Company Quick10K Filing
Tucows
Price54.57 EPS1
Shares11 P/E42
MCap589 P/FCF22
Net Debt94 EBIT21
TEV683 TEV/EBIT32
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-03-04
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-03-05
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-06
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-03-08
10-Q 2016-09-30 Filed 2016-11-08
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-10
10-K 2015-12-31 Filed 2016-03-09
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-08
10-K 2014-12-31 Filed 2015-03-11
10-Q 2014-09-30 Filed 2014-11-12
10-Q 2014-06-30 Filed 2014-08-13
10-Q 2014-03-31 Filed 2014-05-14
10-K 2013-12-31 Filed 2014-03-18
10-Q 2013-09-30 Filed 2013-11-13
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-03-15
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-11
10-K 2011-12-31 Filed 2012-03-16
10-Q 2011-09-30 Filed 2011-11-10
10-Q 2011-06-30 Filed 2011-08-11
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-22
10-Q 2010-09-30 Filed 2010-11-12
10-Q 2010-06-30 Filed 2010-08-13
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-22
8-K 2020-09-08 Shareholder Vote
8-K 2020-08-06 Earnings, Exhibits
8-K 2020-08-01 Enter Agreement, M&A, Regulation FD, Exhibits
8-K 2020-05-07
8-K 2020-02-12
8-K 2020-02-12
8-K 2019-11-27
8-K 2019-11-06
8-K 2019-09-09
8-K 2019-08-07
8-K 2019-07-02
8-K 2019-06-14
8-K 2019-05-31
8-K 2019-05-08
8-K 2019-03-18
8-K 2019-02-13
8-K 2019-02-13
8-K 2018-11-07
8-K 2018-09-04
8-K 2018-08-08
8-K 2018-05-09
8-K 2018-02-14
8-K 2018-02-14
8-K 2018-01-24
8-K 2018-01-05

TCX 10Q Quarterly Report

Item 1. Consolidated Financial Statements
EX-31.1 ex_189686.htm
EX-31.2 ex_189687.htm
EX-32.1 ex_189688.htm
EX-32.2 ex_189689.htm

Tucows Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
4203362521688402012201420172020
Assets, Equity
1008060402002012201420172020
Rev, G Profit, Net Income
804714-19-52-852012201420172020
Ops, Inv, Fin

tcx20191231_10k.htm
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to          

 

Commission file number 1-32600

 

TUCOWS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania

23-2707366

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

 

96 Mowat Avenue,

Toronto, Ontario M6K 3M1, Canada

(Address of Principal Executive Offices) (Zip Code)

 

(416) 535-0123

(Registrant's Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

TCX

 

NASDAQ

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T §232.405 of this chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☒

  

  

Non-accelerated filer ☐

Smaller reporting company 

  

  

 

Emerging Growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes  No ☒

 

As of August 4, 2020, there were 10,567,610 outstanding shares of common stock, no par value, of the registrant.

 

 

 

TUCOWS INC.

Form 10-Q Quarterly Report

INDEX

 

PART I

FINANCIAL INFORMATION

 

 

 

Item 1.

Consolidated Financial Statements

3

  

  

  

  

Consolidated Balance Sheets (unaudited) as of June 30, 2020 and December 31, 2019

3

  

  

  

  

Consolidated Statements of Operations and Comprehensive Income (unaudited) for the three and six months ended June 30, 2020 and 2019

4

  

  

  

  

Consolidated Statements of Cash Flows (unaudited) for the three and six months ended June 30, 2020 and 2019

5

  

  

  

  

Notes to Consolidated Financial Statements (unaudited)

6

  

  

  

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

26

  

  

  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

  

  

  

Item 4.

Controls and Procedures

49

  

  

  

PART II

OTHER INFORMATION

  

  

  

Item 1.

Legal Proceedings

50

  

  

  

Item 1A.

Risk Factors

50

  

  

  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds 

    51

 

 

 

Item 3.

Defaults Upon Senior Securities

51

  

  

  

Item 4.

Mine Safety Disclosures

51

 

 

 

Item 5.

Other Information

51

  

  

  

Item 6.

Exhibits

51

  

  

  

Signatures

53


TRADEMARKS, TRADE NAMES AND SERVICE MARKS

 

Tucows®, EPAG®, Hover®, OpenSRS®, Platypus®, Ting®, eNom®, Roam®, Roam Mobility®, Bulkregister®, Ascio®, Cedar®, and YummyNames® are registered trademarks of Tucows Inc. or its subsidiaries. Other service marks, trademarks and trade names of Tucows Inc. or its subsidiaries may be used in this Quarterly Report on Form 10-Q (this “Quarterly Report”). All other service marks, trademarks and trade names referred to in this Quarterly Report are the property of their respective owners. Solely for convenience, any trademarks referred to in this Quarterly Report may appear without the ® or TM symbol, but such references are not intended to indicate, in any way, that we or the owner of such trademark, as applicable, will not assert, to the fullest extent under applicable law, our or its rights, or the right of the applicable licensor, to these trademarks.

 

 

 

PART I.    FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Tucows Inc.

Consolidated Balance Sheets

 

(Dollar amounts in thousands of U.S. dollars)

(unaudited)

 

  

June 30,

  

December 31,

 
  

2020

  

2019

 
         

Assets

        
         

Current assets:

        

Cash and cash equivalents

 $8,859  $20,393 

Accounts receivable, net of allowance for doubtful accounts of $214 as of June 30, 2020 and $131 as of December 31, 2019

  7,506   14,564 

Inventory

  965   3,457 

Prepaid expenses and deposits

  16,549   13,478 

Derivative instrument asset, current portion (note 5)

  1,080   731 

Prepaid domain name registry and ancillary services fees, current portion (note 12)

  96,322   91,252 

Assets held-for-sale (note 9)

  9,027   - 

Income taxes recoverable

  1,326   1,800 

Total current assets

  141,634   145,675 
         

Prepaid domain name registry and ancillary services fees, long-term portion (note 12)

  17,902   17,915 

Derivative instrument asset, long-term portion (note 5)

  611   - 

Deferred tax asset

  340   - 

Property and equipment

  101,292   82,121 

Right of use operating lease asset

  11,066   11,335 

Contract costs

  344   1,400 

Intangible assets (note 6)

  52,732   57,654 

Goodwill (note 6)

  116,270   109,818 

Total assets

 $442,191  $425,918 
         
         

Liabilities and Stockholders' Equity

        
         

Current liabilities:

        

Accounts payable

 $6,511  $6,671 

Accrued liabilities

  9,915   9,373 

Customer deposits

  14,468   14,074 

Derivative instrument liability, current portion (note 5)

  561   - 

Liabilities held-for-sale (note 9)

  751   - 

Operating lease liability, current portion (note 13)

  1,506   1,413 

Deferred revenue, current portion (note 11)

  129,072   123,101 

Accreditation fees payable, current portion

  1,018   952 

Income taxes payable

  1,291   1,324 

Total current liabilities

  165,093   156,908 
         

Derivative instrument liability, long-term portion (note 5)

  158   - 

Deferred revenue, long-term portion (note 11)

  26,228   26,202 

Accreditation fees payable, long-term portion

  204   216 

Operating lease liability, long-term portion (note 13)

  9,169   9,424 

Loan payable, long-term portion (note 7)

  113,608   113,503 

Other long-term liability (note 4 (b))

  3,244   - 

Deferred tax liability

  27,113   25,471 
         

Stockholders' equity (note 15)

        

Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding

  -   - 

Common stock - no par value, 250,000,000 shares authorized; 10,570,360 shares issued and outstanding as of June 30, 2020 and 10,585,159 shares issued and outstanding as of December 31, 2019

  18,865   16,633 

Additional paid-in capital

  591   880 

Retained earnings

  77,322   76,208 

Accumulated other comprehensive income (loss) (note 5)

  596   473 

Total stockholders' equity

  97,374   94,194 

Total liabilities and stockholders' equity

 $442,191  $425,918 
         

Contingencies (note 18)

          
         

Subsequent events (note 19)

        

 

See accompanying notes to consolidated financial statements 

 

 

 

Tucows Inc.

Consolidated Statements of Operations and Comprehensive Income

 

(Dollar amounts in thousands of U.S. dollars, except per share amounts) 

(unaudited)

 

  

For the Three Months Ended June 30,

  

For the Six Months Ended June 30,

 
  

2020

  

2019

  

2020

 

2019

 
                  
                  

Net revenues (note 11)

 $82,122  $84,117  $166,107   $163,070 
                  

Cost of revenues (note 11)

                 

Cost of revenues

  51,790   54,873   104,978    106,805 

Network expenses

  2,485   2,385   4,901    4,780 

Depreciation of property and equipment

  3,030   2,038   5,907    3,839 

Amortization of intangible assets (note 6)

  326   314   680    488 
Impairment of property and equipment  1,525   -   1,525    - 

Total cost of revenues

  59,156   59,610   117,991    115,912 
                  

Gross profit

  22,966   24,507   48,116    47,158 
                  

Expenses:

                 

Sales and marketing

  9,218   8,856   18,203    17,597 

Technical operations and development

  3,067   2,752   5,818    5,275 

General and administrative

  5,465   4,796   10,206    9,244 

Depreciation of property and equipment

  125   134   238    258 

Amortization of intangible assets (note 6)

  2,504   2,251   5,451    4,117 
Impairment of definite life intangible assets (note 6)  1,431   -   1,431    - 

Loss (gain) on currency forward contracts (note 5)

  (381)  (31)  60    (110)

Total expenses

  21,429   18,758   41,407    36,381 
                  

Income from operations

  1,537   5,749   6,709    10,777 
                  

Other income (expenses):

                 

Interest expense, net

  (846)  (1,314)  (1,996)   (2,286)

Other expense, net

  (85)  -   (172)   - 

Total other income (expenses)

  (931)  (1,314)  (2,168)   (2,286)
                  

Income before provision for income taxes

  606   4,435   4,541    8,491 
                  

Provision for income taxes (note 8)

  449   1,819   1,550    3,076 
                  

Net income for the period

  157   2,616   2,991    5,415 
                  

Other comprehensive income, net of tax

                 

Unrealized income (loss) on hedging activities (note 5)

  1,114   240   (120)   789 

Net amount reclassified to earnings (note 5)

  200   80   243    141 

Other comprehensive income net of tax expense of $398 and $103 for the three months ended June 30, 2020 and June 30, 2019, $32 and $298 for the six months ended June 30, 2020 and June 30, 2019 (note 5)

  1,314   320   123    930 
                  

Comprehensive income, net of tax for the period

 $1,471  $2,936  $3,114   $6,345 
                  
                  

Basic earnings per common share (note 10)

 $0.01  $0.25  $0.28   $0.51 
                  

Shares used in computing basic earnings per common share (note 10)

  10,567,382   10,657,124   10,589,806    10,646,045 
                  

Diluted earnings per common share (note 10)

 $0.01  $0.24  $0.28   $0.50 
                  

Shares used in computing diluted earnings per common share (note 10)

  10,653,527   10,840,005   10,684,304    10,837,456 


See accompanying notes to consolidated financial statements 

 

 

 

Tucows Inc.

Consolidated Statements of Cash Flows

 

(Dollar amounts in thousands of U.S. dollars) 

(unaudited)

 

  

For the Three Months Ended June 30,

  

For the Six Months Ended June 30,

 
  

2020

  

2019

  

2020

  

2019

 

Cash provided by:

                

Operating activities:

                

Net income for the period

 $157  $2,616  $2,991  $5,415 

Items not involving cash:

                

Depreciation of property and equipment

  3,155   2,172   6,145   4,097 

Impairment of property and equipment

  1,525   -   1,525   22 

Amortization of debt discount and issuance costs

  67   90   134   168 

Amortization of intangible assets

  2,830   2,565   6,131   4,605 

Net amortization contract costs

  95   34   124   53 
Impairment of definite life intangible assets  1,431   -   1,431   - 

Accretion of contingent consideration

  85   -   172   - 
Other  223   -   223   - 

Deferred income taxes (recovery)

  (917)  1,449   (1,107)  1,911 

Excess tax benefits on share-based compensation expense

  (164)  (381)  (344)  (737)

Net Right of use operating assets/Operating lease liability

  291   79   112   49 

Loss on disposal of domain names

  2   2   15   6 

Loss (gain) on change in the fair value of forward contracts

  (436)  (70)  (88)  (188)

Stock-based compensation

  847   685   1,648   1,210 

Change in non-cash operating working capital:

                

Accounts receivable

  401   1,031   2,552   (157)

Inventory

  900   108   1,804   516 

Prepaid expenses and deposits

  (3,247)  (2,524)  (3,222)  (2,914)

Prepaid domain name registry and ancillary services fees

  (2,204)  1,651   (5,057)  (65)

Income taxes recoverable

  294   (1,639)  794   (2,875)

Accounts payable

  (1,521)  (1,170)  250   (384)

Accrued liabilities

  2,165   2,266   334   3,587 

Customer deposits

  336   (808)  394   (521)

Deferred revenue

  2,655   (1,131)  5,997   2,138 

Accreditation fees payable

  (31)  (46)  54   34 

Net cash provided by operating activities

  8,939   6,979   23,012   15,970 
                 

Financing activities:

                

Proceeds received on exercise of stock options

  29   122   46   194 

Payment of tax obligations resulting from net exercise of stock options

  (165)  (185)  (347)  (524)

Repurchase of common stock

  (164)  -   (3,281)  - 

Proceeds received on loan payable

  -   7,431   -   40,371 

Repayment of loan payable

  -   (3)  -   (4,603)

Payment of loan payable costs

  (7)  (434)  (32)  (641)

Net cash (used in) provided by financing activities

  (307)  6,931   (3,614)  34,797 
                 

Investing activities:

                

Additions to property and equipment

  (12,150)  (10,414)  (22,093)  (20,849)
Acquisition of other assets  -   (2,501)  -   (2,501)

Acquisition of Cedar Holdings Group, net of cash of $66 (note 4(b))

  -   -   (8,770)  - 

Acquisition of Ascio Technologies, net of cash of $1 (note 4(a))

  -   -   -   (28,024)
Acquisition of intangible assets  (69)  (27)  (69)  (27)

Net cash used in investing activities

  (12,219)  (12,942)  (30,932)  (51,401)
                 

Increase (decrease) in cash and cash equivalents

  (3,587)  968   (11,534)  (634)
                 

Cash and cash equivalents, beginning of period

  12,446   11,035   20,393   12,637 

Cash and cash equivalents, end of period

 $8,859  $12,003  $8,859  $12,003 
                 
                 
                 

Supplemental cash flow information:

                

Interest paid

 $686  $1,318  $1,840  $2,294 

Income taxes paid, net

 $1,243  $2,046  $2,200  $4,164 

Supplementary disclosure of non-cash investing and financing activities:

                

Property and equipment acquired during the period not yet paid for

 $635  $674  $635  $674 

Fair value of shares issued for acquisition of Cedar Holdings Group

 $-  $-  $2,000  $- 

Fair value of contingent consideration for acquisition of Cedar Holdings Group

 $7  $-  $3,072  $- 

 

See accompanying notes to consolidated financial statements

 

 

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

 

 

1. Organization of the Company:

 

Tucows Inc. (referred to throughout this report as the “Company”, “Tucows”, “we”, “us” or through similar expressions) provides simple useful services that help people unlock the power of the Internet. The Company provides US consumers and small businesses with mobile phone services nationally and high-speed fixed Internet access in selected towns. The Company is also a global distributor of Internet services, including domain name registration, digital certificates, and email. It provides these services primarily through a global Internet-based distribution network of Internet Service Providers, web hosting companies and other providers of Internet services to end-users.

 

 

2. Basis of Presentation:

 

The accompanying unaudited interim consolidated balance sheets, and the related consolidated statements of operations and comprehensive income and cash flows reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the financial position of Tucows and its subsidiaries as at June 30, 2020 and the results of operations and cash flows for the interim periods ended June 30, 2020 and 2019. The results of operations presented in this Quarterly Report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for future periods.

 

The accompanying unaudited interim consolidated financial statements have been prepared by Tucows in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the Company's annual audited consolidated financial statements and accompanying notes have been condensed or omitted. Other than the exception noted below, these interim consolidated financial statements and accompanying notes follow the same accounting policies and methods of application used in the annual financial statements and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in Tucows' 2019 Annual Report on Form 10-K filed with the SEC on March 4, 2020 (the “2019 Annual Report”). There have been no material changes to our significant accounting policies and estimates during the three and six months ended June 30, 2020 as compared to the significant accounting policies and estimates described in our 2019 Annual Report, except as described in Note 3 – Recent Accounting Pronouncements, and Note 9 - Assets Held-for-sale.

 

 

3. Recent Accounting Pronouncements:

 

Recent Accounting Pronouncements Adopted
 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2018-15”). ASU 2018-15 helps entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance on accounting for implementation costs when the cloud computing arrangement does not include a license and is accounted for as a service contract. The amendments in ASU 2018-15 require an entity (customer) in a hosting arrangement to assess which implementation costs to capitalize vs expense as it relates to a service contract.  The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU 2018-15 in the first quarter of 2020 to all implementation costs incurred after the date of adoption. The new guidance did not have a material impact on our consolidated financial statements.

 

Recent Accounting Pronouncements Not Yet Adopted
 

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden of reference rate reform on financial reporting.  The amendments in ASU 2020-04 apply to contract modifications that replace a reference rate affected by reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance:

 

 

1.

Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate.
 2.Modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required under those Topics for modifications not accounted for as separate contracts.
 3.

Modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging— Embedded Derivatives

 

The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently charged interest and standby fees associated with its Amended 2019 Credit Facility (as defined below) based on LIBOR, which will need to be amended when an alternative reference rate is chosen, at which time we may adopt some of the practical expedients provided by ASU 2020-04.

 

 

4. Acquisitions:

 

 

(a)

Ascio

 

On March 18, 2019, the Company entered into an Asset Purchase Agreement to purchase all of the equity of Ascio Technologies, Inc. (“Ascio”), a domain registrar business, and all of CSC’s assets related to that business. For more information, see Note 3 - Acquisitions of the 2019 Annual Report. 
 
 

(b)

Cedar

 

In the fourth quarter of 2019, the Company entered into a Stock Purchase Agreement to purchase all of the issued and outstanding shares of Cedar Holdings Group, Incorporated (“Cedar”), a fiber Internet provider business based in Durango, Colorado.  The transaction closed on January 1, 2020, following receipt of all regulatory approvals.  The purchase price was $14.1 million, less an estimated purchase price adjustment of approximately $0.2 million relating to a working capital deficit and assessment of the fair value of contingent consideration, for net purchase consideration of $13.9 million. In addition to $9.0 million cash consideration due at closing, the Company also issued 32,374 ($2.0 million) of Tucows Inc. shares with a two-year restriction period at closing.  Included in the agreement is contingent consideration totaling up to $4.0 million, due on the 24th and 36th month anniversaries of the closing of the transaction dependent upon the achievement of certain milestones as defined in the Share Purchase Agreement. The fair value of the contingent consideration was determined to be $3.1 million using a discount rate of 11.2%. The Company has prepared a preliminary purchase price allocation of the assets acquired and the liabilities assumed of Cedar based on management’s best estimates of fair value.  The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities. 

 

The amortization period for the customer relationships and network rights are 7 and 15 years, respectively.

 

7

 
The following table shows the preliminary allocation of the purchase price for Cedar to the acquired identifiable assets and liabilities assumed ( thousands of U.S. dollars):

 

Cash Consideration, including working capital adjustment

 $8,836 

Share-based payment

  2,000 

Fair value of contingent payments

  3,072 

Total estimated purchase price

  13,908 
     

Cash and Cash Equivalents

  66 

Accounts Receivables, net

  47 

Other current assets

  22 

Property and equipment

  4,661 

Right of use operating lease

  18 

Intangible assets, consisting of customer relationships and network rights

  5,390 

Total identifiable assets

  10,204 

Accounts payable and accrued liabilities

  (362)

Deferred tax liability

  (2,373)

Operating lease liability

  (13)

Total liabilities assumed

  (2,748)

Total net assets (liabilities) assumed

  7,456 

Total goodwill

 $6,452 

 

The goodwill related to this acquisition is primarily attributable to synergies expected to arise from the acquisition and is not deductible for tax purposes.

In connection with this acquisition, the Company incurred total acquisition related costs of $0.1 million, of which nil were included in General & Administrative expenses in the consolidated statements of Operations and comprehensive Income for the three and six months ended  June 30, 2020.

The following table presents selected unaudited pro forma information for the Company assuming the acquisition of Cedar had occurred as of January 1, 2019. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of the date indicated or what results would be for any future periods.

 

  

Unaudited

  

Unaudited

 
  

For the Three Months Ended June 30,

  

For the Six Months Ended June 30,

 
  

2019

  

2019

 
         

Net revenues

 $85,345  $165,526 

Net income

  2,740   5,440 
         

Basic earnings per common share

  0.26   0.51 

Diluted earnings per common share

 $0.25  $0.50 

 

The amount of revenue recognized since the acquisition date included in the consolidated statements of operations and comprehensive income statement for the three and six months ended June 30, 2020 is $1.2 million and $2.4 million, respectively.

 

The net income recognized since the acquisition date included in the consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2020 is a gain of $0.1 million and a loss of $0.2 million, respectively.

 

8

 
 
5. Derivative Instruments and Hedging Activities:
 
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are foreign exchange rate risk and interest rate risk.
 
Since October 2012, the Company has employed a hedging program with a Canadian chartered bank to limit the potential foreign exchange fluctuations incurred on its future cash flows related to a portion of payroll, taxes, rent and payments to Canadian domain name registry suppliers that are denominated in Canadian dollars and are expected to be paid by its Canadian operating subsidiary. In May 2020, the Company entered into a pay-fixed, receive-variable interest rate swap with a Canadian chartered bank to limit the potential interest rate fluctuations incurred on its future cash flows related to variable interest payments on the Credit facility. The notional value of the interest rate swap was $70 million. 
 
As part of its risk management strategy, the Company also uses derivative instruments to hedge a portion of the foreign exchange risk and interest rate risk associated with these costs. The Company does not use these forward contracts for trading or speculative purposes. The foreign exchange contracts typically mature between one and eighteen months, and the interest rate swap matures in June 2023.

 

The Company has designated certain of these foreign exchange transactions as cash flow hedges of forecasted transactions under ASU 2017- 12, Derivatives and Hedging (Topic 815) (“ASC Topic  815”). For certain contracts, as the critical terms of the hedging instrument, and of the entire hedged forecasted transaction, are the same, in accordance with ASC Topic 815, the Company has been able to conclude that changes in fair value and cash flows attributable to the risk of being hedged are expected to completely offset at inception and on an ongoing basis. The Company has also designated the interest rate swap as a cash flow hedge of expected future interest payments. Accordingly, for the foreign exchange and interest rate swap contracts, unrealized gains or losses on the effective portion of these contracts have been included within other comprehensive income and reclassified to earnings when the hedged transaction is recognized in earnings. Cash flows from hedging activities are classified under the same category as the cash flows from the hedged items in the consolidated statements of cash flows. The fair value of the contracts, as of June 30, 2020 and December 31, 2019, is recorded as derivative instrument assets or liabilities. For certain contracts where the hedged transactions are no longer probable to occur, the loss on the associated forward contract is recognized in earnings.

 

As of June 30, 2020, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was $52.1 million, of which $44.2 million met the requirements of ASC Topic 815 and were designated as hedges.

 

As of December 31,  2019, the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars wa s $30.5 million, of which $26.1 million met the requirements of ASC Topic 815 and were designated as hedges.
 
As of June 30, 2020, we had the following outstanding forward contracts to trade U.S. dollars in exchange for Canadian dollars:
 
Maturity date (Dollar amounts in thousands of U.S. dollars) Notional amount of U.S. dollars  Weighted average exchange rate of U.S. dollars  Fair value 
             
July - September 2020  10,656   1.3227   (273)
October - December 2020  9,658   1.3227   (247)
January - March 2021  11,124   1.4283   574 
April - June 2021  9,878   1.4283   507 
July - September 2021  10,782   1.4362   611 
  $52,098   1.3888  $1,172 

 

As of June 30, 2020, the notional amount of the Company's interest rate swap designated as a cash flow hedge was $70 million. As of December 31, 2019 the Company had not entered into any interest rate swaps.

 

9

 
Fair value of derivative instruments and effect of derivative instruments on financial performance
 

The effect of these derivative instruments on our consolidated financial statements were as follows (amounts presented do not include any income tax effects).

 

Fair value of derivative instruments in the consolidated balance sheets 
 
Derivatives (Dollar amounts in thousands of U.S. dollars) Balance Sheet Location As of June 30, 2020 Fair Value Asset (Liability)  As of December 31, 2019 Fair Value Asset 
Foreign Currency forward contracts designated as cash flow hedges (net) Derivative instruments $982  $626 
Interest rate swap contract designated as a cash flow hedge (net) Derivative instruments  (200) $- 
Foreign Currency forward contracts not designated as cash flow hedges (net) Derivative instruments  190   105 
Total foreign currency forward contracts (net) Derivative instruments $972  $731 

 

Movement in accumulated other comprehensive income (AOCI) balance for the three months ended June 30, 2020  (Dollar amounts in thousands of U.S. dollars)
 
  

Gains and losses on cash flow hedges

  

Tax impact

  

Total AOCI

 

Opening AOCI balance - March 31, 2020

 $(932) $214  $(718)

Other comprehensive income (loss) before reclassifications

  1,453   (339)  1,114 

Amount reclassified from AOCI

  259   (59)  200 

Other comprehensive income (loss) for the three months ended June 30, 2020

  1,712   (398)  1,314 
             

Ending AOCI Balance - June 30, 2020

 $780  $(184) $596 

 

Movement in accumulated other comprehensive income (AOCI) balance for the six months ended June 30, 2020 (Dollar amounts in thousands of U.S. dollars)

 

  

Gains and losses on cash flow hedges

  

Tax impact

  

Total AOCI

 

Opening AOCI balance - December 31, 2019

 $625  $(152) $473 

Other comprehensive income (loss) before reclassifications

  (162)  42   (120)

Amount reclassified from AOCI

  317   (74)  243 

Other comprehensive income (loss) for the six months ended June 30, 2020

  155   (32)  123 
             

Ending AOCI Balance - June 30, 2020

 $780  $(184) $596 

 

Effects of derivative instruments on income and other comprehensive income (OCI) for the three months ended June 30, 2020 are as follows (Dollar amounts in thousands of U.S. dollars) 
 
Derivatives in Cash Flow Hedging Relationship Amount of Gain or (Loss) Recognized in OCI, net of tax, on Derivative Location of Gain or (Loss) Reclassified from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income 
    Operating expenses $(201)
Foreign currency forward contracts for the three months ended June 30, 2020 $1,314 Cost of revenues $(58)
          
Interest rate swap contract for the three months ended June 30, 2020 $- Interest expense, net $- 
          
    Operating expenses $(91)
Foreign currency forward contracts for the three months ended June 30, 2019 $320 Cost of revenues $(15)
          
Interest rate swap contract for the three months ended June 30, 2019 $- Interest expense, net $- 

 

Effects of derivative instruments on income and other comprehensive income (OCI) for the six months ended June 30, 2020 are as follows (Dollar amounts in thousands of U.S. dollars) 

 

Derivatives in Cash Flow Hedging Relationship

 

Amount of Gain or (Loss) Recognized in OCI, net of tax, on Derivative

 

Location of Gain or (Loss) Reclassified from AOCI into Income

 

Amount of Gain or (Loss) Reclassified from AOCI into Income

 
    

Operating expenses

 $(246)

Foreign currency forward contracts for the six months ended June 30, 2020

 $123 

Cost of revenues

 $(71)
          
Interest rate swap contract for the six months ended June 30, 2020 $- Interest expense, net $- 
          
    

Operating expenses

 $(154)

Foreign currency forward contracts for the six months ended June 30, 2019

 $930 

Cost of revenues

 $(32)
          
Interest rate swap contract for the six months ended June 30, 2019 $- Interest expense, net $- 

 

In addition to the above, for those foreign currency forward contracts not designated as hedges, the Company recorded the following fair value adjustments on settled and outstanding contracts (Dollar amounts in thousands of U.S. dollars):

 

  

Three Months Ended June 30,

     

Six Months Ended June 30,

    

Forward currency contracts not designated as hedges:

 

2020

  

2019

  

2020

  

2019

 
                 

Gain (loss) on settlement

 $(55) $(39) $(148) $(78)
                 

Gain (loss) on change in fair value

 $436  $70  $88  $188 

 

 
6. Goodwill and Other Intangible Assets
 
Goodwill
 
Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in our acquisitions.
 
The Company's Goodwill balance is $116.3 million as of June 30, 2020 and $109.8 million as of December 31, 2019. The Company's goodwill relates 93% ( $107.7 million) to its Domain Services operating segment and 7% ( $8.6 million) to its Network Access Services operating segment.
 
Goodwill is not amortized, but is subject to an annual impairment test, or more frequently if impairment indicators are present. No impairment was recognized during the three and six months ended June 30, 2020 and 2019.
 
Other Intangible Assets:
 
Intangible assets consist of acquired brand, technology, customer relationships, surname domain names, direct navigation domain names and network rights. The Company considers its intangible assets consisting of surname domain names and direct navigation domain names as indefinite life intangible assets. The Company has the exclusive right to these domain names as long as the annual renewal fees are paid to the applicable registry. Renewals occur routinely and at a nominal cost. The indefinite life intangible assets are not amortized but are subject to impairment assessments performed throughout the year. As part of the normal renewal evaluation process during the periods ended June 30, 2020 and June 30, 2019, the Company assessed that certain domain names that were originally acquired in the June 2006 acquisition of Mailbank.com Inc. that were up for renewal, should not be renewed.   
 
Intangible assets, comprising brand, technology, customer relationships and network rights are being amortized on a straight-line basis over periods of two to fifteen years.
 

In June 2020, in light of developments in the economy and the business and leisure travel industries as a result of the novel strain of coronavirus (“COVID-19”) pandemic, the Company decided to discontinue the operation of Roam Mobility. As a consequence of the decision to shut down its Roam Mobility operations, the Company has recorded an impairment loss associated with Roam Mobility customer relationships of $1.4 million, as at June 30, 2020. 

 
In June 2020, the Company committed to a plan to sell its Ting Mobile customer base and reclassified its mobile customer relationships totaling  $2.6 million as held-for-sale assets (Note 9). See Note 19 - Subsequent Events for more information on the Company’s sale of its Ting Mobile customer base.

 

Throughout the second quarter of 2020, the Company purchased several non-exclusive land easements, totaling $0.1 million, which are necessary for the Company to install fiber internet infrastructure in conjunction with its Fiber Internet business.   

 

Acquired intangible assets consist of the following (Dollar amounts in thousands of U.S. dollars):
 
  

Surname domain names

  

Direct navigation domain names

  

Brand

  

Customer relationships

  

Technology

  

Network rights

  

Total

 

Amortization period

 

indefinite life

  

indefinite life

  

7 years

  

3 - 7 years

  

2 - 7 years

  

15 years

     
                             

Balances, March 31, 2020

 $11,162  $1,135  $8,573  $36,469  $1,189  $1,387  $59,915 

Cedar Networks acquisition (Note 4 (b))

  -   -   -   10   -   (195)  (185)

Additions to/(disposals from) domain portfolio, net

  (2)  -   -   -   -   -   (2)
Impairment of definite life intangible asset  -   -   -   (1,431)  -   -   (1,431)
Other  -   -   -   (223)  -   -   (223)
Classified as assets held for-sale