Tucows Reports Continued Strong Financial and Operating Results for Third Quarter Fiscal 2002

Company reports cash flow from operations of $1.2 million for the third quarter

Summary Financial Results
Tucows Inc.
(Numbers in Thousands, Except Per Share Data)

Three months ended Sept. 30/02 Three months ended Sept. 30/01 Nine months ended Sept. 30/02 Nine months ended Sept. 30/01
Revenue $8,879 $8,201 $ 28,286 $21,780
Net Income (Loss) 596 (3,688) 481 (10,725)
Net Income (Loss)/Share 0.01 (0.07) 0.01 (0.20)
Operating Cash Flow

1,190 (2,093) 3,028 (6,425)

TORONTO, CANADA, November 13, 2002 – Tucows Inc. (OTCBB: TCOW), a leading provider of outsourced Internet services to ISPs and web hosting companies worldwide, today reported its results for the third quarter of fiscal 2002, ended September 30, 2002. The Company continued its strong operational and financial performance, achieving:

  • year-over-year revenue growth of 8%;
  • year-over-year deferred revenue growth of 14%;
  • record cash flow from operations of $1.2 million; and,
  • net income of $596,000.

“In what is historically the weakest quarter of the year for the domain name industry, we believe that Tucows continued to execute well both operationally and financially,” said Elliot Noss, president and chief executive officer, Tucows Inc. “We are particularly pleased to report record cash flow from operations of $1.2 million for the quarter, which we attribute to efficiently managing our operations and controlling our expenses.”

Revenue for the third quarter of fiscal 2002 was $8.9 million, an increase of 8% from $8.2 million for the third quarter of fiscal 2001. Net income for the quarter was $596,000, or $0.01 per share, compared to a net loss of $3.7 million, or $0.07 per share, for the same quarter of last year. Included in net income for the third quarter of fiscal 2002 were the following: a gain of approximately $725,000 realized on the sale of the Company’s search and reference services, eLibrary and Encyclopedia.com (eLibrary); a foreign exchange loss of approximately $530,000 resulting from the change in the fair value of the foreign exchange forward contracts purchased in June 2002 to hedge a portion of our Canadian dollar exposure; and a tax refund of approximately $197,000 resulting from a change in state tax calculation methodology.

Deferred revenue at the end of the third quarter was $24.2 million, an increase of 14% from $21.3 million at the end of the third quarter of fiscal 2001, and a marginal decrease from $24.4 million at the end of the second quarter of this year. This marginal decrease is the result of the reversal of deferred revenue associated with the sale of eLibrary. On a continuing operations basis, deferred revenue in the third quarter increased by 3% compared to the second quarter.

Cash and restricted cash at the end of the third quarter increased to $8.5 million from $7.1 million at the end of the second quarter of this year. This increase in cash and restricted cash is primarily the result of the positive cash flow from operations of $1.2 million during the quarter. Subsequent to the end of the quarter, the Company received payment of the promissory note of approximately $1.1 million relating to the sale of eLibrary assets, reflected on the attached Consolidated Balance Sheet.

For the first nine months of fiscal 2002, revenue was $28.3 million, an increase of 30% from $21.8 million for the first nine months of fiscal 2001. Net income for the nine-month period was $481,000 compared to a net loss of $10.7 million for the same period of last year.

Domain names registered, renewed and transferred-in for the third quarter totaled approximately 690,000. Total active domain names under management at the end of the third quarter increased by approximately 77,000 to 3.34 million.

“By repeatedly achieving our operational and financial objectives, we believe we have built a sustainable business model that is now generating positive cash flow on a consistent basis. We are committed to leveraging this business model as well as our solid reputation and strong customer base to deliver additional service offerings, revenue and earnings growth, and value for our shareholders.”

Conference Call

Tucows will host a conference call on Wednesday, November 13, 2002, at 5:00 p.m. (ET) to discuss its third quarter fiscal 2002 results. Participants can access the conference call via the Internet at www.tucows.com by clicking on “About Tucows” and then on “Investor Relations.”

For those unable to participate in the conference call at the scheduled time, it will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 416-695-5800 or 1-800-408-3053 and enter the pass code 1295249. The telephone replay will be available until Wednesday, November 20, 2002, at midnight. To access the archived conference call via the Internet, go to www.tucows.com and click on “About Tucows” and then on “Investor Relations.”

About Tucows

Tucows Inc. is a leading provider of outsourced Internet services to ISPs and web hosting companies worldwide. An ICANN-accredited registrar, Tucows provides outsourced domain name registrations for generic and country code top-level domains (TLDs), plus digital certificates. Tucows also distributes software and other digital content through its integrated network of partners and offers more than 30,000 software titles in libraries located around the world. For more information, please visit: http://www.tucows.com.

Contact:
Joanna Becket
Investor Relations
Tucows Inc.

416-538-5442
ir@tucows.com


This news release contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward-looking statements may include statements regarding, for example, the growth of the domain name market, the continued growth and success of Tucows’ business, the ability to further develop and achieve commercial success for the company’s business strategy and the deployment of the company’s resources. Such statements are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. More information about potential factors that could affect Tucows is included in the Risk Factors sections of Tucows’ filings with the Securities and Exchange Commission. All forward-looking statements included in this document are based on information available to Tucows as of the date of this document, and Tucows assumes no obligation to update such forward-looking statements.

TUCOWS is a registered trademark of Tucows Inc. or its subsidiaries. All other trademarks and service marks are the properties of their respective owners.

Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows


Tucows Inc.

Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
September 30, 2002
(unaudited)
December 31, 2001

Assets
Current assets:
Cash and cash equivalents $ 7,421,668 $ 4,814,189
Restricted cash (note 1) 839,750 -
Accounts receivable 374,035 817,990

Promissory note, secured and bearing

interest at the rate of 6% per annum

due on October 31, 2002
1,121,480 -
Prepaid expenses and deposits 1,637,059 2,041,927
Prepaid domain name registry fees, current portion 11,146,638
10,034,413
Total current assets 22,540,630 17,708,519
Restricted cash (note 1) 225,000
Prepaid domain name registry fees, long term portion 3,531,857 2,599,962
Property and equipment 1,747,828 3,691,390
Investments 353,737 1,367,072
Intangible assets - 222,222
Total assets $
28,399,052
$
25,589,165
Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts payable $ 1,249,357 1,958,744
Accrued liabilities 2,554,406 2,242,858
Customer deposits 2,021,196 1,951,336
Obligations under capital lease, current portion - 58,772
Deferred revenue, current portion 18,494,147 18,444,280
Deferred gain on disposition of Electric

Library subscription assets
1,121,480
-
Total current liabilities 25,440,586 24,655,990
Deferred revenue, long term portion 5,744,877 4,270,341
Obligations under capital lease, net of current portion - 52,387
Stockholders’ deficiency:
Preferred stock – no par value, 1,250,000 shares
authorized; none issued and outstanding
- -
Common stock – no par value, 250,000,000 shares

authorized; 64,626,429 shares issued and

outstanding at September 30, 2002 and

December 31, 2001
8,540,687 8,540,687
Additional Paid-in Capital 49,992,129 49,992,129
Deferred stock–based compensation (224,309) (346,000)
Deficit (61,094,918)
(61,576,369)
Total stockholders’ deficiency (2,786,411)
(3,389,553)
Total liabilities and stockholders’ deficiency $ $28,399,052
$ 25,589,165
Note 1:
The Company has entered into a series of forward exchange contracts, whereby an amount of
U.S.$375,000 is converted into Canadian dollars on a semi-monthly basis from June 2002 until the end of
December 2003. As margin security against these Contracts, the Company placed $1,196,000 into
secured term deposits, which mature on a monthly basis in line with the Contracts. The outstanding margin
security in the amount of $1,064,750 is reflected as restricted cash on the balance sheet.


Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
(unaudited)

Three months ended
September 30,
Nine months ended
September 30,
2002
2001
2002
2001
Net revenues $ 8,879,281 $ 8,200,917 $ 28,286,001 $ 21,779,959
Cost of revenues 5,413,730
5,929,612
17,645,243
14,500,083
Gross profit 3,465,551 2,271,305 10,640,758 7,279,876
Operating expenses:
Sales and marketing (*) 926,098 1,522,296 2,831,851 5,292,725
Technical operations and development 866,061 1,411,193 2,883,770 4,054,074
General and administrative(*) 914,248 912,277 3,230,594 2,850,088
Depreciation of property and equipment 378,913 631,024 2,273,587 2,462,042
Amortization of intangible assets - 1,325,700 222,222 3,189,146
(Gain) loss on change in fair value
of forward contracts
530,381

400,488

Total operating expenses 3,615,701
5,802,490
11,842,512
17,848,075
Loss from operations (150,150) (3,531,185) (1,201,754) (10,568,199)
Other income (expenses)
Interest income (expense), net 21,299 (156,428) 60,164 (157,184)
Gain on disposal of Electric Library
subscription assets
725,237 - 725,237 -
Gain on disposal of Liberty Registry
Management Services Inc.
- - 1,955,443 -
Loss on disposal of Eklektix Inc. - - (44,304) -
Write down of investment in bigchalk.com - - (1,013,335) -
Total other income (expenses)
746,536

(156,428)

1,683,205


(157,184)
Income (loss) before provision for income taxes 596,386 (3,687,613) 481,451 (10,725,383)
Provision for income taxes - - - -
Net income (loss) for the period $ 596,386
$ (3,687,613)
$ 481,451
$ (10,725,383)
Basic and diluted earnings (loss) per share $ 0.01
$ (0.07)
$ 0.01
$ (0.20)
Shares used in computing basic and diluted earnings (loss) per common share 64,626,429
56,574,253
64,626,429
53,297,131
(*) Stock-based compensation has been included in operating expenses as follows:
Sales and marketing $ 27,707 $ 27,707 $ 82,218 $ 82,218
General and administrative $ 13,302 $ 13,303 $ 39,474 $ 39,474


Tucows Inc.

Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
(unaudited)

Three months ended
September 30,
Nine months ended
September30,
2002
2001
2002
2001
Cash provided by (used in):
Operating activities:
Net Income (loss)

for the period
$ 596,386 $ (3,687,613) $ 481,451 $ (10,725,383)
Items not involving cash:
Depreciation of property

and equipment
378,913 631,024 2,273,587 2,462,042
Amortization of intangible

assets
- 1,325,700 222,222 3,189,146
(Gain) loss on change in fair

value of forward contracts
530,381 - 400,488 -
Write down of investment in

bigchalk.com
- 1,013,335 -
Stock-based compensation 41,009 41,010 121,692 121,692
Gain on disposal of Electric

Library subscription assets

(725,237) - (725,237) -
Gain on disposal of Liberty
Registry Management
Services
Inc.
- - (1,955,443) -
Loss on write-off of

Eklektix Inc.
- - 44,304 -
Change in non-cash operating working capital:
Accounts receivable (51,270) (930,753) 271,613 (724,661)
Prepaid expenses and

deposits

296,718 258,292 233,754 (456,489)
Prepaid domain name

registry fees
(481,381) 491,973 (2,321,352) (2,717,198)
Accounts payable (192,794) (501,500) (371,943) (1,235,813)
Accrued liabilities 387,166 (1,868,244) (354,102) (1,183,757)
Customer deposits (224,762) 362,955 84,455 380,962
Deferred revenue 634,973 1,784,512 3,609,422 4,464,134
Cash provided by (used in)

operating activities


1,190,102


(2,092,644)



3,028,246


(6,425,325)
Financing activities:
Proceeds on issuance of

promissory notes
- 2,500,000 - 2,500,000
Repayment of promissory note - (2,500,000) - (2,500,000)
Proceeds on rights issue - - - 2,999,973
Loans payable - (3,800,000) - -
Proceeds recieved on exercise

of stock options
- - - 24,396
Repayments of obligations

under capital leases
(65,588) (5,821) (111,160) (5,821)
Cash provided by (used in)

financing activities


(65,588)


(3,805,821)


(111,160)


3,018,548
Investing activities:
Additions to property and

equipment
(160,710) (337,310) (608,767) (2,308,524)
Decrease (Increase) in

restricted cash
- being margin

security against

forward exchange contracts

(note 1)
131,250 - (1,064,750) -
Net proceeds on disposal of

Electric Library

subscription assets
455,649 - 455,649 -
Investment in Afilias Limited - (158,031) - (253,737)
Proceeds on disposal of

Liberty Registry
Management Services Inc.,

net of cash disposed
- - 938,889 -
Proceeds on disposal of

Eklektix Inc.,

net of cash disposed
- - (30,628) -
Aquisition of Infonautics Inc.,
net of cash acquired
- 8,833,431 - 8,833,431
Deferred acquisition costs - 313,098 - -
Cash provided by (used in)

investing activities


426,189


8,651,188


(309,607)


6,271,170
Increase in cash and cash equivalents 1,550,703 2,752,723 2,607,479 2,864,393
Cash and cash equivalents, beginning of period 5,870,965 2,281,865 4,814,189 2,170,195
Cash and cash equivalents, end of period $

7,421,668
$

5,034,588
$

7,421,668
$

5,034,588
Supplemental cash flow information:
Interest paid $ 12,304 $ 143,736 $ 23,932 $ 181,400
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued on the

acquisition of Infonautics, Inc.
$ - $ 8,489,000 $ - $ 8,489,000
Value assigned to Infonautics,

Inc. outstanding option on

acquisition of Infonautics, Inc.
- 44,000 - 44,000
Promissory note receivable on

disposal of Electric Library

subscription assets
1,121,480 - 1,121,480 -
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