Tucows 2015 Annual Report Download

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10-K 1 tcx20151201_10k.htm FORM 10-K
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, 2015
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 ☐
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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
    ... sale price per share of $27.85 as reported on the NASDAQ on such date. For purposes of making this calculation only, the registrant has defined affiliates as including all officers, directors and beneficial owners of more than ten percent of the outstanding shares of common stock of the Company...

  • Page 3
    ...SERVICE MARKS Tucows®, EPAG®, Hover®, OpenSRS®, Platypus®, Ting® and YummyNames® are registered trademarks of Tucows Inc. or its subsidiaries. Other service marks, trademarks and trade names of Tucows Inc. or its subsidiaries may be used in this Annual Report on Form 10-K (this "Annual Report...

  • Page 4
    ...Internet access subscriber growth and retention rates, the number of new, renewed and transferred-in domain names we register as our business develops and competes; the effect of a potential global top level domain ("gTLD") expansion by the Internet Corporation for Assigned Names and Numbers ("ICANN...

  • Page 5
    ...networks into selected towns and cities to provide Internet access services to residential and commercial customers while maintaining the development and sales of our established services; • • Pending or new...statements or any forward-looking statements, except as required by law. These statements...

  • Page 6
    ... by reducing the complexity our customers' experience as they access the Internet (at home or on the go) and while using Internet services such as domain name registration, email and other Internet services. We are organized, managed and report our financial results as two segments, Network Access...

  • Page 7
    ...Domain Service manages 13.3 million 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, SSL certificates, and reseller...

  • Page 8
    ... other Internet service processed through our system by Service Providers. With respect to the sale of domain registrations, we earn registration fees in connection with each new, renewed and transferred-in registration and from providing provisioning services to Service Providers and registrars on...

  • Page 9
    ...other Value-Added Services primarily from provisioning SSL certificates and the bulk sale of domain names and advertising from the OpenSRS Domain Expiry Stream. In addition, we provide billing, provisioning and customer care software solutions to ISPs through our Platypus billing software. 5 https...

  • Page 10
    ... its intellectual property rights. Customers The majority of the customers to whom we provide reseller services are generally either web hosts or ISPs. A small number are consultants and designers providing our services to their business clients. Both our Retail Domain https://www.sec.gov/Archives...

  • Page 11
    ... and our Network Access Services customers are a very broad mix of consumers, small businesses and corporations. No customer represented more than 10% of our consolidated revenues in any of the last three fiscal years. While web hosts and ISPs are capitalizing on the growth in Internet usage and...

  • Page 12
    ...US Mobile Phone Service providers such as AT&T, Verizon, T-Mobile and Sprint, who primarily compete with Ting Mobile Services. Retail-oriented domain registrars, such as GoDaddy and Web.com who compete with our Reseller customers in Wholesale Domain Services and with Hover. Wholesale-oriented domain...

  • Page 13
    ... of 225 As of December 31, 2015, we had approximately 325 full-time employees. None of our employees are currently represented by a labor union. We consider our relations with our employees to be good. Corporate Information We were incorporated under the laws of the Commonwealth of Pennsylvania in...

  • Page 14
    ..., has helped build Tucows' sales, marketing, business development, product management and technical support capabilities. Mr. Woroch currently serves as our Executive Vice President, Domains and he oversees the Domains business at Tucows, including OpenSRS (wholesale), Hover (retail) and the premium...

  • Page 15
    .... As Vice President, Customer Experience since 2012, he leads our customer service and support organization. In 2000, as our Director of Assigned Names, Ross helped launch Tucows OpenSRS service. In 2005, as General Manager, Retail Services he oversaw Tucows' retail domain operations, including...

  • Page 16
    ... SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically at http://sec.gov. Our web site address is tucows.com. We make available through our web site, free of charge, copies of our Annual Reports on Form...

  • Page 17
    ... use their ownership of local wireline and wireless 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 18
    tcx20151201_10k.htm Page 18 of 225 10 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13/2016

  • Page 19
    ... 19 of 225 Ting may face competitive pressure to reduce prices for our products and services, which may adversely affect our profitability and other financial results. As competition in the U.S. wireless communications industry has increased, providers have lowered prices or increased the number of...

  • Page 20
    ... 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 customers may be adversely affected if we...

  • Page 21
    ... attract new customers. If our Network Operators terminate or determine that they do not wish to renew their Master Services Agreements on expiration for any reason, we may be unable to obtain the wireless services necessary to operate our business. In addition, transition to an alternative provider...

  • Page 22
    ... interconnection agreements; and compliance with applicable laws and regulations. Ting competes with Network Operators' products and services, and we can provide no assurance of our continued partnership with the Network Operators. We compete with Network Operators' products and services for mobile...

  • Page 23
    ... expanding the variety of services that they 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...

  • Page 24
    ... us. Resellers may choose to renew their domains with other registrars or their registrants may choose not to renew and pay for renewal of their domains. This may reduce our resellers' number of domain name registration customers which in turn would drive up their customer acquisition costs and harm...

  • Page 25
    ... to our acquisitions of Internet domain names. The acquisition of expiring domain names for parked page commercialization, the sale of names or acquisition of names for other uses involves the registration of thousands of Internet domain names, both in the United States and internationally. We have...

  • Page 26
    ... changes in the email market; the budgeting and payment cycles of our existing and potential customers; the amount and timing of operating costs and capital expenditures relating to expansion of the email service; and the introduction of new or enhanced services by competitors. • • • 14...

  • Page 27
    ... 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 ICANN require that we monitor or review, the appropriateness of the domain names we register for our...

  • Page 28
    ... owner alleging infringement of its protected works by web pages for which we provide hosting services, and we fail to expeditiously remove or disable access to the allegedly infringing material, fail to post and enforce a digital rights management policy or a policy to terminate accounts of repeat...

  • Page 29
    ... 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 30
    ...tax consequences or an inability to realize tax benefits; and the lower level of adoption of the Internet in many international markets. We may not succeed in our efforts to expand our international presence as a result of the factors described above or other factors that may have an adverse impact...

  • Page 31
    ...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 32
    ... of acquisitions. We may not be able to identify or consummate any future acquisitions on favorable terms, or at all. If we do effect an acquisition, it is possible that the financial markets or investors will view the acquisition negatively. Even if we successfully complete an acquisition, it could...

  • Page 33
    ...enhanced our branding by focusing 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 expanding our customer base. We anticipate that, as...

  • Page 34
    ... name registrations and other registrars who process and facilitate Internet domain name registrations. The registries and registrars may change the rules and guidelines for acquiring expiring domains in ways that may prove detrimental to our domain name acquisition efforts. The business of direct...

  • Page 35
    ...bookmarked web sites and accessing our web sites indirectly through search engines and directories. 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...

  • Page 36
    ...in a timely manner with procedural requirements under these rules. In addition, these processes typically require at least limited involvement by us, and therefore increase our cost of doing business. The volume of domain name registration disputes may increase in the future as the overall number of...

  • Page 37
    ... technology of lower quality or performance standards or at greater cost, which could increase our costs and make our products and services less attractive to customers. The law relating to the liability of online services companies for data and content carried on or disseminated through their...

  • Page 38
    ... 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 increases or decreases in sales during a particular period do not translate into...

  • Page 39
    ... Agency and the U.S. Internal Revenue Service, challenging the validity of our arms- length related party transfer pricing policies or the validity of our contemporaneous documentation. changes in the valuation of our deferred tax assets; or changes in tax laws, regulations, accounting principles...

  • Page 40
    ... 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 41
    ... in income or asset values. Weak economic activity may lead government customers to cut back on services. Factors such as interest rates, availability of credit, inflation rates, changes in laws (including laws relating to taxation), trade barriers, currency exchange rates and controls, and national...

  • Page 42
    ... expenditures in any particular period to support our growth or for other reasons; changes in our pricing policies or those of our competitors, changes in domain name fees charged to us by Internet registries or ICANN, or other competitive pressures on selling prices; our ability to identify, hire...

  • Page 43
    ... to meet reduced operating expense levels and our operating results will suffer. It is possible that in one or more future quarters, our operating results may be below our expectations and the expectations of public market analysts and investors. In that event, the price of our common stock may fall...

  • Page 44
    ... and unfair competition. New laws or regulations concerning domains and registrars may be adopted at any time. Our responses to uncertainty in the industry or new regulations could increase our costs or prevent us from delivering our domain registration services over the Internet, which could delay...

  • Page 45
    ... as one who registers a domain that is identical or similar to another party's trademark, or the name of another living person, with the bad faith intent to profit from use of the domain. The ACPA states that registrars may not be held liable for registration or maintenance of a domain for another...

  • Page 46
    ...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 47
    ...of 225 offered by us do not interoperate well with our existing services, our ability to market and sell those new services would be adversely affected and our revenue level and ability to achieve and sustain profitability might be harmed. Updating technology internally and licensing new technology...

  • Page 48
    ... to unauthorized access by hackers or others, computer viruses and other 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...

  • Page 49
    ..., including data center and bandwidth providers in providing services to our customers. Any disruption in the network access or co-location services provided by these providers or any failure of these providers to handle current or increased volumes of use could significantly harm our business...

  • Page 50
    ... 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 51
    ...customer information, including location or personal information, or those of service providers, may be compromised by a malicious third-party penetration of our network security, or that of a third-party service provider, or impacted by advertent or inadvertent actions or inactions by our employees...

  • Page 52
    ...1998 by the U.S. Department of Commerce for the express purposes of overseeing a number of Internet related tasks previously performed directly on behalf of the U.S. government, including managing the domain name registration system. ICANN has been subject to strict scrutiny by the public and by the...

  • Page 53
    ... of a domain name; • ICANN or any registries may implement policy changes that would impact our ability to run our current business practices throughout the various stages of the lifecycle of a domain name; foreign constituents may succeed in their efforts to have domain name registration removed...

  • Page 54
    ... and use of the Internet, federal, state and foreign governments may adopt laws or regulations in the future concerning commercial online services and the Internet, with respect to user privacy; children; copyrights and other intellectual property rights and infringement; domains; pricing; content...

  • Page 55
    ....htm Page 55 of 225 Laws and regulations directly applicable to online commerce or Internet communications are becoming more prevalent. Laws and regulations such as those listed above or others, if enacted, could expose us to substantial liability and increase our costs of compliance and doing...

  • Page 56
    ... 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 our wireless operations. Risks Related to our Stock Our share price is volatile, which may make it difficult for shareholders to sell...

  • Page 57
    ... among investors that these sales will occur could also produce this effect. We cannot guarantee that our recently announced stock buyback program will be fully consummated or that such program will enhance the long-term value of our share price. In February 2016, the Company's Board of Directors...

  • Page 58
    ...real property. Our principal administrative, engineering, marketing and sales office totals approximately 26,900 square feet and is located in Toronto, Ontario under a lease that expires...expense and may result in significant diversion of management attention. ITEM 4. MINE SAFETY DISCLOSURES Not ...

  • Page 59
    ... received the same price and all shares repurchased were immediately retired. As a result of the completion of the tender offer, as of January 31, 2015, we had 11,186,028 shares issued and outstanding. 2016 Stock Buyback Program: On February 9, 2016, the Company's Board of Directors authorized the...

  • Page 60
    ... 11, 2015. Repurchases under this program may include open market purchases, block trades or a combination of such methods. The number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, working...

  • Page 61
    ... 2013 2015 Common stock repurchased on the open market or through tender offer Number of shares Aggregate market value of shares (in thousands) Average price per share Common stock received in connection with share-based compensation Number of shares Aggregate market value of shares (in thousands...

  • Page 62
    tcx20151201_10k.htm Page 62 of 225 November 1 through November 30, 2015 December 1 through December 31, 2015 Total 79,195 151,852 231,047 $ 23.90 23.34 23.53 79,195 151,852 231,047 3,557,252 12,890 33 https://...

  • Page 63
    ... GRAPH The following graph and table compares the Company's stock performance to three stock indices over a fiveyear period assuming a $100 investment was made on the last day of fiscal year 2010. 34 https://www.sec.gov/Archives/edgar/data/...

  • Page 64
    ... per share amounts). 2015 Statement of Operations Data Revenue Total cost of revenues Sales and marketing Technical operations and development General and administrative Depreciation, amortization and impairment of indefinite life intangible assets Loss (gain) on currency forward contracts Total...

  • Page 65
    ... by reducing the complexity our customers' experience as they access the Internet (at home or on the go) or Internet services such as domain name registration, email, mobile telephony services and other Internet services. We are organized and managed based on two service offerings, Network Access...

  • Page 66
    ... added services and portfolio services. We earn revenues primarily from the registration fees charged to resellers in connection with new, renewed and transferred domain name registrations. In addition, we earn revenues from the sale of retail Internet domain name registration and email services to...

  • Page 67
    ... through a network of over 13,000 web hosts, Internet service providers ("ISPs"), and other resellers around the world. In addition, we also derive revenue from the bulk sale of domain names and advertising from the OpenSRS Domain Expiry Stream. Retail, primarily our Hover website, derives revenues...

  • Page 68
    tcx20151201_10k.htm Page 68 of 225 considered when evaluating the Company's results. Tucows strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. 37 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/...

  • Page 69
    ..., net of prepaid domain name registry and other Internet services fees, to reflect the material amount of cash we collect and pay for domain registrations and other Internet services at the time of activation. Net deferred revenue for the years ended December 31, 2015 and 2014 includes a benefit...

  • Page 70
    tcx20151201_10k.htm Page 70 of 225 For a discussion of these period to period changes in subscribers and devices under management and how they impacted our financial results, see the Net Revenue discussion below. 38 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10...

  • Page 71
    ... of 225 Domain Services Year ended December 31, (1) 2015 2014 2013 (in '000's) Total new, renewed and transferred-in domain name registrations provisioned Domain names under management Registered using the Tucows Registrar Accreditation Registered using our Resellers' Registrar Accreditations Total...

  • Page 72
    ...around the implementation of ICANN's New gTLD Program, lower traffic and advertising yields in the marketplace, which we expect to continue. 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...

  • Page 73
    ... domain name suggestion tools and access to our premium domain names. We earn fees in connection with each new, renewed and transferred-in registration and from providing provisioning services to resellers and registrars on a monthly basis. Domain registrations are generally purchased for terms...

  • Page 74
    ... from the OpenSRS Domain Expiry Stream. 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 75
    ... ability to generate revenue from pay-per-click advertising. Portfolio names are sold through our premium domain name service, auctions or in negotiated sales. The size of our domain name portfolio varies over time, as we acquire and sell domains on a regular basis to maximize the overall value and...

  • Page 76
    ...services: â- Network Access Services - Ting (sale of retail mobile phones and services, fixed high speed internet access, Internet hosting and network consulting services); â- Domain Services - Wholesale (OpenSRS Domain Service and OpenSRS Value-Added Services); â- Domain Services - Retail (Hover...

  • Page 77
    ... with Internet hosting and network consulting services to customers in Charlottesville, Virginia are recognized when the related services are provided. With respect to the sale of domain registrations and other value-added services, we earn registration fees in connection with each new, renewed and...

  • Page 78
    ...collection and write-off experience, the number of days the customer is past due and the status of the customer's account with respect to whether or not the customer is continuing to receive service. The contingent liability estimates are based on management's historical experience and various other...

  • Page 79
    ... domain name registration services, value added services and portfolio, and Network Access - Mobile Services which derives revenue from the sale of retail mobile phones and telephony services, as well as Network Access - Other Services which derives revenue from fixed high speed internet access...

  • Page 80
    ...position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure ...adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate based on new information...

  • Page 81
    ... future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require possible material adjustments to... Policies" of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for information regarding...

  • Page 82
    ... table presents our net revenues, by revenue source: Year ended December 31, 2015 2014 Network Access Services: Mobile Services Other Services Total Network Access Services Domain Services: Wholesale Domain Services Value Added Services Total Wholesale Retail Portfolio Total Domain Services 58...

  • Page 83
    ... in revenue in connection with the provisioning of high speed Internet access, Internet hosting and network consulting services during Fiscal 2015. As of December 31, 2015, Ting had 128,000 subscribers and 202,000 mobile devices under its management compared to 94,000 subscribers and 147,000 devices...

  • Page 84
    ... (the cost of mobile phone devices and SIM cards sold to our customers, order fulfillment related expenses, and inventory writedowns) as well as the costs for provisioning high speed Internet access (network access fees, software licenses), and any direct costs incurred in providing web hosting and...

  • Page 85
    ...85 of 225 Wholesale OpenSRS Domain Service Cost of revenues for domain registrations represents the amortization of registry fees on a basis consistent with the recognition of revenues from our customers, namely ratably over the term of provision of the service. Registry fees, the primary component...

  • Page 86
    ...domain registry fees and are expensed ratably over the renewal term. Costs of revenues for our larger ad-supported content site include the fees paid to third-party service providers, primarily for digital certificates sold through our content sites and content license fees. Network expenses Network...

  • Page 87
    ... source: Year ended December 31, 2015 2014 Network Access Services: Mobile Services Other Services Total Network Access Services Domain Services: Wholesale Domain Services Value Added Services Total Wholesale Retail Portfolio Total Domain Services Network Expenses: Network, other costs Network...

  • Page 88
    ... on service costs. Prepaid domain registration and other Internet services fees as of December 31, 2015 decreased by $0.7 million, or 1%, to $55.7 million from $56.4 million at December 31, 2014. Network Access Services Mobile and Other Services Cost of revenues from Ting mobile phone equipment...

  • Page 89
    ... speed Internet access, Internet hosting and network consulting services to customers. SALES AND MARKETING Sales and marketing expenses consist primarily of personnel costs. These costs include commissions and related expenses of our sales, product management, public relations, call center, support...

  • Page 90
    ... that we use to register domain names, network access services, 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 are included in the costs of product...

  • Page 91
    ... $0.8 million in increased credit card processing fees and bad debts, largely related to the growth in network access services, increased workforce costs of $0.7 million, primarily the result of our exceeding our adjusted EBITDA target set for Fiscal 2015 under our overachievement bonus program and...

  • Page 92
    ... equipment Increase over prior period Increase - percentage Percentage of net revenues $ $ 259,307 $ 32,875 15% 0% 226,432 0% Depreciation costs for Fiscal 2015 increased slightly to $0.3 million when compared to $0.2 million for Fiscal 2014. 50 https://www.sec.gov/Archives/edgar/data/909494...

  • Page 93
    ... $ $ As part of our normal renewal process during Fiscal 2015 and Fiscal 2014, we assessed that certain domain names acquired in the June 2006 acquisition of Mailbank.com Inc. should not be renewed and were allowed to expire. Accordingly, these domain names, with a book value of $0.2 million...

  • Page 94
    ...currency forward contracts of $0.2 million for Fiscal 2015 compared to a realized loss of $0.3 million for Fiscal 2014. At December 31, 2015,... value in line with movements in the Canadian dollar relative to the U.S. dollar. OTHER INCOME AND EXPENSES Year ended December 31, 2015 2014 $ (73,153) $ (206...

  • Page 95
    ... by our recognizing $0.1 million in other income in accordance with the terms of the .online Joint Marketing agreement. INCOME TAXES The following table presents our provision for income taxes for the periods presented: Year ended December 31, 2015 2014 6,569,227 $ 3,054,229 3,514,998 115% 36.6% 32...

  • Page 96
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  • Page 97
    ... table presents our net revenues, by revenue source: Year ended December 31, 2014 2013 Network Access Services: Mobile Services Other Services Total Network Access Services Domain Services: Wholesale Domain Services Value Added Services Total Wholesale Retail Portfolio Total Domain Services $ $ 35...

  • Page 98
    ... domain name registrations and other Internet services at December 31, 2014 increased to $71.1 million from $70.0 million at December 31, 2013. No customer ..., 2014, no customer accounted for more than 10% of accounts receivable. Significant management judgment is required at the time of recording of...

  • Page 99
    ... of ICANN's New gTLD Program will have on the market. 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 of these factors could affect the growth of domain names that we manage. As...

  • Page 100
    ... Page 100 of 225 COST OF REVENUES Network Access Services Ting 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. 54 https...

  • Page 101
    ...domain registry fees and are expensed ratably over the renewal term. Costs of revenues for our larger ad-supported content site include the fees paid to third-party service providers, primarily for digital certificates sold through our content sites and content license fees. Network expenses Network...

  • Page 102
    ... source: Year ended December 31, 2014 2013 Network Access Services: Mobile Services Other Services Total Network Access Services Domain Services: Wholesale Domain Services Value Added Services Total Wholesale Retail Portfolio Total Domain Services Network Expenses: Network, other costs Network...

  • Page 103
    ... in Fiscal 2013. This increase was primarily the result of increased network access service expenses due to the impact Ting's larger subscriber base is having on service costs. Prepaid domain registration and other Internet services fees as of December 31, 2014 increased by $0.4 million, or 1%, to...

  • Page 104
    ... 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 are included in the costs of product development. All...

  • Page 105
    ... Digital Media Tax Credit of $0.4 million, primarily related to eligible personnel costs, during the quarter ended June 30, 2013. This increase was partially offset by a decrease which resulted primarily from improved productivity in workforce related costs. 57 https://www.sec.gov/Archives/edgar...

  • Page 106
    ... General and administrative expenses consist primarily of compensation and related costs for managerial and administrative personnel, fees for professional services, public listing expenses, rent, foreign exchange and other general corporate expenses. Year ended December 31, 2014 2013 9,459,008...

  • Page 107
    ...,145 N/A% 0% - -% As part of our normal renewal process during Fiscal 2014, we assessed that certain domain names acquired in the June 2006 acquisition of Mailbank.com Inc. should not be renewed and were allowed to expire. Accordingly, these domain names, with a book value of $0.6 million, have...

  • Page 108
    ...forward exchange contracts that do not comply with the requirements of hedge accounting to meet a portion of our future Canadian dollar requirements through December 2015. The impact of the fair value adjustment...table presents our provision for income taxes for the periods presented: Year... using ...

  • Page 109
    ... statement carrying values and tax base of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized...

  • Page 110
    ...periods. The unrecognized tax benefit relates primarily to prior year Pennsylvania ...Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. OTHER COMPREHENSIVE INCOME (LOSS... Canadian dollar requirements on a prospective basis. The impact of the fair value adjustment...

  • Page 111
    ... sources of funds were partly offset by our repurchasing 868,549 of our shares for $20.0 million through our open market stock buyback that commenced on February 16, 2015 and ended on February 9, 2016, our repurchasing 193,907 shares for $3.6 million through our modified Dutch Auction tender offer...

  • Page 112
    ... losses on currency forward contracts, excess tax benefit related to stock-based compensation and a recovery for deferred tax. In addition, changes in our working capital generated $3.0 million. Positive contributions of $5.4 million from movements in deferred registration costs, income taxes...

  • Page 113
    ... resulted from $20.0 million used to fund our repurchasing 868,549 of our shares through our open market stock buyback that commenced on February 16, 2015 and our repurchasing of 193,907 shares for $3.6 million through our Tender Offer that closed on January 7, 2015. In addition, during Fiscal...

  • Page 114
    ... Page 114 of 225 our proposed acquisition of a controlling interest in an independent Internet service provider in Charlottesville, Virginia doing business primarily as Blue Ridge InternetWorks. In addition, we used net cash of $0.7 million to acquire additional property and equipment. Year ended...

  • Page 115
    ... or seek other financing arrangements to facilitate more rapid expansion, develop new or enhance existing products or services, respond to competitive pressures or acquire or invest in complementary businesses, technologies, services or products. We may also evaluate potential acquisitions of other...

  • Page 116
    ... methods. All shares repurchased by Tucows under the stock buyback program will be retired and returned to treasury. The number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, working capital...

  • Page 117
    ... 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We develop products in Canada and sell these services in North America and Europe. Our sales are primarily made in U.S. dollars, while a major portion of expenses are incurred in Canadian dollars. Our financial results could be affected...

  • Page 118
    ...cash equivalents, marketable securities, foreign exchange contracts and accounts receivable. Our cash, cash equivalents and short-term investments are ...we perform ongoing evaluations of our customers, generally granting uncollateralized credit terms to our customers, and maintaining an allowance for ...

  • Page 119
    ... by this annual report, our chief executive officer and chief financial officer concluded that, as of December 31, 2015 our disclosure controls and procedures were effective at the reasonable assurance level. Management's Annual Report on Internal Control over Financial Reporting Management is...

  • Page 120
    ....htm Page 120 of 225 Our management has excluded from our evaluation the ICFR of the BRI Group, which we acquired on February 27, 2015, as discussed in "Note 3 - Acquisitions" to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Total revenues subject...

  • Page 121
    ...December 31, 2015. See "Item 9A. Controls and Procedures - Management's Annual Report on Internal Control over Financial Reporting" and "Item 9A. Controls and Procedures - Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting" contained in the Company's report on Form...

  • Page 122
    ... 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 123
    ...Before that, from April 1997 to May 1999, Mr. Noss served as Vice President of Corporate Services of Tucows Interactive Ltd., which was acquired by Tucows Delaware in May 1999. Mr. Noss's lengthy service as our Chief Executive Officer has provided him with extensive knowledge of, and experience with...

  • Page 124
    ... without charge from our Internet web site at tucows.com. Amendments and waivers of our ethics policy for our senior officers will either be posted on our website or filed with the SEC on a Current Report on Form 8-K. Mr. Karp and Mr. Ralls, two of our independent directors, serve as Co-Chairmen...

  • Page 125
    ...with regularly scheduled quarterly and annual meetings of the Board of Directors, with additional meetings held as often as its members deem necessary to perform its responsibilities. From time to time, depending on the circumstances, the Board may form a new committee or disband a current committee...

  • Page 126
    ...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 127
    ... our Chief Executive Officer, provides consolidated information outlining management's recommendation regarding executive officer compensation based on title to the Corporate Governance, Nominating and Compensation Committee. The Committee then reviews and discusses the information provided with our...

  • Page 128
    ... is providing oversight of our risk management process. Our Board of Directors does not have a standing risk management committee, but rather administers this oversight function directly through our Board of Directors as a whole, as well as through Board of Directors standing committees that address...

  • Page 129
    ... Chief Executive Officer or other members of management to enable us to understand our risk identification, risk management and risk mitigation strategies. When a committee receives the report, the chairman of the relevant committee reports on the discussion to the full Board of Directors during the...

  • Page 130
    ... of the Corporate Governance, Nominating and Compensation Committee at 96 Mowat Avenue, Toronto, Ontario M6K 3M1 Canada at least 120 days before the first anniversary of the date on which we first mailed our proxy materials for our prior year's annual meeting of shareholders the name and address of...

  • Page 131
    ... automatic grant of options to purchase 3,750 shares of our common stock. Directors who are employees receive no additional or special compensation for serving as directors. The CoChairmen of our Board of Directors and all non-employee directors receive an annual fee of $15,000. The Co-Chairmen of...

  • Page 132
    ...in this Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Mr. Ito resigned from our Board of Directors on March 1, 2016. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act, requires our directors and executive officers and persons who own...

  • Page 133
    ... reporting one option exercise. Stock ownership of management We encourage stock ownership by our directors, officers and employees to align their interests with your interests as shareholders. Under Section 16(a) of the Exchange Act, directors, officers and certain beneficial owners of the Company...

  • Page 134
    ... Noss Michael Cooperman David Woroch Kenneth Schafer Michael Goldstein President and Chief Executive Officer ("CEO") Chief Financial Officer ("CFO") Executive Vice-President, Domains ("EVP, Domains") Executive Vice-President, Product ("EVP, Product") Vice-President, Sales and marketing ("VP, Sales...

  • Page 135
    ...the achievement of pre- established annual performance measures based on adjusted EBITDA growth Stock Options Grants Annual longterm equity awards that vest over four years Provides competitive short- term incentive opportunities for our executives to earn annual cash bonuses based on performance...

  • Page 136
    ...the compensation of our named executive officers, as described in the proxy statement for the 2014 annual meeting. Accordingly, the Corporate Governance, Nominating and Compensation Committee believes that this affirms stockholder support for our executive compensation policies and practices, and no...

  • Page 137
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  • Page 138
    .... The base salaries of all executive officers are reviewed annually and adjusted when necessary to reflect individual roles and performance as well as market conditions. In January 2015, as a part of the annual review process and to account for increases in costs of living, with the exception of...

  • Page 139
    ... Named Officer Elliot Noss Michael Cooperman David Woroch Kenneth Schafer Michael Goldstein Target incentive Bonus Opportunity(1) $148,016 $97,516 $101,870 $48,575 $25,530 Basis for Target incentive Bonus 100% Corporate adjusted EBITDA(2) 100% Corporate adjusted EBITDA 100% Wholesale Domain Services...

  • Page 140
    .... Named Officer Elliot Noss Michael Cooperman David Woroch Kenneth Schafer Michael Goldstein Target incentive Bonus Opportunity(1) $140,934 $92,850 $96,996 $46,424 $30,662 Basis for Target incentive Bonus 100% Corporate adjusted EBITDA 100% Corporate adjusted EBITDA 100% Wholesale Domain Services...

  • Page 141
    ...the NEO's continued employment with us. Name Elliot Noss Michael Cooperman David Woroch Kenneth Schafer Michael Goldstein Severance and Change of Control Benefits Our Board of Directors believes that it is necessary to offer senior members of our executive team severance benefits to ensure that they...

  • Page 142
    ... a change of control. The terms of these agreements are described below in "Potential Payments on Termination or Change In Control." Perquisites We do not provide any significant perquisites or other personal benefits to our named executive officers. Benefits We provide the following benefits, which...

  • Page 143
    ... account; • a car allowance; • an annual medical; and • an employee assistance program. Certain Corporate Governance Considerations We currently do not require our executive officers to own a particular number of shares of our common stock. The Corporate Governance, Nominating and Compensation...

  • Page 144
    ... on the compensation of our NEOs because risk-related decisions depend predominantly on their judgment. The Corporate Governance, Nominating and Compensation Committee believes that risks arising from our policies and practices for compensation of other employees are not reasonably likely to have...

  • Page 145
    ... Executive Officer Michael Cooperman Chief Financial Officer David Woroch Executive Vice President, Domains Kenneth Schafer Executive Vice President, Products Michael Goldstein Vice President, Sales and Marketing (1) Represents bonus earned during the fiscal years ended December 31, 2015, 2014...

  • Page 146
    tcx20151201_10k.htm Page 146 of 225 Michael Cooperman David Woroch Kenneth Schafer Michael Goldstein $ $ $ $ 42,663 44,568 21,331 10,357 81 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13/2016

  • Page 147
    ... 1,876 2,172 2,326 9,614 11,130 11,920 6,800 7,872 8,431 6,800 7,872 8,431 782 905 969 (3) Elliot Noss Year 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 Michael Cooperman David Woroch Kenneth Schafer Michael Goldstein 82 https://www.sec.gov/Archives/edgar/data...

  • Page 148
    ... 2,400 3,750 9,245 Name Elliot Noss Option Option Exercise Expiration Price ($) Date 5.52 5.76 10.16 19.41 05/17/2019 12/31/2019 11/10/2020 12/31/2021 Michael Cooperman 5.52 5.76 10.16 19.41 05/17/2019 12/31/2019 11/10/2020 12/31/2021 David Woroch 5.52 5.76 10.16...

  • Page 149
    ... Part III, Item 10 "Directors, Executive Officers and Corporate Governance" and is incorporated herein by reference. Potential Payments on Termination or Change In Control We have certain agreements that require us to provide compensation to our named executive officers in the event of a termination...

  • Page 150
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  • Page 151
    ...of December 30, 2015, 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, 2015 was $21.10. Pay for unused vacation, extended health, matching registered retirement savings plan benefit...

  • Page 152
    tcx20151201_10k.htm Page 152 of 225 85 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13/2016

  • Page 153
    ..., 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 154
    ... has ever been an officer or employee of the Company or its subsidiaries. None of our executive officers serves as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers on our Board of Directors or Corporate Governance, Nominating and...

  • Page 155
    ... David Woroch Kenneth Schafer Michael Goldstein Allen Karp Rawleigh Ralls Robin Chase Erez Gissin Jeffrey Schwartz All directors and executive officers as a group (13 persons) * Less than 1%. (1) Based on 10,691,106 shares outstanding as of March 4, 2016, adjusted for shares of common stock...

  • Page 156
    tcx20151201_10k.htm Page 156 of 225 88 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13/2016

  • Page 157
    ...928 shares of common stock. This information is based solely on a review of a Schedule 13G filed with the SEC on February 8, 2016 by Pembroke Management, LTD. (4) Each of Renaissance Technologies, LLC ("RTC"), and Renaissance Technologies Holdings Corporation ("RTHC") which had majority ownership of...

  • Page 158
    tcx20151201_10k.htm Page 158 of 225 stock. This information is based solely on a review of an amendment to Schedule 13G filed with the SEC on February 11, 2016 by the RTC and RTHC. 89 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13/2016

  • Page 159
    ... Plan Information As of December 31, 2015, our 2006 Plan had 2.475 million shares of common stock reserved for issuance. Number of securities remaining available for future Number of issuance securities to Weighted be issued upon average exercise under the plan (excluding exercise of price of...

  • Page 160
    ... officer or director that would potentially require disclosure pursuant to the Audit Committee charter. As of the date of this Annual Report on Form 10-K, we expect that any transactions in which related persons have a direct or indirect interest will be presented to the Audit Committee for review...

  • Page 161
    ... request must submit the request to our chief financial officer. The request must include a description of the services, the estimated fee, a statement that the services are not prohibited services under the policy and the reason why the employee is requesting our independent auditors to perform the...

  • Page 162
    ...Agreement dated March 11, 2003 between Tucows.com Co. and Michael Cooperman (Incorporated by reference to Exhibit 10.5 filed with Tucows' annual Report ... and Tucows International Corporation, dated December 10, 1999 (Incorporated by reference to exhibit number 10.9 filed with Tucows' Annual Report on...

  • Page 163
    ... year ended December 31, 2004, as filed with the SEC on March 24, 2005). 10.7* Description of Tucows Fiscal 2004 At Risk Compensation Plan (Incorporated by reference to Exhibit 10.9 filed with Tucows' Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the SEC on March 24...

  • Page 164
    ...Exhibit 10.1 filed with Tucows' Current Report on Form 8-K, as filed with the SEC on July 31, 2007). 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 165
    ... F-4 F-5 F-6 F-7 F-8 Consolidated Financial Statements of Tucows Inc. Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2015 and 2014 Consolidated Statements of Comprehensive Income for the...

  • Page 166
    ... as Blue Ridge Internet Works), Fiber Roads, LLC and Navigator Network Services, LLC (the "BRI Group") during 2015, and management excluded from its assessment of the effectiveness of Tucows Inc.'s internal control over financial reporting as of December 31, 2015, BRI Group's internal control over...

  • Page 167
    ... 167 of 225 three-year period ended December 31, 2015, and our report dated March 9, 2016 expressed an unqualified opinion on those consolidated financial statements. /s/ KPMG LLP Chartered Professional Accountants, Licensed Public Accountants Toronto, Canada March 9, 2016 F-2 https://www.sec.gov...

  • Page 168
    ...168 of 225 Report of the Independent Registered Public Accounting Firm To the Board of Directors and Shareholders and of Tucows Inc. We have audited the accompanying consolidated balance sheets of Tucows Inc. as of December 31, 2015 and December 31, 2014, and the related consolidated statements of...

  • Page 169
    ...net of allowance for doubtful accounts of $122,095 as of December 31, 2015 and $125,766 as of December 31, 2014 Inventory Prepaid expenses and deposits Prepaid domain name registry and ancillary services fees, current portion Other assets (note 4) Deferred tax asset, current portion (note 10) Income...

  • Page 170
    ....htm Page 170 of 225 Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding Common stock - no par value, 250,000,000 shares authorized;10,685,599 shares issued and outstanding as of December 31, 2015 and 11,329,732 shares issued and outstanding as of December...

  • Page 171
    ...2015 Net revenues (note 18) Cost of revenues (note 18): Cost of revenues Network expenses Depreciation of property and equipment (note 5) Amortization of intangible assets (note 6) Total cost of revenues Gross profit Expenses: Sales and marketing Technical operations and development...,551,800 92,960...

  • Page 172
    ...) Comprehensive income for the year Basic earnings per common share (note 15) Shares used in computing basic earnings per common share (note 15) Diluted earnings per common share (note 15) Shares used in computing diluted earnings per common share (note 15) $ $ $ 10,886,719 $ 1.04 $ 5,996,636 $ 0.57...

  • Page 173
    ...,096 (377,460) 35,642,393 803,136 Common stock Number Amount Balances, December 31, 2012 Exercise of stock options Repurchase and retirement of shares (note 11) Cancellation of restricted stock Income tax effect related to stock options exercised Stock-based compensation (note 12) Net income Other...

  • Page 174
    tcx20151201_10k.htm Page 174 of 225 Other comprehensive income (loss) Balances, December 31, 2015 10,685,599 $14,530,633 $ 8,526,395 $ 4,381,849 $ (1,109,452) $ 26,329,425 See accompanying notes to consolidated financial statements F-6 https://www.sec....

  • Page 175
    ... on change in the fair value 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...

  • Page 176
    ... in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental cash flow information: Interest paid Income taxes paid, net Supplementary disclosure of non-cash investing and financing activities: (548,124) 8,271,377 7,723,253 $ (4,147...

  • Page 177
    ... Internet access in selected towns. The Company is also a global distributor of Internet services, including domain name registration, digital certificates, and email. It provides these services primarily through a global Internet-based distribution network of Internet Service Providers, web hosting...

  • Page 178
    ... conditions impacting these assumptions and estimates are outside of the Company's control. (c) Cash and cash equivalents All highly liquid investments, with an original term to maturity of three months or less are classified as cash and cash equivalents. Cash and cash equivalents are stated at cost...

  • Page 179
    ... their estimated useful lives at the following rates: Asset Computer equipment Computer software Furniture and equipment Vehicles and tools Fiber network (years) Customer equipment and installations (years) Leasehold improvements Rate 30% 100% 20% 20% 15 3 Over term of lease The Company reviews the...

  • Page 180
    ....htm Page 180 of 225 The fair value of the forward exchange contracts are determined using an estimated credit adjusted mark-tomarket valuation which takes into consideration the Company's and the counterparty's credit risk. The valuation technique used to measure the fair values of the derivative...

  • Page 181
    ... domain names and direct navigation domain names. While the domain names are renewed annually, through payment of a renewal fee to the applicable registry, the Company has the exclusive right to renew these names at its option. Renewals occur routinely and at a nominal cost. Moreover, the Company...

  • Page 182
    tcx20151201_10k.htm Page 182 of 225 F-10 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13/2016

  • Page 183
    ... 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 184
    ... 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. (k) Prepaid domain name registry fees Prepaid domain name registry and other Internet services fees represent amounts...

  • Page 185
    ...'s functional currency is the United States dollar. Monetary assets and liabilities of the Company and of its wholly owned subsidiaries that are denominated in foreign currencies are translated into United States dollars at the exchange rates prevailing at the ...

  • Page 186
    ...specific customers, historical trends and other information. (q) Fair value measurement Fair value of financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market...

  • Page 187
    ...than quoted prices in active markets for identical assets and liabilities Level 3-No observable pricing inputs in the market Financial assets ... to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the...

  • Page 188
    ... of mobile telephony services, are generated through its business operations in the United States. The Company's Network Access - Other Services consists of the provisioning of high speed Internet access, Internet hosting and consulting services. The Company's assets are located in Canada, the...

  • Page 189
    tcx20151201_10k.htm Page 189 of 225 Company is in the process of evaluating the impact that the adoption of ASU 2016-1 will have on its consolidated financial statements. F-14 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13/2016

  • Page 190
    ... FASB issued ASU No. 2015-05, Customer' s Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU 2015-05"), which provides guidance in determining whether fees for purchasing cloud computing services (or hosted software solutions) are considered internal-use software or should be considered...

  • Page 191
    tcx20151201_10k.htm Page 191 of 225 and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date ...

  • Page 192
    ... 31, 2015. Ting Virginia, LLC was an independent Internet service provider in Charlottesville, Virginia, doing business primarily as Blue Ridge Internet Works. The BRI Group provides high speed internet access, Internet hosting and network consulting services to over 3,000 customers in central...

  • Page 193
    ... on net income for the year ended December 31, 2015. The Company acquired new classes of assets in this acquisition, namely fiber network and vehicles. The Company has accordingly, in connection with its depreciation policies, added additional disclosure in note 2 (e) above. 4. Other assets: Other...

  • Page 194
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  • Page 195
    ...Furniture and equipment Vehicles and tools Fiber network Customer equipment and installations Leasehold improvements Less: ...31, 2015 Boardtown Corporation Hosted Messaging Assets of Critical Path Innerwise Inc. Mailbank.com Inc. EPAG Domainservices GmbH Ting Fiber, Inc. (note 3) Ting Virginia...

  • Page 196
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  • Page 197
    ...consisting of surname domain names and direct navigation domain names as indefinite life intangible assets. The Company has the exclusive right to these domain names as long as the annual renewal fees are paid to the applicable registry. Renewals occur routinely and at a nominal cost. The indefinite...

  • Page 198
    tcx20151201_10k.htm Page 198 of 225 The following table shows the estimated amortization expense for each of the next 5 years, assuming no further additions to acquired intangible assets are made: Year ending December 31, $ 274,116 274,116 169,676 46,128 46,128 422,840 $ 1,233,004 2016 2017 2018 ...

  • Page 199
    ... future cash flows related to a portion of payroll, rent and payments to Canadian domain name registry suppliers 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 200
    ... effect of these derivative instruments on our consolidated financial statements as of, and for the year ended December 31, 2015, were as follows (amounts presented do not include any income tax effects). F-20 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13...

  • Page 201
    ...2015 Liabilities at Fair Value December 31, 2014 Liabilities at Fair Value Derivatives Balance Sheet Location Foreign currency forward contracts designated as cash flow hedges Derivative instruments Foreign currency forward contracts not designated...on cash flow hedges Opening AOCI balance - ...

  • Page 202
    ..., and which provide it with access to two revolving demand loan facilities (the "2012 Demand Loan Facilities"), a treasury risk management facility and an operating demand loan. Two Revolving Demand Loan Facilities. The 2012 Demand Loan Facilities are governed by the terms of the Offer Letter, dated...

  • Page 203
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  • Page 204
    ... dollar exposure through foreign exchange forward contracts and/or currency options. Under the terms of the Amended Credit Facility, the Company may enter into such agreements at market rates with terms not to exceed 18 months. As of December 31, 2015, the Company held contracts in the amount...

  • Page 205
    ...deductible. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment. The Company had approximately $0.1 million of total gross unrecognized tax benefit as of December 31, 2015 and...

  • Page 206
    ... 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. Repurchase of common shares: (a) Modified Dutch Tender Offers: On January 7, 2015, the Company...

  • Page 207
    tcx20151201_10k.htm Page 207 of 225 program during the three months ended December 31, 2015 for a total of $5.4 million. The Company repurchased 868,549 shares under this program during the year ended December 31, 2015 for a total of $20.0 million. F-25 https://www.sec.gov/Archives/edgar/data/...

  • Page 208
    ... benefit of the employees, officers, directors and certain consultants of the Company. The maximum number of common shares which may be set aside for issuance under the 1996 Plan was 2,787,500 shares, provided that the Board of Directors of the Company has the right, from time to time, to increase...

  • Page 209
    tcx20151201_10k.htm Page 209 of 225 have a five year term. Prior to the September 2015 amendment to the 2006 Plan, automatic formula grants of non-qualified stock options vested immediately upon grant. F-26 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13/...

  • Page 210
    ... the expected term of the option. 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, 2015, 2014 and...

  • Page 211
    ...Number price per contractual intrinsic Number price per contractual intrinsic outstanding share life (years) value exercisable share... 4.8 $4,692,919 2.8 Total unrecognized compensation cost relating to unvested stock options at December 31, 2015, prior to the consideration of expected forfeitures,...

  • Page 212
    ...Under the terms of the agreement, the Company has undertaken to provide certain marketing support for .online registry and has agreed to certain volume commitments during the term of the agreement. The Joint Marketing Agreement is for a term of three years and commenced in November 2015. The Company...

  • Page 213
    tcx20151201_10k.htm Page 213 of 225 than the average market price of the common shares. The options which expire in years 2016 to 2021 were still outstanding at the end of 2015. F-28 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10... 9/13/2016

  • Page 214
    ... 31, 2015 cannot be predicted with certainty, it is the opinion of management that their resolution will not have a material adverse effect on the Company's financial position. 17. Subsequent events: On February 9, 2016, the Company announced that its Board of Directors has approved a stock buyback...

  • Page 215
    ... 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 216
    ...792,900 18,016,110 (73,153) $ 17,942,957 (1) Network access includes Mobile Services and Other Services. Other Services includes the provisioning of high speed Internet access, Internet hosting and network consulting services. F-30 https://www.sec.gov/Archives/edgar/data/909494/000143774916027177...

  • Page 217
    ...equipment Amortization of intangible assets Total cost of revenues Gross Profit Expenses: Sales and marketing Technical operations and development General and administrative Network Access (1) Mobile Other Services Services $16,530,237 Domain Name Services Consolidated Totals - 113,404,667 $ 129...

  • Page 218
    ... $ 215,447 876,120 357,109 6,154,660 (354,857) 5,799,803 (1) Network access includes Mobile Services and Other Services. Other Services includes the provisioning of high speed Internet access, Internet hosting and network consulting services. F-31 https://www.sec.gov/Archives/edgar/data/909494...

  • Page 219
    ... 31, 2014 2015 Network Access Services: Mobile Services Other Services Total Network Access Services Domain Services: Wholesale Domain Services Value Added Services Total Wholesale Retail Portfolio Total Domain Services Network Expenses: Network, other costs Network, depreciation and amortization...

  • Page 220
    ... Page 220 of 225 (d) The following is a summary of the Company's property and equipment by geographic region: Year ended December 31, 2015 2014 1,225,236 $ 1,131,883 5,847,666 379,891 53,774 98,013 7,126,676 $ 1,609,787 Canada United States Germany $ $ F-32 https://www.sec.gov/Archives/edgar...

  • Page 221
    ...7,621,092 $ 7,378,619 7,621,092 $ 7,378,619 Canada $ $ Valuation and qualifying accounts: (g) Balance at beginning year Allowance for doubtful accounts, excluding provision for credit notes 2015 $ 2014 $ 2013 $ Charged to (recovered) costs and expenses Write-offs during year Balance at end of...

  • Page 222
    ...Agreement dated March 11, 2003 between Tucows.com Co. and Michael Cooperman (Incorporated by reference to Exhibit 10.5 filed with Tucows' annual Report ... and Tucows International Corporation, dated December 10, 1999 (Incorporated by reference to exhibit number 10.9 filed with Tucows' Annual Report on...

  • Page 223
    tcx20151201_10k.htm Page 223 of 225 10.10 Guaranty, dated December 14, 2012, by Ting Inc. in favor of the Bank of Montreal (Incorporated by reference to Exhibit 10.2 filed with Tucows' Current Report on Form 8-K, as filed with the SEC on December 20, 2012). https://www.sec.gov/Archives/edgar/...

  • Page 224
    ...Exhibit 10.1 filed with Tucows' Current Report on Form 8-K, as filed with the SEC on July 31, 2007). 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 225
    ... 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 DATE: March 9, 2016 Pursuant to the requirements...