TUCOWS INC /PA/ - 10-K Annual Report

FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Title of Each Class		Name of Each Exchange on Which Registered
None		Not applicable

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý

As of June 30, 2003, the aggregate market value of common stock held by non-affiliates of the registrant, based upon the last reported sale price for the registrant's Common Stock on the OTC Bulletin Board maintained by Nasdaq on such date was $20 million (calculated by excluding shares owned beneficially by directors and executive officers as a group from total outstanding shares solely for the purpose of this response).

The number of shares of the registrant's Common Stock outstanding as of the close of business on March 18, 2004 was 64,839,717.

Certain portions of the definitive Proxy Statement of Tucows Inc. to be used in connection with the 2004 Annual Meeting of Shareholders (the "Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent provided herein. Except as specifically incorporated by reference herein, the Proxy Statement is not to be deemed filed as part of this Annual Report on Form 10-K.

TUCOWS INC.

ANNUAL REPORT ON FORM 10-K

For Fiscal Year Ended December 31, 2003

TABLE OF CONTENTS

		Page
PART I
Item 1	Business	1
Item 2	Properties	26
Item 3	Legal Proceedings	27
Item 4	Submission of Matters to a Vote of Security Holders	27
PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6	Selected Financial Data	28
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	43
Item 8	Financial Statements and Supplementary Data	44
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
Item 9A	Controls and Procedures	44
PART III
Item 10	Directors and Executive Officers of the Registrant	45
Item 11	Executive Compensation	45
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45
Item 13	Certain Relationships and Related Transactions	45
Item 14	Principal Accountant Fees and Services	45
PART IV
Item 15	Exhibits, Financial Statement Schedules and Reports on Form 8-K	46

This Report on Form 10-K contains, in addition to historical information, forward-looking statements by Tucows with regard to its expectations as to financial results and other aspects of its business that involve risks and uncertainties and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as may, should, anticipate, believe, plan, estimate, expect and intend, and other similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this report include statements regarding, among other things, the number of new, renewed and transferred-in domain names, the competition Tucows expects to encounter as its business develops and competes in a broad range of Internet services, the effectiveness of Tucows' intellectual property protection, including its ability to license proprietary rights to network partners and to register additional trademarks and service marks, Tucows' belief that the market for domain name registration will trend upward gradually and Tucows' belief that by increasing the number of applications and services it offers, it will be able to generate higher revenues. These statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Factors that may cause such a difference include the risks described under "Risk Factors" below. This list of factors that may affect Tucows' future performance and financial and competitive position and also the accuracy of forward-looking statements is illustrative, but it is by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements included in this document are based on information available to Tucows as of the date of this document, and Tucows assumes no obligation to update these cautionary statements or any forward-looking statements. These statements are not guarantees of future performance.

Tucows provides Internet services and digital software content to end-users worldwide through a global Internet-based distribution network of more than 6,000 resellers in over 100 countries. Tucows generates revenue primarily through the provision of domain name registration and other Internet services to resellers who offer such services to their own customers. These resellers are a heterogeneous group of companies, including Internet service providers, web hosting providers and telecommunications and cable companies (collectively referred to as "Service Providers") that typically provide a critical component of an end-user's Internet presence and have a very high level of interaction with the end-user. In addition to domain name registration services, Tucows currently provides security and identity services (through digital certificates), email services, managed domain name system or "DNS" and plans to introduce a number of additional Internet services in the future. Tucows' distributes its services to resellers using its Open Shared Reseller System, or "OpenSRS" platform, which provides the technical infrastructure that allows Service Providers to register and manage the provisioning of Tucows' services to their end-users. Tucows' provides its services on either a wholesale or private label basis, allowing Service Providers to deal directly with their own end-user customers. By using Tucows' services, Service Providers are able to avoid the costs and complexities of building in-house systems and to focus on their customer acquisition and retention strategies.

Tucows' goal is to leverage its global distribution channel, its expanding line of service offerings and its reputation for exemplary customer service and support to become the preferred supplier of a broad range of Internet services to the Service Provider channel on a global basis.

In addition to generating revenue through the provision of domain name registration and other Internet services, Tucows' generates advertising and other revenue through its online libraries of

shareware, freeware and online services available at its web site www.tucows.com. Advertising revenue is generated from third party advertisers and from software developers who rely on Tucows as a primary source of distribution. Software developers use Tucows' Author Resource Center to submit their products for inclusion in the Tucows libraries and to purchase promotional placement of their software in the library categories as well as purchase other promotional services on a cost per click or flat rate basis. The libraries are available to end-users around the world via Tucows' internet facilities and via a global network of internet service companies who elect to mirror the Tucows libraries locally. Tucows also generates revenue from companies who contract with it to provide them with co-branded content and customized search agent services using Tucow's Sleuth technologies.

The Internet has emerged as a global medium, enabling millions of people to share information, communicate, and conduct business electronically. The growth in Internet users combined with its extensive reach has created a powerful channel for conducting commerce, marketing and advertising. This growth of Internet usage in general, and, specifically, for electronic commerce ("e-commerce" or "e-business") provides significant opportunities for organizations of all types and sizes to improve operational efficiencies and generate additional revenues through the use of Internet channels. The Internet, however, has given rise to additional competitive pressures due to shifting and increasingly diversified supplier and consumer demands. These pressures are leading organizations to adopt new Internet based business models, requiring the use of a wide array of e-business applications and services that perform a variety of vital functions, including:

Tucows refers to businesses that provide these applications and services as Service Providers. These businesses often operate as:

Service Providers typically provide a critical component of an end-user's Internet presence and have a very high level of interaction with the Internet end-user. End-users can range from individuals to large corporations. Service Providers tend to specialize in one particular application or service. Once a Service Provider has secured an end-user as a customer by providing excellent service in one area of specialty, it has an opportunity to provide this customer with additional applications and services. In most cases, end-users will contact Service Providers first when they seek to learn more about, or to purchase, additional applications and services. Providing a range of applications and services to end-users creates stronger relationships between Service Providers and end-users, increases the costs of switching to another Service Provider and leads to increased revenues per end-user. The relationship between Service Providers and end-users typically involves the payment of recurring fees, which results in end-users being more receptive to purchasing additional applications and services.

While Service Providers are capitalizing on the growth in Internet usage and the demand for new e-business applications and services, they also face significant competition from numerous other Service Providers offering similar applications and services. This has led to a greater focus on core competencies, as Service Providers are increasingly seeking to outsource non-core applications and services that they provide to their end-users. Outsourcing enables these Service Providers to focus better on their customer acquisition and retention efforts by eliminating the need to own, develop and support non-core applications in-house.

The Internet domain name registration system is comprised of two principal components: the registry and the registrar. The registry maintains the database that contains the domain names registered in the top level domains, or "TLDs", and their corresponding Internet protocol addresses. The registrar acts as an intermediary between the registry and individuals and businesses, referred to as registrants, seeking to register domain names.

The domain name system is organized according to industry custom by levels, so that, for example, in the domain name mybrand.com,.com is the top level domain and mybrand is the second level domain. Top level domains are classified as either generic, or "gTLDs", or country code, or "ccTLDs". The gTLDs from which Tucows is currently accepting registrations are .com, .net, .org, ..info, .biz and .name.

There are over 300 different ccTLDs, such as .us for the United States, .ca for Canada, .cn for China, .co.uk and .org.uk for the United Kingdom and .jp for Japan, representing over 240 countries. Each registry for country code domain names is responsible for maintaining and operating its own database of registered domain names. Some country code domains are unrestricted and allow anyone, from anywhere, to register their domain names on a first-come, first-served basis. Others require that prospective registrants have a local presence in the country to be able to register domain names in that country. While there have been movements directed at creating uniform domain name registration rules and registrar administration guidelines, there has been no international uniformity.

From January 1993 until April 1999, Network Solutions (which was acquired by VeriSign, Inc. ("VeriSign") in June 2000), was the sole entity authorized by the U.S. government to act as registrar and registry for domain names in the .com, .net and .org top level domains. VeriSign continues to act as sole registry for the .com and .net domains, maintaining the files in the shared registration system for these domains and the directory databases listing these domain names and their numerical Internet protocol addresses. In November 2003, VeriSign sold its Network Solutions domain name registrar business to the Pivotal Private Equity Group.

In October 1998, the Department of Commerce called for the formation of a non-profit corporation to oversee the management of the .com, .net and .org domains and in November 1998 appointed the Internet Corporation for Assigned Names and Numbers, generally known as ICANN, as this non-profit corporation. In January 2000, Tucows began operations as an ICANN accredited registrar and began to register domain names in the .com, .net and .org domains. As of March 1, 2004, there were 191 ICANN-accredited registrars.

Because end-users typically require a domain name to receive, enhance or better personalize their use of new e-business applications and services, it is critical that Service Providers provide domain name registration and related support services. Tucows believes that, despite volatility induced by economic recession, the market for domain name registrations will continue to trend upward gradually because of the continuing growth of and convergence to the Internet and the development of the domain name registration industry, including the introduction of new gTLDs. This growth will be driven primarily by:

Further, organizations use domain names for a number of distinct purposes including promoting:

Offering e-business applications and services such as domain name registration is a complex technological challenge. Historically, Service Providers would need to build proprietary, in-house systems or source applications and services from a fragmented array of third party providers. The ability to offer a large number of disparate services requires:

Tucows believes that Service Providers will continue to seek a reliable, trustworthy and comprehensive source to deliver many of these applications and services.

Tucows manages an Internet-based distribution network through which Tucows delivers business applications and services and digital software content to a network of more than 6,000 Service Providers in over 100 countries. Tucows' services are designed to allow Service Providers to:

Tucows believes that its services to Service Providers offer the following benefits:

Applications and services distributed by Tucows allow its Service Providers to focus on customer acquisition and retention while avoiding the expenditure of capital and human resources to develop, implement and maintain hardware and software systems extraneous to their core businesses. Tucows' services simplify product integration and administration for its Service Providers and provide them with economically feasible applications. Tucows provides domain name registration services, digital certificates and other Internet services on a generic basis that allows its Service Providers to private label these services and interact directly with their clientele, thus strengthening the Service Providers relationships and enhancing the Service Providers brand. Tucows also acts as the technical and administrative intermediary with domain regulators and provides input on domain policy on behalf of its Service Providers.

Tucows' OpenSRS software system operates using open source principles. "Open source" is an industry term used to indicate a permissive software license that allows the recipient to use the software for any purpose, view the operating source code for the software, make modifications to this source code, distribute and retain legal rights to any modifications. The open source methodology provides the following benefits to Tucows and its Service Providers:

Tucows focuses on the challenges facing its Service Providers as they compete to attract and retain their clients. For example, the OpenSRS domain name registration system was developed to provide a cost-efficient, reliable and generic domain name registration system. Its expanded operational capabilities now enable Tucows' clients to attract and retain their customers with the sale of additional applications and services, such as web certificates. Tucows has also developed a system that avoids bottle-necks and disruptions when downloading information on the Internet by locating software libraries closer to end-users on its Service Providers' networks.

By working directly with a global customer base, Tucows has acquired experience that enables it to manage a number of regional challenges, including language differences, local regulations and process requirements, privacy legislation and payment regulations. Tucows supports Service Providers located in over 100 countries.

Tucows' objective is to leverage its global sales and distribution channel, its expanding line of service offerings and its reputation for exemplary customer service and support to become the preferred supplier of a broad range of Internet services to the Service Provider channel on a global basis. The key elements of its strategy include:

Tucows plans to continue to offer its Internet applications and services to its Service Providers on a wholesale, or private label, basis. Tucows believes that its Service Provider customers view it as a partner, rather than as a competitor, for providing applications and services to end-users. Tucows focuses on addressing its Service Provider customers' technical requirements and business objectives and on providing applications and services that Service Providers require to grow their businesses. Tucows is dedicated to providing a high degree of flexibility to its Service Providers' end-users by offering products and services from a wide variety of third party providers in any given application category. By delivering applications and services on a private label basis, Tucows avoids the high marketing costs typically related to building a brand on the Internet. Tucows uses its Service Providers' marketing efforts and allows them to maintain their relationships with and promote their brands to their end-users. Tucows has built its business and its brand, through use and reputation, not marketing and public relations.

Tucows believes that the growth of its customer base and the growth of the range of applications and services it distributes will be interrelated. As the number of Service Providers in Tucows' network increases, Tucows believes that it will be able to distribute applications and services to a larger number of end-users, which will make it more attractive for third parties to provide applications and services to Tucows for distribution. In turn, as Tucows acquires more applications and services for distribution, there will be more incentive for Service Providers to become part of the Tucows network.

By increasing the number of applications and services Tucows offers and by promoting them to its Service Providers, Tucows believes that it will be able to generate higher revenues from its customers. Tucows provides domain name registration services, software distribution services, web certificates, advertising and co-branding services and search and reference sites. To create further opportunities for revenue growth, Tucows also intends to offer, generally on an outsourced, private label basis from one integrated interface:

To provide a full range of features and performance capabilities in its product categories, Tucows intends to offer services from numerous third party providers. This allows its Service Providers to provide their end-users with the ability to choose the products and services that are best suited to their individual needs.

Tucows intends to continue developing strategic alliances to expand its product offerings, extend its platform and increase its sales. For example, Tucows has entered into a strategic relationship with GeoTrust, Inc. ("GeoTrust") to provide security products such as secure e-commerce transactions, identity verification and trust authentication services designed specifically for small and medium-sized businesses doing business online. Tucows has also entered into a strategic relationship with Stalker Software Inc. and licensed Stalker's Communigate Pro software to provide private labeled email services to resellers.

Tucows offers its applications and services to its network of Service Providers and directly to end-users. Tucows principal applications and services include domain name registration services, digital certificate delivery and digital content distribution. Tucows also continues to operate its Newshub web site as well as offer its Sleuth search technology to the market. However, these products are not material to Tucows' operations.

Tucows offers wholesale and retail domain name registration services for numerous gTLDs and ccTLDs. Key components of Tucows' domain name registration services include:

Tucows has entered into a partnership with GeoTrust to provide Tucows' Service Providers with the ability to purchase security products such as secure e-commerce transactions, identity verification and trust authentication services through the OpenSRS system. Digital certificates authenticate identities over the Internet and secure transactions between buyers and merchants. Tucows offers these services exclusively to its Service Providers on a private label basis so that they may involve their brands in selling security products to their end-users, which is especially important in a trust-related service such as digital certificates.

Tucows distributes software and other digital content both directly to customers and through its accelerated content delivery network. Tucows' digital content distribution services include:

Tucows seeks to provide superior customer service by anticipating the technical requirements and business objectives of its Service Providers. Tucows also provides its Service Providers with technical advice to help them understand how Tucows' applications and services can be customized for their particular needs. Service Providers may contact Tucows by email or Tucows toll-free telephone number. A library of frequently asked questions and answers is made available to all Service Providers through Tucows' web site.

Tucows' customer service team consists of trained technicians who provide support in many languages. These staff members handle general inquiries, investigate the status of orders and payments and answer technical questions about Tucows' applications and services. In response to customer inquiries, customer service representatives monitor site and network operations, refer complex problems to technical teams for resolution and make recommendations for future enhancements.

Tucows also uses its own online discussion forums to communicate with its Service Providers. These forums have been used to discuss:

These forums are open to the public, which increases the level of scrutiny Tucows faces and the standard to which it is held. This, in turn, produces credibility with the Service Providers. Problems are raised that are often solved by other customers who have faced similar situations. This greatly increases the speed and breadth of response the customer is able to receive in a cost effective manner.

Tucows employs advanced software and hardware, combining internal expertise with industry standard technology to create a proprietary software and platform infrastructure. Tucows' OpenSRS platform provides the technical infrastructure that allows its Service Providers to provide Internet services to their customers without having to make substantial investments in their own software or hardware. In 2000, Tucows used the OpenSRS platform primarily to provide domain name registration services. Since then, a number of significant enhancements and architectural changes have been made to the OpenSRS platform to extend its capabilities to provide additional Internet services such as security and identity products and email. In addition, Tucows extends the functionality offered by its

OpenSRS platform to other ICANN-accredited registrars to register domain names under their own registrar tag.

Tucows manages an extensive network for distributing software and other digital content using proprietary software and standard hardware. The key elements of the accelerated content delivery network include main hubs that Tucows owns and servers that are owned by Service Providers located at their facilities. Bandwidth and update times are minimized by utilizing mirroring software that sends compressed and incremental updates to Tucows' mirrors which results in Tucows' mirror sites being able to keep their libraries more current and provide Service Providers customers with fresher content. As of December 31, 2003, Tucows network reached over 1,000 servers in approximately 100 countries.

The market for Internet services including domain name registrations, software and content distribution, content notification and search and reference sites and other e-business services is rapidly evolving and highly competitive. Tucows' competition may be divided into groups consisting of:

Tucows expects to experience significant competition from the companies identified above, and, as its business develops and Tucows competes in an increasingly broad range of e-business services, Tucows expects to encounter competition from other providers of Internet services. Internet service providers, web hosting companies, email hosting companies, outsourced application companies, country code registries and major telecommunication firms may broaden their service offerings to include outsourced domain name registrations and other e-business solutions.

Tucows believes that the primary competitive factors in its domain name registration and digital content distribution businesses are:

While Tucows believes that its products and services compare favorably with these competitive factors, many of Tucows' current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources which may help them to develop domain name registration and digital content distribution services that are superior or achieve greater market recognition. New technologies and the expansion of existing technologies may increase competitive pressures on Tucows.

The Internet domain name registration system is comprised of two principal functions: registry and registrar. The registry maintains the database that contains the domain names registered in the top level domains and their corresponding Internet protocol addresses. The registrar acts as an intermediary between the registry and individuals and businesses, referred to as registrants, seeking to register domain names.

Under a 1993 cooperative agreement with the U.S. Department of Commerce, Network Solutions, was authorized to act as the sole registry and sole registrar for domain names in the.com,.net and.org, top level domains. In October 1998, the Department of Commerce amended the Network Solutions cooperative agreement to call for the formation of a not-for-profit corporation to oversee the management of, and create policies about, domain names in the.com,.net and.org top level domains. The Department of Commerce also proposed that additional registrars be authorized to register domain names in these domains based upon the idea that competitive registrars would benefit consumers and businesses. ICANN was recognized as this not-for-profit corporation by the Department of Commerce in November 1998.

ICANN's authority is based upon voluntary compliance with its consensus policies. While these policies do not constitute law in the United States or elsewhere, they have a significant influence on the domain name registration system. On December 1, 1999, ICANN's first substantive policy, the Uniform Domain Name Dispute Resolution Policy, became effective. This dispute resolution policy was created to address the problem of cybersquatting, or registering the trademark of another as a domain name with the intent to wrongfully profit from the goodwill in that name created by the trademark holder. As ICANN creates additional policies governing the domain name registration system, Tucows will be affected by these policies.

Additionally, there have been ongoing legislative developments and judicial decisions concerning trademark infringement claims, unfair competition claims, and dispute resolution policies relating to the registration of domain names. To help protect itself from liability in the face of these ongoing legal developments, Tucows has taken the following precautions:

Despite these precautions, Tucows cannot assure you that its indemnity and dispute resolution policies will be sufficient to protect it against claims asserted by various third parties, including claims of trademark infringement and unfair competition.

New laws or regulations concerning domain names and domain name registrars may be adopted at any time. Tucows responses to uncertainty in the industry or new regulations could increase its costs or prevent it from delivering its domain name registration services over the Internet, which could delay growth in demand for Tucows' services and limit the growth of its revenues. New and existing laws may cover issues such as:

In November 1999, the Anticybersquatting Consumer Protection Act, or the ACPA, was enacted by the United States government. This law seeks to curtail a practice commonly known in the domain name registration industry as cybersquatting. A cybersquatter is generally defined in the ACPA as one who registers a domain name that is identical or similar to another party's trademark, or the name of another living person, with the bad faith intent to profit from use of the domain name. The ACPA states that registrars may not be held liable for registration or maintenance of a domain name for another person absent a showing of the registrar's bad faith intent to profit from the use of the domain name. Registrars may be held liable, however, if they do not comply promptly with procedural provisions of the ACPA. For example, if there is litigation involving a domain name, the registrar is required to deposit a certificate representing the domain name registration with the court. If Tucows is held liable under the ACPA, any liability could have a material adverse effect on its business, financial condition and results of operations.

Tucows believes that it is well positioned in the content services and domain name registration markets in part due to its highly recognized brand, Tucows. Its success and ability to compete are dependent on its ability to develop and maintain the proprietary aspects of its brand name and technology. Tucows relies on a combination of trademark, trade secret and copyright laws and contractual restrictions to protect its intellectual property rights. These legal protections cannot guarantee protection of Tucows' intellectual property. Despite precautions, third parties could obtain and use Tucows' intellectual property without authorization. The validity, enforceability and scope of protection of intellectual property in Internet-related industries is uncertain and still evolving, and the laws of some foreign countries do not protect intellectual property to the same extent as do the laws of the United States.

Tucows has registered the Tucows trademark in the United States and in other countries and will seek to register additional service marks and trademarks, as appropriate.

Tucows seeks to limit disclosure of its intellectual property by requiring employees and consultants with access to its proprietary information to execute confidentiality, non-disclosure and work-for-hire agreements with Tucows. All Tucows employees are required to execute confidentiality and non-use agreements which provide that any rights they may have in copyrightable works or patentable technologies accrue to Tucows. Before entering into discussions with potential content providers and network partners about Tucows' business and technologies, Tucows generally requires that these parties enter into a non-disclosure agreement. If these discussions result in a license or other business relationship, Tucows also generally requires that the agreement containing the parties' rights and obligations include provisions for the protection of Tucows' intellectual property rights.

Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which Tucows' services are or will be made available. Tucows also expects to license proprietary rights such as trademarks or copyrighted material to network partners during planned national and international expansion.

During the summer months, and possibly during other times of the year such as major holidays, Internet usage often declines. As a result, Tucows' sites may experience reduced user traffic. For example, Tucows' experience shows that new user registrations and site usage declines during the summer months and around the year-end holidays. Seasonality may also affect advertising and affiliate performance which could in turn affect Tucows' sites' performance. These seasonal effects could cause fluctuations in Tucows' financial results as well as Tucows' performance statistics reported and measured by services such as Media Metrix, Inc.

Tucows believe that one of its strengths is the quality and dedication of its people and the shared sense of being part of a team. Tucows strives to maintain a work environment that fosters professionalism, excellence, diversity and cooperation among its employees. As of December 31, 2003, Tucows had approximately 140 full time employees.

The following table sets forth specific information regarding Tucows' executive officers as of March 23, 2004.

Name	Age	Position(s)
Elliot Noss	41	President and Chief Executive Officer
Michael Cooperman	52	Chief Financial Officer
Supriyo Sen	57	Chief Technology Officer
David Woroch	41	Vice President Sales

Elliot Noss has served as Tucows' president and chief executive officer since May 1999 and served as vice president of corporate services for Tucows Interactive Limited, which was acquired by Tucows in May 1999, from April 1997 to May 1999.

Michael Cooperman has served as Tucows' chief financial officer since January 2000. From October 1997 to September 1999, Mr. Cooperman was the chief executive officer of Archer Enterprise Systems Inc., a developer of sales force automation software.

Supriyo Sen has served as Tucows' chief technology officer since February 2001. Before joining Tucows, from May 2000 to February 2001, Mr. Sen was vice president, marketing at GoLinQ.com, an Internet software company focused on e-commerce solutions for small and medium businesses. Before that, Mr. Sen spent 14 years at Hitachi Data Systems, a multi-national computer hardware company, where he served at various times as vice president, knowledge center, vice president, corporate strategy and vice president, marketing.

David Woroch has served as Tucows' vice president sales since July 2001. From March 2000 to July 2001, Mr. Woroch served as Tucows director of sales for North America. Before joining Tucows, Mr. Woroch spent 13 years at IBM Canada in a variety of roles including sales, marketing, finance and strategic planning.

Tucows' business faces significant risks. Some of the following risks relate principally to Tucows business and the industry and statutory and regulatory environment in which Tucows operates. Other risks relate principally to the securities markets and ownership of Tucows stock. The risks described below may not be the only risks Tucows faces. Additional risks that Tucows does not yet know of or that it currently thinks are immaterial may also impair its business operations. If any of the events or circumstances described in the following risk factors actually occur, Tucows' business, financial condition or results of operations could suffer, and the trading price of its common stock could decline.

Tucows may not be able to maintain or improve its competitive position, and may be forced to reduce its prices, because of strong competition from other competitive registrars.

Before the introduction of competition into the domain name registration industry in 1999, Network Solutions was the only entity authorized by the U.S. government to serve as the registrar for domain names in the.com,.net and.org domains. This position allowed Network Solutions to develop a substantial customer base, which gives it advantages in securing customer renewals and in developing and marketing ancillary products and services. In addition to Network Solutions, Tucows faces significant competition from other existing registrars and the continued introduction of new registrars in the domain name registration industry. As of March 1, 2004, ICANN had accredited 191 competitive registrars, including Tucows, to register domain names in one or more of the gTLDs, though not all of these accredited registrars are operational. The continued introduction of competitive registrars and

resellers into the domain name registration industry and the rapid growth of some competitive registrars and resellers who have already entered the industry may make it difficult for Tucows to maintain its current market share. Some of these registrars may have longer operating histories, greater name recognition, particularly in international markets, or greater resources than Tucows. Tucows expects that competition will increase in the near term and that its primary long-term competitors may not yet have entered the market. As a result, Tucows may not be able to compete effectively.

The market for domain name registration continues to be extremely competitive as participants strive to protect their current market share and improve their competitive position. The VeriSign registry charges registrars who use its shared registration system $6 for each registration, which most users, including Tucows, pass on to their customers. Some of Tucows' competitors offer registration services at a price level minimally above the $6 VeriSign registry fee for each domain name registered in the.com and.net registry. Other competitors, have reduced and may continue to reduce their pricing for domain name registrations both for short-term promotions and on a permanent basis. Tucows' competitors have also offered domain name registrations free in a bundle of other products, deriving their revenues from other products and services. In addition, some of these competitors have experienced a significant increase in their registrations, suggesting that customers are becoming more price sensitive.

As Tucows' business model is premised upon selling multiple services through its reseller channel, Tucows has competed aggressively to attract new clients and retain existing customers. As a result of these actions, Tucows' average selling prices have fallen and Tucows may be required, by marketplace factors or otherwise, to reduce, perhaps significantly, the prices it charges for its core domain name registration and related products and services, especially if its competitors who charge these reduced fees are able to maintain customer service comparable to Tucows. Given the volatile nature of this market place, it is difficult to predict whether Tucows average selling prices will continue to decline. If Tucows continues to reduce its prices in order to remain competitive this could materially adversely affect Tucows' business, financial position and results of operations.

If the growth rate of the market for new domain names remains flat or declines, Tucows' net revenue from registrations may fall below anticipated levels.

Demand for renewals and new registrations under .com, .net, .org and other top level domains grew moderately in 2003. According to VeriSign, the total number of registrations under .com and .net grew by 4.6 million in 2003. Tucows does not expect demand for new domain name registrations to return to the high levels experienced in 2000 and 2001. If the market for new domain name registrations declines, it would restrict the growth of Tucows' domain name registration business and its revenues may decline.

If Tucows is unable to improve its sales of existing gTLDs, improve its renewal rate or generate alternate revenue streams, its business, financial condition and results of operations could be materially adversely affected.

Although the overall number of registrations in each new gTLD that has been launched has been significantly lower than the number of.com registrations, the introduction of new gTLDs has contributed to Tucows revenues. Tucows does not currently anticipate the introduction of any additional commercial gTLDs in the near future that would materially affect its revenues. As a result, in order to grow its revenues Tucows needs to increase sales of existing gTLDs, renewals, transfers or other products and services in lieu of the opportunities that were presented by the new gTLDs in 2001 and early 2002. Tucows business and results of operations could be materially adversely affected if the market for existing gTLDs does not develop, additional new top level domains are not introduced or if substantial numbers of its customers turn to other registrars for their registration needs.

Tucows relies on its network of resellers to renew their domain name registrations through Tucows and to distribute its applications and services, and if Tucows is unable to maintain these relationships or establish new relationships, its revenue may decline.

The growth of Tucows' business depends, among other things, on its reseller's renewal of their customers' domain name registrations through Tucows. Resellers may choose to renew their domain names with other registrars or they may choose not to renew and pay for renewal of their domain names. If resellers decide, for any reason, not to renew their registrations through Tucows, revenues from domain name registrations will decrease.

Tucows obtains revenues by distributing applications and services through its network of resellers. Tucows also relies on its resellers to market, promote and sell its services. Tucows' ability to increase revenues in the future will depend significantly on its ability to maintain its customer network, to sell more services through existing resellers and to develop its relationships with existing resellers by providing customer and sales support and additional products. Resellers have no obligations to distribute Tucows' applications and services and may stop doing so at any time. If Tucows is not able to maintain its relationships with resellers, its ability to distribute its applications and services will be harmed, and its revenue may decline.

A significant portion of Tucows' bookings is obtained from a limited number of resellers, and the loss of any major customers could cause Tucows' bookings to decline.

While no customer accounted for more than 10% of Tucows billed revenues in the year ended December 31, 2003, approximately 50 resellers account for approximately 50% of Tucows' transaction volume and approximately 80 resellers account for approximately 50% of Tucows' billed revenue. Tucows does not expect any customer to account for more than 10% of billed revenues in 2004. If Tucows loses and is unable to replace any major customers, Tucows' billed revenues will decline.

Tucows believes that companies operating on the Internet are facing a period of consolidation. In addition, some of Tucows resellers may decide to seek ICANN accreditation. Both of these situations could reduce the number of Tucows active resellers, in which case its revenues may suffer.

If any of Tucows competitors merge with one another they will present a stronger combined force in the market and may attract the business of both existing and prospective resellers. Resellers may opt to build their own technical systems and seek ICANN accreditation in order that they may process domain name applications themselves. If a number of Tucows customers decide to pursue this option, Tucows sales will decrease.

Failure by Tucows to secure agreements with country code registries or a subsequent failure by Tucows to comply with the regulations of the country code registries could cause customers to seek a registrar that offers these services.

The country code registries require registrars to comply with specific regulations. Many of these regulations vary from country code to country code. If Tucows fails to comply with the regulations imposed by country code registries, these registries will likely prohibit Tucows from registering or continuing to register names in their country codes. Any failure on Tucows' part to offer domain name registrations in a significant number of country codes, or in a popular country code, would cause Tucows to lose a competitive advantage and could cause resellers to elect to take their business to a registrar that offers these services.

Tucows operates on a global basis and clients around the world are required to execute its standard form agreements. Tucows' standard domain name registration agreement may not be enforceable, which could subject Tucows to liability.

All of Tucows' resellers must execute Tucows' standard domain name registration agreement as part of the process of registering a domain name. This agreement contains provisions intended to limit Tucows' potential liability arising from its registration of domain names on behalf of its resellers and their customers, including liability resulting from its failure to register or maintain domain names. If a court were to find that the registration agreement is unenforceable, Tucows could be subject to liability.

Tucows has only been operating as a domain name registrar since January 2000 and because it operates in a new industry for private label Internet applications and services, it is exposed to risks that affect its ability to conduct its business.

Competition in the domain name registration industry was introduced in 1999. Tucows entered the domain name registration business in January 2000 and, therefore, has a limited operating history as a domain name registrar upon which its business and prospects can be evaluated. As a company operating in a newly competitive and rapidly evolving industry, Tucows faces risks and uncertainties relating to its ability to implement its business plan successfully. Tucows cannot assure you that it will adequately address these risks and uncertainties or that its business plans will be successful.

If Tucows' cannot obtain or develop additional applications and services or its customers do not find any expanded product and service offerings appealing, or if Tucows fails to establish itself as a reliable source for these products and services, Tucows may remain dependent on domain name registrations as a primary source of revenue and its net revenues may fall below anticipated levels.

A key part of Tucows, long-term strategy is to diversify its revenue base by offering its resellers additional value-added products and services that address their evolving business needs. Although, Tucows has recently experienced increased sales for new products and services such as email and web certificates, its efforts to date have not resulted in substantial diversification. Tucows cannot be sure that it will be able to license new applications and services at a commercially viable cost or at all or that it will be able to cost-effectively develop the applications in-house. If Tucows cannot obtain or develop these applications on a cost-effective basis and cannot expand the range of its service offerings, the market for its services will not grow and may decline, and sales of its services may suffer as resellers turn to alternate providers that are able to more fully supply their business needs.

Tucows' primary business, domain name registration services, generated 94% of the company's net revenues during the year ended December 31, 2003. Tucows cannot assure you that it will be able to attain the market's confidence as a reliable provider of products and services outside of its core business. If, over time, Tucows fails to offer products and services that meet its customers' needs and that are competitive with those offered in the marketplace, or its customers elect not to purchase its products and services, Tucows' anticipated net revenues may fall below expectations, it may not generate sufficient revenue to offset the related costs and it will remain dependent on domain name registrations as its primary source of revenue. Tucows' inability to diversify successfully its revenue base from domain name registrations could, together with a decline in that market, materially adversely affect its business, financial condition and results of operations.

Tucows accesses and provides web-based content for certain of its content notification and other sites. Tucows accesses this content mainly by searching selected web sites and then providing links to relevant content from the individual sites. Usually, Tucows pays no fee, or a small fee, for accessing web-based content in this manner. Tucows' ability to continue to use web-based content in this manner

without cost, or for small fees, is fundamental to its goal of providing free, or low cost, content notification sites.

If Tucows fails to protect its proprietary rights, the value of those rights could be diminished.

Tucows relies upon copyright, trade secret and trademark law, confidentiality and nondisclosure agreements, invention assignment agreements and work for hire agreements to protect its proprietary technology. Tucows owns seven United States patents and has two pending United States patent applications. Tucows cannot ensure that its efforts to protect its proprietary information will be adequate to protect against infringement and misappropriation by third parties, particularly in foreign countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States.

Tucows has licensed, and may in the future license, some of its trademarks and other proprietary rights to others. Third parties may also reproduce or use intellectual property rights of Tucows without seeking a license and thus benefit from the technology of Tucows without paying for it. Third parties could also independently develop technology, processes or other intellectual property that are similar to or superior to those used by Tucows. Actions by licensees, misappropriation of the intellectual property rights or independent development by others of similar or superior technology might diminish the value of the proprietary rights of Tucows or damage the reputation of Tucows.

The unauthorized reproduction or other misappropriation of Tucows' intellectual property rights, including copying the look, feel and functionality of its web site could enable third parties to benefit from Tucows' technology without Tucows receiving any compensation.

Once any infringement is detected, disputes concerning the ownership or rights to use intellectual property could be costly and time-consuming to litigate, may distract management from operating the business, and may result in Tucows losing significant rights and its ability to operate all or a portion of its business.

Claims of infringement of intellectual property or other rights of third parties against Tucows could result in substantial costs.

Third parties may assert claims of infringement of patents or other intellectual property rights against Tucows concerning past, current or future technologies.

Content obtained from third parties and distributed over the Internet by Tucows may result in liability for defamation, negligence, intellectual property infringement, product or service liability and dissemination of computer viruses or other disruptive problems. Tucows may also be subject to claims from third parties asserting trademark infringement, unfair competition and violation of publicity and privacy rights relating specifically to domain names. These claims may include claims under the Anti-cybersquatting Consumer Protection Act, which was enacted to curtail the registration of a domain name that is identical or similar to another party's trademark or the name of a living person with the bad faith intent to profit from use of the domain name.

These claims and any resultant litigation could result in significant costs of defense, liability for damages and diversion of management's time and attention. Any claims from third parties may also result in limitations on the ability of Tucows to use the intellectual property subject to these claims unless it is able to enter into agreements with the third parties making these claims. If a successful claim of infringement is brought against Tucows and it fails to develop non-infringing technology or to license the infringed or similar technology on a timely basis, it may have to limit or discontinue the business operations which used the infringing technology.

Tucows relies on technologies licensed from other parties. These third-party technology licenses may infringe on the proprietary rights of others and may not continue to be available on commercially reasonable terms, if at all. The loss of this technology could require Tucows to obtain substitute technology of lower quality or performance standards or at greater cost, which could make its products and services less attractive to customers or increase its costs.

Tucows depends on the performance of its senior management team and other key employees. Tucows' success will also depend on its ability to attract, integrate, train, retain and motivate these individuals and additional highly skilled technical and sales and marketing personnel. In addition, Tucows does not maintain key person life insurance for any of its officers or key employees. The loss of the services of any of Tucows' senior management team or other key employees or failure to attract, integrate, train, retain and motivate additional key employees could harm Tucows' business.

Tucows revenue is primarily realized in United States dollars and a significant portion of Tucows' operating expenses is paid in Canadian dollars. Fluctuations in the exchange rate between the United States dollar and the Canadian dollar may have a material effect on Tucows' business, financial condition, and results from operations. In particular, Tucows may be adversely affected by a significant weakening of the United States dollar against the Canadian dollar. Tucows' policy with respect to foreign currency exposure is to manage financial exposure to certain foreign exchange fluctuations with the objective of neutralizing some of the impact of foreign currency exchange movements by entering into foreign exchange forward contracts to hedge a portion of its Canadian dollar exposure. At December 31, 2003, Tucows had a notional $2.65 million in forward foreign exchange contracts to convert U.S. dollars into Canadian dollars at rates of between 1.3064 and 1.3106, which expire on various dates to March 31, 2004.

If Tucows does not maintain a low rate of credit card chargebacks, it will face the prospect of financial penalties and could lose its ability to accept credit card payments from customers, which would have a material adverse affect on Tucows business, financial condition and results of operations.

A substantial majority of Tucows revenues originate from online credit card transactions. Under current credit card industry practices, Tucows is liable for fraudulent and disputed credit card transactions because Tucows does not obtain the cardholder's signature at the time of the transaction, even though the financial institution issuing the credit card may have authorized the transaction. Under credit card association's rules, additional penalties may be imposed at the discretion of the association. Any such potential penalties would be imposed on Tucows credit card processor by the association, and under Tucows contract with its processor, Tucows is required to reimburse it for such penalties. Tucows current level of fraud protection is ranking its fraudulent and disputed credit card transaction history within the guidelines established by the credit card associations. However, Tucows faces the risk that one or more credit card associations may, at any time, assess penalties against it or terminate its ability to accept credit card payments from customers, which would have a material adverse affect on Tucows business, financial condition and results of operations.

Although Tucows maintains general liability insurance, claims could exceed the coverage obtained or might not be covered by Tucows' insurance. While Tucows typically obtains representations from its technology and content providers and contractual partners concerning the ownership of licensed technology and informational content and obtains indemnification to cover any breach of these representations, Tucows still may not receive accurate representations or adequate compensation for

any breach of these representations. Tucows may have to pay a substantial amount of money for claims which are not covered by insurance or indemnification or for claims where the existing scope or adequacy of insurance or indemnification is disputed or insufficient.

Current world events and economic trends may have a negative impact on Tucows' sales.

Tucows' sales are subject to risks arising from adverse changes in domestic and global economic conditions and fluctuations in consumer confidence and spending. As a result, Tucows' sales may decline as a result of factors beyond its control, such as war and terrorism. These events include ongoing armed conflicts and retaliatory terrorist attacks. Any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the global markets and economy. If any of the foregoing events occur, Tucows' sales may decline and its business may be adversely affected.

Tucows' quarterly and annual operating results may fluctuate and its future revenues and profitability are uncertain.

Tucows' quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of Tucows' control. Tucows' quarterly and annual operating results may be adversely affected by a wide variety of factors, including:

Tucows operating expenses may increase. Tucows bases its operating expense budgets on expected revenue trends that are more difficult to predict in periods of economic uncertainty. Tucows intends to continue its efforts to control discretionary spending; however, Tucows will continue to selectively incur expenditures in areas that it believes will strengthen its position in the marketplace. If Tucows does not meet revenue goals, it may not be able to meet reduced operating expense levels and its operating results will suffer. It is possible that in one or more future quarters, Tucows operating results may be below Tucows' expectations and the expectations of public market analysts and investors. In that event, the price of Tucows common stock may fall.

Tucows business could be materially harmed if the administration and operation of the Internet no longer relies upon the existing domain name system.

The domain name registration industry continues to develop and adapt to changing technology. This development may include changes in the administration or operation of the Internet, including the creation and institution of alternate systems for directing Internet traffic without the use of the existing domain name system. Some of Tucows' competitors have begun registering domain names with extensions that rely on such alternate systems. These competitors are not subject to ICANN accreditation requirements and restrictions. Other competitors have attempted to introduce naming systems that use keywords rather than traditional domain names. The widespread acceptance of any alternative systems could eliminate the need to register a domain name to establish an online presence and could materially adversely affect Tucows' business, financial condition and results of operations.

If Internet usage does not grow or if the Internet does not continue to expand as a medium for commerce, Tucows' business may suffer.

Tucows' success depends upon the continued development and acceptance of the Internet as a widely used medium for commerce and communication. Rapid growth in the uses of and interest in the Internet is a relatively recent phenomenon and its continued growth cannot be assured. A number of factors could prevent continued growth, development and acceptance, including:

Any of these issues could slow the growth of the Internet, which could limit Tucows' growth and revenues.

Tucows may be unable to respond to the rapid technological changes in the industry, and its attempts to respond may require significant capital expenditures.

The Internet and electronic commerce are characterized by rapid technological change. Sudden changes in user and customer requirements and preferences, the frequent introduction of new applications and services embodying new technologies and the emergence of new industry standards and practices could make the applications, services and systems offered by Tucows obsolete. The emerging nature of applications and services in the e-business industry and their rapid evolution will require that Tucows continually improves the performance, features and reliability of its applications and services. The success of Tucows will depend, in part, on its ability:

The development of applications and services and other proprietary technology involves significant technological and business risks and requires substantial expenditures and lead-time. Tucows may be unable to use new technologies effectively or adapt its internally developed technology and transaction-processing systems to customer requirements or emerging industry standards. Updating technology internally and licensing new technology from third parties may require Tucows to incur significant additional capital expenditures.

Tucows could experience system failures and capacity constraints which would cause interruptions in its services and ultimately cause it to lose customers.

The ability of Tucows to maintain its computer hardware and software and telecommunications equipment in working order and to reasonably protect them from error and interruption is critical to its success. Failures and interruptions of, and the slowing of response times on, these systems could be caused by:

Tucows' web site has experienced slower response times because of increased traffic and has occasionally suffered failures of the computer hardware and software and telecommunications systems that it uses to deliver its sites to customers. Substantial or persistent system failures could result in:

Tucows' systems face security risks, and any compromise of the security of these systems could result in liability for damages and in lost customers.

Tucows' security systems may be vulnerable to unauthorized access by hackers or others, computer viruses and other disruptive problems. Someone who is able to circumvent security measures could

misappropriate customer or proprietary information or cause interruptions in Internet operations. Internet and online service providers have in the past experienced, and may in the future experience, interruptions in service because of the accidental or intentional actions of Internet users, current and former employees or others. Tucows may need to expend significant capital or other resources to protect against the threat of security breaches or alleviate problems caused by breaches. Unauthorized persons may be able to circumvent the measures that are implemented in the future. Eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service to users accessing Tucows' web sites and the web pages that deliver Tucows' content services. Repeated or substantial interruptions could result in the loss of customers and reduced revenues.

Many users of online commerce services are highly concerned about the security of transmissions over public networks. Concerns over security and the privacy of users may inhibit the growth of the Internet and other online services generally, and the web in particular, especially as a means of conducting commercial transactions. Users might circumvent the measures Tucows takes to protect customers' private and confidential information, such as credit card numbers. Security breaches could damage Tucows' reputation and expose it to litigation and possible liability, including claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims and for other misuses of personal information, including for unauthorized marketing purposes. Tucows may also incur significant costs to protect against security breaches or to alleviate problems caused by these breaches. In addition, the Federal Trade Commission and state agencies have investigated various Internet companies regarding their use of personal information. The federal government has enacted legislation protecting the privacy of consumers' nonpublic personal information. Tucows cannot guarantee that its current information-collection procedures and disclosure policies will be found to be in compliance with existing or future laws or regulations. Tucows' failure to comply with existing laws, including those of foreign countries, the adoption of new laws or regulations regarding the use of personal information that require Tucows to change the way it conducts business or an investigation of Tucows privacy practices could increase the costs of operating Tucows' business.

Governmental and regulatory policies or claims concerning the domain name registration system, and industry reactions to those policies or claims, may cause instability in the industry and disrupt Tucows' domain name registration business.

Before 1999, Network Solutions managed the domain name registration system for the.com,.net and.org domains on an exclusive basis under a cooperative agreement with the U.S. government. In November 1998, the Department of Commerce authorized ICANN to oversee key aspects of the domain name registration system. ICANN has been subject to strict scrutiny by the public and by the government. For example, in the United States, Congress has held hearings to evaluate ICANN's selection process for new top level domains. In addition, ICANN faces significant questions regarding its financial viability and efficacy as a private sector entity. ICANN's may continue to evolve both its long term structure and mission to address perceived shortcomings such as a lack of accountability to the public and a failure to maintain a diverse representation of interests on its board of directors. Tucows continues to face the risks that:

In addition, ICANN has established policies and practices for itself and the companies it accredits to act as domain name registries and registrars. Some of ICANN's policies and practices, and the policies and practices adopted by registries and registrars in the domain name business, could be found to conflict with the laws of one or more jurisdictions.

If any of these risks occur, they could create instability in the domain name registration system business. These risks could also disrupt or suspend portions of Tucows' domain name registration business, which would result in reduced revenue.

Tucows may be subject to government regulation and legal liabilities which may be costly and may interfere with its ability to conduct business.

Although transmission of Tucows' sites primarily originates in Canada and the United States, the Internet is global in nature. Governments of foreign countries might try to regulate Tucows' transmissions or prosecute it for violations of their laws. Because of the increasing popularity and use of the Internet, federal, state and foreign governments may adopt laws or regulations in the future concerning commercial online services and the Internet, about:

Laws and regulations directly applicable to online commerce or Internet communications are becoming more prevalent. Laws and regulations such as those listed above or others could expose Tucows to substantial liability, if enacted, and increase its costs of compliance and doing business.

The introduction of tax laws targeting companies engaged in electronic commerce could materially adversely affect Tucows business, financial condition and results of operations.

Tucows files tax returns in such countries and states as required by law based on principles applicable to traditional businesses. However, one or more economic unions, countries and states could seek to impose additional income tax obligations or sales tax collection obligations on out-of-jurisdiction companies, such as Tucows, which engage in or facilitate electronic commerce. A number of proposals have been made at these different government levels that could impose such taxes

on the sale of products and services through the Internet or the income derived from such sales. Such proposals, if adopted, could substantially impair the growth of electronic commerce and materially adversely affect Tucows business, financial condition and results of operations.

On November 28, 2001, President Bush signed the Internet Tax Non-discrimination Act, which limits the ability of the states to impose taxes on Internet-based transactions. While this legislation provided significant benefits to Internet-based businesses, it expired on November 1, 2003. There are currently bills pending before the Senate that would permanently extend the Internet tax moratorium. If these bills are not passed, or if this legislation is not otherwise renewed, it would allow various states to impose taxes on Internet-based commerce. The imposition of such taxes, which may be heavily lobbied for by states, many of which face increasing budget deficits, could materially adversely affect Tucows business, financial condition and results of operations.

Compliance with new rules and regulations concerning corporate governance may be costly and could harm Tucows business.

The Sarbanes-Oxley Act of 2002 mandates, among other things, that companies adopt new corporate governance measures and imposes comprehensive reporting and disclosure requirements, sets stricter independence and financial expertise standards for audit committee members and imposes increased civil and criminal penalties for companies, their chief executive officers and chief financial officers and directors for securities law violations. These laws, rules and regulations will increase the scope, complexity and cost of Tucows corporate governance, reporting and disclosure practices, which could harm Tucows results of operations and divert management's attention from business operations. Tucows also expects these developments to make it more difficult and more expensive for it to obtain director and officer liability insurance, and Tucows may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Further, Tucows' board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, Tucows may have difficulty attracting and retaining qualified board members and executive officers, which could harm its business.

A limited number of principal shareholders control Tucows, which may limit your ability to influence corporate matters.

Four principal shareholders beneficially own approximately 52% of Tucows voting stock. These shareholders could control the outcome of any corporate transaction or other matter submitted to Tucows shareholders for approval, including mergers, consolidations and the sale of all or substantially all of Tucows' assets, and also could prevent or cause a change in control. The interests of these shareholders may differ from the interests of Tucows' other shareholders.

Third parties may be discouraged from making a tender offer or bid to acquire Tucows because of this concentration of ownership.

Tucows common stock has been delisted, and investors may find it more difficult to sell Tucows common stock.

Tucows common stock was delisted from the Nasdaq SmallCap market in June 2001. Tucows common stock is now quoted on the OTC Bulletin Board maintained by Nasdaq. The fact that Tucows common stock is not listed is likely to make trading Tucows shares more difficult for broker-dealers, shareholders and investors, potentially leading to further declines in share price. It may also make it more difficult for Tucows to raise additional capital. An investor may find it more difficult to sell Tucows common stock or to obtain accurate quotations of the share price of Tucows common stock.

Management has not determined when or whether it will apply again for listing on the Nasdaq SmallCap market.

Tucows is also subject to an SEC rule concerning the trading of so-called penny stocks. Under this rule, broker-dealers who sell securities governed by the rule to persons who are not established customers or accredited investors must make a special suitability determination and must receive the purchaser's written consent to the transaction prior to the sale. This rule may deter broker-dealers from recommending or selling Tucows' stock, which may negatively affect the liquidity of Tucows' stock.

Tucows' stock price is highly volatile, which may make it difficult to resell your shares when you want to, at prices you find attractive.

Tucows' stock price has varied recently and if it continues to vary, the price of its common stock may decrease in the future regardless of Tucows operating performance. Investors may be unable to resell their shares of common stock following periods of volatility because of the market's adverse reaction to this volatility.

The stock market in general, and the market for Internet-related companies, including Tucows, in particular, has experienced extreme volatility. This volatility often has been unrelated to the operating performance of these companies. These broad market and industry fluctuations may cause the price of Tucows' stock to drop, regardless of Tucows' performance.

Tucows' address on the World Wide Web is www.tucowsinc.com. Tucows makes its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports and other documents, filed with the SEC available free of charge, on its web site, as soon as reasonably practicable after such materials are electronically filed with the SEC.

Tucows owns no real property. Tucows' principal administrative, engineering, marketing and sales office totals approximately 18,426 square feet and is located in Toronto, Ontario under a lease that expires on December 31, 2004. Tucows also maintains offices of approximately 5,000 square feet in Flint, Michigan.

Substantially all of Tucows' computer and communications hardware is located at its facilities or at server hosting facilities in Toronto, Ontario.

Tucows is involved in various investigations, claims and lawsuits arising in the normal conduct of its business, none of which, in its opinion will harm its business. Tucows has settled its dispute with Worldcom, Inc., as discussed in the Company's Form 10-K for the year ended December 31, 2002, and the matter has been formally dismissed. Tucows cannot assure that it will prevail in any litigation. Regardless of the outcome, any litigation may require Tucows to incur significant litigation expense and may result in significant diversion of management attention.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Tucows' common stock trades on the OTC bulletin board maintained by Nasdaq under the symbol TCOW. The following table sets forth the range of high and low sales prices for Tucows common stock for the periods indicated.

Year	Fiscal Quarter Ended	High		Low
2002	March 31, 2002	$	0.50	$	0.26
	June 30, 2002		0.61		0.33
	September 30, 2002		0.51		0.30
	December 31, 2002		0.39		0.21
2003	March 31, 2003		0.32		0.20
	June 30, 2003		0.35		0.23
	September 30, 2003		0.40		0.26
	December 31, 2003		0.55		0.27

As of March 16, 2004, Tucows had 305 shareholders of record and Tucows believes that a substantially larger number of beneficial owners hold shares of its common stock in depository or nominee form.

Tucows has not declared or paid any cash dividends on its common stock and does not intend to do so in the foreseeable future.

The selected historical financial data as of December 31, 2003, 2002, 2001, 2000 and 1999, and for the period from May 4, 1999 to December 31, 1999 and the years ended December 31, 2003, 2002, 2001 and 2000, reflects the financial position and results of operations of Tucows Inc. The selected historical financial data for the period from January 1, 1999 to May 3, 1999, reflects the financial position and results of operations of Tucows' predecessor entity, the Tucows division of Tucows Interactive Limited. The statement of operations data for the year ended December 31, 1999 is prepared, as described in footnote 1, on a pro forma basis as though Tucows' acquisition of the assets of the Tucows division had occurred on January 1, 1999.

The balance sheet data as of December 31, 2003 and 2002, and the statements of operations data for the years ended December 31, 2003, 2002 and 2001 have been extracted from Tucows' consolidated financial statements that have been audited by KPMG LLP, independent accountants which consolidated financial statements are listed in response to Item 8 of this Annual report on Form 10-K.

The historical financial data for the other periods indicated have been extracted from the applicable audited financial statements for the periods indicated, which financial statements are not included herein.

The historical data is only a summary, and you should read it with Tucows Management's Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion of Tucows' financial condition and results of operations should be read with Tucows' consolidated financial statements and notes included elsewhere herein.

Tucows provides Internet services and digital software content to end-users worldwide through a global Internet-based distribution network of more than 6,000 resellers in over 100 countries. Tucows is an ICANN accredited registrar and generates revenue primarily through the provision of domain name registration and other Internet services to resellers who offer such services to their own customers. These resellers are a heterogeneous group of companies, including Internet service providers, web hosting providers and telecommunications and cable companies that Tucows refers to as Service Providers, that typically provide a critical component of an end-user's Internet presence and have a very high level of interaction with the end-user. Tucows is a domain name registrar accredited by ICANN. In addition to domain name registration services, Tucows currently provides security and identity services (through digital certificates), email services, managed domain name services, or DNS, and plans to introduce a number of additional Internet services in the future. Tucows provides its services on either a wholesale or private label basis, allowing Service Providers to deal directly with their own end-user customers. In addition to providing Internet services, the Tucows web site, which was launched in 1993, offers more than 36,000 software titles through a number of mirrored sites located around the world, providing users with a fast local download.

Tucows generates net revenues primarily through the provision of domain name registration and ancillary services. Other revenue sources include advertising and other revenue. Tucows also generated net revenues from subscription fees associated with its search and reference services, Electric Library and Encyclopedia.com, until it sold the assets associated with such services in August 2002.

Tucows generates the majority of its net revenues from domain name registration services on both a wholesale and retail basis. Tucows earns registration fees in connection with new, renewed and transferred-in registrations. These services are generally purchased for terms of one to ten years. Payments for the full term of all registrations are received at the time of registration but are recorded as deferred revenue and are recognized ratably on a monthly basis over the term of the registration.

On a wholesale basis, Tucows offers domain name registration and ancillary services, which currently consist of digital certificates, email services, and managed DNS to resellers, who provide these services to their end-users to facilitate their use of Internet services such as email or web-hosting. The domain name registration services offered by Tucows are for the gTLDs.com,.net,.org,.info,.name and.biz and the country code domains.ca,.cc,.cn,.de.uk,. tv and.us. Tucows receives revenues for each domain name, web certificate or email box registered through its system by resellers. Tucows charges standard fees for its services that are published on its web site. Tucows also extends volume based discounts and rebates to resellers.

On a retail basis, Tucows offers internet services directly to end-users through its Domain Direct division. These services include domain name registration, email, hosting and web site creation. Depending on the service offered, Domain Direct receives standard fees for its services that are published on its web site. In addition, Domain Direct offers referral commissions based on a percentage of net registration revenues to participants in its affiliate program.

Prior to the sale of its wholly owned subsidiary, Liberty RMS, in March 2002, Tucows provided technical back-end registry management services to Afilias, the.info registry. Tucows received from Afilias a service fee of $2.95 for each domain year registered. Payment for each registration under management was due annually in the anniversary month.

Tucows' also generates advertising and other revenue through its online libraries of shareware, freeware and online services presented at its web site, www.tucows.com. Advertising revenue is generated from third party advertisers and from software developers who rely on Tucows as a primary source of distribution. Software developers use Tucows' Author Resource Center to submit their products for inclusion in Tucows' software libraries and to purchase promotional placement of their software in the library categories as well as purchase other promotional services on a cost per click or flat rate basis. Software developers are able to promote their software through advertising services including keyword search placements, banners, promotional placements, expedited reviews and premium data services. Revenue is also generated from companies who contract with Tucows to provide them with co-branded content and customized search agent services using Tucow's "Sleuth" technologies. Advertising and other revenue is recognized ratably over the period in which it is presented. Tucows also enters into barter transactions, which are a component of advertising revenues. Barter transactions are the exchange of advertising space on Tucows' web site for reciprocal space or traffic on other web sites. Revenues and expenses are recognized from advertising barter transactions when the value of the advertising surrendered is determinable based on Tucows' historical practice of receiving cash for similar advertising. Tucows did not undertake any barter transactions during the year ended December 31, 2003, and recognized barter revenue of approximately $51,000 for the year ended December 31, 2002.

All of the assets and certain liabilities associated with the Electric Library subscription and Encyclopedia.com services were sold to Alacritude, LLC in August 2002. Electric Library was a web-accessible online archive that aggregated content from hundreds of sources and contained over 13 million documents from books, magazines and newspapers.

The following is a brief discussion of Tucows' critical accounting policies and methods. Critical accounting policies are defined as those that are both important to the portrayal of Tucows' financial condition and results and are reflective of significant judgments and uncertainties made by management that may result in materially different results under different assumptions and conditions. Note 2 of the notes to the consolidated financial statements includes a more complete summary of the significant accounting policies and methods used in the preparation of Tucows' consolidated financial statements.

The preparation of financial statements in conformity with generally accepted accounting principles requires Tucows to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Tucows evaluates the application of these estimates, including those related to the recoverability of investments, prepaid domain name registry fees, product development costs, revenue recognition and deferred revenue, and contingencies and litigation. Tucows bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts could differ significantly from these estimates.

Tucows derives the vast majority of its net revenues from domain name registration fees and ancillary services. Service has been provided once Tucows has confirmation that the requested domain name has been appropriately recorded in the registry under contractual performance standards or the web certificate or email box has been activated. Payments for the full term of all registrations are received at the time of registration but are recorded as deferred revenue and are recognized ratably on a monthly basis over the term of the registration.

Tucows' also generates advertising and other revenue through its online libraries of shareware, freeware and online services presented at its web site www.tucows.com. Advertising and other revenue is recognized ratably over the period in which it is presented. To the extent that minimum guaranteed impressions are not met, Tucows defers recognition of the corresponding revenues until the guaranteed impressions are achieved.

Changes to contractual relationships in the future could impact the amounts and timing of revenue recognition.

In those cases where payment is not received at the time of sale, additional conditions for recognition of revenue are that the collection of sales proceeds is reasonably assured and Tucows has no further performance obligations. Tucows records expected refunds, rebates and credit card charge-backs as a reduction of revenues at the time of the sale based on historical experiences and current expectations.

Tucows establishes reserves for possible uncollectible accounts receivable and other contingent liabilities which may arise in the normal course of business. Historically, credit losses have been within Tucows' expectations and the reserves Tucows has established have been appropriate. However, Tucows has, on occasion, experienced issues which have led to accounts receivable not being fully collected. Should these issues occur more frequently, additional reserves may be required.

Tucows accounts for the costs of computer software developed or obtained for internal use in accordance with American Institute of Certified Public Accountants Statement of Position 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use, as more fully described in Note 2 to the audited financial statements of Tucows. Tucows' policy on capitalizing internally developed software costs determines the timing of its recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or depreciation of property and equipment. Management is required to use its judgment in assessing technological feasibility in determining whether development costs meet the criteria for immediate expense or capitalization. Management reassesses these judgments on an ongoing basis. Changes in management's assessment could impact the recognition of development costs in Tucows' accounts.

Tucows reviews the recoverability of long-lived assets based upon the existence of one or more of the following indicators of impairment:

Tucows measures any impairment based on a projected discounted cash flow model using a discount rate determined by management to be commensurate with the risk inherent in Tucows' current business model. Management bases its estimates in preparing the discounted cash flows on historical experience and on various other assumptions, including current market trends and developments, ongoing customer developments and general economic factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Management reassesses these judgments on an ongoing basis. Changes in management's assessment could impact the valuation of long-lived assets in Tucows' accounts.

Results of operations for the year ended December 31, 2003 compared to December 31, 2002

	2003		2002
Net revenues	$	37,194,747		$	37,046,375
Increase over prior year	$	148,372
Increase—percentage		0	%

Total net revenues for the year ended December 31, 2003 increased to $37.2 million from $37.0 million for the year ended December 31, 2002.

During the year ended December 31, 2003, no customer accounted for more than 10% of billed revenue, and one customer accounted for 19% of accounts receivable at December 31, 2003. Subsequent to the fiscal year end, this amount was fully collected.

Net revenues from domain name and ancillary services for the year ended December 31, 2003 increased by $2.7 million, or 8.3%, to $35.1 million from $32.4 million for the year ended December 31, 2002 (after removing the effect of net revenue of approximately $0.5 million from back-end registry management services provided to the.info registry that was disposed of in March 2002).

During the year ended December 31, 2003, the number of domain names processed by Tucows increased by approximately 330,000 to approximately 3.2 million new, renewed and transferred-in domain name registrations, compared to the year ended December 31, 2002. This increase was primarily the result of increased volumes from new and existing customers. The renewal rate for domain name registrations increased to 60% for the year ended December 31, 2003 compared to 55% for the year ended December 31, 2002.

While Tucows anticipates the number of new, renewed and transferred-in domain name registrations will incrementally increase, the volatility in the market could affect the growth of domain names under Tucows management. During the year ended December 31, 2003, the total number of domain names under Tucows management increased by approximately 400,000 to approximately 3.8 million.

Deferred revenue from domain name registrations and ancillary services at December 31, 2003 increased to $28.6 million from $24.4 million at December 31, 2002.

Advertising and other revenue for the year ended December 31, 2003 increased by approximately $300,000, or 18%, to $2.0 million compared to $1.7 million for the year ended December 31, 2002. The increase was predominantly the result of growth in revenue from Tucows' Author Resource Center.

The increase in revenues for the year ended December 31, 2003 was partially offset by a reduction in subscription fee revenue of approximately $2.4 million, resulting from the sale of Tucows search and reference services, Electric Library and Encyclopedia.com in August 2002.

Cost of revenues includes the costs associated with providing domain name registration and ancillary services, advertising and other revenue. Tucows has no direct cost of revenues relating to its advertising revenues. Cost of revenues for domain name registrations consist of registry fees and network costs. Network costs include personnel and related expenses, including bandwidth and co-location expenses to support the supply of products and services. Bandwidth and co-location expenses are composed primarily of communication and provisioning costs related to the management and support of Tucows' network.

	2003			2002
Cost of revenues	$	22,990,227		$	23,107,871
Decrease over prior year	$	(117,644	)
Decrease—percentage		(1	)%

Cost of revenues for the year ended December 31, 2003 decreased by approximately $118,000, or 1%, to $23.0 million from $23.1 million for the year ended December 31, 2002. The decrease was primarily the result of lower costs of approximately $1.9 million attributable to Electric Library subscription services and back-end registry services no longer being incurred during fiscal 2003, as these assets were disposed of during 2002. The decrease was offset by the increase in cost of revenues from increased volumes of domain names registered and digital certificates sold during the year. Tucows anticipates that cost of revenues will continue to increase in absolute dollars primarily as a result of continued growth in domain name registration and ancillary services.

Registry fees, the primary component of cost of revenues, are paid in full when the domain name is registered, and are recorded as prepaid domain name registry fees. These fees are recognized ratably over the term of the registration on a basis consistent with the recognition of revenues from Tucows' customers.

Cost of revenues of digital content distribution services includes the costs of network operations. The cost of network operations is comprised primarily of communication costs, equipment maintenance, and employee and related costs directly associated with the management and maintenance of the network. Tucows expects communication costs to increase as its network expands geographically and network activity increases.

Until the sale of its back-end registry management services business to Afilias in March 2002, Tucows was responsible for the payment of certain agreements with third party suppliers for services and technical support, including web hosting required to operate the.info registry. Under these agreements, Tucows was committed to monthly payments ranging from approximately $97,000 to approximately $335,000. This accounted for approximately $962,000 in payments from January 1, 2002 to March 2002, after which these contractual obligations were assumed by Afilias as part of the sale.

In August 2002, Tucows sold all the assets and certain liabilities associated with its search and reference services, Electric Library and Encyclopedia.com, to Alacritude. The principal element of cost associated with the delivery of these services prior to the sale was the royalty and license fees on end-user revenues paid to bigchalk.com. This amounted to approximately $972,000 in payments for the year ended December 31, 2002. Bigchalk.com was the sole provider of content, hardware, software, and related costs to deliver the Electric Library products.

Sales and marketing expenses consist primarily of personnel costs. These costs include commissions and related expenses of Tucows' sales, product management, public relations, call center, support and marketing personnel. Other sales and marketing expenses include customer acquisition costs, advertising and other promotional costs.

	2003			2002
Sales and marketing	$	3,850,081		$	3,770,913
Increase over prior year	$	79,168
Increase—percentage		2	%
Percentage of revenues		10	%		10	%

Sales and marketing expenses during the year ended December 31, 2003 increased by approximately $79,000, or 2%, to $3.9 million compared to $3.8 million during the year ended December 31, 2002. The increase was the result of increased costs of approximately $528,000 related to ongoing initiatives to improve customer service and expand Tucows sales reach, people costs, including contractors, as well as reduced costs of approximately $290,000 primarily related to media advertising and other promotional activities, and approximately $335,000 in sales and marketing costs, incurred in 2002, attributable to Electric Library subscription services and back-end registry services that were sold during 2002. The decrease was offset by an increase in fees to ICANN of approximately $176,000, reflecting the larger levy imposed on Tucows as a result of increases in the ICANN budget.

Tucows believes that sales and marketing expenses will increase, in absolute dollars, on a go forward basis as it adjusts its marketing programs and sales strategies to meet future opportunities in the market place.

Technical operations and development expenses consist primarily of personnel costs and related expenses required to support the development of new or enhanced service offerings and the maintenance and upgrading of existing infrastructure. This includes expenses incurred in the research, design and development of technology that Tucows uses to register domain names (both at a registrar and, before the sale of the business of Liberty RMS, at a registry level) and to distribute its digital content services. Editorial costs relating to the rating and review of the software content libraries are included in the costs of product development. In accordance with the American Institute of Certified Public Accountants Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, costs incurred during the application development stage only are capitalized and primarily include personnel costs for employees directly related to the development project. All other costs incurred are expensed as incurred.

	2003			2002
Technical operations and development expenses	$	3,935,061		$	3,725,966
Increase over prior year	$	209,095
Increase—percentage		6	%
Percentage of revenues		11	%		10	%

Technical operations and development expenses for the year ended December 31, 2003 increased approximately $209,000, or 6%, to $3.9 million from $3.7 million for the year ended December 31, 2002. The increase was primarily the result of people related costs, including contract and outside service costs, which increased by approximately $567,000, and travel and other costs, which increased by approximately $21,000. These increases were offset by costs of approximately $500,000 no longer being incurred for the Electric Library subscription services assets that were sold in August 2002.

This increase was further achieved by a decrease of approximately $121,000 in the level of expenditure for capitalized research and development, which decreased from approximately $532,000 for the year ended December 31, 2002 to approximately $411,000 for the year ended December 31, 2003 as a result of the maturing of Tucows' product offerings.

Tucows expects technical operations and development expenses to increase slightly, in absolute dollars, on a go forward basis, as its business continues to grow and as it further develops its applications and services.

General and administrative expenses consist primarily of compensation and related costs for managerial and administrative personnel, fees for professional services, public listing expenses, rent and other general corporate expenses.

	2003			2002
General and administrative	$	3,998,073		$	4,523,314
Decrease over prior year	$	(525,241	)
Decrease—percentage		(12	)%
Percentage of revenues		11	%		12	%

General and administrative expenses for the year ended December 31, 2003 decreased by approximately $525,000, or 12%, to $4.0 million from $4.5 million for the year ended December 31, 2002. The decrease was primarily the result of a larger gain on foreign exchange contracts in 2003 of approximately $1.4 million. The forward foreign exchange contracts were purchased in June 2002 and expired semi-monthly to December 2003. In addition, the company did not incur expenses of approximately $584,000 pertaining to its Electric Library subscription services and back-end registry services assets, including payroll costs, credit card processing fees and facilities costs, during the year ended December 31, 2003 as a result of the disposal of these assets during 2002. Finally, bad debts recovered and lower consulting and investor relations' expenditures reduced general and administrative expenses by approximately $120,000 in 2003 compared to the previous year.

These decreases were offset by increases in professional fees by approximately $916,000, including approximately $567,000 related to the evaluation of strategic alternatives, directors and officers' liability insurance by approximately $100,000 and increases in payroll, credit card processing fees and facilities costs of approximately $290,000. Finally, as a result of a refund of approximately $197,000 received for state taxes during the year ended December 31, 2002, net state tax expense increased by approximately $265,000.

Tucows expects general and administrative expenses to increase, in absolute dollars, on a go forward basis, as its business continues to grow and the impact of a higher Canadian dollar is recognized.

Property and equipment is depreciated on a straight-line basis over the estimated useful life of the assets.

	2003			2002
Depreciation of property and equipment	$	1,489,570		$	2,675,836
Decrease over prior year	$	(1,186,266	)
Decrease—percentage		(44	)%
Percentage of revenues		4	%		7	%

The decrease in depreciation was primarily due to certain of Tucows older computer software being fully depreciated, as well as Electric Library subscription services and back-end registry services assets being disposed of during 2002.

Amortization of intangible assets consists of amounts relating to the non-competition agreements entered into with the former owners of the Tucows division of Tucows Interactive Limited, which were amortized on a straight-line basis over three years

	2003			2002
Amortization of intangible assets	$	—		$	222,222
Decrease over prior year	$	(222,222	)
Decrease—percentage		(100	)%
Percentage of revenues		—	%		1	%

		2003		2002
Other income (expenses), net		$	1,131,703		$	2,846,578

In connection with the sale of its' back-end registry management services assets in March 2002, Tucows was entitled to earn contingent consideration of up to $1.0 million, based on each name registered or renewed in the.org registry. During the year ended December 31, 2003, Tucows earned and received the full $1.0 million of contingent consideration.

During the year ended December 31, 2002, other income includes a gain of approximately $1.8 million that Tucows recorded in connection with the sale of all of the assets and certain liabilities associated with Tucows' search and reference services, Electric Library and Encyclopedia.com, in August 2002. It also includes a gain of approximately $2.0 million that Tucows recorded in connection with the disposition of its back-end registry services business to Afilias in March 2002.

These gains during 2002 were offset by Tucows' loss on sale of Eklektix of approximately $44,000 and the loss of approximately $1.0 million that Tucows recorded on the write down of its investment in bigchalk in June 2002. Until December 31, 2002, Tucows held an 11% interest in bigchalk.com, a privately held company. Tucows recorded a write down of its investment based on Tucows' review of the carrying value of this investment and its conclusion that an other than temporary decline in the value of the investment had occurred. The carrying value of this investment at December 31, 2002 was nil.

Other income includes net interest income of approximately $132,000 and approximately $102,000 for the years ended December 31, 2003 and 2002, respectively.

No provision for income taxes has been recorded for the years ending December 31, 2003 and 2002 as Tucows level of historical taxable income and net operating losses of approximately $15 million make it unlikely that Tucows will reach a taxable position in the near future.

At December 31, 2003 Tucows had a net future tax asset of $19.3 million, primarily comprised of accumulated operating loss carry forwards of $5.8 million, deferred revenue previously included in income for tax purposes of $3.0 million and amortization not yet recognized for tax purposes of $9.8 million. Tucows has provided a full valuation allowance for its net future tax assets as it believes that sufficient uncertainty exists regarding the realizability of the future tax assets. Tucows will continue to assess the realizability of the future assets based on actual and forecasted operating results. Once the available objective evidence creates sufficient certainty that Tucows believes, in accordance with the provisions of SFAS No. 109, that realization is reasonably assured, a reduction in the valuation allowance may be recorded and the carrying value of the future tax assets may be restored, resulting in a non-cash credit to earnings.

Results of operations for the year ended December 31, 2002 compared to December 31, 2001

	2002		2001
Net revenues	$	37,046,375		$	31,589,759
Increase over prior year	$	5,456,616
Increase—percentage		17	%

The increase in net revenues primarily reflects the growth in revenues from Tucows domain name registration and Electric Library subscription businesses as further described below.

Recognition of revenues from domain name and ancillary services increased by 18% to $32.9 million for the year ended December 31, 2002 from $27.8 million for the year ended December 31, 2001. During the year ended December 31, 2002, the number of domain names processed by Tucows increased by approximately 300,000 to approximately 2.8 million new, renewed and transferred-in domain name registrations, compared to the year ended December 31, 2001. During the year ended December 31, 2002, the total number of domain names under Tucows management increased by approximately 470,000 to approximately 3.4 million.

This increase in domain name registrations resulted in Tucows' deferred revenue from domain name registrations and ancillary services increasing to approximately $24.4 million at December 31, 2002 from approximately $22.7 million at December 31, 2001.

No single customer accounted for more than 10% of net revenues for the year ended December 31, 2002 and one customer accounted for 17% of accounts receivable at December 31, 2002. This amount was collected in January 2003. One customer accounted for approximately 13% of net revenues for the year ended December 31, 2001

In late August 2001, Afilias began accepting pre-registrations for the new gTLD,.info. This resulted in Tucows earning revenues for registry management services for the.info domain name amounting to approximately $578,000 for the five months ended December 31, 2001. Payment for each registration under management was due annually, in the anniversary month. In March 2002, Tucows sold its registry management services business to Afilias. Revenue from registry management services for the three months ended March 31, 2002 was approximately $522,000.

The increases in revenues summarized above were partially offset by declines in advertising and related services revenues. These revenues amounted to approximately $1.7 million for the year ended December 31, 2002 as compared to approximately $2.1 million for the year ended December 31, 2001. This decline was primarily the result of the slowdown in the traditional online advertising market in 2002, which was partially offset by revenues generated by Tucows Author Resource Center.

Subscription fees from Tucows search and reference services contributed revenue of approximately $2.4 million for the year ended December 31, 2002. In August 2002, Tucows sold the assets and certain liabilities of its search and reference services. Subscription fees from Tucows search and reference services contributed revenue of approximately $1.6 million for the year ended December 31, 2001.

	2002			2001
Cost of revenues	$	23,107,871		$	21,105,790
Increase over prior year	$	2,002,081
Increase—percentage		9	%

Growth of revenues was the primary factor in the increase of cost of revenues in 2002 from 2001.

The increase in cost of revenues for domain name registrations was primarily due to the growth in domain name registration revenues and the corresponding cost of registry fees for domain names registered during the year ended December 31, 2002 and the full impact of the ratable portion of the cost of registry fees for domain names registered in prior periods.

Until the sale of its back-end registry management services business to Afilias in March 2002, Tucows was responsible for the payment of certain agreements with third party suppliers for services and technical support, including web hosting required to operate the.info registry. Under these agreements, Tucows was committed to monthly payments ranging from approximately $97,000 to approximately $335,000. This accounted for approximately $2 million in cost of revenues for 2001 compared to approximately $962,000 from January 1, 2002 to March 2002 when these contractual obligations were assumed by Afilias as part of the sale.

In August 2002, Tucows sold all the assets and certain liabilities associated with its search and reference services, Electric Library and Encyclopedia.com, to Alacritude. The principal element of cost associated with the delivery of these services prior to the sale was the royalty and license fees on end-user revenues paid to bigchalk. This amounted to approximately $972,000 for the year ended December 31, 2002 and approximately $579,000 for the year ended December 31, 2001.

	2002			2001
Sales and marketing	$	3,770,913		$	6,380,102
Decrease over prior year	$	(2,609,189	)
Decrease—percentage		(41	)%
Percentage of revenues		10	%		20	%

The decrease in sales and marketing costs from 2001 to 2002 was primarily the result of Tucows reducing its headcount and curtailing marketing programs during 2002 as it reassessed its marketing strategies. This reassessment resulted in significantly lower amounts being spent on traditional

marketing activities during the year ended December 31, 2002 (approximately $471,000 compared to approximately $1.7 million for the year ended December 31, 2001) as Tucows increased its focus on targeted market acquisition programs. The balance of the decrease resulted from a reduction in personnel related expenditures of approximately $1.4 million.

	2002			2001
Technical operations and development	$	3,725,966		$	5,052,569
Decrease over prior year	$	(1,326,603	)
Decrease—percentage		(26	)%
Percentage of revenues		10	%		16	%

The decrease in technical operations and development expenses for the year ended December 31, 2002 compared to the year ended December 31, 2001 was due to Tucows' cost cutting initiatives undertaken in September 2001. These initiatives, which consisted primarily of headcount reductions, accounted for a decrease in personnel related expenditures of approximately $1.7 million for the year ended December 31, 2002 compared to the year ended December 31, 2001. In addition, the completion of the back-end registry technology accounted for a decrease in contractor and outside services of approximately $508,000 for the year ended December 31, 2002 compared to the year ended December 31, 2001.

This decrease was partially offset by the level of expenditure for capitalized research and development which decreased from approximately $1.5 million for the year ended December 31, 2001 to approximately $532,000 for the year ended December 31, 2002 as a result of the maturing of Tucows' product offerings.

	2002			2001
General and administrative	$	4,523,314		$	4,012,969
Increase over prior year	$	510,345
Increase—percentage		13	%
Percentage of revenues		12	%		13	%

The increase in general and administrative expenses in the amount of approximately $447,000, was a result of incremental increases in payroll, insurance and foreign exchange costs which were partially offset by a refund of state taxes in 2002 in the amount of approximately $197,000.

Tucows revenue is primarily realized in United States dollars. However, a significant portion of Tucows' operating expenses is paid in Canadian dollars. Fluctuations in the exchange rate between the United States dollar and the Canadian dollar may have a material effect on Tucows results from operations. In particular, Tucows may be adversely affected by a significant weakening of the United States dollar against the Canadian dollar.

During the year ended December 31, 2002, Tucows incurred a foreign exchange loss of approximately $260,000 as a result of accounting for the change in the fair value of the forward foreign exchange contracts on hand at December 31, 2002, which were entered into in June 2002.

Property and equipment is depreciated on a straight-line basis over the estimated useful life of the assets.

	2002			2001
Depreciation of property and equipment	$	2,675,836		$	3,202,948
Decrease over prior year	$	(527,112	)
Decrease—percentage		(16	)%
Percentage of revenues		7	%		10	%

The decrease in depreciation was primarily due to various assets of Tucows' being fully depreciated in prior years with no significant additions in 2002 to offset the reduction.

Amortization of intangible assets consists of amounts relating to the non-competition agreements entered into with the former owners of the Tucows division of Tucows Interactive Limited, which are amortized on a straight-line basis over three years. These agreements were fully amortized during the quarter ended June 30, 2002.

	2002			2001
Amortization of intangible assets	$	222,222		$	3,656,846
Decrease over prior year	$	(3,434,624	)
Decrease—percentage		(94	)%
Percentage of revenues		1	%		12	%

		2002		2001
Other income (expenses), net		$	2,846,578		$	(135,920	)

Other income (expenses) in 2002 includes a gain of approximately $1.8 million that Tucows recorded in connection with the sale of all of the assets and certain liabilities associated with Tucows' search and reference services, Electric Library and Encyclopeadia.com to Alacritude in August 2002. It also includes a gain of approximately $2.0 million that Tucows recorded in connection with the disposition of its back-end registry services business to Afilias in March 2002. These gains were offset by the loss on sale in January 2002 of Eklektix of approximately $44,000 and the loss of approximately $1.0 million that Tucows recorded on the write down of its investment in bigchalk in June 2002.

Other income includes net interest income (expense) of approximately $102,000 and approximately $(136,000) for the years ended December 31, 2002 and 2001, respectively.

No provision for income taxes was recorded for the years ending December 31, 2002 and 2001 as Tucows level of historical taxable income and net operating losses of approximately $19 million made it unlikely that Tucows would reach a taxable position in the near future.

At December 31, 2003, Tucows principal source of liquidity was cash and cash equivalents of approximately $12.9 million as compared to approximately $8.8 million at December 31, 2002, an increase of approximately $4.1 million.

Net cash provided by operating activities was approximately $3.2 million for the year ended December 31, 2003, as compared to approximately $3.4 million for the year ended December 31, 2002. Net cash provided by operating activities for 2003 and 2002 resulted primarily from net income for those years and increases in deferred revenue (representing cash received in advance of provision of the services). These increases were partially offset by an increase in prepaid domain name registry fees.

Net cash provided by investing activities was approximately $848,000 for the year ended December 31, 2003, primarily as a result of the proceeds of approximately $1.0 million received as contingent consideration based on each name registered or renewed in the.org registry, as well as the release of approximately $805,000 of Tucows cash and cash equivalents that had been pledged equivalents as margin security against forward exchange contracts purchased in June 2002 to hedge a portion of Tucows' Canadian dollar exposure. These proceeds were partially offset by net cash used for the purchase of property and equipment of approximately $957,000 in 2003. For the year ended December 31, 2002, net cash provided by investing activities was approximately $703,000. This was primarily the result of approximately $1.6 million received on the sale of the Electric Library and Encyclopedia.com assets in August 2002 and approximately $939,000 received on the disposition of the back-end registry management services business in March 2002. These proceeds were partially offset by net cash used for the purchase of property and equipment of approximately $845,000 and the pledging of approximately $938,000 of Tucows cash and cash equivalents as margin security against forward exchange contracts purchased in June 2002 to hedge a portion of Tucows' Canadian dollar exposure.

Net cash used by financing activities was approximately $111,000 for the year ended December 31, 2002 as a result of Tucows repaying its remaining obligations under capital leases.

Based on Tucows' operations, Tucows believes that its cash flow from operations will be adequate to meet its anticipated requirements for working capital and capital expenditures for at least the next 12 months. Tucows may then need to, or before that time it may choose to, raise additional funds or seek other financing arrangements to facilitate more rapid expansion, including significant increases in personnel and office facilities, to develop new or enhance existing products or services, to respond to competitive pressures, or to acquire or invest in complementary businesses, technologies, services or products.

If additional financing is required, Tucows may not be able to raise it on acceptable terms, or at all, and additional financing may be dilutive to existing investors. Tucows may also evaluate potential acquisitions of other businesses, products and technologies. To complete potential acquisitions, Tucows may issue additional securities or need additional equity or debt financing and any additional financing may be dilutive to existing investors. There are currently no material understandings, commitments or agreements about any acquisition of other businesses, products or technologies.

Tucows has not entered into any off balance sheet financial arrangements and has not established any special purpose entities as of December 31, 2003 nor has it guaranteed any debt or commitment of other entities. As such, Tucows is not materially exposed to any financing, liquidity, market or credit risk that could arise if Tucows had engaged in such relationships. A summary of Tucows' contractual obligations and commercial commitments as of December 31, 2003 is presented in the table below. Purchase obligations include amounts committed under legally enforceable contracts or purchase orders.

Tucows develops products in Canada and sells these products in North America and Europe. Tucows' sales are primarily made in United States dollars, while a major portion of expenses are incurred in Canadian dollars. Tucows' financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Tucows' interest income is sensitive to changes in the general level of Canadian and U.S. interest rates, particularly since the majority of its investments are in short-term instruments. Based on the nature of its short-term investments, Tucows has concluded that there is no material interest rate risk exposure at December 31, 2003.

Although Tucows has a functional currency of U.S. dollars, a substantial portion of its fixed expenses are incurred in Canadian dollars. Tucows policy with respect to foreign currency exposure is to manage financial exposure to certain foreign exchange fluctuations with the objective of neutralizing some of the impact of foreign currency exchange movements. Accordingly, Tucows has entered into foreign exchange forward contracts to hedge portions of its Canadian dollar exposure. These contracts, entered into in November 2003, will be utilized over the three months ending March 31, 2004.

Such foreign exchange forward contracts have not been treated as cash flow hedges for accounting purposes as Tucows has not complied with the documentation requirements. Tucows has accounted for the fair value of the derivative instruments within the consolidated balance sheet as a derivative financial asset or liability and the corresponding change in fair value is recorded in the consolidated statement of operations. Tucows has no other freestanding or embedded derivative instruments.

The impact of the foreign exchange forward contracts for the year ended December 31, 2003 was a net gain of approximately $279,000, and for the year ended December 31, 2002, the impact was a net loss of approximately $260,000, which is reflected on the consolidated statements of operations in general and administrative expenses. As of December 31, 2003, Tucows had outstanding foreign currency forward contracts totaling $2.65 million, with exchange rates varying from US$1.00 to Cdn$1.3064 to US$1.00 to Cdn$1.3106.

Tucows has performed a sensitivity analysis model for foreign exchange exposure over the year ended December 31, 2003. The analysis used a modeling technique that compares the US dollar equivalent of all expenses incurred in Canadian dollars, at the actual exchange rate, to a hypothetical 10% adverse movement in the foreign currency exchange rates, with all other variables held constant. Foreign currency exchange rates used were based on the market rates in effect during the year ended

December 31, 2003. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would result in a decrease in net income for the year ended December 31, 2003 of approximately $1.0 million. There can be no assurances that the above projected exchange rate decrease will materialize. Fluctuations of exchange rates are beyond the control of Tucows. Tucows will continue to monitor and assess the risk associated with these exposures and may at some point in the future take actions to hedge or mitigate these risks.

Tucows' consolidated financial statements and supplementary data required by this item are attached to this Annual Report on Form 10-K beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Tucows' management, with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness Tucows' disclosure controls and procedures as of the end of the period covered by this Form 10-K. Based on that evaluation, Tucows' chief executive officer and chief financial officer concluded that Tucows' disclosure controls and procedures as of the end of the period covered by this Form 10-K have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by Tucows in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Tucows believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

No change in Tucows' internal control over financial reporting occurred during Tucows' most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Tucows' internal control over financial reporting.

The information required by this item concerning directors is incorporated by reference to Tucows' proxy statement to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K or an amendment to this Annual Report on Form 10-K/A. The information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 required by this item will be set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in Tucows' proxy statement to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K or an amendment to this Annual Report on Form 10-K/A and is incorporated herein by reference.

The information required by this item concerning executive officers is set for the in Part I, Item 1 of this Annual Report on Form 10-K.

The information required by this item is incorporated by reference to Tucows' proxy statement to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K or an amendment to this Annual Report on Form 10-K/A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Exhibit No.		Description
2.1		Agreement and Plan of Merger by and among Infonautics, Inc., Tucows Inc. and TAC Merger Sub Corporation.(1)
3.1		Third Amended and Restated Articles of Incorporation of Tucows.(2)
3.2		Amended and Restated Bylaws of Tucows. (3)
10.1		Registration Rights Agreement, dated as of August 28, 2001, by and among Infonautics, Inc., Parman Holding Corp., Yossi Vardi, Redel Inc., Hapoalim Nechasim (Menayot) Ltd., Eurocom Communications Ltd., XDL U.S. Holdings Inc., FIBI Investment House Ltd., STI Ventures N.V. and Scorpio Communications Ltd.(4)
10.2		Amended and Restated 1996 Equity Compensation Plan Agreement.(5)
10.3*		Employment Agreement dated January 22, 2003 between Tucows.com Co. and Elliot Noss.(6)
10.4*		Employment Agreement dated March 11, 2003 between Tucows.com Co. and Michael Cooperman.(6)
10.5*		Employment Agreement dated March 11, 2003 between Tucows.com Co. and Supriyo Sen.(6)
10.6		Lease between American Baptist Churches USA and Infonautics Corporation(7)
10.7		Lease between 707932 Ontario Limited and Tucows International Corporation, dated December 10, 1999.(8)
10.8		Lease between Pier North Associate and Tucows.Com, Inc., dated July 3, 2000.(9)
21.1		Subsidiaries of Tucows Inc.
23.1		Consent of KPMG LLP.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Tucows furnished a Form 8-K on November 14, 2003 under Item 12, "Results of Operations and Financial Condition" (with respect to a press release relating to Tucows' performance for the quarter ended September 30, 2003.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Toronto, Province of Ontario, Canada on March 23, 2004.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons of behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ ELLIOT NOSS Elliot Noss	President, Chief Executive Officer (Principal Executive Officer) and Director	March 23, 2004
/s/ MICHAEL COOPERMAN Michael Cooperman	Chief Financial Officer (Principal Financial and Accounting Officer)	March 23, 2004
/s/ STANLEY STERN Stanley Stern	Director	March 23, 2004
/s/ EREZ GISSIN Erez Gissin	Director	March 23, 2004
/s/ ALAN LIPTON Alan Lipton	Director	March 23, 2004
/s/ LLOYD N. MORRISETT Lloyd N. Morrisett	Director	March 23, 2004

		Pages
Consolidated Financial Statements of Tucows Inc.		F-2
Independent Auditors' Report dated January 30, 2004		F-3
Consolidated Balance Sheets as of December 31, 2003 and 2002		F-4
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001		F-5
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 2003, 2002 and 2001		F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001		F-7
Notes to Consolidated Financial Statements		F-8

We have audited the accompanying consolidated balance sheets of Tucows Inc. as of December 31, 2003 and 2002 and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tucows Inc. as of December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

Tucows Inc.

Consolidated Statements of Operations

(Dollar amounts in U.S. dollars)

Tucows Inc.
Consolidated Statements of Stockholders' Equity (Deficiency)
(Dollar amounts in U.S. dollars)

Tucows Inc.

Consolidated Statements of Cash Flows

(Dollar amounts in U.S. dollars)

Tucows Inc.

Notes to Consolidated Financial Statements

(Dollar amounts in U.S. dollars)

The Company is a global distributor of Internet services, including domain name registration, security and identity products through digital certificates and email, through its global Internet-based distribution network of Internet Service Providers, web hosting companies and other providers of Internet services to end-users.

These financial statements are stated in U.S. dollars, except where otherwise noted. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation.

Investments, which the Company is unable to exercise significant influence, are recorded at cost and written down only when there is evidence that a decline in value that is other than temporary has occurred.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, and the recoverability of the investment in Afilias, Limited and long-lived assets. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from those estimates under different assumptions or conditions.

All highly liquid investments, with an original term to maturity of three months or less at the date of acquisition, are classified as cash equivalents.

Property and equipment are stated at cost net of accumulated amortization. Amortization is provided on a straight-line basis so as to amortize the cost of depreciable assets over their estimated useful lives at the following rates:

Asset	Rate
Computer equipment	30	%
Computer software	100	%
Furniture and equipment	20	%
Leasehold improvements	Over term of lease

The Company reviews the carrying values of its property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. If such assets are considered impaired, the amount of the impairment loss recognized is measured as the amount by which the carrying value of the asset exceeds the fair value of the asset, with fair value being determined based upon discounted cash flows or appraised values, depending on the nature of the asset.

Goodwill represents the excess of the purchase price over the fair values of net identifiable assets acquired. Prior to January 1, 2002, goodwill was amortized on a straight-line basis over three years. Goodwill recorded by the Company for acquisitions made prior to July 1, 2001 has been fully amortized as of December 31, 2001. During 2001, the Company recorded goodwill amortization expense of $2,990,179. The change in accounting policy related to amortization of goodwill in 2002, if applied on January 1, 2001 would not have had an impact on the net loss for the year ended December 31, 2001 as any reduction in amortization would have resulted in an offsetting increase in the write-down of goodwill during 2001 as outlined in note 6.

Non-competition agreements were entered into with the former owners of the Tucows Division of Tucows Interactive Limited. These balances were being amortized on a straight-line basis over the term of the non-competition agreement, being three years and have been fully amortized as of December 31, 2002.

The Company's revenues are derived from domain name registration and ancillary services, software and other digital content distribution and advertising. Amounts received in advance of meeting the revenue recognition criteria described below are recorded as deferred revenue.

Service has been provided once Tucows has confirmation that the requested domain name has been appropriately recorded in the registry under contractual performance standards. Registration fees charged for domain name registration and ancillary services are recognized on a straight-line basis over the life of the contracted registration period, which ranges from one to ten years and are net of any promotional rebates as the Company has a continuing obligation to provide services to customers throughout the registration period.

Advertising revenues are primarily derived from short-term advertising agreements in which the Company typically guarantees a minimum number of impressions or pages to be delivered over a specified period of time. Advertising revenues are recognized ratably over the period in which the advertisement is presented. In addition, revenue is generated from software developers who utilize the Tucows site to promote their software through advertising services including keyword search placements, banners, promotional placements, expedited reviews and premium data services. To the extent that minimum guaranteed impressions have not been met, the Company defers recognition of the corresponding revenues until the guaranteed impressions are achieved. The Company may also enter into barter arrangements with other Internet companies to place advertisements on each other's web sites. Revenue and expense from an advertising barter transaction is recognized only when the value of the advertising surrendered is determinable based on the Company's own historical practice of receiving cash for similar advertising. The Company recognized barter advertising of nil, $51,342, and $86,088 during the years ended December 31, 2003, 2002 and 2001, respectively.

Until the disposition of the assets and certain liabilities associated with the Company's search and reference services, Electric Library and Encyclopaedia.com to Alacritude, LLC on August 16, 2002, revenues from the sale of Electric Library subscriptions were derived from end-user markets. Revenues from online monthly end-user subscriptions from Electric Library were recognized in the month that the subscription services were provided. For annual end-user subscriptions, revenue was recognized ratably over the term of the subscription.

In those cases where payment is not received at the time of sale, additional conditions for recognition of revenue are that the collection of sales proceeds is reasonably assured and Tucows has no further performance obligations. Tucows records costs that reflect expected refunds, rebates and credit card charge-backs as a reduction of revenues at the time of the sale based on historical experiences and current expectations.

Tucows establishes reserves for possible uncollectable accounts receivable and other contingent liabilities which may arise in the normal course of business. Historically, credit losses have been within Tucows' expectations and the reserves Tucows has established have been appropriate. However, Tucows has, on occasion, experienced issues which have led to accounts receivable not being fully collected. Should these issues occur more frequently, additional reserves may be required.

Deferred revenue primarily relates to the unearned portion of revenues received in advance related to the unexpired term of registration fees from domain name registrations and ancillary services, net of external commissions. Revenue received in advance of the provision of services from advertising and Sleuth search technology is deferred and recognized in the month that the services are provided.

Prepaid domain name registry fees represent amounts paid to registries and country code domain name operators for updating and maintaining the registries. Domain name registry fees are recognized on a straight-line basis over the life of the contracted registration term.

The Company's functional currency is the United States dollar. Monetary assets and liabilities of the Company and of its wholly owned subsidiaries that are denominated in foreign currencies are translated into United States dollars (which is considered to be the measurement currency) at the exchange rates prevailing at the balance sheet dates. Non-monetary assets and liabilities are translated at the historical exchange rates. Transactions included in operations are translated at the average rate for the year. Foreign exchange gains (losses) amounting to $772,027, $(80,480), and $36,937 have been recorded in the consolidated statement of operations during the years ended December 31, 2003, 2002 and 2001, respectively.

The Company follows Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 and Statement of Financial Accounting Standards No. 138, which amended SFAS 133, establish accounting and reporting standards for derivative instruments and hedging activities. The Company has not complied with the documentation standards required for its forward foreign exchange contracts to be accounted for as hedges under SFAS 133 and has, therefore, accounted for such forward foreign exchange contracts at their fair value with a gain recorded in the consolidated statement of operations of $279,174 for the year ended December 31, 2003 and a loss recorded in the consolidated statement of operations of $260,289 for the year ended December 31, 2002 equal to the change in the fair value of such contracts. The Company did not have any forward foreign exchange contracts prior to January 1, 2002. The carrying amount assigned to the forward foreign exchange contracts is included in prepaid expenses in the consolidated balance sheet at December 31, 2003, and in accrued liabilities in the consolidated balance sheet at December 31, 2002.

Product development costs are expensed as incurred. The Company accounts for the costs of computer software developed or obtained for internal use in accordance with Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Under this SOP, costs that are incurred in the preliminary stage of software development are expensed as incurred. Costs incurred during the application and development stage are capitalized and generally include external direct costs of materials and services consumed in the development and payroll and payroll-related costs for employees who are directly associated with the development project. Costs incurred in the post implementation and operation stage are expensed as incurred. The Company capitalized $411,200, $532,200, and $1,454,800 during the years ended December 31, 2003, 2002 and 2001, respectively, of such costs relating to the development of internal use software. The capitalized costs of computer software developed for internal use are amortized on a straight-line basis over one year from the date the software is put into use.

Under the asset and liability method of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in

the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations in the year that includes the enactment date. A valuation allowance is recorded if it is not "more likely than not" that some portion of or all of a deferred tax asset will be realized.

The Company has elected to follow the intrinsic-value-based method of accounting as prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and related interpretations, in accounting for its employee stock options. Under APB 25, deferred stock-based compensation is recorded at the option grant date in an amount equal to the difference between the market value of a common share and the exercise price of the option. Deferred stock- based compensation resulting from employee option grants is amortized over the vesting period of the individual options, generally four years, in accordance with the accelerated measurement method in Financial Accounting Standards Board Interpretation No. 28.

Stock options granted to consultants and other non-employees are accounted for using the fair value method under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"). Under this method, the fair value of options granted is recognized as services are performed and options are earned.

The following table illustrates the effect on net income (loss) if the fair-value-based method had been applied to all outstanding and unvested awards in each year.

To determine the fair value of each option on the grant date in 2003, 2002 and 2001, the following assumptions were used for the Company's stock option plan: dividend yield of 0.0% for each year, volatility of138.8%, 157%, and 0%, respectively (zero volatility for 2001 as all options granted were granted while Tucows (Delaware) was a private company), a weighted average risk free interest rate of 2.8%, 3.46% and 6.6%, respectively, and a weighted average expected life of options of four years for each year.

Basic income (loss) per common share has been calculated on the basis of income (loss) for the year divided by the weighted average number of common shares outstanding during each year. Diluted net income (loss) per share is the same as basic income (loss) per share. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding at the end of the year had been issued, converted or exercised at the later of the beginning of the year or their date of issuance. In computing diluted income (loss) per share, the treasury stock method is used to determine the number of shares assumed to be purchased from the conversion of common stock equivalents or the proceeds of exercises of options. For the years ended December 31, 2001 and 2002, all dilutive potential common shares were anti-dilutive.

The following table reconciles the numerators and denominators of the basic and diluted earnings (loss) per common share computation:

		Year ended December 31, 2003		Year ended December 31, 2002		Year ended December 31, 2001
Numerator for basic and diluted income (loss) per common share:
	Income (loss) for the year	$	2,063,438	$	1,866,831	$	(13,412,763	)

Denominator for basic and diluted income (loss) per common share:
	Basic weighted average number of common shares outstanding		64,626,429		64,626,429		56,152,735
	Effect of stock options		99,500		—		—

	Diluted weighted average number of shares outstanding		64,725,929		64,626,429		56,152,735

Basic income (loss) per common share		$	0.03	$	0.03	$	(0.24	)

Diluted income (loss) per common share		$	0.03	$	0.03	$	(0.24	)

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, accounts receivable and forward foreign exchange contracts. Cash equivalents consist of deposits with, or guaranteed by, major commercial banks, the maturities of which are three months or less form the date of purchase. With respect to accounts receivable, the Company performs periodic credit evaluations of the financial condition of its customers and typically does not require collateral from them. The counterparty to the forward foreign exchange contracts is a major commercial bank which management believes does not represent a significant credit risk. Management assesses the need for allowances for potential credit losses by considering the credit risk of specific customers, historical trends and other information No customer accounted for more than 10% of revenue in 2003. One customer accounted for 19% of accounts receivable at December 31, 2003. This amount was collected subsequent to year end.

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the relatively short periods to maturity of the instruments.

The Company follows Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement requires companies to classify items of their comprehensive income by their nature in the financial statements and display the accumulated balance of other comprehensive income separately from deficit and additional paid-in capital in the equity section of the balance sheet. There was no difference between net income (loss) and comprehensive income (loss) for the years ended December 31, 2003, 2002 and 2001.

The Company follows Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which establishes standards for reporting information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company operates in one business segment.

The Company's revenues are attributed to the country in which the contract originates, primarily Canada. Revenues from domain names issued from the Toronto, Canada location are attributed to Canada because it is impracticable to determine the country of the customer.

In November 2002, the FASB reached consensus on Emerging Issues Task Force EITF Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables" ("EITF 00-21"). In general, EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. Specifically, EITF 00-21 addresses how to determine whether an arrangement involving multiple deliverables contains more than one earnings process and, if so, how to divide the arrangement into separate units of accounting consistent with the identified earnings processes for revenue recognition purposes. EITF 00-21 also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. EITF 00-21 is applicable to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 did not have any impact on the Company consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). In December 2003, the FASB issued FIN 46R which superseded FIN 46 and contains numerous exemptions. FIN 46R applies to financial statements of public entities that have or potentially have interests in entities considered special purpose entities for periods ended after December 15, 2003 and otherwise to interests in VIEs for periods ending after March 15, 2004. VIEs are entities that have insufficient equity and/or their equity investors lack one or more specified

essential characteristics of a controlling financial interest. The guideline provides specific guidance for determining when an entity is a VIE and who, if anyone, should consolidate the VIE. The Company does not anticipate the adoption of this standard to have a material impact on the consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging". SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The provisions of SFAS No. 149 will be effective for contracts entered into after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The provisions of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on our consolidated financial statements.

On August 28, 2001, Tucows (Delaware) Inc. finalized the acquisition of Infonautics, Inc. In connection with the acquisition for accounting purposes, all of the outstanding shares of Tucows (Delaware) Inc. were exchanged for 51,685,432 shares of Infonautics, Inc. common stock. In addition, vested stock options were issued for Infonautics, Inc. options. The acquisition of Infonautics, Inc. has been accounted for as a reverse purchase acquisition as the former shareholders of Tucows (Delaware) Inc. acquired a majority of the outstanding shares of common stock and controlled the combined group of companies as a result of the acquisition. The accompanying consolidated financial statements of the Company reflect the historical results of the predecessor entity, Tucows (Delaware) Inc., and the consolidated results of operations of the Company subsequent to the acquisition date of August 28, 2001.

The fair value of the shares of Infonautics, Inc. common stock was determined by treating the market value of the Infonautics, Inc. stock at the date of the announcement of the acquisition as having been effectively received by former Infonautics, Inc. shareholders. The fair value of the stock options was determined by reference to an option pricing model and the number of Infonautics, Inc. options

was treated as having been exchanged by the Company under reverse takeover accounting rules. To determine the fair value of these options, the following assumptions were used in the option pricing model: dividend yield of 0.0%, 75% volatility, a weighted average risk free interest rate of 6.41% and an average expected life if the options of 3.05 years. As all of these options have vested, no adjustment was required to be made for deferred compensation.

The fair value of assets acquired, based on the consideration paid, is as follows:

Current assets (including cash of $9,194,431)	$	9,728,513
Property and equipment		310,399
Investment in bigchalk.com, Inc		1,013,335
Current liabilities and obligation under capital lease		(2,158,247	)

	$	8,894,000

On March 25, 2002, the Company sold all of the outstanding shares of Liberty RMS, which was a wholly owned subsidiary, and certain technology required to provide registry services, to Afilias Limited. Liberty RMS owned and operated the back-end registry services for the.info registry. Total consideration received consisted of cash proceeds of $977,000 and a receivable of $87,000. The Company has recorded a gain on the disposition of Liberty RMS of $1,955,443. The Company was also entitled to additional contingent consideration of up to $1 million primarily based on Afilias having been awarded the back end registry provider for the .org registry. The full amount has been earned and recognized as other income during the year ended December 31, 2003.

On August 16, 2002, the Company sold all the assets and certain liabilities associated with its search and reference services, Electric Library and Encyclopedia.com, to Alacritude, LLC, an unrelated party. Total consideration received consisted of cash proceeds of $1,577,129 (including an intellectual property license fee of $100,000), net of liabilities assumed by Alacritude, LLC. This resulted in a gain on the disposition of these assets in the amount of approximately $1,846,717.

		December 31, 2003		December 31, 2002
Computer equipment		$	3,140,227	$	2,782,245
Computer software			5,602,986		5,015,004
Furniture and equipment			785,706		784,780
Leasehold improvements			563,962		554,203

			10,092,881		9,136,232

Less:
	Accumulated amortization		8,914,481		7,424,911
	Write-down of property and equipment		130,000		130,000

			9,044,481		7,554,911

		$	1,048,400	$	1,581,321

During 2001, in accordance with the Company's policy of regularly reviewing the carrying value of its intangible assets for potential impairment, management concluded that the value of goodwill related to the Tucows Division of Tucows Interactive Limited acquisition and the goodwill related to the Eklektix Inc. acquisition was impaired and a write-down of approximately $1.3 million was necessary. The impairment was the result of the continued significant downturn in the emerging new economy and the overall decline in the on-line advertising industry. The impairment evaluation was determined based upon the excess of the carrying value over the estimated discounted cash flows from these operations. The assumptions supporting the cash flows, including the discount rate, were determined using management's best estimates of future cash flows and economic conditions.

The Company holds a 7.38% interest in Afilias, Limited ("Afilias"), a private company, which is a consortium of 18 domain name registrars.

Until December 31, 2002, the Company also held an 11% interest in bigchalk.com, Inc. ("bigchalk"), a private company. The Company paid bigchalk content royalties and technical service fees for content provided to the Electric Library site which amounted ot $971,586 during 2002 and $579,386 during 2001. At December 31, 2003 and 2002 there were no amounts owing to bigchalk for these content royalties and technical service fees. During 2002, the Company reviewed the carrying value of its investment in bigchalk. Based on this review, which included a review of the then current financial position of bigchalk, bigchalk's current business plans and the preference rights of senior equity instruments, the Company recorded a write-down in the amount of $1,013,335 against the carrying value of this investment. The carrying value of this investment at December 31, 2002 was nil.

(a) On August 28, 2001, all of the Series A convertible preferred shares were converted into common stock in accordance with their original terms.

(b) In January 2001, the Company entered into irrevocable subscription agreements with certain of the Company's shareholders whereby they subscribed for and paid $2,999,973 for the right to acquire Series A convertible preferred shares. Under the subscription agreements, the value that was to be used in determining the number of Series A convertible preferred shares to be issued to each subscriber was the valuation used by the Company in its next equity financing less a discount of 25%. In August 2001, the Company issued 5,655,638 Series A convertible preferred shares in connection with these subscription agreements.

The Company's 1999 Stock Option Plan, which was rolled over into the 1996 Stock Option Plan (the "Plan") of Infonautics, Inc. on August 28, 2001 as a result of the reverse acquisition (note 3), was established for the benefit of the employees, officers, directors and certain consultants of the Company. The maximum number of common stock which may be set aside for issuance under the Plan is 11,150,000 shares (2002 - 10,000,000), provided that the Board of Directors of the Company has the right, from time to time, to increase such number subject to the approval of the stockholders of the Company when required by law or regulatory authority. Generally, options issued under the Plan vest over a four-year period.

The stock options expire at various dates between January 2004 and November 2013.

As of December 31, 2003, the exercise prices and weighted average remaining contractual life of outstanding options were as follows:

	Options outstanding		Options exercisable
Exercise price	Number outstanding	Weighted average remaining contractual life (years)	Number exercisable	Weighted average exercise price per share
$0.26-$0.37	6,204,774	6.4	4,907,106	$	0.37
$0.44-$0.50	1,348,686	7.3	855,795	$	0.48
$0.52-$5.94	1,112,295	3.5	1,063,543	$	2.90

	8,665,755		6,826,444

The Company recorded deferred stock-based compensation amounting to nil for the year ended December 31, 2003 (nil for the years ended December 31, 2002 and 2001). Amortization of deferred stock-based compensation amounted to $162,704 for the year ended December 31, 2003, $162,703 for the year ended December 31, 2002 and $162,704 for the year ended December 31, 2001.

The provision for income taxes differs from the amount computed by applying the statutory Federal income tax rate of 35% to the income (loss) before provision for income taxes as a result of the following:

	Year ended December 31, 2003			Year ended December 31, 2002			Year ended December 31, 2001
Income (loss) for the year before provision for income taxes	$	2,063,438		$	1,866,831		$	(13,412,763	)

Computed expected tax (expense) recovery	$	(722,000	)	$	(653,000	)	$	4,694,000
Reduction in income tax recovery resulting from:
State income taxes		(62,000	)		(56,000	)		671,000
Permanent differences		254,000			(198,000	)		(1,903,000	)
Impact of change in income tax rates		—			(1,091,000	)		—
Change in beginning of the year balance of the valuation allowance allocated to income tax expense		530,000			1,998,000			(3,462,000	)

	$	—		$	—		$	—

The tax effects of temporary differences that give rise to significant portions of the future tax assets as of December 31, 2003 and 2002 are presented below:

		December 31, 2003			December 31, 2002
Future tax assets:
	Net operating loss carried forward	$	5,844,000		$	7,133,000
	Deferred revenue		2,992,000			3,616,000
	Reserves		190,000			385,000
	Capital losses		385,000			—
	Amortization		9,872,000			8,679,000

	Total gross future tax assets		19,283,000			19,813,000
	Less valuation allowance		(19,283,000	)		(19,813,000	)

Net future tax assets		$	—		$	—

In assessing the realizability of future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences become deductible. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the future tax assets are deductible, management believes it is appropriate to record a full valuation allowance at this time.

As of December 31, 2003, the Company had approximately $15,379,000 of losses available to reduce future years' taxable income which expire on various dates between 2019 and 2021. In order to utilize tax assets, the company would have to earn taxable income of approximately $50.7 million.

In June 2001, the Company entered into an agreement with XDL Capital Corporation, a management company of one of the shareholders of the Company, XDL USA Holdings Inc., which loaned $2,500,000 under a promissory note bearing interest at 20% per annum, secured by a fixed priority general security interest over all assets of the Company. The Company repaid the promissory note on August 28, 2001. During the year ended December 31, 2001, the Company paid interest and financing fees amounting to $256,667 to XDL Capital Corporation in connection with this note.

(a) The Company has several non-cancelable leases primarily for general office facilities and equipment that expire over the next five years. Future minimum lease payments under these leases are as follows:

(b) In the normal course of operations, the Company is subject to various lawsuits and other claims. The Company believes that the outcome of any of the outstanding claims would not result in a material effect on the Company's financial position.

(c) To manage its exposure to foreign exchange rate fluctuations, the Company has entered into a series of forward foreign exchange contracts ("Contracts") whereby amounts of $400,0000 and $650,000 are converted into Canadian dollars on a semi-monthly basis until the end of March 2004 at an foreign exchange rates varying from 1.3064 to 1.3106. The notional principal of the outstanding Contracts at December 31, 2003 is $2.65 million. As margin security against these Contracts, the Company has placed $132,500 into secured term deposits, which mature on a monthly basis in line with the Contracts and has been reflected as restricted cash on the balance sheet.

(d) At December 31, 2003, the Company had outstanding letters of credit totaling $150,000 that expire on November 17, 2004.

(a) The following is a summary of the Company's revenue earned from each significant revenue stream:

	Year ended December 31, 2003		Year ended December 31, 2002		Year ended December 31, 2001
Advertising and other revenue	$	2,046,860	$	1,698,179	$	2,198,774
Domain name and ancillary services		35,147,887		32,944,811		27,772,088
Electric Library subscription		—		2,403,385		1,618,897

	$	37,194,747	$	37,046,375	$	31,589,759

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Pennsylvania (State or Other Jurisdiction of Incorporation or Organization)		23-2707366 (I.R.S. Employer Identification No.)
96 Mowat Avenue Toronto, Ontario, Canada (Address of Principal Executive Offices)		M6K 3M1 (Zip Code)

																				Tucows Division Year ended December 31,
																	Tucows Division Period from Jan. 1, 1999 to May 3, 1999
			Tucows Inc. Year Ended Dec. 31, 2003		Tucows Inc. Year Ended Dec. 31, 2002			Tucows Inc. Year Ended Dec. 31, 2001			Tucows Inc. Year Ended Dec. 31, 2000			Tucows Inc. Period from May 4, 1999 to Dec. 31, 1999
			Tucows Inc. Year Ended Dec. 31, 2003		Tucows Inc. Year Ended Dec. 31, 2002			Tucows Inc. Year Ended Dec. 31, 2001			Tucows Inc. Year Ended Dec. 31, 2000			Tucows Inc. Period from May 4, 1999 to Dec. 31, 1999						1999(1)
			(in thousands, except per share data)
Statement of Operations Data:
Net revenues			$	37,195	$	37,046		$	31,590		$	14,440		$	2,834		$	746		$	3,580
Cost of revenues				22,990		23,108			21,106			7,785			283			58			341

Gross profit				14,205		13,938			10,484			6,655			2,551			688			3,239
Operating expenses:
	Sales and marketing			3,850		3,771			6,380			11,121			2,120			379			2,499
	Technical operations and development			3,935		3,726			5,053			4,132			1,095			290			1,385
	General and administrative			3,998		4,523			4,013			4,704			2,242			508			2,750
	Depreciation of property and equipment			1,490		2,676			3,203			1,701			228			53			280
	Loss on write-off of property and equipment			—		—			130			—			—			—			—
	Amortization of intangible assets			—		222			3,657			11,617			7,330			—			10,995
	Write-down of intangible assets			—		—			1,325			11,325			—			—			—

				13,273		14,918			23,761			44,600			13,015			1,230			17,909

Income (loss) from operations				932		(980	)		(13,277	)		(37,945	)		(10,464	)		(542	)		(14,670	)
Other income (expenses)
	Interest income, (expense), net			131		102			(136	)		215			30			—			30
	Gain on disposal of Electric Library subscription assets			—		1,847			—			—			—			—			—
	Gain on disposal of Liberty Registry Management Services Inc.			1,000		1,955			—			—			—			—			—
	Loss on disposal of Eklektix Inc.			—		(44	)		—			—			—			—			—
	Write down of investment in bigchalk.com			—		(1,013	)		—			—			—			—			—

		Total other income (expenses)		1,131		2,847			(136	)		215			30			—			30

Income (loss) before provision for income taxes				2,063		1,867			(13,413	)		(37,730	)		(10,434	)		(542	)		(14,640	)
Provision for income taxes				—		—			—			—			—			(63	)		(63	)

Income (loss) for the period			$	2,063	$	1,867		$	(13,413	)	$	(37,730	)	$	(10,434	)	$	(479	)	$	(14,577	)

Basic and diluted income (loss) per common share			$	0.03	$	0.03		$	(0.24	)	$	(8.79	)	$	(2.43	)				$	(3.40	)
Shares used in computing basic income (loss) per common share				64,626,429		64,626,429			56,152,735			4,291,500			4,291,500						4,291,500
Shares used in computing diluted income (loss) per common share				64,725,929		64,626,429			56,152,735			4,291,500			4,291,500						4,291,500

	Tucows Inc. As of Dec. 31, 2003		Tucows Inc. As of Dec. 31, 2002			Tucows Inc. As of Dec. 31, 2001			Tucows Inc. As of Dec. 31, 2000			Tucows Inc. As of Dec. 31, 1999
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents (including restricted cash)	$	13,045	$	9,782		$	4,814		$	2,170		$	1,670
Working capital (deficit)		2,202		(1,066	)		(6,947	)		(9,729	)		1,352
Total assets		35,336		28,853			25,589			22,526			30,677
Deferred revenue		28,589		24,361			22,714			15,808			676
Long-term obligations, net of current portion		—		—			52			—			—
Stockholders' equity (deficiency)		866		(1,360	)		(3,390	)		(1,697	)		29,083

			Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Lease Obligations	$	953,675	$	823,961	$	100,547	$	29,167	$	—
Purchase Obligations		105,000		63,000		42,000		—		—

Total	$	1,058,675	$	886,961	$	142,547	$	29,167	$	—

		TUCOWS INC.
		BY:	/S/ ELLIOT NOSS
			Elliot Noss Name: Elliot Noss Title: President and Chief Executive Officer

			December 31, 2003			December 31, 2002
Assets
Current assets:
	Cash and cash equivalents		$	12,912,811		$	8,844,829
	Restricted cash (note 12(c))			132,500			937,500
	Accounts receivable, net of allowance for doubtful accounts of $30,000 at December 31, 2003 and $229,938 at December 31, 2002			486,289			338,697
	Prepaid expenses and deposits			2,061,948			1,951,086
	Prepaid domain name registry fees, current portion			13,204,566			11,145,187

		Total current assets		28,798,114			23,217,299
Prepaid domain name registry fees, long-term portion				5,136,194			3,700,340
Property and equipment (note 5)				1,048,400			1,581,321
Investments (note 7)				353,737			353,737

Total assets			$	35,336,445		$	28,852,697

Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
	Accounts payable		$	1,632,294		$	1,605,630
	Accrued liabilities			2,088,235			2,288,412
	Customer deposits			2,160,601			1,957,657
	Deferred revenue, current portion			20,715,191			18,431,100

		Total current liabilities		26,596,321			24,282,799
Deferred revenue, long-term portion				7,874,001			5,929,917
Stockholders' equity (deficiency):
	Preferred stock—no par value, 1,250,000 shares authorized; none issued and outstanding			—			—
	Common stock—no par value, 250,000,000 shares authorized; 64,626,429 shares issued and outstanding at December 31, 2003 and December 31, 2002			8,540,687			8,540,687
	Additional paid-in capital (note 8)			49,992,129			49,992,129
	Deferred stock-based compensation			(20,593	)		(183,297	)
	Deficit			(57,646,100	)		(59,709,538	)

		Total stockholders' equity (deficiency)		866,123			(1,360,019	)

Total liabilities and stockholders' equity (deficiency)			$	35,336,445		$	28,852,697

	Sales and marketing		$	109,926		$	109,926		$	109,926
	General and administrative		$	52,778		$	52,777		$	52,778

				Series A convertible preferred stock
	Common stock																						Total stockholders' equity (deficiency)
	Common stock								Additional paid in capital		Common stock to be issued						Deferred stock-based compensation
	Number	Amount		Number		Amount			Additional paid in capital		Common stock to be issued			Option			Deferred stock-based compensation			Deficit
Balances, December 31, 2000	4,291,500	$	4,292	41,023,024		$	41,024		$	44,344,941	$	1,512,778		$	1,072,412		$	(508,704	)	$	(48,163,606	)	$	(1,696,863	)
Issued for cash	5,655,638		5,656	—			—			2,994,317		—			—			—			—			2,999,973
Exercise of stock options for cash	36,233		36	—			—			37,138		(12,778	)		—			—			—			24,396
Acquisition of Eklektix Inc.	679,034		679	—			—			1,499,321		(1,500,000	)		—			—			—			—
Series A convertible preferred stock converted to common stock	41,023,024		41,024	(41,023,024	)		(41,024	)		—		—			—			—			—			—
Cancellation of option	—		—	—			—			1,072,412		—			(1,072,412	)		—			—			—
Reverse acquisition (note 3)	12,941,000		8,489,000	—			—			44,000		—			—			—			—			8,533,000
Amortization of deferred stock-based compensation	—		—	—			—			—		—			—			162,704			—			162,704
Loss for the year	—		—	—			—			—		—			—			—			(13,412,763	)		(13,412,763	)

Balances, December 31, 2001	64,626,429		8,540,687	—			—			49,992,129		—			—			(346,000	)		(61,576,369	)		(3,389,553	)
Amortization of deferred stock-based compensation	—		—	—			—			—		—			—			162,703			—			162,703
Net income for the year	—		—	—			—			—		—			—			—			1,866,831			1,866,831

Balances, December 31, 2002	64,626,429		8,540,687	—			—			49,992,129		—			—			(183,297	)		(59,709,538	)		(1,360,019	)
Amortization of deferred stock-based compensation	—		—	—			—			—		—			—			162,704			—			162,704
Net income for the year	—		—	—			—			—		—			—			—			2,063,438			2,063,438

Balances, December 31, 2003	64,626,429	$	8,540,687	—		$	—		$	49,992,129	$	—		$	—		$	(20,593	)	$	(57,646,100	)	$	866,123

			Year ended December 31, 2003			Year ended December 31, 2002			Year ended December 31, 2001
Cash provided by (used in):
Operating activities:
	Net income (loss) for the year		$	2,063,438		$	1,866,831		$	(13,412,763	)
	Items not involving cash:
		Depreciation of property and equipment		1,489,570			2,675,836			3,202,948
		Amortization of intangible assets		—			222,222			3,656,846
		Unrealized change in the fair value of forward contracts		(279,174	)		260,289			—
		Write-down of intangible assets		—			—			1,325,378
		Loss on write-off of property and equipment		—			—			130,000
		Write-down of investment in bigchalk.com, Inc.		—			1,013,335			—
		Stock-based compensation		162,704			162,703			162,704
		Gain on disposal of Electric Library subscription assets		—			(1,846,717	)		—
		Gain on disposal of Liberty Registry Management Services Inc.		(1,000,000	)		(1,955,443	)		—
		Loss on write-off of Eklektix Inc.		—			44,304			—
	Change in non-cash operating working capital:
		Accounts receivable		(147,592	)		306,951			57,847
		Prepaid expenses and deposits		(91,977	)		(80,273	)		(633,035	)
		Prepaid domain name registry fees		(3,495,233	)		(2,488,384	)		(3,176,290	)
		Accounts payable		26,664			(15,669	)		(1,235,193	)
		Accrued liabilities		60,112			(479,898	)		(1,851,638	)
		Customer deposits		202,944			20,915			(198,850	)
		Deferred revenue		4,228,175			3,731,415			5,908,326

	Cash provided by (used in) operating activities			3,219,631			3,438,417			(6,063,720	)

Financing activities:
	Proceeds on issuance of promissory notes			—			—			2,500,000
	Repayment of promissory note			—			—			(2,500,000	)
	Proceeds on rights issue			—			—			2,999,973
	Proceeds received on exercise of stock options			—			—			24,396
	Repayments of obligations under capital leases			—			(111,159	)		(24,774	)

	Cash provided by (used in) financing activities			—			(111,159	)		2,999,595

Investing activities:
	Additions to property and equipment			(956,649	)		(844,508	)		(2,871,575	)
	Decrease (increase) in restricted cash — being margin security against forward exchange contracts (note 12(c))			805,000			(937,500	)		—
	Net proceeds on disposal of Electric Library subscription assets			—			1,577,129			—
	Investment in Afilias, Limited			—			—			(253,737	)
	Proceeds on disposal of Liberty Registry Management Services Inc., net of cash disposed			1,000,000			938,889			—
	Proceeds on disposal of Eklektix Inc., net of cash disposed			—			(30,628	)		—
	Acquisition of Infonautics Inc., net of cash acquired			—			—			8,833,431

	Cash provided by (used in) investing activities			848,351			703,382			5,708,119

Increase in cash and cash equivalents				4,067,982			4,030,640			2,643,994
Cash and cash equivalents, beginning of year				8,844,829			4,814,189			2,170,195

Cash and cash equivalents, end of year			$	12,912,811		$	8,844,829		$	4,814,189

Supplemental cash flow information:
	Interest paid		$	383		$	25,013		$	221,368
Supplemental disclosure of non-cash investing and financing activities:
	Common stock issued on the acquisition of Infonautics, Inc.			—			—			8,489,000
	Value assigned to Infonautics, Inc. outstanding options on acquisition of Infonautics, Inc.			—			—			44,000

	Year ended December 31, 2003			Year ended December 31, 2002			Year ended December 31, 2001
Net income (loss), as reported	$	2,063,438		$	1,866,831		$	(13,412,763	)
Add stock-based employee compensation expense included in reported net income, net of tax		162,704			162,703			162,704
Deduct total stock-based employee compensation expense determined under fair-value-based method for all rewards, net of tax		(571,593	)		(481,014	)		(538,383	)

Net income (loss), pro forma	$	1,654,549		$	1,548,520		$	(13,788,442	)

Income (loss) per common share, as reported	$	0.03		$	0.03		$	(0.24	)
Income (loss) per common share, pro forma		0.03			0.02			(0.25	)

	Year ended December 31, 2003				Year ended December 31, 2002				Year ended December 31, 2001
	Number of shares		Weighted average exercise price per share		Number of shares		Weighted average exercise price per share		Number of shares		Weighted average exercise price per share
Outstanding, beginning of year	7,660,258		$	1.12	7,313,412		$	1.35	12,901,436		$	1.23
Granted	6,315,235			0.37	1,445,363			0.47	1,076,637			0.87
Exercised	—			—	—			—	(22,173	)		0.91
Forfeited	(5,309,738	)		0.93	(867,017	)		1.33	(6,991,988	)		1.83
Expired	—			—	(231,500	)		3.48	—			—
Granted on reverse acquisition (note 3)	—			—	—			—	349,500			3.57

Outstanding, end of year	8,665,755		$	0.69	7,660,258		$	1.12	7,313,412		$	1.35

Options exercisable, end of year	6,826,444		$	0.78	5,594,549		$	1.27	4,028,241		$	1.52

Weighted average fair value of options granted during the year with exercise prices equal to fair value at date of grant			$	0.37			$	0.47			$	0.20

Weighted average fair value of options granted during the year with exercise prices less than fair value at date of grant			$	—			$	—			$	—

Weighted average fair value of options granted during the year with exercise prices greater than fair value at date of grant			$	—			$	—			$	—

	Balance at beginning year		Charged to (recovered) costs and expenses			Write-offs during year		Provision reversed on disposition of Electric Library assets		Balance at end of year
Allowance for doubtful accounts
2003	$	229,938	$	(116,000	)	$	83,938	$	—	$	30,000
2002		276,579		112,595			22,657		136,579		229,938
2001		248,500		51,964			23,885		—		276,579
Valuation allowance for deferred tax asset:
2003	$	19,813,000	$	(530,000	)	$	—	$	—	$	19,283,000
2002		21,811,000		(1,998,000	)		—		—		19,813,000
2001		18,349,000		3,462,000			—		—		21,811,000