Tucows Inc. Consolidated Balance Sheets (Dollar amounts in U.S. dollars) (unaudited) June 30, December 31, 2007 2006 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 5,717,412 $ 6,256,392 Restricted cash 510,000 1,019,423 Accounts receivable 4,033,648 2,969,997 Prepaid expenses and deposits 4,037,325 2,394,627 Prepaid domain name registry and other Internet services fees, current portion 24,321,679 22,168,558 Deferred tax asset, current portion 1,000,000 1,000,000 ------------- ------------- Total current assets 39,620,064 35,808,997 Prepaid domain name registry and other Internet services fees, long-term portion 10,110,771 9,511,341 Property and equipment 6,394,697 5,647,532 Deferred tax asset, long-term portion 2,000,000 2,000,000 Intangible assets 17,989,747 18,554,436 Goodwill 12,189,767 12,094,817 Investment 353,737 353,737 Cash held in escrow - 694,579 ------------- ------------- Total assets $ 88,658,783 $ 84,665,439 ------------- ------------- ------------- ------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,901,126 $ 2,867,814 Accrued liabilities 2,502,580 2,567,012 Customer deposits 2,773,653 3,144,119 Deferred revenue, current portion 34,527,977 31,658,081 Accreditation fees payable, current portion 521,844 847,325 Promissory note payable, current portion 6,000,000 - ------------- ------------- Total current liabilities 48,227,180 41,084,351 Deferred revenue, long-term portion 14,485,149 13,478,525 Accreditation fees payable, long-term portion 173,441 163,988 Promissory note payable, long-term portion - 6,000,000 Deferred tax liability 5,396,000 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; 73,735,782 shares issued and outstanding at June 30, 2007 and 75,978,502 shares issued and outstanding at December 31, 2006 14,321,144 15,395,381 Additional paid-in capital 49,347,731 50,359,906 Deficit (43,291,862) (47,212,712) ------------- ------------- Total stockholders' equity 20,377,013 18,542,575 ------------- ------------- Total liabilities and stockholders' equity $ 88,658,783 $ 84,665,439 ------------- ------------- ------------- ------------- Tucows Inc. Consolidated Statements of Operations (Dollar amounts in U.S. dollars) (unaudited) Three months ended June 30, Six months ended June 30, 2007 2006 2007 2006 ------------- ------------- ------------- ------------- Net revenues $ 20,814,881 $ 15,678,856 $ 38,586,098 $ 30,965,976 Cost of revenues: Cost of revenues* 12,198,808 10,066,262 23,431,597 19,994,116 Depreciation of property and equipment 985,430 669,256 1,795,096 1,194,175 Amortization of intangible assets 63,540 38,538 127,072 77,078 ------------- ------------- ------------- ------------- Total cost of revenues 13,247,778 10,774,056 25,353,765 21,265,369 ------------- ------------- ------------- ------------- Gross profit 7,567,103 4,904,800 13,232,333 9,700,607 Expenses: Sales and marketing* 1,480,078 1,572,290 2,824,522 3,031,446 Technical operations and development* 1,752,693 2,090,723 3,564,972 4,411,439 General and administrative* 810,872 948,464 2,309,641 2,567,517 Depreciation of property and equipment 68,267 45,041 129,791 82,091 Amortization of intangible assets 222,741 112,591 456,042 205,884 ------------- ------------- ------------- ------------- Total expenses 4,334,651 4,769,109 9,284,968 10,298,377 ------------- ------------- ------------- ------------- Income (loss) from operations 3,232,452 135,691 3,947,365 (597,770) Other income (expenses): Interest income (expense), net (49,297) 102,662 (90,946) 205,553 Other income, net - - 88,431 473,606 ------------- ------------- ------------- ------------- Total other income (expense) (49,297) 102,662 (2,515) 679,159 ------------- ------------- ------------- ------------- Income before provision for income taxes 3,183,155 238,353 3,944,850 81,389 Provision for income taxes 12,000 12,000 24,000 12,000 ------------- ------------- ------------- ------------- Net income for the period $ 3,171,155 $ 226,353 $ 3,920,850 $ 69,389 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Basic earnings per common share $ 0.04 $ 0.00 $ 0.05 $ 0.00 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Shares used in computing basic earnings per common share 74,447,018 72,527,662 74,950,621 72,255,539 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Diluted earnings per common share $ 0.04 $ 0.00 $ 0.05 $ 0.00 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Shares used in computing diluted earnings per common share 77,375,096 74,704,791 77,633,136 74,540,626 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- * Stock-based compensation has been included in expenses as follows: Cost of revenues $ 4,400 $ 3,200 $ 6,900 $ 5,500 Sales and marketing $ 25,500 $ 18,900 $ 39,700 $ 36,000 Technical operations and develop- ment $ 23,300 $ 27,500 $ 43,400 $ 51,000 General and adminis- trative $ 58,300 $ 29,500 $ 84,200 $ 56,000 Tucows Inc. Consolidated Statements of Cash Flows (Dollar amounts in U.S. dollars) (unaudited) Three months ended June 30, Six months ended June 30, 2007 2006 2007 2006 ------------- ------------- ------------- ------------- Cash provided by (used in): Operating activities: Net income for the period $ 3,171,155 $ 226,353 $ 3,920,850 $ 69,389 Items not involving cash: Depreciation of property and equipment 1,053,697 714,297 1,924,887 1,276,266 Amortization of intangible assets 286,281 151,129 583,114 282,962 Unrealized change in the fair value of forward exchange contracts (885,652) (378,846) (1,102,441) (195,902) Stock-based compensation 111,500 78,300 174,200 148,500 Change in non-cash operating working capital: Interest receivable - (3,047) - 34,547 Accounts receivable (211,028) (335,071) (1,063,651) (2,162,713) Prepaid expenses and deposits (310,274) (24,292) (1,037,510) (20,879) Prepaid fees for domain name registry and other Internet services fees (771,898) (1,858,622) (2,752,551) (4,171,670) Accounts payable (337,450) 2,577,875 (745,587) 3,070,542 Accrued liabilities (216,318) (259,966) 432,821 1,067,114 Customer deposits (195,342) 420,423 (370,466) 568,257 Deferred revenue 979,595 2,151,830 3,876,520 5,196,350 Accreditation fees payable (315,320) (240,100) (316,028) (108,836) ------------- ------------- ------------- ------------- Cash provided by operating activities 2,358,946 3,220,263 3,524,158 5,053,927 ------------- ------------- ------------- ------------- Financing activities: Proceeds received on exercise of stock options 85,272 27,401 186,343 55,410 Repurchase of shares (1,119,455) - (2,446,955) - ------------- ------------- ------------- ------------- Cash (used in) provided by financing activities (1,034,183) 27,401 (2,260,612) 55,410 ------------- ------------- ------------- ------------- Investing activities: Cost of domain names acquired 10,303 - (18,425) - Additions to property and equipment (1,690,523) (2,405,146) (2,893,153) (3,291,425) Decrease in investment in short-term investments - 72,000 - 1,771,569 Decrease (increase) in restricted cash - being margin security against forward exchange contracts 257,785 190,042 509,423 (362,458) 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 (90,050) (6,419,485) Acquisition of Boardtown Corporation, net of cash acquired (4,900) - (4,900) - (Increase) decrease in cash held in escrow - (18,507) 694,579 (1,785,011) ------------- ------------- ------------- ------------- Cash used in investing activities (1,427,335) (7,828,544) (1,802,526) (15,917,712) ------------- ------------- ------------- ------------- Decrease in cash and cash equivalents (102,572) (4,580,880) (538,980) (10,808,375) Cash and cash equivalents, beginning of period 5,819,984 11,120,593 6,256,392 17,348,088 ------------- ------------- ------------- ------------- Cash and cash equivalents, end of period $ 5,717,412 $ 6,539,713 $ 5,717,412 $ 6,539,713 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Supplemental cash flow information: Interest paid $ 105,000 $ - $ 210,000 $ - Supplementary disclosure of non-cash investing activity: Capital assets acquired during the period not yet paid for $ 163,169 $ - $ 163,169 $ - Common stock issued on the acquisition of Mailbank.com Inc. $ - $ 2,877,070 $ - $ 2,877,070 Promissory notes issued on the acquisition of Mailbank.com Inc. $ - $ 8,122,930 $ - $ 8,122,930 Tucows Inc. Reconciliation of EBITDA and Adjusted Net Income (Dollar amounts in U.S. dollars) (unaudited) Three months ended June 30, Six months ended June 30, 2007 2006 2007 2006 ------------- ------------- ------------- ------------- Net income for the period $ 3,171,155 $ 226,353 $ 3,920,850 $ 69,389 Depreciation of property and equipment 1,053,697 714,297 1,924,887 1,276,266 Amortization of intangible assets 286,281 151,129 583,114 282,962 Interest income (expense), net 49,297 (102,662) 90,946 (205,553) Provision for income taxes 12,000 12,000 24,000 12,000 ------------- ------------- ------------- ------------- EBITDA 4,572,430 1,001,117 6,543,797 1,435,064 ------------- ------------- ------------- ------------- Adjustments to EBITDA(1) Change in prepaid domain name registry and other Internet services fees (771,898) (1,858,622) (2,752,551) (4,171,670) Change in deferred revenue 979,595 2,151,830 3,876,520 5,196,350 Dividend income - - (88,431) - Transitional costs - 464,579 - 1,278,842 Other income - - - (473,606) Reversal of contingencies (93,749) - (451,249) - ------------- ------------- ------------- ------------- Subtotal Adjustments to EBITDA 113,948 757,787 584,289 1,829,916 ------------- ------------- ------------- ------------- Adjusted Net Income $ 4,686,378 $ 1,758,904 $ 7,128,086 $ 3,264,980 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (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. 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 $207,697 for the three months ended June 30, 2007 compared to $293,208 for the three months ended June 30, 2006. For the six months ended June 30, 2006, we incurred $1.3 million 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 $1.1 million for the six months ended June 30, 2007 compared to $1.0 million for the six months ended June 30, 2006.