Tucows Reports Strong Financial and Operational Results for Second Quarter Fiscal 2002

Company reports first quarterly operating profit

TORONTO, CANADA, August 7, 2002 – Tucows Inc. (OTCBB: TCOW), a leading provider of Internet services to ISPs and Web hosting companies worldwide, today reported its results for the second quarter of fiscal 2002, ended June 30, 2002. The Company continued its strong operational and financial performance, achieving:

  • record revenue from domain name registrations;
  • record deferred revenue of $24.4 million;
  • its third consecutive quarter of positive operating cash flow;
  • its first quarterly operating profit; and,
  • a record number of domain name registrations.

“Tucows continued to execute well both financially and operationally in the second quarter of fiscal 2002,” said Elliot Noss, president and chief executive officer, Tucows Inc. “We continued to grow in both domain name registrations and revenue from registrations; we strengthened our balance sheet; and we reached our stated goal of being profitable from operations two quarters ahead of schedule.”

Revenue for the second quarter of fiscal 2002 was $9.5 million, an increase of 32% from $7.2 million for the same quarter of fiscal 2001. Operating income for the second quarter was $112,000 compared to an operating loss of $3.7 million for the same quarter of fiscal 2001. Tucows generated $1.1 million in cash flow from operations during the quarter. Tucows reported a net loss for the quarter of $881,000, or $0.01 per share, due to a non-cash and non-recurring charge of $1.0 million resulting from Tucows’ assessment that a decline has occurred in the carrying value of its investment in bigchalk.com, inc.

For the first six months of fiscal 2002, revenue increased by 43% to $19.4 million from $13.6 million for the first six months of fiscal 2001. Net operating loss for the six-month period narrowed significantly to $115,000 from $7.0 million for the same period of fiscal 2001.

Deferred revenue at the end of the second quarter was a record $24.4 million, an increase of 32% from $18.5 million at the end of the second quarter of fiscal 2001 and an increase of 6% from $22.9 million at the end of the first quarter of fiscal 2002.

Cash and restricted cash at the end of the second quarter increased to $7.1 million from $6.2 million at the end of the first quarter. This increase in liquidity resulted primarily from Tucows generating $1.1 million in cash flow from operations during the quarter.

Domain names directly registered, renewed and transferred-in for the second quarter totaled approximately 740,000 (excludes approximately 208,000 indirect registrations), a total that marked a pattern of ongoing growth. Total active domain names under management at the end of the second quarter increased to more than 3.3 million (excluding approximately 734,000 indirect registrations).

“The second quarter was very successful competitively for Tucows as we achieved a record number of registration transactions, maintained our market share and solidified our position as the second largest domain name registrar,” Mr. Noss continued. “Our past efforts have focused on building a sound, sustainable business model – providing Internet services to our particular market segment. Moving forward, we are committed to leveraging our platform for additional service offerings, driving revenue and earnings growth, and building value for our shareholders.”

Conference Call

Tucows will host a conference call on Wednesday, August 7, 2002 at 5:00 p.m. (ET) to discuss its second quarter 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 1233766. The telephone replay will be available until Wednesday, August 14, 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 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 web certificates. Tucows also distributes software and other digital content through its integrated network of resellers. Tucows offers more than 30,000 software titles in libraries located around the world and operates search and reference media sites including eLibrary, Encyclopedia.com, and NewsDirectory.com. 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)
   
June 30, 2002
(unaudited)
        
December 31, 2001
      Assets
Current assets:
  Cash and cash equivalents $ 5,870,965  $ 4,814,189 
  Restricted cash (note 1) $ 746,000  $
Accounts receivable, net of allowance for doubtful accounts of $363,579 at June 30, 2002
and $276,579 at December 31, 2001
  322,203    817,990 
  Prepaid expenses and deposits   2,095,362    2,041,927 
  Prepaid domain name registry fees, current portion   10,889,447 
  10,034,413 
      Total current assets   19,923,977    17,708,519 
         
Restricted cash (note 1)   450,000   
Prepaid domain name registry fees, long term portion   3,307,667    2,599,962 
Property and equipment   2,098,427    3,691,390 
Intangible assets     222,222 
Investments   353,737 
  1,367,072 
Total assets $ 26,133,808 
$ 25,589,165 
     
      Liabilities and Stockholders’ Deficiency
Current liabilities:
  Accounts payable $ 1,442,150    1,958,744 
  Accrued liabilities   1,382,786     2,242,858 
  Customer deposits   2,245,958    1,951,336 
  Obligations under capital lease   27,495    58,772 
  Deferred revenue, current portion   18,925,874 
  18,444,280 
      Total current liabilities   24,024,263    24,655,990 
Deferred revenue, long term portion   5,495,257    4,270,341 
Obligations under capital lease, net of current portion   38,093    52,387 
  Capital stock   58,532,816    58,532,816 
  Deferred stock–based compensation   (265,318)   (346,000)
  Deficit   (61,691,303)
  (61,576,369)
      Total stockholders’ deficiency   (3,423,805)
  (3,389,553)
 
Total liabilities and stockholders’ deficiency $ 26,133,808 
$ 25,589,165 
 
Note 1:
The Company has entered into a series of forward foreign 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 has placed $1,196,000 into secured term deposits, which mature on a monthly basis in line with the Contracts. The margin security in the amount of $1,196,000 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
June 30,
Six months ended
June 30,
 
2002
2001
2002
2001
Net revenues   $ 9,480,187    $ 7,187,394    $ 19,406,720    $ 13,579,042 
Cost of revenues   5,636,988 
  4,653,170 
  12,231,513 
  8,570,470 
Gross profit   3,843,199    2,534,224    7,175,207    5,008,572 
Operating expenses:
  Sales and marketing (*)   800,897    1,819,352    1,905,753    3,770,430 
  Technical operations and development   958,780    1,396,797    2,017,709    2,642,881 
  General and administrative(*)   1,151,621    1,093,453    2,186,453    1,937,812 
  Depreciation of property and equipment   764,576    966,063    1,894,674    1,831,018 
  Amortization of intangible assets   55,556 
  937,586 
  222,222 
  1,863,446 
      Total operating expenses   3,731,430 
  6,213,251 
  8,226,811 
  12,045,587 
   
Income (loss) from operations   111,769    (3,679,027)   (1,051,604)   (7,037,015)
 
Other Income (expenses)  
   Interest income   21,019    (27,193)   38,865    (756)
   Write down of investment in bigchalk.com   (1,013,335)   -   (1,013,335)   -
   
   Gain on disposal of Liberty Registry Management Services Inc.   -   -   1,955,443    -
   Loss on disposal of Eklektix Inc.   -
  -
  (44,304)
  -
    (992,316)
  (27,193)
  936,669
  (756)
   
Loss before provision for income taxes   (880,547)   (3,706,220)   (114,935)   (7,037,771)
Provision for income taxes   -   -   -   -
         
Net loss for the period   $ (880,547)
  $ (3,706,220)
  $ (114,935)
  $ (7,037,771)
   
Basic and diluted loss per share   $ (0.01)
  $ (0.86)
  $ (0.00)
  $ (1.64)
   
Shares used in computing basic and diluted loss per common share   $ 64,626,429 
  $ 4,291,500 
  $ 64,626,429 
  $ 4,291,500 
 
 
(*) Stock-based compensation has been included in operating expenses as follows:
    Sales and marketing   $ 27,406    $ 27,406    $ 54,511    $ 54,511 
    General and administrative   $ 13,159    $ 13,159    $ 26,172    $ 26,172 


Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
(unaudited)
  Three months ended
June 30,
Six months ended
June 30,
 
2002
2001
2002
2001
Cash provided by (used in):  
Operating activities:  
   Net Loss for the period   $ (880,547)   $ (3,706,220)   $ (114,935)   $ (7,037,771)
   Items not involving cash:  
      Depreciation of property and equipment   764,576    966,063    1,894,674    1,831,018 
      Amortization of intangible assets   55,556    937,586    222,222    1,863,446 

      Write down of investment in bigchalk.com

  1,013,335      1,013,335    -  
      Stock-based compensation   40,565    40,565    80,683    80,683 

      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   115,049    62,989    322,883    206,093 
   Prepaid expenses and deposits   (221,508)   (271,661)   (192,858)   (714,781)
   Prepaid domain name registry fees   (935,607)   (964,264)   (1,839,971)   (3,209,171)
   Accounts payable   (134,651)   290,409    (179,149)   (734,313)
   Accrued liabilities   (396,762)   86,533    (741,268)   684,487 
   Customer deposits   236,021    130,170    309,217    18,007 
   Deferred revenue   1,476,004 
  740,798 
  2,974,449 
  2,679,622 
  Cash provided by (used in) operating activities   1,132,031 
  (1,687,032)
  1,838,143 
  (4,332,680)
Financing activities:  
   Proceeds on rights issue   -   -   -   3,024,369 
   Loans payable   -   3,800,000    -   3,800,000 
   Repayments of obligations under capital leases   (25,795)
  -
  (45,571)
  -
   Cash provided by (used in) financing activities   (25,795)
  3,800,000 
  (45,571)
  6,824,369 
 
Investing activities:  
    Additions to property and equipment   (242,683)   (816,455)   (448,057)   (1,971,214)
    Increase in restricted cash – being margin

    security against forward exchange
    contracts (note 1)

  (1,196,000)   -   (1,196,000)   -
    Investment in Afilias Limited   -   (95,706)   -   (95,706)
    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)   -
    Deferred acquisition costs   -
  -
  -
  (313,098)
    Cash provided by (used in)

    investing activities
  (1,438,683)
  (912,161)
  (735,796)
  (2,380,018)
   
Increase (decrease) in cash and cash equivalents   (332,447)   1,200,807    1,056,776    111,671 
Cash and cash equivalents, beginning of period   $ 6,203,412 
  $ 1,081,058 
  $ 4,814,189 
  $ 2,170,194 
Cash and cash equivalents, end of period (inclusive of restricted cash)   $ 5,870,965 
  $ 2,281,865 
  $ 5,870,965 
  $ 2,281,865 
   
Supplemental cash flow information:  
       Interest paid   $ 7,130 
  $ 37,361 
  $ 11,628 
  $ 37,664 
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