Tucows 2013 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 001-32600
Tucows Inc.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania
(State or Other Jurisdiction of Incorporation or Organization)
23-2707366
(I.R.S. Employer Identification No.)
96 Mowat Avenue
Toronto, Ontario, Canada
(Address of Principal Executive Offices)
M6K 3M1
(Zip Code)
Registrant’s telephone number, including area code: (416) 535-0123
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common stock, no par value
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate Website, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 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 ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
(Do not check if a smaller reporting
Smaller reporting company ☒

Table of contents

  • Page 1
    ....) 96 Mowat Avenue Toronto, Ontario, Canada M6K 3M1 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (416) 535-0123 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common stock, no par value Name of Each Exchange...

  • Page 2
    ... holders of shares of the registrant's common stock. The number of shares outstanding of the registrant's common stock as of March 17, 2014 was 11,185,384. TRADEMARKS, TRADE NAMES AND SERVICE MARKS Tucows®, EPAG®, Hover®, OpenSRS®, Platypus®, Ting® and YummyNames® are registered trademarks of...

  • Page 3
    ... statements. The forward-looking statements contained in this report include statements regarding, among other things, the number of new, renewed and transferred-in domain names, the competition we expect to encounter as our business develops and competes in a broad range of Internet services, the...

  • Page 4
    ... domain names under the Tucows ICANN registrar accreditation and for other registrars under their own accreditations. Value-Added Services include hosted email which provides email delivery and webmail access to millions of mailboxes, Internet security services, publishing tools and reseller billing...

  • Page 5
    ... the market position for their services. In addition, we provide billing, provisioning and customer care software solutions to ISPs through our Platypus billing software. Retail - Hover We derive revenues from Hover's sale of retail Internet domain name registration and email services to individuals...

  • Page 6
    ...such as major holidays, Internet usage often declines. As a result, many of our services (OpenSRS, Hover and Tucows.com) may experience reduced demand during these times. For example, our experience shows that new domain registrations and traffic on our download site decline during the summer months...

  • Page 7
    .... Service providers, Internet portals, web hosting companies, email hosting companies, outsourced application companies, country code registries and major telecommunication firms may broaden their services to include services we offer. We believe the primary competitive factors in our Reseller...

  • Page 8
    ... price of our common stock could decline. Risks Related to Our Business and Industry We may not be able to maintain or improve our competitive position and may be forced to reduce our prices because of strong competition in the market for Internet services generally and domain name registration...

  • Page 9
    offer. These competitors include, among others, domain name registrars, website design firms, website hosting companies, Internet service providers, Internet portals and search engine companies, including Google, Microsoft, Web.com, GoDaddy, VeriSign and Yahoo!. Competitors like Microsoft, Google ...

  • Page 10
    ... a number of our customers decide to pursue this option, our sales will decrease. Our failure to secure agreements with country code registries or our subsequent failure to comply with the regulations of the country code registries could cause customers to seek a registrar that offers these services...

  • Page 11
    ... As a registrar of domain names services, we may be subject to potential liability for illegal activities by our resellers' customers on their websites. We provide an automated service that enables users to register domain names. We do not monitor or review, nor does our accreditation agreement with...

  • Page 12
    ... liability of online resellers for activities of customers and more stringent laws in foreign jurisdictions relating to the privacy and protection of third-party data; accreditation and other regulatory requirements to provide domain name registration, website hosting and other services in foreign...

  • Page 13
    ...technologies which could delay and increase the cost of product and service developments. We currently license certain technologies from third parties and incorporate them into certain of our services including email, anti-spam and anti-virus. The Internet services market is evolving and we may need...

  • Page 14
    ... our service offerings under four distinct brands namely "OpenSRS", "YummyNames", "Hover" and "Ting". We also believe that maintaining and enhancing the "Tucows" corporate brand and our service brands is critical to expand ing our customer base. We anticipate that, as our market becomes increasingly...

  • Page 15
    ... Each of these methods requires the use of a third party product or service, such as an Internet browser or search engine or directory. Internet browsers may provide alternatives to the URL address box to locate web sites, and search engines may from time to time change and establish rules regarding...

  • Page 16
    .... The volume of domain name registration disputes may increase in the future as the overall number of registered domain names increases. These claims and any related litigation could result in significant costs of defense, liability for damages and diversion of management's time and attention. Any...

  • Page 17
    .... If we are unsuccessful in managing these risks, our business, financial condition and results of operations could be adversely affected. Because we are required to recognize revenue for our services over the term of the applicable customer agreement, changes in our sales may not be immediately...

  • Page 18
    ... revenue from our customers ratably over the respective terms of their agreements with us as required by GAAP. Typically, our domain name registration agreements have terms that range from one to ten years, and our website hosting agreements have annual or month-to-month terms. Accordingly, any...

  • Page 19
    ... timely meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in our stock price, and it could make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers...

  • Page 20
    ... in domain name fees charged to us by Internet registries or ICANN, or other competitive pressures on selling prices; our ability to identify, hire, train, motivate and retain highly qualified personnel, and to achieve targeted productivity levels; market acceptance of Internet services generally...

  • Page 21
    ... by our competitors; our ability to identify, develop, deliver and introduce in a timely manner new and enhanced versions of our current service offerings that anticipate market demand and address customer needs; changes in foreign currency exchange rates and issues relating to the conversion to the...

  • Page 22
    ... may also use their ownership of local wireline telecommunications facilities to introduce service features and calling plans, such as free wireless-to-landline calls, that we are unable to offer at similar cost. Their larger wireless customer bases may make discounted or free in-network calling...

  • Page 23
    .... To further expand our MVNO business, we must continue to obtain wireless network capacity at favorable rates and terms, provide adequate customer service and acquire and market a sufficient quantity and mix of handsets and related accessories. Our operating performance and ability to attract new...

  • Page 24
    ... new services into the nationwide Sprint network; certification of new handsets for use on the nationwide Sprint network; compliance with FCC, state E911 and other regulatory requirements; obtaining telephone numbers; maintenance of interconnection agreements; and compliance with applicable laws and...

  • Page 25
    ... Our standard registration agreement requires that each registrant indemnify, defend and hold us harmless for any dispute arising from the registration or use of a domain registered in that person's name; and Since December 1, 1999, we have required our resellers to ensure that all registrants are...

  • Page 26
    ...be derived from resellers in international markets and may suffer if Internet usage does not continue to grow globally. We believe that a major source of growth for Internet-based companies will come from individuals and businesses outside the United States where Internet access and use is currently...

  • Page 27
    ... disruptive problems. Someone who is able to circumvent security measures could misappropriate customer or proprietary information or cause interruptions in Internet operations. Internet and online resellers have in the past experienced, and may in the future experience, interruptions in service...

  • Page 28
    ... on Tucows or on our customers. New or revised taxes and, in particular, sales taxes, would likely increase the cost of doing business online and decrease the attractiveness of advertising and selling goods and services over the Internet. New taxes could also create significant increases in internal...

  • Page 29
    ...business information and data related to our business-to-business customers or suppliers. Our information technology and other systems that maintain and transmit this information, or those of service providers, may also be compromised by a malicious third-party penetration of our network security or...

  • Page 30
    ... These events could also disrupt or suspend portions of our domain registration solution, which would result in reduced revenue. Governmental Regulation Affecting the Internet To date, government regulations have not materially restricted use of the Internet in most parts of the world. The legal and...

  • Page 31
    ...over terms and conditions of service, including certain billing practices and consumer-related issues that may not be pre-empted by federal law. If imposed, these regulations could make it more difficult and expensive to implement national sales and marketing programs and could increase the costs of...

  • Page 32
    ...; the operating and stock price performance of other companies that investors may view as comparable to us; news relating to our industry as a whole; and news relating to trends in our markets. The stock market in general, and the market for Internet-related companies in particular, including...

  • Page 33
    ... ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Price Range of Common stock On December 17, 2013, we notified the NYSE MKT LLC (the " NYSE MKT ") of our intent to withdraw the listing and registration of our common stock from the...

  • Page 34
    ... domain names under the Tucows ICANN registrar accreditation and for other registrars under their own accreditations. Value-Added Services include hosted email which provides email delivery and webmail access to millions of mailboxes, Internet security services, publishing tools and reseller billing...

  • Page 35
    ... a number of Internet related tasks, including domain registrations for which it collects fees. The market for wholesale registrar services is both price sensitive and competitive, particularly for large volume customers, such as large web hosting companies and owners of large portfolios of domain...

  • Page 36
    ... market rate upon settlement. 36 Net Revenues Wholesale - OpenSRS Domain Service Historically, our OpenSRS Domain Service has constituted the largest portion of our business and encompasses all of our services as an accredited registrar related to the registration, renewal, transfer and management...

  • Page 37
    ... the market position for their services. In addition, we provide billing, provisioning and customer care software solutions to ISPs through our Platypus billing software. Retail - Hover We derive revenues from Hover's sale of retail Internet domain name registration and email services to individuals...

  • Page 38
    ... â- Portfolio (Domain Portfolio monetization and sales). With respect to the sale of domain registrations and other Internet services, we earn registration fees in connection with each new, renewed and transferred-in registration and from providing provisioning services to resellers and registrars...

  • Page 39
    ...two operating segments, Domain Services with three distinct service offerings, being Wholesale, Retail and Portfolio and Network Access Services which derives revenue from the sale of retail mobile phones and services to individuals and small businesses. Finite life intangible assets, related to the...

  • Page 40
    ... annual goodwill impairment analysis, which we performed for our Domain Services reporting unit as of December 31, 2013, did not result in an impairment charge. We determined the estimated fair value for our reporting unit using the market approach that is based on the publicly traded common shares...

  • Page 41
    ...revenue from domain name registrations and other Internet services at December 31, 2013 decreased to $70.0 million from $71.0 million at December 31, 2012. Deferred revenue has been impacted by the transfer of a significant number of names by certain of our customers from our registrar accreditation...

  • Page 42
    ... no longer registering new domain names on our platform. While we anticipate that the number of new, renewed and transferred-in domain name registrations will continue to incrementally increase in the long term, the volatility in the market could affect the growth of domain names that we manage. As...

  • Page 43
    ... is registered, and are recorded as prepaid domain registry fees. The costs of revenue for Ting's mobile phone service include hardware (the cost of devices sold to our customers) and network services (our customers' voice, messaging and data usage) provided by our Mobile Network Operator. Portfolio...

  • Page 44
    ... 31, 2012. Prepaid domain registration and other Internet services fees have been impacted by certain of our customers, who have acquired their own registrar accreditation, no longer registering new domain names on our platform. Wholesale Costs for Wholesale for Fiscal 2013 increased by $0.4 million...

  • Page 45
    ...incurred in the research, design and development of technology that we use to register domain names, email, retail, domain portfolio and other Internet services, as well as to distribute our digital content services. Editorial costs relating to the rating and review of the software content libraries...

  • Page 46
    ...August 2011. The brand and customer relationships acquired in connection with... operational cost certainty, manage financial ...2013 2012 676,120 $ (682,851) 1,358,971 (199)% 1% (1)% Loss (gain) on currency forward...forward exchange contracts that do not comply with the requirements of hedge accounting...

  • Page 47
    ... taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 48 Fiscal 2013 includes tax on profits of $1.8 million, offset by a recovery of $0.2 million related to investment tax credits. Fiscal 2012 includes tax on...

  • Page 48
    ...revenue from domain name registrations and other Internet services at December 31, 2012 increased to $71.0 million from $69.2 million at December 31, 2011. Deferred revenue has been impacted by the transfer of a significant number of names by certain of our customers from our registrar accreditation...

  • Page 49
    ...of our customers transferring a significant number of domain names from our registrar accreditation to their own registrar accreditation. In addition, we provide provisioning services on a monthly basis to accredited registrars who use our technical systems to process domain registrations with their...

  • Page 50
    ... is registered, and are recorded as prepaid domain registry fees. The costs of revenue for Ting's mobile phone service include hardware (the cost of devices sold to our customers) and network services (our customers' voice, messaging and data usage) provided by our Mobile Network Operator. Portfolio...

  • Page 51
    ...for Ting mobile device and service sales made during the year, as well as the increased cost resulting from the additional volume in Hover services. Portfolio Costs for Portfolio remained relatively flat at $0.8 million for Fiscal 2012 as compared to Fiscal 2011. Network Costs Network costs remained...

  • Page 52
    ...incurred in the research, design and development of technology that we use to register domain names, email, retail, domain portfolio and other Internet services, as well as to distribute our digital content services. Editorial costs relating to the rating and review of the software content libraries...

  • Page 53
    ...) ON CURRENCY FORWARD CONTRACTS Although our functional currency is the U.S. dollar, a major portion of our fixed expenses are incurred in Canadian dollars. Our goal with regard to foreign currency exposure is, to the extent possible; to achieve operational cost certainty, manage financial exposure...

  • Page 54
    ...forward exchange contracts that do not comply with the requirements of hedge accounting... resulted from our selling certain intangible assets...pursuant to the terms of our credit ... using ... necessary to reduce deferred tax ...related to revisions of prior year estimates and a recovery of $0.04 million related...

  • Page 55
    ...the Dutch Tender Offer which closed in January 2013 and the proceeds of $2.6 million we received on the exercise of stock options. We have credit agreements (collectively the "Amended Credit Facility") with the Bank that were amended on November 19, 2012, and which provide us with access to a demand...

  • Page 56
    ... tax recovery, a gain on currency forward contracts, depreciation, amortization and stock-based compensation. We deployed an additional $7.1 million in working capital to fund deferred registration costs, deposits with registries, accounts receivable, income taxes recoverable, prepaid expenses...

  • Page 57
    ... Board of Directors has approved a stock buyback program to repurchase from time to time up to $20 million of our common stock in the open market....QUALITATIVE DISCLOSURES ABOUT MARKET RISK We develop products in Canada and sell these services in North America and Europe. Our sales are primarily made ...

  • Page 58
    ...Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting for Tucows. There were no changes in our internal control over financial reporting during the year ended December 31, 2013 that have materially affected...

  • Page 59
    ... 2006, he was Chairman of Netidentity.com, an Internet email and web hosting company, where he led corporate strategy and development until the firm's sale in 2006. Mr. Ralls currently serves on the Board of Directors of a number of companies, including Savoya, LLC, IntraOp Medical, Knowledge Factor...

  • Page 60
    ... from December 2004 until December 2007. ICANN manages the domain name registration system that Tucows uses for its domain name business and ICANN receives fees from Tucows for domain name registrations. Mr. Ito is also on the board of directors of a number of non-profit organizations, including The...

  • Page 61
    ... structure for Tucows' Board. We believe that this structure provides appropriate and independent oversight by the Board. The Board regularly consults with our Chief Executive Officer, who is also a director, and our corporate governance, nominating and compensation committee to review the various...

  • Page 62
    ...the Chief Executive Officer; To review employee compensation and benefit programs, including risk oversight; To develop and recommend to the Board a set of corporate governance guidelines applicable to the Company and to periodically review the guidelines; To oversee the Board's annual evaluation of...

  • Page 63
    ... financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the ethics policy for senior officers can be obtained without charge from our Internet web site at tucowsinc.com. Communications with the Board of Directors We provide an informal...

  • Page 64
    ...an annual fee of $10,000 with the chairman of our corporate governance, nomination and compensation committee receiving an additional $4,000. In addition, all non-employee directors receive the following meeting attendance fees: Director meeting attendance fees: May Board Meeting Personal Attendance...

  • Page 65
    ...a timely manner and that all of our executive officers, directors and persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements applicable to them during 2013. Stock ownership of management We encourage stock ownership by...

  • Page 66
    ...David Woroch $ $ $ Of the 2012 amount, the following amounts were paid in March 2013: 100,094 73,450 75,746 Elliot Noss Michael Cooperman David Woroch...sets forth information concerning stock options held by the named executive officers as of December 31, 2013: Number of Securities Underlying ...

  • Page 67
    ... 11/10/20 David Woroch 2.32 3.40 ... stock ...term...Directors, Executive Officers and Corporate Governance" and is incorporated herein by reference. 72 Potential Payments on Termination or Change In Control We have certain agreements that require us to provide compensation to our named executive officers...

  • Page 68
    ... Account Healthclub $ David Woroch (1) 2013 ...2013, minus the exercise price, multiplied by the number of unvested shares of our common stock that would vest. The closing market value of our common stock on December 31, 2013 was $14.00. Pay for unused vacation, extended health, matching registered...

  • Page 69
    ... unless certain requirements are met regarding continuing ownership of our outstanding common stock. "Good reason" is defined to include the occurrence of one or more of the following: • the executive's position, management responsibilities or working conditions are diminished from those in effect...

  • Page 70
    ... under his employment agreement. 75 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth the beneficial ownership of our common stock, as of March 17, 2014, by each of our chief executive officer, our two other...

  • Page 71
    ...the beneficial owner of more than 5% of our outstanding common stock as of March 17, 2014. Beneficial Ownership of Common Stock Number of Shares Beneficially Percent of Owned Class (1) 850,000(2) 1,054,177(3) 746,521(4) 7.6% Name and Address of Beneficial Owner Lacuna, LLC 1100 Spruce Street, Suite...

  • Page 72
    ...Market. In this Annual Report on Form 10-K, each of these eight directors are referred to individually as an "independent director" and collectively as the "independent directors." ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES A summary of the fees of KPMG LLP for the years ended December 31, 2013...

  • Page 73
    ..., tax services and other services. For audit services, the independent auditor provides the audit committee with an audit plan including proposed fees in advance of the annual audit. The Audit Committee approves the plan and fees for the audit. With respect to non-audit and accounting services of...

  • Page 74
    ... and between the Internet Corporation for Assigned Names and Numbers and Tucows.com Co. (Incorporated by reference to Exhibit 10.7 filed with Tucows' Annual Report on Form 10 -K for the year ended December 31, 2010, as filed with the SEC on March 22, 2011). Registry-Registrar Agreement, dated as of...

  • Page 75
    ... with Tucows' Current Report on Form 8 -K, as filed with the SEC on December 20, 2012). Security Agreement, dated...Tucows Inc. Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2013...

  • Page 76
    ... attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this Annual Report on Form 10-K. /s/ ELLIOT NOSS Elliot Noss President and Chief Executive Officer (Principal Executive Officer) March 18, 2014...

  • Page 77
    ...4) Prepaid domain name registry and ancillary services fees, current portion Deferred tax asset, current portion (note 10) Income taxes recoverable Total current assets Derivative instrument asset, long-term portion (note 4) Prepaid domain name registry and ancillary services fees, long-term portion...

  • Page 78
    ..., 2012 2013 2011 Net revenues (note 16) Cost of revenues (note 16): Cost of revenues Network expenses (*) Depreciation of property and equipment Amortization of intangible assets Total cost of revenues Gross profit Expenses: Sales and marketing (*) Technical operations and development (*) General...

  • Page 79
    ...share (note 12) Diluted earnings per common share (note 12) Shares used in computing diluted earnings per common share (note 12) (*) Stock-based compensation has been included in operating expenses as follows: Network expenses Sales and marketing Technical operations and development... F-5 Tucows Inc...

  • Page 80
    ... of forward contracts Stock-based compensation Change in non-cash operating working capital: Accounts receivable Inventory Prepaid expenses and deposits Prepaid domain name registry and ancillary services fees Income taxes recoverable Accounts payable Accrued liabilities Customer deposits Deferred...

  • Page 81
    ... Internet services, including domain name registration, security and identity products through digital certificates, email and mobile telephony services through its global Internetbased distribution network of Internet Service Providers, web hosting companies and other providers of Internet services...

  • Page 82
    ... is provided on a straightline basis so as to depreciate the cost of depreciable assets over their estimated useful lives at the following rates: Asset Computer equipment Computer software Furniture and equipment Leasehold improvements Rate 30% 100% 20% Over term of lease The Company reviews the...

  • Page 83
    ... with each new, renewed and transferred-in registration and from providing provisioning of other Internet services to resellers and registrars on a monthly basis. Service has been provided in connection with registration fees once the Company has confirmed that the requested domain name has been...

  • Page 84
    ... on an annual basis. Accordingly, accreditation fees that relate to registrations completed prior to ICANN rendering a bill are accrued and reflected as accreditation fees payable. (j) Prepaid domain name registry fees Prepaid domain name registry and other Internet services fees represent amounts...

  • Page 85
    ... as incurred. During the years ended December 31, 2013, 2012 and 2011, the Company did not capitalize any amounts of such costs relating to the development of internal use software. The capitalized costs of computer software developed for internal use are amortized on a straight-line basis over one...

  • Page 86
    ... reporting The Company operates in two business segments, Domain Services and Network Access Services. The Company's revenues are attributed to the country in which the contract originates, primarily Canada. Revenues from domain names issued from the Toronto, Canada location are attributed to Canada...

  • Page 87
    ..., non-competition agreements, surname domain names and direct navigation domain names. Intangible assets, comprising technology, brand, customer relationships and non-competition arrangements related to the acquisition of Boardtown Corporation in April 2004, the acquisition of the Hosted Messaging...

  • Page 88
    ...future cash flows related to a portion of payroll, rent and payments to a Canadian domain name registry supplier that are denominated in Canadian dollars and are expected to be paid by its Canadian operating subsidiary. As part of its risk management strategy, the Company uses derivative instruments...

  • Page 89
    ...Intangible assets consist of acquired technology, brand, customer relationships, non-competition agreements, surname domain names and direct navigation domain names. These balances are being amortized, where applicable, on a straight-line basis over the term of the intangible assets, as reflected in...

  • Page 90
    ... of cash flows used is prepared on an unleveraged debt-free basis. The discount rate reflects a market-derived weighted average cost of capital. The Company believes that this approach is appropriate because it provides a fair value estimate based upon the Company's expected long term operating and...

  • Page 91
    ... of $5.2 million. Under the terms of the offer, the Company repurchased an aggregate of 4,114,121 shares of its common stock at a purchase price of $1.50 per share, for a total of $6,171,656, excluding transaction costs of approximately $106,000. At December 31, 2013, the outstanding balance under...

  • Page 92
    ... of investors and reposition the company's trading metrics. All share information related to shares outstanding and earnings per share have been retroactively adjusted to reflect this stock consolidation. F-19 Repurchase of common shares: (a) Modified Dutch Tender Offers: On January 7, 2013, the...

  • Page 93
    .... The Company determines the expected dividend yield percentage by dividing the expected annual dividend by the market price of Tucows Inc. common shares at the date of grant. The fair value of stock options granted during the years ended December 31, 2013, 2012 and 2011 was estimated using the...

  • Page 94
    ...Number price intrinsic exercisable per share value 335,029 $ 2.32 $ 3,911,669 302,472 $ 2.74 3,405,886 288,867 $ 3.26 3,102,171 119,107 $ 6.13 937,590 1,045,475 $ 3.14 $ 11,357,316 F-21 Total unrecognized compensation cost relating to unvested stock options at December 31, 2013...to opening deferred ...

  • Page 95
    ... insignificant U.S. state taxes. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense. The Company did not have any significant interest and penalties accrued as of December 31, 2012 and December 31, 2013. Tucows believes that it is reasonably...

  • Page 96
    ... price was greater than the average market price of the common shares. The options which expire in years 2018 to 2020 were still outstanding at the end of 2013. 13. Commitments and contingencies: (a) The Company has several non-cancelable lease and purchase obligations primarily for general office...

  • Page 97
    ... registration services, value added services and portfolio services. The Company primarily earns revenues from the registration fees charged to resellers in connection with new, renewed and transferred domain name registrations; the sale of retail Internet domain name registration and email services...

  • Page 98
    ... for income taxes Domain Name Services 110,761,217 84,388,714 26,372,503 215,447 876,120 676,120 6,154,660 (354,857) 5,799,803 Year Ended December 31, 2012 Net Revenues Cost of Revenues Gross Profit Expenses: Sales and marketing Technical operations and development General and administrative...

  • Page 99
    ...,350 $ 2,292,260 Canada Germany $ $ (f) The following is a summary of the Company's deferred tax asset, net of valuation allowance, by geographic region: Year ended December 31, 2013 2012 6,451,563 $ 5,970,462 6,451,563 $ 5,970,462 Canada $ $ (g) Valuation and qualifying accounts: Balance at...

  • Page 100
    ... and between the Internet Corporation for Assigned Names and Numbers and Tucows.com Co. (Incorporated by reference to Exhibit 10.7 filed with Tucows' Annual Report on Form 10 -K for the year ended December 31, 2010, as filed with the SEC on March 22, 2011). Registry-Registrar Agreement, dated as of...

  • Page 101
    ... 10.3 filed with Tucows' Current Report on Form 8 -K, as filed with the SEC on December 20, 2012). Subsidiaries of Tucows Inc. Consent of KPMG LLP, Independent Registered Public Accounting Firm. Chief Executive Officer's Rule 13a-14(a)/15d-14(a) Certification. Chief Financial Officer's Rule 13a-14...

  • Page 102
    ... 13 or 15(d) 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. TUCOWS INC. By: /s/ ELLIOT NOSS Name: Elliot Noss Title: Chief Executive Officer and President Pursuant to the requirements of the...