Derivative instruments and hedging activities:

Foreign currency forward contracts

October 2012,

the Company entered into 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, 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. As part of its risk management strategy, the Company uses derivative instruments to hedge a portion of the foreign exchange risk associated with these costs. The Company does

not

use these forward contracts for trading or speculative purposes. These forward contracts typically mature between

one

and

eighteen

months.

The Company has designated certain of these transactions as cash flow hedges of forecasted transactions under ASC Topic

815,

Derivatives and Hedging

(“ASC Topic

815”

). For certain contracts, as the critical terms of the hedging instrument and 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. Accordingly, unrealized gains or losses on the effective portion of these contracts have been included within other comprehensive income (“OCI”). The fair value of the contracts, as of

September 30, 2018,

is recorded as derivative instrument liabilities. For certain contracts where the hedged transactions are

longer probable to occur, the loss on the associated forward contract is reclassified from accumulated other comprehensive income (“AOCI”) to earnings.

As of

September 30, 2018,

the notional amount of forward contracts that the Company held to sell U.S. dollars in exchange for Canadian dollars was

$10.7

million, of which

$9.5

million were designated as hedges. As of

December 31, 2017

the Company held

contracts to trade U.S. dollars in exchange for Canadian dollars.

As of

September 30, 2018,

we had the following outstanding forward exchange 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

October - December 2018		6,049		1.2802		(50	)
January - March 2019		1,639		1.2852		(4	)
April - June 2019		1,599		1.2831		(4	)
July - September 2019		1,444		1.2809		(4	)
	$	10,731		1.2815	$	(62	)

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

		As of September 30, 2018			As of December 31, 2017
Derivatives (Dollar amounts in thousands of U.S. dollars)	Balance Sheet Location	Fair Value Asset (Liability)			Fair Value Asset (Liability)

Foreign currency forward contracts designated as cash flow hedges (net)	Derivative instruments	$	(55	)	$	-

Foreign currency forward contracts not designated as cash flow hedges (net)	Derivative instruments	$	(7	)	$	-

Total foreign currency forward contracts (net)	Derivative instruments	$	(62	)	$	-

Movement in Accumulated Other Comprehensive Income ("AOCI") balance for the

three

months ended

September 30, 2018

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

	Gains and losses on cash flow hedges			Tax impact			Total AOCI

Opening AOCI balance – June 30. 2018	$	(321	)	$	78		$	(243	)

Other comprehensive income (loss) before reclassifications		183			(39	)		144
Amount reclassified from AOCI		83			(20	)		63
Other comprehensive income (loss) for the three months ended September 30, 2018		266			(59)			207

Ending AOCI balance – September 30, 2018	$	(55	)	$	19		$	(36	)

Movement in AOCI balance for the

nine

months ended

September 30, 2018

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

	Gains and losses on cash flow hedges			Tax impact			Total AOCI

Opening AOCI balance – December 31, 2017	$	—		$	—		$	—

Other comprehensive income (loss) before reclassifications		(155	)		43			(112	)
Amount reclassified from AOCI		100			(24	)		76
Other comprehensive income (loss) for the nine months ended September 30, 2018		(55	)		19			(36	)

Ending AOCI balance – September 30, 2018	$	(55	)	$	19		$	(36	)

Effects of derivative instruments on income and OCI for the

three

months ended

September

30,

2018

and

September

30,

2017

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 (Effective Portion)			Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from AOCI into Income, (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (ineffective Portion and Amount Excluded from Effectiveness Testing)

				Operating expenses	$	(71	)	Operating expenses	$	—
Foreign currency forward contracts for the three months ended September 30, 2018	$	207		Cost of revenues	$	(12	)	Cost of revenues		—

				Operating expenses	$	432		Operating expenses	$	—
Foreign currency forward contracts for the three months ended September 30, 2017	$	(9	)	Cost of revenues	$	66		Cost of revenues		—

Effects of derivative instruments on income and other comprehensive income (OCI) for the

nine

months ended

September 30, 2018

and

September 30, 2017

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 (Effective Portion)			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income, (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (ineffective Portion and Amount Excluded from Effectiveness Testing)

				Operating expenses	$	(87	)	Operating expenses	$	—
Foreign currency forward contracts for the nine months ended September 30, 2018	$	(36	)	Cost of revenues	$	(13	)	Cost of revenues		—


				Operating expenses	$	561		Operating expenses	$	—
Foreign currency forward contracts for the nine months ended September 30, 2017	$	222		Cost of revenues	$	91		Cost of revenues		—

In addition to the above, for those foreign currency forward contracts

not

designated as hedges, the Company recorded a loss on settlement of less than

$0.1

million for the

three

months ended

September 30, 2018 (

gain of

$0.1

million for the

three

months ended

September 30, 2017)

and a gain of less than

$0.1

million for the change in fair value of outstanding contracts for the

three

months ended

September 30, 2018 (

loss of less than

$0.1

million for the

three

months ended

September 30, 2017),

in the consolidated statement of operations and comprehensive income.

The Company has recorded a loss of less than

$0.1

million upon settlement for the

nine

months ended

September, 30 2018 (

gain of

$0.1

million for the

nine

months ended

September 30, 2017)

and a loss of less than

$0.1

million for the change in fair value of outstanding contracts for the

nine

months ended

September 30, 2018 (

gain of less than

$0.1

million for the

nine

months ended

September 30, 2017),

in the consolidated statement of operations and comprehensive income.