Tucows 2012 Annual Report Download

Download and view the complete annual report

Please find the complete 2012 Tucows annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

TUCOWSINC.
2012ANNUALREPORT


Table of contents

  • Page 1
    TUCOWS INC. 2012 ANNUAL REPORT

  • Page 2
    Contents TUCOWS INC. ANNUAL REPORT ON FORM 10‐K For Fiscal Year Ended December 31, 2012

  • Page 3
    ... of the registrant's common stock. The number of shares outstanding of the registrant's common stock as of March 12, 2013 was 40,189,977. TRADEMARKS, TRADE NAMES AND SERVICE MARKS Tucows®, Butterscotch®, EPAG®, Hover®, OpenSRS®, Platypus®, Ting® and YummyNames® are registered trademarks of...

  • Page 4
    ... Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .. Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services...

  • Page 5
    ... 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 6
    ... 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 and the Marketing Development Funds we receive from vendors from time-to-time to...

  • Page 7
    ... 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 8
    ... 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 9
    ... domain registrars, such as Demand Media through its acquisition of eNom, Wild West Domains (a division of GoDaddy) and Melbourne IT, who market services to resellers such as our customers. Wholesale Email Service providers, such as Google, Yahoo!, Microsoft, Bluetie and MailTrust. Ad-supported...

  • Page 10
    ... Registrant The following table sets forth the names, ages and titles of persons currently serving as our executive officers. Name Elliot Noss Michael Cooperman David Woroch Age 51 62 51 Title President and Chief Executive Officer Chief Financial Officer Executive Vice President, Sales and Support...

  • Page 11
    ... 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, Network Solutions, VeriSign and Yahoo...

  • Page 12
    ...that the number of new, renewed and transferred-in domain registrations will incrementally increase, volatility in the market could result in our customers turning to other registrars, thereby impairing growth in the number of domains under our management and our ability to sell multiple services to...

  • Page 13
    ...failure to acquire or maintain such Internet domain names could adversely affect our financial results and our growth. Any impairment in the value of these important assets could cause our stock price to decline. We have presence in the hosted messaging and email market, which is a volatile business...

  • Page 14
    ... 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 15
    ... website would increase if the security breach were to occur following our sale to a customer of an SSL certificate that proved ineffectual in preventing it. Finally, we are exposed to potential liability as a result of our private domain name registration service, wherein we become the domain name...

  • Page 16
    ... dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital...

  • Page 17
    ... 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 our market becomes increasingly...

  • Page 18
    ... 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 19
    .... 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 20
    ... users from using our services. From time to time, concerns have been expressed about whether our services compromise the privacy of our users and others. Concerns about our practices with regard to the collection, use, disclosure or security of personal information or other privacy-related matters...

  • Page 21
    ... 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 22
    ... and the U.S. Internal Revenue Service, challenging the validity of our arm's- 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 or the...

  • Page 23
    ... 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 24
    ... market analysts and investors. In that event, the price of our common stock may fall. Risks Related To the Internet and Our Technology Our business could be materially harmed if the administration and operation of the Internet no longer rely upon the existing domain system. The domain registration...

  • Page 25
    ... 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 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
    ... from operating our Registrar; ICANN and, under their registry agreements, VeriSign and other registries may impose increased fees received for each ICANN accredited registrar and/or domain name registration managed by those registries; ICANN or any registries may implement policy changes that would...

  • Page 29
    ... 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 30
    ...; 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 31
    ...marketing and sales office totals approximately 26,937 square feet and is located in Toronto, Ontario under a lease that expires on December 31, 2020. In addition, we also maintain offices of approximately 4,000 square feet in Starkville, Mississippi, approximately 2,900 square feet in Bonn, Germany...

  • Page 32
    PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Price Range of Common stock Our common stock trades on the NYSE Amex under the symbol "TCX" and on the Toronto Stock Exchange under the symbol "TC". The following table sets ...

  • Page 33
    ... 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 and the Marketing Development Funds we receive from vendors from time-to-time to...

  • Page 34
    ... 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 35
    ...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...

  • Page 36
    ... 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 37
    ... ï,· 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 38
    ... as advertising revenue from our OpenSRS expired domain names and our domain name portfolio. Advertising and other revenue is recognized ratably over the period in which it is presented. To the extent that the minimum number of postpresentation impressions we guarantee to customers is not met, we...

  • Page 39
    ... estimated fair value for our reporting unit using the market approach that is based on the publicly traded common shares of the Company to estimate fair value. The... as a result of the annual impairment tests completed during the fourth quarters of 2012 and 2011. Accounting for income taxes We are ...

  • Page 40
    ...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 41
    ... increases resulted primarily from the sale of domain names and advertising from the OpenSRS Domain Expiry Stream and increased digital certificate sales. During Fiscal 2012, the number of transactions from all new, renewed and transferred-in domain name registrations that we processed increased by...

  • Page 42
    ... as prepaid domain registry fees and are expensed ratably over the renewal term. Costs of revenues for our larger ad-supported content sites (tucows.com and butterscotch.com) include the fees paid to third-party service providers, primarily for digital certificates sold through our content sites and...

  • Page 43
    ... the result of increased sales volumes. Prepaid domain registration and other Internet services fees as of December 31, 2012 increased by $1.7 million, or 3%, to $57.5 million from $55.8 million at December 31, 2011. Wholesale Costs for Wholesale for Fiscal 2012 increased by $9.7 million, or...

  • Page 44
    ... costs and related expenses required to support the development of new or enhanced service offerings and the maintenance and upgrading of existing infrastructure. This includes expenses incurred in the research, design and development of technology that we use to register domain names, email...

  • Page 45
    ...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, 2012...basis over the estimated useful lives of the assets. Year ended December 31, 2012 2011 $ 190,...

  • Page 46
    ...) 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 47
    ...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... Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. OTHER COMPREHENSIVE INCOME To mitigate...

  • Page 48
    ... implemented in July 2010 for registration fees paid to certain registries. In addition, email revenue increased by $0.3 million or 12% to $2.6 million and other services increased by $0.4 million or 10% to $4.8 million as a result of market development funds vendors have provided us to expand or...

  • Page 49
    ... of EPAG. In addition, we provide provisioning services on a monthly basis to accredited registrars who use our technical systems to process domain registrations with their own accreditation. The number of domain names we manage on behalf of other accredited registrars remained essentially flat at...

  • Page 50
    ...in Fiscal 2010 primarily the result of increased sales volumes. Prepaid domain registration and other Internet services fees as of December 31, 2011 increased by $6.0 million, or 12%, to $55.8 million from $49.8 million at December 31, 2010. Wholesale Costs for Wholesale for Fiscal 2011 increased by...

  • Page 51
    ...-over-year increase was largely due to increased personnel and related costs that we incurred to further develop our platform and websites to support and grow our service offerings. Technical operations and development expenses were also negatively impacted by the approximately 5% strengthening, on...

  • Page 52
    ...of EPAG in August 2011. LOSS (GAIN) ON CURRENCY FORWARD CONTRACTS Although our functional currency is the U.S. dollar, a...possible; to achieve operational cost certainty, manage financial exposure to certain ...with the documentation requirements for hedge accounting, we account for the fair value of the...

  • Page 53
    ... statement carrying value 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 54
    ... common stock at a purchase price of $0.77 per share, for a total of $5,829,082, excluding transaction costs of approximately $64,000. At December 31, 2012, the outstanding balance under the 2012 DLR Loan was $3.7 million. Treasury Risk Management Facility The Amended Credit Facility also provides...

  • Page 55
    ... 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 56
    ... "Dutch auction tender offer" that was previously announced on November 21, 2012. Under the terms of the offer, the Company repurchased an aggregate of 4,114,437 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...

  • Page 57
    ... ABOUT MARKET RISK We develop products in Canada and sell these services in North America and Europe. Our sales are primarily...218 7,620 444,782 $ As of December 31, 2012 the Company has $29.3 million of outstanding foreign exchange forward contracts which will convert to CDN $29.8 million. Of...

  • Page 58
    ... the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Management's report on internal control over financial reporting is included on page F-2 of this Annual Report on...

  • 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
    ... for domain name registrations. Mr. Ito is also on the board of directors of a number of non-profit organizations, including The Knight Foundation, the MacArthur Foundation and The Mozilla Foundation. He has created numerous Internet companies, including PSINet Japan, Digital Garage (Tokyo Stock...

  • Page 61
    ..., combined with Dr. Morrisett's experience as a public company board, audit committee and compensation committee member qualify him to be a director of Tucows. Elliot Noss Director since August 2001 Mr. Noss, 51, is our President and Chief Executive Officer and has served in such capacity since the...

  • Page 62
    .... Elliot Noss attended our 2012 annual meeting of shareholders in person while the remainder of the Board of Directors were available by teleconference. Committees Our Board of Directors has two committees, an audit committee established in accordance with Section 3(a)(58)(A) of the Securities...

  • Page 63
    ...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 64
    ... 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 65
    ...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 66
    ...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 2012. Stock ownership of management We encourage stock ownership by...

  • Page 67
    ... assumptions underlying these calculations. Amounts reported in this column are comprised of the following items: Additional Health Spending Credits ($) 1,499 1,519 1,499 1,519 1,499 1,519 (3) (4) Elliot Noss Michael Cooperman David Woroch Year 2012 2011 2012 2011 2012 2011 Health Car Club All...

  • Page 68
    ...sets forth information concerning stock options held by the named executive officers as of December 31, 2012: Number of Securities Underlying Unexercised .../19 David Woroch 0.36 0.58 0.85 0.60 0.70 0.73 1.38 8/4/13 8/10/14 3/18/14 5/22/15 5/16/17 8/14/18 5/17/19 The stock options grants listed in ...

  • Page 69
    ... 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 of employment or a change in control of Tucows. These agreements are summarized following the table below and do not include...

  • Page 70
    ... that for Mr. Woroch, that his options continue to vest through and until the end of any severance period. Amounts disclosed in this table equal the closing market value of our common stock as of December 30, 2012, minus the exercise price, multiplied by the number of unvested shares of our common...

  • Page 71
    ... entitled to receive a lump sum payment based upon the fair market value of the Company on the effective date of the "change in control" as determined by our Board of Directors in the exercise of good faith and reasonable judgment taking into account, among other things, the nature of the "change in...

  • Page 72
    ...,388,183 24.9% Name Elliot Noss Michael Cooperman David Woroch Stanley Stern Eugene Fiume Erez Gissin Joichi Ito Allen Karp Lloyd Morrisett Rawleigh Ralls Jeffrey Schwartz All directors and executive officers as a group (13 persons) * (1) Less than 1%. Based on 40,213,850 shares outstanding as of...

  • Page 73
    ... than 5% of our outstanding common stock as of March 5, 2012. Beneficial Ownership of Common Stock Number of Shares Beneficially Percent of Owned Class(1) Name and Address of Beneficial Owner Lacuna, LLC 1100 Spruce Street, Suite 202 Boulder, CO 80302 Elliot Noss 96 Mowat Avenue Toronto, ON M6K 3M1...

  • Page 74
    ... 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 75
    ...by 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 76
    ... 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 77
    ... F-5 F-6 F-7 F-8 Consolidated Financial Statements of 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, 2012 and 2011 ...Consolidated Statements of Comprehensive...

  • Page 78
    ... 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 15, 2013...

  • Page 79
    Report of the Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Tucows Inc.: We have audited the accompanying consolidated balance sheets of Tucows Inc., as of December 31, 2012 and December 31, 2011, and the related consolidated statements of comprehensive ...

  • Page 80
    ..., net of allowance for doubtful accounts of $73,970 as of December 31, 2012 and $57,415 as of December 31, 2011 Inventory Prepaid expenses and deposits Derivative instrument asset, current portion (note 4) Prepaid domain name registry and ancillary services fees, current portion Income taxes...

  • Page 81
    ... in U.S. dollars) 2012 Year ended December 31, 2011 2010 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...

  • Page 82
    ...30,418,987 418,108 (9,115,833) 360,699 4,424,142 44,104 Common stock Number Amount Balances, December 31, 2009 Exercise of stock options Repurchase and retirement of shares (note 8) Cancellation of restricted stock Stock-based compensation (note 9) Net income Balances, December 31, 2010 Exercise of...

  • Page 83
    ... 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 84
    ...Internet services, including domain name registration, security and identity products through digital certificates, email and mobile telephony services through its global Internet-based distribution network of Internet Service Providers, web hosting companies and other providers of Internet services...

  • Page 85
    ... 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 86
    ... 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 87
    ... 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 paid to registries, and country code domain name...

  • Page 88
    ... receivable, accounts payable, accreditation fees payable, customer deposits and accrued liabilities (level 2 measurements) approximate their carrying values due to the relatively short periods to maturity of the instruments. The fair value of the forward exchange contracts are determined using an...

  • Page 89
    ... of the customer. The Company's assets are located in Canada, the United States, Germany and the Netherlands. (t) Reclassifications Beginning in the first quarter of 2012, Tucows reclassified its revenue streams into three distinct service offerings: Wholesale, Retail and Portfolio. The realignment...

  • Page 90
    ..., Tucows (Germany) Inc. ("Tucows Germany"), one of the Company's wholly owned subsidiaries, acquired 100% of the outstanding capital stock of EPAG, from QSC AG. EPAG, based in Bonn, Germany, is an ICANN-accredited registrar with over 400,000 domains under management and is notable for offering over...

  • Page 91
    ..., 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 92
    ...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 93
    ... balance sheets (see note 14) Year ended December 31, 2012 Fair Value Asset (Liability) $ Year ended December 31, 2011 Fair Value Asset (Liability) - Derivatives Balance Sheet Location Foreign currency forward contracts designated as cash flow hedges Derivative instruments Foreign currency...

  • Page 94
    ... 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 95
    ...of $4.0 million. Under the terms of the offer, the Company repurchased an aggregate of 7,570,236 shares of its common stock at a purchase price of $0.77 per share, for a total of $5,829,082, excluding transaction costs of approximately $64,000. At December 31, 2012, the outstanding balance under the...

  • Page 96
    ...during the year ended December 31, 2012. 9. Stock option plans: The Company's 1996 Stock Option Plan (the "1996 Plan") was established for the 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...

  • Page 97
    .... 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, 2012, 2011 and 2010 was estimated using the...

  • Page 98
    ...Number Exercise price outstanding $0.31 - $0.48 3,130,574 $0.56 - $0.75 3,790,112 $0.80 - $1.38 1,672,000 8,592,686 Total unrecognized compensation cost relating to unvested stock options at December 31, 2012... opening deferred tax assets Change in beginning of the year balance of the valuation ...

  • Page 99
    ... taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment. During the fourth quarter of 2011 management released its remaining valuation allowance of $3.6 million. At December 31, 2012 Tucows' unrecognized tax benefits...

  • Page 100
    ... price was greater than the average market price of the common shares. The options which expire in years 2013 to 2018 were still outstanding at the end of 2012. 13. Commitments and contingencies: (a) The Company has several non-cancelable lease and purchase obligations primarily for general office...

  • Page 101
    ... "Dutch auction tender offer" that was previously announced on November 21, 2012. Under the terms of the offer, the Company repurchased an aggregate of 4,114,437 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...

  • Page 102
    ... customers accounted for 35% of accounts receivable. (b) The following is a summary of the Company's cost of revenues from each significant revenue stream: Year ended December 31, 2011 2010 2012 Wholesale: Domain Services Value Added Services Total Wholesale Retail Portfolio Network, other costs...

  • Page 103
    ... and qualifying accounts: Charged to (recovered) costs and expenses Balance at beginning year Allowance for doubtful accounts, including provision for credit notes 2012 2011 2010 Valuation allowance for deferred tax asset: 2012 2011 2010 Write-offs during year Balance at end of year $ $ $ 62...

  • Page 104
    ...by 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 105
    ... 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 106
    ... Extension Presentation Management or compensatory contract required to be filed pursuant to Item 15(c) of the requirements for Form 10-K reports. Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of...

  • Page 107
    ... thereunto duly authorized. TUCOWS INC. By: /s/ ELLIOT NOSS Name: Elliot Noss Title: Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons of behalf of the registrant and in the capacities...

  • Page 108
    ... REGISTRAR Registrar and Transfer Company 10 Commerce Drive Cranford, NJ USA 07016 1-800-368-5948 INDEPENDENT ACCOUNTANTS KPMG LLP Toronto, Canada OTHER FINANCIAL INFORMATION Requests for Company information and other shareholder inquiries should be directed to: TUCOWS INVESTOR RELATIONS Attention...