Tucows 2013 Annual Report Download - page 36

Under the terms of the New gTLD program, in April 2012 we paid the required $1.1 million application fee in
support of our application for six domain strings under ICANN's new gTLD Program. A declining percentage of these
evaluation fees are refundable if any application is withdrawn prior to our executing a registry agreement with ICANN. In
May 2012 we withdrew two of our applications and under the terms of the New gTLD application process have received a
full refund of $0.4 million against these applications.
In March 2013, we entered into an alliance with Directi and Namecheap to jointly work together to manage the
contested .online registry. In May 2013, in accordance with our alliance with Directi and Namecheap, we withdrew our
.online application and under the terms of the New gTLD application process have received a partial refund of $0.1 million
against this application.
In addition, in a series of private arrangements that were completed in July 2013, we have negotiated agreements
that have changed our interest in the remaining three applications - .group, .media and .marketing. We have withdrawn our
applications for .media and .marketing and the gross amounts received for the domain related rights have been recorded as
portfolio revenue in the three months ended September 30, 2013. With .group, we have exchanged a majority interest in our
.group application for a minority stake in two other contested new gTLD strings, .tech and .store. As all these strings are
contested, there can be no assurance that we will be part of a successful bid for any of these new gTLD strings.
While there can be no assurance that we will be awarded any gTLDs, we intend to continue to pursue contested
gTLD operator rights and in order to prevail, may incur significant additional costs to acquire such rights. Any such
additional costs will be capitalized and included in prepaid expenses and deposits until such time as the relevant gTLD is
delegated by ICANN. Other costs incurred by the Company as part of its gTLD initiative not directly attributable to the
acquisition of gTLD operator rights are expensed as incurred.
To the extent we elect to sell or dispose of any of our rights under the New gTLD Program, any gains realized on
the sale of our interest will be recognized as portfolio revenue, while losses will be recognized when deemed probable.
Should we be successful in acquiring any contested gTLD operator rights, any capitalized gTLD costs will be reclassified as
finite lived intangible assets and amortized on a straight-line basis over their estimated useful life.
From time-to-time certain of our vendors provide us with Market Development Funds to expand or maintain the
market position for their services. Any decision by these vendors to cancel or amend these programs for any reason, may
result in payments in future periods not being commensurate with what we have achieved during past periods.
Sales of domain names from our domain portfolio have a negative impact on our advertising revenue as these names
are no longer available for advertising purposes. In addition, the timing of larger domain names portfolio sales is
unpredictable and may lead to significant quarterly and annual fluctuations in our Portfolio revenue.
Our revenue is primarily realized in U.S. dollars and a major portion of our operating expenses are paid in Canadian
dollars. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar may have a material effect on our
business, financial condition and results from operations. In particular, we may be adversely affected by a significant
weakening of the U.S. dollar against the Canadian dollar on a quarterly and an annual basis. Our policy with respect to
foreign currency exposure is to manage our financial exposure to certain foreign exchange fluctuations with the objective of
neutralizing some or all of the impact of foreign currency exchange movements by entering into foreign exchange forward
contracts to mitigate the exchange risk on a portion of our Canadian dollar exposure. We may not always enter into such
forward contracts and such contracts may not always be available and economical for us. Additionally, the forward rates
established by the contracts may be less advantageous than the market rate upon settlement.
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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 of domain names. In
addition, this service fuels other revenue categories as it often is the initial service for which a reseller will engage us,
enabling us to follow on with other services and allowing us to add to our portfolio by purchasing names registered through
us upon their expiration.