Tucows Reports Results for Fourth Quarter

Company reports fifth consecutive quarter of positive cash flow from operations

Summary Financial Results

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

  Three months ended
December 31, 2002
Three months ended
December 31, 2001
Year ended
December 31, 2002
Year ended
December 31, 2001
Net Revenue $8,760 $9,810 $37,046 $31,590
Net Income (Loss) 1,385 (2,687) 1,867 (13,413)
Net Income (Loss)/Share 0.02 (0.04) 0.03 (0.24)
Cash Flow from Operations 410 362 3,438 (6,064)

TORONTO, CANADA, February 12, 2003 – Tucows Inc. (OTCBB: TCOW), a leading provider of outsourced Internet services to ISPs and web hosting companies worldwide, today reported its results for the fourth quarter and year ended December 31, 2002. The Company demonstrated strong operational and financial performance for both the quarter and year ended December 31, 2002, achieving:

For the quarter ended December 31, 2002:

  • net revenue of $8.8 million;
  • positive cash flow from operations of $410,000; and
  • net income of $1.4 million.

For the year ended December 31, 2002:

  • year-over-year revenue growth of 17%;
  • year-over-year deferred revenue growth of 7%;
  • positive cash flow from operations of $3.4 million; and
  • net income of $1.9 million.

“The fourth quarter marked a solid finish to a year in which our operational successes and financial discipline resulted in strong revenue growth and positive operating cash flow,” said Elliot Noss, president and chief executive officer, Tucows Inc. “Tucows has built a recognized and trusted brand in doing what we do best – simplifying complex business processes and managing data for ISPs and web hosting companies. Having achieved our short-term financial goals and strengthened our balance sheet, we are now focused on leveraging our business model to provide our customers with additional high value service offerings and to deliver sustained profitability and value for our shareholders.”

For the fourth quarter of fiscal 2002, net revenue was $8.8 million compared to $8.0 million (excluding $1.8 million in revenue from products and services that were disposed of in fiscal 2002), for the fourth quarter of fiscal 2001.

Net income (on a U.S. GAAP basis) for the quarter was $1.4 million, or $0.02 per share, compared to a net loss of $2.7 million, or a net loss of $0.04 per share, for the same quarter last year. Net income for the current quarter includes $1.1 million ($1.8 million for the year), being a gain on the disposition of eLibrary subscription assets, as well as a gain of $140,000 (net loss of $260,000 for the year) due to the change in fair value of forward contracts.

For the year ended December 31, 2002, revenue was $37.0 million, an increase of 17% from $31.6 million for the year ended December 31, 2001. Net income (on a U.S. GAAP basis) for fiscal 2002 was $1.9 million, or $0.03 per share, compared to a net loss of $13.4 million, or a net loss of $0.24 per share, for fiscal 2001.

Deferred revenue at December 31, 2002, was $24.4 million, an increase of 7% from $22.7 million at December 31, 2001 (which included deferred revenue of $2.4 million from lines of business that were disposed of in fiscal 2002); relatively unchanged from $24.2 million at the end of the third quarter of fiscal 2002.

Cash and restricted cash at the end of the fiscal year increased to $9.8 million from $8.5 million at the end of the third quarter of this year. This increase in cash and restricted cash is primarily the result of positive cash flow from operations of $410,000 and proceeds from the disposal of eLibrary subscription assets of approximately $1.1 million for the quarter ($1.8 million for the year).

Domain names registered, renewed and transferred-in for the fourth quarter totaled approximately 661,000. Total active domain names under management at the end of the fourth quarter increased by approximately 82,000 to 3.43 million.

Conference Call

Tucows will host a conference call on Wednesday, February 12, 2003, at 5:00 p.m. (ET) to discuss its fourth quarter and year-end 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 1361879. The telephone replay will be available until Wednesday, February 19, 2003, 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 domain name registration services for generic and country code top-level domains (TLDs), plus digital certificates and email services. Tucows also distributes software and other digital content through its integrated network of affiliates 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 include statements regarding 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)
December 31, 2002
December 31, 2001
Assets
Current assets:
Cash and cash equivalents $ 8,844,829 $ 4,814,189
Restricted cash (note 1) 937,500 -
Accounts receivable 338,697 817,990
Prepaid expenses and deposits 1,951,086 2,041,927
Prepaid domain name registry fees, current portion 11,145,187
10,034,413
Total current assets 23,217,299 17,708,519
Prepaid domain name registry fees, long term portion 3,700,340 2,599,962
Property and equipment 1,581,321 3,691,390
Investments 353,737 1,367,072
Intangible assets - 222,222
Total assets $
28,852,697
$
25,589,165
Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts payable $ 1,605,630 $ 1,958,744
Accrued liabilities 2,288,412 2,242,858
Customer deposits 1,957,657 1,951,336
Obligations under capital lease, current portion - 58,772
Deferred revenue, current portion 18,431,100
18,444,280
Total current liabilities 24,282,799 24,655,990
Deferred revenue, long term portion 5,929,917 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 December 31, 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 (183,297) (346,000)
Deficit (59,709,538)
(61,576,369)
Total stockholders’ deficiency (1,360,019)
(3,389,553)
Total liabilities and stockholders’ deficiency $ $28,852,697
$ 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 $937,500 is reflected as restricted cash on the balance sheet.


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

Three months ended
December 31,
Year ended
December 31,
2002
2001
2002
2001
Net revenues $ 8,760,374 $ 9,809,800 $ 37,046,375 $ 31,589,759
Cost of revenues 5,462,628
6,605,707
23,107,871
21,105,790
Gross profit 3,297,746 3,204,093 13,938,504 10,483,969
Operating expenses:
Sales and marketing (*) 939,062 1,087,377 3,770,913 6,380,102
Technical operations and development 842,196 998,495 3,725,966 5,052,569
General and administrative(*) 1,032,431 1,162,881 4,263,025 4,012,969
Depreciation of property and equipment 402,249 740,906 2,675,836 3,202,948
Loss on write-off of property and equipment - 130,000 - 130,000
Amortization of intangible assets - 467,700 222,222 3,656,846
Write-down of intangible assets - 1,325,378 - 1,325,378
(Gain) loss on change in fair value of forward
contracts
(140,199)

260,289

Total operating expenses 3,075,739
5,912,737
14,918,251
23,760,812
Income (loss) from operations 222,007 (2,708,644) (979,747) (13,276,843)
Other income (expenses)
Interest income (expense), net 41,893 21,264 102,057 (135,920)
Gain on disposal of Electric Library
subscription assets
1,121,480 - 1,846,717 -
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)
1,163,373

21,264

2,846,578

(135,920)
Income (loss) before provision for income taxes 1,385,380 (2,687,380) 1,866,831 (13,412,763)
Provision for income taxes - - - -
Net income (loss) for the period $ 1,385,380
$ (2,687,380)
$ 1,866,831
$ (13,412,763)
Basic and diluted earnings (loss) per share $ 0.02 $ (0.04) $ 0.03 $ (0.24)
Shares used in computing basic and diluted
earnings (loss) per common share
64,626,429
64,626,429
64,626,429
56,152,735
(*) Stock-based compensation has been included in operating expenses as follows:
Sales and marketing $ 27,708 $ 27,708 $ 109,926 $ 109,926
General and administrative $ 13,303 $ 13,304 $ 52,777 $ 52,778


Tucows Inc.

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

Three months ended
December 31,
Year ended
December 31,
2002
2001
2002
2001
Cash provided by (used in):
Operating activities:
Net Income (loss) for the period $ 1,385,380 $ (2,687,380) $ 1,866,831 $ (13,412,763)
Items not involving cash: - -
Depreciation of property and equipment 402,249 740,906 2,675,836 3,202,948
Amortization of intangible assets - 467,700 222,222 3,656,846
(Gain) loss on change in fair

value of forward contracts
(140,199) - 260,289 -
Write-down of intangible assets 1,325,378 - 1,325,378
Loss on write-off of property and

equipment
130,000 - 130,000

Write down of investment in bigchalk.com

- 1,013,335 -
Stock-based compensation 41,011 41,012 162,703 162,704
Gain on disposal of Electric

Library subscription assets
(1,121,480) - (1,846,717) -
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 35,338 782,508 306,951 57,847
Prepaid expenses and deposits (314,026) (176,546) (80,272) (633,035)
Prepaid domain name registry fees (167,032) (459,092) (2,488,384) (3,176,290)
Accounts payable 356,274 620 (15,669) (1,235,193)
Accrued liabilities (125,796) (667,881) (479,898) (1,851,638)
Customer deposits (63,540) (579,812) 20,915 (198,850)
Deferred revenue 121,993 1,444,192 3,731,415 5,908,326
Cash provided by (used in)

operating activities


410,172

361,605

3,438,418

(6,063,720)
Financing activities:
Proceeds on issuance of promissory notes - - 2,500,000
Repayment of promissory note - - (2,500,000)
Proceeds on rights issue - - - 2,999,973
Proceeds recieved on exercise

of stock options
- - 24,396
Repayments of obligations
under
capital leases
- (18,953) (111,160) (24,774)
Cash provided by (used in)

financing activities

-

(18,953)

(111,160)


2,999,595

Investing activities:
Additions to property and equipment (235,741) (563,051) (844,508) (2,871,575)
Increase in restricted cash- being margin

security against forward exchange

contracts
127,250 - (937,500) -
Net proceeds on disposal of Electric Library

subscription assets
1,121,480 - 1,577,129 -
Investment in Afilias Limited - - - (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
Cash provided by (used in) investing

activities

1,012,989
(563,051)
703,382

5,708,119

Increase in cash and cash equivalents 1,423,161 (220,399) 4,030,640 2,643,994
Cash and cash equivalents, beginning of

period
7,421,668 5,034,588 4,814,189 2,170,195
Cash and cash equivalents, end of period $
8,844,829
$
4,814,189
$
8,844,829
$
4,814,189
Supplemental cash flow information:
Interest paid $ 1,081 $ 39,968 $ 25,013 $ 221,368
Supplemental disclosure of non-cash investing
and financing activities:
Common stock issued on the

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

outstanding option on acquisition of

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

Electric Library subscription assets
$ - $ - $ 1,121,480 $ -
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