UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended September 30, 2006
|OR                                               
|o                                                 | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-135533

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Hostopia.com Inc.(Exact name of Registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                                                                                                                               |  | 7372(Primary Standard Industrial
Classification Code Number) |  | 65-1036866(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------ |  | ----------------------------------------------
|110 East Broward Blvd., Suite 1650
Fort Lauderdale, Florida 33301
(954) 463-3080(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive office)

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days:    Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or non-accelerated filer. See definition of
"accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act:

Large
Accelerated Filer o                Accelerated Filer o                Non-Accelerated
Filer ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
    Yes o    No ý

As of November 13, 2006, there were 10,360,531 outstanding shares of common stock, par value $0.0001, of the registrant.



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HOSTOPIA.COM INC.  Quarterly Report on Form 10-Q  INDEX

PART I  FINANCIAL INFORMATION

|       |  |                                                                                                                         |  | Page
|------ |  | ----------------------------------------------------------------------------------------------------------------------- |  | ----
|Item 1 |  | Financial Statements                                                                                                    |  | 3   
|       |  | Consolidated Balance Sheets as of September 30, 2006 (unaudited) and March 31, 2006                                     |  | 3   
|       |  | Consolidated Statements of Operations (unaudited) for the three months and six months ended September 30, 2006 and 2005 |  | 4   
|       |  | Consolidated Statements of Cash Flows (unaudited) for the six months ended September 30, 2006 and 2005                  |  | 5   
|       |  | Notes to Consolidated Financial Statements                                                                              |  | 6   
|       |  |                                                                                                                         |  |     
|Item 2 |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                   |  | 19  
|       |  |                                                                                                                         |  |     
|Item 3 |  | Quantitative and Qualitative Disclosures About Market Risk                                                              |  | 33  
|       |  |                                                                                                                         |  |     
|Item 4 |  | Controls and Procedures                                                                                                 |  | 33  

PART II  OTHER INFORMATION

|Item 1     |  | Legal Proceedings |  | 34
|---------- |  | ----------------- |  | --
|           |  |                   |  |   
|Item 6     |  | Exhibits          |  | 44
|Signatures |  | 45               

2

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PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

Hostopia.com Inc.  Consolidated Balance Sheets  (Expressed in U.S. dollars)  (Unaudited)

|                                                                                                    |                                                                                                          | September 30, 2006                                                 |                                             | March 31, 2006 |          
|--------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------------------------------- | -------------- | ---------
|Assets                                                                                              |                                                                                                          |                                                                    |                                             |                |          
|Current assets:                                                                                     |                                                                                                          |                                                                    |                                             |                |          
|                                                                                                    | Cash and cash equivalents                                                                                |                                                                    | $                                           | 2,387,093      |          
|                                                                                                    | Trade accounts receivable, net of allowance for doubtful accounts of $106,362 (March 31, 2006  $48,650) |                                                                    |                                             | 1,395,276      |          
|                                                                                                    | Deferred tax assets                                                                                      |                                                                    |                                             |               |          
|                                                                                                    | Prepaid expenses                                                                                         |                                                                    |                                             | 380,485        |          
|                                                                                                    |                                                                                                          |                                                                    |                                             |                |          
|                                                                                                    | Total current assets                                                                                     |                                                                    |                                             | 4,162,854      |          
|Property and equipment, net of accumulated amortization of $5,109,254 (March 31, 2006  $4,273,828) |                                                                                                          |                                                                    | 3,310,037                                   |                |          
|Other assets                                                                                        |                                                                                                          |                                                                    | 61,821                                      |                |          
|Intangible assets, net of accumulated amortization of $1,184,317 (March 31, 2006  $842,272)        |                                                                                                          |                                                                    | 2,012,575                                   |                |          
|Deferred tax assets                                                                                 |                                                                                                          |                                                                    | 669,000                                     |                |          
|Deferred initial public offering costs                                                              |                                                                                                          |                                                                    | 1,202,400                                   |                |          
|                                                                                                    |                                                                                                          |                                                                    |                                             |                |          
|Total assets                                                                                        |                                                                                                          | $                                                                  | 11,418,687                                  |                | $        
|                                                                                                    |                                                                                                          |                                                                    |                                             |                |          
|Liabilities and Stockholders' Equity                                                                |                                                                                                          |                                                                    |                                             |                |          
|Current liabilities:                                                                                |                                                                                                          |                                                                    |                                             |                |          
|                                                                                                    | Accounts payable                                                                                         |                                                                    | $                                           | 463,962        |          
|                                                                                                    | Accrued liabilities                                                                                      |                                                                    |                                             | 717,147        |          
|                                                                                                    | Payroll and other taxes payable                                                                          |                                                                    |                                             | 7,943          |          
|                                                                                                    | Income taxes payable                                                                                     |                                                                    |                                             | 24,000         |          
|                                                                                                    | Current portion of deferred lease inducements                                                            |                                                                    |                                             | 79,900         |          
|                                                                                                    | Deferred revenue                                                                                         |                                                                    |                                             | 904,511        |          
|                                                                                                    | Current portion of long-term liability (note 4)                                                          |                                                                    |                                             | 260,000        |          
|                                                                                                    |                                                                                                          |                                                                    |                                             |                |          
|                                                                                                    | Total current liabilities                                                                                |                                                                    |                                             | 2,457,463      |          
|Deferred lease inducements                                                                          |                                                                                                          |                                                                    | 271,808                                     |                |          
|Long-term liability (note 4)                                                                        |                                                                                                          |                                                                    | 146,350                                     |                |          
|                                                                                                    |                                                                                                          |                                                                    |                                             |                |          
|Total liabilities                                                                                   |                                                                                                          |                                                                    | 2,875,621                                   |                |          
|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
|Stockholders' equity:                                                                               |                                                                                                          |                                                                    |                                             |                |          
|                                                                                                    | Capital stock:                                                                                           |                                                                    |                                             |                |          
|                                                                                                    |                                                                                                          | Authorized:                                                        |                                             |                |          
|                                                                                                    |                                                                                                          |                                                                    | 30,000,000 common shares, par value $0.0001 |                |          
|                                                                                                    |                                                                                                          | Issued and outstanding:                                            |                                             |                |          
|                                                                                                    |                                                                                                          |                                                                    | 4,032,873 common shares                     |                |          
|                                                                                                    | Additional paid-in capital                                                                               |                                                                    |                                             | 3,412,119      |          
|                                                                                                    | Deferred stock-based compensation                                                                        |                                                                    |                                             |               |          
|                                                                                                    | Accumulated other comprehensive loss                                                                     |                                                                    |                                             | (43,881        | )        
|                                                                                                    | Deficit                                                                                                  |                                                                    |                                             | (270,297       | )        
|                                                                                                    |                                                                                                          |                                                                    |                                             |                |          
|                                                                                                    | Total stockholders' equity                                                                               |                                                                    |                                             | 3,314,303      |          
|                                                                                                    |                                                                                                          |                                                                    |                                             |                |          
|Total liabilities and stockholders' equity                                                          |                                                                                                          | $                                                                  | 11,418,687                                  |                | $        
|                                                                                                    |                                                                                                          |                                                                    |                                             |                |          

Subsequent
Event (note 10)

See
accompanying notes to consolidated financial statements.

3

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Hostopia.com Inc.  Consolidated Statements of Operations  (Expressed in U.S. dollars  except per share amounts)  (Unaudited)

|                                                                           |                                        | Three months ended
September 30, |           | Six months ended
September 30, |       
|-------------------------------------------------------------------------- | -------------------------------------- | -------------------------------- | --------- | ------------------------------ | ------
|
|Revenues:                                                                  |                                        |                                  |           |                                |       
|                                                                           | Webhosting and applications services   |                                  | $         | 5,406,362                      |       
|                                                                           | Other services                         |                                  |           | 179,141                        |       
|                                                                           |                                        |                                  |           |                                |       
|                                                                           | Total revenues                         |                                  |           | 5,585,503                      |       
|Cost of revenues:                                                          |                                        |                                  |           |                                |       
|                                                                           | Webhosting and applications services   |                                  |           | 637,908                        |       
|                                                                           | Other services                         |                                  |           | 84,387                         |       
|                                                                           |                                        |                                  |           |                                |       
|                                                                           | Total cost of revenues                 |                                  |           | 722,295                        |       
|                                                                           |                                        |                                  |           |                                |       
|Gross profit                                                               |                                        |                                  | 4,863,208 |                                |       
|Expenses:                                                                  |                                        |                                  |           |                                |       
|                                                                           | Sales and marketing (a)                |                                  |           | 1,144,907                      |       
|                                                                           | Research and development (a)           |                                  |           | 782,499                        |       
|                                                                           | Project management (a)                 |                                  |           | 423,339                        |       
|                                                                           | Technical support (a)                  |                                  |           | 794,331                        |       
|                                                                           | General and administrative (a)         |                                  |           | 431,362                        |       
|                                                                           | Amortization of intangible assets      |                                  |           | 183,623                        |       
|                                                                           | Amortization of property and equipment |                                  |           | 452,683                        |       
|                                                                           |                                        |                                  |           |                                |       
|                                                                           |                                        |                                  | 4,212,744 |                                |       
|                                                                           |                                        |                                  |           |                                |       
|Income before the undernoted                                               |                                        |                                  | 650,464   |                                |       
|Interest income                                                            |                                        |                                  | 18,170    |                                |       
|Interest expense                                                           |                                        |                                  | (4,206    | )                              |       
|                                                                           |                                        |                                  |           |                                |       
|                                                                           |                                        |                                  | 13,964    |                                |       
|                                                                           |                                        |                                  |           |                                |       
|Income before income taxes                                                 |                                        |                                  | 664,428   |                                |       
|Income taxes (recovery):                                                   |                                        |                                  |           |                                |       
|                                                                           | Current                                |                                  |           | 341,000                        |       
|                                                                           | Deferred                               |                                  |           | (117,000                       | )     
|                                                                           |                                        |                                  |           |                                |       
|                                                                           |                                        |                                  | 224,000   |                                |       
|                                                                           |                                        |                                  |           |                                |       
|Net income                                                                 |                                        | $                                | 440,428   |                                | $     
|                                                                           |                                        |                                  |           |                                |       
|Net income per share (note 5)                                              |                                        |                                  |           |                                |       
|                                                                           | Basic                                  |                                  | $         | 0.10                           |       
|                                                                           | Diluted                                |                                  |           | 0.07                           |       
|                                                                           |                                        |                                  |           |                                |       
|Weighted average number of common shares outstanding:                      |                                        |                                  |           |                                |       
|                                                                           | Basic                                  |                                  |           | 4,032,406                      |       
|                                                                           | Diluted                                |                                  |           | 6,310,070                      |       
|                                                                           |                                        |                                  |           |                                |       
|(a) Stock-based compensation is included in operating expenses as follows: |                                        |                                  |           |                                |       
|                                                                           |                                        | Sales and marketing              |           | $                              | 31,970
|                                                                           |                                        | Research and development         |           |                                | 5,163 
|                                                                           |                                        | Project management               |           |                                | 2,819 
|                                                                           |                                        | Technical support                |           |                                | 4,294 
|                                                                           |                                        | General and administrative       |           |                                | 9,130 
|                                                                           |                                        |                                  |           |                                |       
|                                                                           |                                        | $                                | 53,376    |                                | $     
|                                                                           |                                        |                                  |           |                                |       

See
accompanying notes to consolidated financial statements.

4

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Hostopia.com Inc.  Consolidated Statements of Cash Flows  (Expressed in U.S. dollars)  (Unaudited)

|                                                 |                                                     | Six months ended
September 30,        |          
|------------------------------------------------ | --------------------------------------------------- | ------------------------------------- | ---------
|
|Cash flows from operating activities:            |                                                     |                                       |          
|                                                 | Net income                                          |                                       | $        
|                                                 | Items which do not involve cash:                    |                                       |          
|                                                 |                                                     | Amortization                          |          
|                                                 |                                                     | Stock-based compensation              |          
|                                                 |                                                     | Non-cash interest                     |          
|                                                 |                                                     | Deferred income taxes                 |          
|                                                 |                                                     | Deferred lease inducements            |          
|                                                 | Change in operating assets and liabilities:         |                                       |          
|                                                 |                                                     | Trade accounts receivable             |          
|                                                 |                                                     | Prepaid expenses                      |          
|                                                 |                                                     | Other assets                          |          
|                                                 |                                                     | Accounts payable                      |          
|                                                 |                                                     | Accrued liabilities                   |          
|                                                 |                                                     | Payroll taxes and other taxes payable |          
|                                                 |                                                     | Income taxes payable                  |          
|                                                 |                                                     | Deferred revenue                      |          
|                                                 |                                                     |                                       |          
|                                                 | Cash flows from operating activities                |                                       |          
|Cash flows from financing activities:            |                                                     |                                       |          
|                                                 | Issue of common shares on exercise of stock options |                                       |          
|                                                 | Repayment of long-term liability                    |                                       |          
|                                                 | Deferred initial public offering costs              |                                       |          
|                                                 |                                                     |                                       |          
|                                                 | Cash flows used in financing activities             |                                       |          
|Cash flows from investing activities:            |                                                     |                                       |          
|                                                 | Acquisition of property and equipment               |                                       |          
|                                                 | Acquisition of intangible assets                    |                                       |          
|                                                 |                                                     |                                       |          
|                                                 | Cash flows used in investing activities             |                                       |          
|Effect of currency translation on cash balances  |                                                     |                                       | (1,124   
|                                                 |                                                     |                                       |          
|Increase (decrease) in cash and cash equivalents |                                                     |                                       | (651,124 
|Cash and cash equivalents, beginning of period   |                                                     |                                       | 3,038,217
|                                                 |                                                     |                                       |          
|Cash and cash equivalents, end of period         |                                                     | $                                     | 2,387,093
|                                                 |                                                     |                                       |          
|Supplemental cash flow information:              |                                                     |                                       |          
|                                                 | Interest                                            |                                       | $        
|                                                 | Income taxes paid                                   |                                       |          
|                                                 |                                                     |                                       |          

See
accompanying notes to consolidated financial statements.

5

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.     NATURE OF BUSINESS:



2.     SIGNIFICANT ACCOUNTING POLICIES:





6

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2.     SIGNIFICANT ACCOUNTING POLICIES (continued):



7

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2.     SIGNIFICANT ACCOUNTING POLICIES (continued):







Three months ended
September 30, 2006

Six months ended
September 30, 2006(Unaudited)Risk free interest rate

4.77
%
4.77
%Expected dividend yield



Expected volatility

67
%
67
%Expected life (in years)

5

5Expected forfeiture rate

25
%
25
%




8

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3.     STOCK-BASED PLANS:





9

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3.     STOCK-BASED PLANS (continued):



Three months ended
September 30, 2005
Pro forma

Six months ended
September 30, 2005
Pro forma(Unaudited)

(Unaudited)Net income

$
537,601

$
900,801Dividend accretion on Series A preferred share


(28,622
)

(57,092
)Net income attributable to common stockholders

$
508,979

$
843,709Stock-based compensation, as reported, net of tax


3,143


6,826Pro forma stock-based compensation, net of tax


(19,925
)

(39,850
)Pro forma net loss attributable to common stockholders

$
492,197

$
810,145Basic income attributable to common stockholders per share:As reported

$
0.13

$
0.21Pro forma


0.12


0.20Diluted income attributable to common stockholders per share:As reported

$
0.08

$
0.14Pro forma


0.08


0.13


10

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3.     STOCK-BASED PLANS (continued):





Options
outstanding

Weighted average
exercise price

Weighted average
remaining
contractual
term (years)

Aggregate
intrinsic value(1)(Unaudited)Balance at March 31, 2006

839,280

$
3.45



$
Granted

10,000


10.95




Exercised









Forfeited

(10,300
)

5.35Balance at June 30, 2006

838,980


3.52

2.0


1,800,000Granted









Exercised

(537
)

3.35Forfeited

(183
)

3.35Balance at September 30, 2006

838,260


3.52

1.8


1,800,000Options exercisable at September 30, 2006

749,940

$
2.95

1.4

$
1,800,000


---

11

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3.     STOCK-BASED PLANS (continued):





4.     ASSET ACQUISITION:



12

---



4.     ASSET ACQUISITION (continued):



September 30, 2006
(Unaudited)

March 31, 2006Total

$
406,350

$
503,634Less current portion


260,000


260,000$
146,350

$
243,659


5.     NET INCOME PER COMMON SHARE:



13

---



5.     NET INCOME PER COMMON SHARE (continued):



Three months ended September 30,

Six months ended September 30,2006

2005

2006

2005(Unaudited)

(Unaudited)Net income

$
440,428

$
537,601

$
918,629

$
900,801Dividend accretion on Series A preferred shares


(29,234
)

(28,622
)

(58,315
)

(57,092
)Net income attributable to common stockholders

$
411,194

$
508,979

$
860,314

$
843,709Weighted average outstanding shares of common stock


4,032,406


4,032,336


4,032,371


4,032,336Dilutive effect of Series A redeemable preferred shares


2,127,658


2,127,658


2,127,658


2,127,658Dilutive effect of stock options and warrants


150,006


498,259


150,006


488,568Common stock and common stock equivalents


6,310,070


6,658,253


6,310,035


6,648,562Net income attributable per common share:Basic

$
0.10

$
0.13

$
0.21

$
0.21Diluted


0.07


0.08


0.15


0.14


6.     SERIES A REDEEMABLE, CONVERTIBLE PREFERRED SHARES:

September 30,
2006

March 31,
2006(Unaudited)Authorized:10,000,000 Series A redeemable, convertible preferred sharesIssued:2,127,658 Series A redeemable, convertible preferred shares

$
5,228,763

$
5,170,448




14

---



6.     SERIES A REDEEMABLE, CONVERTIBLE PREFERRED SHARES (continued):



7.     RELATED PARTY TRANSACTIONS:



15

---



7.     RELATED PARTY TRANSACTIONS (continued):



September 30,
2006

March 31,
2006(Unaudited)Balance sheets:Accounts receivable

$
12,243

$
26,654Accounts payable


71,739


17,990


|
|

Three months ended September 30,

Six months ended September 30,2006

2005

2006

2005(Unaudited)Statements of operations:Webhosting and application services revenue

$
547,320

$
470,474

$
1,074,861

$
923,569Bandwidth


174,389


144,489


356,638


280,021Outsourced services


338,551


227,075


638,672


418,943Telephone services


57,980


32,071


108,308


55,472


8.     RECENT ACCOUNTING PRONOUNCEMENTS:





16

---





8.     RECENT ACCOUNTING PRONOUNCEMENTS (continued):







17

---





9.     GEOGRAPHIC INFORMATION:



Three months ended September 30,

Six months ended September 30,2006

2005

2006

2005(Unaudited)

(Unaudited)Canada

$
2,418,902

$
2,102,995

$
4,767,668

$
4,124,676United States


3,094,137


2,217,009


6,082,670


4,266,494United Kingdom


72,464





136,701


$
5,585,503

$
4,320,004

$
10,987,039

$
8,391,170


10.   SUBSEQUENT EVENTS:



18

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following discussion includes forward-looking statements that are not historical facts but reflect our current expectation regarding future results. Actual
results could differ materially from the results discussed in the forward-looking statements because of a number of risks and uncertainties, including the matters discussed below and elsewhere in this
Form 10-Q. Historical trends should not be taken as indicative of future operations.

In
addition, you should refer to the "Risk Factors" section of our Registration Statement on Form S-1 that was filed on November 3, 2006.

You
should read this Form 10-Q completely. In some cases, you can identify forward-looking statements by the following words: "may", "will", "should", "expect",
"intend", "plan", "anticipated", "believe", 'estimate", "predict", "potential", "continue", or the negative of these terms or other similar terminology. All forward-looking statements included in this
Form 10-Q are based on information available to us as of the date of this Form 10-Q and we assume no obligation to update these cautionary statements or
any forward-looking statements. These statements are not guarantees of future performance.

We
qualify all the forward-looking statements contained in this Form 10-Q by the foregoing cautionary statements.

Overview

We believe we are a leading provider of Web services that enable small and medium-sized businesses to establish and maintain an Internet presence. We have over
330 customers in the United States, Canada and the United Kingdom, which include telecommunication carriers, cable companies, Internet service providers, domain registrars and Web
hosting service providers. These communication services providers purchase our Web services on a wholesale basis and resell these services under their own brands to small and medium-sized businesses.
We refer to small and medium-sized businesses which use our Web services as "end-users" or "end-user businesses". Our Web services include Website creation and maintenance
applications, managed email with virus and spam protection, e-commerce application services, customer communications and Website promotion applications, and Website hosting and
data transfer.

Our
revenue growth is derived from the number of end-users who subscribe to our Web services. To increase our revenue and take advantage of our market opportunity we plan to
expand our customer base as well as further penetrate our customers' existing end-user base.

We
have grown our business primarily by convincing large telecommunication and cable companies that we should manage their Web hosting businesses.

This
strategy has been highly successful in Canada and Bell Canada, TELUS Communications Company and Rogers Cable Communications Inc. are all now our customers. We have expanded
geographically into the United States and in fiscal 2006 signed up our first large U.S. telecommunications company, Verizon. In 2006, we also began marketing our service in the
United Kingdom and have already contracted to provide our service to a number of customers in this large market place.

Our
growth strategy is now focused on two processes. Firstly, we acquire new customers with large end-user bases. Secondly, we help our current customers grow their Web
hosting businesses by providing them with marketing collateral and by providing their end-users with improved website functionality.

We
track our success in two ways. Firstly, we count the number of end-users we add through the sign-up of new customers in the latest twelve months, both large
and small. Secondly, we count the number of end-users our customers of more than twelve months (existing customers) have added to their Web hosting business.

19

---



To
support the acquisition of new customers we have 10 sales people focused on acquiring new business in Canada, the U.S. and now the U.K. To assist them in their sales
efforts, and to potentially increase our revenue per end-user, we continue to invest in developing new software for end-users. We have 13 programming and technical
professionals currently involved in product development.

When
we acquire a new customer, we must migrate their end-users to our platform effectively and efficiently. This essential function is carried out by our project management
staff presently consisting of 19 personnel.

We
also recognize the need for prompt and professional service to our end-users to maintain and grow our end-user count. Accordingly we employ a technical support
staff of approximately 80 information technology and customer service professionals to deal promptly 24 hours a day with any questions our end-users have in respect of our
service. Our staff of customer service professionals has grown by 32% in the past twelve months to deal with our increasing end-user base.

To
provide our end-users, who are often smaller businesses, with an easy method of establishing a Web presence, we have developed and continue to develop easily
self-customized website templates. We currently have over 3,000 templates in our library, the majority of which were developed in the past twelve months.

In
fiscal 2007, we also began to build the capability to provide our end-users with turnkey customized websites with a higher degree of functionality. We have hired
6 personnel in support of this business opportunity. As of September 30, 2006 this business was still in the development phase. Subsequent to September 30, 2006, we launched this
business and signed up our first customers.

During
the quarter, we signed 16 new customer contracts and added approximately 13,000 new end-users. We made progress in developing four new web services including: search
engine optimization, an enhanced version of our site creator software, collaborative e-mail, and a web site design service. While the first three services are still in development, the
fourth initiative, web site design, was launched on October 27. We expensed all the research and development costs as incurred. We also expanded our software delivery platform in the United
States as a result of, and in anticipation of, new customers.

In
November, 2006 we signed a contract with BT (formerly British Telecom) after successfully completing a pilot project during the quarter ended September 30, 2006. This two year
contract outsources BT's small business web hosting business to us and we believe presents a significant opportunity to the Company if we can successfully migrate their sites onto our platform over
the next several quarters. In anticipation of the BT contract and other new business, we built up additional capacity and staff in the second quarter and these costs contributed to our higher second
quarter expenses.

With
the additional funds we received on November 10, 2006 on the completion of our initial public offering, we believe we are in a strong position to execute the growth plan we
outlined in our prospectus including:



Key Metric

End-User Count

We grow our revenues primarily through the addition of end-user businesses who subscribe to our Web hosting and application services, also known as
Web services. We add end-users by two principal methods: (1) organic growth from our existing customers; and (2) the addition of new customers who migrate their
end-users to our system. To a lesser extent we grow our end-users through small resellers and by direct sales to end-user businesses. As of September 30,
2006, we served approximately 237,000 end-users.

The
end-user count is predictive of our future revenue growth and operating results due to the recurring revenue nature of our business As a result, we monitor this metric
closely to forecast and manage our growth.

Sources of Revenue

We derive all of our revenue from Web hosting and application services and other services. We sell our services primarily on a wholesale basis to our customers.
To a lesser extent, we sell our services directly to small resellers and end-user businesses.

Web Hosting and Application Services

Web hosting and application service revenues are derived from the sale and support of Web services. We generated 96.7% and 96.4% of our revenues in the six months
ended September 30, 2006 and 2005 respectively from Web hosting and application services. Our customers pay us monthly in accordance with contracts that range from one to five years for the Web
services that they resell to their end-users on a subscription basis. In addition, we derive a portion of our revenues from the direct sale of Web services to small resellers and
end-user businesses. We expect Web hosting and application services revenue to increase in absolute dollars and to remain relatively stable as a percentage of our total revenues.

Other Services

Other services are revenues derived from domain name registration and professional services. We derived 3.3% and 3.6% of our total revenues in the six months
ended September 30, 2006 and 2005 respectively from other services. Domain name registration revenue consists of domain name registrations, renewals and transfers derived from customers,
end-users and other individuals. Professional services consist of fees we receive from our customers for services provided at their request. We expect other services revenue to increase in
absolute dollars and to remain relatively stable as a percentage of our total revenues.

20

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Cost of Revenue

Cost of revenue consists principally of expenses relating to bandwidth and data center costs, software license fees, hardware maintenance and referral payments
and domain name registration fees. Cost of revenue does not include salary and wage expenses, technical support costs, depreciation and amortization expenses relating to property and equipment,
acquired patents and customer lists.

Bandwidth and Data Center

Bandwidth and data center expenses primarily consist of the cost of bandwidth and leased data center space. We purchase bandwidth from several suppliers. We lease
space in four network operations centers  three in Toronto, Ontario and one in Miami, Florida. We utilize these facilities under contracts ranging from one to
three years. We pay for these services on a monthly basis and record the expenses at the time they are incurred. We expect that bandwidth and data center facility costs will increase as the number of
end-users increases on our system.

Software License and Hardware Maintenance Fees

Software licensing and hardware maintenance fees are incurred to maintain our application delivery platforms that we use in the delivery of our Web services. We
expect that software license and hardware maintenance expenses will increase as the number of end-users increases on our system.

Referral Payments

We make referral payments to small resellers and select customers under referral agreements. We expect that referral payments will increase with expected
increases in revenue from these resellers and customers.

Domain Name Registration Fees

We purchase domain rights from registered ICANN suppliers for resale. Customers and end-users purchase the right to use domain names for a specified
number of years and this right must be renewed on a periodic basis.

Operating Expenses

Operating expenses comprise all personnel costs together with advertising and marketing expenses, travel expenses, administrative expenses including insurance and
professional fees, communication expenses, rent expenses for office facilities and amortization expenses. We utilize a functional reporting style allocating all non-amortization expenses
to sales and marketing, research and development, project management, technical support and general and administrative.

In
addition, we have used outsourced services provided by GeeksForLess, Inc., ("GFL"), a related party by means of common ownership, since November 2003.
Originally contracted to provide research and development, GFL has provided services in the areas of technical support, project management and sales support. All expenses incurred in the outsourcing
arrangement including travel of our North American based personnel are allocated to our functional expense classifications.

Sales and Marketing

Sales and marketing expenses represent the largest percentage of our operating expenses, and consist primarily of compensation and commissions for our sales
personnel. Other sales and marketing expenses include amounts paid to enable our employees to attend trade shows, print and Internet banner advertising, travel expenses and allocated rent,
communications and office expenses. We expect future sales and marketing expenses will increase as we expand our efforts to increase our customers, end-users and revenues.

21

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Research and Development

Research and development expenses consist primarily of compensation, performance bonuses and related expenses for our research and development staff, contracted
offshore resources, and allocated overhead costs. We focus our research and development efforts on increasing the features and functionality of our Web services and the delivery of those Web services
to end-users. We expect that, in the future, research and development expenses will increase as we upgrade and enhance our existing Web service offerings, develop new Web service offerings
and expand the capabilities of our application delivery platform infrastructure in existing and new markets.

Project Management

Project management expenses consist of compensation and performance bonuses, allocation of payments to GFL for its services to the project management group,
travel expenses, allocated rent, communication and office expenses. The project management team manages new customer set ups and our customers' end-user migrations to our application
delivery platform as well as ongoing technical assistance to customers. We expect future project management expenses will increase due to the continuing growth and complexity of our
customer base.

Technical Support

Technical support expenses consist of compensation and allocated rent, communication and office expenses and allocation of payments to GFL for its services to the
technical support group. Our technical support staff provides assistance to our customers and/or their end-users. We employ technical support staff who operate 24 hours a day,
365 days a year. We expect future technical support expenses will increase as we increase our end-users.

General and Administration

General and administrative expenses consist of compensation and related expenses for administration and finance personnel, professional services that are not
otherwise allocated to specific functions, insurance fees, franchise and capital taxes, banking fees, provision for bad debt expenses and other miscellaneous expenses that are not otherwise allocated.
We expect future general and administrative expenses will increase as we continue to add personnel to support the growth of our business. We also anticipate that we will incur expenses related to
professional service fees and insurance fees necessary to comply with the requirements of being a public company.

Amortization

Amortization expenses consist of charges relating to the amortization of all of the property and equipment (including hardware, software, furniture and fixtures
and telephone equipment), leasehold improvements, lease inducement assets, and intangible assets (including customer lists, patents, website templates and digital images). With the exception of
furniture and fixtures that are amortized over a period of three to five years, and leasehold improvements that are amortized over the expected life of the relevant lease, all other assets are
amortized over a three-year period. We believe this policy covers most risks associated with the prospect of technological obsolescence; however, we periodically evaluate the condition of
our asset base to determine whether additional decreases in recorded may be required. We expect future amortization expenses to increase as we continue to make capital investments in our application
delivery platform to support the expansion of our Web services and increasing number of end-users.

22

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses together with disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We
believe the following accounting policies, described in greater detail in Note 1 to our consolidated financial statements contained in our Registration Statement on
Form S-1, to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Web hosting and Applications Services

We
recognize revenue derived from Web hosting and applications services on a monthly basis as services are performed. Customers receive invoices dated the first day of the month during
which our Web services will be provided to them. Set-up fees received in advance from our customers are deferred and recognized as revenue on a straight-line basis over the
term of the underlying service contract.

We
also receive a portion of our revenue directly from end-user businesses and small Web hosting resellers on a monthly, quarterly, semi-annually or annual basis.
We defer recognition of revenue that will be earned in a subsequent period and for which an end-user has paid in advance. The portion of Web hosting and application services revenue
received from these end-users and small Web hosting resellers is recognized as deferred revenue in the accompanying consolidated balance sheets. As services are performed, we recognize
this revenue on a straight-line basis over the applicable service period.

Other Services

As
a domain name reseller, as opposed to a registrar, we recognize domain name registration revenue when we receive payment from customers and end-users since we have no
obligation to maintain a domain registry following a sale. Professional service revenue is recorded based upon the extent to which all of the contracted professional services have
been provided.

Allowance for Doubtful Accounts

In accordance with our revenue recognition policy, our accounts receivable are based on customers whose payment is reasonably assured. We monitor collections from
our customers and maintain an allowance for estimated credit losses for 100% of all customers' accounts deemed uncollectible. For those accounts not specifically identified as uncollectible, an
allowance is maintained for a specific percentage of those receivables based on aging accounts, historical collection experience and current economic expectations. Credit losses have historically been
within our expectations and the provisions established in our financial statements but we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.
Because we have several large customers, a change in liquidity of any one customer or our inability to collect from one of these customers could have a material adverse effect on our consolidated
financial position.

Accounting for Stock Based Compensation

Up to and including the fiscal year ended March 31, 2006, with the exception of stock option awards made to non-employee consultants that have
provided services to us, we elected to defer the recognition of stock based compensation in our accounts as permitted under Accounting Principles Board (APB) Opinion No. 25. Effective
April 1, 2006, we adopted the recommendations of SFAS Statement No. 123R in recording stock based compensation expense in our accounts. Accordingly, stock-based compensation expense in
fiscal 2007 will increase over the levels of preceding years.

In
accordance with SFAS 123R, we determine compensation cost for stock awards at fair value and recognize the related expense over the vesting period. The estimation of stock
awards that will ultimately vest requires an assessment based on actual experience or updated estimates that may differ from our current estimates. Such amounts will be recorded as a cumulative
adjustment in the period estimates are revised. We consider several factors when estimating expected forfeitures, including types of awards and historical experience. Actual results and future changes
in estimates may differ substantially from our current estimates.

23

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Accounting for Goodwill, Intangible Assets and Property and Equipment

Since our inception we gave fully allocated the purchase price of acquisitions to intangible assets. Other intangible assets include acquired patents, Website
templates and electronic images which are amortized using the straight-line method over three years. We test for the impairment of intangible assets annually, and between annual tests if
an event occurs or circumstances change that would more likely than not reduce the fair value of the intangible asset below its carrying amount. Similarly, we review the condition and revenue
generating potential of our property and equipment to determine whether our depreciation policies are satisfactory in the circumstances.

Accounting for Income Taxes

We provide for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to be recovered or settled. A valuation allowance is recorded to reduce deferred income tax assets to an amount that in the opinion of management is more
likely than not to be realized. We consider factors, such as the reversal of deferred income tax liabilities, projected future taxable income, the character of the income tax asset, tax planning
strategies and other factors in the determination of the valuation allowance. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of
operations in the year that includes the enactment date. As of September 30, 2006, we do not have any net operating losses or other tax attributes subject to valuation allowances.

Accounting for Contingencies

In the normal course of our operations, we may be subject to litigation and claims from time to time. It is our policy to provide adequate provisions in the
accounts where required. Although it is not possible to estimate the extent of potential costs, if any, we believe that there are no issues, the ultimate resolution of which would have a material
adverse effect on the results of our operations, financial position or liquidity.

24

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Results of Operations for the Three and Six Month Periods ended September 30, 2006 as Compared to the Three and Six Month Periods ended September 30, 2005

Revenues

|                                                             |                                      | Three months ended |           | Six months ended
|------------------------------------------------------------ | ------------------------------------ | ------------------ | --------- | ----------------
|
|Revenues                                                     |                                      |                    |           |                 
|                                                             | Web hosting and application services |                    | $         | 5,406,362       
|                                                             | Other services                       |                    |           | 179,141         
|                                                             |                                      |                    |           |                 
|                                                             |                                      | Total revenue      |           | $               
|                                                             |                                      |                    |           |                 
|End-users at end of period                                   |                                      |                    | 237,400   |                 
|Increase in end users over comparable prior period  percent |                                      |                    | 32.3      | %               
|Increase over comparable prior year period                   |                                      | $                  | 1,265,499 |                 
|Increase over comparable prior year period  percent         |                                      |                    | 29.3      | %               

Comparison of the Three Month Periods ended September 30, 2006 and 2005

Revenues

Total revenue increased by 29.3% to $5.6 in the three month period ended September 30, 2006 from $4.3 million in the three month period ended
September 30, 2005.

Web Hosting and Application Services

Web
hosting and application services revenue increased by 29% or $1.2 million to $5.4 million in the three month period ended September 30, 2006 from
$4.2 million in the three month period ended September 30, 2005. Our revenue growth was due to a 57,900 or 32% increase in end-users year over year. We had approximately
237,000 end-users on our system as of September 30, 2006. The end-user growth was due to a combination of new customers added over the previous twelve month
period and increased penetration of our existing customer base. New customers added approximately 13,200 end-users, representing a 7% increase over the number of
end-users at the beginning of the year. Penetration of our existing customer base added approximately 44,700 end-users, representing a 25% increase over the number of
end-users at the beginning of the year. The transfer of a large customer from the new customer group to the existing customer group during the period accounted for approximately one third
of the website additions allocated to the existing customer base.

Other Services

Other
service revenue, including domain name registration and professional services revenue, increased by $36,000 or 25% to $179,000 from $143,000. The primary reason for the increase
was the sale of more domain names related to the acquisition of the Web business of a former customer in January 2006.

Comparison of the Six Month Periods ended September 30, 2006 and 2005

Total revenue increased by 30.9% to $11.0 million in the six month period ended September 30, 2006 from $8.4 million in the six month period
ended September 30, 2005. During the six month period ended September 30, 2006, there was a 9.0% increase in the value of the Canadian dollar against the US dollar, based on the average
Canada/US exchange rate during that period. If the value of the Canadian dollar had remained constant against the US dollar during the six month period ended September 30, 2006, the net
increase in revenue would have been $2.2 million or 25.4%.

25

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Web Hosting and Application Services

Web
hosting and application services revenue increased by $2.5 million or 31.4% to $10.6 million. Our revenue growth was due to a 57,900 increase in
end-users or 32% year over year. We had approximately 237,000 end-users on our system as of September 30, 2006. The end-user growth was due to a
combination of new customers added over the previous twelve month period and increased penetration of our existing customer base. New customers added approximately 13,200 end-users,
representing a 7% increase over the number of end-users at the beginning of the year. Penetration of our existing customer base added approximately 44,700 end-users,
representing a 25% increase over the number of end-users at the beginning of the year.

Other Services

Other
service revenue, including domain name registration and professional services revenue, increased by $59,000 or 19% to $361,000 from $302,000. The primary reason for the increase
was the sale of more domain names related to the acquisition of the Web business of a former customer in January 2006.

Cost of Revenues

|                                                     |                                      | Three months ended     |         | Six months ended |        
|---------------------------------------------------- | ------------------------------------ | ---------------------- | ------- | ---------------- | -------
|
|Cost of Revenues                                     |                                      |                        |         |                  |        
|                                                     | Web hosting and application services |                        | $       | 637,908          |        
|                                                     | Other services                       |                        |         | 84,387           |        
|                                                     |                                      |                        |         |                  |        
|                                                     |                                      | Total cost of revenues |         | $                | 722,295
|                                                     |                                      |                        |         |                  |        
|Percent of revenues                                  |                                      |                        | 12.9    | %                |        
|Increase over comparable prior year period           |                                      | $                      | 258,514 |                  |        
|Increase over comparable prior year period  percent |                                      |                        | 55.7    | %                |        

Comparison of the Three Month Periods ended September 30, 2006 and 2005

Cost of Revenues

Total cost of revenue increased by 55.7% to $722,000 in the three month period ended September 30, 2006 from $464,000 in the three month period ended
September 30, 2005.

Web Hosting and Applications Services

Cost
of Web hosting and application services revenue increased by 54% to $638,000 in the three months ended September 30, 2006 from $415,000 in the three months ended
September 30, 2005. These expenses include bandwidth expense, data center costs, software license fees, hardware maintenance fees, referral payments and credit card collection fees. Bandwidth
and data center costs increased by approximately $98,000 or 37% quarter over quarter due in part to our 32% increase in end-users as well as additional bandwidth and leased data center
space acquired in anticipation of additional end-users expected from several large contracts that were in varying stages of negotiation during the quarter. Software license fees, hardware
maintenance fees and referral payments increased by approximately $87,000 or 79% due to a combination of increased software and hardware maintenance and increased referral payments due to increased
revenue. Credit card collection fees increased by approximately $39,000 or 103% due in large part to the acquisition of a customer's end-users in January 2006. Since these
end-users are now billed directly, we now incur the cost of account processing through various payment gateways.

26

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Other Services

Cost
of other services revenue increased by 72% to $84,000 from $49,000. Other services expense includes the purchase of domain name rights that we resell to end-users. Other
services expense increased due in part to the 19% increase in other revenue and the lower margins associated with the domain name sales of the business acquired from a former customer in
January 2006.

Comparison of the Six Month Periods ended September 30, 2006 and 2005

Cost of Revenues

Total cost of revenues increased by 50.9% to $1.4 million in the six month period ended September 30, 2006 from $908,000 in the six month period
ended September 30, 2005.

Web Hosting and Applications Services

Cost
of Web hosting and application services revenue increased by 50% to $1.2 million in the six months ended September 30, 2006 from $800,000 in the six months ended
September 30, 2005. These expenses include bandwidth expense, data center costs, software license fees, hardware maintenance fees, referral payments and credit card collection fees. Bandwidth
and data center costs increased by approximately $167,000 or 32% primarily because of our 32% increase in end-users as well as additional bandwidth and leased data center space acquired in
anticipation of additional end-users expected from several large contracts that were in varying stages of negotiation during the quarter. Software licenses fees, hardware maintenance fees
and referral payments increased by approximately $155,000 or 74% due to a combination of increased software and hardware maintenance and increased referral payments due to increased revenue. Higher
credit card collection fees contributed approximately $79,000 to the increase due in large part to the acquisition of a customer's end-users in January 2006. Since these
end-users are now billed directly, we now incur the account processing cost from various payment gateways.

Other Services

Cost
of other services revenue increased by 58% to $169,000 from $107,000. Other services expense includes the purchase of domain name rights that we resell to end-users.
Other services expense increased due in part to the 19% increase in other revenue and the lower margins associated with the domain name sales of the business acquired from a former customer in
January 2006.

Operating Expenses

Total operating expenses increased by 40.0% to $4.2 million in the three months ended September 30, 2006 compared to the three months ended
September 30, 2005. Total operating expenses represented 75.4% and 69.8% of total revenue in the respective three month periods ending September 30, 2006 and 2005.

In
the six month period ended September 30, 2006, total operating expenses increased by 34.0% to $8.2 million from $6.1 million in the six months ended
September 30, 2005. Total operating expenses represented 74.4% and 72.7% of total revenue in the respective six month periods ending September 30, 2006 and 2005.

27

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Sales and Marketing

|                                                     |  | Three months ended |           | Six months ended |  
|---------------------------------------------------- |  | ------------------ | --------- | ---------------- | -
|
|Sales and marketing                                  |  | $                  | 1,144,907 |                  | $
|Percent of revenues                                  |  |                    | 20.5      | %                |  
|Increase over comparable prior year period           |  | $                  | 239,957   |                  |  
|Increase over comparable prior year period  percent |  |                    | 26.5      | %                |  

Sales and Marketing (Three Month Period Ended September 30, 2006)

Sales and marketing expenses increased by 27% to $1.1 million from $905,000 for the three months ended September 2006. Salaries, wages and benefits
including stock option benefits increased by $178,000 or 29% compared to the prior year's comparable quarter. Personnel count increased by 59% due in part to the requirement to staff inbound sales
associates to handle the Web hosting business of a former customer and the pre-launch hiring of our new Website Experts group that will focus on the website design opportunity that we have
decided to enter. Trade show expenses were unchanged from the comparable quarter while advertising declined by approximately $25,000. Allocated expenses including rent, office, telecommunications,
travel and contracted expenses in Ukraine increased by $87,000 or 48% due to the increase in sales support personnel hired to increase revenue. We consider sales and marketing expenses to be
investments in the future since our business growth depends on building recurring revenue that will have a greater effect on the future years' revenue than the current year.

Sales and Marketing (Six Month Period Ended September 30, 2006)

Sales and marketing expenses increased by 20% to $2.3 million from $2.0 million for the six months ended September 2006. Salaries, wages and
benefits including stock option benefits increased by $313,000 or 25% compared to the prior year's comparable period. The period end personnel count increased by 59% due in part to the requirement to
staff inbound sales associates to handle the Web hosting business of a former customer and the pre-launch hiring of our new Website Experts group that will focus on the website design
opportunity that we have decided to enter. Marketing and trade show participation declined by $64,000 or 29% and advertising was reduced by $43,000 or 40% as we increased our direct sales effort with
the addition of personnel. Allocated expenses including rent, office, telecommunications, travel and contracted expenses in Ukraine increased by $185,000 or 52% due to the increase in personnel and
sales effort.

Research and Development

|                                                     |  | Three months ended |         | Six months ended |  
|---------------------------------------------------- |  | ------------------ | ------- | ---------------- | -
|
|Research and development                             |  | $                  | 782,499 |                  | $
|Percent of revenues                                  |  |                    | 14.0    | %                |  
|Increase over comparable prior year period           |  | $                  | 284,456 |                  |  
|Increase over comparable prior year period  percent |  |                    | 57.1    | %                |  

Research and Development (Three Month Period Ended September 30, 2006)

Research and development expenses increase by 57% to $782,000 from $498,000 in the three months ended September 30, 2006. Salaries, wages and benefits
including stock option benefits increased by $241,000 or 71% compared to the prior year's comparable quarter. Personnel count increased by 54% year over year as we continued to invest in enhancing our
product offerings and expanding our business. Allocated expenses including rent, office, hardware, telecommunications, travel and contracted expenses in Ukraine increased by $43,000 or 27% due to the
increase in personnel.

28

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Research and Development (Six Month Period Ended September 30, 2006)

Research and development expenses increase by 51% to $1.5 million from $987,000 in the six months ended September 30, 2006. Salaries, wages and
benefits including stock option benefits increased by $465,000 or 69% compared to the prior year's comparable quarter. Period end personnel count increased by 54% year over year as we continued to
invest in enhancing our product offerings and expanding our business. Allocated expenses including rent, office, hardware, telecommunications, travel and contracted expenses in Ukraine increased by
$42,000 or 14% due to the increase in personnel offset by reduced hardware spending.

Project Management

|                                                     |  | Three months ended |         | Six months ended |  
|---------------------------------------------------- |  | ------------------ | ------- | ---------------- | -
|
|Project management                                   |  | $                  | 423,339 |                  | $
|Percent of revenues                                  |  |                    | 7.6     | %                |  
|Increase over comparable prior year period           |  | $                  | 94,747  |                  |  
|Increase over comparable prior year period  percent |  |                    | 28.8    | %                |  

Project Management (Three Month Period Ended September 30, 2006)

Project management expenses increased by 29% to $423,000 from $329,000 in the three months ended September 30, 2006. Salaries, wages and benefits including
stock option benefits increased by $33,000 or 15% compared to the prior year's comparable quarter. Personnel count remained virtually flat year over year. Allocated expenses including rent, office,
telecommunications, travel and contracted expenses in Ukraine increased by $62,000 or 59% due to the increase in end-users migrated to our system.

Project Management (Six Month Period Ended September 30, 2006)

Project management expenses increased by 31% to $840,000 from $642,000 in the six months ended September 30, 2006. Salaries, wages and benefits including
stock option benefits increased by $92,000 or 21% compared to the prior year's comparable quarter. Personnel count remained virtually flat year over year. Allocated expenses including rent, office,
telecommunications, travel and contracted expenses in Ukraine increased by $106,000 or 50% due to the increase in end-users migrated to our system.

Technical Support

|                                                     |  | Three months ended |         | Six months ended |  
|---------------------------------------------------- |  | ------------------ | ------- | ---------------- | -
|
|Technical support                                    |  | $                  | 794,331 |                  | $
|Percent of revenues                                  |  |                    | 14.2    | %                |  
|Increase over comparable prior year period           |  | $                  | 265,255 |                  |  
|Increase over comparable prior year period  percent |  |                    | 50.1    | %                |  

29

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Technical Support (Three Month Period Ended September 30, 2006)

Technical support expenses increased by 50% to $794,000 from $529,000 in the three months ended September 30, 2006. Salaries, wages and benefits including
stock option benefits increased by $187,000 or 43% compared to the prior year's comparable quarter. Personnel count increased by 19 or 32% year over year to support the increase in our
end-users including those from several large contracts that were in various stages of negotiation during the quarter. Allocated expenses including rent, office, telecommunications, travel
and contracted expenses in Ukraine increased by $78,000 or 85% due to the increase in end-users migrated to our system and a related increase in the number of contractors in Ukraine that
assist in handling our written and live chat technical support.

Technical Support (Six Month Period Ended September 30, 2006)

Technical support expenses increased by 43% to $1.5 million from $1.0 million in the six months ended September 30, 2006. Salaries, wages and
benefits including stock option benefits increased by $310,000 or 37% compared to the prior year's comparable quarter. Period end personnel count increased by 19 or 32% year over year year to support
the increase in our end-users. Allocated expenses including rent, office, telecommunications, travel and contracted expenses in Ukraine increased by $133,000 or 71% due to the increase in
end-users and a related increase in the number of contractors in Ukraine that assist in handling our written and live chat technical support.

General and Administrative

|                                                     |  | Three months ended |         | Six months ended |  
|---------------------------------------------------- |  | ------------------ | ------- | ---------------- | -
|
|General and administrative                           |  | $                  | 431,362 |                  | $
|Percent of revenues                                  |  |                    | 7.7     | %                |  
|Increase over comparable prior year period           |  | $                  | 77,782  |                  |  
|Increase over comparable prior year period  percent |  |                    | 22.0    | %                |  

General and Administrative (Three Month Period Ended September 30, 2006)

General and administrative expenses increased by 22% to $431,000 from $353,000 in the three months ended September 30, 2006. Salaries, wages and benefits
including stock option benefits increased by $41,000 or 16% compared to the prior year's comparable quarter. The number of personnel increased by 2 or 13% year over year. Lower professional fees
expense in the three months ended September 30, 2006 compared to the same period of fiscal 2006 were partially offset by an increase in the provision for doubtful accounts receivable resulting
in a net year over year reduction of $13,000. In the three months ended September 30, 2006, we experienced a negative foreign currency expense swing of approximately $44,000 compared to the
three months ended September 30, 2005. Allocated expenses including rent, office, telecommunications and travel increased by $6,000 or 15% due to ongoing business growth. We do anticipate
increases in professional fees including regulatory compliance related expense, higher insurance expenses and increased directors' fees when we become a public company.

General and Administrative (Six Month Period Ended September 30, 2006)

General and administrative expenses increased by 20% to $823,000 from $686,000 in the six months ended September 30, 2006. Salaries, wages and benefits
including stock option benefits increased by $67,000 or 13% compared to the prior year's comparable quarter. The number of end personnel increased by 2 or 13% year over year. Lower professional fees
expense in the six months ended September 30, 2006 compared to the same period of fiscal 2006 were offset by an increase in the provision for doubtful accounts receivable resulting in a net
year over year increase of $7,000. In the six months ended September 30, 2006, we experienced a negative foreign currency expense swing of approximately $40,000 compared to the six months ended
September 30, 2005. Allocated expenses including rent, office, telecommunications and travel increased by $22,000 or 31% due to ongoing business growth.

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Amortization

|                                                     |  | Three months ended |         | Six months ended |  
|---------------------------------------------------- |  | ------------------ | ------- | ---------------- | -
|
|Amortization                                         |  | $                  | 636,306 |                  | $
|Percent of revenue                                   |  |                    | 11.4    | %                |  
|Increase over comparable prior year period           |  | $                  | 234,937 |                  |  
|Increase over comparable prior year period  percent |  |                    | 58.5    | %                |  

Amortization Expense (Three Month Period Ended September 30, 2006)

Amortization expense increased by approximately 59% to $636,000 from $401,000 in the three months ended September 30, 2006. The increase in amortization
expense of $235,000 relates in large part to the 36% increase in property and equipment ($119,000), additions to customer list ($90,000), templates ($4,000) and patents ($22,000) over the last
twelve months.

Amortization Expense (Six Month Period Ended September 30, 2006)

Amortization expense increased by approximately 50% to $1.2 million from $794,000 in the six months ended September 30, 2006. The increase in
amortization expense of $399,000 relates in large part to the 36% increase in property and equipment ($183,000), additions to customer list ($181,000), templates ($13,000) and patents ($22,000) over
the last twelve months.

Interest Income (Three Month Period Ended September 30, 2006)

Interest income increased to $18,000 in the three months ended September 30, 2006 from $4,000 in the three months ended September 30, 2005 due to
the increase in average cash balances invested in short-term bank deposits and the increase in short-term interest rates compared to the three month period ended
September 30, 2006.

Interest Income (Six Month Period Ended September 30, 2006)

Interest income increased to $40,000 in the six months ended September 30, 2006 from $9,000 in the six months ended September 30, 2005 due to the
increase in average cash balances invested in short-term bank deposits and the increase in short-term interest rates compared to

Interest Expense (Three Month Period Ended September 30, 2006)

Interest expense of $4,000 in the three months ended September 30, 2006 was unchanged from the prior year although the source of the expense in the current
year changed to imputed interest expense on long term debt associated with the purchase of Web hosting assets from a customer. Interest expense in the three month period ended September 30,
2005 related to the self-declaration of sales tax on out-of-state purchases of capital assets.

Interest Expense (Six Month Period Ended September 30, 2006)

Interest expense of $8,000 in the six months ended September 30, 2006 increased by $4,000 over the six months ended September 30, 2005 due to
imputed interest on the long term debt related to the purchase of web hosting assets from a customer in January 2006.

Income Tax Expense (Three Month Period Ended September 30, 2006)

Income tax expense of $224,000 in the three months ended September 30, 2006 decreased by $79,000 from the three months ended September 30, 2005 due
to a decline in taxable income. The effective tax rate of 33.7% of pre-tax income is lower than the 36.0% in the three months ended September 30, 2005 due to the decision to tax
effect stock-based compensation expense in the period.

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Income Tax Expense (Six Month Period Ended September 30, 2006)

Income tax expense of $559,000 in the six months ended September 30, 2006 increased by $69,000 from the six months ended September 30, 2005 due to
an increase in taxable income. The effective tax rate of 37.8% of pre-tax income is higher than the 35.2% in the six months ended September 30, 2005 due to a higher percentage of
non-deductible permanent differences in the current period.

Liquidity and Capital Resources

Our primary on-going source of liquidity is our cash flow from operations and our cash and cash equivalents. As of September 30, 2006, we had
$2.4 million in cash and cash equivalents and $1.7 million in working capital, as compared to $3.0 million in cash and cash equivalents and $2.7 million in working capital
as of March 31, 2006. On November 10, 2006, we successfully closed our initial public offering on the Toronto Stock Exchange and expect to add approximately $19 million to our
treasury after deducting the commissions and expenses related to the offering.

While
our net income was $22,000 lower, net cash provided by operations for the six months ended September, 30 2006 increased to $2.4 million from $1.1 million in the six
months ended September 30, 2005. The $1.3 million increase was a primarily a result of a working capital management related to trade accounts receivables. Trade accounts receivable were
a $173,000 source of cash this year compared to a $1.1 million use in the six months ended September 30, 2005, as days sales outstanding declined to 25 days from 33 days at
March 31, 2006. Other working capital items largely offset each other as higher accounts payable and accrued liabilities were offset by higher prepaid expenses and lower income tax payables
related primarily to the growth of our business as well as the timing of various payments. Similarly changes in items not involving cash largely offset each other as a $399,000 increase in
amortization expense, related to the Company's larger infrastructure, and a $100,000 increase in non-cash stock based compensation, related to the adoption of SFAS No. 123R,
was offset by a $505,000 decrease in deferred income tax expense.

We
used $1.3 million of cash resources in financing activities. We used $106,000 to reduce long term debt and $1.2 million to pay professional fees and expenses associated
with our initial public offering. In the first six months of 2005 investing was neither a source nor use of cash.

Net
cash used in investment activities totaled $1.7 million in the six months ended September 30, 2006 compared to $1.0 million in the six months ended
September 30, 2005. In the six months ended September 30, 2006, we purchased $987,000 of property and equipment and invested $746,000 on the purchase of patents and web design templates.
In the six months ended September 30, 2005. We purchased $822,000 of property and equipment and invested $190,000 in web design templates

We
anticipate future operating and capital expenditures will be incurred to continue our business growth, comply with the costs of being a public company and facilitate the payment of
income taxes since we are now subject to income taxes on a current basis. Targeted expenditures will include, but may not be limited to, the following activities:



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We
believe, based on the cash and cash equivalent at September 30 and our projected cash flow from operations, we have sufficient resources to finance our business, including
sales and marketing expenses, research and development expenses and capital expenditures. With the additional cash received on November 10 from our initial public offering, we have, as outlined
in the use of proceeds section in our Registration Statement on Form S-1, the liquidity to make additional investments in our application delivery platform, expand our portfolio of
web service, expand further into the UK marketplace and make strategic investments in complementary businesses, services, products and technologies.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

The operating results and cash flows that we generate through our revenue activities are subject to fluctuations due to changes in foreign currency exchange
rates, particularly changes in the relationship of the Canadian dollar to the U.S. dollar and to a lesser extent U.K. pounds and the Euro given our future plans. We have not entered into
any hedging contracts but we review our currency exposure periodically to ensure that, in the main, our revenues in non-U.S. currencies are reasonably matched by expenses in those
currencies. Sales to customers outside the United States during the six months ended September 30, 2006 comprise approximately 44% in Canada and 1% to the U.K.

Interest Rate Sensitivity

We had unrestricted cash, and short term deposits amounting to $2.4 million at September 30, 2006 and expect to increase our cash by approximately
$19 million on closing our initial public offering. We invest our cash in highly liquid, high quality money market instruments or money market mutual funds.

With
respect to investment risk, amounts surplus to our day-to-day requirements are invested in short term deposits ranging up to 364 days. We do not enter
into investments for trading or speculative purposes. Due to the short term nature of our investments, we believe that we do not have any material exposure to changes in the fair value of our short
term investments as a result of changes in interest rates. However, declines in interest rates will reduce future interest income.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 ("Exchange Act")). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer as appropriate, to allows timely decisions regarding required disclosure.

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PART II    OTHER INFORMATION

Item 1.    Legal Proceedings

From time to time we may be involved in litigation relating to claims arising out of the conduct of our operations. Presently, we are not involved in any material
litigation.

Item 1A.    Risk Factors

In addition to other information disclosed in this Quarterly Report you should also carefully consider the following risk factors:

Risks Related to Our Business

Loss of significant customers could significantly decrease our revenues.

We are dependent on a few customers. As of March 31, 2006, 20 of our customers accounted for approximately 63% of our total monthly revenue, ranging
individually from less than 1% to 11.4% of total revenue, and our top three customers
accounted for approximately 29.3% of our total revenue. While we currently have contracts with these customers, ranging from one to four years in length, the loss of any one of these
20 customers, or the loss of a portion of their business to competitor services, would significantly decrease our total revenue and would adversely affect our business. We may not be able to
reduce our reliance on contracts with a limited number of customers. In addition, a change in the liquidity of any one large customer, or our inability to collect amounts owing to us from any one
large customer, could have a material adverse impact on our financial position.

Our revenue and profit depend upon retention and growth of our customer base as well as their end-user base.

To execute our business plan successfully, we must maintain existing relationships with our customers and establish new relationships with additional
communications services providers that have strong relationships with small and medium-sized businesses. We depend upon our customers' relationships with their end-users. Because we
provide our Web services primarily on a wholesale basis to customers for retail to end-user businesses, our revenues and profits depend upon our customers, adding to their base of
end-users and successfully marketing our Web services to their end-users. While we provide services to assist our customers in attracting new end-users and in
selling additional Web services, our customers may not be successful in selling our services. If we are unable to diversify and extend our customer relationships, our ability to grow our business may
be compromised. In addition, failure of our customers to add new end-users and sell new Web services would decrease our revenues and profits and adversely affect our business.

Our recent profitability may not be sustained.

Although we generated net income for the fiscal years ended March 31, 2006 and 2005, we have not historically been profitable, were not profitable
in any other period since our inception, and we may not be profitable in future periods. As of March 31, 2006, we had an accumulated deficit of approximately $1.2 million. We expect that
our expenses relating to the sale and marketing of our services, technology improvements, and general and administrative functions, as well as the costs of operating and maintaining our technology
infrastructure, will increase in the future. In addition, we may need to incur increased costs to preserve existing customer relationships and to obtain new customers. Accordingly, we will need to
increase our revenues to be able to maintain our profitability. If we are unable to retain our current customers, obtain new customers, develop and sell new Web services to customers or increase our
prices sufficiently to offset increased operating costs, or if we are unable to reduce our expenses in a timely manner, the resulting decreased revenue would adversely affect our operating results and
our level of profitability.

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We may not be able to sustain our average revenue per customer or end-user.

Given the volatile nature of our industry, we may not be able to maintain our average selling prices at their current levels. We may be required, due to
competitive pressures or otherwise, to reduce the prices we charge for our Web services. If we reduce our prices, our margins would decline, which would adversely affect our operating results. Other
circumstances may cause a reduction in our average revenue per end-user including, without limitation: (1) volume discounts provided to our customers, and (2) customers
purchasing lower cost Web services.

We face intense and growing competition not only from other private-label, wholesale Webhosting providers, but also from our customers and our
customers' competitors. If we are unable to compete successfully, our market share will decline and our business will be seriously harmed.

The
market for Web services provided to end-user businesses is competitive. As there are relatively low barriers to entry for the provision of basic Web services, we expect
competition to increase from both established and emerging companies. In addition to other private-label providers of Web services, our actual and potential competitors include:



Some
of these entities compete directly with our customers for the provision of a range of services to end-user businesses. If our customers do not compete
effectively, our end-user base will decrease and our profitability will suffer. Many potential competitors also have longer operating histories, significantly greater financial, technical,
marketing and other resources than we or our customers do, greater brand recognition and, we believe, some have a larger base of end-users. They may be able to adapt more quickly to new or
emerging technologies and changes in end-user requirements. They may also be able to devote greater resources to the promotion and sale of their services than we can. If we and our
customers fail to compete successfully against these current and future competitors, our end-users' demand for our Web services may decline, and our revenue could increase less than
anticipated or decline.

Additionally,
certain of these competitors may offer Web hosting and related services at significantly lower prices than ours or entirely without charge. This could significantly
decrease demand for paid Web hosting and cause us to lower our prices and suffer decreased earnings.

Our
customers and potential customers could also choose to create their own proprietary systems to offer Web services to end-users, instead of purchasing our Web
services. This would result in termination, or non-renewal of existing agreements, a decrease in our revenues, and a decline in our profitability.

We rely on the reliability, security, and performance of our internally developed systems and operations, and any difficulties in maintaining these
systems may result in service interruptions, decreased customer and end-user service, or increased expenditures.

We have experienced system failures or outages in the past, and will likely experience future system failures or outages from time to time that disrupt the
operation of our Web services and harm our business. During limited periods of time, some of our Web services did not function, or had limited functionality, resulting in additional customer
service-related expenses and the provision of credits against future invoices to some customers. Our revenue and profit depend in large part on the availability of our Web services. We have a
contractual obligation to provide all of our customers credits against future invoices in the event that service disruptions occur. Furthermore, customers may terminate their agreements with us as a
result of significant Web service interruptions. If our Web services are unavailable, our revenues and profits could decrease and we could lose customers.

The
software and workflow processes that underlie our ability to deliver our Web services have been developed primarily by our own employees. Human error in software could result
in the inability to provide services or cause unforeseen technical problems. The reliability and continuous availability of our internal systems are critical to our business, and any interruptions
that result in our inability to deliver our Web services, or that materially impact the efficiency or cost with which we provide these Web services, would harm our reputation, profitability and
ability to conduct business.

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We may not be able to integrate our new hardware and software successfully and our reliability, reputation and revenues could suffer.

We expect that many of the software systems we currently use will need to be enhanced over time or replaced, either of which could entail considerable
effort and expense. Our internal systems are comprised of highly customized hardware and software. New software, hardware or networking methodologies must be carefully integrated into our system,
which may require adjustments to interconnected systems. Such upgrades and integrations could result in unforeseen technical problems or the inability to provide services for an extended period of
time. If we fail to develop and execute reliable policies, procedures and tools to operate our infrastructure, we could face a substantial decrease in workflow efficiency and increased costs, as well
as a decline in our revenue and harm to our reputation.

If our security systems are breached we could incur liability, our services may be perceived as not being secure, and our business and reputation
could suffer.

Our business involves the storage and transmission of the proprietary information of end-users. Although we employ internal control procedures
to protect the security of our customers' end-users' data, we cannot guarantee that these measures will be sufficient for this purpose. If our security measures are breached as a result of
a third-party action, employee error or otherwise, and as a result end-users' information becomes available to unauthorized parties, we could incur liability and our reputation would be
damaged, which could lead to the loss of current and potential customers. Breaches of our security could result in misappropriation of personal information, suspension of Website hosting operations or
interruptions in our Web services. If we experience any breaches of our network security or sabotage, we might be required to expend significant capital and other resources to remedy, protect against
or alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. Because techniques used by outsiders to obtain unauthorized network access or to
sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventive measures.

Our
systems are also exposed to computer viruses, denial of service attacks and bulk unsolicited commercial email, or spam. The property and business interruption insurance we carry may
not have coverage adequate to compensate us fully for losses that may occur. Such events could cause loss of service and data to customers and end-users, even if the resulting
disruption is temporary. We could be required to make significant expenditures if our systems are damaged or destroyed, or if the delivery of our services to our customers and end-users is
delayed and our profitability will decline.

In
addition, the U.S. Federal Trade Commission and certain state agencies have investigated various Internet companies' use of their customers' personal information. Various
governments have also enacted laws protecting the privacy of consumers' non-public personal information. Our failure to comply with existing laws (including those of foreign countries),
the adoption of new laws or regulations regarding the use of personal information that require us to change the way we conduct our business or an investigation of our privacy practices could increase
the costs of operating our business.

Our business depends in part on our ability to continue to provide value-added services, many of which are dependent upon a single related party
contractor, and our business will be harmed if we are unable to provide these services in a cost-effective manner.

We rely upon one primary contractor, GeeksForLess Inc. (GFL), a related party by means of common ownership, to develop many of our Web services. Our
continued ability to obtain and provide our Web services at a low cost is central to the success of our business. GFL utilizes the service of programmers and technicians in Ukraine in order to provide
competitive outsourcing prices. There are many risks associated with carrying on business in Ukraine, any or all of which may adversely affect GFL's ability to continue providing
services to us, including:



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If
GFL is unable or unwilling to provide services to us, we could lose our ability to provide many of our Web services at an attractive price to our customers, which could cause our
revenue to decline or our costs to increase.

Most of our Web services are sold by our customers on a month-to-month basis to end-user businesses and, if such
businesses are either unable or unwilling to subscribe to our Web services, our revenue may decrease.

Typically, our Web services are sold by our customers to end-user businesses pursuant to month-to-month subscription
agreements. End-user businesses can generally cancel their subscriptions at any time with little or no penalty. Subscription renewal rates for end-user businesses may decline
due to a variety of factors, including the overall economic environment and its impact on small and medium-sized businesses, the services and prices offered by us and our competitors, and the evolving
use of the Internet by small and medium-sized businesses. If renewal rates for end-user businesses are low or decline for any reason, or if end-user businesses demand renewal
terms that are less favorable to our customers, who in turn demand renewal terms on our wholesale contracts with them that are less favorable to us, our revenue could decrease.

If economic or other factors negatively affect the small and medium-sized business sector, end-users may become unwilling or unable to
purchase our Web services, which could cause our revenue to decline and impair our ability to operate profitably.

The existing and target end-users of our customers include small and medium-sized businesses. These businesses are more likely to be significantly
affected by economic downturns than larger, more established businesses. Additionally, these end-user businesses often have limited funds, which they may choose to spend on items other
than our Web services. If small and medium-sized businesses experience economic hardship, they may be unwilling or unable to expend resources to develop their Internet presence, which would negatively
affect the overall demand for our Web services and could cause our revenue to decline.

We may expand through acquisitions of, or investments in, other companies or technologies, which may result in additional dilution to our stockholders
and consume resources that may be necessary to sustain our business.

One of our business strategies is to acquire complementary services, technologies or businesses. In connection with one or more of these transactions, we
may:



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In
addition, we may not realize the anticipated benefits of any acquisition, including securing the services of key employees. Incurring unknown liabilities or the failure to
realize the anticipated benefits of an acquisition could increase the costs we anticipate with regard to an acquisition and adversely affect our profitability. Any of the foregoing or other factors
could harm our ability to achieve anticipated levels of profitability from acquired services, technologies or businesses, or to realize other anticipated benefits of acquisitions. We may not be able
to identify or consummate any future acquisitions on favorable terms, or at all. If we do effect an acquisition, it is possible that the financial markets or investors will view the acquisition
negatively and the price of our common stock could decline.

Likely fluctuations in our financial results will make it difficult to predict our future performance and may result in volatility in the market price
of our common stock.

Certain factors may contribute to significant fluctuations in our financial results, such as:



These
factors and others all tend to make the timing and amount of our revenue unpredictable and may lead to continued or greater period-to-period fluctuations in
revenue than we have experienced historically. As a result of these factors, we believe that our quarterly revenue and results of operations are likely to vary significantly in the future and that
period-to-period comparisons of our operating results may not be meaningful. You should not rely on the results of one quarter as an indication of future performance. If our
quarterly revenue or results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially.

The systems and data centers we use are vulnerable to natural disasters and other unexpected problems that could lead to interruptions, delays, loss of
data, or the inability to accept and fulfill end-user subscriptions.

We lease space in data centers, containing servers, located in Miami, Florida and Toronto, Ontario. Our accounting, operations, programming, customer service and
sales and marketing departments are located in Toronto, Ontario. Additionally, our U.S. sales office is located in Fort Lauderdale, Florida. Hurricanes, fire, floods, power loss,
telecommunications failures, break-ins, computer sabotage and similar events could damage or destroy these systems and facilities and temporarily prevent us from fulfilling existing
service orders and from securing new orders. Such events could cause loss of service and data to customers and end-users, even if the resulting disruption is temporary. Our business could
be seriously harmed, our revenues could decline, or customers' confidence in our systems could decrease, and we could be required to make significant expenditures if our systems were damaged or
destroyed, or if the delivery of our services to our customers and end-users were delayed or stopped, by any of these occurrences.

We may be unable to respond to the rapid technological changes in our industry and our attempts to respond may require significant capital expenditures.

The Internet and electronic commerce are characterized by rapid technological change. Sudden changes in end-user and customer requirements and
preferences, the frequent introduction of new services embodying new technologies and the emergence of new industry standards and practices could make our Web services and systems obsolete. The rapid
evolution of Internet-based applications and services will require that we continually improve the performance, features and reliability of our Web services. Our success will depend, in part, on
our ability:

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We
have elected to develop a substantial portion of all of our Web services internally, rather than by licensing or acquiring technology from third-party vendors. The development
of new Web services is complex, and we may not be able to complete development in a timely manner, or at all. Our internal development teams may be unable to keep pace with new technological
developments that affect the marketplace for our Web services. If relevant technological developments or changes in the market outpace our ability to develop Web services demanded by current and
prospective customers and their end-users, our existing Web services may be rendered obsolete, and we may be forced to license or acquire software and other technology from third parties,
or we may lose existing customers and fail to attract new customers. If we are forced to shift our strategy toward licensing our core technology from third parties, it could prove to be more costly
than internal development and adversely impact our operating results.

The
development of Web services and other proprietary technology involves significant technological and business risks and requires substantial expenditures and lead-time. We
may be unable to use new technologies effectively or to adapt our internally developed technologies and Web services to customer requirements or emerging industry standards. In addition, as we offer
new Web services and functionality, we will need to ensure that any new Web services and functionality are well integrated with our current Web services, particularly as we offer an increasing number
of our Web services as part of bundled suites. To the extent that any of our new Web services do not integrate well with our existing Web services, our ability to market and sell those new Web
services would be adversely affected and our revenue level and ability to achieve and sustain profitability may be harmed.

The provision of Web services to small and medium-sized businesses which are designed to allow them to establish and maintain an Internet presence is a
new and emerging market; if this market fails to develop, we will not be able to grow our business.

Our success depends on a significant number of small and medium-sized businesses outsourcing Website hosting and management, as well as adopting other online
business services. The market for our Web services resold by our customers is relatively new and untested. If small or medium-sized businesses determine that Internet presence is not giving their
businesses an advantage, they will be less likely to purchase our Web services through our customers. Alternatively, as technology advances, small and medium-sized businesses may establish the
capacity to host their own applications and thereby have no need for our hosting services. If the market for our Web services fails to grow or grows more slowly than we currently anticipate, or if our
Web services fail to achieve widespread acceptance by end-users, demand for our services will decline and our revenue will suffer.

We may be unable to protect our intellectual property adequately or cost-effectively, which may cause us to lose market share or force us to
reduce our prices.

To establish and protect our intellectual property rights, we rely on a combination of copyright, trade secret and trademark laws, confidentiality
procedures, contractual provisions, and other similar measures to protect our proprietary information, all of which offer only limited protection. We currently have no issued patents, and existing
patent applications may not result in issued and valid patents. Any future issued patents or registered trademarks or service marks might not be enforceable or provide adequate protection for our
proprietary rights.

We
enter into confidentiality and proprietary inventions agreements with our employees, and confidentiality or license agreements with consultants, third-party developers and
customers. A large number of third-party developers under contract with us reside in Ukraine and, although we generally have agreements with these third party contractors, Ukraine is an emerging
democracy and we cannot assure you that the terms of these agreements would be adequately enforced under the current legal system in that country.

Because
of the global nature of the Internet, Websites can be viewed worldwide, but we do not have intellectual property protection in every jurisdiction. Furthermore, effective
patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our services become available over the Internet. In addition, the legal standards
relating to the validity, enforceability and scope of protection of intellectual property rights in our industry are uncertain and still evolving.

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The
steps we have taken to protect our intellectual property may not prevent the misappropriation of proprietary rights or the reverse engineering of our technology. Moreover,
others may independently develop technologies that are competitive with or superior to ours or that infringe our intellectual property. The enforcement of our intellectual property rights may depend
on our taking legal action against such infringing parties, and we cannot be sure that these actions will be successful, even when our rights have been infringed. Enforcing our rights to our
technology could be costly, time-consuming and distracting. Any significant failure or inability to adequately protect our proprietary assets will harm our business and reduce our ability
to compete.

We are dependent on our executive officers and our specialized workforce, and the loss of any key member of this team may compromise our ability to
manage our business and pursue our growth strategy successfully.

Our future performance depends largely on the continuing service of our executive officers, senior management team and programming personnel, in particular, Colin
Campbell, William Campbell, Michael Mugan, Paul Engels and Dirk Bhagat. While certain members of our management team, including the key employees referred to in the preceding sentence, have employment
agreements with us, there can be no assurance that one or more of our key employees will not terminate their employment with us and go to work for a competitor after the expiration of any applicable
non-compete period. The loss of one or more of our key employees could make it more difficult for us to advance our services and pursue our business goals, and could seriously harm our
business. Our ability to recruit executive officers, senior management, programmers and other qualified personnel is crucial to our ability to develop, market, sell and support our Web services. We
cannot guarantee that we will be able to recruit qualified candidates and fill important roles within our organization in a timely manner.

Our growth will be adversely affected if we cannot successfully retain, hire, train and manage our key employees, particularly in the sales and customer
service areas.

Our ability to pursue our growth strategy successfully will depend on our continued ability to attract, retain, and motivate key employees throughout our
business. Some key employees may leave to work for a competitor at any time. In particular, we are substantially dependent on our sales and customer service employees to obtain and service new
customers and end-users. Competition for such personnel and others can be intense, and there can be no assurance that we will be able to attract, integrate or retain additional highly
qualified personnel in the future. In addition, our ability to achieve significant growth in revenue will depend, in large part, on our success in effectively training sufficient personnel in these
two areas. New hires require significant training before they achieve full productivity. Our recent and planned hires may not be as productive as we would like, and we may be unable to hire sufficient
numbers of qualified individuals. If we are not successful in retaining our existing employees, or hiring, training and integrating new employees, or if our current or future employees perform poorly,
growth in the sales of our services may not materialize and our business will be harmed due to our inability to compete successfully.

Changes in pricing of bandwidth could have an adverse effect on margins.

Bandwidth is the most significant element in the determination of our cost of sales. An increase in the price of bandwidth could have an adverse effect on gross
margins since we may not be able to increase our prices to compensate. We believe that the ability to access bandwidth is more important than the price. We have therefore implemented arrangements with
several bandwidth providers and have entered into long-term contracts with some of them. If the price of bandwidth were to decrease, our contractual commitment to pay higher prices would
cause us to be less competitive and our business would suffer.

In
addition, since we purchase additional bandwidth based on anticipated growth, our bandwidth expenses are sometimes larger than necessary for our existing needs. Larger than
necessary bandwidth expenses will also increase relative to our needs if our projected growth is delayed or does not occur. This would cause us to be less competitive and less profitable as our costs
would outpace our revenues.

If agreements with third-party suppliers, including bandwidth and software suppliers, are terminated or materially altered, we may not be able to offer
our Web services profitably.

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We
provide some of our Web services through arrangements with third parties, and our continued ability to obtain and provide these Web services is central to the success of our business.
Examples of such services and their respective providers include, but are not limited to, certain software licenses from Microsoft Corporation, anti-virus software from Frisk Software
International, e-commerce applications from eBay Inc. and Miva, Inc., and bandwidth and/or data center services from TELUS Communications Company and NAP of the
Americas, Inc. Some of these agreements may be terminated on short notice and, if any of these third parties were to terminate their relationships with us or modify the economic terms of these
arrangements, we could lose our ability to provide these Web services at a cost-effective price to our customers, which could cause our revenue to decline or our costs to increase.

We
license third-party software to deliver our Web services. In the event that any of these third-party software suppliers dramatically alters the terms under which we are permitted to
use its software, this may have a detrimental effect on our ability to deliver Web services to end-users. This will have a corresponding negative effect on our revenue and profitability.

We
incorporate third-party software as part of our Web services to the majority of our customers. Any radical change to the configuration, distribution or pricing of this third-party
software could negatively affect the profitability of providing these Web services.

Our Web services are dependent upon open source software, which exposes us to uncertainty and potential liability.

We incorporate "open source" software components into our service offerings. These components are typically available without cost but are developed by third
parties over whom we have no control. We have no assurance that these components do not infringe upon the intellectual property rights of others. We could be exposed to infringement claims and
liability in connection with the use of these open source software components. The developers of open source software are under no obligation to maintain or update these software components, and we
may be forced to replace these components with internally developed or commercially licensed software. Certain open source software licenses provide that any software that makes use of or incorporates
components distributed under that license will itself become subject to the same general distribution rights and other terms of that license. As a result, there is a risk that third parties, including
our competitors, could have the right to use and distribute certain elements of our Web services.

Any
disputes which result in a change in intellectual property rights for Linux could cause additional expenses or loss of revenue because our system relies heavily on Linux and Apache,
which are currently open-source and free-of-charge.

Changes in data center facilities could adversely affect our reliability and operating costs.

Our data centers are located in leased premises. While we are in compliance with all material terms of our leases, if we had to relocate to different premises
because the lease for any data center was terminated, or because we were not able to renew or extend the lease for a data center, our services may be interrupted, our reputation could suffer and our
profitability and ability to conduct our business could be materially adversely affected.

Currency fluctuations may adversely affect our revenue and profitability.

We do not currently manage the United States  Canadian dollar exchange rate risk using financial instruments.
We earn revenue and pay expenses in both Canadian and United States dollars and our financial statements are reported in United States dollars. The majority of our employees are
located in Canada and are paid in Canadian dollars. As the Canadian dollar has increased in value against the United States dollar, our Canadian dollar denominated revenues have
increased as reported in United States dollars. The increase in our revenues resulting from the gain of the Canadian dollar against the United States dollar may be diminished or
eliminated if the exchange rate stabilizes. If our Canadian dollar expenses exceed our Canadian dollar revenues, our profitability could decrease.

Being a public company increases our administrative costs.

As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. For example, the
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. These new rules and regulations will increase our
legal and financial compliance costs and make some activities more time-consuming or costly. Further, as a public company we intend to implement additional internal controls and disclosure
controls and procedures, increase our directors and officers insurance coverage, adopt, monitor and enforce an insider trading policy, and have all of the internal and external costs of preparing and
distributing periodic public reports in compliance with our obligations under the securities laws. As a result, our management's attention might be diverted from other business concerns.

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We rely on third-party research which may be inaccurate or incomplete or which we may interpret incorrectly.

We rely on third-party research to support forecasts of market growth, industry trends, market factors and opportunities. Should some or all of this third
party research prove to be inaccurate or incomplete, or if our interpretations of such research are incorrect, we may pursue inappropriate strategies and our projections and estimates of our growth
and profitability could be inaccurate.

Management retains significant influence over our affairs due to their continued share ownership.

Our principal stockholders, most of whom are members of senior management (or their spouses or family trusts), own, or exercise control or direction
over, approximately 50.2% of the outstanding shares of our common stock. Colin Campbell and William Campbell, our Chief Executive Officer and President, respectively, and their mother, Lillian
Campbell, currently own approximately 28.2% of our outstanding stock. Accordingly, current senior management will continue to have a significant influence over our policies and affairs and will be in
a position to determine or influence significantly the outcome of corporate actions requiring stockholder approval, including the election of directors, the adoption of amendments to our charter and
the approval of mergers and sales of our assets.

Our articles of incorporation, bylaws and Delaware state law contain provisions that may have the effect of delaying or preventing a change in control.

Our amended and restated certificate of incorporation authorizes our board of directors to issue up to 10,000,000 shares of preferred stock and to determine the
powers, preferences, privileges, rights (including voting rights), qualifications, limitations and restrictions on those shares, without any further vote or action by the stockholders. The rights of
the holders of shares of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of
shares of preferred stock could have the effect of delaying, deterring or preventing a change in control and could adversely affect the voting power or economic value of the shares of common stock.

New rules, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract
qualified officers and directors, which could adversely affect our business.

The enactment in the United States of the Sarbanes-Oxley Act of 2002, and the adoption of new rules by the Securities and Exchange Commission (SEC),
have changed the manner in which public companies are governed. For example, the new rules and regulations require certifications in public SEC filings from executive officers. Further, some of these
recent changes heighten the requirements for board or committee membership, particularly with respect to an individual's independence from the corporation and level of experience in financial and
accounting matters. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. We therefore may be unable to attract and
retain qualified officers, directors and members of board committees required to provide for our effective management. If we are unable to attract and retain qualified officers and directors, our
ability to sustain and grow our operations will be harmed.

If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, or our internal controls over financial reporting are not
effective, the reliability of our financial statements may be questioned and our share price may suffer.

Section 404 of the Sarbanes-Oxley Act requires any company subject to the reporting requirements of the U.S. securities laws to perform a
comprehensive evaluation of its and its subsidiaries' internal controls over financial reporting. To comply with this law, we will be required to document and test our internal control procedures, our
management will be required to assess and issue a report concerning our internal controls over financial reporting and our independent auditors will be required to issue an opinion on management's
assessment and the effectiveness of those matters. Our compliance with Section 404 of this law will first be reported on in connection with the filing of our annual report on
Form 10-K for the fiscal year ending March 31, 2008. The rules governing the standards that must be met for management to assess our internal controls over financial
reporting are new and complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management
may identify material weaknesses or significant deficiencies which may not be remedied in time to meet the deadline imposed by the SEC rules implementing Section 404. If our management cannot
favorably assess the effectiveness of our internal controls over financial reporting or our auditors identify material weaknesses in our internal controls, investor confidence in our financial results
may weaken, and our share price may suffer.

Risks Related to Our Industry

The success of our business depends on the continued growth of the Internet as a business tool for small and medium-sized businesses.

Expansion in the sales of our Web services will depend on the continued acceptance of the Internet as a communications and commerce platform for small and
medium-sized businesses. The use of the Internet as a business tool could be adversely affected by delays in the development or adoption of new standards and protocols to handle increased demands of
Internet activity, security, reliability, cost, ease-of-use, accessibility, and quality of service. The performance of the Internet and its acceptance as a business tool has
been harmed in the past by viruses, worms, and similar malicious programs, and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its
infrastructure. If for any reason the Internet does not remain a widespread communications medium and commercial platform, or businesses do not continue to become Internet-enabled and maintain an
online presence, the demand by our customers for our services would be significantly reduced.

We could become subject to litigation regarding intellectual property brought by other parties, which could divert management's attention, increase our
legal expenses and prevent us from using or selling the challenged technology.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. This
litigation is particularly prevalent in the technology industry. In addition, there has been an increase in the filing of suits alleging infringement of intellectual property rights. Regardless of the
merits of these suits, many defendants are entering into settlement arrangements quickly to dispose of such suits and thus to avoid publicity and the costs of defending the suits. Other companies or
individuals may pursue litigation against us with respect to intellectual property-based claims. The results of any litigation are inherently uncertain. As currently pending patent applications are
not publicly available, we cannot anticipate all such claims or know with certainty whether our technology infringes the intellectual property rights of third parties. We expect that the number of
infringement claims will increase as the number of services and competitors in our industry grows. In the event of an adverse result in any future litigation with respect to intellectual property
rights relevant to our services, we could be required to:



Our
insurance may not cover potential claims or may not be adequate to indemnify us for damages we incur. Also, litigation frequently involves substantial expenditures and can require
significant management attention, even if we ultimately prevail. If a claim were made against us, regardless of the merits or success, we could be required to expend significant financial and
management resources in the defense of such claim.

Governmental regulation involving the transmission of information over the Internet is evolving, and we may face liability in connection with the
information that is transmitted using our Web services.

The legal framework that applies to the Internet is continually evolving. Laws have been, and likely will continue to be, enacted that address issues of privacy,
security, pricing, taxation, quality and substance of services, and other issues. Because our Web services allow customers to transmit information over the Internet on their own Websites, we may be
found to be liable for any improper information that our end-users transmit. We may face liability for defamation, negligence, copyright, patent or trademark infringement, and other claims
based on the nature and content of the materials being transmitted by way of our Web services. Although we retain discretion to cancel the Web services being provided to end-users if we
learn such content is being transmitted, there can be no guarantee that our end-users will refrain from such transmission or that we will not be held responsible for the content being
transmitted or hosted using our Web services or infrastructure. Government regulations also could affect the cost of communicating on the Internet and could negatively affect the demand for our Web
services, and our business could thereby be harmed.

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Any
legislation making Web service providers specifically responsible for the content of end-users' Websites and email messages located on their infrastructures could
result in our responsibility for all content on our servers, as our customers would be using our infrastructure for providing services to their end-users.

As
our infrastructure contains content for all of our customers' end-users, monitoring the content would represent an enormous and possibly untenable responsibility. Any
legislation of foreign jurisdictions restricting companies from making use of our Web services based on geographic location of data centers or original location of incorporation or any attempts to
halt outsourcing in major markets will have an impact on our business and financial condition.

Governments may in the future levy taxes on Internet access and electronic commerce transactions, which could result in a decrease in the attractiveness
of the Internet to our customers and potential customers, and could reduce demand for our Web services.

Various levels of government in the United States and Canada are grappling with the problem of how to charge income and use taxes on e-commerce
transactions. There is no assurance that various levels of taxing authorities will not promulgate tax laws that could result in new forms of taxation of Internet access and electronic commerce
transactions. An imposition of or increase in taxes may make electronic commerce transactions less attractive for merchants and businesses, which could result in a decrease in the level of demand for
our services.

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Item 6.    Exhibits

|Exhibit Number |  | Description                                                                                                                                  
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|31.1           |  | CEO Certification required by Rule 13a-14(a) or Rule 15d-14(a)                                                                               
|31.2           |  | CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a)                                                                               
|32.1           |  | Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of United States Code (18 U.S.C. §1350)
|32.2           |  | Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of United States Code (18 U.S.C. §1350)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                      |  | HOSTOPIA.COM INC.                                                                                       
|--------------------- |  | --------------------------------------------------------------------------------------------------------
|                      |  |                                                                                                         
|                      |  |                                                                                                         
|November 14, 2006Date |  | /s/COLIN CAMPBELLColin Campbell Chief Executive
Officer                                                 
|                      |  |                                                                                                         
|                      |  |                                                                                                         
|November 14, 2006Date |  | /s/MICHAEL J. MUGANMichael J. Mugan Chief Financial
Officer
(Principal Financial and Accounting Officer)

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Exhibit Index

|Exhibit Number |  | Description                                                                                                                                  
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|31.1           |  | CEO Certification required by Rule 13a-14(a) or Rule 15d-14(a)                                                                               
|31.2           |  | CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a)                                                                               
|32.1           |  | Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of United States Code (18 U.S.C. §1350)
|32.2           |  | Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of United States Code (18 U.S.C. §1350)

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