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, 2011. 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 similarexpressions, 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission and Part II Item 1A of this quarterly report on Form 10-Q.

Overview

GTT is a global network operator delivering managed data services to large enterprise, government and carrier customers in over 80 countries worldwide. GTT provides customers with innovative connectivity solutions by utilizing our own network assets - linking over 100 Points of Presence across North America, Europe and Asia - and extending them through our 800 partners worldwide. Our Network as a Service proposition delivers flexible, reliable and scalable network infrastructure, capable of both public and secure private networking. We simplify network deployment by removing the complexity of multi-vendor solutions while offering the cost efficiencies of a single partner. For over 14 years, GTT has provided world class project management, rapid service implementation and global 24/7 end-to-end solution monitoring and support. GTT is headquartered in the Washington, DC metro region with offices in London, Dusseldorf and Denver.

The Company sells services largely through a direct sales force located across the globe, as well as strong agent channel relationships. The Company generally competes with traditional, facilities-based providers and other services providers in each of our global markets. As of March 31, 2012, our customer base was comprised of over 1,000 businesses. Our five largest customers accounted for approximately 20% of consolidated revenues during the quarter ended March 31, 2012.

Costs and Expenses

The Company's cost of revenue consists of the expenses directly related to the services provided to customers. The key terms and conditions appearing in both supplier and customer agreements are substantially the same, with margin applied to the suppliers' costs. 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.

Our supplier contracts do not have any market related net settlement provisions. The Company has not entered into, and has no plans to enter into, any supplier contracts which involve financial or derivative instruments. The supplier contracts are entered into solely for the direct purchase of telecommunications capacity, which is resold by the Company in its normal course of business.

Other than cost of revenue, the Company's most significant operating expenses are employment costs. As of March 31, 2012, the Company had 90 employees and employment costs comprised approximately 11% of total operating expenses for the three months ended March 31, 2012.

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, 2012, approximately 72% of our consolidated revenue was earned from operations based in the United States. Approximately 22% of our revenue was generated from operations based in the United Kingdom and 6% from operations in other countries.

Critical Accounting Policies and Estimates

There have been no significant changes in the Company's critical accounting policies and estimates as of March 31, 2012, as compared to the critical accounting policies and estimates disclosed in Note 2, "Significant Accounting Policies" in the 2011 Annual Report on Form 10-K.

Results of Operations of the Company

Three months ended March 31, 2012 compared to three months ended March 31, 2011

Overview. The financial information presented in the tables below is comprised of the unaudited condensed consolidated financial information of the Company for the three months ended March 31, 2012 and 2011 (amounts in thousands):

                                                              Three Months Ended March 31,
                                                                2012                 2011

Revenue                                                    $       24,718       $       20,402
Cost of revenue                                                    17,467               14,383

Gross margin                                                        7,251                6,019
                                                                     29.3 %               29.5 %
Operating expenses, depreciation and amortization                   5,866                5,148

Operating income                                           $        1,385       $          871

Net (loss) income                                          $         (249 )     $          463

Revenue. Revenue for the three months ended March 31, 2012, was $24.7 million. Revenue for the three months ended March 31, 2011, was $20.4 million. The increase in revenue is primarily due to the acquisition of PacketExchange in June 2011 as well as increased sales to new and existing customers.

Cost of Revenue and Gross Margin. Cost of revenue and gross margin for the three months ended March 31, 2012, were $17.5 million and $7.3 million, respectively. For the three months ended March 31, 2011, cost of revenue and gross margin were $14.4 million and $6.0 million, respectively. The primary cause of the increase is primarily due to the PacketExchange acquisition as well as increased sales to new and existing customers.

Operating Expenses. Operating expenses, exclusive of cost of revenue, were $5.9 million and $5.2 million for the three months ended March 31, 2012 and 2011, respectively. The increase was due primarily the depreciation and amortization of the network and intangible assets obtained in the PacketExchange acquisition. These changes are illustrated in the table below (amounts in thousands):

                                                             Three Months Ended March 31,
                                                               2012                2011

Selling, general and administrative expenses (excluding
noncash compensation)                                      $       4,584       $       4,311
Noncash compensation                                                 144                 161
Amortization of intangible assets                                    722                 461
Depreciation                                                         416                 215
Totals                                                     $       5,866       $       5,148

Liquidity and Capital Resources



Debt



The following summarizes the debt activity of the Company during the three
months ended March 31, 2012 (amounts in thousands):



                                                                         SVB Line of                     Subordinated
                                    Total Debt       SVB Term Loan         Credit          BIA Note          Notes         Promissory Note

Debt obligation as of December
31, 2011                           $     27,989     $        13,500     $       3,100     $    8,078     $       2,602     $            709
Debt discount amortization                   71                   -                 -             23                48                    -
Draw on Line of Credit                      800                   -               800              -                 -                    -
Principal payments                       (1,091 )              (750 )               -              -              (105 )               (236 )

Debt obligation as of March 31,
2012                               $     27,769     $        12,750     $       3,900     $    8,101     $       2,545     $            473

Term Loan and Line of Credit

On June 6, 2011, immediately following the PacketExchange acquisition, the Company and its subsidiaries GTTA, GTTE, WBS Connect LLC, a Colorado limited liability company ("WBS", and together with the Company, GTTA and GTTE, collectively, the "Existing Borrower"), PacketExchange (Ireland) Limited, a company incorporated and existing under the laws of Ireland ("PEIRL"), PacketExchange (Europe) Limited, a private limited company incorporated and registered in England and Wales ("PELTD"), PacketExchange (USA), Inc., a Delaware corporation ("PEUSA"), PacketExchange, Inc., a Delaware corporation ("PEINC", and together with PEIRL, PELTD and PEUSA, collectively, the "New Borrower") (the New Borrower and the Existing Borrower together are the "Borrower") entered into a joinder and first loan modification agreement (the "Modification Agreement") with Silicon Valley Bank, which amends that certain Loan and Security Agreement (the "Loan Agreement"), dated September 30, 2010, by and among Silicon Valley Bank and the Existing Borrower.

The Modification Agreement increases the amount of the term loan facility from $10 million to $15 million (the "Term Loan"), while the revolving line of credit facility in the aggregate principal amount of up to $5 million (the "Line of Credit") remains unchanged. The Modification Agreement contains customary representations, warranties and covenants of the Borrower and customary events of default. In connection with negotiating the terms of the Modification Agreement, it was noted that the Company would benefit by separating the financing provided under the Loan Agreement into separate U.S. and non-U.S. financings. Accordingly, the Company and Silicon Valley Bank restructured the terms of the Loan Agreement on June 29, 2011 to implement this separation. The obligations of the Borrower under the Modification Agreement are secured by substantially all of Borrower's tangible and intangible assets pursuant to the Loan Agreement.

The Term Loan matures on June 1, 2016. The Borrower shall repay the Term Loan in sixty (60) equal installments of principal and interest, with interest accruing at a floating per annum rate equal to Silicon Valley Bank's prime rate plus 3.75%, unless the Borrower achieves certain performance criteria, in which case the interest rate shall be equal to Silicon Valley Bank's prime rate plus 2.75%.

The Line of Credit will continue to mature on September 29, 2012 and the principal amount outstanding under the Line of Credit shall continue to accrue interest at a floating per annum rate equal to Silicon Valley Bank's prime rate plus 2%, unless the Borrower achieves certain performance criteria, in which case the interest rate shall be equal to Silicon Valley Bank's prime rate plus 1.0%.

On April 30, 2012, the Line of Credit and the Term Loan were both modified. For a more detailed description of these changes, please refer to Note 8, "Subsequent Events".

Note Purchase Agreement for Second Lien Credit Facility

Concurrent with entering in to the Modification Agreement, on June 6, 2011, the Company and its subsidiaries GTTA, WBS, PEUSA and PEINC (collectively, the "Note Borrower") entered into a note purchase agreement (the "Purchase Agreement") with the BIA Digital Partners SBIC II LP ("BIA"). The Purchase Agreement provided for a total commitment of $12.5 million, of which $7.5 million was immediately funded (the "Notes"). The Notes were issued at a discount to face value of $0.4 million and the discount is being amortized into interest expense over the life of the Notes. The remaining $5.0 million of the committed financing was available to be called by the Note Borrower on or before August 11, 2011, subject to extension to December 31, 2011, at the sole option of BIA. On September 19, 2011, BIA agreed to extend the commitment period and funded the Note Borrower an additional $1.0 million. As of March 31, 2012, there was no additional availability with BIA. The additional funding was issued at a discount to face value of $45,000, due to the warrants issued, and the discount is being amortized into interest expense over the life of the Notes. The Purchase Agreement contains customary representations, warranties and covenants of the Note Borrower and customary events of default. The obligations of the Note Borrower under the Purchase Agreement are secured by substantially all of Borrower's tangible and intangible assets pursuant to the Purchase Agreement.

The Notes mature on June 6, 2016. The obligations evidenced by the Notes shall bear interest at a rate of 13.5% per annum, of which (i) at least 11.5% per annum shall be payable, in cash, monthly ("Cash Interest Portion") and (ii) 2.0% per annum shall be, at the Note Borrower's option, paid in cash or paid-in-kind. If the Note Borrower achieves certain performance criteria, the obligations evidenced by the Notes shall bear interest at a rate of 12.0% per annum, with a Cash Interest Portion of at least 11.0% per annum.

The obligations of the Note Borrower under the Note Purchase Agreement are guaranteed by TEK and GTGS (GTGS and TEK, together, the "Note Guarantors") pursuant to unconditional guaranties executed by each Guarantor in favor of BIA (each a "Note Guaranty"). Each Guaranty is secured by a second lien on each Guarantor's tangible and intangible assets pursuant to a security agreement containing representations, warranties and covenants substantially similar to those made under the Note Purchase Agreement with respect to the Note Borrower. Pursuant to a pledge agreement (the "Pledge Agreement") dated June 6, 2011, by and between BIA and the Company and GTTA, the obligations of the Note Borrower under the Note Purchase Agreement are also secured by a pledge in all of the equity interests of the Company and GTTA in their respective United States subsidiaries and a pledge of 65% of the voting equity interests and all of the non-voting equity interests of the Company and GTTA in their respective non-United States subsidiaries.

Concurrent with entering into the Note Purchase Agreement, Silicon Valley Bank and BIA entered into an Intercreditor and Subordination Agreement which governs, among other things, ranking and collateral access for the respective lenders.

Warrants

On June 6, 2011, pursuant to the Purchase Agreement, the Company issued to BIA a warrant to purchase from the Company 634,648 shares of the Company's common stock, at an exercise price equal to $1.144 per share (as adjusted from time to time as provided in the Purchase Agreement). Upon the additional $1.0 million funding, the Company issued to BIA an additional warrant (together the "Warrants") to purchase from the Company 63,225 shares of the Company's common stock, at an exercise price equal to $1.181 per share.

The Company evaluated the down round ratchet feature embedded in the Warrants and after considering ASC 480, Distinguishing Liabilities from Equity, which establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity, and ASC 815, Derivatives and Hedging, the Company concluded the Warrants should be treated as a derivative and recorded a liability for the original fair value amount of $0.5 million during 2011. At March 31, 2012, the warrant liability was marked to market which resulted in an expense of $0.7 million. The balance of the warrant liability was $1.1 million as of March 31, 2012, which is included in other long-term liabilities.

Subordinated Notes

On February 8, 2010, the Company completed a units offering ("February 2010 Units") 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. The subordinated promissory notes were issued at a discount to face value of $0.2 million and the discount is being amortized, into interest expense over the life of the Notes. Interest on the subordinated promissory notes accrues at 10% per annum. Accrued but unpaid interest was $204,000 as of March 31, 2012.

The proceeds from the February 2010 Units were to be applied by the Company to finance a portion of the purchase price under an asset purchase agreement with a potential acquisition target. On April 30, 2010, the asset purchase agreement with the potential acquisition target expired without consummation of the acquisition. On May 13, 2010, investors representing $1.5 million in aggregated principal amount of the Company's subordinated promissory notes and $0.9 million of the Company's common stock waived the right to receive their refund and elected to retain some or all of their subordinated promissory notes. In May 2011, $1.4 million of the February 2010 Units subordinated notes were amended to mature in four equal installments on March 31, June 30, September 30 and December 31, 2013. The remaining $0.1 million of the February 2010 Units subordinated notes were paid in February 2012. The $0.7 million of subordinate notes that mature on March 31, 2013 are included in short-term debt and the remaining notes of $1.9 million are included in long-term debt as of March 31, 2012.

On December 31, 2010, the Company completed a financing transaction in which it issued 212 units, valued at $10,000 per unit ("December 2013 Units"). Each unit consisted of 5,000 shares of the Company's common stock, and $5,000 in principal amount of the Company's subordinated promissory notes due December 31, 2013. The subordinated promissory notes were issued at a discount to face value of $0.2 million and the discount is being amortized, into interest expense, over the life of the notes. Interest on the subordinated promissory notes accrues at 10% per annum. In total, the Company issued 1,060,000 shares of the Company's common stock and $1.1 million in principal amount of subordinated promissory notes.

On February 16, 2011, the Company and the holders of the December 2013 Units amended the offering solely to increase the aggregate principal amount available for issuance from $1.1 million to $1.6 million. On February 16, 2011, the Company also completed a financing transaction in which it issued 40 units, at a purchase price of $10,000 per unit, for gross proceeds of $0.4 million. Each unit was comprised of 5,000 shares of the Company's common stock, and $5,000 in principal amount of subordinated promissory notes. The subordinated promissory notes were issued at a discount to face value of $47,000 and the discount is being amortized into interest expense over the life of the Notes.

As of March 31, 2012, the subordinated notes payable had a balance of $2.5 million. The balance includes notes totaling $2.1 million due to a related party, Universal Telecommunications, Inc. H. 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. Also, included in the balance is $0.1 million of the notes held by officers and directors of the Company.

Promissory Note

As part of the June 2011 acquisition of PacketExchange, the Company assumed a promissory note of approximately $0.7 million. As of March 31, 2012, the remaining balance due was $0.5 million.

Liquidity Assessment

Cash provided by operating activities for the three months ended March 31, 2012 was $1.2 million. Cash provided by operating activities for the three months ended March 31, 2011, was $0.1 million.

Cash used in financing activities was approximately $0.3 million for the three months ended March 31, 2012, driven primarily by the repayment on the Term Loan and promissory note net of advances on the line of credit. Cash flows used in financing activities were $1.0 million for the three months ended March 31, 2011.

Management monitors cash flow and liquidity requirements. Based on the Company's cash and cash equivalents, the availability under the Silicon Valley Bank 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 2011 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 existing borrowing capacity are sufficient to fund operations for the next twelve months, including the scheduled repayment, of indebtedness pursuant to the Silicon Valley Bank Term Loan. 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 subordinated 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.