Note 4 - Acquisitions

6 Months Ended

Jun. 30, 2020

Business Combination Disclosure [Text Block]

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.

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.