TUCOWS FINANCIAL STATEMENTS, Q1 2006

Consolidated Balance Sheets
Consolidated Statements of Operations
Reconciliation of EBITDA and Adjusted EBITDA
Consolidated Statements of Cash Flows


Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
(unaudited)

June 30,
2006
December 31,
2005
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 6,539,713 $ 17,348,088
Short-term investments - 1,771,569
Restricted cash 422,458 60,000
Interest receivable 5,027 39,574
Accounts receivable 3,658,609 1,439,329
Prepaid expenses and deposits 2,830,814 1,999,820
Prepaid domain name registry and other Internet services fees, current portion 21,142,361 18,175,988
Cash held in escrow 584,382 -
Deferred tax asset, current portion 1,000,000
1,000,000
Total current assets 36,183,364 41,834,368
Prepaid domain name registry and other Internet services fees, long-term portion 8,907,236 7,701,939
Deferred acquisition costs - 46,034
Property and equipment 5,654,796 1,542,671
Deferred tax asset, long-term portion 2,000,000 2,000,000
Intangible assets 18,848,118 1,006,080
Goodwill 5,694,046 1,951,067
Investment 353,737 353,737
Cash held in escrow 1,781,342
621,412
Total assets $ 79,422,639
$ 57,057,308
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,405,505 $ 1,655,195
Accrued liabilities 3,009,736 1,417,035
Customer deposits 2,844,894 2,276,637
Deferred revenue, current portion 30,608,344 26,790,166
Accreditation fees payable, current portion 505,539 651,811
Note payable 2,122,930
-
Total current liabilities 44,496,948 32,790,844
Deferred revenue, long-term portion 12,621,678 11,079,537
Accreditation fees payable, long-term portion 132,222 94,785
Note payable 6,000,000 -
Stockholders' equity:
Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding - -
Common stock - no par value, 250,000,000 shares authorized; 75,667,220 shares issued and outstanding at June 30, 2006 and 71,945,303 shares issued and outstanding at December 31, 2005 15,265,182 12,403,422
Additional paid-in capital 50,210,366 50,061,866
Deficit (49,303,757)
 (49,373,146)
Total stockholders' equity 16,171,791
13,092,142
Total liabilities and stockholders' equity $ 79,422,639
$ 57,057,308


Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
(unaudited)

Three months ended
June 30,		 Six months ended
June 30,
2006
 2005
 2006
 2005
Net revenues $ 15,678,856 $ 12,002,138 $ 30,965,976 $ 23,803,844
Cost of revenues:
Cost of revenues (*) 10,066,262 7,586,612 19,994,116 14,807,817
Depreciation of property and equipement 669,256 124,143 1,194,175 206,080
Amortization of intangible assets 38,538
-
 77,078
-
Total cost of revenues 10,774,056
7,710,755
21,265,369
15,013,897
Gross profit 4,904,800 4,291,383 9,700,607 8,789,947
Operating expenses:
Sales and marketing (*) 1,572,290 1,166,058 3,031,446 2,518,511
Technical operations and development (*) 2,090,723 1,356,058 4,411,439 2,678,843
General and administrative (*) 948,464 1,146,725 2,567,517 2,537,487
Depreciation of property and equipment 45,041 152,726 82,091 312,663
Amortization of intangible assets 112,591
59,040
205,884
118,080
Total operating expenses 4,769,109
3,880,607
10,298,377
8,165,584
Income (loss) from operations 135,691 410,776 (597,770) 624,363
Other income:
Interest income, net 102,662 96,856 205,553 174,104
Other income -
 -
 473,606
-
Total other income 102,662
96,856
679,159
174,104
Income before provision for income taxes 238,353 507,632 81,389 798,467
Provision for (recovery of) income taxes 12,000 - 12,000 (151,975)




Net income for the period $ 226,353
$ 507,632
$ 69,389
$ 950,442
Basic earnings per share $ -
 $ 0.01
$ -
 $ 0.01
Shares used in computing basic earnings per common share 72,527,662
65,991,867
72,555,539
67,376,440
Diluted earnings per share $ -
 $ 0.01
$ -
 $ 0.01
Shares used in computing diluted earnings per common share 74,704,791
68,744,679
74,540,626
71,763,526
(*) Stock-based compensation has been included in operating expenses as follows:
Cost of revenues $ 3,100 $ - $ 5,500 $ -
Sales and marketing $ 18,600 $ - $ 36,000 $ -
Technical operations and development $ 27,300 $ - $ 51,000 $ -
General and administrative $ 29,300 $ - $ 56,000 $ -


Tucows Inc.
Reconciliation of EBITDA and Adjusted EBITDA
(Dollar amounts in U.S. dollars)
(unaudited)
Three months ended
June 30,		 Six months ended
June 30,
2006
 2005
 2006
 2005
Net income for the period $ 226,353 $ 507,632 $ 69,389 $ 950,442
Depreciation of property and equipment 714,297 276,870 1,276,266 518,743
Amortization of intangible assets 151,129 59,040 282,962 118,080
Interest income, net (102,662) (96,856) (205,553) (174,104)
Provision for (recovery of) income taxes 12,000
-
 12,000
(151,975)
EBITDA 1,001,117
746,686
1,435,064
1,261,186
Adjustments to EBITDA (1)
Change in prepaid fees for domain name registry and other Internet services fees (1,858,622) (835,394) (4,171,670) (2,837,609)
Change in deferred revenue 2,151,830 888,976 5,196,350 3,394,465
Transitional costs 464,579 - 1,278,842 -
Other income -
 -
 (473,606)
 -
Subtotal Adjustments to EBITDA 757,787
53,582
1,829,916
556,856
Adjusted EBITDA $ 1,758,904
 $ 800,268
$ 3,264,980
$ 1,818,042
(1) Adjustments to EBITDA
We define Adjusted EBITDA as net income adjusted for depreciation, amortization, interest, taxes and further adjusted for certain cash and non-cash charges. For the six months ended june 30, 2006, we incurred $1,278,842 of transitional costs in connection with our acquisition of the Hosted Messaging assets of Critical Path. In addition, during the six months ended June 30, 2006, we received $473,606 in connection with settlements related to patents we acquired in the merger with Infonautics in 2001. The net amount of cash we collected for domain registrations and other Internet services paid for the full term at the time of activation and deferred, amounted to $1,024,680 for the six months ended June 30, 2006 compared to $556,856 for the six months ended June 30, 2005.


Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
(unaudited)
Three months ended
June 30,		 Six months ended
June 30,
2006
 2005
 2006
 2005
Cash provided by (used in):
Operating activities:
Net income for the period $ 226,353 $ 507,632 $ 69,389 $ 950,442
Items not involving cash:
Depreciation of property and equipment 714,297 276,870 1,276,266 518,743
Amortization of intangible assets 151,129 59,040 282,962 118,080
Unrealized change in the fair value of forward exchange contracts (378,846) - (195,902) 107,628
Stock-based compensation 78,300 - 148,500 -
Change in non-cash operating working capital:
Interest receivable (3,047) - 34,547 -
Accounts receivable (335,071) (8,380) (2,162,713) (159,977)
Prepaid expenses and deposits (24,292) 83,467 (20,879) 410,803
Prepaid fees for domain name registry and other Internet services fees (1,858,622) (835,394) (4,171,670) (2,837,609)
Accounts payable 2,577,875 (103,675) 3,070,542 (60,713)
Accrued liabilities (259,966) 335,452 1,067,114 (675,339)
Customer deposits 420,423 (30,742) 568,257 (108,869)
Deferred revenue 2,151,830 888,976 5,196,350 3,394,465
Accreditation fees payable (240,100)
 301,495
(108,836)
 472,352
Cash provided by operating activities 3,220,263
1,474,741
5,053,927
2,130,006
Financing activities:
Proceeds received on exercise of stock options 27,401
5,416
55,410
186,439
Cash provided by financing activities 27,401
5,416
55,410
186,439
Investing activities:
Additions to property and equipment (2,405,146) (625,169) (3,291,425) (826,077)
Decrease (increase) in investment in short-term investments 72,000 (7,771,453) 1,771,569 (7,771,453)
Decrease (increase) in restricted cash - being margin security against forward exchange contracts 190,042 - (362,458) 460,398
Acquisition of Mailbank.com Inc., net of cash acquired (5,830,902) - (5,830,902) -
Acquisition of Hosted Messaging Assets, net of cash acquired 163,969 - (6,419,485) -
(Decrease) increase in cash held in escrow (18,507)
 396,604
(1,785,011)
 392,888
Cash (used in) investing activities (7,828,544)
 (8,000,018)
 (15,917,712)
 (7,744,244)
Decrease in cash and cash equivalents (4,580,880) (6,519,861) (10,808,375) (5,427,799)
Cash and cash equivalents, beginning of period 11,120,593
15,007,050
17,348,088
13,914,988
Cash and cash equivalents, end of period $ 6,539,713
$ 8,487,189
$ 6,539,713
$ 8,487,189