INAP JAPAN JOINT VENTURE

In previous years, INAP invested $4.1 million in Internap Japan Co., Ltd, ("INAP Japan") a joint venture with NTT-ME Corporation and Nippon Telegraph and Telephone Corporation. INAP Japan is a provider of high performance infrastructure services. We accounted for this investment using the equity method. On August 15, 2017, INAP exercised certain rights to obtain a controlling interest in INAP Japan, which will allow us to recognize the economic benefits. Upon obtaining control of the venture, we recognized INAP Japan's assets and liabilities at fair value resulting in a gain of $1.1 million which is reflected in "Equity in earnings of equity-method investment, net of taxes" in the accompanying consolidated statements of operations and comprehensive loss.

We determined the preliminary fair value of the net assets as follows (in thousands):



	Preliminary Purchase Price Allocation		Weighted Average
Cash	$	3,838
Property and equipment	725
Customer relationships	1,231		21 years
License	634
Other assets	2,322
Total assets acquired	8,750
Other liabilities	446
Noncontrolling interest	3,999
Net assets acquired	$	4,305

The fair value of customer relationships was estimated by applying the multi-period excess earnings method. The fair value was determined by calculating the present value of estimated future operating cash flows generated from existing customers less costs to realize the revenue. The Company applied a discount rate of 8.5%, which reflected the nature of the assets as they relate to the risk and uncertainty of the estimated future operating cash flows. Other significant assumptions used to estimate the fair value of customer relationships include projected revenue growth, customer attrition rates, sales and marketing expenses and operating margins. The fair value measurements were based on significant inputs that are not observable in the market and thus represent Level 3 measurements as defined in the accounting standard for fair value measurements.

The fair value of property and equipment was estimated by applying the cost approach. The cost approach is to use the replacement or reproduction cost as an indicator of fair value. The premise of the cost approach is that a market participant would pay no more for an asset than the amount for which the asset could be replaced or reproduced. The key assumptions of the cost approach include replacement cost new, physical deterioration, functional and economic obsolescence, economic useful life, remaining useful life, age and effective age.

Unaudited Pro-Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of INAP and INAP Japan as if the acquisition had occurred on January 1, 2016. The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the INAP and INAP Japan acquisition been completed as of January 1, 2016, and should not be taken as indicative of our future consolidated results of operations.



(in thousands, except per share amounts)	Year Ended December 31,
	2017			2016
Revenue	$	286,570		$	305,733
Net loss attributable to INAP stockholders	(45,240		)	(124,722		)
Basic and diluted net loss per share	(2.38		)	(9.53		)