Note 4 - Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

4

. Derivative instruments and hedging activities:

Foreign currency forward contracts

In

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

, Canadian taxes 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 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. 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. The fair value

of the contracts, as of

March

31,

2017,

is recorded as derivative instrument assets and derivative instrument liabilities.

As of

March

31,

2017,

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

$20.2

 million, of which

$18.2

 million were designated as hedges

(December

31,

2016

-

$26.6

 million of which

$24.0

 million were designated as hedges).

As of

 

March

31,

2017,

we had the following outstanding forward exchange contracts to trade U.S. dollars in exchange for Canadian dollars: 

Maturity date			Notional amount of U.S. dollars		Weighted average exchange rate of U.S. dollars		Fair value
April	-	June 2017	$	6,461,047		1.3512	$	113,277
July	-	September 2017		6,928,942		1.3494		121,356
October	-	December 2017		6,859,570		1.3478		121,892
			$	20,249,559		1.3494	$	356,525

Fair value of derivative instruments and

effect of derivative instruments on financial performance

The effect of these derivative instruments on our consolidated financial stat

ements were as follows (amounts presented do not include any income tax effects).

Fair value of derivative instruments in the consolidated balance sheets

		As of March 31, 2017		As of December 31, 2016
Derivatives	Balance Sheet Location	Fair Value Asset (Liability)		Fair Value Asset (Liability)
Foreign currency forward contracts designated as cash flow hedges	Derivative instruments	$	321,248	$	155,560
Foreign currency forward contracts not designated as cash flow hedges	Derivative instruments	$	35,277	$	17,328
Total foreign currency forward contracts	Derivative instruments	$	356,525	$	172,888

Movement in

Accumulated Other Comprehensive Income ("AOCI") balance for the thre

e months ended

March

31,

2017

:

	Gains and losses on cash flow hedges			Tax impact			Total AOCI
Opening AOCI balance – December 31, 2016	$	155,560		$	(56,406	)	$	99,154
Other comprehensive income (loss) before reclassifications		292,171			(105,942	)		186,229
Amount reclassified from accumulated other comprehensive income		(126,483	)		45,863			(80,620	)
Other comprehensive income (loss) for the three months ended March 31, 2017		165,688			(60,079	)		105,609
Ending AOCI balance – March 31, 2017	$	321,248		$	(116,485	)	$	204,763

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

three

months ended

March

31,

2017

and

March

31,

2016

are as follows:

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	$	105,355		Operating expenses	$	—
Foreign currency forward contracts for the three months ended March 31, 2017	$	105,609	Cost of revenues	$	21,128		Cost of revenues		—
			Operating expenses	$	(372,390	)	Operating expenses	$	(47,240	)
Foreign currency forward contracts for the three months ended March 31, 2016	$	883,520	Cost of revenues	$	(106,817	)	Cost of revenues		—

In addition to the above, for those foreign currency forward contracts not designated as hedges, the Company has

recorded a gain of

$16,476

upon settlement and a gain of

$17,949

 for the change in fair value of outstanding contracts for the

three

months ended

March

31,

2017,

in the consolidated statement of operations and comprehensive income. The Company has recorded a loss of

$0.1

million upon settlement and a gain of

$0.2

million for the change in fair value of the foreign currency forward contracts not designated as hedges for the

three

months ended

March

31,

2016,

in the consolidated statement of operations and comprehensive income.