Tucows 2015 Annual Report Download - page 40

Our business may be adversely affected if our internal controls are not effective.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal
control over financial reporting as of the end of each year, and to include a management report assessing the
effectiveness of our internal control over financial reporting in each Annual Report on Form 10-K. Our management,
including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over
financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the controls. Over time, controls may become inadequate because
changes in conditions or deterioration in the degree of compliance with policies or procedures may occur.
Implementation of new technology related to the control system may result in misstatements due to errors that are not
detected and corrected during testing. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be detected.
As a result, we cannot assure you that material weaknesses in our internal control over financial reporting will
not be identified in the future. Any failure to maintain or implement required new or improved controls, or any
difficulties we encounter in their implementation, could result in material weaknesses, cause us to fail to timely meet
our periodic reporting obligations, or result in material misstatements in our financial statements. Any such failure
could also adversely affect the results of periodic management evaluations regarding disclosure controls and the
effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of
2002 and the rules proclaimed after that. The existence of a material weakness could result in errors in our financial
statements that could result in a restatement of financial statements, cause us to fail to 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.
Impairment of goodwill and other intangible assets would result in a decrease in earnings.
Current accounting rules require that goodwill and other intangible assets with indefinite useful lives are not
amortized, but instead must be tested for impairment at least annually. These rules also require that intangible assets with
definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. To the extent such evaluation indicates that the useful lives of intangible assets are different than
originally estimated, the amortization period is reduced or extended and, accordingly, the quarterly amortization expense is
increased or decreased. We have substantial goodwill and other intangible assets, and we would be required to record a
significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or
intangible assets is determined. Any impairment charges or changes to the estimated amortization periods could have a
material adverse effect on our financial results.
We could suffer uninsured losses.
Although we maintain general liability insurance, claims could exceed the coverage obtained or might not be
covered by our insurance. While we typically obtain representations from our technology and content providers and
contractual partners concerning the ownership of licensed technology and informational content and obtain indemnification
to cover any breach of these representations, we still may not receive accurate representations or adequate compensation
for any breach of these representations. We may have to pay a substantial amount of money for claims that are not covered
by insurance or indemnification or for claims where the existing scope or adequacy of insurance or indemnification is
disputed or insufficient.
Difficult economic and financial conditions could have a material adverse effect on us.
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