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Toronto, Canada - (Cheap Web Hosting Directory) - August 22, 2006 - Internet services provider, Tucows, reported financial results for the second quarter of fiscal 2006 ending June 30, 2006. Highlights for the second quarter include the successful completion of the acquisition and integration of Mailbank.com Inc. (NetIdentity).

Other featured highlights include:
- A 31% year-over-year increase in net revenue to a record $15.7 million;
- Net income of $0.2 million, notwithstanding $0.5 million of transitional costs related to the Critical Path hosted messaging asset acquisition;
- Adjusted EBITDA growth of 120% to $1.8 million;
- Cash flow from operations of $3.2 million, the Company’s nineteenth consecutive quarter of positive cash flow from operations;
- An 18% year-over-year increase in deferred revenue to a record $43.2 million; and
- The addition of three large hosted email customers.

Elliot Noss, President and Chief Executive Officer, Tucows Inc.”Our continued strong results for the quarter were driven by contributions across our range of service offerings, with almost 50% of gross margin generated by Internet services other than domain names. Our revenue growth was driven about equally by organic growth and the contributions of our acquisitions. Our hosted email business continues to perform above expectations following the Critical Path asset acquisition. During the quarter, we added three significant customers. This is a testament to the strength of Tucows’ reputation, the value of the acquired platform and our customer relationships. At the same time, we are seeing continued leverage in our business model as evidenced by the decrease in our operating expenses as a percentage of revenue.”

Net revenue for the second quarter of fiscal 2006 increased 31% to $15.7 million from $12.0 million for the second quarter of fiscal 2005. The increase was primarily the result of the acquisition of the hosted messaging assets of Critical Path, Inc., as well as a higher number of domain transactions and higher revenue from Internet services. Net income for the second quarter of fiscal 2006 was $0.2 million, or $0.00 per share (notwithstanding $0.5 million of transitional costs related to the Critical Path hosted messaging asset acquisition) compared with $0.5 million, or $0.01 per share, for the second quarter of fiscal 2005.

Adjusted EBITDA for the second quarter of fiscal 2006 doubled to $1.8 million, or 11.2% of net revenue, from $0.8 million, or 6.7% of net revenue, for the corresponding quarter of last year. Deferred revenue at the end the second quarter of fiscal 2006 was $43.2 million, an increase of 18% from $36.6 million at the end of the second quarter of fiscal 2005 and an increase of 5% from $41.1 million at the end of the first quarter of fiscal 2006. Cash, short-term investments and restricted cash at the end of the second quarter of fiscal 2006 decreased to $7.0 million from $15.8 million at the end of the second quarter of fiscal 2005 and $11.8 million at the end of the first quarter of fiscal 2006. The decrease compared to the end of the first quarter of fiscal 2006 is primarily the result of cash payments of $5.8 million for part of the purchase price of Mailbank.com Inc. (NetIdentity). The Company also invested $2.4 million in property and equipment, primarily to improve its Internet services infrastructure to take advantage of hosted email opportunities that are materializing earlier than expected and to strengthen the integrity of its network. These investments were partially offset by positive cash flow from operations for the quarter of $3.2 million. Cash flow from operations for the second quarter of fiscal 2006 included cash provided by working capital and other activities of $2.4 million and reflects changes in accounts receivable, accounts payable, accrued expenses, deferred revenue and prepaid domain name registry fees. The increases in accounts receivable and accounts payable were largely due to the Critical Path asset acquisition. Accounts payable was also impacted by the aforementioned investment in infrastructure. The Company does not expect these levels of accounts receivable and accounts payable to continue. A conference call discussing the Company’s second quarter fiscal 2006 results is archived via the Internet.

Tucows Inc. provides Internet services and download libraries through a global distribution network of 6,000 service providers. This distribution network primarily consists of web hosting companies, ISPs (Internet Service Providers) and other Internet related service companies. These companies use Tucows’ provisioned services to offer solutions to their customers: enterprises, small and medium businesses and consumers. Tucows is an accredited registrar with ICANN (the Internet Corporation for Assigned Names and Numbers) and earns most of its revenue from domain name registration services plus hosted email, spam and virus protection, blogware, website building tools, the Platypus Billing System and digital certificates.

To learn more about the archived conference call, please visit: www.tucowsinc.com.

For more information about Tucows, please visit: www.tucowsinc.com.

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