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Note 3 - Acquisitions
9 Months Ended
Sep. 30, 2011
Business Combination Disclosure [Text Block]
3. ACQUISITIONS:

 
a.
Acquisition of EPAG Domainservices GMBH:

On August 1, 2011, Tucows (Germany) Inc. (“Tucows Germany”), one of the Company’s wholly owned subsidiaries, acquired 100% of the outstanding capital stock of EPAG Domainservices GMBH (“EPAG”), from QSC AG. EPAG, based in Bonn, Germany, is an ICANN-accredited registrar with over 400,000 domains under management and is notable for offering over 200 Top Level Domains (TLDs). Consideration for the acquisition of EPAG was approximately US$2.4 million (€1.7 million to purchase the shares and the settlement of a working capital adjustment of €0.25 million) through an all-cash transaction which was financed by utilizing the Company’s non-revolving, reducing demand loan facility in the amount of US$2.5 million. In August 2011, the Company repaid $1.0 million of this loan. The acquisition consideration is net of cash acquired of US$0.1 million and a loan receivable from EPAG assumed in the amount of US$0.1 million. In connection with the acquisition, the Company incurred approximately US$0.1 million of acquisition costs during the three months ended September 30, 2011 and recorded the expenses in the general and administrative expenses line in the consolidated statement of operations. These costs include legal and other professional services.

The Company has accounted for the acquisition of EPAG using the acquisition method as required in ASC 805, Business Combinations. As such, fair values have been assigned to the assets and liabilities acquired and the excess of the total purchase price over the fair value of the net assets acquired is recorded as goodwill. The Company has completed the final valuation of the fair value assessment of certain intangible assets. The goodwill represents business benefits the Company anticipates realizing from optimizing resources and access to additional domain name TLD’s. The goodwill is not expected to be deductible for tax purposes.

Purchase price allocation

The following table summarizes the Company’s purchase price allocation based on the fair value of the assets acquired and liabilities assumed on August 1, 2011:

Accounts receivable
  $ 587,595        
Cash acquired
    118,477        
Prepaid expenses and deposits
    468,523        
Prepaid domain name registry fees
    1,116,798        
Property and equipment
    29,198        
Intangible assets
    1,723,800        
Goodwill
    882,320        
Total assets acquired
            4,926,711  
                 
Accounts payable
    92,950          
Accrued liabilities
    140,658          
Customer deposits
    32,603          
Deferred revenue
    1,425,182          
Income taxes payable
    172,380          
Deferred tax liability
    552,000          
Total liabilities acquired
            2,415,773  
                 
Purchase price
          $ 2,510,938  

The intangible assets acquired include technology in the amount of $0.3 million, brand in the amount of $0.2 million and customer relationships in the amount of $1.2 million. The residual value from the purchase price has been allocated to goodwill. The technology is being amortized over two years, while the customer relationships and brand are being amortized over seven years.

The amount of EPAG’s revenues and net loss included in Tucows’ Consolidated Statements of Operations for the three and nine months ended September 30, 2011, and the unaudited pro forma revenues and net income of the combined entity had the acquisition been consummated as of January 1, 2010, are set forth below:

   
Revenues
   
Net loss *
 
             
Actual from August 1, 2011 to September 30, 2011
  $ 584,192     $ 16,564  

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Supplemental Unaudited Pro Forma Information
                       
Total revenue
  $ 25,457,160     $ 21,879,318     $ 72,929,498     $ 64,502,708  
Net income **
  $ (1,187,457 )   $ 1,125,845     $ (25,074 )   $ 1,015,639  

*           Included within net loss for the period reported above are $57,440 of estimated amortization charges relating to the allocated values of intangible assets.

**           Included in pro forma net income are estimated amortization charges relating to the allocated values of intangible assets for all period reported above.

The unaudited pro forma financial information in the table above is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the period presented or the result that may be realized in the future.