Hostopia reports first quarter results to June 30, 2007

    MISSISSAUGA, ON and FT. LAUDERDALE, FL, Aug. 13 /CNW/ - Inc.
(TSX: H), a leading provider of web services that enable small and
medium-sized businesses to establish and maintain an internet presence, today
reported its unaudited financial results for the first quarter ended June 30,
2007. All figures are in U.S. dollars unless otherwise stated.


    -  Q1 revenue increased 15.9% year over year, 6.8% sequentially from Q4
    -  29th consecutive quarter of increasing revenue
    -  15th consecutive quarter of positive operating income
    -  Acquired leading wireless syncing technology from Nexthaus, Inc.
    -  Added 3,000 end users and 375,000 email accounts
    -  Subsequent to the end of the quarter, entered into a patent license
       agreement with j2 Global Communications, Inc. for fax-to-email

    "We are pleased with our first quarter financial and operational
results," said Colin Campbell, Hostopia's CEO. "The company showed good
revenue growth, driven by the 375,000 email accounts we migrated in the
quarter. Operationally we also made significant progress preparing for a very
large United Kingdom website migration that will be largely completed in our
second quarter. These migrations on their completion will help accelerate our
revenue growth and improve our profitability over the remainder of the year."

    Financial Results for the First Quarter of Fiscal 2008

    Revenues increased 15.9% to $6.3 million in the three months ended June
30, 2007, compared to the same period last year. This was the 29th consecutive
quarter of higher revenues. Sequential revenue growth of 6.8% in the first
quarter was primarily due to the migration of 375,000 email accounts onto the
Hostopia platform, as well as website end-user growth from existing and new
    In the first quarter, gross profit of $5.4 million increased by $660,000
compared to last year as higher revenues were partially offset by a 1.5%
decline in gross margin. Income before interest and income taxes was $385,000,
down $411,000 from the first quarter of last year. This decrease was due to a
$1.1 million increase in operating expenses resulting primarily from:
(1) increased personnel to develop the new revenue opportunities of Website
Experts and the Nexthaus syncing technology that are still in the revenue
development phase, (2) higher amortization expenses related to the acquisition
of licensed technology and Nexthaus, (3) higher technical support costs to
service our larger end-user base, (4) higher project management costs
associated with the migration of email accounts onto our platform and
(5) significantly higher general and administration expenses related to public
company costs.
    As revenues continue to grow over the remainder of the year, both from
our existing and expanding customer base as well as additional product
offerings, we expect our quarterly income before interest and taxes will
improve back towards and then through the level achieved in fiscal 2007.
    Income before income taxes of $706,000 was $107,000 lower than the same
period last year as lower income before interest and taxes was largely offset
by $304,000 higher net interest income. Net income of $413,000 was $65,000
lower than last year. Basic and diluted net income per common share were
$0.04, compared to $0.11 and $0.07 respectively for the first quarter of last
year. Net income per share declined primarily because of the significant
increase in shares outstanding related to the Company's public offering of
4.83 million shares in the third quarter of last year.

    Subsequent events

    In July, Hostopia began the process of opening a new customer contact and
interaction center in Miramichi, New Brunswick.
    In August, Hostopia entered into a license agreement with j2 Global
Communications, Inc. for its fax-to-email patents. This agreement enables
Hostopia to enter the wholesale services market for fax-to-email applications
to sell to telecommunication providers.


    "Our investment in Website Experts and Nexthaus, while lowering
profitability in the short-term, positions us for strong long-term revenue and
profit growth. We intend to keep investing in the business both organically as
well as by opportune acquisitions of businesses with technology or end-users.
I am also very excited by the opportunity presented by our recently acquired
ability to sell j2 Global's patented fax-to-email applications to our current
and future customers." said Mr. Campbell. "While we are investing in the
future, we expect our profitability will improve through out the remainder of
fiscal 2008 as we migrate more than 40,000 end-users onto our platform. These
expected additions, combined with our growth in the first quarter and our
expanding service offering, means we are well with-in reach of our 18 to 22%
revenue growth target."

    About Inc.

    Hostopia is a leading provider of web services that enable small and
medium-sized businesses to establish and maintain an Internet presence. The
company's customers are communication services providers, including
telecommunication carriers, cable companies, internet service providers,
domain registrars, and web hosting service providers. Hostopia's customers
purchase its web services on a wholesale basis and resell these services under
their own brands to small and medium-sized businesses. The company provides
customers with the technology, infrastructure, and support services to enable
them to offer web services, while saving them research and development as well
as capital and operating costs typically associated with the design,
development, and delivery of web services.

    Forward-Looking Statements

    This news release includes certain "forward-looking statements" and
forward-looking information that are subject to risks, uncertainties and other
factors that could cause actual results or outcomes to differ materially from
those contemplated by the forward-looking statements. These forward-looking
statements and forward-looking information include, but are not limited to,
plans, objectives, expectations and intentions, growth trends and other
statements contained in this press release that are not historical facts and
statements identified by words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" or words of similar meaning. These
statements are based on our current beliefs or expectations and there are a
number of important factors that could cause the actual results or outcomes to
differ materially from those indicated by these forward-looking statements,
including without limitation, our ability to maintain our sales efficiency,
our ability to maintain our existing, and develop new, strategic
relationships, the number of our net end-user additions, our monthly customer
turnover and our ability to successfully integrate recently acquired
businesses and operations and those risks set forth or referenced under the
caption "Risk Factors" in Hostopia's Form 10-K for the year ended March 31,
2007. This filing is available on web sites maintained by the Securities and
Exchange Commission at and SEDAR at Readers are
cautioned not to place undue reliance on forward-looking statements as actual
future results and events could differ materially from that expressed in the
forward-looking statements. Hostopia does not undertake any obligation to
update any forward-looking statements contained in this document as a result
of new information, future events or otherwise.

    Conference Call Information

    Hostopia will hold its first quarter conference call on Monday, August
    13, 2007, at 5:15 p.m. EDT. Colin Campbell, Chief Executive Officer and
    Michael Mugan, Chief Financial Officer, will discuss financial results
    and performance for the three months ended June 30, 2007.

    To access the call, please dial 416-644-3421 or 1-800-731-5774

    A replay of the conference call will be available as of 7:15 p.m. EDT,
    Monday August 13, 2007 until midnight, Monday, August 20, 2007. To access
    the replay, call 416-640-1917 or 1-877-289-8525, followed by passcode
    21243167, followed by the number sign.

    To listen to live Webcast of the call please enter
    in your web browser

                         Consolidated Balance Sheets
                         (Expressed in U.S. dollars)

                                                   June 30,       March 31,
                                                     2007           2007
                                                 -------------  -------------
    Current assets:
      Cash and cash equivalents                  $ 26,373,375   $ 27,367,667
      Trade accounts receivable, net of
       allowance for doubtful accounts of
       $103,263; (March 31, 2007 - $114,755)        1,747,473      1,320,422
      Deferred tax assets                             162,000        117,000
      Income taxes recoverable                        838,898              -
      Prepaid expenses                                318,552        377,242
                                                 -------------  -------------
      Total current assets                         29,440,298     29,182,331
                                                 -------------  -------------

    Property and equipment, net of accumulated
     amortization of $5,625,588; (March 31,
     2007 - $5,163,911)                             3,590,021      2,922,677
    Other assets                                       63,056         60,997
    Intangible assets, net of accumulated
     amortization of $1,863,231; (March 31,
     2007 - $1,594,348)                             2,651,812      1,690,284
    Deferred tax assets                             1,227,000      1,101,000
                                                 -------------  -------------
    Total assets                                 $ 36,972,187   $ 34,957,289
                                                 -------------  -------------
                                                 -------------  -------------

    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                           $    360,264   $    380,040
      Accrued liabilities                           1,017,366        705,229
      Payroll and other taxes payable                 157,255         34,956
      Income taxes payable                                  -        269,020
      Current portion of deferred lease
       inducements                                     79,900         79,900
      Deferred revenue                                907,118        983,299
      Current portion of long-term liability          354,180         72,000
                                                 -------------  -------------
      Total current liabilities                     2,876,083      2,524,444
    Deferred lease inducements                        219,453        237,035
    Long-term liability                                     -        292,957
                                                 -------------  -------------
    Total liabilities                               3,095,536      3,054,436
                                                 -------------  -------------
    Stockholders' equity:
      Capital stock
        30,000,000 common shares, par value
       Issued and outstanding
        11,534,871 common shares (March 31,
        2007 - 11,097,251 common shares)              217,112        217,069
      Additional paid-in capital                   32,615,107     31,054,703
      Accumulated other comprehensive loss            (43,881)       (43,881)
      Retained earnings                             1,088,313        674,962
                                                 -------------  -------------
    Total stockholders' equity                     33,876,651     31,902,853
                                                 -------------  -------------
    Total liabilities and stockholders' equity   $ 36,972,187   $ 34,957,289
                                                 -------------  -------------
                                                 -------------  -------------

                    Consolidated Statements of Operations
                         (Expressed in U.S. dollars)

                                                 Three months ended June 30,
                                                     2007           2006
                                                 -------------  -------------
      Webhosting and applications services       $  6,067,225   $  5,219,420
      Other services                                  195,468        182,116
                                                 -------------  -------------
      Total revenues                                6,262,693      5,401,536
                                                 -------------  -------------

    Cost of revenues
      Webhosting and applications services            763,261        562,772
      Other services                                   85,093         84,716
                                                 -------------  -------------
      Total cost of revenues                          848,354        647,488
                                                 -------------  -------------
    Gross profit                                    5,414,339      4,754,048
                                                 -------------  -------------
      Sales and marketing (a)                       1,387,312      1,202,350
      Research and development (a)                    885,337        712,485
      Project management (a)                          530,006        416,458
      Technical support (a)                           914,374        678,876
      General and administrative (a)                  581,703        391,319
      Amortization of intangible assets               268,883        158,422
      Amortization of property and equipment          461,675        398,260
                                                 -------------  -------------
                                                    5,029,290      3,958,170
                                                 -------------  -------------
    Income before the undernoted                      385,049        795,878
                                                 -------------  -------------
    Interest income                                   325,508         21,529
    Interest (expense)                                 (4,206)        (4,206)
                                                 -------------  -------------
                                                      321,302         17,323
                                                 -------------  -------------
    Income before income taxes                        706,351        813,201
                                                 -------------  -------------
    Income taxes (recovery)
      Current                                         464,000        406,000
      Deferred                                       (171,000)       (71,000)
                                                 -------------  -------------
                                                      293,000        335,000
                                                 -------------  -------------
    Net income                                   $    413,351   $    478,201
                                                 -------------  -------------
                                                 -------------  -------------

    Net income per share
      Basic                                      $       0.04   $       0.11
      Diluted                                            0.04           0.07
    Weighted average number of common shares
      Basic                                        11,285,370      4,032,336
      Diluted                                      11,481,970      6,774,521

    (a) Stock-based compensation is included in
     operating expenses as follows:
      Sales and marketing                        $     29,970   $     34,315
      Research and development                         16,202          5,443
      Project management                                4,657          3,036
      Technical support                                 3,633          4,544
      General and administrative                       10,878          9,761
                                                 -------------  -------------
                                                 $     65,340   $     57,099
                                                 -------------  -------------
                                                 -------------  -------------

                    Consolidated Statements of Cash Flows
                         (Expressed in U.S. dollars)

                                                 Three months ended June 30,
                                                     2007           2006
                                                 -------------  -------------
    Cash flows from operating activities:
      Net income                                 $    413,351   $    478,201
      Items which do not involve cash:
        Amortization                                  730,558        556,682
        Stock-based compensation                       65,340         57,099
        Excess tax benefits from stock-based
         compensation                                (289,000)             -
        Non-cash interest                               4,206          4,206
        Deferred income taxes                        (171,000)       (71,000)
        Deferred lease inducements                    (17,582)       (12,128)
      Change in operating assets and liabilities
        Trade accounts receivable                    (427,051)       188,318
        Prepaid expense                                58,690        (89,009)
        Accounts payable                              (19,776)       292,087
        Accrued liabilities                           312,137        173,437
        Payroll taxes and other taxes payable         122,299        (11,677)
        Income taxes payable                         (818,918)       (89,000)
        Deferred revenue                              (76,181)        16,492
                                                 -------------  -------------
      Cash flows from operating activities           (112,927)     1,493,708
                                                 -------------  -------------

    Cash flows from (used in) financing
      Issue of common shares on exercise of stock
       options                                      1,206,107              -
      Deferred initial public offering costs                -       (616,595)
      Repayment of long-term liabilities              (14,983)       (35,415)
      Excess tax benefits from stock-based
       compensation                                   289,000              -
                                                 -------------  -------------
      Cash flows from (used in) financing
       activities                                   1,480,124       (652,010)
                                                 -------------  -------------

    Cash flows from investing activities:
      Acquisition of property and equipment        (1,129,019)      (268,832)
      Acquisition of intellectual property         (1,230,411)        (5,910)
                                                 -------------  -------------
      Cash flows from investing activities         (2,359,430)      (274,742)
                                                 -------------  -------------
    Effect of currency translation on cash
     balances                                          (2,059)        (1,130)
                                                 -------------  -------------

    Increase (decrease) in cash and cash
     equivalents                                     (994,292)       565,826

    Cash and cash equivalents, beginning of
     period(1)                                     27,367,667      3,038,217
                                                 -------------  -------------
    Cash and cash equivalents, end of period     $ 26,373,375   $  3,604,043
                                                 -------------  -------------
                                                 -------------  -------------
    Supplemental cash flow information:
      Interest paid                              $          -   $          -
      Income taxes paid                             1,382,918        495,000
                                                 -------------  -------------
                                                 -------------  -------------

    (1)  Cash and cash equivalents consists primarily of an amount invested
         in a highly rated money market mutual fund, as well as cash on
         deposit and bank certificates of deposit.

    %SEDAR: 00023928E

For further information:

For further information: Michael Mugan, Chief Financial Officer, Inc., Tel: (905) 671-7211; Gordie Campbell, Investor Relations, Inc., Tel: (877) 444-4116, Email:

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