Exhibit 99.1
TUCOWS REPORTS STRONG SECOND QUARTER FISCAL 2006 RESULTS
— Company Reports Record Revenue, Doubling of Adjusted EBITDA, Nineteenth Consecutive Quarter of Positive Cash Flow from Operations —
TORONTO, Canada — August 8, 2006 — Tucows Inc. (AMEX:TCX, TSX:TC) today reported financial results for the second quarter of fiscal 2006 ended June 30, 2006.
Highlights for the second quarter included:
· Successful completion of the acquisition and integration of Mailbank.com Inc. (NetIdentity);
· A 31% year-over-year increase in net revenue to a record $15.7 million;
· Net income of $0.2 million, notwithstanding $0.5 million of transitional costs related to the Critical Path hosted messaging asset acquisition;
· Adjusted EBITDA growth of 120% to $1.8 million;
· Cash flow from operations of $3.2 million, the Company’s nineteenth consecutive quarter of positive cash flow from operations;
· An 18% year-over-year increase in deferred revenue to a record $43.2 million; and
· The addition of three large hosted email customers.
“Our continued strong results for the quarter were driven by contributions across our range of service offerings, with almost 50% of gross margin generated by Internet services other than domain names,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our revenue growth was driven about equally by organic growth and the contributions of our acquisitions. Our hosted email business continues to perform above expectations following the Critical Path asset acquisition. During the quarter, we added three significant customers. This is a testament to the strength of Tucows’ reputation, the value of the acquired platform and our customer relationships. At the same time, we are seeing continued leverage in our business model as evidenced by the decrease in our operating expenses as a percentage of revenue.”
Summary Financial Results
(Numbers in Thousands of US Dollars, Except Per Share Data)
| Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended |
| |
Net Revenue |
| 15,679 |
| 12,002 |
| 30,966 |
| 23,804 |
|
EBITDA |
| 1,001 |
| 747 |
| 1,435 |
| 1,261 |
|
Adjusted EBITDA |
| 1,759 |
| 800 |
| 3,265 |
| 1,818 |
|
Net Income |
| 226 |
| 508 |
| 69 |
| 950 |
|
Net Income/Share |
| 0.00 |
| 0.01 |
| 0.00 |
| 0.01 |
|
Cash Flow from Operations |
| 3,220 |
| 1,475 |
| 5,054 |
| 2,130 |
|
Net revenue for the second quarter of fiscal 2006 increased 31% to $15.7 million from $12.0 million for the second quarter of fiscal 2005. The increase was primarily the result of the acquisition of the hosted messaging assets of Critical Path, Inc., as well as a higher number of domain transactions and higher revenue from Internet services.
Net income for the second quarter of fiscal 2006 was $0.2 million, or $0.00 per share (notwithstanding $0.5 million of transitional costs related to the Critical Path hosted messaging asset acquisition) compared with $0.5 million, or $0.01 per share, for the second quarter of fiscal 2005. Adjusted EBITDA for the second quarter of fiscal 2006 doubled to $1.8 million, or 11.2% of net revenue, from $0.8 million, or 6.7% of net revenue, for the corresponding quarter of last year.
Deferred revenue at the end the second quarter of fiscal 2006 was $43.2 million, an increase of 18% from
$36.6 million at the end of the second quarter of fiscal 2005 and an increase of 5% from $41.1 million at the end of the first quarter of fiscal 2006.
Cash, short-term investments and restricted cash at the end of the second quarter of fiscal 2006 decreased to $7.0 million from $15.8 million at the end of the second quarter of fiscal 2005 and $11.8 million at the end of the first quarter of fiscal 2006. The decrease compared to the end of the first quarter of fiscal 2006 is primarily the result of cash payments of $5.8 million for part of the purchase price of Mailbank.com Inc. (NetIdentity). The Company also invested $2.4 million in property and equipment, primarily to improve its Internet services infrastructure to take advantage of hosted email opportunities that are materializing earlier than expected and to strengthen the integrity of its network. These investments were partially offset by positive cash flow from operations for the quarter of $3.2 million.
Cash flow from operations for the second quarter of fiscal 2006 included cash provided by working capital and other activities of $2.4 million and reflects changes in accounts receivable, accounts payable, accrued expenses, deferred revenue and prepaid domain name registry fees. The increases in accounts receivable and accounts payable were largely due to the Critical Path asset acquisition. Accounts payable was also impacted by the aforementioned investment in infrastructure. The Company does not expect these levels of accounts receivable and accounts payable to continue.
EBITDA and Adjusted EBITDA
To assist financial statement users in their assessment of the Company’s historical performance and to project its future earnings and cash flows, the Company has included earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA is presented because it is an important supplemental measure of performance frequently used by securities analysts, investors and other interested parties in the evaluation of companies. Other companies may calculate EBITDA differently. EBITDA is not a measurement of financial performance under generally accepted accounting principles (GAAP) and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of operating performance or any other measures of performance derived in accordance with (GAAP). Because EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business. See the Consolidated Statements of Cash Flows included in the attached financial statements.
Adjusted EBITDA represents EBITDA plus the additional adjustments described in the table below. Adjusted EBITDA is presented because it better represents ongoing business performance than EBITDA. The adjustments reflect the material amount of cash collected by the Company for domain registrations and other Internet services paid for the full term at the time of activation and deferred, net of prepaid fees. In addition, adjusted EBITDA reflects earnings and expenses considered as non-representative of ongoing business for the reasons specified below. Adjusted EBITDA is one of the primary measures the Company uses for planning and budgeting purposes and to monitor and evaluate Tucows’ financial and operating results. Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. See the Consolidated Statements of Cash Flows included in the attached financial statements.
Conference Call
Tucows will host a conference call today, Tuesday, August 8 2006, at 5:00 p.m. (ET) to discuss the Company’s second quarter fiscal 2006 results. To access the conference call via the Internet go to www.tucowsinc.com, and click on “Investor Relations.”
For those unable to join 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 1-800-408-3053 or 416-695-5800 and enter the pass code 3194148 followed by the pound key. The telephone replay will be available until Tuesday, August 15, 2006, at midnight. To access the archived conference call via the Internet, go to www.tucowsinc.com and click on “Investor Relations.”
About Tucows
Tucows Inc. (AMEX:TCX, TSX:TC) provides Internet services and download libraries through a global
distribution network of 6,000 service providers. This distribution network primarily consists of web hosting companies, ISPs (Internet Service Providers) and other Internet related service companies. These companies use Tucows’ provisioned services to offer solutions to their customers: enterprises, small and medium businesses and consumers. Tucows is an accredited registrar with ICANN (the Internet Corporation for Assigned Names and Numbers) and earns most of its revenue from domain name registration services plus hosted email, spam and virus protection, Blogware, website building tools, the Platypus Billing System and digital certificates. For more information, please visit: www.tucowsinc.com
Contact:
Hilda Kelly
Investor Relations
Tucows Inc.
416-538-5493
ir@tucows.com
TUCOWS is a registered trademark of Tucows Inc. or its subsidiaries. All other trademarks and service marks are the properties of their respective owners.
[NTD: Financial statements to be added]
Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
| June 30 |
| December 31, |
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| (unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 6,539,713 |
| $ | 17,348,088 |
|
Short-term investments |
| — |
| 1,771,569 |
| ||
Restricted cash |
| 422,458 |
| 60,000 |
| ||
Interest receivable |
| 5,027 |
| 39,574 |
| ||
Accounts receivable |
| 3,658,609 |
| 1,439,329 |
| ||
Prepaid expenses and deposits |
| 2,830,814 |
| 1,999,820 |
| ||
Prepaid domain name registry and other Internet services fees, current portion |
| 21,142,361 |
| 18,175,988 |
| ||
Cash held in escrow |
| 584,382 |
| — |
| ||
Deferred tax asset, current portion |
| 1,000,000 |
| 1,000,000 |
| ||
Total current assets |
| 36,183,364 |
| 41,834,368 |
| ||
|
|
|
|
|
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Prepaid domain name registry and other Internet services fees, long-term portion |
| 8,907,236 |
| 7,701,939 |
| ||
Deferred acquisition costs |
| — |
| 46,034 |
| ||
Property and equipment |
| 5,654,796 |
| 1,542,671 |
| ||
Deferred tax asset, long-term portion |
| 2,000,000 |
| 2,000,000 |
| ||
Intangible assets |
| 18,848,118 |
| 1,006,080 |
| ||
Goodwill |
| 5,694,046 |
| 1,951,067 |
| ||
Investment |
| 353,737 |
| 353,737 |
| ||
Cash held in escrow |
| 1,781,342 |
| 621,412 |
| ||
Total assets |
| $ | 79,422,639 |
| $ | 57,057,308 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
| $ | 5,405,505 |
| $ | 1,655,195 |
|
Accrued liabilities |
| 3,009,736 |
| 1,417,035 |
| ||
Customer deposits |
| 2,844,894 |
| 2,276,637 |
| ||
Deferred revenue, current portion |
| 30,608,344 |
| 26,790,166 |
| ||
Accreditation fees payable, current portion |
| 505,539 |
| 651,811 |
| ||
Note payable |
| 2,122,930 |
| — |
| ||
Total current liabilities |
| 44,496,948 |
| 32,790,844 |
| ||
|
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|
|
|
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Deferred revenue, long-term portion |
| 12,621,678 |
| 11,079,537 |
| ||
Accreditation fees payable, long-term portion |
| 132,222 |
| 94,785 |
| ||
Note payable |
| 6,000,000 |
| — |
| ||
|
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|
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Stockholders’ equity: |
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|
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Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding |
| — |
| — |
| ||
Common stock - no par value, 250,000,000 shares authorized; 75,667,220 shares issued and outstanding at June 30, 2006 and 71,945,303 shares issued and outstanding at December 31, 2005 |
| 15,265,182 |
| 12,403,422 |
| ||
Additional paid-in capital |
| 50,210,366 |
| 50,061,866 |
| ||
Deficit |
| (49,303,757 | ) | (49,373,146 | ) | ||
Total stockholders’ equity |
| 16,171,791 |
| 13,092,142 |
| ||
Total liabilities and stockholders’ equity |
| $ | 79,422,639 |
| $ | 57,057,308 |
|
Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
(unaudited)
| Three months ended June 30, |
| Six months ended June 30, |
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| 2006 |
| 2005 |
| 2006 |
| 2005 |
| ||||
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Net revenues |
| $ | 15,678,856 |
| $ | 12,002,138 |
| $ | 30,965,976 |
| $ | 23,803,844 |
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Cost of revenues: |
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Cost of revenues (*) |
| 10,066,262 |
| 7,586,612 |
| 19,994,116 |
| 14,807,817 |
| ||||
Depreciation of property and equipment |
| 669,256 |
| 124,143 |
| 1,194,175 |
| 206,080 |
| ||||
Amortization of intangible assets |
| 38,538 |
| — |
| 77,078 |
| - |
| ||||
Total cost of revenues |
| 10,774,056 |
| 7,710,755 |
| 21,265,369 |
| 15,013,897 |
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Gross profit |
| 4,904,800 |
| 4,291,383 |
| 9,700,607 |
| 8,789,947 |
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Operating expenses: |
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Sales and marketing (*) |
| 1,572,290 |
| 1,166,058 |
| 3,031,446 |
| 2,518,511 |
| ||||
Technical operations and development (*) |
| 2,090,723 |
| 1,356,058 |
| 4,411,439 |
| 2,678,843 |
| ||||
General and administrative (*) |
| 948,464 |
| 1,146,725 |
| 2,567,517 |
| 2,537,487 |
| ||||
Depreciation of property and equipment |
| 45,041 |
| 152,726 |
| 82,091 |
| 312,663 |
| ||||
Amortization of intangible assets |
| 112,591 |
| 59,040 |
| 205,884 |
| 118,080 |
| ||||
Total operating expenses |
| 4,769,109 |
| 3,880,607 |
| 10,298,377 |
| 8,165,584 |
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Income (loss) from operations |
| 135,691 |
| 410,776 |
| (597,770 | ) | 624,363 |
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Other income: |
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Interest income, net |
| 102,662 |
| 96,856 |
| 205,553 |
| 174,104 |
| ||||
Other income |
| — |
| — |
| 473,606 |
| - |
| ||||
Total other income |
| 102,662 |
| 96,856 |
| 679,159 |
| 174,104 |
| ||||
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Income before provision for income taxes |
| 238,353 |
| 507,632 |
| 81,389 |
| 798,467 |
| ||||
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Provision for (recovery of) income taxes |
| 12,000 |
| - |
| 12,000 |
| (151,975 | ) | ||||
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Net income for the period |
| $ | 226,353 |
| $ | 507,632 |
| $ | 69,389 |
| 950,442 |
| |
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Basic earnings per share |
| $ | — |
| $ | 0.01 |
| $ | - |
| $ | 0.01 |
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Shares used in computing basic earnings per common share |
| 72,527,662 |
| 65,991,867 |
| 72,555,539 |
| 67,376,440 |
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Diluted earnings per share |
| $ | — |
| $ | 0.01 |
| $ | — |
| $ | 0.01 |
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Shares used in computing diluted earnings per common share |
| 74,704,791 |
| 68,744,679 |
| 74,540,626 |
| 71,763,526 |
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(*) Stock-based compensation has been included in operating expenses as follows: |
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Cost of revenues |
| $ | 3,100 |
| $ | — |
| $ | 5,500 |
| $ | — |
|
Sales and marketing |
| $ | 18,600 |
| $ | — |
| $ | 36,000 |
| $ | — |
|
Technical operations and development |
| $ | 27,300 |
| $ | — |
| $ | 51,000 |
| $ | — |
|
General and administrative |
| $ | 29,300 |
| $ | — |
| $ | 56,000 |
| $ | — |
|
Tucows Inc.
Reconciliation of EBITDA and Adjusted EBITDA
(Dollar amounts in U.S. dollars)
(unaudited)
| Three months ended June 30, |
| Six months ended June 30, |
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| 2006 |
| 2005 |
| 2006 |
| 2005 |
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Net income for the period |
| $ | 226,353 |
| $ | 507,632 |
| $ | 69,389 |
| $ | 950,442 |
|
Depreciation of property and equipment |
| 714,297 |
| 276,870 |
| 1,276,266 |
| 518,743 |
| ||||
Amortization of intangible assets |
| 151,129 |
| 59,040 |
| 282,962 |
| 118,080 |
| ||||
Interest income, net |
| (102,662 | ) | (96,856 | ) | (205,553 | ) | (174,104 | ) | ||||
Provision for (recovery of) income taxes |
| 12,000 |
| — |
| 12,000 |
| (151,975 | ) | ||||
EBITDA |
| 1,001,117 |
| 746,686 |
| 1,435,064 |
| 1,261,186 |
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Adjustments to EBITDA (1) |
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Change in prepaid fees for domain name registry and other Internet services fees |
| (1,858,622 | ) | (835,394 | ) | (4,171,670 | ) | (2,837,609 | ) | ||||
Change in deferred revenue |
| 2,151,830 |
| 888,976 |
| 5,196,350 |
| 3,394,465 |
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Transitional costs |
| 464,579 |
| — |
| 1,278,842 |
| — |
| ||||
Other income |
| — |
| — |
| (473,606 | ) | — |
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Subtotal Adjustments to EBITDA |
| 757,787 |
| 53,582 |
| 1,829,916 |
| 556,856 |
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Adjusted EBITDA |
| $ | 1,758,904 |
| $ | 800,268 |
| $ | 3,264,980 |
| $ | 1,818,042 |
|
(1) Adjustments to EBITDA
We define Adjusted EBITDA as net income adjusted for depreciation, amortization, interest, taxes and further adjusted for certain cash and non-cash charges. For the six months ended June 30, 2006, we incurred $1,278,842 of transitional costs in connection with our acquisition of the Hosted Messaging assets of Critical Path. In addition, during the six months ended June 30, 2006, we received $473,606 in connection with settlements related to patents we acquired in the merger with Infonautics in 2001. The net amount of cash we collected for domain registrations and other Internet services paid for the full term at the time of activation and deferred, amounted to $1,024,680 for the six months ended June 30, 2006 compared to $556,856 for the six months ended June 30, 2005.
Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
(unaudited)
| Three months ended June 30, |
| Six months ended June 30, |
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| 2006 |
| 2005 |
| 2006 |
| 2005 |
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Cash provided by (used in): |
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Operating activities: |
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Net income for the period |
| $ | 226,353 |
| $ | 507,632 |
| $ | 69,389 |
| $ | 950,442 |
|
Items not involving cash: |
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Depreciation of property and equipment |
| 714,297 |
| 276,870 |
| 1,276,266 |
| 518,743 |
| ||||
Amortization of intangible assets |
| 151,129 |
| 59,040 |
| 282,962 |
| 118,080 |
| ||||
Unrealized change in the fair value of forward exchange contracts |
| (378,846 | ) | — |
| (195,902 | ) | 107,628 |
| ||||
Stock-based compensation |
| 78,300 |
| — |
| 148,500 |
| - |
| ||||
Change in non-cash operating working capital: |
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Interest receivable |
| (3,047 | ) | — |
| 34,547 |
| - |
| ||||
Accounts receivable |
| (335,071 | ) | (8,380 | ) | (2,162,713 | ) | (159,977 |
| ||||
Prepaid expenses and deposits |
| (24,292 | ) | 83,467 |
| (20,879 | ) | 410,803 |
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Prepaid fees for domain name registry and other Internet services fees |
| (1,858,622 | ) | (835,394 | ) | (4,171,670 | ) | (2,837,609 |
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Accounts payable |
| 2,577,875 |
| (103,675 | ) | 3,070,542 |
| (60,713 |
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Accrued liabilities |
| (259,966 | ) | 335,452 |
| 1,067,114 |
| (675,339 |
| ||||
Customer deposits |
| 420,423 |
| (30,742 | ) | 568,257 |
| (108,869 |
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Deferred revenue |
| 2,151,830 |
| 888,976 |
| 5,196,350 |
| 3,394,465 |
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Accreditation fees payable |
| (240,100 | ) | 301,495 |
| (108,836 | ) | 472,352 |
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Cash provided by operating activities |
| 3,220,263 |
| 1,474,741 |
| 5,053,927 |
| 2,130,006 |
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Financing activities: |
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Proceeds received on exercise of stock options |
| 27,401 |
| 5,416 |
| 55,410 |
| 186,439 |
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Cash provided by financing activities |
| 27,401 |
| 5,416 |
| 55,410 |
| 186,439 |
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Investing activities: |
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Additions to property and equipment |
| (2,405,146 | ) | (625,169 | ) | (3,291,425 | ) | (826,077 |
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Decrease (increase) in investment in short-term investments |
| 72,000 |
| (7,771,453 | ) | 1,771,569 |
| (7,771,453 |
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Decrease (increase) in restricted cash - being margin security against forward exchange contracts |
| 190,042 |
| — |
| (362,458 | ) | 460,398 |
| ||||
Acquisition of Mailbank.com Inc., net of cash acquired |
| (5,830,902 | ) | — |
| (5,830,902 | ) | - |
| ||||
Acquisition of Hosted Messaging Assets, net of cash acquired |
| 163,969 |
| — |
| (6,419,485 | ) | - |
| ||||
(Decrease) increase in cash held in escrow |
| (18,507 | ) | 396,604 |
| (1,785,011 | ) | 392,888 |
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Cash used in investing activities |
| (7,828,544 | ) | (8,000,018 | ) | (15,917,712 | ) | (7,744,244 |
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Decrease in cash and cash equivalents |
| (4,580,880 | ) | (6,519,861 | ) | (10,808,375 | ) | (5,427,799 |
| ||||
Cash and cash equivalents, beginning of period |
| 11,120,593 |
| 15,007,050 |
| 17,348,088 |
| 13,914,988 |
| ||||
Cash and cash equivalents, end of period |
| $ | 6,539,713 |
| $ | 8,487,189 |
| $ | 6,539,713 |
| $ | 8,487,189 |
|