.

On March 17, 2008, the Company entered into a Loan and Security Agreement (the “credit facility”) with Silicon Valley Bank. Under the terms of the credit facility, the Company could borrow up to a maximum amount of $2.0 million; with the actual amount available being based upon criteria related to accounts receivable and cash collections. Advances under the credit facility would bear interest at the bank’s prime rate plus either 1.5% or 2.0%, and would also be subject to a monthly collateral handling fee ranging from 0.25% to 0.50%, in each case depending on certain financial criteria. The credit facility had a 364-day term and contained customary covenants, but there were no covenants that required compliance with financial criteria. The Company’s payment obligations under the credit facility were secured by a pledge of substantially all of its assets, including a pledge of 67% of the outstanding stock of the Company’s foreign subsidiaries.

On June 16, 2009, the Company and Silicon Valley Bank entered into an Amended and Restated Loan and Security Agreement (the “amended credit facility”). Under the terms of the amended credit facility, the Company’s revolving line of credit was increased to a maximum amount of $2.5 million, with the actual amount available being based upon criteria related to accounts receivable. Advances under the credit facility would bear interest at the bank’s prime rate plus either 1.75% or 2.0%, and would also be subject to a monthly collateral handling fee ranging from 0.15% to 0.35%, in each case depending on certain financial criteria. The amended credit facility had a 364-day term and contained customary covenants, but there were no covenants that required compliance with financial criteria. The Company’s payment obligations under the amended credit facility were secured by a pledge of substantially all of its assets, including a pledge of 67% of the outstanding stock of the Company’s foreign subsidiaries.

In December 2009, the Company and Silicon Valley Bank entered into a Second Amended and Restated Credit Facility (the “current credit facility”). Under the terms of the current credit facility, the Company’s revolving line of credit was increased to a maximum amount of $5.0 million, with the actual amount available being based on criteria related to the Company’s accounts receivable in the United States (but not to exceed $3.4 million with respect to the United States receivables) and on criteria related to the Company’s accounts receivable in Europe (but not to exceed $2.0 million with respect to the European receivables). The revolving line of credit would be increased to $8.0 million if the Company raises at least $4.5 million of additional equity and subordinated debt capital and completes the Global Capacity acquisition. Advances under the current credit facility bear interest at the bank’s prime rate plus 1.75% or 2.0%, and would also be subject to monthly collateral handling fee ranging from 0.15% to 0.35%, in each case depending on certain financial criteria. The current credit facility has a 364-day term and matures in December 2010. The current credit facility contains customary covenants, including covenants not included in the amended credit facility that require the Company to maintain, on a consolidated basis, specified amounts of net operating cash flow over certain specified periods of time. The Company’s payment obligations under the current credit facility are secured by a pledge of substantially all of all of its assets, including a pledge of 67% of the outstanding stock of the Company’s foreign subsidiaries.

The Company had approximately $3.2 million outstanding on its SVB Credit facility at March 31, 2010. The facility is subject to renewal by December 10, 2010.

In addition to amounts drawn on the Company’s SVB credit facility to facilitate the closing of the WBS Connect acquisition, the Company also assumed in the acquisition approximately $0.6 million in capital lease obligations payable in monthly installments through April 2011, and issued approximately $0.3 million in subordinated seller notes to the sellers of WBS Connect, due in monthly installments payable in full by October 2010.

On February 8, 2010, the Company completed the Units Offering in which it sold 500 units consisting of debt and common stock at a purchase price of $10,000 per unit, resulting in $5.0 million of proceeds to the Company. Each unit consisted of 2,970 shares of the Company’s common stock, and $7,000 in principal amount of the Company’s subordinated promissory notes due February 8, 2012. Interest on the subordinated promissory notes accrues at 10% per annum. Accrued but unpaid interest will be payable on February 8, 2011 and 2012.

The proceeds of the Units Offering were to be applied by the Company to finance a portion of the purchase price under the asset purchase agreement with Global Capacity. On April 30, 2010 the asset purchase agreement with Global Capacity expired without consummation of the acquisition. As of May 13, 2010, investors representing $1.5 million in aggregated principal amount of the Company’s subordinated promissory notes have waived the right to receive their refund and elected to retain some or all of their subordinated promissory notes, which are recorded in long-term debt on the Company’s balance sheet as of March 31, 2010.

As of March 31, 2010, the total principal amount due on the Company’s short-term debt is $12.5 million, which is due on or before December 31, 2010.

NOTE 7 — INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are recorded against deferred tax assets when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. The scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies are evaluated in determining whether it is more likely than not that deferred tax assets will be realized.

The Company and certain of its subsidiaries file income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company’s foreign jurisdictions are primarily the United Kingdom and Germany.

A valuation allowance has been recorded against the Company’s deferred tax assets to the extent those assets are not offset by deferred tax liabilities which have a structural certainty of reversal, or those assets cannot be realized against prior period taxable income.

NOTE 8 — EARNINGS PER SHARE

Basic income per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share reflect, in periods with earnings and in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options and warrants. Diluted earnings per share for the three months ended March 31, 2010, excludes potentially issuable common shares of 28,787,056, respectively, primarily related to the Company’s outstanding stock options, warrants, and convertible notes, and because the assumed issuance of such potential common shares is anti-dilutive as the exercise prices of such securities are greater than the average closing price of the Company’s common stock during the period. The diluted earnings per share calculation for the three ended March 31, 2009 excluded all shares related to stock options, warrants, and convertible debt since the Company had net losses for the periods and therefore including these would have resulted in an anti-dilutive effect on diluted earnings per share.

NOTE 9 — SUBSEQUENT EVENTS

On March 31, 2010, the Company and Global Capacity extended the expiration date of the agreement for the Company to acquire certain customer contracts and other assets related to point-to-point circuits for the transmission of data to April 30, 2010. Contemporaneously, the investors in the February 8, 2010 Units Offering and Silicon Valley Bank agreed to extend the date by which the Global Capacity transaction must close to April 30, 2010, after which proceeds of the Units Offering must be refunded and, in the case of Silicon Valley Bank, the incremental $3 million of additional borrowing capacity dedicated to the Global Capacity transaction would no longer be available.

On April 30, 2010 the asset purchase agreement with Global Capacity expired without consummation of the acquisition. As of May 1, 2010, the Company was obligated to refund the Units Offering purchase price paid by the investors without penalty and without premium, unless the right to receive such refund was waived by the investor in lieu of retaining their securities. As of May 13, 2010, investors representing $2.5 million of aggregated proceeds have waived the right to receive their refund and elected to retain some or all of their securities. The Company has commenced disbursement of the remaining $2.5 million which is recorded as restricted cash and also as current redemption obligation on the Company’s balance sheet as of March 31, 2010.

On April 10, 2010, the Class W warrants and the underwriters option to purchase Series A units and Series B units expired. No Class W warrants were exercised to purchase common stock and no Series A or B units available to the underwriters were purchased.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes that appear elsewhere in this report and in our annual report on Form 10-K for the year ended December 31, 2009. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect plans, estimates and beliefs of management of the Company. When used in this document, the words “anticipate”, “believe”, “plan”, “estimate” and “expect” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current views of management with respect to future events and are subject to certain risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in the forward-looking statements. For a more detailed description of these risks and factors, please see the Company’s 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission and Item 5A Part II of this quarterly report on Form 10-Q.

Overview

Global Telecom & Technology, Inc. (“GTT”) is a Delaware corporation which was incorporated on January 3, 2005. GTT is a global network integrator providing a broad portfolio of Wide-Area Network (WAN), dedicated Internet access, and managed data services. With over 800 supplier relationships worldwide, GTT combines multiple networks and technologies such as private line, Ethernet, and MPLS to deliver cost-effective solutions specifically designed for each client’s unique requirements. GTT enhances customer performance through its proprietary Client Management Database (CMD), which provides a comprehensive client support system for service design and quotation, rapid service implementation, and 24x7 global operations support.

The Company sells through a direct sales force on a global basis. The Company generally competes with large, facilities-based providers and other service providers in each of our global markets. As of March 31, 2010, our customer base was comprised of over 700 businesses. Our five largest customers accounted for approximately 20% of consolidated revenues during the three months ended March 31, 2010.

Costs and Expenses

The Company’s cost of revenue consists almost entirely of the costs for procurement of services associated with customer solutions. There are no wages or overheads included in these costs. From time to time, the Company has agreed to certain special commitments with vendors in order to obtain better rates, terms and conditions for the procurement of services from those vendors. These commitments include volume purchase commitments and purchases on a longer-term basis than the term for which the applicable customer has committed.

Other than cost of revenue, the Company’s most significant operating expenses are employment costs. As of March 31, 2010, the Company had 91 employees and employment costs comprised approximately 13% of total operating expenses for the three months ended March 31, 2010.

Locations of Offices and Origins of Revenue

We are headquartered just outside of Washington, DC, in McLean, Virginia, and have offices in London, Düsseldorf, and Denver. For the three months ended March 31, 2010, approximately 76% of our consolidated revenue was earned from operations based in the United States. Approximately 15% of our revenue was generated from operations based in the United Kingdom and 9% from operations in Germany.

Significant Accounting Policies and Estimates

Results of Operations of the Company

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

Overview. The financial information presented in the tables below is comprised of the unaudited consolidated financial information of the Company for the three months ended March 31, 2010 and 2009 (amounts in thousands):


	Three Months Ended March 31,
	2010			2009
Revenue	$	20,600		$	15,742
Cost of revenue		14,930			11,493


Gross margin		5,670			4,249
		27.5	%		27.0	%

Operating expenses, depreciation and amortization		5,014			4,139

Operating income	$	656		$	110


Net income (loss)	$	157		$	(115	)

Revenue. Revenue for the three months ended March 31, 2010 was $20.6 million, generated by services provided during the period to existing customers and new sales generated by the Company’s global sales organization. Revenue during the three months ended March 31, 2009 was approximately $15.7 million. The increase was due to the acquisition of WBS Connect which occurred on December 16, 2009.

Cost of Revenue and Gross Margin. Cost of revenue and gross margin for the three months ended March 31, 2010 were $14.9 million and $5.7 million, respectively. For the three months ended March 31, 2009, cost of revenue and gross margin were $11.5 million and $4.2 million, respectively. The increase in cost of revenue and gross margin during the period ended March 31, 2010 is due primarily to the WBS acquisition.

Operating Expenses. Operating expenses, exclusive of cost of revenue, were $5.0 million and $4.1 million for the three months ended March 31, 2010 and 2009, respectively. The primary cause of the increase in expense is the increase in selling, general and administrative (SG&A) expenses as a result of the WBS acquisition. Operating expenses were also affected by the increase in foreign exchange year over year. These changes are illustrated in the table below (amounts in thousands):


	Three Months Ended March 31,
	2010		2009		Increase
Selling, general and administrative expenses (excluding noncash compensation)		4,066		3,529		537
Noncash compensation		210		165		45
Amortization of intangible assets		501		334		167
Depreciation		237		111		126

Totals	$	5,014	$	4,139	$	875

Liquidity and Capital Resources

Debt

The following summarizes the debt activity of the Company during the first quarter of 2010 (amounts in thousands):


						Convertible Notes		Subordinated		Promissory Note /			Senior Secured
	Total Debt			Notes Payable		Payable		Notes		Capital Lease			Credit Facility
Debt obligation as of December 31, 2009	$	12,707		$	4,000	$	4,796	$	—	$	833		$	3,078
Subordinated notes issuance		1,546			—		—		1,546		—			—
Draw on senior secured credit facility		111			—		—		—		—			111
WBS promissory note repayment		(50	)		—		—		—		(50	)		—
Principal payments on capital lease		(83	)		—		—		—		(83	)		—

Debt obligation as of March 31, 2010	$	14,231		$	4,000	$	4,796	$	1,546	$	700		$	3,189

The Company had approximately $3.2 million outstanding on its SVB Credit facility at March 31, 2010. The facility is subject to renewal by December 10, 2010.

On December 31, 2009, GTT entered into an agreement to acquire from Capital Growth Systems, Inc., Global Capacity Group, Inc. and Global Capacity Direct, LLC (collectively “Global Capacity”) certain customer contracts and other assets related to point-to-point circuits for the transmission of data. On February 8, 2010, the Company completed a financing transaction in which it sold 500 units at a purchase price of $10,000 per unit, resulting in $5.0 million of proceeds to the Company. Each unit consisted of 2,970 shares of the Company’s common stock, and $7,000 in principal amount of the Company’s subordinated promissory notes due February 8, 2012. The aggregate balance of the subordinate promissory notes at March 31, 2010 was $3.5 million. The proceeds of the Units Offering are to be applied by the Company to finance a portion of the purchase price under the asset purchase agreement with Global Capacity. The closing of the Global Capacity acquisition has not yet occurred. If the Global Capacity transaction is not consummated, the units will be redeemed by the Company at the purchase price paid by the investors without penalty and without premium.

As of March 31, 2010, the Company’s total short-term debt obligation is $12.5 million, which is due on or before December 31, 2010.

Liquidity Assessment

Cash used in operating activities for the three months ended March 31, 2010 was $1.7 million, driven primarily by the reduction in accounts payable assumed in the WBS acquisition, and temporary delay in the receipt of certain customer receivables related to the integration of WBS treasury management systems. Cash provided by operating activities for the three months ended March 31, 2009, was $0.6 million.

Restricted cash of $2.5 million relates to the Units Offering completed on February 8, 2010. On March 31, 2010, the Company also recorded a current liability related to the redemption obligation of $2.5 million of the proceeds from the Units Offering. The Company does not believe this refund obligation adversely impacts its liquidity profile as the proceeds of the Units Offering were dedicated to fund an acquisition that did not occur and were not planned for use in funding operations.

As a global network integrator, the Company typically has very low levels of capital expenditures, especially when compared to infrastructure-owning traditional telecommunications competitors. Additionally, the Company’s cost structure is somewhat variable and provides the Company’s management an ability to manage costs as appropriate. The Company’s capital expenditures are predominantly related to the maintenance of computer facilities, office fixtures and furnishings, and are very low as a proportion of revenue. However, from time to time, the Company may require capital investment as part of an executed service contract that would typically consist of significant multi-year commitments from the customer.

Management monitors cash flow and liquidity requirements. Based on the Company’s cash and cash equivalents and the SVB credit facility, and analysis of the anticipated working capital requirements, Management believes the Company has sufficient liquidity to fund the business and meet its contractual obligations. The Company’s current planned cash requirements for 2010 are based upon certain assumptions, including its ability to manage expenses and the growth of revenue from services arrangements. In connection with the activities associated with the services, the Company expects to incur expenses, including provider fees, employee compensation and consulting fees, professional fees, sales and marketing, insurance and interest expense. Should the expected cash flows not be available, management believes it would have the ability to revise its operating plan and make reductions in expenses.

The Company believes that cash currently on hand, expected cash flows from future operations and potential future borrowing capacity are sufficient to fund operations for the next twelve months, including the repayment, extension or refinancing of indebtedness pursuant to multiple agreements. If our operating performance differs significantly from our forecasts, we may be required to reduce our operating expenses and curtail capital spending, and we may not remain in compliance with our debt covenants. In addition, if the Company were unable to fully fund its cash requirements through operations and current cash on hand, the Company would need to obtain additional financing through a combination of equity and debt financings and/or renegotiation of terms of its existing debt. If any such activities become necessary, there can be no assurance that the Company would be successful in obtaining additional financing or modifying its existing debt terms, particularly in light of the general economic downturn that began in 2008 and the general reduction in lending activity by many lending institutions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

Interest due on the Company’s loans is based upon the applicable stated fixed contractual rate with the lender. Interest earned on the Company’s bank accounts is linked to the applicable base interest rate. For the three months ended March 31, 2010, the Company had interest expense, net of income, of approximately $0.4 million. The Company believes that its results of operations are not materially affected by changes in interest rates.

Exchange Rate Sensitivity

Approximately 24% of the Company’s revenues for the three months ended March 31, 2010 are derived from services provided outside of the United States. As a consequence, a material percentage of the Company’s revenues are billed in British Pounds Sterling or Euros. Since we operate on a global basis, we are exposed to various foreign currency risks. First, our consolidated financial statements are denominated in U.S. Dollars, but a significant portion of our revenue is generated in the local currency of our foreign subsidiaries. Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. Dollar will affect the translation of each foreign subsidiary’s financial results into U.S. Dollars for purposes of reporting consolidated financial results.

In addition, because of the global nature of our business, we may from time to time be required to pay a supplier in one currency while receiving payments from the underlying customer of the service in another currency. Although it is the Company’s general policy to pay its suppliers in the same currency that it will receive cash from customers, where these circumstances arise with respect to supplier invoices in one currency and customer billings in another currency, the Company’s gross margins may increase or decrease based upon changes in the exchange rate. Such factors did not have a material impact on the Company’s results in the three months ended March 31, 2010.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision of and with the participation of its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”).

Based on our evaluation, our CEO and CFO concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

The CEO and the CFO, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of March 31, 2010 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting during the period ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Management, including our CEO and CFO, does not expect that Disclosure Controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

PART II — Other Information

ITEM 5. LEGAL PROCEEDINGS

As of March 31, 2010, the Company was not subject to any material legal proceedings. From time to time, however, the Company or its operating companies may be involved in legal actions arising from normal business activities.

ITEM 5A. RISK FACTORS

The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond its control. In addition to the other information set forth in this report, the reader should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not presently known to us, which we currently deem to be immaterial or which are similar to those faced by other companies in this industry or business in general, may also affect our business, financial condition and/or operating results. If any of these risks or uncertainties actually occur, our business, financial condition and operating results would likely suffer. We do not believe that the risks and uncertainties described in the Risk Factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, have materially changed other than as set forth below.

Risks Relating to Our Business and Operations

We might require additional capital to support business growth, and this capital might not be available on favorable terms, or at all.

Our operations or expansion efforts may require substantial additional financial, operational, and managerial resources. As of March 31, 2010, we had approximately $6.2 million in cash and cash equivalents and current liabilities $22.4 million greater than current assets. We may have insufficient cash to fund our working capital or other capital requirements (including our outstanding debt obligations maturing during 2010), and may be required to raise additional funds to continue or expand our operations. If we are required to obtain additional funding in the future, we may have to sell assets, seek debt financing, or obtain additional equity capital. Our ability to sell assets or raise additional equity or debt capital will depend on the condition of the capital and credit markets and our financial condition at such time. Accordingly, additional capital may not be available to us, or may only be available on terms that adversely affect our existing stockholders, or that restrict our operations. For example, if we raise additional funds through issuances of equity or convertible debt securities, our existing stockholders could suffer dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. In addition, certain promissory notes that we have issued contain anti-dilution provisions related to their conversion into our common stock. The issuance of new equity securities or convertible debt securities could trigger an anti-dilution adjustment pursuant to these promissory notes, and our existing stockholders would suffer dilution if these notes are converted into shares of our common stock. Also, if we were forced to sell assets, there can be no assurance regarding the terms and conditions we could obtain for any such sale, and if we were required to sell assets that are important to our current or future business, our current and future results of operations could be materially and adversely affected. We have granted security interests in substantially all of our assets to secure the repayment of our indebtedness maturing in 2010, and if we are unable to satisfy our obligations the lenders could foreclose on their security interests. Our need for capital to satisfy our outstanding indebtedness due in 2010 is discussed below under the risk factor captioned “Risks Relating to Our Indebtedness — We are obligated to repay several debt instruments that mature during 2010. If we are unable to raise additional capital or renegotiate the terms of that debt, we may be unable to make the required payments with respect to one or more of these debt instruments.”

We depend on several large customers, and the loss of one or more of these clients, or a significant decrease in total revenues from any of these customers, would likely reduce our revenue and income.

For the three months ended March 31, 2010, our five largest customers accounted for approximately 21% of our total service revenues. If we were to lose one or more of our large clients, or if one or more of our large clients were to reduce the services purchased from us or otherwise renegotiate the terms on which services are purchased from us, our revenues could decline and our results of operations would suffer.

If our customers elect to terminate their agreements with us, our business, financial condition and results of operations may be adversely affected.

Our services are sold under agreements that generally have initial terms of between one and three years. Following the initial terms, these agreements generally automatically renew for successive month-to-month, quarterly, or annual periods, but can be terminated by the customer without cause with relatively little notice during a renewal period. In addition, certain government customers may have rights under federal law with respect to termination for convenience that can serve to minimize or eliminate altogether the liability payable by that customer in the event of early termination. Our customers may elect to terminate their agreements as a result of a number of factors, including their level of satisfaction with the services they are receiving, their ability to continue their operations due to budgetary or other concerns, and the availability and pricing of competing services. If customers elect to terminate their agreements with us, our business, financial condition, and results of operations may be adversely affected.

Competition in the industry in which we do business is intense and growing, and our failure to compete successfully could make it difficult for us to add and retain customers or increase or maintain revenues.

The markets in which we operate are rapidly evolving and highly competitive. We currently or potentially compete with a variety of companies, including some of our transport suppliers, with respect to their products and services, including global and regional telecommunications service providers such as AT&T, British Telecom, NTT, Level 3, Qwest and Verizon, among others.

The industry in which we operate is consolidating, which is increasing the size and scope of our competitors. Competitors could benefit from assets or businesses acquired from other carriers or from strategic alliances in the telecommunications industry. New entrants could enter the market with a business model similar to ours. Our target markets may support only a limited number of competitors. Operations in such markets with multiple competitive providers may be unprofitable for one or more of such providers. Prices in the data transmission and internet access business have declined in recent years and may continue to decline.

Many of our potential competitors have certain advantages over us, including:

	•		substantially greater financial, technical, marketing, and other resources, including brand or corporate name recognition;

	•		substantially lower cost structures, including cost structures of facility-based providers who have reduced debt and other obligations through bankruptcy or other restructuring proceedings;

	•		larger client bases;

	•		longer operating histories;

	•		more established relationships in the industry; and

	•		larger geographic presence.

Our competitors may be able to use these advantages to:


	•		develop or adapt to new or emerging technologies and changes in client requirements more quickly;

	•		take advantage of acquisitions and other opportunities more readily;

	•		enter into strategic relationships to rapidly grow the reach of their networks and capacity;

	•		devote greater resources to the marketing and sale of their services;

	•		adopt more aggressive pricing and incentive policies, which could drive down margins; and

	•		expand their offerings more quickly.

If we are unable to compete successfully against our current and future competitors, our revenues and gross margins could decline and we would lose market share, which could materially and adversely affect our business.

Because our business consists primarily of reselling telecommunications network capacity purchased from third parties, the failure of our suppliers and other service providers to provide us with services, or disputes with those suppliers and service providers, could affect our ability to provide quality services to our customers and have an adverse effect on our operations and financial condition.

The majority of our business consists of integrating and reselling network capacity purchased from facility-based telecommunications carriers. Accordingly, we will be largely dependent on third parties to supply us with services. Occasionally in the past, our operating companies have experienced delays or other problems in receiving services from third party providers. Disputes also arise from time to time with suppliers with respect to billing or interpretation of contract terms. Any failure on the part of third parties to adequately supply us or to maintain the quality of their facilities and services in the future, or the termination of any significant contracts by a supplier, could cause customers to experience delays in service and lower levels of customer care, which could cause them to switch providers. Furthermore, disputes over billed amounts or interpretation of contract terms could lead to claims against us, some of which if resolved against us could have an adverse impact on our results of operations and/or financial condition. Suppliers may also attempt to impose onerous terms as part of purchase contract negotiations. Although we know of no pending or threatened claims with respect to past compliance with any such terms, claims asserting any past noncompliance, if successful, could have a material adverse effect on our operations and/or financial condition. Moreover, to the extent that key suppliers were to attempt to impose such provisions as part of future contract negotiations, such developments could have an adverse impact on the company’s operations. Finally, some of our suppliers are potential competitors. We cannot guarantee that we will be able to obtain use of facilities or services in a timely manner or on terms acceptable and in quantities satisfactory to us.

Industry consolidation may affect our ability to obtain services from suppliers on a timely or cost-efficient basis.

A principal method of connecting with our customers is through local transport and last mile circuits we purchase from incumbent carriers such as AT&T and Verizon, or competitive carriers such as Time Warner Telecom, XO, or Level 3. In recent years, AT&T, Verizon, and Level 3 have acquired competitors with significant local and/or long-haul network assets. Industry consolidation has occurred on a lesser scale as well through mergers and acquisitions involving regional or smaller national or international competitors. Generally speaking, we believe that a marketplace with multiple supplier options for transport access is important to the long-term availability of competitive pricing, service quality, and carrier responsiveness. It is unclear at this time what the long-term impact of such consolidation will be, or whether it will continue at the same pace as it has in recent years; we cannot guarantee that we will continue to be able to obtain use of facilities or services in a timely manner or on terms acceptable and in quantities satisfactory to us from such suppliers.

We may occasionally have certain sales commitments to customers that extend beyond the Company’s commitments from its underlying suppliers.

The Company’s financial results could be adversely affected if the Company were unable to purchase extended service from a supplier at a cost sufficiently low to maintain the Company’s margin for the remaining term of its commitment to a customer. While the Company has not encountered material price increases from suppliers with respect to continuation or renewal of services after expiration of initial contract terms, the Company cannot be certain that it would be able to obtain similar terms and conditions from suppliers. In most cases where the Company has faced any price increase from a supplier following contract expiration, the Company has been able to locate another supplier to provide the service at a similar or reduced future cost; however, the Company’s suppliers may not provide services at such cost levels in the future.

We may make purchase commitments to vendors for longer terms or in excess of the volumes committed by our underlying customers.

The Company attempts to match its purchase of network capacity from its suppliers and its service commitments from its customers. However, from time to time the Company has obligations to its suppliers that exceed the duration of the Company’s related customer contracts or that are for capacity in excess of the amount for which it has Customer commitments. This could arise based upon the terms and conditions available from the Company’s suppliers, from an expectation of the Company that we will be able to utilize the excess capacity, as a result of a breach of a customer’s commitment to us, or to support fixed elements of the Company’s network. Under any of these circumstances, the Company would incur the cost of the network capacity from its supplier without having corresponding revenues from its customers, which could result in a material and adverse impact on the Company’s operating results.

The networks on which we depend may fail, which would interrupt the network availability they provide and make it difficult to retain and attract customers.

Our customers depend on our ability to provide network availability with minimal interruption. The ability to provide this service depends in part on the networks of third party transport suppliers. The networks of transport suppliers may be interrupted as a result of various events, many of which they cannot control, including fire, human error, earthquakes and other natural disasters, disasters along communications rights-of-way, power loss, telecommunications failures, terrorism, sabotage, vandalism, or the financial distress or other event adversely affecting a supplier, such as bankruptcy or liquidation.

We may be subject to legal claims and be liable for losses suffered by customers due to our inability to provide service. If our network failure rates are higher than permitted under the applicable customer contracts, we may incur significant expenses related to network outage credits, which would reduce our revenues and gross margins. Our reputation could be harmed if we fail to provide a reasonably adequate level of network availability, and in certain cases, customers may be entitled to seek to terminate their contracts with us in case of prolonged or severe service disruptions or other outages.

System disruptions could cause delays or interruptions of our service due to terrorism, natural disasters and other events beyond our control, which could cause us to lose customers or incur additional expenses.

Our success depends on our ability to provide reliable service. Although we have attempted to design our network services to minimize the possibility of service disruptions or other outages, in addition to risks associated with third party provider networks, our services may be disrupted by problems on our own systems, including events beyond our control such as terrorism, computer viruses, or other infiltration by third parties that affect our central offices, corporate headquarters, network operations centers, or network equipment. Such events could disrupt our service, damage our facilities, and damage our reputation. In addition, customers may, under certain contracts, have the ability to terminate services in case of prolonged or severe service disruptions or other outages. Accordingly, service disruptions or other outages may cause us to, among other things, lose customers and could harm our results of operations.

If the products or services that we market or sell do not maintain market acceptance, our results of operations will be adversely affected.

Certain segments of the telecommunications industry are dependent on developing and marketing new products and services that respond to technological and competitive developments and changing customer needs. We cannot assure you that our products and services will gain or obtain increased market acceptance. Any significant delay or failure in developing new or enhanced technology, including new product and service offerings, could result in a loss of actual or potential market share and a decrease in revenues.

The communications market in which we operate is highly competitive; we could be forced to reduce prices, may lose customers to other providers that offer lower prices and have problems attracting new customers.

The communications industry is highly competitive and pricing for some of our key service offerings, such as our dedicated IP transport services, have been generally declining. If our costs of service, including the cost of leasing underlying facilities, do not decline in a similar fashion, we could experience significant margin compression, reduction of profitability and loss of business.

If carrier and enterprise connectivity demand does not continue to expand, we may experience a shortfall in revenues or earnings or otherwise fail to meet public market expectations.

The growth of our business will be dependent, in part, upon the increased use of carrier and enterprise connectivity services and our ability to capture a higher proportion of this market. Increased usage of enterprise connectivity services depends on numerous factors, including:

	•		the willingness of enterprises to make additional information technology expenditures;

	•		the availability of security products necessary to ensure data privacy over the public networks;

	•		the quality, cost, and functionality of these services and competing services;

	•		the increased adoption of wired and wireless broadband access methods;

	•		the continued growth of broadband-intensive applications; and

	•		the proliferation of electronic devices and related applications.

If the demand for carrier and enterprise connectivity services does not continue to grow, we may not be able to grow our business, achieve profitability, or meet public market expectations.

Our long sales and service deployment cycles require us to incur substantial sales costs that may not result in related revenues.

Our business is characterized by long sales cycles, which are often in the range of 45 days or more, between the time a potential customer is contacted and a customer contract is signed. Furthermore, once a customer contract is signed, there is typically an extended period of between 30 and 120 days before the customer actually begins to use the services, which is when we begin to realize revenues. As a result, we may invest a significant amount of time and effort in attempting to secure a customer, which investment may not result in near term, if any, revenues. Even if we enter into a contract, we will have incurred substantial sales-related expenses well before we recognize any related revenues. If the expenses associated with sales increase, if we are not successful in our sales efforts, or if we are unable to generate associated offsetting revenues in a timely manner, our operating results could be materially and adversely affected.

Because much of our business is international, our financial results may be affected by foreign exchange rate fluctuations.

Approximately 24% of our revenue comes from countries outside of the United States. As such, other currencies, particularly the Euro and the British Pound Sterling, can have an impact on the Company’s results (expressed in U.S. Dollars). Currency variations also contribute to variations in sales in impacted jurisdictions. Accordingly, fluctuations in foreign currency rates, most notably the strengthening of the dollar against the euro and the pound, could have a material impact on our revenue growth in future periods. In addition, currency variations can adversely affect margins on sales of our products in countries outside of the United States and margins on sales of products that include components obtained from suppliers located outside of the United States.

If our goodwill or amortizable intangible assets become further impaired we may be required to record a significant charge to earnings.

Under generally accepted accounting principles, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include reduced future cash flow estimates, a decline in stock price and market capitalization, and slower growth rates in our industry. During the three months ended March 31, 2010, the Company recorded no impairment to goodwill and amortizable intangible assets. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively impacting our results of operations.

Because much of our business is international, we may be subject to local taxes, tariffs, or other restrictions in foreign countries, which may reduce our profitability.

Revenues from our foreign subsidiaries, or other locations where we provide or procure services internationally, may be subject to additional taxes in some foreign jurisdictions. Additionally, some foreign jurisdictions may subject us to additional withholding tax requirements or the imposition of tariffs, exchange controls, or other restrictions on foreign earnings. Any such taxes, tariffs, controls, and other restrictions imposed on our foreign operations may increase our costs of business in those jurisdictions, which in turn may reduce our profitability.

The ability to implement and maintain our databases and management information systems is a critical business requirement, and if we cannot obtain or maintain accurate data or maintain these systems, we might be unable to cost-effectively provide solutions to our customers.

To be successful, we must increase and update information in our databases about network pricing, capacity, and availability. Our ability to provide cost-effective network availability and access cost management depends upon the information we collect from our transport suppliers regarding their networks. These suppliers are not obligated to provide this information and could decide to stop providing it to us at any time. Moreover, we cannot be certain that the information that these suppliers share with us is accurate. If we cannot continue to maintain and expand the existing databases, we may be unable to increase revenues or to facilitate the supply of services in a cost-effective manner.

Furthermore, we are in the process of reviewing, integrating, and augmenting our management information systems to facilitate management of client orders, client service, billing, and financial applications. Our ability to manage our businesses could be materially adversely affected if we fail to successfully and promptly maintain and upgrade the existing management information systems.

If we are unable to protect our intellectual property rights, competitors may be able to use our technology or trademarks, which could weaken our competitive position.

We own certain proprietary programs, software, and technology. However, we do not have any patented technology that would preclude competitors from replicating our business model; instead, we rely upon a combination of know-how, trade secret laws, contractual restrictions, and copyright, trademark and service mark laws to establish and protect our intellectual property. Our success will depend in part on our ability to maintain or obtain (as applicable) and enforce intellectual property rights for those assets, both in the United States and in other countries. Although our Americas operating company has registered some of its service marks in the United States, we have not otherwise applied for registration of any marks in any other jurisdiction. Instead, with the exception of the few registered service marks in the United States, we rely exclusively on common law trademark rights in the countries in which we operate.

We may file applications for patents, copyrights and trademarks as our management deems appropriate. We cannot assure you that these applications, if filed, will be approved, or that we will have the financial and other resources necessary to enforce our proprietary rights against infringement by others. Additionally, we cannot assure you that any patent, trademark, or copyright obtained by us will not be challenged, invalidated, or circumvented, and the laws of certain foreign countries may not protect intellectual property rights to the same extent as do the laws of the United States or the member states of the European Union. Finally, although we intend to undertake reasonable measures to protect the proprietary assets of our combined operations, we cannot guarantee that we will be successful in all cases in protecting the trade secret status of certain significant intellectual property assets. If these assets should be misappropriated, if our intellectual property rights are otherwise infringed, or if a competitor should independently develop similar intellectual property, this could harm our ability to attract new clients, retain existing customers, and generate revenues.

Intellectual property and proprietary rights of others could prevent us from using necessary technology to provide our services or otherwise operate our business.

We utilize data and processing capabilities available through commercially available third-party software tools and databases to assist in the efficient analysis of network engineering and pricing options. Where such technology is held under patent or other intellectual property rights by third parties, we are required to negotiate license agreements in order to use that technology. In the future, we may not be able to negotiate such license agreements at acceptable prices or on acceptable terms. If an adequate substitute is not available on acceptable terms and at an acceptable price from another software licensor, we could be compelled to undertake additional efforts to obtain the relevant network and pricing data independently from other, disparate sources, which, if available at all, could involve significant time and expense and adversely affect our ability to deliver network services to customers in an efficient manner.

Furthermore, to the extent that we are subject to litigation regarding the ownership of our intellectual property or the licensing and use of others’ intellectual property, this litigation could:

	•		be time-consuming and expensive;

	•		divert attention and resources away from our daily business;

	•		impede or prevent delivery of our products and services; and

	•		require us to pay significant royalties, licensing fees, and damages.

Parties making claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to provide our services and could cause us to pay substantial damages. In the event of a successful claim of infringement, we may need to obtain one or more licenses from third parties, which may not be available at a reasonable cost, if at all. The defense of any lawsuit could result in time-consuming and expensive litigation, regardless of the merits of such claims, and could also result in damages, license fees, royalty payments, and restrictions on our ability to provide our services, any of which could harm our business.

We may experience difficulties integrating the recently acquired business of WBS Connect, which could adversely affect our financial condition and results of operations.

On December 16, 2009, we acquired WBS Connect. The success of this acquisition will depend in part on our success in integrating this business with our own. If we are unable to meet the challenges involved in successfully integrating the operations of WBS Connect or if we are otherwise unable to realize the anticipated benefits of this acquisition, our results of operations and financial condition could be seriously harmed. In addition, the overall integration of the acquired business will require substantial attention from our management, which could further harm our results of operations and financial condition.

The challenges involved in integrating the business of WBS Connect include:

	•		integrating the company’s operations, processes, people, technologies, products and services;

	•		coordinating and integrating sales and marketing functions;

	•		demonstrating to the WBS Connect customers and suppliers that the acquisition will not result in adverse changes in business focus, products or service (including customer satisfaction);

	•		assimilating and retaining the key personnel; and

	•		consolidating administrative infrastructures and eliminating duplicative operations and administrative functions.

We may not be able to successfully integrate the business of WBS Connect with our own business in a timely manner, or at all, and we may not realize the anticipated benefits of the acquisition, including potential synergies or sales or growth opportunities, to the extent or in the time frame anticipated.

We continue to evaluate merger and acquisition opportunities and may purchase additional companies in the future, and the failure to integrate them successfully with our existing business may adversely affect our financial condition and results of operations.

We have recently grown through the acquisition of WBS Connect. We continue to explore merger and acquisition opportunities, and we may face difficulties if we acquire other businesses in the future, including:

	•		integrating the personnel, services, products and technologies of the acquired businesses into our existing operations;

	•		retaining key personnel of the acquired businesses;

	•		failing to adequately identify or assess liabilities of acquired businesses;

	•		failing to achieve the synergies, revenue growth and other expected benefits we used to determine the purchase price of the acquired businesses;

	•		failing to realize the anticipated benefits of a particular merger and acquisition;

	•		incurring significant transaction and acquisition-related costs;

	•		incurring significant amounts of additional debt;

	•		creating significant contingent earn-out obligations and other financial liabilities;

	•		incurring unanticipated problems or legal liabilities;

	•		being subject to business uncertainties and contractual restrictions while an acquisition is pending that could adversely affect our business; and

	•		diverting our management’s attention from the day-to-day operation of our business.

These difficulties could disrupt our ongoing business and increase our expenses. As of the date of this Form 10-K, we have no agreement or memorandum of understanding to enter into any acquisition transaction.

In addition, our ability to complete acquisitions may depend, in part, on our ability to finance these acquisitions, including both the costs of the acquisition and the cost of the subsequent integration activities. Our ability may be constrained by our cash flow, the level of our indebtedness, restrictive covenants in the agreements governing our indebtedness, conditions in the securities and credit markets and other factors, most of which are generally beyond our control. If we proceed with one or more acquisitions in which the consideration consists of cash, we may use a substantial portion of our available cash to complete such acquisitions, thereby reducing our liquidity. If we finance one or more acquisitions with the proceeds of indebtedness, our interest expense and debt service requirements could increase materially. Thus, the financial impact of future acquisitions could materially affect our business and could cause substantial fluctuations in our quarterly and yearly operating results.

Our efforts to develop new service offerings may not be successful, in which case our revenues may not grow as we anticipate or may decline.

The market for telecommunications services is characterized by rapid change, as new technologies are developed and introduced, often rendering established technologies obsolete. For our business to remain competitive, we must continually update our service offerings to make new technologies available to our customers and prospects. To do so, we may have to expend significant management and sales resources, which may increase our operating costs. The success of our potential new service offerings is uncertain and would depend on a number of factors, including the acceptance by end-user customers of the telecommunications technologies which would underlie these new service offerings, the compatibility of these technologies with existing customer information technology systems and processes, the compatibility of these technologies with our then-existing systems and processes, and our ability to find third-party vendors that would be willing to provide these new technologies to us for delivery to our users. If we are unsuccessful in developing and selling new service offerings, our revenues may not grow as we anticipate, or may decline.

If we do not continue to train, manage and retain employees, clients may reduce purchases of services.

Our employees are responsible for providing clients with technical and operational support, and for identifying and developing opportunities to provide additional services to existing clients. In order to perform these activities, our employees must have expertise in areas such as telecommunications network technologies, network design, network implementation, and network management, including the ability to integrate services offered by multiple telecommunications carriers. They must also accept and incorporate training on our systems and databases developed to support our operations and business model. Employees with this level of expertise tend to be in high demand in the telecommunications industry, which may make it more difficult for us to attract and retain qualified employees. If we fail to train, manage, and retain our employees, we may be limited in our ability to gain more business from existing clients, and we may be unable to obtain or maintain current information regarding our clients’ and suppliers’ communications networks, which could limit our ability to provide future services.

The regulatory framework under which we operate could require substantial time and resources for compliance, which could make it difficult and costly for us to operate the businesses.

In providing certain interstate and international telecommunications services, we must comply, or cause our customers or carriers to comply, with applicable telecommunications laws and regulations prescribed by the Federal Communications Commission (“FCC”) and applicable foreign regulatory authorities. In offering services on an intrastate basis, we may also be subject to state laws and to regulation by state public utility commissions. Our international services may also be subject to regulation by foreign authorities and, in some markets, multinational authorities, such as the European Union. The costs of compliance with these regulations, including legal, operational, and administrative expenses, may be substantial. In addition, delays in receiving or failure to obtain required regulatory approvals or the enactment of new or adverse legislation, regulations, or regulatory requirements may have a material adverse effect on our financial condition, results of operations, and cash flow.

If we fail to obtain required authorizations from the FCC or other applicable authorities, or if we are found to have failed to comply, or are alleged to have failed to comply, with the rules of the FCC or other authorities, our right to offer certain services could be challenged and/or fines or other penalties could be imposed on us. Any such challenges or fines could be substantial and could cause us to incur substantial legal and administrative expenses as well; these costs in the forms of fines, penalties, and legal and administrative expenses could have a material adverse impact on our business and operations.

Furthermore, we are dependent in certain cases on the services other carriers provide, and therefore on other carriers’ abilities to retain their respective licenses in the regions of the world in which they operate. We are also dependent, in some circumstances, on our customers’ abilities to obtain and retain the necessary licenses. The failure of a customer or carrier to obtain or retain any necessary license could have an adverse effect on our ability to conduct operations.

Future changes in regulatory requirement, new interpretations of existing regulatory requirements, or determinations that we violated existing regulatory requirements may impair our ability to provide services, result in financial losses or otherwise reduce our profitability.

Many of the laws and regulations that apply to providers of telecommunications services are subject to frequent changes and different interpretations and may vary between jurisdictions. Changes to existing legislation or regulations in particular markets may limit the opportunities that are available to enter into markets, may increase the legal, administrative, or operational costs of operating in those markets, or may constrain other activities, including our ability to complete subsequent acquisitions, or purchase services or products, in ways that we cannot anticipate. Because we purchase telecommunications services from other carriers, our costs and manner of doing business can also be adversely affected by changes in regulatory policies affecting these other carriers.

In addition, any determination that we, including companies that we have acquired, have violated applicable regulatory requirements could result in material fines, penalties, forfeitures, interest or retroactive assessments. For example, a determination that we have not paid all required universal service fund contributions could result in substantial retroactive assessment of universal service contributions, together with applicable interest, penalties, fines or forfeitures.

We depend on key personnel to manage our businesses effectively in a rapidly changing market, and our ability to generate revenues will suffer if we are unable to retain key personnel and hire additional personnel.

The future success, strategic development, and execution of our business will depend upon the continued services of our executive officers and other key sales, marketing, and support personnel. We do not maintain “key person” life insurance policies with respect to any of our employees, nor are we certain if any such policies will be obtained or maintained in the future. We may need to hire additional personnel in the future, and we believe the success of the combined business depends, in large part, upon our ability to attract and retain key employees. The loss of the services of any key employees, the inability to attract or retain qualified personnel in the future, or delays in hiring required personnel could limit our ability to generate revenues and to operate our business.

Risks Relating to Our Indebtedness

We are obligated to repay several debt instruments that mature during 2010. If we are unable to raise additional capital or to renegotiate the terms of that debt, we may be unable to make the required principal payments with respect to one or more of these debt instruments.

A significant amount of our indebtedness for borrowed money will become due in December 2010, including (i) approximately $4.8 million in principal, plus accrued interest, of promissory notes we issued in November 2007, (ii) $4.0 million in principal, plus accrued interest, with respect to promissory notes we issued in October 2006 and, (iii) the then outstanding amount of our revolving credit facility with Silicon Valley Bank (under which we had $3.2 million outstanding at March 31, 2010. Also, in connection with the WBS Connect acquisition, we issued and assumed indebtedness in the aggregate amount of $0.8 million, of which approximately $0.6 million is due during 2010.

If we are unable to raise additional capital or arrange other refinancing options, we may be unable to make the principal payments and/or payments of accrued interest when due with respect to one or more of these promissory notes. We do not have sufficient cash currently available to pay all of these obligations, and absent the renewal or replacement of our revolving credit facility, we do not expect that our results of operations will provide sufficient funds to enable us to pay these obligations in full. Accordingly, we expect that we will need to extend these debt obligations or obtain additional capital to satisfy these debt obligations through one or more alternatives, such as raising equity capital, raising new debt capital or selling assets. Our ability to sell assets or raise additional equity or debt capital, and our ability to extend or refinance our existing indebtedness will depend on the condition of the capital and credit markets and our financial condition at such time. As a result, we may not be able to extend the maturity of our indebtedness maturing in 2010, or obtain additional capital to satisfy these obligations on terms acceptable to us or at all. Any additional capital may be available only on terms that adversely affect our existing stockholders, or that restrict our operations.

For example, if we raise additional funds through issuances of equity or convertible debt securities, our existing stockholders could suffer dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. In addition, certain promissory notes that we have issued contain anti-dilution provisions related to their conversion into our common stock. The issuance of new equity securities or convertible debt securities could trigger an anti-dilution adjustment pursuant to these promissory notes, and our existing stockholders would suffer dilution if these notes are converted into shares of our common stock. Also, if we were forced to sell assets, there can be no assurance regarding the terms and conditions we could obtain for any such sale, and if we were required to sell assets that are important to our current or future business, our current and future results of operations could be materially and adversely affected. We have granted security interests in substantially all of our assets to secure the repayment of our indebtedness maturing in 2010, and if we are unable to satisfy our obligations the lenders could foreclose on their security interests. The impact of our debt obligations on our other operating requirements is discussed above under the risk factor captioned “Risks Related to Our Business and Operations — We might require additional capital to support business growth, and this capital might not be available on favorable terms, or at all.”

Our failure to renew our credit facility on terms acceptable to the Company, if at all, could result in the loss of future borrowing capacity and/or higher costs to maintain or access the borrowing capacity.

On December 16, 2009, the Company entered into the Second Amended and Restated Loan and Security Agreement (the “SVB Amended Loan Agreement”) with Silicon Valley Bank. The SVB Amended Loan Agreement and related documents amend and restate the existing SVB credit facility to provide, among other things, for an increase in available borrowing to $5.0 million with provision for further increase to an aggregate facility amount of $8.0 million if the Company acquires certain customer accounts from a third party and obtains certain additional financing. The transaction with the third party expired on April 30, 2010, which will limit the facility as currently documented to $5.0 million. The facility expires and is subject to renewal by December 10, 2010. The Company had drawn approximately $3.2 million on the facility at March 31, 2010.

If the Company were to lose access to the borrowing capacity under the credit agreement, or if any refinancing or replacement facility were on terms that are burdensome to the Company, the Company could lose access to this borrowing capacity or incur higher costs to maintain and access such borrowing capacity.

Our failure to comply with covenants in our credit facility could result in our indebtedness being immediately due and payable and the loss of our assets.

Pursuant to the terms of our credit facility with Silicon Valley Bank we have pledged substantially all of our assets to the lender as security for our payment obligations under the credit facility. If we fail to pay any of our indebtedness under this credit facility when due, or if we breach any of the other covenants in the credit facility, it may result in one or more events of default. An event of default under our credit facility would permit the lender to declare all amounts owing to be immediately due and payable and, if we were unable to repay any indebtedness owed, the lender could proceed against the collateral securing that indebtedness.

Covenants in our credit facility and outstanding notes, and in any future debt agreement, may restrict our future operations.

The indenture governing the notes and the New Credit Facility will impose financial restrictions that limit our discretion on some business matters, which could make it more difficult for us to expand our business, finance our operations and engage in other business activities that may be in our interest. These restrictions include compliance with, or maintenance of, certain financial tests and ratios and restrictions that limit our ability and that of our subsidiaries to, among other things:

	•		incur additional indebtedness or place additional liens on our assets;

	•		pay dividends or make other distributions on, redeem or repurchase our capital stock;

	•		make investments or repay subordinated indebtedness;

	•		enter into transactions with affiliates;

	•		sell assets;

	•		engage in a merger, consolidation or other business combination; or

	•		change the nature of our businesses.

Any additional indebtedness we may incur in the future may subject us to similar or even more restrictive conditions.

Our substantial level of indebtedness and debt service obligations could impair our financial condition, hinder our growth and put us at a competitive disadvantage.

As of March 31, 2010 our indebtedness was substantial in comparison to our available cash and our net income. Our substantial level of indebtedness could have important consequences for our business, results of operations and financial condition. For example, a high level of indebtedness could, among other things:

	•		make it more difficult for us to satisfy our financial obligations;

	•		increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations;

	•		increase the risk that a substantial decrease in cash flows from operating activities or an increase in expenses will make it difficult for us to meet our debt service requirements and will require us to modify our operations;

	•		require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund future business opportunities, working capital, capital expenditures and other general corporate purposes;

	•		limit our ability to borrow additional funds to expand our business or ease liquidity constraints;

	•		limit our ability to refinance all or a portion of our indebtedness on or before maturity;

	•		limit our ability to pursue future acquisitions;

	•		limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

	•		place us at a competitive disadvantage relative to competitors that have less indebtedness.

Risks Related to our Common Stock and the Securities Markets

Because we do not currently intend to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.

We do not currently anticipate paying any dividends on shares of our common stock. Any determination to pay dividends in the future will be made by our Board of Directors and will depend upon results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law, and other factors our Board of Directors deems relevant. Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our common stock. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders purchased their shares.

Our outstanding warrants may have an adverse effect on the market price of our common stock.

At March 31, 2010, we had 12,090,000 Class W warrants outstanding, each of which entitles the holder to purchase a share of our common stock at an exercise price of $5.00 per share on or before April 10, 2010. In addition, at March 31, 2010 we had 12,090,000 Class Z warrants, each of which entitles the holder to purchase a share of our common stock at an exercise price of $5.00 per share on or before April 10, 2012. We also have outstanding approximately $4.8 million in principal amount of promissory notes due in December 2010 that are convertible into common stock at a conversion price of $1.70 per share. We also issued to the representative of the underwriters in our initial public offering an option to purchase at any time on or before April 10, 2010, 25,000 Series A units at an exercise price of $17.325 per Series A unit (each of which is comprised of two shares of common stock, five Class W warrants and five Class Z warrants) and/or 230,000 Series B units at an exercise price of $16.665 per Series B unit (each of which is comprised of two shares of common stock, one Class W warrant and one Class Z warrant), except that (a) the exercise price for these Class W warrants and Class Z warrants is $5.50 per share and these Class Z warrants expire on April 10, 2010. If the Series A units and Series B units are issued, it would result in the issuance of an additional 710,000 warrants. The common stock underlying the warrants, the convertible notes and the underwriters’ options have been registered for sale under the Securities Act or are entitled to registration rights or are otherwise generally eligible for sale in the public market at or soon after exercise or conversion. If and to the extent these warrants are exercised, stockholders may experience dilution to their ownership interests in the Company. The presence of this additional number of shares of common stock and warrants eligible for trading in the public market may have an adverse effect on the market price of our common stock.

The concentration of our capital stock ownership will likely limit a stockholder’s ability to influence corporate matters, and could discourage a takeover that stockholders may consider favorable and make it more difficult for a stockholder to elect directors of its choosing.

Based on public filings with the SEC made by J. Carlo Cannell, we believe that as of March 31, 2010, funds associated with Cannell Capital LLC owned 3,720,106 shares of our common stock and warrants to acquire 923,900 shares of our common stock. Based on the number of shares of our common stock outstanding on March 31, 2010 without taking into account their unexercised warrants, these funds would beneficially own approximately 21.5% of our common stock. In addition, as of March 31, 2010, our executive officers, directors and affiliated entities together beneficially owned common stock, without taking into account their unexercised and unconverted warrants, options and convertible notes, representing approximately 34% of our common stock. As a result, these stockholders have the ability to exert significant control over matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. The interests of these stockholders might conflict with your interests as a holder of our securities, and it may cause us to pursue transactions that, in their judgment, could enhance their equity investments, even though such transactions may involve significant risks to you as a security holder. The large concentration of ownership in a small group of stockholders might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

It may be difficult for you to resell shares of our common stock if an active market for our common stock does not develop.

Our common stock is not actively traded on a securities exchange and we currently do not meet the initial listing criteria for any registered securities exchange, including the NASDAQ National Market System. It is quoted on the less recognized Over-the-Counter Bulletin Board. This factor may further impair your ability to sell your shares when you want and/or could depress our stock price. As a result, you may find it difficult to dispose of, or to obtain accurate quotations of the price of, our securities because smaller quantities of shares could be bought and sold, transactions could be delayed, and security analyst and news coverage of our company may be limited. These factors could result in lower prices and larger spreads in the bid and ask prices for our shares.

ITEM 6. EXHIBITS

The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	GLOBAL TELECOM & TECHNOLOGY, INC.
	By:	/s/ Richard D. Calder, Jr
		Richard D. Calder, Jr.
		President and Chief Executive Officer

Date: May 13, 2010

EXHIBIT INDEX


Exhibit
Number		Description of Document
31.1*		Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934.

31.2*		Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934.

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith

GTT Communications, Inc. - FORM 10-Q - May 13, 2010

Attached files

GTT Communications, Inc. Reports