MISSISSAUGA, ON, Nov. 15 /PRNewswire-FirstCall/ -- Hostopia.com 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 financial results for its second quarter ended September 30, 2006. All figures are in U.S. dollars unless otherwise stated.

"We had a very successful second quarter and are very excited about our continued progress on a number of fronts," said Colin Campbell, Chief Executive Officer. "During the quarter we entered into agreements with a number of new customers. We also made great progress developing search engine optimization, enhanced site creation software, and collaborative e-mail services. In addition, we recently launched Website Experts our website design service," Mr. Campbell added.

"We are also thrilled that on November 10, subsequent to the end of the quarter, Hostopia became a public company. The net proceeds from our IPO will allow us to invest in technology and geographic expansion to further accelerate the growth of our web hosting and application services."

Business Highlights - Quarterly revenue increases 29% year over year (96.7% monthly recurring revenue) - 26th quarter of consecutive revenue growth - End-user growth of 32% quarterly year over year to over 237,000 - Signed 16 new customer contracts including Aliant, McLeod and Talk Talk - Subsequent to quarter end signed a new customer contract in the U.K. with BT (British Telecommunications PLC) - Completed CDN$25,200,000 initial public offering, on November 10, 2006

"Business is showing significant momentum and we are excited by our recent customer wins. In particular, our recent win with BT represents a significant opportunity to establish ourselves in the U.K. market," said Mr. Campbell. "During the second quarter we began investing in our technology infrastructure and services in order to be in a position to rapidly deploy our services to these new customers."

Financial Results

Revenues increased 29% or $1.3 million to $5.6 million in the three months ended September 30, 2006 compared to the same period last year. This growth in revenues was due to a 32% or 57,900 increase in the number of end-users hosted and serviced since September 30, 2005. At September 30, 2006, the company had approximately 237,000 end-users utilizing its services. Growth in end-users has come from both existing customers that added new end-users, as well as the acquisition of new customers and their end-users.

Basic and diluted net income per common share for the second quarter was $0.10 and $0.07 respectively, compared to $0.13 and $0.08 for the same period last year. For the six months ended September 30, 2006, basic and diluted net income per common share was $0.21 and $0.15 respectively, compared to $0.21 and $0.14 for the six months ended September 30, 2005. Earnings were slightly lower year over year as a result of the investment required to prepare the business for our new customer additions and higher research and development expenses related to the development of new web services and enhanced software and service offerings.

Conference Call Information

Hostopia will hold its second quarter conference call on Wednesday, November 15, 2006, at 8.30 a.m. ET. Colin Campbell, Chief Executive Officer and Michael Mugan, Chief Financial Officer, will discuss financial results and performance for the three months ended September 30, 2006.

To access the call, please dial 416-915-5762 or 1-800-733-7571. The conference call will also be accessible via webcast at:

http://events.onlinebroadcasting.com/hostopia/111506/index.php

A replay of the conference call will be available as of 10.30 a.m. ET, November 15, 2006 until midnight, November 22, 2006. To access the replay, call 416-640-1917 or 1-877-289-8525, followed by passcode 21209768 followed by the number sign.

About Hostopia.com 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 press 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 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. Our actual results could differ materially from those anticipated in these forward-looking statements and forward-looking information upon completion of the review of our third quarter results by our independent registered public accounting firm. 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 subscriber additions, our monthly customer turnover and our ability to successfully integrate recently acquired businesses and operations and those risks set forth under the caption "Risk Factors" in Hostopia's Quarterly Report on Form 10-Q for the year quarter ended September 30, 2006, as filed with the Securities and Exchange Commission. These filings are available on a Website maintained by the Securities and Exchange Commission at http://www.sec.gov/. 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.

Financial Highlights

The following is a summary of financial data provided in the company's Quarterly Report on Form 10-Q for the three and six months ended September 30, 2006. Please refer to this filed document for a more complete explanation of the company's results.

Hostopia.com Inc. Consolidated Balance Sheets (Expressed in U.S. dollars) ------------------------------------------------------------------------- September 30, March 31, 2006 2006 ------------------------------------------------------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 2,387,093 $ 3,038,217 Trade accounts receivable, net of allowance for doubtful accounts of $106,362 (March 31, 2006 - $48,650) 1,395,276 1,568,103 Deferred tax assets - 83,000 Prepaid expenses 380,485 268,969 ----------------------------------------------------------------------- Total current assets 4,162,854 4,958,289 Property and equipment, net of accumulated amortization of $5,109,254 (March 31, 2006 - $4,273,828) 3,310,037 3,173,715 Other assets 61,821 60,699 Intangible assets, net of accumulated amortization of $1,184,317 (March 31, 2006 - $842,272) 2,012,575 1,608,605 Deferred tax assets 669,000 481,000 Deferred initial public offering costs 1,202,400 - ------------------------------------------------------------------------- Total assets $ 11,418,687 $ 10,282,308 --------------------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 463,962 $ 272,456 Accrued liabilities 717,147 511,525 Payroll and other taxes payable 7,943 25,881 Income taxes payable 24,000 155,000 Current portion of deferred lease inducements 79,900 79,900 Deferred revenue 904,511 923,206 Current portion of long-term liability (note 4) 260,000 260,000 ----------------------------------------------------------------------- Total current liabilities 2,457,463 2,227,968 Deferred lease inducements 271,808 298,538 Long-term liability (note 4) 146,350 243,639 ------------------------------------------------------------------------- Total liabilities 2,875,621 2,770,145 Series A redeemable, convertible preferred shares: (note 6) Authorized: 10,000,000 Series A redeemable, convertible preferred shares Issued and outstanding: 2,127,658 Series A preferred shares, redeemable at $2.35 per share 5,228,763 5,170,448 Stockholders' equity: Capital stock: Authorized: 30,000,000 common shares, par value $0.0001 Issued and outstanding: 4,032,873 common shares 216,362 216,362 Additional paid-in capital 3,412,119 3,384,339 Deferred stock-based compensation - (26,179) Accumulated other comprehensive loss (43,881) (43,881) Deficit (270,297) (1,188,926) ----------------------------------------------------------------------- Total stockholders' equity 3,314,303 2,341,715 ------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 11,418,687 $ 10,282,308 --------------------------- Hostopia.com Inc. Consolidated Statements of Operations (Expressed in U.S. dollars - except per share amounts) (Unaudited) ------------------------------------------------------------------------- Three months ended Six months ended September 30, September 30, 2006 2005 2006 2005 ------------------------------------------------------------------------- Revenues: Webhosting and applications services $ 5,406,362 $ 4,176,633 $ 10,625,782 $ 8,088,799 Other services 179,141 143,371 361,257 302,371 ----------------------------------------------------------------------- Total revenues 5,585,503 4,320,004 10,987,039 8,391,170 Cost of revenues: Webhosting and applications services 637,908 414,578 1,200,680 800,311 Other services 84,387 49,203 169,103 107,401 ----------------------------------------------------------------------- Total cost of revenues 722,295 463,781 1,369,783 907,712 ------------------------------------------------------------------------- Gross profit 4,863,208 3,856,223 9,617,256 7,483,458 Expenses: Sales and marketing(a) 1,144,907 904,950 2,347,257 1,956,962 Research and development(a) 782,499 498,043 1,494,984 987,261 Project management(a) 423,339 328,592 839,797 642,304 Technical support(a) 794,331 529,076 1,473,207 1,030,242 General and administrative(a) 431,362 353,480 822,681 686,036 Amortization of intangible assets 183,623 67,646 342,045 126,429 Amortization of property and equipment 452,683 333,723 850,943 667,458 ----------------------------------------------------------------------- 4,212,744 3,015,510 8,170,914 6,096,692 ------------------------------------------------------------------------- Income before the undernoted 650,464 840,713 1,446,342 1,386,766 Interest income 18,170 4,454 39,699 8,601 Interest expense (4,206) (4,566) (8,412) (4,566) ------------------------------------------------------------------------- 13,964 (112) 31,287 4,035 ------------------------------------------------------------------------- Income before income taxes 664,428 840,601 1,477,629 1,390,801 Income taxes (recovery): Current 341,000 303,000 747,000 490,000 Deferred (117,000) - (148,000) - ----------------------------------------------------------------------- 224,000 303,000 559,000 490,000 ------------------------------------------------------------------------- Net income $ 440,428 $ 537,601 $ 918,629 $ 900,801 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income per share (note 5) Basic $ 0.10 $ 0.13 $ 0.21 $ 0.21 Diluted 0.07 0.08 0.15 0.14 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding: Basic 4,032,406 4,032,336 4,032,371 4,032,336 Diluted 6,310,070 6,658,253 6,310,035 6,648,562 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (a) Stock-based compensation is included in operating expenses as follows: Sales and marketing $ 31,970 $ 4,989 $ 66,285 $ 9,978 Research and development 5,163 - 10,606 - Project management 2,819 - 5,855 - Technical support 4,294 - 8,838 - General and administr- ative 9,130 - 18,891 - ------------------------------------------------------------------------- $ 53,376 $ 4,989 $ 110,475 $ 9,978 Hostopia.com Inc. Consolidated Statements of Cash Flows (Expressed in U.S. dollars) (Unaudited) ------------------------------------------------------------------------- Six months ended September 30, 2006 2005 ------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 918,629 $ 900,801 Items which do not involve cash: Amortization 1,192,988 793,887 Stock-based compensation 110,475 9,978 Non-cash interest 8,412 - Deferred income taxes (105,000) 440,000 Deferred lease inducements (26,730) 10,504 Change in operating assets and liabilities: Trade accounts receivable 172,827 (1,111,405) Prepaid expenses (111,516) 21,409 Other assets - (13,234) Accounts payable 191,506 (73,402) Accrued liabilities 205,622 78,156 Payroll taxes and other taxes payable (17,938) 680 Income taxes payable (131,000) - Deferred revenue (18,695) 34,724 ----------------------------------------------------------------------- Cash flows from operating activities 2,389,580 1,092,098 Cash flows from financing activities: Issue of common shares on exercise of stock options 1,799 - Repayment of long-term liability (105,701) - Deferred initial public offering costs (1,202,400) - ----------------------------------------------------------------------- Cash flows used in financing activities (1,306,302) - Cash flows from investing activities: Acquisition of property and equipment (987,263) (821,881) Acquisition of intangible assets (746,015) (189,699) ----------------------------------------------------------------------- Cash flows used in investing activities (1,733,278) (1,011,580) Effect of currency translation on cash balances (1,124) - ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (651,124) 80,518 Cash and cash equivalents, beginning of period 3,038,217 1,897,230 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 2,387,093 $ 1,977,748 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Interest $ - $ 4,566 Income taxes paid 795,000 - ------------------------------------------------------------------------- -------------------------------------------------------------------------

CONTACT: Paul D. Engels, Executive Vice President, Hostopia.com Inc.,
Tel: (905) 671-7204