8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): January 3, 2006

TUCOWS INC.

(Exact name of registrant as specified in its charter)

Pennsylvania	0-28284	23-2707366
(State of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

96 Mowat Avenue, Toronto, Ontario M6K 3M1, CANADA

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: (416) 535-0123

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.01 Completion of Acquisition or Disposition of Assets

On December 19, 2005, the Registrant filed a Form 8-K describing that it has signed a definitive agreement with Critical Path, Inc. (“CP” or the “Seller”) to acquire substantially all of Critical Path’s hosted messaging assets, including the customer base, hosted messaging communications infrastructure, and other related assets, such as goodwill and a software license for Memova™ Messaging (the “CP Assets” or “Hosted Messaging Business”), for up to US $8.0 million in cash plus the assumption of some related contractual liabilities. The CP Assets meet the description of a business as presented in Rule 11-01(d) of Regulation S-X.  The Registrant hereby amends such Form 8-K to provide certain financial statements with respect to the CP Assets and consolidated pro forma financial information with respect to the acquisition of the CP Assets.

Item 9.01 Financial Statements and Exhibits

(a) Financial Statements of Business Acquired

Historically, the Sellers operated the CP Assets as a group of departments and did not separately manage the CP Assets’ operations or maintain separate balance sheet or income statement accounts for the CP Assets. In addition, Sellers never prepared stand-alone financial statements for the CP Assets, in accordance with generally accepted accounting principles (“GAAP”), since it did not have a separate legal status or existence. As a result of these and other factors, financial statements for the CP Assets, in accordance with GAAP, are not readily available and impracticable to provide. Accordingly, permission was sought from the United States Securities and Exchange Commission, in lieu of providing full GAAP financial statements for the business acquired in accordance with Rule 3-05 of Regulation S-X, to provide the following statements: Audited Statements of Net Assets Sold as of December 31, 2004 and 2005 and audited Statements of Revenues and Direct Expenses for the years ended December 31, 2004 and 2005.

The statements noted above of the CP Assets are filed as Exhibit 99.1 to this report.

(b) Exhibits

23.1 Consent of PricewaterhouseCoopers LLP

99.1 Audited Statements of Net Assets Sold as of December 31, 2004 and 2005, Audited Statements of Revenues and Direct Expenses for the years ended December 31, 2004 and 2005.

99.2 Pro Forma Consolidated Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.

Date: March 21, 2006	TUCOWS INC.
	By:	/s/ Michael Cooperman
		Michael Cooperman
		Chief Financial Officer

2

EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of PricewaterhouseCoopers LLP
99.1	Audited Statements of Net Assets Sold as of December 31, 2004 and 2005 and Audited Statements of Revenues and Direct Expenses for the years ended December 31, 2004 and 2005.
99.2	Pro Forma Consolidated Financial Statements

3

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No.’s 333-74010 and
333-10691) of Tucows Inc. of our report dated March 20, 2006 relating to the statements of the Hosted Messaging Business of Critical Path, Inc, which appears in the Current Report on Form 8-K/A of Tucows Inc. dated March 21, 2006.

PricewaterhouseCoopers LLP

San Jose, California

March 21, 2006

EX-99.1

Exhibit 99.1

INDEX TO STATEMENTS OF THE HOSTED MESSAGING BUSINESS OF CRITICAL PATH, INC.

	Page
Report of Independent Registered Public Accounting Firm	F-2
Statements of Net Assets Sold as of December 31, 2004 and 2005	F-3
Statements of Revenues and Direct Expenses for the Years Ended December 31, 2004 and 2005	F-4
Notes to Statements of Net Assets Sold and Statements of Revenues and Direct Expenses	F-5

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Critical Path, Inc.:

We have audited the accompanying statements of net assets sold of the Hosted Messaging Business of Critical Path, Inc. as of December 31, 2005 and 2004 and the related statements of revenues and direct expenses for the years then ended. These statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these statements based on our audits.

We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall presentation of the statements. We believe that our audits provide a reasonable basis for our opinion.

The accompanying statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Form 8-K/A of Tucows Inc. as described in Note 2 and are not intended to be a complete presentation of the financial position and results of operations of the Hosted Messaging Business of Critical Path, Inc.

In our opinion, the statements referred to above present fairly, in all material respects, the net assets sold of the Hosted Messaging Business of Critical Path, Inc. at December 31, 2005 and 2004 and the revenue and direct expenses for the years then ended.

PricewaterhouseCoopers LLP

San Jose, California

March 20, 2006

F-2

HOSTED MESSAGING BUSINESS OF

CRITICAL PATH, INC.

STATEMENTS OF NET ASSETS SOLD

	December 31, 2005		December 31, 2004
	(in thousands)		(in thousands)
ASSETS
Prepaid expenses	$	328	$	363
Property & equipment, net	2,455		6,525
Total assets sold	2,783		6,888
LIABILITIES
Accounts payable	$	23	$	42
Accrued vacation	32		10
Deferred revenues	164		9
Total liabilities transferred	219		61
Net assets sold	$	2,564	$	6,827

The accompanying notes are an integral part of these statements.

F-3

HOSTED MESSAGING BUSINESS OF

CRITICAL PATH, INC.

STATEMENTS OF REVENUES AND DIRECT EXPENSES

	Year ended December 31, 2005			Year ended December 31, 2004
	(in thousands)			(in thousands)
Revenues	$	10,227		$	12,429
Cost of revenues	12,360			23,176
Gross loss	(2,133		)	(10,747		)
Direct operating expenses:
Sales and marketing	107			2,042
Research and development	4,674			7,382
General and administrative	1,742			1,802
Stock-based compensation	6			20
Restructuring expense	55			784
Total direct operating expenses	6,584			12,030
Excess of cost of revenues and direct operating expenses over revenues	$	(8,717	)	$	(22,777	)

The accompanying notes are an integral part of these statements.

F-4

HOSTED MESSAGING BUSINESS OF
CRITICAL PATH, INC.

NOTES TO STATEMENTS OF NET ASSETS SOLD AND STATEMENTS OF REVENUES AND DIRECT EXPENSES

1. Business and Asset Purchase Agreement

Critical Path’s Hosted Messaging Assets (“the CP Assets” or the “Business”) meet the description of a business as presented in Rule 11-01(d) of Regulation S-X. The hosted messaging business offers messaging solutions as hosted services. These hosted services include access to and hosting email, personal information management such as calendar and contacts and resource scheduling over the Internet and wireless networks for enterprises, telecommunications operators, and, for certain services, consumers. Unlike with licensed software, customers of the hosted messaging business do not need to install or maintain their own copies of the software. Instead, customers pay initial setup fees and regular monthly, quarterly or annual subscriptions for the services they would like to be able to access.

On December 14, 2005, Tucows Inc. (the “Purchaser”), and Critical Path, Inc. (the “Seller”) entered into a definitive asset purchase and sale agreement for the Purchaser to acquire certain assets and assume certain liabilities of the Business (the “Asset Purchase Agreement”). The transaction was consummated on January 3, 2006.

2. Basis of Presentation

Historically, the CP Assets operated as a group of departments within the Seller and had no separate legal status. Furthermore, financial statements have not previously been prepared for the CP Assets. Accordingly, the statements of net assets sold and the statements of revenues and direct expenses have been prepared pursuant to the Asset Purchase Agreement and derived from the historical records of the Seller, including allocations of certain expenses directly attributable to the operation of the CP Assets. As a result, these statements may not be indicative of the operating results of the CP Assets had the Business been operated as a separate, stand-alone entity. Management of the Seller believes the methodologies used to allocate cost and expenses to the CP Assets are reasonable and represent appropriate methods of determining the cost and expenses attributable to the CP Assets.

Provision for income taxes and non-operating expenses and income, such as Seller’s interest income, interest expense, other income (expense) and accretion on preferred stock, are not included in the accompanying Statements of Revenues and Direct Expenses, as they are not directly associated with the operations of the CP Assets. The accompanying Statements of Net Assets Sold and Revenues and Direct Expenses are not necessarily indicative of the future operating results of the CP Assets due to the change in ownership, and the exclusion of the provision for income taxes and non-operating income and expenses, as described herein.

Statements of Net Assets Sold

The assets and liabilities in the accompanying statements of net assets sold include only those assets to be sold and liabilities to be transferred to the Purchaser pursuant to the Asset Purchase Agreement.

Statements of Revenues and Direct Expenses

The statements of revenues and direct expenses include revenues and expenses directly attributable to the CP Assets and allocations of certain expenses directly attributable to the operations of the CP Assets but incurred by the Seller.

Directly attributable expenses include certain employee and payroll related expenses, equipment rental costs, Internet collocation and connection fees, maintenance costs and amortization and depreciation expenses that are specifically identifiable with the CP Assets. Other allocated costs are attributable to the operations of the CP Assets, such as line management, facility and information technology allocations (IT), professional services and corporate overhead costs. These costs have been allocated to the CP Assets using reasonable methodologies as described below:

F-5

•The allocation for line management primarily represents an allocation for the cost of the Executive Vice President with direct oversight and management responsibility for the CP Assets. These costs are allocated based upon the percent of the Executive Vice President’s total headcount attributable to the CP Assets.

•The allocation of facility and IT costs primarily represent an allocation for the cost of Critical Path’s facilities, network infrastructure and employee related costs associated with such functions. These costs are allocated based upon the percent of the Seller’s total headcount attributable to the CP Assets.

•The allocation of professional services costs primarily represents an allocation of costs incurred by the Seller’s employees. These costs are allocated using a standard margin for the portion of the employee’s time attributable to the CP Assets.

•The allocation of corporate overhead costs primarily represents: (i) an allocation for cost of Critical Path’s Chief Executive Officer and Chief Financial Officer as well as an allocation of the general and administrative staff costs all of which are based upon the percent of the Seller’s total headcount attributable to the CP Assets; and (ii) an allocation of insurance, accounting and legal fees, and other related general and administrative costs based upon the percent of the Seller’s revenue attributable to the CP Assets.

F-6

The expenses incurred by the CP Assets that are not specifically identifiable with the CP Assets, but that are attributable to the operations of the Business and have been allocated to the CP Assets using the methods described above, are reflected in the following table for the year ended December 31, 2005 and 2004:

	Year ended December 31,
	2005		2004
	(in thousands)
Line management (a)	$	188	$	—
Professional services employees allocation (a)	115		219
Facility and IT allocations (b)	1,097		1,742
Corporate overhead (c)	1,741		1,800
Total allocated costs	$	3,141	$	3,761

(a)Included in cost of revenues in the Statements of Revenues and Direct Expenses.

(b)Included among the various line items in the Statements of Revenues and Direct Expenses as follows:

	Year ended December 31,
	2005		2004
	(in thousands)
Cost of revenues	$	463	$	644
Sales and marketing	24		281
Research and development	610		817
	$	1,097	$	1,742

(c)Corporate overhead allocations are included in general and administrative expenses in the Statements of Revenues and Direct Expenses

Provision for income taxes and non-operating expenses and income, such as Seller’s interest income, interest expense, other income (expense) and accretion on preferred stock, are not included in the accompanying Statements of Revenues and Direct Expenses, as they are not directly associated with the operations of the CP Assets. The accompanying statements of net assets sold and revenues and expenses are not necessarily indicative of the future operating results of the CP Assets due to the change in ownership, and the exclusion of the provision for income taxes and non-operating income and expenses, as described herein.

Cash Flows

During the years ended December 31, 2005 and 2004, the CP Assets’ financing requirements were primarily provided by the Seller’s various corporate financing activities. As the CP Assets have historically been managed as part of the operations of the Seller and have not been operated as a stand-alone entity, it is not practical to prepare historical cash flow information regarding the CP Assets’ operating, investing, and financing activities. As such, the statements of cash flows were not prepared for the CP Assets.

Capital expenditures directly attributable to the operation of the CP Assets are reflected on the following table for the year ended December 31, 2005 and 2004:

F-7

	Year ended December 31,
	2005		2004
	(in thousands)
Capital Expenditures	$	540	$	1,971

3. Summary of Significant Accounting Policies

Use of Estimates

Preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the statements of net assets sold and the amounts of revenues and direct expenses reported. Actual results could differ from those estimates. Also, as discussed in Note 2, the statements of revenues and direct expenses include allocations and estimates that are not necessarily indicative of the revenues, costs and expenses that would have resulted if the CP Assets had been operated as a stand-alone entity.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the shorter of the estimated useful lives of the assets. Computer equipment and software are depreciated over useful lives of three years. An impairment charge will be recorded on property and equipment when it is determined that that carrying value may not be recoverable. Factors considered important which could trigger an impairment, include, but are not limited to, significant under performance relative to expected historical or projected future operating results and significant changes in the manner of the use of the assets or the strategy for overall business. Impairments are measured based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model.

Revenue Recognition

Hosted messaging revenues are derived from fees for hosting services provided to customers for messaging and collaboration solutions. These are primarily based upon monthly contractual per unit rates for the services involved, which are recognized on a monthly basis over the term of the contract beginning with the month in which service delivery starts. Amounts billed or received in advance of service delivery, including but not limited to branding and set-up fees, are initially deferred and subsequently recognized on a ratable basis over the expected term of the relationship beginning with the month in which service delivery starts.

Cost of Revenues

Cost of hosted messaging revenues consists primarily of costs incurred in the delivery and support of hosted messaging services, including equipment rental costs, depreciation and amortization expenses, employee related costs, Internet connection and co-location charges, maintenance costs as well as other direct and allocated indirect costs (see Note 2).

F-8

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of employee costs, including commissions, travel and entertainment as well as other direct and allocated indirect costs (see Note 2).

Research and Development Expenses

Research and development expenses consist primarily of employee related costs, depreciation and amortization of capital equipment associated with research and development activities, facility related costs, third party contractor costs as well as other direct and allocated indirect costs (see Note 2).

Stock-Based Compensation

CP Assets employees participate in Critical Path’s stock-based compensation plans. Critical Path accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees and its related interpretations and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB No. 25, compensation expense for fixed options is based on the difference, if any, on the date of the grant, between the fair value of the Company’s stock and the exercise price of the option. Critical Path amortizes stock-based compensation using the accelerated method over the remaining vesting periods of the related options, which is generally four years.

Pro forma information, as required by SFAS No. 148, Accounting for Stock-based Compensation—Transition and Disclosure, has been determined as if the CP Asset employee stock options granted under Critical Path’s 1998 Incentive Stock Option and 1999 Nonstatutory Stock Option Plan and Employee Stock Purchase Plan (CP’s Plans) were accounted for using the fair value method of SFAS No. 123, as amended by SFAS No. 148. Had compensation cost been recognized based on the fair value at the date of grant for options granted and activities under CP’s Plans, the pro forma amounts for the excess of costs and direct operating expenses over revenue would have been as follows:

	Fiscal year ended December 31,
	2005			2004
	(in thousands)
Excess of costs and direct operating expenses over revenue - as reported	$	(8,717	)	$	(22,777	)
Add:
Stock-based employee compensation expense included in reported excess of costs and direct operating expenses over revenue	53			41
Deduct:
Total stock-based employee compensation expense determined under a fair value based method for all grants	(747		)	(462		)
Excess of cost of revenues and direct operating expenses over revenue - pro forma	$	(9,411	)	$	(23,198	)

Foreign Currency

Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments are reported as a separate component of accumulated other comprehensive income (loss), a component of shareholders’ deficit of the Seller. Gains and losses on foreign currency transactions are included in non-operating income and expense of Critical Path and have not been allocated to the CP Assets.

F-9

New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment, (SFAS No. 123R). SFAS No. 123R addresses all forms of share-based payment (SBP) awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123R requires companies to expense SBP awards with compensation cost for SBP awards measured at fair value beginning in the first quarter of 2006. The valuation methods under consideration include the lattice model and the Black-Scholes model. We are still studying the impact of applying the various provisions of SFAS No. 123R.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107, Share-Based Payment, (SAB No. 107). SAB No. 107 provides guidance on the initial implementation of SFAS No. 123R. In particular, the statement includes guidance related to awards to non-employees, valuation methods and selecting underlying assumptions such as expected volatility and expected term. It also gives guidance on the classification of compensation expense associated with awards and accounting for the income tax effects of awards upon the adoption of SFAS No. 123R. We are currently assessing the guidance provided in SAB No. 107 in connection with the implementation of SFAS No. 123R.

4. Property and Equipment

Property and equipment consists of:

	December 31, 2005			December 31, 2004
	(in thousands)			(in thousands)
Computer equipment and software	$	21,872		$	21,990
Accumulated depreciation	(19,417		)	(15,465		)
	$	2,455		$	6,525

5. Restructuring

The Seller has undertaken restructuring activities to reduce both short-term and long-term cash requirements. These activities included consolidation of certain activities to offices in lower cost areas and the elimination of certain employee positions. The following table summarizes the restructuring costs directly attributable to the CP Assets during the years ended December 31, 2004 and 2005:

	Fiscal year ended December 31,
	2005		2004
	(in thousands)
Workforce reduction	$	118	$	536
Facility consolidation and fixed asset dispositions	120		560
Total restructuring expense	$	238	$	1,096

Of the total restructure expense reported in the table above, $183,000 and $312,000 for the fiscal years ended December 31, 2005 and 2004, respectively, is included in cost of revenues in the Statements of Revenues and Direct Expenses.

F-10

6. Significant Customers and Geographic Information

For the year ended December 31, 2005, 2 customers accounted for 37% of revenues.  For the year ended December 31, 2004, 2 customers accounted for 25% of revenues.

Information regarding revenues attributable to the CP Assets primary geographic regions is as follows:

	Fiscal year ended December 31,
	2005				2004
	(in thousands)
United States	$	9,447	93	%	$	11,022	89	%
Europe	637		6	%	742		6	%
Japan	143		1	%	665		5	%
Total	$	10,227	100	%	$	12,429	100	%

8. Stock-Based Compensation

Stock Options

The CP Asset employees participate in Critical Path’s various award plans, including employee stock purchase and stock option plans. Stock options are generally granted to employees at an exercise price equal to the fair market value of Critical Path’s common stock at the date of grant. Generally, options vest at 25 percent per year and are generally exercisable for a maximum period of ten years from the date of grant.

The following table summarizes option activity for CP Asset employees:

	Shares		Wtd avg exercise price
Balance at December 31, 2003	1,152,062		$	37.32
Granted	1,053,525		1.17
Exercised	(31,774	)	3.60
Canceled	(620,391	)	14.50
Balance at December 31, 2004	1,553,422		24.70
Granted	158,213		0.52
Exercised	—		—
Canceled	(840,832	)	12.22
Balance at December 31, 2005	870,803		$	5.82

Outstanding options exercisable:
December 31, 2004	559,170
December 31, 2005	870,803

The following table summarizes information about stock options outstanding at December 31, 2005 :

F-11

Range of Exercise Prices				Number Outstanding As of 12/31/05	Weighted Average Remaining Contractual	Weighted Average Exercise Price		Number Exercisable As of 12/31/05	Weighted Average Exercise Price
$	0.0880	$	0.5600	88,284	9.51	$	0.4266	88,284	$	0.4266
$	0.6500	$	0.6500	86,425	8.87	$	0.6500	86,425	$	0.6500
$	0.6800	$	0.6800	92,530	8.83	$	0.6800	92,530	$	0.6800
$	0.6900	$	0.7000	87,500	8.78	$	0.6911	87,500	$	0.6911
$	0.7400	$	1.3500	82,315	8.77	$	1.0439	82,315	$	1.0439
$	1.5600	$	1.5600	93,000	8.02	$	1.5600	93,000	$	1.5600
$	1.6500	$	1.9600	106,250	7.26	$	1.8779	106,250	$	1.8779
$	2.1100	$	3.1200	98,875	7.82	$	2.5683	98,875	$	2.5683
$	3.2100	$	4.0000	88,901	6.06	$	3.6873	88,901	$	3.6873
$	4.5200	$	300.0000	46,723	4.79	$	82.1823	46,723	$	82.1823
$	0.0880	$	300.0000	870,803	8.00	$	5.8214	870,803	$	5.8214

Restricted stock

In 2004, the Company issued shares of restricted stock and restricted stock units to certain CP Asset employees.

The restricted stock gives employees certain ownership rights, including the right to vote on shareholder matters; whereas, restricted stock units do not convey any voting rights, but present the holder with the right to receive shares of Critical Path common stock as the underlying units vest. The restricted stock and restricted stock units vest 25% every 6 months over a term of 2 years, with any unvested shares/units forfeited if a recipient terminates their employment with the Company. The fair value of the restricted stock and stock units on the date of grant is amortized to stock-based compensation expense over the vesting period of the underlying shares and units.

F-12

EX-99.2

Exhibit 99.2

TUCOWS INC.

UNAUDITED PRO FORMA CONSLIDATED FINANCIAL STATEMENTS

The Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2005 and the Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2005 combine the historical Tucows Inc. and the Hosted Messaging Business of Critical Path, Inc. (“the CP Assets”) balance sheets and statement of operations as if, for purposes of the Pro Forma Consolidated Balance Sheet, the acquisition of the CP Assets, had occurred on December 31, 2005 and for purposes of the Pro Forma Consolidated Statement of Operations, the acquisition had occurred on January 1, 2005.

We completed the purchase of the CP Assets from Critical Path, Inc. for a purchase price of $6.25 million in cash. An additional $1.75 million is payable by Tucows Inc. contingent on certain future customer orders being renewed through October 2006. The Unaudited Pro Forma Consolidated Financial Statements should be read together with Tucows’ and CP Assets historical consolidated financial statements and the notes to these financial statements.

The pro forma adjustments reflecting the consummation of the acquisition are based on the purchase method of accounting, available financial information, and certain estimates and assumptions set forth in the notes to the Unaudited Pro Forma Consolidated Financial Statements. The allocation of the purchase price to the acquired assets and assumed liabilities in the Unaudited Pro Forma Consolidated Financial Statements reflect our best estimates based on preliminary information. The final purchase price allocation may differ significantly from the pro forma amounts reflected herein due to various factors, including, without limitation, access to additional financial information and changes in value based on a final purchase price allocation. The preliminary valuation resulted in $1.225 million being allocated to identifiable intangible assets, which will be amortized over an average estimated useful life associated with these assets of between two to five years. The pro forma adjustments do not reflect any operating efficiencies or cost savings that may be achievable with respect to the combined business of Tucows and the CP Assets, nor do they reflect integration costs that may have been unforeseen at the date of purchase. In Addition, the pro forma adjustments do not give effect to any non-recurring charges or credits that will result directly from the transaction and will be included in income of Tucows within 12 months from the date of acquisition.

The Unaudited Pro Forma Consolidated Financial Statements for the year ended December 31, 2005 do not purport to represent what the actual financial condition or results of operations of the combined business would have been if the acquisition of the CP Assets had occurred on the dates indicated in these Pro Forma Financial Statements nor does this information purport to project our results or financial position for any future periods.

TUCOWS INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

December 31, 2005

(in thousands)

	Tucows			Hosted Messaging Business of Critical Path, Inc.			Pro Forma Adjustments			Pro Forma Combined
							(Note 2)
Assets
Current assets:
Cash and cash equivalents	$	17,348		$		—	$	(6,583	)(a)	$	10,765
Short-term investments	1,772			—			—			1,772
Restricted cash	60			—			—			60
Interest receivable	40			—			—			40
Accounts receivable, net of allowance for doubtful accounts	1,439			—			—			1,439
Prepaid expenses and deposits	2,000			328			242		(b)	2,570
Prepaid domain name registry and ancillary services fees, current portion	18,176			—			—			18,176
Deferred tax asset, current portion	1,000			—			(300		)(h)	700
Total current assets	41,835			328			(6,641		)	35,522
Prepaid domain name registry and ancillary services fees, long-term portion	7,702			—			—			7,702
Deferred acquisition costs	46			—			(46		)(a)	—
Property and equipment	1,543			2,455			(415		)(c)	3,583
Deferred tax asset, long-term portion	2,000			—			300		(g)	2,300
Intangible assets	1,006			—			1,225		(d)	2,231
Goodwill	1,951			—			3,013		(a)	4,964
Investment	354			—			—			354
Cash held in escrow	621			—			—			621
Total assets	$	57,058		$	2,783		$	(2,564	)	$	57,277
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,655		$	23		$	—		$	1,678
Accrued liabilities	1,417			32			—			1,449
Customer deposits	2,277			—			—			2,277
Deferred revenue, current portion	26,790			164			—			26,954
Accreditation fees payable, current portion	652			—			—			652
Total current liabilities	32,791			219			—			33,010
Deferred revenue, long-term portion	11,080			—			—			11,080
Accreditation fees payable, long-term portion	95			—			—			95
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	12,403			—			—			12,403
Additional paid-in capital	50,062			2,564			(2,564		)	50,062
Deficit	(49,373		)	—			—			(49,373		)
Total stockholders’ equity	13,092			2,564			(2,564		)	13,092
Total liabilities and stockholders’ equity	$	57,058		$	2,783		$	(2,564	)	$	57,277

The accompanying notes are an integral part of these Pro Forma Consolidated Financial Statements.

TUCOWS INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2005

(in thousands)

	Tucows			Hosted Messaging Business of Critical Path, Inc.			Pro Forma Adjustments			Pro Forma Combined
							(Note 2)
Net revenues	$	48,517		$	10,227		$	—		$	58,744
Expenses:
Cost of revenues (exclusive of depreciation and amortization shown separately below)	30,645			12,360			(3,038		)(h)	39,967
Sales and marketing	4,855			107			—			4,962
Technical operations and development	5,627			4,674			(2,247		)(h)	8,054
General and administrative	4,346			1,742			—			6,088
Stock-based expense	—			6			(6		)(h)	—
Restructuring expense	—			55			(55		)(h)	—
Depreciation of property and equipment	952			—			5,016		(h)	5,968
Amortization of intangible assets	236			—			621		(e)	857
Total expenses	46,661			18,944			291			65,896
Income (loss) from operations	1,856			(8,717		)	(291		)	(7,152		)
Other income (expenses):
Interest income, net	462			—			(246		)(g)	216
Other income, net	303			—			—			303
Total other income (expenses)	765			—			(246		)	519
Income (loss) before provision for income taxes	2,621			(8,717		)	(537		)	(6,633		)
Provision for (recovery of) income taxes	(152		)				—			(152		)
Net income (loss) for the year	$	2,773		$	(8,717	)	$	(537	)	$	(6,481	)
Basic and diluted earnings (loss) per common share	$	0.04								$	(0.09	)
Shares used in computing basic earnings (loss) per common share	69,077,329									69,077,329
Shares used in computing diluted earnings (loss) per common share	72,481,204									72,481,204

The accompanying notes are an integral part of these Pro Forma Consolidated Financial Statements.

TUCOWS INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

Note 1:Basis of Presentation

The Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2005 and the Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2005 combine the historical Tucows Inc. and the Hosted Messaging Business of Critical Path, Inc. (“the CP Assets”) balance sheets and statement of operations as if, for purposes of the Pro Forma Consolidated Balance Sheet, the acquisition of the CP Assets, had occurred on December 31, 2005 and for purposes of the Pro Forma Consolidated Statement of Operations, the acquisition had occurred on January 1, 2005.

We completed the purchase of the CP Assets from Critical Path, Inc. for a purchase price of $6.25 million in cash. An additional $1.75 million is payable by Tucows Inc. contingent on certain future customer orders being renewed through October 2006. This additional amount represents contingent consideration for accounting purposes and has not been included in the purchase price equation set out below. This amount will be recognized as additional purchase price consideration when its’ payment is finalized. The Unaudited Pro Forma Consolidated Financial Statements should be read together with Tucows’ and CP Assets historical consolidated financial statements including the notes to these statements.

Note 2:Pro Forma Adjustments

(a) Tucows has retained the services of an independent valuator to assist in the purchase price allocation relating to the acquisition of the CP Assets. As the work of the independent valuator has not been completed, Tucows will adjust the preliminary purchase price allocation once the work of the independent valuator is finalized. These adjustments may be material.

For the purposes of these Pro Forma Financial Statements, the purchase price of the CP Assets has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at December 31, 2005.

For certain assets and liabilities, the book value at the balance sheet date has been determined to reflect fair values. The following table summarizes the components of the total purchase price of the CP Assets and the pro forma allocation:

Prepaid expenses and deposits	$	570
Property and equipment	2,040
Intangible assets	1,225
Goodwill	3,013
Total assets acquired	6,848
Liabilities	219
Purchase price	$	6,629

The excess of the purchase price over identifiable assets amounting to $3,013 has been allocated to goodwill.

The total purchase price was paid in cash as follows:

Purchase price to Critical Path, Inc.	$	6,250
Estimated acquisition costs (includes $46 recorded as deferred acquisition costs at December 31, 2005)	379
	$	6,629

Estimated acquisition costs include all costs directly incurred due to the acquisition including accounting and legal fees and other related costs.

(b)	Allocation of prepaid Memova™ Messaging software license maintenance and support of $242 on the acquisition of the CP Assets. This amount is included in the estimated fair value of prepaid expenses and deposits above.
(c)	Eliminates the historical basis of property and equipment acquired and records the fair value associated with net assets acquired of $2,040.
(d)	To record the new intangible assets related to the acquisition of the CP Assets.

	Value			Useful Life
Acquired Technologies	$		154	2
Customer Relationships - Other	1,071			5
Total Identifiable Intangible Assets	$	1,225

(e)	Reflects the amortization of identifiable intangible assets recorded in the acquisition. Pro forma amortization expense of $291 was based on straight-line amortization and estimated useful lives of 2 and 5 years for the acquired assets. In addition, $330 pertaining to amortization of purchased technology, has been reallocated from cost of revenues to conform with Tucows presentation.
(f)	Reflects the reduction of interest income of $246 related to cash used to fund the acquisition.
(g)	Reallocation in connection with the reevaluation of Tucows deferred tax asset on the acquisition of the CP assets. No additional income tax provision is required for pro forma purposes due to the valuation allowance that is currently recorded against our deferred tax asset which is significantly greater than the income generated by the CP Assets.
(h)	To adjust Hosted Messaging Business of Critical Path Inc. presentation to conform to Tucow’s presentation:

Cost of revenues	$	(3,038	)
Technical operations and development	(2,305		)
Stock-based expense	(6		)
Restructuring expense	(55		)
Total	$	(5,404	)
Depreciation of property and equipment	$	5,016
Amortization of intangible assets	330
Technical operations and development	58
Total	$	5,404