Hostopia Reports First Quarter Results to June 30, 2007

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

Highlights

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

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

Financial Results for the First Quarter of Fiscal 2008

Revenues increased 15.9% to $6.3 million in the three months ended June 30, 2007, compared to the same period last year. This was the 29th consecutive quarter of higher revenues. Sequential revenue growth of 6.8% in the first quarter was primarily due to the migration of 375,000 email accounts onto the Hostopia platform, as well as website end-user growth from existing and new customers.

In the first quarter, gross profit of $5.4 million increased by $660,000 compared to last year as higher revenues were partially offset by a 1.5% decline in gross margin. Income before interest and income taxes was $385,000, down $411,000 from the first quarter of last year. This decrease was due to a $1.1 million increase in operating expenses resulting primarily from:

(1) increased personnel to develop the new revenue opportunities of Website Experts and the Nexthaus syncing technology that are still in the revenue development phase,
(2) higher amortization expenses related to the acquisition of licensed technology and Nexthaus,
(3) higher technical support costs to service our larger end-user base,
(4) higher project management costs associated with the migration of email accounts onto our platform and
(5) significantly higher general and administration expenses related to public
company costs.

As revenues continue to grow over the remainder of the year, both from our existing and expanding customer base as well as additional product offerings, we expect our quarterly income before interest and taxes will improve back towards and then through the level achieved in fiscal 2007.

Income before income taxes of $706,000 was $107,000 lower than the same period last year as lower income before interest and taxes was largely offset by $304,000 higher net interest income. Net income of $413,000 was $65,000 lower than last year. Basic and diluted net income per common share were $0.04, compared to $0.11 and $0.07 respectively for the first quarter of last year. Net income per share declined primarily because of the significant increase in shares outstanding related to the Company's public offering of 4.83 million shares in the third quarter of last year.

Subsequent events

In July, Hostopia began the process of opening a new customer contact and interaction center in Miramichi, New Brunswick.

In August, Hostopia entered into a license agreement with j2 Global Communications, Inc. for its fax-to-email patents. This agreement enables Hostopia to enter the wholesale services market for fax-to-email applications to sell to telecommunication providers.

Outlook

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

About Hostopia.com Inc.

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