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Note 3 - Acquisitions
 9 Months Ended
Sep. 30, 2012
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 caption 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 by 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 during the quarter ended September 30, 2011. 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 in Tucows' Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2011 are set forth below:


 

Revenues for the three

months ended September 30,

Revenues for the nine

months ended September 30,

 

2011

2010

2011

2010

                                 

Actual

  $ 584,192   $ —   $ 584,192   $ —

The amount of EPAG's net income (loss) included in Tucows' Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2011 are set forth below:


 

 

Net income for the three

months ended September 30,

 

 

Net income for the nine

months ended September 30,

 

 

 

2011

 

 

2010

 

 

2011

 

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

$

16,564

 

 

$

—

 

 

$

16,564

 

 

$

—

 


The unaudited pro forma revenues and net income of the combined entity had the acquisition been consummated as of January 1, 2011 are set forth below:


 

Three months ended September 30,

Nine months ended September 30,

 

2012

2011

2012

2011

Supplemental Unaudited Pro Forma Information

                               

Total revenue

  $ 29,246,069   $ 25,457,160   $ 84,935,989   $ 72,929,498

Net income

  $ 1,635,000   $ (1,213,578

)

  $ 3,994,617   $ (51,195

)


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.