Appendix C
Notes and Assumptions to Significant Financial Projection Model Items
FINANCIAL PROJECTIONS
The following are supplemental notes and assumptions, for each Confidence Level, for significant revenue and expense items contained in the financial model projections. The financial model consists of the following financial schedules:
Schedule A: Summary Profit & Loss Statement, Balance Sheet, and Cash Flow Statement with Annual Summaries  
Schedule B: Detailed Revenue Model, Detailed Profit & Loss Statement, and Balance Sheet  
Schedule C: Headcount and Expenses Detail  
Schedule D: Capital Expenditures and forecast depreciation and amortization tables  
Schedule E: Revenue Accrual Tables (Revenue Waterfall)  
Schedule F: Registry Fee Accrual Tables (Core Registry Fee Waterfall)  
Schedule G: Annual Anniversary Payments Schedule for Core Registry Fees and ICAAN Cost Recovery Fees  
Schedule H: First Year Registration Demand and Marketing Spend Projections  
Schedule I: Summary Technology Systems Development and Support Staffing and Equipment Leasing 
Item  10% Confidence Level  50% Confidence Level  90% Confidence Level  
GENERAL:  
Projection Time Horizon  5 Years  5 Years  5 Years  
Basis  Monthly with Annual Totals and Annual Summary  Monthly with Annual Totals and Annual Summary  Monthly with Annual Totals and Annual Summary  
Registry Operations  The 10% Confidence Level projections assume that physical registry infrastructure and operations are subcontracted to a thirdparty in years 12. In Year 3, the projections assume registry infrastructure and operations are performed "inhouse".  The 50% Confidence Level projections assume that physical registry infrastructure and operations are subcontracted to a thirdparty in years 12. In Year 3, the projections assume registry infrastructure and operations are performed "inhouse".  The 90% Confidence Level projections assume that physical registry infrastructure and operations are subcontracted to a thirdparty for the entire projection horizon, years 15. In this scenario, management has concluded that the lower registration volumes and resulting economics indicate that the optimal operating structure for the registry is the subcontracting configuration.  
REVENUE MODEL:  
New Registrations  New registrations projections have been established in part based on the level of marketing spend and support contemplated by the consortium and participating registrars. Generally, a base or "steadystate" estimate of new domain registrations has been estimated. A multiple of this base estimate is used to calculate projected activity in the "Sunrise" period and initial startup period for the new TLD. Monthly growth rates corresponding to each confidence level have been applied to the base registrations estimated to arrive registration activity for all other periods  Same  Same  
Registration Term  All confidence level projections assume that initial registrations will be offered for a period of 210 years. Additionally, the projections reflect offering a mandatory, initial 5year registration for intellectual property owners during the "Sunrise" period. Furthermore, the projections assume that renewal terms offered are 110 years.  Same  Same  
Use of Weighted Averages in Registration / Renewal Term Projections  Projections for all confidence
levels utilize weighted average
registrations periods based on
historical activity and the planned
registration terms to be offered.
The weighted average approach
assigns to each registration term
offered a percentage that it is
expected that the registration term
will represent of total registrations.
For all confidence levels, average
registration periods have been
estimated as follows:

Same  Same  
Domain Years  Domain years, as used in the revenue model, is the product of the total number of registrations and/or renewals and the weighted average registration / renewal term. This factor effectively represents sales units or the number of registration years sold in any given period.  Same  Same  
Renewable Rate  Projections at the 10% confidence level assume a renewal rate of 80%.  Projections at the 50% confidence level assume a renewal rate of 70%.  Projections at the 90% confidence level assume a renewal rate of 60%.  
Registration Revenue (Cash) Vs Registration Revenue (Actual  Registration Revenue (Cash) represents the cash proceeds received in the period (domain years x the per year, per name registration price). Registration Revenue (Accrual) represents the amount of revenue recognized under Generally Accepted Accounting Principals (GAAP), where revenues are recognized in the period they are earned, for financial reporting purposes.  Same  Same  
Revenues from Domain Name Transfers  The projections assume that transfers of domain names between registrars generates a registration fee at the time of transfer. The projections further assume that on average, this activity will occur prior to the expiration of a registration term and, on average, will result in an incremental revenue yield equating to 0.5 years registration fee. The projections reflect the cash received from transfer activity as well as the recognized accrual basis revenue attributable to transfer activity.  Same  Same  
SIGNIFICANT OPERATING COST ITEMS:  
ICANN Cost Recovery Fee  The projections assume a cost recovery fee to be remitted to ICANN is charged per domain name, per annum. The fee is effectively treated as a passthrough item. The fee is collected based on the number of domain names purchased. Payment to ICANN is made on a yearly basis, payable on the anniversary date of a domain registration.  Same  Same  
Core Registry Fee  Core Registry Fee represents the per name, per year fee charged by the registry operator (subcontracted technology provider). The fee is payable on an annual basis on the anniversary period of a domain name. Pricing is based on negotiations with several thirdparty technology providers and is constant at each confidence level. Within the model, Core Registration Fee (Cash) represents total cash outflow, which is effectively a 1 year prepayment of this fee to the technology provider. Core Registration Fee (Accrual) in the model represents the amount of Core Registry Fees recognized for financial reporting purposes under GAAP. This fee is relevant to the projections for this confidence level only in years 12, since the projections assume this function is performed "inhouse" in year 3.  Same.
This fee is relevant to the projections for this confidence level only in years 12, since the projections assume this function is performed "inhouse" in year 3. 
Same.
This fee is relevant to the projections for this confidence level for the entire projections horizon since the projections assume that the function will be outsourced for years 15.  
Equipment Operating Leases  In accordance with the planned build out of an internal registry infrastructure the projections include lease costs associated with the equipment required. Based on the estimates obtained, these leases do not qualify as capital leases and thus, are not reflected on the balance sheets. Under the 10% confidence level, operating lease charges begin late in Year 2. A summarized equipment / operating lease list is contained in Schedule I of the financial projections.  Same  Not applicable to this Confidence Level, since relevant to the 90% confidence level assume a subcontracting of the registry infrastructure model assumes to a thirdparty technology provider.  
Satellite Offices  The financial projections assume the deployment of at least 12 satellite operations to provide better geographic coverage and provisioning of the registry operator services. With the exception of the specific headcount associated with the planned satellite offices, other costs are not explicitly delineated in the financial projections, but are accounted for by the model. 10% confidence level includes 2 satellite offices.  Same. 50% Confidence level contemplates 2 satellite offices.  Same. 90% confidence level anticipates 1 satellite office.  
OTHER NOTABLE ITEMS:  
Treatment of Income Taxes  Projections regarding estimated Income Taxes, made at a standard 40% against accrual financial statements, are likely to be materially understated, resulting from the substantial unearned income under accrual financial accounting methods. The estimated taxes do not reflect any attempt to restate the financial accounting to a cash basis which would better estimate tax liability for such an operation.  Same  Same  
Equity Contribution  The projections include the financial contribution of member registrars of $4.79 million.  Same  Same 