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)

September 30,
2006
December 31,
2005
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3,546,933 $ 17,348,088
Short-term investments - 1,771,569
Restricted cash 262,834 60,000
Interest receivable - 39,574
Accounts receivable 5,757,226 1,439,329
Prepaid expenses and deposits 2,297,150 1,999,820
Prepaid domain name registry and other Internet services fees, current portion 21,777,022 18,175,988
Cash held in escrow - -
Deferred tax asset, current portion 1,000,000
1,000,000
Total current assets 34,641,165 41,834,368
Prepaid domain name registry and other Internet services fees, long-term portion 9,330,713 7,701,939
Deferred acquisition costs - 46,034
Property and equipment 5,698,689 1,542,671
Deferred tax asset, long-term portion 2,000,000 2,000,000
Intangible assets 18,851,277 1,006,080
Goodwill 11,977,086 1,951,067
Investment 353,737 353,737
Cash held in escrow 801,725
621,412
Total assets $ 83,654,392
$ 57,057,308
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,595,011 $ 1,655,195
Accrued liabilities 3,227,884 1,417,035
Customer deposits 2,851,428 2,276,637
Deferred revenue, current portion 31,522,474 26,790,166
Accreditation fees payable, current portion 504,966 651,811
Total current liabilities 40,701,763 32,790,844
Deferred revenue, long-term portion 13,213,970 11,079,537
Accreditation fees payable, long-term portion 152,197 94,785
Promissory note payable 6,000,000 -
Deferred tax liability 5,396,000 -
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; 75,732,220 shares issued and outstanding at September 30, 2006 and 71,945,303 shares issued and outstanding at December 31, 2005 15,287,732 12,403,422
Additional paid-in capital 50,271,866 50,061,866
Deficit (47,369,136)
 (49,373,146)
Total stockholders' equity 18,190,462
13,092,142
Total liabilities and stockholders' equity $ $83,654,392
$ 57,057,308


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

  Three months ended
September 30,		 Nine months ended
September 30,
  2006
 2005
 2006
 2005
                 
Net revenues $ 16,864,320 $ 12,054,796 $ 47,830,296 $ 35,858,640
                 
Cost of revenues:                
Cost of revenues (*)   10,464,829   7,676,713   30,458,945   22,484,530
Depreciation of property and equipment   695,624   113,539   1,889,799   319,619
Amortization of intangible assets   66,550
  19,290
  143,628
  57,870
Total cost of revenues   11,227,003
  7,809,542
  32,492,372
  22,862,019
                 
Gross profit   5,637,317   4,245,254   15,337,924   12,996,621
                 
Operating expenses:                
Sales and marketing (*)   1,706,951   1,150,674   4,738,397   3,669,185
Technical operations and development (*)   1,924,435   1,468,624   6,335,874   4,147,467
General and administrative (*)   1,698,012   820,860   4,265,529   3,358,347
Depreciation of property and equipment   43,025   99,883   125,116   412,546
Amortization of intangible assets   230,291
  39,750
  436,175
  119,250
Total operating expenses   5,602,714
  3,579,791
  15,901,091
  11,706,795
                 
Income (loss) from operations   34,603   665,463   (563,167)   1,289,826
                 
Other income (expenses):                
Interest income (expenses), net   (70,297)   122,755   135,256   296,859
Other income   1,873,420
  -
   2,347,026
  -
Total other income   1,803,123
  122,755
  2,482,282
  296,859
                 
Income before provision for income taxes   1,837,726   788,218   1,919,115   1,586,685
                 
Recovery of income taxes   (96,895)   -   (84,895)   (151,975)
     
    
    
    
 Net income for the period  $ 1,934,621
 $ 788,218
 $ 2,004,010
 $ 1,738,660
                 
                 
Basic earnings per share $ 0.03
$ 0.01
$ 0.03
$ 0.03
                 
Shares used in computing basic earnings per common share   75,706,078
  69,602,723
  73,418,358
  68,126,691
                 
Diluted earnings per share $ 0.02
$ 0.01
$ 0.03
$ 0.02
         
Shares used in computing diluted earnings per common share   78,214,560
  73,145,627
  75,852,576
  72,243,523
         
                 
(*) Stock-based compensation has been included in operating expenses as follows:                
 Cost of revenues $ 2,200 $ - $ 7,700 $ -
Sales and marketing $ 23,200 $ - $ 79,200 $ -
Technical operations and development $ 14,800 $ - $ 50,800 $ -
General and administrative $ 21,300 $ - $ 72,300 $ -
                 
                 


Tucows Inc.
Reconciliation of EBITDA and Adjusted EBITDA
(Dollar amounts in U.S. dollars)
(unaudited)
Three months ended
September 30,		 Nine months ended
September 30,
2006
 2005
 2006
 2005
Net income for the period $ 1,934,621 $ 788,218 $ 2,004,010 $ 1,738,660
Depreciation of property and equipment 738,649 213,422 2,014,915 732,165
Amortization of intangible assets 296,841 59,040 579,803 177,120
Interest income, net 70,297 (122,755) (135,256) (296,859)
Provision for (recovery of) income taxes (96,895)
-
 (84,895)
(151,975)
EBITDA 2,943,513
937,925
4,378,577
2,199,111
Adjustments to EBITDA (1)
Change in prepaid fees for domain name registry and other Internet services fees (1,058,139) (535,643) (5,229,809) (3,373,252)
Change in deferred revenue 1,506,423 674,016 6,702,773 4,068,481
Transitional costs - - 1,278,842 -
Other income (1,873,420)
 -
 (2,347,026)
 -
Subtotal Adjustments to EBITDA (1,425,136)
138,373
404,780
695,229
Adjusted EBITDA $ 1,518,377
$ 1,076,298
$ 4,783,357
$ 2,894,340
(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 nine months ended September 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 nine months ended September 30, 2006, we received $2,347,026 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 $1,472,964 for the nine months ended September 30, 2006 compared to $695,229 for the nine months ended September 30, 2005.


Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
(unaudited)
  Three months ended
September 30,		 Nine months ended
September 30,
  2006
 2005
 2006
 2005
Cash provided by (used in):                
Operating activities:                
 Net income for the period  $ 1,934,621 $ 788,218 $ 2,004,010 $ 1,738,660
Items not involving cash:                
Depreciation of property and equipment   738,649   213,422   2,014,915   732,165
Amortization of intangible assets   296,841   59,040   579,803   177,120
Unrealized change in the fair value of forward exchange contracts   145,177   (290,177)   (50,725)   (182,549)
Stock-based compensation   61,500   -   210,000   -
Change in non-cash operating working capital:                
Interest receivable   5,027   (115,739)   39,574   (115,739)
Accounts receivable   (2,100,231)   (91,828)   (4,262,944)   (251,805)
Prepaid expenses and deposits   388,487   240,682   367,608   651,485
Prepaid fees for domain name registry and other Internet services fees   (1,058,139)   (535,643)   (5,229,809)   (3,373,252)
Accounts payable   (2,213,494)   292,579   857,048   231,866
Accrued liabilities   135,838   (269,556)   1,202,952   (944,895)
Customer deposits   6,534   31,497   574,791   (77,372)
Deferred revenue   1,506,423   674,016   6,702,773   4,068,481
Accreditation fees payable   19,402
  (204,296)
  (89,434)
   268,056
Cash (used in) provided by operating activities   (133,365)
  792,215
  4,920,562
  2,922,221
                 
Financing activities:                
Proceeds received on exercise of stock options   43,550   65,177   98,960   251,616
Net proceeds received on issuance of common stock, net of issue costs   -   2,024,025   -   1,574,675
Repayment of promissory note payable   (2,122,930)
  -
  (2,122,930)
  -
Cash (used in) provided by financing activities   (2,079,380)
  2,089,202
  (2,023,970)
  1,826,291
                 
Investing activities:                
Additions to property and equipment   (787,824)   (301,604)   (4,079,249)   (1,127,681)
Decrease (increase) in investment in short-term investments   -   -   1,771,569   (7,771,453)
Decrease (increase) in restricted cash - being margin security against forward exchange contracts   159,623   (300,000)   (202,835)   160,398
Acquisition of Mailbank.com Inc., net of cash acquired   (655,830)   -   (6,486,732)   -
Acquisition of Hosted Messaging Assets, net of cash acquired   (1,037,303)   -   (7,456,788)   -
Acquisition of Boardtown Corporation, net of cash acquired   (22,700)   -   (22,700)   -
(Decrease) increase in cash held in escrow   1,563,999
  (2,320)
  (221,012)
   390,568
Cash (used in) investing activities   (780,035)
   (603,924)
   (16,697,747)
   (8,348,168)
                 
(Decrease) in cash and cash equivalents   (2,992,780)   2,277,493   (13,801,155)   (3,599,656)
Cash and cash equivalents, beginning of period   6,539,713
  8,037,839
  17,348,088
  13,914,988
Cash and cash equivalents, end of period $ 3,546,933
$ 10,315,332
$ 3,546,933
$ 10,315,332
                 
                 


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