TUCOWS INC /PA/ (Form: 10-K, Received: 04/01/2002 16:14:38)

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

(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, 2001

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-28284

Tucows Inc.
(Exact Name of Registrant as Specified in Its Charter)

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

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

Securities registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value
(Title of Class)

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

As of March 26, 2002, 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 $12.7 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 26, 2002 was 64,626,429.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the definitive Proxy Statement of Tucows Inc. to be used in connection with the 2002 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, 2001

TABLE OF CONTENTS

		Page
PART I
Item 1	Business	1
Item 2	Properties	27
Item 3	Legal Proceedings	27
Item 4	Submission of Matters to a Vote of Security Holders	27
PART II
Item 5	Market for the Registrant's Common Equity and Related Stockholder Matters	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	42
Item 8	Financial Statements and Supplementary Data	42
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	42
PART III
Item 10	Directors and Executive Officers of the Registrant	44
Item 11	Executive Compensation	44
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	44
Item 13	Certain Relationships and Related Transactions	44
PART IV
Item 14	Exhibits, Financial Statement Schedules and Reports on Form 8-K	45

PART I

ITEM 1. BUSINESS

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. These forward-looking statements may include statements about, for example, statements regarding the consequences of Tucows' August 2001 merger with Infonautics, Inc., the continued growth and success of Tucows' business, the introduction of new products and services and their success, and the ability to further develop and achieve commercial success for the Tucows' business strategy. 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 and in Tucows' other filings with the Securities and Exchange Commission, or SEC. 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 offers its Internet services through a global Internet-based distribution network of resellers. These resellers are a heterogeneous group of companies including Internet service providers, web hosting providers, telecommunications and cable companies. Tucows refers to its customers as managed service providers, or MSPs and sometimes as resellers. Tucows' services are provided on a wholesale or private label basis, allowing MSPs to deal directly with their own end-user customers. By using Tucows' services, MSPs are able to avoid the costs and complexities of building in-house systems and to focus on their customer acquisition and retention strategies.

Tucows' objective is to use its global sales and distribution channel to become a leading distributor of e-business applications and services on the Internet.

Tucows' OpenSRS platform provides a technical infrastructure that allows MSPs to register and manage the delivery of domain names and other digital applications and services to end-users. Tucows' accelerated content delivery system, a network of over 629 partners located around the world, allows partners to quickly and efficiently deliver software and digital content to their consumers. Through the website, www.tucows.com, and its accelerated content delivery system and search and reference services, Tucows served over 990 million page views and facilitated over 100 million digital content downloads during the year ended December 31, 2001.

The Tucows website was founded in 1994 as a resource for aggregating and offering software for download. The Tucows website was acquired by ComputerLink Online Limited in 1995, which was subsequently re-named Tucows Interactive Limited. Tucows Interactive Limited was primarily in the business of providing Internet access and related services and carried on its business of aggregating and offering software for download through its Tucows division. On April 26, 1999, Tucows Inc. was incorporated to purchase substantially all of the assets of the content business of the Tucows division from Tucows Interactive Limited, and the original owners of ComputerLink Online sold the significant majority of their interest.

On August 28, 2001, Tucows concluded an acquisition of Infonautics, Inc., an unrelated provider of personalized information agents and websites. The acquisition was done as a merger of a subsidiary of Infonautics into Tucows (Delaware) Inc. (formerly, Tucows Inc.). In the acquisition, Infonautics issued

51,685,432 shares of common stock to Tucows (Delaware) Inc. stockholders, which amounted to an approximately 80% interest of the consolidated company. On completion of the acquisition, Infonautics changed its name to Tucows Inc.

Tucows, through its subsidiary Liberty Registry Management Services Inc., has a two year contract with Afilias Limited to provide the back-end registry services for the .info registry. The .info registry began accepting real-time registrations in early September 2001. The difficult economic environment that has existed since the launch has resulted in monthly registration volumes being well below those anticipated by Afilias and Tucows. As a result, Tucows now believes that it will require a longer timeframe than its two-year contract to recover the high fixed cost component of implementing and maintaining the registry. Therefore, as a step in Tucows' effort to achieve profitability, Tucows entered into a definitive agreement to sell the business of Liberty RMS and certain software technology required to provide registry services, to Afilias on March 25, 2002. Under the agreement, consideration for this sale will comprise $1 million in cash, up to $1 million in contingent consideration based on future performance criteria and working capital adjustments. Completion of this sale is subject to standard closing arrangements. Tucows retains its 7.38% stake in Afilias and remains a registrar for the registry.

Tucows uses the content provided by its group of independent authors to provide a platform for advertisers to create brand awareness and to sell products to Tucows' large, technologically sophisticated audience. The website creates brand awareness for Tucows, solidifies its reputation for serving the interests of Internet end-users and creates significant opportunities to develop and expand relationships with MSPs.

Tucows' search and reference sites—Electric Library and Encyclopedia.com—provide information in response to users' questions and preferences from sites that are highly differentiated from traditional search engines and directories. Tucows' search and reference sites obtain revenue primarily through subscription fees and also through advertising, affiliate marketing and co-branding.

Industry Background

Emergence of the Managed Services Industry

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 the web's reach has created a powerful channel for conducting commerce, marketing and advertising. This growth in Internet usage and e-commerce provides significant opportunities for organizations of all types and sizes to improve operational efficiencies and produce additional revenues through new Internet-only channels. Conversely, the Internet 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:

•: access to the Internet;
•: domain name registration;
•: high performance web hosting and server hosting facilities;
•: e-mail and other advanced messaging, or groupware, applications;
•: e-commerce enabling applications;
•: hosted customer relationship management software and services; and
•: hosted billing and administration software and services.

Tucows refers to Internet businesses that provide these applications and services as managed service providers, or MSPs. These businesses often operate as:

•: Internet service providers, which provide end-users with access to the Internet through dial-up, high speed and dedicated private line hook-ups;
•: telecommunications companies and cable service providers;
•: web hosting companies, which offer corporate customers and individual users hosting of their web site on a commercial web server at a unique domain registered to the customer;
•: system and network management providers, which offer high end server hosting facilities for web based businesses and corporations;
•: domain name MSPs, which facilitate domain name registrations in .com, .net, .org and country code domains;
•: value-added MSPs of internal and external networks, which are typically consultants that assist companies with systems management, application procurement, installation, maintenance and training; and
•: original equipment manufacturers of network servers and appliances.

MSPs 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. MSPs tend to specialize in one particular application or service. Once an MSP 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 MSPs 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 MSPs and end-users, increases the costs of switching to another MSP and leads to increased revenues per end-user. The relationship between MSPs and end-users typically involves the payment of recurring fees, which results in end-users being more receptive to purchasing additional applications and services.

Trend towards Outsourcing

While MSPs 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 MSPs offering similar applications and services. This has led to a greater focus on core competencies, as MSPs are increasingly seeking to outsource non-core applications and services that they provide to their end-users. Outsourcing enables these MSPs to better focus on their customer acquisition and retention efforts by eliminating the need to own, develop and support non-core applications in-house.

Domain Name Registration Background

The Internet domain name registration system is composed 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.

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

most common gTLDs are .com, .net and .org. The new .info, .biz and .name gTLDs were introduced in the second half of 2001.

There are over 240 different country code top level domains, such as .co.uk and .org.uk for the United Kingdom, .ca for Canada 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, now a part of VeriSign, Inc., 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, .net and .org domains, maintaining the files in the shared registration system for these domains and the directory databases listing these domain names and their numerical addresses.

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, the Internet Corporation for Assigned Names and Numbers, commonly known as ICANN, was recognized 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 February 28, 2002, there were over 145 ICANN-accredited registrars, of which approximately 100 are active.

In November 2000, ICANN approved bids for the following seven new generic top-level domain registries: .info, .biz, .pro, .name, .museum, .coop and .aero. To date, .info, .biz and .name have begun selling registrations, and Tucows anticipates that .pro, will begin selling registrations through registrars in the second quarter of 2002.

Growth in Domain Name Registrations

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 MSPs 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 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:

•: Individuals. As more people begin to use the Internet and as online activities become a greater part of family communications and identities, individuals will want to establish their own unique presence on the Internet;
•: Organizations. Because of the significant growth in electronic commerce and the increasing focus on the global promotion and protection of their identities, organizations will continue to be significant users of domain name registration services;
•: Small Offices and Home Offices. As small offices and home offices increasingly move their businesses online, the demand for domain name registration and related online applications and services will continue; and
•: International Markets. Although the Internet's historical growth has primarily been driven by the U.S. market, adoption of the Internet continues to grow internationally. This growth will lead to a greater demand for domain name registrations.

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

•: Products and Services. Registering products and services as domains and establishing Internet identities related to particular products and services which are key components of a promotional, marketing and brand protection strategy;
•: Events. Events, such as movies, sporting events and political campaigns, which represent additional name registration opportunities as individuals or organizations increasingly turn to the Internet to differentiate and promote their events; and
•: Regional Commerce. Businesses are increasingly localizing their global on-line presence and commerce efforts to accommodate different cultures, currencies, languages and delivery requirements. Tucows believes that this trend will lead to an increased demand for country-code registrations.

The Need for a Dedicated Outsourcing Solution

Offering e-business applications and services such as domain name registration is a complex technological challenge. Historically, MSPs 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:

•: tracking of administration, billing and usage;
•: integrating information and functionality from multiple sources;
•: delivering content, applications and services in a robust, scalable and efficient manner; and
•: implementing and managing these services with a sufficient level of technical human resources.

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

Tucows' Solution

Tucows manages an Internet-based distribution network through which Tucows delivers business applications and services and digital software content to a network of over 5,000 MSPs in over 100 countries. Tucows' services are designed to allow MSPs to provide a higher level of customer service and performance, to enhance revenue per customer through offering additional products and services, to avoid the costs and complexities of building in-house systems and to focus on their customer acquisition and retention strategies. Tucows believes that its services to MSPs offer the following benefits:

An Attractive Outsourcing Proposition.

Applications and services distributed by Tucows allow its MSPs to focus on their customer acquisition and retention while avoiding the costs of developing, implementing and maintaining hardware and software systems extraneous to their core businesses. Tucows' services simplify product integration and administration for its MSPs and provide them with applications at economies of scale. Web certificates and domain name registration services are provided on a generic basis that allows the Tucows customer to interact directly with its clientele, thus strengthening the MSP's relationships and enhancing the MSP's brand. Tucows also acts as the technical and administrative intermediary with domain regulators and provides input on domain policy on behalf of its MSPs.

Ease of Integration and Support

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 MSPs:

•: Reliability. Tucows' software platform is subject to extensive review and validation by third party developers in a public forum. The system has been tested in different operating environments;
•: Scalability. Tucows enables its clients to offer domain names and other easily integrated additional applications and services to end-users;
•: Flexibility. Tucows enables its clients to offer a variety of applications and services from multiple sources such as VeriSign, national registries and web certificate providers; and
•: Ease of Use. Tucows allows its clients to administer a variety of applications and services from a single, easy to use interface.

Experience in Focusing on Solutions for MSPs

Tucows focuses on the challenges facing its MSPs 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 MSPs' networks. Tucows' search and reference sites provide users with relevant information they cannot conveniently locate in any one place elsewhere on the Internet.

Global Reach

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 local currency exchange and payment regulations. Tucows supports MSPs located in over 100 countries.

Tucows' Strategy

Tucows' objective is to use its global network of MSPs to become a leading distributor of e-business applications and services on the Internet. The key elements of its strategy include:

Continue the Private Label Focus

Tucows plans to continue to offer its e-business applications and services to its MSPs on a wholesale, or private label, basis. Tucows believes that its MSP customers view it as a partner, rather than as a competitor, for providing applications and services to end-users. Tucows focuses on addressing its MSP customers' technical requirements and business objectives and on providing applications and services that MSPs require to grow their businesses. Tucows is dedicated to providing a high degree of flexibility to its MSPs' 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 MSPs' 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.

Continue to use Network Effects

Tucows believes that the growth of its MSP network and the growth of the range of applications and services it distributes will be interrelated. As the number of MSPs 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 MSPs to become part of the Tucows network.

Capitalize on Additional Revenue Opportunities

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

•: Domain name registration services for the new gTLDs, including .name and .pro and additional multilingual domain names when and if they become available in the marketplace. As the domain name market matures, and Tucows' renewal and transfer efforts become increasingly important to increasing the lifetime economic value of its customer base, Tucows is committed to making its automated transfer and renewal services more efficient and easier to use;
•: Renewal services to encourage Tucows' customers to renew their domain name registrations with it. Tucows believes that renewals will allow Tucows to increase profitability by lowering overall marketing costs. Over time, Tucows believes that its focus on customer service and the adoption by its customers of its additional products and services will have a positive impact on renewals;
•: Messaging products, including web based and regular e-mail and integration with offline messaging; and
•: Payment processing, allowing Tucows' MSPs to receive money from end-users in a much more seamless fashion, especially internationally.

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 MSPs to provide their end-users with the ability to choose the products and services that are best suited to their individual needs.

Build Strategic Alliances

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 Entrust, Inc. to provide digital certificates.

Tucows' Products and Services

Tucows offers its applications and services to its network of MSPs and directly to end-users. Its principal applications and services include domain name registration services, digital certificate delivery and digital content distribution.

Domain Name Registration Services

Tucows offers wholesale and retail domain name registration services in the .com, .net, .org, .info, .biz and .name generic top level domains, or gTLD's, and the co.uk, org.uk, .ca, .cc and .tv country code top-level domains, or ccTLDs. Since November 2000, Tucows has participated in the multilingual .com, .net and .org test through which the registry began to accept multilingual domain name registrations and domain names using certain non-Roman characters. Multilingual domain names are now available supporting 35 scripts (Latin, Cryillic, etc.) that are used in hundreds of languages. Key components of Tucows' domain name registration services include:

•: OpenSRS. Tucows' wholesale service is designed to enable MSPs to register domain names for their end-users. Pricing is based on a per name, per year charge. Tucows imposes no restrictions on the prices charged by Tucows' clients to its customers;
•: Domain Direct—www.domaindirect.com. Tucows' retail domain name registration service allows consumers to register, develop, use and manage their web sites. Included in the service is the ability to refer a domain name to a free web site such as Geocities or Tripod to avoid the expense of web hosting; and
•: Hosted Registrar Services. A service that allows ICANN accredited registrars to use Tucows' technical systems to process domain name registrations. Hosted registrar services enable registrars to use a proven system without incurring the costs of building their own technical infrastructure. Hosted registrar services also include professional service elements, including custom development, data management and systems administration.

Digital Certificate Delivery

Tucows has entered into a partnership with Entrust, Inc. to provide Tucows' MSPs with the ability to purchase digital certificates through the OpenSRS system. Digital certificates authenticate identities over the Internet and secure transactions between buyers and merchants. Tucows offers this service exclusively to MSPs on a private label basis so that they may involve their brand in selling digital certificates to their end-users, which is especially important in a trust-related service such as digital certificates.

Digital Content Distribution

Tucows distributes software and other digital content both directly to consumers and through its accelerated content delivery network.

Its digital content distribution services include:

•

Tucows website, www.tucows.com, is designed to provide consumers with fast access to Tucows' extensive libraries of software and digital content. Primary navigation is designed around users selecting the libraries of interest to them, such as Windows or Linux. There are eight main libraries containing a total of over 30,000 titles. Each software title in Tucows' library is reviewed, virus-tested and rated on a scale of one to five. Revenue is produced from the Tucows website through advertising and co-branding agreements; and

•

The accelerated content delivery network sends Tucows' software and digital content libraries to its MSPs' networks, which are the initial access points where end-users connect to the Internet. Tucows has entered into relationships with approximately 629 partners around the world. Each partner that agrees to use the accelerated content delivery network is expected to download the content libraries it offers at least once a day. Advantages of this service include:

•: Bandwidth Savings and Faster Downloads. Having Tucows' software libraries on its clients' local networks conserves Internet bandwidth and reduces the client's bandwidth costs.

Because traffic from the subscriber base remains local to the client's network, consumers receive a faster download;

•: Flexible and Customizable. Tucows enables content providers to choose from among a broad range of software libraries so that they are able to customize their offerings to best satisfy local interests; and
•: Tucows Rating System. Each software title offered by Tucows is reviewed by Tucows' editorial staff, allowing MSPs end-users to sort through the huge range of alternative software titles available to them in any given category.

Search and Reference Sites

Tucows' search and reference sites employ a series of Web search capabilities that provide relevant information in response to end users' questions and preferences from sites that are highly differentiated from traditional search engines. Tucows' current search and reference sites include:

•: Electric Library, or eLibrary, a subscriber based, comprehensive digital archive for information seekers of all ages. Users can do business, school or personal research on both current and historical events. Subscribers ask plain English questions and eLibrary searches a very large text and image database designed for both content depth and interface simplicity to provide answers. eLibrary aggregates hundreds of full-text periodicals, major international newswires, classic books, hundreds of maps and thousands of photographs, as well as major works of literature, art and reference.
•: Encyclopedia.com is a basic, easy-to-use research tool for anyone on the Internet. The site was launched in January 1998. The site contains the complete text of The Complete Columbia Encyclopedia, and more than 52,000 articles from the encyclopedia have been assembled to provide free, quick, and useful information on almost any topic.
•: Newshub integrates and reports headlines from varied news sources very frequently, to provide a reliable source of breaking news. Headlines are reported in topic-oriented channels. Newshub syndicates its content to partners such as portal sites and company intranets, and provides both standard and customized newsfeeds. Newshub's automated, intelligent agent technology allows for the mining and aggregating of news headlines and other online informational content from a variety of different sources.
•: Tucows also holds an 11% interest in bigchalk.com, inc. which provides a broad spectrum of educational Internet services to teachers, students, parents, librarians and school administrators in the K-12 educational and public library markets.

Customer Support

Tucows seeks to provide superior customer service by anticipating the technical requirements and business objectives of its MSPs. Tucows also provides its MSPs with technical advice to help them understand how Tucows' applications and services can be customized for their particular needs. MSPs may contact Tucows by e-mail, toll-free telephone service and instant chat facilities. A library of frequently asked questions and answers is made available to all MSPs through Tucows' website.

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 employs a number of customer service techniques that are specific to its applications and services and to the Internet. For example, Tucows uses the Internet to provide support directly to MSPs by effecting changes on their computers residing on their networks, often behind firewalls.

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

•: suggestions or feedback on new features;
•: marketing promotions;
•: domain policy positions; and
•: negotiation of agreements.

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 MSPs. 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.

Technology and Infrastructure

Tucows employs advanced software and hardware, combining internal expertise with industry standard technology to create a proprietary software and platform infrastructure.

Tucows OpenSRS Platform

The OpenSRS platform provides a way for MSPs to access applications and services, without having to make substantial investments in their own software or hardware. The client software is distributed on the MSPs' servers, which provides the OpenSRS platform with a high degree of scalability. It allows Tucows to add customers and services without overburdening its own centralized systems. As the client code is open source, Tucows MSPs can supplement Tucows software so that it better integrates with their own systems.

The key components of Tucows' transactional platform include:

•: Tucows' OpenSRS Server. This system acts as an interface between third party suppliers, including VeriSign's global registry service, and Tucows' MSPs. This is the component of the platform through which all MSPs complete transactions. It allows MSPs and their customers to add, delete, change and transfer domain names in an automated fashion.

The OpenSRS server also provides MSPs with a comprehensive set of tools to allow them to easily operate, administer and manage the domain names of their clients, the registrants. These tools are accessible by Tucows' MSPs through the Internet and enable them to monitor domain name registrations as they occur, and perform other administrative functions. The tools also allow Tucows' MSPs to efficiently manage a large number of domains belonging to a single registrant. For example, the administrative contact for a large number of domains can be changed using a single screen.

The OpenSRS server also facilitates country-code top-level domains and multilingual domains, including the ability to process the different communication protocols, price points, taxes and policies of the various top-level domains.

•: Tucows OpenSRS Client. The OpenSRS client usually resides on the servers of channel partners and communicates with the OpenSRS server over the Internet using Tucows' published interface protocol. The OpenSRS client also allows MSPs to seamlessly and transparently integrate their existing web sites with Tucows' OpenSRS server. The OpenSRS client also

provides MSPs and their end-users with tools to administer multiple domains. The OpenSRS client was developed as open source software, which allows Tucows' MSPs to make changes to the software as required to meet their particular needs and to ease the integration of the client code into their billing, payment and other administrative systems.

Digital Content Distribution Network Architecture

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 clients located at their facilities. As of December 31, 2001, the Tucows network reached over 1,000 servers in over 100 countries.

Competition

The market for Internet applications and 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:

•: other domain name registrars who market private label offerings to MSPs;
•: domain name registrars who market domain names primarily on a retail basis, such as Network Solutions and Register.com, who compete with Tucows' MSPs for end-users;
•: providers of content and services to web sites and MSPs, such as Openwave, and Critical Path;
•: providers of content notification and search and reference sites, such as Yahoo! and Northern Light;
•: providers of software downloads and other open source related content, such as CNET and VA Linux;
•: Internet service providers and web hosting providers, such as Concentric Network, DIGEX, Genuity and MCI Worldcom;
•: major technology providers, such as Cisco Systems, IBM, Intel and Nortel Networks;
•: Internet portals, such as AOL and Yahoo; and
•: telecommunications, cable and wireless companies.

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, e-mail 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:

•: providing cost savings over in-house solutions by relieving customers of expenses of acquiring and maintaining hardware and software and the associated administrative burden;
•: providing greater functionality and access to e-business applications and services, which in turn enables customers to choose the application that best suit their end-users' needs;
•: enabling MSPs to maintain their relationships with their end-users; and

•: facilitating scalability through an infrastructure designed to support millions of transactions across millions of end-users.

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.

U.S. Government Regulation of Domain Names

Under a 1993 cooperative agreement with the U.S. Department of Commerce, Network Solutions, which is now a part of VeriSign, 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 are expected to have a significant influence on the future of the domain name registration system. On December 1, 1999, ICANN's first substantive policy, the Uniform 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. ICANN has indicated that it intends to create additional policies governing the domain name registration system, and 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:

•: Its standard registration agreement requires that each registrant indemnify, defend and hold Tucows harmless for any dispute arising from the registration or use of a domain name registered in that person's name; and
•: Since December 1, 1999, Tucows has required its MSPs to ensure that all registrants are bound to the Uniform Domain Name Dispute Resolution Policy as approved by ICANN.

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:

•: pricing controls;
•: the creation of additional generic top level domains and country code domains;
•: consumer protection;
•: cross-border domain name registrations;
•: trademark, copyright and patent infringement;
•: domain name dispute resolution; and
•: other claims based on the nature of content of domain names and domain name registration.

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.

Intellectual Property

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.

Seasonality

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.

Employees

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, 2001, Tucows had 193 full time employees.

Executive Officers

The following table sets forth specific information regarding Tucows' executive officers as of March 26, 2002.

Name	Age	Position(s)
Elliot Noss	39	President and Chief Executive Officer
Michael Cooperman	50	Chief Financial Officer
Scott Swedorski	31	Editor-in-Chief
Graham Morris	50	Chief Operating Officer
Supriyo Sen	55	Chief Technology Officer

Elliot Noss has served as Tucows' president and chief executive officer since the completion of the merger in August 2001. Before that, he served in the same capacity with Tucows (Delaware) since May 1999 and served as vice president of corporate services for Tucows Interactive Limited, which was acquired by Tucows (Delaware) in May 1999, from April 1997 to May 1999.

Michael Cooperman has served as Tucows' chief financial officer since the completion of the merger in August 2001. Before that, he served in the same capacity with Tucows (Delaware) 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. From January 1996 to June 1997, he was chief operating officer and a director of SoftQuad International Inc. a developer of SGML and HTML authoring products. He also served as president of SoftQuad International from December 1996 until June 1997.

Scott Swedorski has served as Tucows' editor-in-chief with responsibility for the editorial content of the Tucows software libraries since the completion of the merger in August 2001. Before that, he served in the same capacity with Tucows (Delaware) since 1994 when he founded the Tucows.com web site.

Graham Morris has served as Tucows' chief operating officer since the completion of the merger in August 2001. Before that, he served in the same capacity with Tucows (Delaware) since June 2001. Mr. Morris joined Tucows (Delaware) as executive vice president, content, in September 2000. Before

joining Tucows (Delaware), he spent 15 years at Telemedia Publishing, a Canadian consumer magazine publishing company, where he became president in 1996.

Supriyo Sen has served as Tucows' chief technology officer since the completion of the merger in August 2001. Before that, he served in the same capacity with Tucows (Delaware) since February 2001. Before joining Tucows (Delaware), 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.

Risk Factors

Tucows' business faces significant risks. 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 risks actually occur, Tucows' business, financial condition or results of operations could suffer, and the trading price of its common stock could decline.

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

The Tucows common stock was delisted from the Nasdaq SmallCap market because Tucows had failed to maintain a minimum bid price of $1.00 for 30 consecutive trading days as required by Nasdaq's minimum listing requirements. The Tucows common stock is quoted on the OTC Bulletin Board maintained by Nasdaq. Tucows is 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 sale.

The fact that the 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 the Tucows common stock. Management has not determined when or whether it will apply again for listing on the Nasdaq SmallCap market.

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

If Tucows' stock price continues to vary significantly, the price of its common stock may decrease in the future regardless of its operating performance. You may be unable to resell your shares of common stock following periods of volatility because of the market's adverse reaction to this volatility.

The following factors may contribute to this volatility:

•: actual or anticipated variations in Tucows' quarterly operating results;
•: interruptions in Tucows' services;
•: seasonality of the markets and businesses of Tucows' customers;
•: announcements of new technologies or new services by Tucows or its competitors;
•: changes in financial estimates or recommendations by securities analysts;

•: the operating and stock price performance of other companies that investors may view as comparable to Tucows;
•: news relating to Tucows' industry as a whole; and
•: news relating to trends in Tucows' markets.

The stock market in general, and the market for Internet-related companies, including Tucows, in particular, have 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 common stock was delisted from the Nasdaq SmallCap market effective June 21, 2001, and it now is quoted on the OTC Bulletin Board maintained by Nasdaq. The volatility of Tucows' stock price could increase because of this change.

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

Six principal shareholders beneficially own approximately 75% 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 has incurred losses and expects losses to continue.

Tucows incurred net losses of approximately $13.4 million for the year ended December 31, 2001, including approximately $8.3 million of amortization and write down of intangible assets and negative cash flow from operating activities of $6.1 million. Tucows is likely to incur additional losses, and it may never become profitable or generate positive cash flow from operating activities. For the year ended December 31, 2000, Tucows incurred a net loss of $37.7 million which included $22.9 million of amortization and write down of intangible assets, and negative cash flow from operating activities of $0.5 million. If Tucows should become profitable, it may not be able to sustain or increase its profitability.

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 by providing a wholesale service to customers with primary operations that involve direct dealings with registrants. Tucows' primary customers, which Tucows refers to as managed service providers, or MSPs, have been Internet service providers, web hosting, cable and telecommunications companies. Tucows has a limited operating history as a domain name registrar upon which its current 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 that meet the evolving business needs of its MSPs, the market for its services will not grow and may decline.

Part of Tucows' strategy is to expand its services by offering its MSPs additional applications and services that address their evolving business needs. Tucows cannot be sure that it will be able to license these 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 MSPs turn to alternate providers that are able to more fully supply their business needs. Tucows may not produce sufficient revenues to offset the related costs and will remain dependent on domain name registrations as a primary source of revenue, and revenue may fall below anticipated levels.

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 Inc., which is now a part of VeriSign, 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, the Internet Corporation for Assigned Names and Numbers, 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, Congress has held hearings to evaluate ICANN's selection process for new top-level domains.

Tucows faces the risks that:

•: the U.S. or any other government may reassess its decision to introduce competition into, or ICANN's role in overseeing, the domain name registration market; and
•: the Internet community or the Department of Commerce or U.S. Congress may refuse to recognize ICANN's authority or support its policies.

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. Two class action lawsuits were filed in Superior Court in California against ICANN, NeuLevel, Inc., which is the registry for the .biz generic top-level domain, and over 60 other defendants including Tucows. The lawsuits claim that the defendants are engaged in unfair competition under state laws because they were pre-registering .biz generic top-level domains (which is alleged to constitute an illegal lottery enterprise). The lawsuits seek a refund of the fees paid to the defendants, additional damages, costs, attorneys' fees and an injunction to stop the pre-registrations. NeuLevel, Inc. has ceased accepting pre-registrations and has decided to refund the fees paid by applications. Although Tucows, in turn, is implementing a plan designed to return fees to the applicants who came through the Tucows system, Tucows management believes the lawsuits to be without merit. Tucows intends to defend itself vigorously in the lawsuits and believes that it should not be subject to any liability or an injunction. The California Superior Court or other courts or governmental agencies may disagree.

If any of these risks occur or the class action lawsuits, or others like them, are maintained, they could create instability in the domain name registration system business. These risks and the class action lawsuits, or others like them, could also disrupt or suspend portions of Tucows' domain name registration business, which would result in reduced revenue. Any litigation or claims against Tucows

could result in significant costs of defense, liability for damages and diversion of management's time and attention.

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 VeriSign and 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. On June 9, 2000, VeriSign, Inc., a provider of Internet trust services, acquired Network Solutions. The acquisition of Network Solutions by VeriSign has facilitated cross-marketing between the two companies and has strengthened VeriSign's competitive advantage by enabling it to couple registration services with an expanded range of products and services.

Based on VeriSign's quarterly press releases, the VeriSign registrar registered approximately 8.4 million new, renewed and transferred registrations under the top-level domains for the year ended December 31, 2001. This compares with the approximately 2.8 million new, renewed and transferred domain names that Tucows registered for the year ended December 31, 2001. As of December 31, 2001, the VeriSign registrar supported approximately 13.1 million of the approximately 28.8 million active .com, .net and .org domain names, compared to approximately 2.9 million domain names that Tucows supported as of December 31, 2001.

Tucows faces significant competition from VeriSign as Tucows seeks to increase its revenue from domain name registration services. Tucows also faces competition from the continued introduction of registrars into the domain name registration industry. The growth of competitive registrars who have entered the industry may make it difficult for Tucows to maintain its current market share. As of December 31, 2001, ICANN had accredited 161 competitive registrars, including Tucows, to register domain names in the .com, .net and .org domains. Some of these registrars may have longer operating histories, greater name recognition, particularly in international markets, or greater resources than Tucows.

In response to increasing competition in the domain name registration industry, Tucows may be required to reduce the prices it charges for its core domain name registration business. 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 and less than the basic $10 fee charged by Tucows for each domain name registered in the .com, .net and .org registry. During the years 2000 and 2001, other competitors, including VeriSign, reduced their pricing for domain name registrations both for short-term promotions and on a permanent basis. Some of Tucows' competitors have also offered domain name registrations free in a bundle of other products, deriving their revenues from other products and services. Although Tucows offers discounts and rebates based on volume or participation in other programs Tucows offers, Tucows does not presently intend to reduce its prices. If Tucows should reduce prices in order to remain competitive, Tucows' revenues may decline.

If the growth rate of the market for domain names continues to fall, Tucows' net revenue from registrations may fall below anticipated levels.

The .com, .net and .org domain name markets are now stabilizing and Tucows does not expect these markets to continue to experience the same high level of growth they have experienced in the past. The VeriSign registry has reported a decline in the number of registrations starting in the third quarter of 2000.

In 2001, the registry recorded approximately: 3.1 million new registrations during the first quarter, 2.8 million new registrations during the second quarter, 2.6 million new registrations during the third quarter and 2.3 million new registrations during the fourth quarter as the market for new domain names began to absorb the slow-down in the growth and expansion of the Internet.

The renewal and transfer of existing domain registrations as a proportion of the total domains market has increased and is expected to increase further in 2002. The registry reported approximately: 2.7 million renewals and transfers during the first quarter of 2001, 3 million renewals and transfers in the second quarter, 2.6 million renewals and transfers in the third quarter and 2.8 million renewals and transfers during the fourth quarter.

A continuing decline in the market for new domain names would restrict the growth of Tucows' domain name registration business and its revenues may decline.

The introduction of new generic top-level domains may cause significant fluctuations in Tucows' financial results and may make it difficult to predict future performance.

Tucows anticipates significant demand with the introduction of each new generic top-level domain as individuals and companies seek to protect their intellectual property and attempt to register names that have already been claimed in the existing registries. The numbers of new registrations will likely increase and then plateau which will have a corresponding impact on Tucows' net revenues. As a result, Tucows' operating results may fluctuate in the future. If Tucows incurs expenses associated with the introduction of the new generic top-level domains and is not able to recover its costs, Tucows' revenues may decline.

If Tucows' MSPs do not renew their domain name registrations through Tucows, its revenues may decline.

The growth of Tucows' business depends in part on its MSPs' renewal of their domain name registrations through Tucows. The first expirations for .com, .net and .org domain names occurred in January 2001, and Tucows has limited experience with registration renewals for generic top level and country code domain names.

Tucows also anticipates that its renewal rates will be affected by the high number of registrations that occurred during the initial growth stage of the domain name industry in 2000 by speculators who register domain names with the intention of reselling them rather than putting them to use and who may not renew a significant portion of the names they registered.

If MSPs decide, for any reason, not to renew their registrations through Tucows, revenues from domain name registrations will decrease.

If Tucows' MSPs do not choose to sell the recently introduced generic top-level domains Tucows' business may not grow, and its revenue from that business may decline.

In the fourth quarter of 2000, ICANN announced that the introduction of new generic top-level domains was scheduled for the first or second quarter of 2001. .info was launched to the public on September 12, 2001 and .biz on November 7, 2001. Although demand for .info has been below expectations, it is too early to determine the long-term success of these two new top level domains. If Tucows' MSP's do not elect to sell the new top level domains or if their customers do not respond positively to the new generic top level domains, Tucows may not be able to develop its domain name registration business as planned.

Tucows' revenue from domain name registration services is likely to decline if the administration and operation of the Internet no longer relies upon the existing domain name system or if VeriSign's shared registration system no longer functions.

Future developments in the domain name registration industry may include changes in the administration or operation of the Internet, including the creation and institution of alternative 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 these alternative systems. These competitors are not subject to ICANN accreditation requirements and restrictions. The widespread acceptance of any alternate systems could eliminate the need to register a domain name to establish an on-line presence and reduce Tucows' revenues from domain name registrations.

The success of Tucows' business as a competitive registrar depends upon the continued availability and functionality of the shared registration system, which is maintained by VeriSign. Because the shared registration system has been in general use only since 1999, Tucows cannot assure you that the system will be able to handle the growing traffic caused by the increasing number of registrars or registrations.

Tucows' ability to provide domain name registration services in the .com, .net and .org domains would be materially harmed, and its revenue from those services would decline, upon any failure of the shared registration system.

Tucows relies on its network of MSPs to distribute its applications and services, and if Tucows is unable to maintain these relationships or establish new relationships, its revenue may decline.

Tucows obtains revenues by distributing applications and services through its network of MSPs.

Tucows also relies on its MSPs 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 MSPs and to develop its relationships with existing MSPs by providing customer and sales support and additional products. MSPs 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 MSPs, its ability to distribute its applications and services will be harmed, and its revenue may decline.

If Tucows MSPs should choose to become accredited registrars of the new registries and choose not to utilize Tucows' hosted registrar service, Tucows' revenues could decline.

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

A limited number of MSPs account for a substantial portion of Tucows' transaction volume and revenues. In particular, one MSP, Intercosmos Media Group, Inc., accounted for approximately 13% of Tucows' net revenues for the year ended December 31, 2001. Tucows does not expect any customer to account for more than 10% of net revenues in 2002. If Tucows loses and is unable to replace any major customers, Tucows' revenues will decline.

Tucows is a minority shareholder in the Afilias consortium that is responsible for the .info top-level domain. The venture may cause Tucows to incur additional capital and operating expenses to establish and develop these products and services.

Afilias, Limited, a consortium of 18 ICANN-accredited registrars, including Tucows, is responsible for the .info domain name.

Afilias is a new venture with a limited operating history. Its success is not guaranteed. The demand for the new registry is unknown and profits cannot be predicted. If there is no demand, or if actual

demand is lower than anticipated, for .info or for any of the new generic top-level domains, or if the returns on Tucows' capital expenditures are lower than expected or take longer to materialize than expected, Tucows' net revenues may decline.

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 MSPs 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' MSPs 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 MSPs 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 relies on subscriptions for its revenue from the Electric Library site. If Tucows does not acquire new subscribers and retain existing subscribers or the cost of acquiring or retaining subscribers increases, Tucows' revenue from this site will decline and its ability to achieve profitability will be impaired.

Tucows obtains most of its subscription-based revenue from the fee-based Electric Library site.

The following factors affect Tucows' net revenue from Electric Library:

•: Tucows pays fees to third party websites and services to obtain new subscribers to Electric Library. Tucows may be required to make payments even if the agreements don't result in revenues from new subscribers sufficient to cover Tucows' costs. One or more of these agreements may not be renewed, which could reduce Tucows' revenue from new subscribers.
•: Tucows may choose to limit spending on subscriber acquisition, which will likely result in fewer new subscribers.
•: Tucows' customers may not renew their subscriptions after their subscription period has ended.
•: Tucows may reduce the selling price of Electric Library in response to increased competition or loss of customers.
•: If Tucows' subscriber acquisition, retention and renewal rates or pricing decreases significantly, its net revenues from Electric Library will decline.

The competition Tucows faces from other providers of electronic information is intense, and Tucows may not be able to compete effectively or successfully attract and retain customers.

Competition in Tucows' business of providing electronic information is intense. Some of Tucows' competitors, such as Yahoo!, America Online, About.com, Britannica.com, and Northern Light, have greater resources and name recognition than Tucows. Many of these competitors have substantially greater experience and larger customer bases than Tucows. Tucows' competitors may succeed in:

•: responding more quickly to new or emerging technologies;
•: responding more rapidly to changes in customer requirements;
•: devoting greater resources to the development, promotion and sale of their products or services than Tucows; and
•: establishing relationships with affiliates, advertisers, content providers, and others who have not entered into agreements with Tucows.

Tucows' competitors may also succeed in developing services and products that are superior to those of Tucows and also may prove more successful in marketing their products or services to the same customers to which Tucows intends to market its products or services. Because of this competition, Tucows may not be successful in attracting and retaining customers which would cause revenues to decline.

Tucows holds a minority interest in bigchalk.com. If this venture fails Tucows will take a significant writedown.

Tucows holds an 11% interest in bigchalk.com inc., which provides educational Internet services to teachers, students, parents and school administrators in the K-12 educational and public library markets. bigchalk.com is a private company for which there is no public market and over which Tucows is unable to exercise significant influence. Due to the inherent risk associated with an investment in a private company, and in light of the current stock market conditions, Tucows may never realize any return on this investment. If bigchalk.com is not successful, Tucows could incur charges related to write-downs or write-off of this investment.

Tucows depends on bigchalk.com and other third parties for published content, technology and technology services. Loss of these services could restrict Tucows' ability to do business and could result in reduced revenue.

Tucows relies on bigchalk.com for published content and technology and technology services. bigchalk.com is Tucows' preferred provider of published content for Electric Library. The loss of the bigchalk.com content license could require Tucows to change Electric Library and any other site using the content licensed from bigchalk.com. These changes may cause interruptions in Tucows' business and could cause it to incur substantial costs to replace any lost content.

Tucows also depends on licenses of additional content on a cost-effective basis from sources other than bigchalk.com. If Tucows is unable to maintain its existing relationships with its existing freeware and shareware providers and/or license content at a reasonable cost, its ability to deliver its sites could be impaired which could cause it to lose customers or fail to attract new customers.

bigchalk.com also licenses the Electric Library site and related software, technology, and systems to Tucows. The license is royalty free and perpetual, but bigchalk.com has a right to terminate the license on a change of control of Tucows. The loss of this license could hurt Tucows' business and cause its revenues to decline.

Tucows also depends on bigchalk.com to provide technical and data center support and services for Electric Library for individual end users. This agreement expires on December 15, 2002 and may be renewed by the mutual written agreement of the parties. The loss of this agreement could force Tucows to provide technical and data center support and services itself, or hire a third party to provide those services. This could cause Tucows' business to suffer interruptions and require it to incur substantial costs.

Tucows depends on third parties for free and low cost web-based content.

Tucows accesses and provides web-based content for certain of its content notification and other sites. Tucows accesses this content mainly by searching selected websites 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.

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

Tucows is not subject to direct regulation by any United States or state government agency other than the laws and regulations applicable to businesses generally. There are few laws or regulations directly applicable to access to or commerce on the Internet. Tucows believes these laws and regulations do not seriously affect its operations and that it is materially in compliance with them.

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:

•: user privacy;
•: children;
•: copyrights and other intellectual property rights and infringement;
•: domain names;
•: pricing;
•: content regulation;
•: defamation;
•: taxation; and
•: the characteristics and quality of products and services.

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.

Current economic trends and the events of and following September 11, 2001 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. Although the North

American markets suffered a general slowdown prior to the events of September 11, 2001, this slowdown was more pronounced thereafter and may worsen depending upon future events occurring in response to the terrorist attacks on the World Trade Center. 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 the current economic slowdown continues or worsens or if any of the foregoing events occur, Tucows' sales may decline and its business may be adversely affected.

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 obsolete the applications, services and systems offered by Tucows. 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:

•: to develop and license new applications, services and technologies that address the increasingly sophisticated and varied needs of its current and prospective customers; and
•: to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

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.

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:

•: the unwillingness of companies and consumers to shift their purchasing from traditional vendors to online vendors;
•: the Internet infrastructure may not be able to support the demands placed on it, and its performance and reliability may decline as usage grows;
•: security and authentication issues may create concerns with respect to the transmission over the Internet of confidential information, such as credit card numbers, and attempts by unauthorized computer users, so-called hackers, to penetrate online security systems; and
•: privacy concerns, including those related to the ability of websites to gather user information without the user's knowledge or consent, may impact consumers' willingness to interact online.

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

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.

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 website 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.

Tucows depends on key personnel to manage its business effectively.

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 could suffer uninsured losses.

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.

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:

•: an increase in the traffic on Tucows' websites without any necessary increase in system capacity;
•: natural disasters, power losses, telecommunications failures, break-ins and similar events;
•: computer viruses and electronic break-ins;
•: errors, defects and bugs in software; and
•: failure or inability to upgrade technical infrastructure to handle unexpected surges in customer levels and increases in customers' usage of bandwidth.

Tucows' website 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:

•: loss of customers;
•: loss of or delay in revenue; and
•: failure to attract new customers or achieve market acceptance.

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.

ITEM 2. PROPERTIES

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 10,000 square feet in Flint, Michigan and approximately 30,000 square feet in King of Prussia, Pennsylvania. Liberty Registry Management Services Inc. also maintains an office of approximately 4,000 square feet in Toronto, Ontario. Tucows does not own any real estate.

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

ITEM 3. LEGAL PROCEEDINGS

Tucows has been named as a co-defendant with other entities in the industry in two class action lawsuits filed in the Superior Court, County of Los Angeles, U.S.A. Both claims allege that the defendants are engaged in unfair competition under state laws because they are conducting an illegal lottery enterprise through the pre-registration of .biz generic top level domains. The claims do not specify potential damages. Management believes the suits to be without merit.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Tucows' common stock has traded on the OTC bulletin board maintained by Nasdaq under the symbol TCOW since September 4, 2001. During the remainder of the period covered in the following table, the common stock traded under the symbol INFO on the OTC bulletin board maintained by Nasdaq from June 22, 2001 to September 3, 2001 and prior to that time on the Nasdaq SmallCap Market. The following table sets forth the high and low last reported sale prices for Tucows' common stock for the periods indicated.

Year	Fiscal Quarter Ended	High	Low
2000	March 31, 2000	15.938	6.875
	June 30, 2000	7.688	3.906
	September 30, 2000	4.750	2.125
	December 31, 2000	2.250	0.563
2001	March 31, 2001	1.250	0.531
	June 30, 2001	1.000	0.400
	September 30, 2001	0.980	0.300
	December 31, 2001	0.550	0.300

As of March 26, 2002, Tucows had 312 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.

ITEM 6. SELECTED FINANCIAL DATA

The selected historical financial data as of December 31, 1999, 2000 and 2001, and for the period from May 4, 1999 to December 31, 1999 and the years ended December 31, 2000 and 2001, reflects the financial position and results of operations of Tucows Inc. The selected historical financial data as of December 31, 1997 and 1998, and 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, 2000 and 2001, and the statements of operations data for the period from May 4, 1999 to December 31, 1999 and the years ended December 31, 2000 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.

		Tucows Division Year ended December 31,
		Tucows Division Year ended December 31,									Tucows Division Period from Jan. 1, 1999 to May 3, 1999			Tucows Inc. Period from May 4, 1999 to Dec. 31, 1999			Tucows Inc. Year Ended Dec. 31, 2000			Tucows Inc. Year Ended Dec. 31, 2001
		1997			1998			1999(1)			Tucows Division Period from Jan. 1, 1999 to May 3, 1999			Tucows Inc. Period from May 4, 1999 to Dec. 31, 1999			Tucows Inc. Year Ended Dec. 31, 2000			Tucows Inc. Year Ended Dec. 31, 2001
		(in thousands, except share and per share data)
Statement of Operations Data:
Net revenues		$	1,137		$	2,271		$	3,580		$	746		$	2,834		$	14,440		$	31,590
Cost of revenues			64			98			341			58			283			7,785			21,106

Gross profit			1,073			2,173			3,239			688			2,551			6,655			10,484
Operating expenses:
	Sales and marketing		357			696			2,499			379			2,120			11,121			6,380
	Technical operations and development		223			494			1,385			290			1,095			4,132			5,053
	General and administrative		416			691			2,750			508			2,242			4,704			4,013
	Depreciation of property and Equipment		60			169			280			53			228			1,701			3,203
	Loss on write-off of property and Equipment		—			—			—			—			—			—			130
	Amortization of intangible assets		—			—			10,995			—			7,330			11,617			3,657
	Write-down of intangible assets		—			—			—			—			—			11,325			1,325

			1,056			2,050			17,909			1,230			13,015			44,600			23,761

Loss from operations			17			123			(14,670	)		(542	)		(10,464	)		(37,945	)		(13,277	)
Interest income, (expense), net			(4	)		(5	)		30			—			30			215			(136	)

Loss before provision for income taxes			13			118			(14,640	)		(542	)		(10,434	)		(37,730	)		(13,413	)
Provision for income taxes			8			55			(63	)		(63	)		—			—			—

Loss for the period		$	5		$	63		$	(14,577	)	$	(479	)	$	(10,434	)	$	(37,730	)	$	(13,413	)

Basic and diluted loss per common share								$	(3.40	)				$	(2.43	)	$	(8.79	)	$	(0.24	)
Shares used in computing basic and diluted loss per common share									4,291,500						4,291,500			4,291,500			56,152,735

(1): The selected statement of operations data for the year ended December 31, 1999 is prepared on a pro forma basis as though Tucows' acquisition of the assets of the Tucows division had occurred on January 1, 1999 and combines the results of operation for the periods from January 1, 1999 to May 3, 1999 of the Tucows division and for the period from May 4, 1999 to December 31, 1999 of Tucows Inc.

		Tucows Division As of December 31,
		Tucows Division As of December 31,					Tucows Division As of May 3, 1999			Tucows Inc. As of Dec. 31, 1999		Tucows Inc. As of Dec. 31, 2000			Tucows Inc. As of Dec. 31, 2001
		1997			1998		Tucows Division As of May 3, 1999			Tucows Inc. As of Dec. 31, 1999		Tucows Inc. As of Dec. 31, 2000			Tucows Inc. As of Dec. 31, 2001
		(in thousands)
Balance Sheet Data:
	Cash and cash equivalents	$	3		$	128	$	100		$	1,670	$	2,170		$	4,814
	Working capital (deficit)		(106	)		122		(301	)		1,352		(9,729	)		(6,947	)
	Total assets		198			659		715			30,677		22,526			25,589
	Deferred revenue		55			215		308			676		15,808			22,714
	Long-term obligations, net of current Portion		52			29		22			—		—			52
	Stockholders' equity (deficiency)		—			—		—			29,083		(1,697	)		(3,390	)
	Divisional equity (deficiency)		(14	)		230		(153	)		—		—			—

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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. Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve risks and uncertainties, including, among other things, statements regarding Tucows' anticipated costs and expenses and revenue mix. Forward-looking statements include, among others, those statements including the words expects, anticipates, intends, believes and similar language. Tucows' actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Item 1 under "Risk Factors." You should carefully review the risks described in other documents Tucows files from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q that Tucows will file in 2002. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. Tucows undertakes no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

Overview

Tucows is a distributor of Internet services to Internet service providers and web hosting companies worldwide, with a network of more than 5,000 resellers in more than 100 countries around the world. The Tucows website offers more than 30,000 software titles in libraries located around the world, providing users with a fast local download. Tucows is a registrar accredited by the Internet Corporation for Assigned Names and Numbers, generally known as ICANN, and a provider of wholesale domain name registrations for country code and generic top-level domains and web certificates. Tucows' properties include search and reference media sites consisting of Electric Library and Encyclopedia.com.

On August 28, 2001, Tucows concluded an acquisition of Infonautics, Inc., a provider of personalized information agents and websites. The acquisition was done as a merger of a subsidiary of Infonautics into Tucows (Delaware) Inc., (formerly Tucows Inc.) so that after the merger Tucows (Delaware) became a subsidiary of Infonautics. In the acquisition, Infonautics issued 51,685,432 shares of common stock to Tucows (Delaware) Inc. stockholders, which amounted to an approximately 80% interest of the consolidated company. Upon completion of the merger, Infonautics changed its name to Tucows Inc. Notwithstanding the legal structure of the transaction, for accounting purposes Tucows, now known as Tucows (Delaware) Inc., is deemed to be the acquirer and Infonautics, now known as Tucows Inc., the acquired entity. The consolidated financial statements reflect the results of operations of Tucows since inception combined with those of Infonautics effective August 28, 2001.

In November 2000, ICANN selected Afilias, Limited to operate the registry for the .info top-level domains. Liberty Registry Management Services Inc., or Liberty RMS, a wholly owned subsidiary of Tucows (Delaware), was granted a two-year contract by Afilias to provide technical registry management services for the registry operations. In August 2001, Liberty RMS began accepting registrations from registered trademark owners and in early September 2001 began accepting real-time registrations. The difficult economic environment that has existed since the launch has resulted in monthly registration volumes being well below those anticipated by Afilias and Tucows. As a result, Tucows now believes that it will require a longer timeframe than its two-year contract to recover the high fixed cost component of implementing and maintaining the registry. Therefore, as a step in Tucows' effort to achieve profitability, Tucows entered into a definitive agreement to sell the business of Liberty RMS and certain software technology required to provide registry services, to Afilias on March 25, 2002. Under the agreement, consideration for this sale will comprise $1 million in cash, up

to a $1 million in future consideration based on future performance criteria and working capital adjustments. Completion of this sale is subject to standard closing arrangements. Tucows will retain its 7.38% stake in Afilias and remain a registrar for the registry.

Tucows' founder and editor-in-chief, Scott Swedorski, founded the Tucows.com website in 1994. Tucows.com was primarily in the business of aggregating and offering software for download. The Tucows website was acquired in 1995 by ComputerLink Online Limited, which was subsequently renamed Tucows Interactive Limited. Tucows Interactive Limited was primarily in the business of providing Internet access and related services and carried on its business of aggregating and offering software for download through its Tucows division. On April 26, 1999, Tucows Inc. was incorporated in Delaware to purchase substantially all of the assets of the content business of the Tucows division from Tucows Interactive Limited. On May 4, 1999, Tucows acquired those assets for a total consideration of $30 million in cash and three million shares of Tucows common stock valued at an aggregate of $3,444,444.

During the year ended December 31, 2001, Tucows undertook certain actions, including rationalizing staff positions, which it believes were necessary to manage its operating expenses prudently. As a result of the cost savings achieved, Tucows loss from operations is likely to be reduced and it has been cash flow positive from operations since November 2001. In addition, Tucows does not anticipate significant increases in the levels of capital assets in the foreseeable future.

Net Revenues

Tucows derives its net revenues from four product suites: domain name registration and ancillary services, advertising, electric library subscription fees and digital content distribution. Digital content distribution revenues accounted for only $60,000 of Tucows revenues and are not considered significant.

Domain name registration and ancillary services

Tucows generates the majority of its net revenues from domain name registration fees on both a wholesale and retail basis. Tucows began providing retail domain name services in November 1997 and wholesale, or private label, domain name registrations in January 2000. These services are purchased for a term 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 recognized ratably on a monthly basis over the term of registration.

On a wholesale basis, Tucows offers domain name registration and ancillary services, currently consisting of web certificate sales, to managed service providers, which Tucows refers to as MSPs, or resellers, who provide these services to their end-users to assist them in creating their web presence. The domain name registration services offered by Tucows relate to the registrar services provided for the gTLds .com, .net, .org, .info and .biz and the country code domain .ca, .cc, co.uk, org.uk and .tv. Tucows receives revenues for each domain name registration passed through its system by resellers. Typically, Tucows receives $10 per year of registration, although some additional discounts and rebates are offered based upon volume or participation in other programs Tucows offers. Tucows receives between $13 to $100 for each country code domain name registration and $99 for each digital certificate sold. The average term for wholesale domain name registration services over the past year is 14 months, and if registrations are renewed, Tucows would expect to produce ongoing revenues.

Tucows also processes domain names on behalf of other registrars.

On a retail basis, Tucows offers domain registration services directly to end users through its DomainDirect division. Tucows receives revenues for the retail registration of domain names and the managing of other services relating to a domain name such as domain forwarding and e-mail forwarding. Tucows' registration fee for the full suite of services is approximately $32 per year. The

average term for retail domain name registration services is 18 months, and if registrations are renewed, Tucows would expect to produce ongoing revenues.

Through Liberty RMS, Tucows provides technical back-end registry management services to Afilias, the .info registry. Tucows receives from Afilias a service fee of $2.95 for each domain year registered. Payment for each registration under management is due annually in the anniversary month. This business is included among the assets sold to Afilias as more fully described above.

Digital content distribution services

Tucows aggregates software and other downloadable content, which it distributes to MSPs through an integrated network. Through these services Tucows generates revenues from online advertising and sales of its digital content. Tucows creates advertising revenues through advertisements placed on its website and through advertisements placed on the websites of its MSP network. Advertising revenues are primarily received from short-term advertising agreements in which advertising banners are delivered at an agreed upon rate per thousand impressions delivered. Tucows also enters into barter transactions, which are a component of advertising revenues. Barter transactions are the exchange of advertising space on Tucows' website for reciprocal space or traffic on other websites. 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 recognized barter revenue of approximately $989,000 for the year ended December 31, 2000 and approximately $86,000 for the year ended December 31, 2001.

Electric library subscriptions

Electric Library is a web-accessible online archive that aggregates content from hundreds of sources and contains over 13 million documents from books, magazines and newspapers. Potential individual subscribers are given a free trial period, after which Tucows typically charges a fee of approximately $15 per month for monthly subscriptions and approximately $80 per year for new annual subscriptions, both for virtually unlimited usage.

Critical accounting policies

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 the company's 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 its estimates, including those related to the recoverability of investments, intangible assets, 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.

Revenue recognition policy

Tucows earns revenues from:

•: Domain name registration fees on both a wholesale and retail basis, ancillary services and domain name registry management services fees;
•: Advertising;
•: Subscription fees from Tucows search and reference media sites principally Electric Library; and
•: Digital content distribution services.

Tucows derives the 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. 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.

Service fees for providing domain name registry services are also recognized ratably on a monthly basis over the term of the registration once proof of registration has been provided to the registrar.

Tucows' search and reference media sites obtain revenue from subscription sales that are recognized ratably over the term of the subscription. Potential individual subscribers are given a free trial period, after which Tucows charges a subscription fee for the required monthly or annual period. Revenues are reduced at the time of sale to reflect expected refunds and credit card charge-backs that are estimated based on historical experience and current expectations.

Tucows also generates revenues from online advertising through advertisements placed on its website and those of its MSP network. Advertising revenues are primarily derived from short-term advertising agreements in which advertising banners are delivered at an agreed upon rate per thousand impressions delivered. Advertising revenues are recognized ratably over the period in which the advertisement 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.

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 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.

Product development costs

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 of the notes to the consolidated financial statements. 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 amortization of property and equipment. Management is required to use judgment in assessing criteria like the establishment of technological feasibility in determining whether development costs meet the

criteria for immediate expense or capitalization. Actual results may differ from these estimates under different assumptions or conditions.

Valuation of acquired software and other identifiable intangible assets and goodwill

Tucows' business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that Tucows may incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect Tucows' consolidated financial statements. Tucows reviews its identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that Tucows considers important that could trigger an impairment review include the following:

•: a significant underperformance relative to expected historical or projected future operating results;
•: a significant change in the manner of Tucows' use of the acquired asset or the strategy for its overall business; and
•: a significant negative industry or economic trend.

When Tucows determines that the carrying value of intangibles, long-lived assets and goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, Tucows measures any impairment based on a projected discounted cash flow method 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 based 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 value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

In 2000, as a result of the significant downturn in the emerging new economy and the overall decline in the on-line advertising industry, Tucows considered $11.3 million of the goodwill related to its acquisition of the assets of the Tucows division of Tucows Interactive Limited and of Eklektix Inc. to be impaired. In 2001, due to the current and expected future economic conditions for on-line advertising, additional impairment charges totaling $1.3 million were recorded against these assets.

Results of operations for the year ended December 31, 2001 compared to December 31, 2000

Net revenues

	2000		2001
Net revenues	$	14,439,829	$	31,589,759
Increase over prior period			$	17,149,930
Increase—Percentage				119	%

The increase in net revenues primarily reflects growth in Tucows' domain name registration business. During the year ended December 31, 2001, Tucows processed approximately 2.3 million new domain name registrations (including transfers). This includes approximately 415,000 names processed on behalf of other registrars. This results in the total number of registered domain names under Tucows management at December 31, 2001 being approximately 3.4 million (including approximately 433,000 on behalf of other registrars), up from approximately 2.1 million at December 31, 2000. This revenue increase from domain name registrations has correspondingly resulted in Tucows' deferred revenue from domain name registrations increasing to approximately $22.7 million for the year ended December 31, 2001 from approximately $15.8 million for the year ended December 31, 2000.

Tucows also believes that a large number of the names registered in 1999 and 2000 were registered by domain name speculators, who register names with the intention of reselling them, rather than putting them to use. For this reason, Tucows expects that a significant percentage of existing domain name registrations will not be renewed and will be allowed to lapse. Over time, as the percentage of names held by speculators decreases, Tucows expects to see an increase in the renewal rates across the industry. Taking into account all of these market dynamics, Tucows anticipates that revenues from domain name registrations will continue to increase.

One customer accounted for approximately 13% of net revenues for the year ended December 31, 2001. The same customer accounted for approximately 12% of net revenues in 2000. Tucows does not expect any customer to account for more than 10% of net revenues in 2002.

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 is due annually, in the anniversary month.

The Infonautics business acquired on August 28, 2001 contributed revenue of approximately $1.6 million for the four months ended December 31, 2001. Tucows' subscriber base for its Electric Library end user services dropped to approximately 53,000 as a result of the difficult direct marketing environment experienced during the fourth quarter.

The increases in revenues summarized above were partially offset by declines in advertising and related services revenues. These revenues amounted to approximately $2.1 million for the year ended December 31, 2001 as compared to approximately $4.7 million for the year ended December 31, 2000. This decline is primarily the result of the significant slowdown in online advertising revenue from emerging new economy companies as they re-assess their online advertising strategies.

Cost of revenues

Cost of revenues includes the costs associated with providing domain name registration and ancillary services, Electric Library subscription services and digital content distribution services.

	2000		2001
Cost of revenues	$	7,785,105	$	21,105,790
Increase over prior period			$	13,320,685
Increase—Percentage				171	%

Growth of revenues was the primary factor in the increase of cost of revenues in 2001 from 2000. In addition, during the second half of 2001, Tucows began incurring costs in providing back-end registry services. This business is included among the assets sold to Afilias as more fully described above. 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. Tucows acquisition of Infonautics has resulted in an increase in its cost of revenues since the acquisition in August 2001.

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 comprise primarily communication and provisioning costs related to the management and support of the network. The increase in cost of revenues was primarily due to Tucows recognizing the appropriate ratable portion of the cost of registry services from its increased domain name activity and the increased networking costs relating to its registry management services division.

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. Through January 14, 2000, Tucows paid a $9 per domain year registry fee for each .com, .net and .org domain name registration. This fee was reduced to $6 per year beginning on January 15, 2000. Registration fees for each .info domain name registration are $5.75 per domain year, and registration fees for each .biz domain name registration are $5.30 per domain year. From October 2000, Tucows paid Cdn$20.00 per year registry fee for each .ca domain name registration. These fees are payable on the anniversary date of each domain name registration. Domain name fees paid for future registrations are deferred as prepaid expenses and are then recognized on a straight-line basis over the registration period consistent with the recognition of revenues from Tucows' customers.

To provide the registry management services contemplated in the back-end registry services agreements signed with Afilias, Tucows has entered into agreements with third party suppliers for services and technical support, including web hosting necessary for the operation of the .info registry. Under these agreements, Tucows is committed to monthly payments ranging from approximately $97,000 to approximately $335,000, depending upon the completion of certain milestones specified in the agreements. This resulted in an increase of approximately $2 million in cost of sales for 2001. This business is included among the assets sold to Afilias as more fully described above and these costs will be assumed by Afilias after the sale.

The principal elements of cost associated with the delivery of the Electric Library products was the approximately $579,000 royalty and license fees on end-user revenues paid to bigchalk.com, inc. for the period in which Tucows held its investment in bigchalk.com during 2001. bigchalk.com is currently the sole provider of content, hardware, software, and related costs to deliver the Electric Library products.

Cost of revenues of digital content distribution services includes the costs of network operations. Tucows expects communication costs to increase as its network expands geographically and network activity increases. 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 has no direct cost of revenues relating to its advertising revenues.

Sales and marketing

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. Tucows also incurs advertising expenses, including barter advertising, trade show and other promotional costs.

	2000		2001
Sales and marketing	$	11,121,051	$	6,380,102
Decrease over prior period			$	(4,740,949	)
Decrease—Percentage				(43	)%

The decrease in sales and marketing costs from 2000 to 2001 was primarily the result of a reduction in marketing expenses to approximately $2.4 million for the year ended December 31, 2001 from approximately $6.7 million for the year ended December 31, 2000 as a result of the lower cost structure. Sales expenses remained consistent. In light of the current economic environment, Tucows re-assessed its marketing strategies and decreased its headcount to reduce its cost base to better position it to return to a positive cash flow position. Tucows believes that sales and marketing expenses (in absolute dollars) will remain flat or increase slightly 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

Technical operations and development expenses consist primarily of personnel costs and related expenses required to support the development of new or enhanced service offerings. This includes expenses incurred in the research, design and development of technology that Tucows uses to register domain names (both at a registrar and 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 are capitalized and primarily include personnel costs for employees directly related to the development project. All other costs incurred are expensed as incurred.

	2000		2001
Technical operations and development expenses	$	4,132,301	$	5,052,569
Increase over prior period			$	920,268
Increase—Percentage				22	%

The increases in technical operations and development expenses were due to Tucows' efforts to develop the registry services platform and to develop, expand and upgrade its technology, transaction processing systems and network infrastructure as the volume of traffic on its website and transactional volume through its delivery platform, OpenSRS, increases. The increases were partially offset by cost cutting initiatives, primarily headcount reductions, undertaken in September 2001, which, in the short-term, are expected to result in a decrease in absolute dollars spent on technical operations and development. Thereafter, Tucows expects technical operations and development expenses (in absolute dollars) to increase as its business continues to grow and as it further develops its applications and services.

General and administrative

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.

	2000		2001
General and administrative	$	4,704,213	$	4,012,969
Decrease over prior period			$	(691,244	)
Decrease—Percentage				(15	)%

General and administrative expenses remained relatively flat over the year ended December 31, 2001. The incremental increase in costs associated with the additional infrastructure costs as a result of the Infonautics acquisition in August 2001, were primarily offset by the cost of approximately $500,000 incurred by Tucows during 2000 in exploring the possibility of a public offering and in achieving better control over credit card processing fees. Tucows expects general and administrative expenses to increase in absolute dollars as it begins to incur expenses as a public company and adds infrastructure and expands facilities, primarily as a result of the Infonautics merger.

Amortization of property and equipment

Amortization consists of amounts relating to Tucows' property and equipment. Property and equipment is amortized on a straight-line basis over the estimated useful life of the assets.

	2000		2001
Amortization	$	1,700,944	$	3,202,948
Increase over prior period			$	1,502,004
Increase—Percentage				88	%

The increase in amortization was primarily due to additions to property and equipment, such as computers, furniture and software.

During the year ended December 31, 2001, as a result of reductions in headcount, furniture and computer equipment in the amount of $130,000 was written off. This was required as the market value of these assets exceeded the carrying value.

Amortization of intangible assets

Amortization consists of amounts relating to Tucows' intangible assets. Intangible assets consist of goodwill and amounts relating to the non-competition agreements entered into with the former owners of the Tucows division of Tucows Interactive Limited and are amortized on a straight-line basis over three years.

	2000		2001
Amortization	$	11,616,414	$	3,656,846
Decrease over prior period			$	(7,959,568	)
Decrease—Percentage				(69	)%

The decreases in amortization resulted from Tucows' determination that goodwill relating to its content properties was impaired at December 31, 2000 and 2001, and booking a goodwill impairment charge of approximately $11.3 million at December 31, 2000 and approximately $929,000 at December 31, 2001. During the year ended December 31, 2001, Tucows determined that, in light of the current economic outlook and Tucows' decision to assess the future of "Linux Weekly News", that an additional impairment charge of $396,000 was necessary.

Interest income/(expense), net

	2000		2001
Interest income/(expense), net	$	215,154	$	(135,920	)
Decrease over prior period			$	(351,074	)
Decrease—Percentage				(163	)%

Tucows incurred an interest expense on loans of approximately $203,000 for the year ended December 31, 2001. This compares to the interest earned of approximately $215,000 for the year ended December 31, 2000 on its cash and cash equivalent balances.

As a result of the acquisition of Infonautics on August 28, 2001, Tucows no longer has any loans outstanding at December 31, 2001 and expects interest expenses to decline accordingly.

Income taxes

No provision for income taxes has been recorded for the years ending December 31, 2000 and 2001 because Tucows had operating losses for these periods.

Results of operations for the year ended December 31, 2000 compared to December 31, 1999

The financial data for the year ended December 31, 1999 has been prepared on a pro forma basis as though Tucows' acquisition of the assets of the Tucows division of Tucows Interactive Limited had occurred on January 1, 1999.

Net revenues

	1999		2000
Net revenues	$	3,579,767	$	14,439,829
Increase over prior period			$	10,860,062
Increase—Percentage				303	%

Net revenues increased $10.9 million, or 303%, to approximately $14.4 million in 2000 from approximately $3.6 million in 1999. Approximately $9.5 million of this increase was due to Tucows' beginning wholesale domain name registration services during 2000. This revenue increase in wholesale domain name registrations resulted in Tucows deferred revenue from domain name registrations increasing to $15.8 million at December 31, 2000 from $0.7 million at December 31, 1999.

One customer accounted for 12% of net revenues in 2000.

Net revenue from advertising increased approximately $1.3 million, or approximately 38%, to approximately $4.7 million in 2000 from approximately $3.4 million in 1999 as emerging new economy companies increased their online advertising commitments. This increase is not expected to continue as the industry began to experience a decline in online advertising revenues primarily because of the significant economic downturn affecting emerging new economy companies.

Barter transactions for the year ended December 31, 2000 represented approximately 7% of Tucows' total net revenues. The barter transactions during this period were a result of an increase in promotional campaigns for Tucows' domain name registration services business.

Net revenues from digital software distribution increased to approximately $118,000 from approximately $23,000 in 1999.

Cost of revenues

	1999		2000
Cost of revenues	$	340,610	$	7,785,105
Increase over prior period			$	7,444,495
Increase—Percentage				2186	%

Cost of revenues increased $7.4 million, to approximately $7.8 million in 2000 from $341,000 in 1999. This increase was due primarily to the cost of recognizing the appropriate ratable portion of the cost of registry services due to registering more domain names, especially wholesale registrations.

Sales and marketing

	1999		2000
Sales and marketing	$	2,499,547	$	11,121,051
Increase over prior period			$	8,621,504
Increase—Percentage				345	%

Sales and marketing expenses increased approximately $8.6 million, or 345%, to approximately $11.1 million in 2000 from $2.5 million in 1999. This increase was caused by the expansion of Tucows'

sales force and marketing team by 52 employees during 2000. Tucows incurred additional advertising expenses primarily to promote its wholesale domain name registration services business. Advertising expenses for the year ended December 31, 2000 amounted to $4.3 million, inclusive of barter advertising in the amount of $989,000 during the year ended December 31, 2000 compared to $343,000 for the year ended December 31, 1999. Tucows also incurred trade show costs in the amount of $1.4 million during the year ended December 31, 2000.

Technical operations and development

	1999		2000
Technical operations and development expenses	$	1,384,960	$	4,132,301
Increase over prior period			$	2,747,341
Increase—Percentage				198	%

Technical operations and development expenses increased approximately $2.7 million, or 198%, to $4.1 million in 2000 from $1.4 million in 1999. This increase relates to the addition of approximately 60 employees involved in the development that Tucows undertook during 2000 to enhance its technology, transaction-processing systems and network infrastructure relating to its wholesale domain name registration and digital content services.

General and administrative

	1999		2000
General and administrative	$	2,750,108	$	4,704,213
Increase over prior period			$	1,954,105
Increase—Percentage				71	%

General and administrative expenses increased approximately $2.0 million, or 71%, to $4.7 million in 2000 from $2.7 million in 1999. This increase was due in part to the addition of approximately 10 employees to accommodate growth. Tucows moved its Toronto, Canada office to a newer, larger facility.

In 2000, Tucows undertook various financing initiatives including beginning the process to file a registration statement for an initial public offering. All financing initiatives undertaken during 2000 were withdrawn due to market conditions. As these financing initiatives have been postponed or abandoned, related costs amounting to approximately $505,000 were expensed during 2000. There were no corresponding costs during 1999.

Amortization of property and equipment

	1999		2000
Amortization	$	280,752	$	1,700,944
Increase over prior period			$	1,420,192
Increase—Percentage				506	%

Amortization of property and equipment increased $1.4 million, or 506%, to $1.7 million in 2000 from $280,000 in 1999. This increase was primarily due to the additions to property and equipment, such as computers, furniture and software and leasehold improvements relating to the new facility in Toronto, Canada.

Amortization of intangible assets

	1999		2000
Amortization	$	10,995,000	$	11,616,414
Increase over prior period			$	4,286,450
Increase—Percentage				58	%

Amortization of intangible assets increased $622,000, or 6%, to $11.6 million in 2000 from $11.0 million in 1999 because of the full year's amortization on the purchase of substantially all of the assets of the content business of the Tucows division on May 4, 1999 and the purchase of Eklektix Inc. in April 2000. During the fourth quarter of fiscal year 2000, management determined that the value of the goodwill related to Tucows' acquisition of the Tucows division of Tucows Interactive Limited and Eklektix Inc. was impaired and recorded a write-down of $11.3 million. The impairment is the result of the significant downturn in the emerging new economy and the overall decline in the on-line advertising industry.

Interest income/(expense), net

	1999		2000
Interest income/(expense), net	$	30,264	$	215,154
Increase over prior period			$	184,890
Increase—Percentage				611	%

Net interest income amounted to $215,000 in 2000, compared to $30,000 in 1999, reflecting the interest earned on the cash and cash equivalents balance arising from the issuance of Tucows' series A convertible preferred shares in March 2000.

Income taxes

No provision for income taxes was recorded for 2000 as Tucows had operating losses for this year. For the year ended December 31, 1999, Tucows recorded an income tax recovery of $63,000.

Liquidity and capital resources

Before the acquisition of Infonautics on August 28, 2001, Tucows (Delaware) Inc. had funded operations and capital requirements through private placements of series A convertible preferred shares (as more fully described in Note 7 to the consolidated financial statements), which totaled approximately $43.3 million in aggregate net proceeds through December 31, 2001.

Tucows had cash and cash equivalents of approximately $4.8 million at December 31, 2001 as compared to $2.2 million at December 31, 2000, an increase of $2.6 million. The primary reason for the increase was obtaining approximately $9.2 million from the acquisition of Infonautics on August 28, 2001.

Tucows' operating activities used cash of approximately $6.1 million during the year ended December 31, 2001, as compared to approximately $454,000 for the year ended December 31, 2000. Net cash used in operating activities for the year ended December 31, 2001 resulted primarily from net losses for the period, increases in prepaid domain name registry fees and decreases in accounts payable and accrued liabilities. During the year Tucows also automated some of its cash collection systems which enabled its resellers to more effectively manage their customer deposit accounts. This was partially offset by an increase in deferred revenue and prepaid domain name registry fees. Net cash used in operating activities for the year ended December 31, 2000 resulted primarily from net losses for the period and increases in prepaid domain name registry fees. This was partially offset by the amortization of intangible assets and increases in deferred revenue.

Tucows' investing activities for the year ended December 31, 2001 provided cash of approximately $5.7 million, and for the year ended December 31, 2000 used cash of approximately $4.4 million. Net cash used for capital expenditures was approximately $2.9 million for the year ended December 31, 2001 and approximately $3.3 million for the year ended December 31, 2000. Under the stockholders' agreement with Afilias, Limited, capital calls were made of approximately $254,000 during the year ended December 31, 2001 and approximately $100,000 during the year ended December 31, 2000. This was partially offset by the acquisition of Infonautics which provided approximately $8.8 million, consisting of the net of Infonautics cash acquired over cash costs of the transaction.

Net cash provided by financing activities was approximately $3.0 million for the year ended December 31, 2001 and approximately $5.3 million for the year ended December 31, 2000.

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 reduce the interests of existing investors. Tucows may also evaluate potential acquisitions of other businesses, products and technologies. There are currently no understandings, commitments or agreements about any acquisition of other businesses, products or technologies. To complete potential acquisitions, Tucows may issue additional securities or need additional equity or debt financing and any additional financing may reduce the interests of existing investors.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Tucows has invested in several privately held companies, including bigchalk.com and Afilias, Limited. There is no public market for bigchalk.com's or Afilias's stock. Tucows does not hold any derivative financial instruments as of December 31, 2001. Tucows has no long-term debt other than fixed interest obligations under capital leases aggregating $52,387 as of December 31, 2001.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Before Tucows' acquisition of Infonautics in August 2001, PricewaterhouseCoopers LLP served as Infonautics' independent auditors and KPMG LLP served as Tucows (Delaware's) independent auditors. However, because, on completion of the merger, the former stockholders of Tucows (Delaware) acquired approximately 80% of Infonautics and the former officers of Tucows (Delaware) took over the operations of Infonautics, Tucows' board of directors determined it to be in the best interests of the company to continue Tucows (Delaware's) relationship with KPMG LLP. Accordingly, on August 29, 2001, the board of directors determined that, effective as of that date, KPMG LLP would serve as Tucows' independent auditors. By that action, the board of directors dismissed PricewaterhouseCoopers LLP.

The reports of PricewaterhouseCoopers LLP on Infonautics', which is now named Tucows Inc., financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

There have been no disagreements with PricewaterhouseCoopers LLP as to any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure in connection with the audits of Infonautics' financial statements for the fiscal years ended December 31, 2000 and 1999 or for the subsequent interim period through August 29, 2001, which disagreements, if not resolved to its satisfaction, would have caused PricewaterhouseCoopers LLP to make reference to the disagreements in its reports on the financial statements for such years. In addition, during the two most recent fiscal years and through August 29, 2001, there have been no reportable events, as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K.

During the two most recent fiscal years and through August 29, 2001, Infonautics did not consult with KPMG LLP regarding the application of accounting principles to a specified transaction or the type of audit opinion that may be rendered on its financial statements. In addition, Infonautics did not consult with KPMG LLP as to any matter that was either the subject of a disagreement, as defined in Instruction 4 of Item 304 of Regulation S-K, or a reportable event, as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K, during the two most recent fiscal years and through August 29, 2001.

As required by the rules of the Securities and Exchange Commission, Tucows filed a current report on Form 8-K on September 6, 2001, to report the change in its accountants. Tucows also provided PricewaterhouseCoopers LLP a copy of its disclosure describing the change of accountants in the current report on Form 8-K. As also required by the rules of the Securities and Exchange Commission, Tucows requested PricewaterhouseCoopers LLP to furnish to it a letter addressed to the Securities and Exchange Commission indicating whether or not it agreed with the statements made by Tucows in the Form 8-K in response to Item 304 of Regulation S-K. PricewaterhouseCoopers LLP provided such a letter and in the letter indicated that it agreed with Tucows' statements concerning PricewaterhouseCoopers LLP in the Form 8-K. The letter was filed as an exhibit to the Form 8-K.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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 forth in Part I, Item 1 of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

The following documents are filed as part of this Form 10-K:

1.: Financial Statements. The financial statements listed in the accompanying index to consolidated financial statements are filed as part of this Form-10-K.
2.: Financial Statement Schedules. Schedules are not submitted because they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
3.: Exhibits. The Exhibits listed below are filed or incorporated by reference as part of this Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated parenthetically.

Exhibit Number		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 May 4, 1999 between Tucows International Corp. and Elliot Noss.(6)
10.4†		Employment Agreement dated May 4, 1999 between Tucows.Com Inc. and Scott Swedorski.(7)
10.5†		Executive Compensation Agreement dated January 1, 2000 between Tucows International Corporation and Michael Cooperman.(8)
10.6†		Executive Compensation Agreement dated September 5, 2000 between Tucows International Corporation and Graham Morris.(9)
10.7†		Executive Compensation Agreement dated February 5, 2001 between Tucows International Corporation and Supriyo Sen.(10)
10.8		Lease between American Baptist Churches USA and Infonautics Corporation.(11)
10.9		Lease between 707932 Ontario Limited and Tucows International Corporation, dated December 10, 1999.
10.10		Lease between Pier North Associate and Tucows.Com, Inc., dated July 23, 2000.

16.1		Letter of PricewaterhouseCoopers LLP to the Securities and Exchange Commission, dated September 4, 2001.(6)
21.1		Subsidiaries of Tucows Inc.
23.1		Consent of KPMG LLP.

†: Management or compensatory contract required to be filed pursuant to Item 14(c) of the requirements for Form 10-K reports.
(1): Incorporated by reference to annex 1 to the joint proxy statement/prospectus forming a part of Tucows' registration statement on Form S-4 (File No. 333-60306) (the "Registration Statement"), as filed with the Securities and Exchange Commission on May 4, 2001.
(2): Incorporated by reference to exhibit with corresponding number filed with Tucows' report on Form 8-K, as filed with the Securities and Exchange Commission on September 6, 2001.
(3): Incorporated by reference to exhibit with corresponding number filed with the Registration Statement.
(4): Incorporated by reference to exhibit number 10.27 filed with the Commission on October 19, 2001, with Post-Effective Amendment No. 1 to the Registration Statement.
(5): Incorporated by reference to exhibit number 4.3 filed with Tucows' registration statement on Form S-8, as filed with the Securities and Exchange Commission on November 27, 2001.
(6): Incorporated by reference to exhibit number 10.22 filed with the Commission on July 19, 2001, with Amendment No. 2 to the Registration Statement.
(7): Incorporated by reference to exhibit number 10.23 filed with the Commission on July 19, 2001, with Amendment No. 2 to the Registration Statement.
(8): Incorporated by reference to exhibit number 10.24 filed with the Commission on July 19, 2001, with Amendment No. 2 to the Registration Statement.
(9): Incorporated by reference to exhibit number 10.25 filed with the Commission on July 19, 2001, with Amendment No. 2 to the Registration Statement.
(10): Incorporated by reference to exhibit number 10.26 filed with the Commission on July 19, 2001, with Amendment No. 2 to the Registration Statement.
(11): Incorporated by reference to exhibit number 10.1 filed with Tucows' report on Form 10-Q for the quarterly period ended June 30, 2000, as filed with the Securities and Exchange Commission on August 14, 2000.
(b): Reports on Form 8-K

Tucows did not file any Reports on Form 8-K during the quarter ended December 31, 2001.

SIGNATURES

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 April 1, 2002.

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

Each person whose signature appears below hereby appoints Elliot Noss and Michael Cooperman, and both of them, either of whom may act without the joinder of the other, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Commission, granting unto said attorneys-in-fact and agents full power and authority to perform each and every act and thing appropriate or necessary to be done, as fully and for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Signature	Title	Date

/s/ ELLIOT NOSS Elliot Noss	President, Chief Executive Officer (Principal Executive Officer) and Director	April 1, 2002
/s/ MICHAEL COOPERMAN Michael Cooperman	Chief Financial Officer (Principal Financial and Accounting Officer)	April 1, 2002
/s/ DAVID VAN RIPER MORRIS David Van Riper Morris	Director	April 1, 2002
/s/ LLOYD MORRISETT Lloyd N. Morrisett	Director	April 1, 2002
Dennis Bennie	Director	April , 2002
Erez Gissin	Director	April , 2002
/s/ STANLEY STERN Stanley Stern	Director	April 1, 2002
Robert F. Young	Director	April , 2002
/s/ ALAN LIPTON Alan Lipton	Director	April 1, 2002
Tomer Kariv	Director	April , 2002

INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements of Tucows Inc.

		Pages
Consolidated Financial Statements of Tucows Inc.		F-2
Independent Auditors' Report dated February 1, 2002		F-3
Consolidated Balance Sheets as of December 31, 2000 and 2001		F-4
Consolidated Statements of Operations for years ended December 31, 2000 and 2001 and the period May 4, 1999 (commencement of operations) to December 31, 1999		F-5
Consolidated Statements of Stockholders' Equity (Deficiency)		F-6
Consolidated Statements of Cash Flows for years ended December 31, 2000 and 2001 and the period May 4, 1999 (commencement of operations) to December 31, 1999		F-7
Notes to Consolidated Financial Statements		F-8

Financial Statements of Tucows Division of Tucows Interactive Limited

		Pages
Financial Statements of Tucows Division of Tucows Interactive Limited		F-24
Independent Auditors' Report		F-25
Statement of Operations for the period from January 1, 1999 to May 3, 1999		F-26
Statement of Comprehensive Loss for the period from January 1, 1999 to May 3, 1999		F-27
Statement of Cash Flows for the period January 1, 1999 to May 3, 1999		F-28
Notes to Consolidated Financial Statements		F-29

F-1

Tucows Inc.

Consolidated Financial Statements

(Dollar amounts in US dollars)

Period from May 4, 1999 (commencement
of operations) to December 31, 1999 and
years ended December 31, 2000 and 2001

F-2

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Tucows Inc.

We have audited the accompanying consolidated balance sheets of Tucows Inc. as of December 31, 2000 and 2001 and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for the period from May 4, 1999 (commencement of operations) to December 31, 1999 and for the years ended December 31, 2000 and 2001. 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 the Company as at December 31, 2000 and 2001 and the results of its operations and its cash flows for the period from May 4, 1999 (commencement of operations) to December 31, 1999 and for the years ended December 31, 2000 and 2001 in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Chartered Accountants
Toronto, Canada
February 1, 2002, except
as to note 14 which is
as of March 25, 2002

F-3

Tucows Inc.

Consolidated Balance Sheets

(Dollar amounts in U.S. dollars)

			December 31, 2000			December 31, 2001
Assets
Current assets:
	Cash and cash equivalents		$	2,170,195		$	4,814,189
	Accounts receivable, net of allowance for doubtful accounts of $248,500 at December 31, 2000 and $276,579 at December 31, 2001			767,104			817,990
	Prepaid expenses and deposits			983,544			2,041,927
	Prepaid domain name registry fees			7,873,677			10,034,413

		Total current assets		11,794,520			17,708,519
Prepaid domain name registry fees, net of current portion				1,584,408			2,599,962
Property and equipment (note 4)				3,842,364			3,691,390
Intangible assets (note 5)				5,204,446			222,222
Investments (note 6)				100,000			1,367,072

Total assets			$	22,525,738		$	25,589,165

Liabilities and Stockholders' Deficiency
Current liabilities:
	Accounts payable		$	2,796,892		$	1,958,744
	Accrued liabilities			3,467,592			2,242,858
	Customer deposits			2,150,185			1,951,336
	Obligations under capital lease			—			58,772
	Deferred revenue			13,109,801			18,444,280

		Total current liabilities		21,524,470			24,655,990
Deferred revenue, net of current portion				2,698,131			4,270,341
Obligations under capital lease, net of current portion				—			52,387
Stockholders' deficiency:
	Capital stock (note 7)			44,390,257			58,532,816
	Common stock to be issued			1,512,778			—
	Option (note 7(a))			1,072,412			—
	Deferred stock-based compensation			(508,704	)		(346,000	)
	Deficit			(48,163,606	)		(61,576,369	)

		Total stockholders' deficiency		(1,696,863	)		(3,389,553	)

Total liabilities and stockholders' deficiency			$	22,525,738		$	25,589,165

See accompanying notes to consolidated financial statements.

F-4

Tucows Inc.

Consolidated Statements of Operations

(Dollar amounts in U.S. dollars)

		Period from May 4, 1999 (commencement of operations) to December 31, 1999			Year ended December 31, 2000			Year ended December 31, 2001
Net revenues (note 13)		$	2,833,509		$	14,439,829		$	31,589,759
Cost of revenues			282,742			7,785,105			21,105,790

Gross profit			2,550,767			6,654,724			10,483,969
Operating expenses:
	Sales and marketing, which includes stock-based compensation of nil for the period from May 4, 1999 (commencement of operations) to December 31, 1999, $93,092 for the year ended December 31, 2000 and $109,926 for the year ended December 31, 2001		2,120,063			11,121,051			6,380,102
	Technical operations and development expenses		1,095,083			4,132,301			5,052,569
	General and administrative, which includes stock-based compensation of $1,072,462 for the period from May 4, 1999 (commencement of operations) to December 31, 1999, $49,018 for the year ended December 31, 2000 and $52,778 for the year ended December 31, 2001		2,242,372			4,704,213			4,012,969
	Amortization of property and equipment		227,379			1,700,944			3,202,948
	Loss on write-off of property and equipment		—			—			130,000
	Amortization of intangible assets		7,329,964			11,616,414			3,656,846
	Write-down of intangible assets (note 5)		—			11,324,731			1,325,378

	Total operating expenses		13,014,861			44,599,654			23,760,812

Loss from operations			(10,464,094	)		(37,944,930	)		(13,276,843	)
Interest income (expense), net			30,264			215,154			(135,920	)

Loss before provision for income taxes			(10,433,830	)		(37,729,776	)		(13,412,763	)
Provision for income taxes (note 10)			—			—			—

Loss for the period		$	(10,433,830	)	$	(37,729,776	)	$	(13,412,763	)

Basic and diluted loss per common share (note 9)		$	(2.43	)	$	(8.79	)	$	(0.24	)

Shares used in computing basic and diluted loss per common share (note 9)			4,291,500			4,291,500			56,152,735

See accompanying notes to consolidated financial statements.

F-5

Tucows Inc.

Consolidated Statements of Stockholders' Equity (Deficiency)

(Dollar amounts in U.S. dollars)

				Series A convertible preferred stock
	Common stock
	Common stock									Additional paid-in capital		Common stock to be issued						Deferred stock-based compensation						Total stockholders' equity (deficiency)
	Number	Amount		Number			Amount			Additional paid-in capital		Common stock to be issued			Option			Deferred stock-based compensation			Deficit			Total stockholders' equity (deficiency)
Balances, May 4, 1999 (commencement of operations)	—	$	—		—		$	—		$	—	$	—		$	—		$	—		$	—		$	—
Issued for cash	—		—		38,623,500			38,624			30,961,376		—			—			—			—			31,000,000
Issued on acquisition of business	4,291,500		4,292		—			—			3,440,152		—			—			—			—			3,444,444
Issuance of option	—		—		—			—			—		—			1,072,412			—			—			1,072,412
Additional capital contribution	—		—		—			—			4,000,000		—			—			—			—			4,000,000
Loss for the period	—		—		—			—			—		—			—			—			(10,433,830	)		(10,433,830	)

Balances, December 31, 1999	4,291,500		4,292		38,623,500			38,624			38,401,528		—			1,072,412			—			(10,433,830	)		29,083,026
Issued for cash	—		—		2,399,524			2,400			5,292,599		—			—			—			—			5,294,999
Acquisition of Eklektix Inc. (note 3(b))	—		—		—			—			—		1,500,000			—			—			—			1,500,000
Exercise of stock options for cash	—		—		—			—			—		12,778			—			—			—			12,778
Deferred stock-based compensation	—		—		—			—			650,814		—			—			(650,814	)		—			—
Amortization of deferred stock-based compensation	—		—		—			—			—		—			—			142,110			—			142,110
Loss for the year	—		—		—			—			—		—			—			—			(37,729,776	)		(37,729,776	)

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. (note 3(b))	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(a))	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	)

See accompanying notes to consolidated financial statements.

F-6

Tucows Inc.

Consolidated Statements of Cash Flows

(Dollar amounts in U.S. dollars)

			Period from May 4, 1999 (commencement of operations) to December 31, 1999			Year ended December 31, 2000			Year ended December 31, 2001
Cash provided by (used in):
Operating activities:
	Loss for the period		$	(10,433,830	)	$	(37,729,776	)	$	(13,412,763	)
	Items not involving cash:
		Amortization of property and equipment		227,379			1,700,944			3,202,948
		Amortization of intangible assets		7,329,964			11,616,414			3,656,846
		Write-down of intangible assets		—			11,324,731			1,325,378
		Loss on write-off of property and equipment		—			—			130,000
		Stock-based compensation		1,072,412			142,110			162,704
	Change in non-cash operating working capital:
		Accounts receivable		(480,715	)		(107,453	)		57,847
		Prepaid expenses and deposits		(376,411	)		(582,073	)		(633,035	)
		Prepaid domain name registry fees		—			(9,458,085	)		(3,176,290	)
		Accounts payable		602,124			2,204,989			(1,235,193	)
		Accrued liabilities		315,682			3,151,910			(1,851,638	)
		Customer deposits		—			2,150,185			(198,850	)
		Deferred revenue		676,226			15,131,706			5,908,326

	Cash used in operating activities			(1,067,169	)		(454,398	)		(6,063,720	)
Financing activities:
	Proceeds on issue of Series A convertible preferred stock			35,000,000			5,294,999			—
	Proceeds on issuance of promissory note			—			—			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
	Repayment of obligations under capital lease			—			—			(24,774	)
	Proceeds received on common stock to be issued			—			12,778			—

	Cash provided by financing activities			35,000,000			5,307,777			2,999,595
Investing activities:
	Acquisition of net assets of the Tucows Division of Tucows Interactive Limited			(30,000,000	)		—			—
	Acquisition of Infonautics, Inc., net of cash acquired			—			—			8,833,431
	Acquisition of Eklektix Inc., net of cash acquired			—			(1,000,000	)		—
	Additions to property and equipment			(2,262,944	)		(3,253,071	)		(2,871,575	)
	Increase in investment in Afilias, Limited			—			(100,000	)		(253,737	)

	Cash provided by (used in) investing activities			(32,262,944	)		(4,353,071	)		5,708,119

Increase in cash and cash equivalents				1,669,887			500,308			2,643,994
Cash and cash equivalents, beginning of period				—			1,669,887			2,170,195

Cash and cash equivalents, end of period			$	1,669,887		$	2,170,195		$	4,814,189

Supplemental cash flow information:
	Interest paid		$	377		$	—		$	221,368

	Income taxes paid		$	—		$	—		$	—

Supplemental disclosure of non-cash investing and financing activities:
	Common stock issued on the acquisition of Eklektix Inc.		$	—		$	1,500,000		$	—
	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
	Value assigned to common stock issued on the acquisition of the Tucows Division of Tucows Interactive Limited			3,444,444			—			—

See accompanying notes to consolidated financial statements.

F-7

Tucows Inc.

Notes to Consolidated Financial Statements

(Dollar amounts in U.S. dollars)

1. Organization of the Company:

The Company provides Internet domain name registration and other online products and services such as the delivery of private label applications, services and content through its global Internet-based distribution network to Internet Service Providers, Web hosting companies and telecommunications and cable companies.

2. Significant accounting policies:

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.

(a) Basis of consolidation

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.

(b) Use of estimates

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. Actual results could differ from those estimates.

(c) Cash and cash equivalents

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.

(d) Property and equipment

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

F-8

The Company regularly reviews the carrying values of its property and equipment for potential impairment in value. 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, fair value being determined based upon discounted cash flows or appraised values, depending on the nature of the asset.

(e) Intangible assets

Goodwill represents the excess of the purchase price over the fair values of net identifiable assets acquired, and is being amortized on a straight-line basis over three years.

Non-competition agreements were entered into with the former owners of the Tucows Division of Tucows Interactive Limited (note 3(c)). These balances are being amortized on a straight-line basis over the term of the non-competition agreement, being three years.

The Company regularly reviews the carrying value of its intangible assets for potential impairment in value. 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, fair value being determined based upon discounted cash flows or appraised values, depending on the nature of the asset. Any impairment in the carrying value of intangible assets is charged to the statement of operations.

(f) Revenue recognition

The Company's revenues are derived from Internet private label domain name registration 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.

Registration fees charged for domain name registration and ancillary services are recognized on a straight-line basis over the life of the registration period, which ranges from one to ten years and are net of any promotional rebates. A provision for chargebacks from credit card carriers is included in accrued liabilities and deducted from gross registration fees in determining net revenues.

The Company has agreements with vendors to digitally distribute their products over the Company's delivery network. Net revenue is derived by deducting royalties due to vendors from amounts billed to end-users, who typically pay for online product purchases with credit cards. Net revenue is recorded upon completion of the purchase and delivery of the product to the customer. To date, these revenues have not been significant.

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 rateably over the period in which the advertisement is presented. To the extent that minimum guaranteed impressions have not been met, the

F-9

Company defers recognition of the corresponding revenues until the guaranteed impressions are achieved. In addition, the Company will 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 $342,609 of barter advertising for the period from May 4, 1999 (commencement of operations) to December 31, 1999, $988,878 for the year ended December 31, 2000 and $86,088 for the year ended December 31, 2001.

Revenues from the sale of Electric Library subscriptions are derived from end user markets. Revenues from online monthly end-user subscriptions from Electric Library are recognized in the month that the subscription services are provided. For annual end user subscriptions, revenue is recognized rateably over the term of the subscription.

(g) Prepaid domain name registry fees

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 registration term for initial registrations and registration renewals.

(h) Translation of foreign currency transactions

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. Exchange gains and losses resulting from the translation of these foreign denominated amounts which are insignificant are included in the consolidated statements of operations in the year in which they occur.

(i) Product development costs

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 $96,792 for the period from May 4, 1999 (commencement of operations) to December 31, 1999, $668,222 for the year ended December 31, 2000 and $1,454,800 for the year ended December 31, 2001 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.

F-10

(j) Income taxes

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 period 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.

(k) Stock-based compensation

The Company has elected to follow 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.

(l) Loss per common share

Loss per common share has been calculated on the basis of loss for the period divided by the weighted average number of common shares outstanding during each period. The dilutive effect on loss per common share, calculated assuming that the Series A convertible preferred shares, the Series A convertible preferred share options and the common share options outstanding at the end of the period had been issued, converted or exercised at the later of the beginning of the period or their date of issuance, is anti-dilutive.

(m) Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. 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. Management assesses the need for allowances for potential credit losses by considering the credit risk of specific customers, historical trends and other information. One customer accounted for 12% of net

F-11

revenues in 2000 and the same customer accounted for 13% of net revenues in 2001. No other customer accounted for more than 10% of revenue in any other period.

(n) Fair values of financial assets and financial liabilities

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

(o) Comprehensive income

The Company follows Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 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 loss for the period and comprehensive income for the period from May 4, 1999 (commencement of operations) to December 31, 1999 and the years ended December 31, 2000 and 2001.

(p) Segment reporting

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.

(q) Recent accounting pronouncements

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at lease annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121 and, subsequently, SFAS No. 144 after its adoption.

The Company will adopt the provisions of SFAS No. 141 as of July 1, 2001, and SFAS No. 142 effective January 1, 2002. Goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001, before SFAS No. 142 is

F-12

adopted in full, are not amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 continue to be amortized and tested for impairment prior to the full adoption of SFAS No. 142.

Upon adoption of SFAS No. 142, the Company is required to evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and to make any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition separate from goodwill. The Company will be required to reassess the useful lives and the residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. If an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142 within the first interim period. Impairment is measured as the excess of carrying value over the fair value of an intangible asset with an indefinite life. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company is required to adopt SFAS No. 144 on January 1, 2002. The Company does not believe that the implementation of SFAS No. 144 will have a material impact on the consolidated financial position of the Company.

3. Business acquisitions:

(a) On August 28, 2001, Tucows (Delaware) Inc. finalized the acquisition of Infoanutics, 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.

F-13

The total aggregate consideration valued at $8,894,000 is comprised of:

•: $8,489,000 based on Infonautics, Inc.'s share price on March 28, 2001 applied to the 51,685,432 common shares issued by Infonautics, Inc. to effect the acquisition representing the fair value of the net assets acquired,
•: $44,000 of value assigned to the Infonautics, Inc. options outstanding on August 28, 2001, and
•: $361,000 of transaction costs.

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

The following supplemental pro-forma information is presented to illustrate the effects of the acquisition on the historical operating results for the years ended December 31, 2000 and 2001, as if the acquisition had occurred at the beginning of the respective years.

	December 31, 2000			December 31, 2001
Net revenues	$	25,600,883		$	34,585,903
Loss for the year		(52,023,029	)		(16,112,799	)
Loss per share		(0.81	)		(0.25	)

(b) On April 4, 2000, the Company acquired 100% of the outstanding shares of Eklektix Inc., a newsletter publishing company. Total consideration consisted of $1,000,000 in cash and $1,500,000 in common shares valued at $3.16 per share. The shares were issued in April 2001. In addition, the Company granted 150,000 incentive stock options to purchase common stock at an exercise price of $3.16 per share under the Company's 1999 Stock Option Plan which have been valued at $295,050. To determine the fair value of these incentive stock options, the following assumptions were used: dividend yield of 0.0%, 80% volatility, a risk-free interest rate of 5.7% and an average expected life of the options of four years. The acquisition has been accounted for as a purchase and, accordingly, these

F-14

consolidated financial statements include the results of operations from the date of acquisition. The fair value of the assets acquired, based on the consideration paid, is as follows:

Net assets acquired	$	10,221
Goodwill		2,489,779

	$	2,500,000

A pro forma statement of operations to reflect the acquisition of Eklektix Inc. has not been presented as it would not be materially different than the Company's consolidated statement of operations.

(c) On May 4, 1999, the Company acquired certain of the business assets of the Tucows Division of Tucows Interactive Limited. Total consideration consisted of $30,000,000 in cash and 3,000,000 common shares of the Company having a fair value of $3,444,444. The acquisition has been accounted for as a purchase and, accordingly, these consolidated financial statements include the results of operations from the date of acquisition. The fair value of the assets acquired, based on the consideration paid, is as follows

Accounts receivable	$	178,936
Prepaid expenses and deposits		25,060
Property and equipment		254,672
Non-competition agreements		2,000,000
Goodwill		30,985,776

	$	33,444,444

4. Property and equipment:

Property and equipment consist of the following:

		December 31, 2000		December 31, 2001
Computer equipment		$	2,370,759	$	3,052,954
Computer software			2,047,193		4,570,342
Furniture and equipment			773,704		815,821
Leasehold improvements			579,031		551,698

			5,770,687		8,990,815
Less:
	Accumulated amortization		1,928,323		5,169,425
	Write-down of property and equipment		—		130,000

			1,928,323		5,299,425

		$	3,842,364	$	3,691,390

F-15

5. Intangible assets:

Intangible assets consist of the following:

		December 31, 2000		December 31, 2001
Goodwill		$	33,475,555	$	33,475,555
Non-competition agreements			2,000,000		2,000,000

			35,475,555		35,475,555
Less:
	Accumulated amortization		18,946,378		22,603,224
	Write-down of intangible assets		11,324,731		12,650,109

			30,271,109		35,253,333

		$	5,204,446	$	222,222

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 (2000—$11.3 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 remaining identifiable intangible asset balance of $222,222 will be amortized over the remaining estimated useful life at December 31, 2001 of approximately 4 months.

6. Investments:

The Company holds a 7.38% interest in Afilias, Limited ("Afilias"), a private company, which is a consortium of 18 domain name registrars. Afilias has been selected to serve as the registry for the new top-level domain ".info".

The Company also holds an 11% interest in bigchalk.com, Inc., a private company. The Company pays bigchalk.com, Inc. content royalties and technical service fees for content provided to the Electric Library site, which amounted to $579,386 for the period in which the Company held the investment in bigchalk.com, Inc. during 2001. At December 31, 2001, $285,353 is due to bigchalk.com, Inc. for these content royalties and technical service fees and is included within accounts payable.

Investments consist of the following:

	December 31, 2000		December 31, 2001
Investment in Afilias, Limited	$	100,000	$	353,737
Investment in bigchalk.com, Inc.		—		1,013,335

	$	100,000	$	1,367,072

F-16

7. Capital stock:

				December 31, 2000			December 31, 2001
				Shares	Amount		Shares	Amount
Series A preferred stock, $0.001 par value:
	Authorized:
		35,000,000 shares at December 31, 2000 and nil at December 31, 2001
			Issued and outstanding	41,023,024	$	41,024	—	$	—
Preferred stock, $0.001 par value at December 31, 2000 and no par value at December 31, 2001:
	Authorized:
		5,000,000 shares at December 31, 2000 and 1,250,000 at December 31, 2001
			Issued and outstanding	—		—	—		—
Common stock, $0.001 par value at December 31, 2000 and no par value at December 31, 2001:
	Authorized:
		60,000,000 shares at December 31, 2000 and 250,000,000 at December 31, 2001
			Issued and outstanding:	4,291,500		4,292	64,626,429		8,525,131
Additional paid-in capital						44,344,941			50,007,685

					$	44,390,257		$	58,532,816

(a) On May 4, 1999, the Company issued 38,623,500 Series A convertible preferred shares for a total cash consideration of $31,000,000.

Simultaneously with the issue of the Series A convertible preferred shares, the Company issued options to the then Chairman of the Company and an advisor to the Company. Each of these options entitle the holder to acquire 2,565,360 Series A convertible preferred shares with an exercise price of $0.91 exercisable until May 4, 2004. As the exercise price is not lower than the fair market value of the shares at the date of grant, no compensation expense has been recorded for the options granted to the Chairman.

The Company has accounted for the option issued to the advisor of the Company based on the fair value at the date of grant of the option, being the date the option vested, consistent with the method under SFAS 123. To determine the fair value of this option, the following assumptions were used: dividend yield of 0.0%, 80% volatility, a weighted average risk free interest rate of 5.5% and an average expected life of the option of two years. Compensation of $1,072,412 arising on the issuance of this option has been included in general and administrative expenses in the consolidated statement of operations during the period from May 4, 1999 (commencement of operations) to December 31, 1999.

F-17

(b) During September 1999, the Company's Board of Directors issued a working capital call amounting to $4,000,000 to the holders of the Series A convertible preferred shares as stipulated within the stockholders' agreement dated May 4, 1999. No additional preferred shares were issued relating to this additional equity injection and, correspondingly, additional paid-in capital was increased to reflect this working capital call.

(c) During March 2000, the Company issued 2,399,524 Series A convertible preferred shares for a total cash consideration of $5,294,999.

(d) 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.

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

8. 1996 Stock Option Plan:

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(a)), 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 10,000,000 shares, 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. Prior to August 28, 2001, the maximum number set aside for issuance under the Plan was 8,583,000 common shares and 5,130,720 Series A convertible preferred shares. Generally, options issued under the Plan vest over a four-year period.

F-18

Details of stock option transactions are as follows:

	Period from May 4, 1999 (commencement of operations) to December 31, 1999				Year ended December 31, 2000				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 period	—		$	—	9,985,308		$	0.91	12,901,436		$	1.23
Granted	9,990,458			0.91	3,438,350			2.15	1,076,637			0.87
Exercised	—			—	(14,060	)		0.91	(22,173	)		0.91
Forfeited	(5,150	)		0.91	(508,162	)		1.10	(6,991,988	)		1.83
Granted on reverse acquisition (note 3(a))	—			—	—			—	349,500			3.57

Outstanding, end of period	9,985,308			0.91	12,901,436		$	1.23	7,313,412		$	1.35

Options exercisable, end of period	5,559,870		$	0.91	7,120,208		$	0.96	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			$	0.18			$	0.31			$	0.20

Weighted average fair value of options granted during the year with exercise prices less than fair value at date of grant			$	—			$	0.56			$	—

Weighted average fair value of options granted during the year with exercise prices greater than fair value at date of grant			$	—			$	0.12			$	—

The stock options expire at various dates between July 2002 and August 2011.

F-19

As of December 31, 2001, the exercise prices and weighted average remaining contractual life of outstanding options were as follows:

	Options outstanding
	Options outstanding		Options exercisable
		Weighted average remaining contractual life (years)	Options exercisable
Exercise price	Number outstanding	Weighted average remaining contractual life (years)	Number exercisable	Weighted average exercise price per share
$0.67	180,000	9.7	—	$	—
$0.91	5,966,631	7.8	3,248,123		0.91
$1.38-$1.88	107,000	5.4	106,719		1.87
$2.21	485,297	8.3	201,911		2.21
$2.50-$3.50	65,000	3.2	65,000		2.58
$3.75-$4.84	68,500	5.2	68,500		4.00
$5.59-$9.41	420,984	8.5	317,988		5.62
$14.00	20,000	4.3	20,000		14.00

	7,313,412		4,028,241

The Company recorded deferred stock-based compensation amounting to nil for the year ended December 31, 2001 ($650,814 for the year ended December 31, 2000). Amortization of deferred stock-based compensation amounted to $162,704 for the year ended December 31, 2001 ($142,110 for the year ended December 31, 2000).

Had compensation expense for the Company's 1999 Stock Option Plan and the Series A convertible preferred share option issued to the then Chairman been determined based on the fair value at the grant dates for the awards under the plan consistent with the method under SFAS 123, "Accounting for Stock-Based Compensation", the Company's loss and loss per common share would have been reported as the pro forma amounts indicated in the table below. To determine the fair value of each option on the grant date in 1999, 2000 and 2001, the following assumptions were used for the Company's stock option plan: dividend yield of 0.0% for each period, zero volatility for each period as all options granted were granted while Tucows (Delaware) was a private company, a weighted average risk free interest rate of 5.5%, 6.5% and 6.6%, respectively, and a weighted average expected life of options of four years for each period; and the following assumptions were used for the Series A convertible preferred stock option issued to the Chairman: dividend yield of 0.0%, zero volatility, a weighted average risk free interest rate of 5.5% and a weighted average expected life of the option of two years. Pro forma information for the years is indicated as follows:

	Period from May 4, 1999 (commencement of operations) to December 31, 1999			Year ended December 31, 2000			Year ended December 31, 2001
Loss, as reported	$	(10,433,830	)	$	(37,729,776	)	$	(13,412,763	)
Loss, pro forma		(10,634,601	)		(38,191,648	)		(13,788,442	)
Loss per common share, as reported		(2.43	)		(8.79	)		(0.24	)
Loss per common share, pro forma		(2.48	)		(8.90	)		(0.25	)

F-20

9. Loss per common share:

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

		Period from May 4, 1999 (commencement of operations) to December 31, 1999			Year ended December 31, 2000			Year ended December 31, 2001
Numerator for basic and diluted loss per common share:
	Loss for the period	$	(10,433,830	)	$	(37,729,776	)	$	(13,412,763	)

Denominator for basic and diluted loss per common share:
	Weighted average common shares		4,291,500			4,291,500			56,152,735

Basic and diluted loss per common share		$	(2.43	)	$	(8.79	)	$	(0.24	)

Due to the loss for all periods presented, all potential common shares outstanding, being shares issued on exercise of options or on conversion of Series A convertible preferred stock, are considered anti-dilutive and are excluded from the calculation of diluted loss per common share.

10. Income taxes:

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

		Period from May 4, 1999 (commencement of operations) to December 31, 1999			Year ended December 31, 2000			Year ended December 31, 2001
Loss for the period		$	(10,433,830	)	$	(37,729,776	)	$	(13,412,763	)

Computed expected tax recovery		$	3,652,000		$	13,205,000		$	4,694,000
Reduction in income tax recovery resulting from:
	State income taxes		522,000			1,887,000			671,000
	Permanent differences		(430,000	)		(487,000	)		(1,903,000	)
	Change in beginning of the period balance of the valuation allowance allocated to income tax expense		(3,744,000	)		(14,605,000	)		(3,462,000	)

		$	—		$	—		$	—

F-21

The tax effects of temporary differences that give rise to significant portions of the future tax assets as of December 31, 2000 and 2001 are presented below:

		December 31, 2000			December 31, 2001
Future tax assets:
	Net operating loss carried forward	$	4,702,000		$	7,837,000
	Deferred revenue		3,158,000			4,032,000
	Amortization		10,489,000			9,942,000

	Total gross future tax assets		18,349,000			21,811,000
	Less valuation allowance		(18,349,000	)		(21,811,000	)

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, 2001, the Company had approximately $19,593,000 of losses available to reduce future years' taxable income which expire in various dates between 2006 and 2020.

11. Related party transactions:

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 provided for a $2,500,000 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, 2002. During the year, the Company paid interest and financing fees amounting to $256,667 to XDL Capital Corporation in connection with this note.

12. Commitments and contingencies:

(a) The Company has several non-cancellable 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:

2002	$	4,532,000
2003		2,637,000
2004		1,007,000
2005		64,000
2006		14,000

F-22

(b) The Company has been named as a co-defendant with other entities in the industry in two class action lawsuits filed in the Superior Court, County of Los Angeles, U.S.A. The lawsuits allege that the defendants are engaged in unfair competition under state laws because they are conducting an illegal lottery enterprise through the pre-registration of.biz generic top-level domains. The Company believes that the cases are without merit and has retained local counsel to represent the Company in the proceedings. The Company does not believe that it will be liable for any damages and, accordingly, has not accrued any amounts at December 31, 2001.

13. Supplemental information:

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

	Period from May 4, 1999 (commencement of operations) to December 31, 1999		Year ended December 31, 2000		Year ended December 31, 2001
	(in thousands)
Advertising	$	2,715	$	4,693	$	2,139
Domain name and ancillary services		96		9,629		27,772
Digital content distribution		23		118		60
Electric Library subscription		—		—		1,619

	$	2,834	$	14,440	$	31,590

(b) Valuation and qualifying accounts:

Description	Balance at beginning period		Charged to costs and expenses		Write-offs during period		Balance at end of period
Allowance for doubtful accounts
2001	$	248,500	$	51,984	$	23,885	$	276,579
2000		73,258		175,242		—		248,500
1999		—		73,258		—		73,258
Valuation allowance for deferred tax asset:
2001		18,349,000		3,462,000		—		21,811,000
2000		3,744,000		14,605,000		—		18,349,000
1999		—		3,744,000		—		3,744,000

14. Subsequent event:

On March 25, 2002, the Company entered into a definitive agreement to sell the business of Liberty RMS and certain software technology required to provide registry services, to Afilias, Limited. Under the agreement, consideration for this sale will comprise $1,000,000 in cash, contingent consideration of up to $1,000,000 based on certain future performance criteria and working capital adjustments. Completion of the sale is subject to standard closing arrangements.

F-23

FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN U.S. DOLLARS)

TUCOWS DIVISION

TUCOWS INTERACTIVE LIMITED

PERIOD FROM JANUARY 1, 1999

TO MAY 3, 1999

F-24

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Tucows Inc.

We have audited the statements of operations, comprehensive loss and cash flows of the Tucows Division of Tucows Interactive Limited for the period from January 1, 1999 to May 3, 1999. These financial statements are the responsibility of the Division's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of the Division's operations and its cash flows for the period from January 1, 1999 to May 3, 1999 in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Chartered Accountants
Toronto, Canada
June 9, 2000

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TUCOWS DIVISION OF
TUCOWS INTERACTIVE LIMITED

STATEMENT OF OPERATIONS

(DOLLAR AMOUNTS IN U.S. DOLLARS)

		PERIOD FROM JANUARY 1, 1999 TO MAY 3, 1999
Net revenues		$	746,258
Cost of revenues			57,868

Gross profit			688,390
Operating expenses:
	Sales and marketing		379,484
	Product development		289,877
	General and administrative		507,736
	Amortization		53,373

	Total operating expenses		1,230,470

Loss before provision for income taxes			(542,080	)
Provision for income taxes (recovery) (note 3)			(63,000	)

Net loss		$	(479,080	)

See accompanying notes to financial statements.

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TUCOWS DIVISION OF
TUCOWS INTERACTIVE LIMITED

STATEMENTS OF COMPREHENSIVE LOSS

(DOLLAR AMOUNTS IN U.S. DOLLARS)

	PERIOD FROM JANUARY 1, 1999 TO MAY 3, 1999
Net loss	$	(479,080	)
Change in cumulative translation adjustment		4,101

Comprehensive loss	$	(474,979	)

See accompanying notes to financial statements.

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TUCOWS DIVISION OF
TUCOWS INTERACTIVE LIMITED

STATEMENT OF CASH FLOWS

(DOLLAR AMOUNTS IN U.S. DOLLARS)

			PERIOD FROM JANUARY 1, 1999 TO MAY 3, 1999
Cash provided by (used in):
Operating activities:
	Net loss		$	(479,080	)
	Amortization of property and equipment			53,373
	Change in non-cash operating working capital:
		Accounts receivable		(8,009	)
		Prepaid expenses and deposits		(5,093	)
		Accounts payable and accrued liabilities		347,277
		Deferred revenue		89,339

	Net cash used in operating activities			(2,193	)
Financing activities:
	Capital lease repayments			(5,161	)
	Advances from head office			92,347

	Cash provided by financing activities			87,186
Investing activities:
	Purchase of property and equipment			(114,816	)

	Cash used in investing activities			(114,816	)

Effect of exchange rate changes on cash and cash equivalents				2,275

Decrease in cash and cash equivalents				(27,548	)
Cash, beginning of period				127,625

Cash, end of period			$	100,077

See accompanying notes to financial statements.

F-28

TUCOWS DIVISION OF
TUCOWS INTERACTIVE LIMITED

NOTES TO FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN U.S. DOLLARS)

These special purpose financial statements have been prepared with respect to the sale of certain of the business assets of the Tucows Division of Tucows Interactive Limited to Tucows Inc.

1. SIGNIFICANT ACCOUNTING POLICIES:

(a) Basis of presentation

These special purpose financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

The accompanying financial statements present the financial position and results of operations and cash flows of the Division as if such division had operated as a separate corporate entity unaffiliated with Tucows Interactive Limited. Accordingly, the results of operations reflect expenses common to all divisions of Tucows Interactive Limited allocated to the Division using a proportional cost allocation method. It is management's assertion that the proportional cost allocation method used is a practical and reasonable method of allocation of common expenses to all divisions of Tucows Interactive Limited. In addition, income taxes have been accounted for as if the Division was a separate taxable entity.

(b) Use of estimates

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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

(c) Property and equipment

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

ASSET	METHOD	RATE
Computer equipment	Declining balance	30%
Furniture and fixtures	Declining balance	20%
Computer software	Straight line	50%
Leasehold improvements	Straight line	Over term of lease

(d) Revenue recognition

The Division's revenues are derived from Internet domain name registration fees, advertising and the online sale of products. Amounts received in advance of meeting the revenue recognition criteria below are recorded as deferred revenue.

Registration fees charged to end-users for domain name registration services are recognized on a straight-line basis over the life of the registration period, which is typically one or two years. End-users typically pay for domain registrations with credit cards. A provision for chargebacks from credit card carriers is included in accounts payable and accrued liabilities and deducted from gross registration fees

F-29

in determining net revenues. Commissions earned by resellers on the sale of domain name registrations are deducted from gross registration fees in arriving at net revenues. Advertising revenues are primarily derived from short-term advertising agreements in which the Division 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. To the extent that minimum guaranteed impressions are not met, the Division defers recognition of the corresponding revenues until the guaranteed impressions are achieved.

The Division has agreements with vendors to digitally distribute their products over the Division's delivery network. Net revenue is derived by deducting royalties due to vendors from amounts billed to end-users, who typically pay for online product purchases with credit cards. Net revenue is recorded upon completion of the purchase and delivery of the product to the customer. To date, these revenues have not been significant.

(e) Translation of foreign currency transactions

Assets and liabilities of the Division have been translated from Canadian dollars (which is considered to be the measurement currency) into United States dollars (which is the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenue and expenses have been translated at the average rate for the period. Exchange gains and losses resulting from the translation into the reporting currency have been included as a separate component of Divisional equity.

(f) Product and development costs:

Product development costs are expensed as incurred. The Division 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. For the period ended May 3, 1999, the application of SOP 98-1 did not have a material impact on the financial statements.

The capitalized costs of computer software developed for internal use are amortized on a straight-line basis over one year.

(g) Income taxes

The Division's results have been included in the Canadian federal and provincial income tax returns of Tucows Interactive Limited. The income tax provision (recovery) included in the accompanying statements of operations is presented on an "as-if separate return" basis.

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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 of existing assets and liabilities and their respective tax bases operating loss carryforwards. Deferred tax assets and liabilities are using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be or settled. Under SFAS 109, the effect on deferred tax assets liabilities of a change in tax rates is recognized in the statement income in the period that includes the enactment date. A valuation is recorded if it is not "more likely than not" that some or all of a deferred tax asset will not be recognized.

(h) Concentration of credit risk

Financial instruments that potentially subject the Division to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. Cash equivalents consist of deposits with, or, by major commercial banks, the maturities of which are three or less from the date of purchase. With respect to accounts, management performs periodic credit evaluations of the condition of its customers and typically does not require from them. Management assesses the need for allowances for credit losses by considering the credit risk of specific, historical trends and other information.

(i) Fair values of financial assets and financial liabilities

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

2. DIVISIONAL EQUITY (DEFICIENCY):

The Division maintains its own cash accounts which are funded either from or through financing received from the head office of Tucows Limited. No provision for interest expense has been made for financing provided by Tucows Interactive Limited. The activity in the divisional equity (deficiency) be summarized as follows:

	PERIOD FROM JANUARY 1, 1999 TO MAY 3, 1999
Division equity, beginning of period	$	230,008
Loss for the period		(479,080	)
Net transactions with Tucows Interactive Limited head office		92,347
Change in cumulative translation adjustment		4,101

Divisional equity (deficiency), end of period	$	(152,624	)

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3. INCOME TAXES:

The provision for income taxes differs from the amount computed by applying the statutory income tax rate of 45% to the loss before provision for income taxes as a result of the following:

		PERIOD FROM JANUARY 1, 1999 TO MAY 3, 1999
Loss before income taxes		$	(542,080	)

Computed expected tax recovery		$	(244,000	)
Increase in income tax provision or reduction in recovery resulting from:
	Non-deductible expenses		7,000
Change in beginning of the period balance of the valuation allowance allocated to income tax expense			174,000

		$	(63,000	)

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 assets will not be realized. The ultimate realization of future tax is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Considers projected future taxable income, uncertainties to the industry in which the Division operates, and tax planning in making this assessment. Based upon the level of historical income and projections for future taxable income over the periods the future tax assets are deductible, management believes it is to record a full valuation allowance.

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EXHIBIT INDEX

Exhibit No.		Description
10.9		Lease between 707932 Ontario Limited and Tucows International Corporation, dated December 10, 1999
10.10		Lease between Pier North Associate and Tucows.Com, Inc., dated July 23, 2000
21.1		Subsidiaries of Tucows Inc.
23.1		Consent of KPMG LLP.

QuickLinks

TABLE OF CONTENTS
PART I

ITEM 1. BUSINESS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ITEM 6. SELECTED FINANCIAL DATA

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV
SIGNATURES
EXHIBIT INDEX

EXHIBIT 10.9
LEASE

TABLE OF CONTENTS

ARTICLE 1
   Leased Premises, Term and Acceptance of the Leased Premises
   Section 1.1   LEASED PREMISES.......................................................1
   Section 1.2   USE OF ADDITIONAL AREAS...............................................2
   Section 1.3   GRANT AND TERM........................................................2
   Section 1.4   CONSTRUCTION OF LEASED PREMISES.......................................2
ARTICLE 2
   Rent
   Section 2.1   COVENANT TO PAY.......................................................3
   Section 2.2   BASIC RENT............................................................4
   Section 2.3   ADVANCE RENT..........................................................4
   Section 2.4   SECURITY DEPOSIT......................................................4
   Section 2.5   FREE RENT.............................................................5
   Section 2.6   RENT PAST DUE.........................................................5
ARTICLE 3
   Taxes and Operating Costs
   Section 3.1   TAXES PAYABLE BY LANDLORD.............................................5
   Section 3.2   TAXES PAYABLE BY TENANT...............................................6
   Section 3.3   BUSINESS TAXES AND OTHER TAXES OF THE TENANT..........................6
   Section 3.4   TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS.......................6
   Section 3.5   PAYMENT OF TAXES AND OPERATING COSTS..................................6
ARTICLE 4
   Building - Control and Services
   Section 4.1   CONTROL OF THE BUILDING...............................................7
   Section 4.2   LANDLORD'S SERVICES...................................................7
   Section 4.3   PARKING...............................................................8
ARTICLE 5
   Utilities and Heating, Ventilating and Air Conditioning
   Section 5.1   CHARGES FOR UTILITIES.................................................9
   Section 5.2   HEATING, VENTILATING AND AIR CONDITIONING.............................10
ARTICLE 6
   Use of the Leased Premises
   Section 6.1   USE OF THE LEASED PREMISES............................................11
   Section 6.2   OBSERVANCE OF LAW.....................................................11
ARTICLE 7
   Insurance and Indemnity
   Section 7.1   TENANT'S INSURANCE....................................................12

   Section 7.2   INCREASE IN INSURANCE PREMIUMS........................................14
   Section 7.3   CANCELLATION OF INSURANCE.............................................15
   Section 7.4   LOSS OR DAMAGE........................................................15
   Section 7.5   LANDLORD'S INSURANCE..................................................16
   Section 7.6   INDEMNIFICATION OF THE LANDLORD.......................................16

ARTICLE 8
   Maintenance, Repairs and Alterations
   Section 8.1   MAINTENANCE AND REPAIRS BY THE LANDLORD...............................17
   Section 8.2   MAINTENANCE AND REPAIRS BY THE TENANT.................................17
   Section 8.3   LANDLORD'S APPROVAL OF THE TENANT'S REPAIRS...........................18
   Section 8.4   REMOVAL AND RESTORATION BY THE TENANT.................................19
   Section 8.5   TENANT TO DISCHARGE ALL LIENS.........................................19
   Section 8.6   SIGNS AND ADVERTISING.................................................20
   Section 8.7   MEZZANINE.............................................................20
ARTICLE 9
   Damage and Destruction
   Section 9.1   DESTRUCTION OF THE LEASED PREMISES....................................21
   Section 9.2   DESTRUCTION OF THE BUILDING...........................................22
   Section 9.3   EXPROPRIATION.........................................................22
ARTICLE 10
   Transfer and Sale
   Section 10.1  TRANSFER..............................................................23
   Section 10.2  ASSIGNMENT BY LANDLORD................................................25
   Section 10.3  OPTION TO RENEW.......................................................25
   Section 10.4  RIGHT OF REFUSAL......................................................26
ARTICLE II
   Access and Alterations
   Section 11.1  RIGHT OF ENTRY........................................................27
ARTICLE 12
   Status Statement, Attornment and Subordination
   Section 12.1  STATUS STATEMENT......................................................27
   Section 12.2  SUBORDINATION AND ATTORNMENT..........................................28
ARTICLE 13
   Default
   Section 13.1  RIGHT TO RE-ENTER.....................................................29
   Section 13.2  RIGHT TO RELET........................................................32
   Section 13.3  EXPENSES..............................................................32
   Section 13.4  WAIVER OF EXEMPTION FROM DISTRESS.....................................32
   Section 13.5  LANDLORD'S RIGHTS.....................................................33
   Section 13.6  REJECTION OF TENANT'S REPUDIATION.....................................34
   Section 13.7  NO CONDONING OF DEFAULT...............................................34
ARTICLE 14
   Miscellaneous
   Section 14.1  RULES AND REGULATIONS.................................................35

   Section 14.2  INTENT AND INTERPRETATION.............................................35
   Section 14.3  OVERHOLDING--NO TACIT RENEWAL.........................................36
   Section 14.4  TENANT PARTNERSHIP....................................................37
   Section 14.5  WAIVER................................................................37
   Section 14.6  ACCORD AND SATISFACTION...............................................37
   Section 14.7  FORCE MAJEURE.........................................................38
   Section 14.8  NOTICES...............................................................38
   Section 14.9  REGISTRATION..........................................................38
   Section 14.10 ACCRUAL OF BASIC RENT AND ADDITIONAL RENT.............................39
   Section 14.11 QUIET ENJOYMENT.......................................................39

SCHEDULE "A"
   LEGAL DESCRIPTION...................................................................40

SCHEDULE "B"
   FLOORPLAN...........................................................................41

SCHEDULE "C"
   LANDLORD'S WORK.....................................................................45

SCHEDULE "D"
   DEFINITIONS.........................................................................49

THIS LEASE is dated the 10th day of December, 1999.

B E T W E E N:

707932 ONTARIO LIMITED

("Landlord")

OF THE FIRST PART,

-and-

TUCOWS INTERNATIONAL CORPORATION

("Tenant")

OF THE SECOND PART.

ARTICLE I
LEASED PREMISES, TERM AND ACCEPTANCE
OF THE LEASED PREMISES

Section 1.1 LEASED PREMISES

The Landlord leases to the Tenant, and the Tenant leases from the Landlord, premises located on the ground floor of the Building municipally known as 78 Mowat Avenue, Toronto, Ontario, and shown in the approximate location outlined in red on the plan attached as Schedule "B". It is acknowledged and agreed that as of the date of this Lease, the Usable Area of the Leased Premises is Seventeen Thousand Three Hundred and Eighty-Three (17,383) square feet and the Rentable Area of the Leased Premises is Eighteen Thousand Four Hundred and Twenty-Six (18,426) square feet. The Tenant acknowledges that the municipal address of the Building may be changed and agrees to adjust all of the relevant agreements between the parties to reflect this change. If the Leased Premises are entirely self-enclosed, their boundaries extend (a) to the limits from which the Rentable Area of the Leased Premises is measured, and (b) from the top surface of the structural subfloor to the

bottom surface of the structural ceiling. If the Leased Premises have no structural ceiling abutting the demising walls and are open to the ceiling or the bottom surface of the structural ceiling of the Building, the boundaries of the Leased Premises extend from the top surface of the structural subfloor to the height of the demising walls. Common Areas and Facilities (including, but not limited to, columns and walls that form part of the Common Areas and Facilities) that are within the space enclosed by the boundaries of the Leased Premises, do not form part of the Leased Premises, although any floor space occupied by them is included in the Rentable Area of the Leased Premises.

Section 1.2 USE OF ADDITIONAL AREAS

The Tenant's use of the Leased Premises includes the non-exclusive right of the Tenant and persons having business with the Tenant in common with the Landlord and all others entitled, to the use of the Common Areas and Facilities.

Section 1.3 GRANT AND TERM

The Tenant shall, subject to the terms of this Lease, have and hold the Leased Premises during the Term, which is the period of five (5) years beginning on the date (the "Commencement Date") which is the earlier of:

(a) January 1, 2000; or

(b) the date on which the Tenant first begins to carry on business in the Leased Premises;

and shall extend to and include the last day of the month preceding the month in which occurs the fifth (5th) year anniversary of the Commencement Date. The Landlord acknowledges and agrees that the Tenant shall have access and use of the Leased Premises twenty-four (24) hours a day, seven(7) days a week throughout the Term of the Lease and any renewals thereof.

Section 1.4 CONSTRUCTION OF LEASED PREMISES

(a) The Landlord will complete the work designated as "Landlord's Work" in Schedule "C" attached to this Lease no later than January 1, 2000. The Tenant shall be granted joint access to the Leased Premises together with the Landlord's contractors prior to

the Commencement Date beginning October 1, 1999 for the purpose of constructing the Tenant's Leasehold Improvements in conjunction with the Landlord's Work being performed, as defined herein and preparing the Leased Premises for its intended use, and without material interruption from the Landlord or its contractor, free from Basic and Additional Rent until the Commencement Date. Notwithstanding the foregoing, the Tenant shall be responsible for all parking and utility charges during this Fixturing Period.

(b) The Tenant will examine the Leased Premises before taking possession and unless the Tenant furnishes the Landlord with written notice specifying any deficiencies or defects within ten (10) days after taking possession and ten
(10) days after completion of the Landlord's Work, the Tenant will be deemed to have examined the Leased Premises and to have agreed that they are in good order. There is no promise, representation or undertaking by or binding upon the Landlord with respect to any alteration, remodelling or redecorating of, or installation of equipment or fixtures in, the Leased Premises, unless expressly set forth in this Lease.

(c) If there is a delay which results in the Building or the Landlord's Work not being completed by January 1, 2000, the Commencement Date will be postponed by the number of days of the delay and this postponement will be the Tenant's sole remedy and further the Tenant shall and does hereby release the Landlord from all costs, expenses, claims, losses or damages suffered or incurred as a result of such delay whether or not caused, or to the extent contributed to, by the acts, omissions or negligence of the Landlord or those for whom it is at law responsible.

ARTICLE 2
RENT

Section 2.1 COVENANT TO PAY

The Tenant will pay Basic Rent and Additional Rent when due and payable as set out in this Lease and without any set-off, deduction, abatement or demand.

Section 2.2 BASIC RENT

The Tenant covenants and agrees to pay in equal consecutive monthly instalments, in advance on the first day of each calendar month of each Rental Year, to the Landlord, or as the Landlord may in writing direct, in lawful money of Canada, without any set off, compensation or deduction whatsoever, Basic Rent in each Lease Year comprised as follows:

                                Basic Rent Per Square Foot of
Year                          Rentable Area of Leased Premises
----                          --------------------------------
  1                                        $10.00
  2                                        $11.00
  3                                        $12.00
  4                                        $13.00
  5                                        $14.00

The Tenant shall deliver to the Landlord at the beginning of each year of the Term, a series of monthly post-dated cheques for such year of the Term for the aggregate of the monthly payments of Basic Rent and of any payments of Additional Rent established by the Landlord pursuant to this Lease and any other payments required by this Lease to be paid monthly in advance.

Section 2.3 ADVANCE RENT

The Landlord acknowledges receipt of Twenty-Five Thousand One Hundred and Forty-Seven Dollars ($25,147.00) (the "Advance Rent"), to be held without interest by the Landlord and applied on account of the Basic Rent and Additional Rent first falling due under this Lease.

Section 2.4 SECURITY DEPOSIT

The Landlord acknowledges receipt of Thirty-One Thousand Seven Hundred and Fifty-Three Dollars ($31,753.00) (the "Security Deposit"), to be held without interest by the Landlord throughout the Term, as security for the faithful performance by the Tenant of all of the terms, covenants and conditions of this Lease. The Security Deposit, or any part

thereof, may be applied by the Landlord to remedy any default of the Tenant pursuant to this Lease and, if the Tenant is not in default or in breach of any of the terms, covenants and conditions of this Lease, and provided the Leased Premises are left in the condition required pursuant to this Lease, then the balance of the Security Deposit, if any, shall be applied on account of the Basic Rent and Additional Rent payable during the last month of the Term. If at any time during the Term, the Security Deposit or any part thereof is applied by the Landlord to remedy any default pursuant to the Lease, then the Tenant shall, upon written demand of the Landlord, forthwith remit to the Landlord a sufficient amount to restore the Security Deposit to the original sum deposited.

Section 2.5 FREE RENT

The Tenant shall not be responsible for the payment of any Basic and Additional Rent for the first three (3) months of the original Term. The Tenant shall, however, be responsible for the payment of parking and utility charges as defined herein and shall abide by all other terms and conditions of the Lease.

Section 2.6 RENT PAST DUE

If the Tenant fails to pay any Rent when due, the unpaid amounts will bear interest from the due date to the date of payment at an annual rate of five (5) percentage points above the minimum lending rate charged to prime commercial borrowers current at that time charged by the Landlord's chartered bank, calculated per diem and compounded monthly.

ARTICLE 3
TAXES AND OPERATING COSTS

Section 3.1 TAXES PAYABLE BY LANDLORD

The Landlord will, subject to Sections 3.2 and 3.4 pay directly to the taxing authority all Taxes. The Landlord may, nevertheless, defer payment of Taxes to the fullest extent permitted by law, so long as it diligently prosecutes any contest or appeal of Taxes.

Section 3.2 TAXES PAYABLE BY TENANT

(a) The Tenant will pay to the Landlord, in accordance with Section 3.5, its Proportionate Share of all Taxes allocated by the Landlord, acting reasonably and equitably to the Building. If there is a separate tax bill and assessment for taxes for the Leased Premises, the Tenant will, if the Landlord requests, pay all taxes specified by that separate tax bill and assessment directly to the taxing authority and its Proportionate Share of Taxes allocated by the Landlord to the Common Areas and Facilities.

Section 3.3 BUSINESS TAXES AND OTHER TAXES OF THE TENANT

The Tenant will pay to the lawful taxing authorities or to the Landlord, as required by the relevant legislation, all business taxes, personal property taxes, licence fees or other similar rates and assessments levied or assessed against or in relation to the Tenant's business, assets, and improvements in the Leased Premises.

Section 3.4 TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS

The Tenant will pay, in accordance with Section 3.5, the Tenant's Proportionate Share of Operating Costs as defined in Schedule "D".

Section 3.5 PAYMENT OF TAXES AND OPERATING COSTS

(a) The amounts payable by the Tenant under Sections 3.2 and 3.4 may be estimated (and estimates may be revised) by the Landlord and the Tenant agrees to pay the Landlord the Tenant's Proportionate Share as estimated, in monthly instalments in advance, together with Basic Rent. Any amounts received by the Landlord during any Rental Year after the Tenant has paid its full share of Taxes for such Rental Year shall be credited against the Tenant's share of Taxes for the subsequent Rental Year.

(b) Within ninety (90) days after the end of the period for which the estimated payments have been made, the Landlord will determine and advise the Tenant of the exact amount of the Tenant's Proportionate Share of Taxes and Operating Costs and if necessary, an adjustment will be made between the parties within fifteen (15) days after the Tenant has been advised of the actual amounts.

(c) It is acknowledged and agreed that the 1999 Taxes and Operating Costs shall not exceed Three Dollars and Ninety-Eight Cents ($3.98) per square foot.

ARTICLE 4
BUILDING - CONTROL AND SERVICES

Section 4.1 CONTROL OF THE BUILDING

(a) The Landlord will operate and maintain the Building as would a prudent landlord of a similar building having regard to size, age and location.

(b) The Building is at all times subject to the exclusive control, management and operation of the Landlord. The Landlord, acting reasonably, has the right with respect to such control, management and operation to: (i) obstruct or close off all or any part of the Property for the purpose of maintenance, repair or construction; (ii) employ all personnel necessary for the operation and management of the Building; (iii) construct other improvements or buildings and make alterations, additions, subtractions or re-arrangements, build additional storeys and construct facilities adjoining or proximate to the Building. The Landlord will use its best efforts to provide the Tenant with reasonable prior notice of any exercise of such rights to the extent that it is in the Landlord's reasonable control.

(c) The Landlord is not subject to any liability, nor is the Tenant entitled to any compensation or abatement of Rent as a result of the Landlord's exercise of its rights conferred under Section 4.1 so long as the Landlord proceeds as expeditiously as possible to minimize interference with the Tenant's business.

Section 4.2 LANDLORD'S SERVICES

The Landlord will make water and electricity available in the normal quantities. If the Tenant's equipment requires utilities in excess of normal quantities, facilities to supply the excess quantities will, if available, be provided by the Landlord at the expense of the Tenant, with this expense payable as Additional Rent. Notwithstanding the

foregoing, the Landlord shall, at the Landlord's expense and subject to Schedule "C", furnish, install and maintain in good repair as of the Commencement Date and during the Term to the boundary line of the Leased Premises, all gas, water, telephone, electrical facilities, transformer and other utilities of such size and type as may be reasonably required to provide adequate service for the Leased Premises and only to the extent that the Landlord is required under Schedule "C". The Landlord shall advise the Tenant whenever reasonably possible to provide the Tenant an opportunity to have a representative present with the Landlord or its representatives or the utility representative at such time as the Landlord or its representatives or the utility representative may be accessing any locations where any utilities serving the Leased Premises may be connected. Regular meter readings to be excluded.

Section 4.3 PARKING

The Landlord shall provide fifteen (15) parking spaces at the rate of Fifty Dollars ($50.00) per space per month plus GST in Year One of the Term. The Tenant shall have the right to at least fifteen (15) parking spaces during each subsequent year of the Term and renewals thereof upon written notice to the Landlord. The parking rental rate throughout the remainder of the Term shall be determined by the Landlord, acting reasonably, and shall be based upon the costs of operating the parking facilities. Additional spaces shall be on an "availability basis". The location of the parking spaces shall be determined from time to time by the Landlord but shall be within the area bounded by King Street West, Mowat Avenue, Liberty Street and Dufferin Street. The Tenant acknowledges that all cars parked may be required to display parking permits provided by the Landlord and that the indemnification of the Landlord pursuant to this Lease shall extend to the parking areas and surrounding walkways. Should the Landlord implement a parking control card access system, the Tenant may be required to provide a deposit (plus GST) for each parking space; said deposit to be determined by the Landlord acting reasonably and to be returned to the Tenant, without interest, upon the surrender of the parking control card. The Landlord shall not be responsible for policing the parking areas and shall not be liable for any failure to provide parking if the spaces are occupied by persons not authorized to park there but shall respond to the Tenant's complaints, if any, and attempt to alleviate any problems that may exist. In addition to parking as described above, the Landlord shall provide for the Tenant's use ten (10) parking spaces on a month-to-month basis subject to availability at the initial rate of

Fifty Dollars ($50.00) per space per month plus GST for a minimum period of one
(1) year following the Commencement Date and thereafter, subject to availability.

ARTICLE 5
UTILITIES AND HEATING,
VENTILATING AND AIR CONDITIONING

Section 5.1 CHARGES FOR UTILITIES

(a) If there are separate meters (other than check meters installed pursuant to Section 5.1(d) for the Leased Premises), the Tenant will pay the cost of Utilities (as defined below) and all related charges directly to the Utility suppliers on the basis of the separate meters in a timely manner.

(b) If there are no separate meters for the Leased Premises, the Tenant will pay to the Landlord, or as the Landlord otherwise directs, as Additional Rent, the aggregate, without duplication, of all electricity, water, steam charges and other utility charges applicable to the Leased Premises on the basis of the Tenant's Proportionate Share of such utility charges together with an administration fee of fifteen percent (15%) of the cost of such Utilities (the "Utilities").

Charges for Utilities will be paid in equal monthly instalments in advance on the basis of an initial rate determined by the Landlord or its engineers. Upon receipt of any specific invoices from the Landlord, the Tenant shall remit the invoiced amount to the Landlord within five (5) business days of receipt of such invoice. If the public utility rate is increased or decreased during the Term, the charges will be equitably adjusted and the decision of the Landlord, acting reasonably, will be final. The Tenant will in addition pay for all costs of supplying Utilities to the Leased Premises after Normal Business Hours as determined by the Landlord or its engineers.

(c) The Tenant will have the obligation, at its sole expense, to attend to the replacement of electric light bulbs, tubes and ballasts in the Leased Premises throughout the Term.

(d) The Tenant shall pay for the cost of any metering which the Tenant requests the Landlord to install in the Leased Premises or the Building, or which the Landlord wishes to install in the Building, for the purpose of assisting in determining the consumption of any Utility (including electricity and water) in the Leased Premises.

Section 5.2 HEATING, VENTILATING AND AIR CONDITIONING

The Tenant will operate and regulate those portions of the heating, ventilating, and air conditioning equipment within and serving the Leased Premises so as to maintain such reasonable conditions of temperature and humidity within the Leased Premises as are determined by the Landlord and its Architect and engineers so that no direct or indirect appropriation of the heating, ventilating and air conditioning from the other portions of the Building occurs. The Tenant shall comply with such stipulations and with all Rules and Regulations of the Landlord pertaining to the operation and regulation of such equipment. The Tenant shall immediately notify the Landlord in the event that any repairs are required to the heating, ventilating and air conditioning equipment serving the Leased Premises and shall reimburse the Landlord as part of its Proportionate Share of Operating Costs for the cost of any maintenance, repairs or replacements made by the Landlord in respect of the heating, ventilating and air conditioning equipment serving the Leased Premises. The Landlord acknowledges that the Tenant shall not be responsible for the cost of capital repairs and capital replacements in respect of the heating, ventilating and air conditioning equipment serving the Leased Premises provided that such capital repairs and capital replacements are not necessitated by the Tenant's incorrect or negligent use of equipment. The Tenant shall not under any circumstances go onto the roof of the Building or make any maintenance repairs or replacements to the heating, ventilating and air conditioning systems in the Building without the prior written consent of the Landlord. If the Tenant fails to comply with such stipulations and Rules and Regulations, the Landlord shall be entitled to take such steps as it deems advisable to correct such defaults (including, without limitation, entering upon the Leased Premises and assuming control of such equipment) without liability to the

Tenant, and the Tenant will pay to the Landlord forthwith upon demand as Additional Rent all costs and expenses incurred by the Landlord in so doing. The Landlord represents and warrants to the Tenant that the heating, ventilating and air conditioning equipment serving the Leased Premises and required to be installed by the Landlord pursuant to Schedule "C" is and will be at the Commencement Date in good working order and condition.

ARTICLE 6
USE OF THE LEASED PREMISES

Section 6.1 USE OF THE LEASED PREMISES

The Leased Premises will be used solely for general office space from which the Tenant will carry on the business of digital distribution and commerce and for no other purpose. The Tenant covenants that the use set out herein shall, on the date possession of the Leased Premises is delivered to the Tenant, comply with all applicable zoning and building by-laws.

Section 6.2 OBSERVANCE OF LAW

The Tenant will, at its expense, and subject to Section 8.3:

(a) except with respect to anything contemplated under the Landlord's Work, comply with all provisions of law and other requirements of all governmental bodies which pertain to or affect the Leased Premises or require or govern the making of any repairs, alterations or other changes of or to the Leased Premises or the Tenant's use of it;

(b) obtain all necessary permits, licences and approvals relating to the use of the Leased Premises and the conduct of business therein, including, without limitation, those required under the Business Corporations Act (Ontario) and the Investment Canada Act; and

(c) co-operate with the Landlord in, and comply with the Landlord's request and with all laws and orders relating to the conservation energy serving the Building.

ARTICLE 7
INSURANCE AND INDEMNITY

Section 7.1 TENANT'S INSURANCE

(a) The Tenant will, at its expense, maintain in the names of the Tenant, the Landlord and the Mortgagee as their respective interests may appear, the following insurance:

(i) "All Risks of Direct Physical Loss or Damage" insurance including flood and earthquake coverage, sprinkler leakages and water damages of any kind, in an amount equal to the full replacement cost of property of every description and kind owned by the Tenant, or for which the Tenant is legally liable, or installed by or on behalf of the Tenant, and which is located within or on the Building or the Real Property, including, without limitation, the Tenant's inventory and stock-in-trade, leasehold improvements, furniture and fixtures, plate glass, store front and such other property either forming part of the Leased Premises (not being property which the Landlord is bound to insure) and including additional perils supplementary contract including sprinkler leakages and water damage of any kind;

(ii) Business interruption insurance including rental income coverage in such amount and for such risks as would be carried by prudent tenants, but at least against the perils set out in Section 7.1(a)(i) above;

(iii) Comprehensive General Liability Insurance, to include personal injury liability, contractual liability, employers' liability, non-owned automobile liability and owners' and contractors' protective insurance coverage. The policies will (1) be written on a comprehensive basis with inclusive limits of not less than $5,000,000.00 for bodily injury to any one or more Persons, or property damage, and such higher limits as the Landlord, acting reasonably, or the Mortgagee requires from time to time; and (2) contain a severability of interests and cross-liability clauses;

(iv) Tenant's "all risks" legal liability insurance for the full replacement cost value of the Leased Premises;

(v) any other forms of insurance as the Landlord, acting reasonably, or the Mortgagee requires from time to time.

(b) The Tenant's policies will:

(i) where applicable, contain the Mortgagee's standard mortgage clause and contain a waiver of subrogation rights which the Tenant's insurers may have against the Landlord and those for whom the Landlord is in law responsible, whether the damage is caused by the act, omission or negligence of the Landlord or those for whom the Landlord is in law responsible;

(ii) be taken out with insurers reasonably acceptable to the Landlord and in a form reasonably satisfactory to the Landlord;

(iii) be non-contributing with and apply only as primary and not as excess to any other insurance available to the Landlord;

(iv) not be invalidated as respects the interests of the Landlord and the Mortgagee by reason of any breach or violation of any warranties, representations, declarations or conditions contained in the policies; and

(v) contain an undertaking by the insurers to notify the Landlord and the Mortgagee in writing not less than thirty (30) days prior to any material change, cancellation or termination.

The Tenant agrees that certificates of insurance in a form acceptable to the Landlord or copies of its policies, if requested, will be delivered to the Landlord within thirty (30) days after the placing of the required insurance.

(c) If there is damage or destruction to the leasehold improvements in the Leased Premises, the Tenant will use the insurance proceeds for the sole purpose of repairing or restoring them. If there is damage to or destruction of the Building entitling the Landlord to terminate this Lease under Section 9.2, then, if the Leased Premises have also been damaged or destroyed, the Tenant will pay the Landlord all of its insurance proceeds relating to the leasehold improvements (other than furniture, equipment and similar items) less the unamortized value of any leasehold improvements which have been installed at the Tenant's sole expense.

Section 7.2 INCREASE IN INSURANCE PREMIUMS

If, other than the permitted use of the Leased Premises as set forth in this Lease, (a) the occupancy of the Leased Premises; (b) the conduct of business in the Leased Premises; or (c) any acts or omissions of the Tenant in the Leased Premises or in any other part of the Building, results in any increase in premiums for the insurance carried by the Landlord with respect to any part of the Building, the Tenant will pay the increase in premiums within five (5) days after invoices for additional premiums are rendered by the Landlord.

Section 7.3 CANCELLATION OF INSURANCE

If any insurance policy in respect of any part of the Building is cancelled or threatened by the insurer to be cancelled, or the coverage reduced by the insurer by reason of the use and occupation of the Leased Premises except for the permitted use as set forth in this Lease and if the Tenant fails to remedy the condition giving rise to cancellation, threatened cancellation or reduction of coverage within seventy-two (72) hours after notice by the Landlord, the Landlord may, at its option, either (a) exercise its rights of re-entry including termination under Article 13, or (b) at the Tenant's expense, enter upon the Leased Premises and remedy the condition giving rise to the cancellation, threatened cancellation or reduction.

Section 7.4 LOSS OR DAMAGE

The Landlord is not liable for any death or personal or consequential injury of any nature whatsoever that may be suffered or sustained by the Tenant or any employee, agent or customer of the Tenant or any other person who may be upon the Leased Premises or for any loss of or damage or injury to any property belonging to the Tenant or to its employees or to any other person which such property is on the Leased Premises, unless any such death, injury, loss or damage results from the wilful negligence of the Landlord, its agents, servants or employees or others for whom the Landlord may be in law responsible and, in particular (but subject to and without limiting the generality of the foregoing) the Landlord shall not be liable for any damage or damages of any nature whatsoever to any such property caused by reason of a breakdown or other failure to supply adequate drainage, snow or ice removal, or by reason of the interruption of any public utility or service or in the event of steam, water, rain or snow which may leak into, issue, or flow from any part of the Real Property or from the water, steam, sprinkler, or drainage pipes or plumbing works of the same, or from any other place or for any damage caused by anything done or omitted by any tenant, nor shall the Tenant be entitled to any abatement of Rent in respect of any such condition, failure or interruption of service. The Landlord shall use all reasonable diligence to remedy such condition, failure or interruption of service, after notice of same, when it is within its power and obligation so to do. The Landlord acknowledges that the uninterrupted supply of utilities to the Leased Premises is critical for the Tenant's business and that the Landlord will also use all reasonable efforts to avoid causing any interruption of such supply to the Leased Premises.

Section 7.5 LANDLORD'S INSURANCE

The Landlord shall at all times throughout the Term carry insurance on the Building considered advisable by the Landlord and its Mortgagee and as would be carried by a prudent owner of a similar building. Notwithstanding the Landlord's covenant and the Tenant's contribution to the cost of the Landlord's insurance premiums, the Tenant has no right to receive proceeds from the Landlord's insurance policies. The Landlord agrees that all insurance carried by it on the Building or any part thereof shall contain a waiver of subrogation, if available from the Landlord's insurer, by the insurer against the Tenant and against those for whom the Tenant is in law responsible. The Tenant agrees that it shall be responsible for the additional cost, if any, of obtaining the waiver of subrogation subject to the Tenant's right to decline to pay such amount within five (5) days following notice from the Landlord in which case the Landlord shall not be obliged to obtain such waiver in respect of such insurance policy.

Section 7.6 INDEMNIFICATION OF THE LANDLORD

The Tenant will indemnify the Landlord and save it harmless from and against all loss (including loss of rentals), claims, actions, damages, costs, liability and expense in connection with loss of life, personal injury, damage to property (including and improvements) or any other loss or injury arising from or out of this Lease, or any occurrence in the Building, or the Tenant's occupancy of the Leased Premises or the Building, or occasioned wholly or in part by any act or omission of the Tenant or by anyone permitted to be on the Leased Premises or the Building by the Tenant unless due to the wilful negligence of the Landlord or those for whom in law it is responsible. If the Landlord is, without fault on its part, made a party to any litigation commenced by or against the Tenant, then the Tenant will protect, indemnify and hold the Landlord harmless and pay all expenses and reasonable legal fees incurred or paid by the Landlord in connection with the litigation. The Tenant will also pay all costs and legal fees (on a solicitor and his client basis) that may be incurred or paid by the Landlord in enforcing the terms, covenants and conditions in this Lease.

ARTICLE 8
MAINTENANCE, REPAIRS AND ALTERATIONS

Section 8.1 MAINTENANCE AND REPAIRS BY THE LANDLORD

The Landlord will maintain and repair the structure of the Building, including, without limitation, the foundations, exterior wall assemblies including weather walls, subfloor, roof, bearing walls, and structural columns and beams of the Building and the mechanical, electrical, heating, ventilating and air conditioning systems and other base building systems of the Building, as would a prudent owner of a similar building. The cost of this (except for repairs or maintenance of inherent structural defects or weaknesses and except for the Landlord's Work and costs of a capital nature) will be included in Operating Costs. However, if the Landlord is required, due to the business carried on by the Tenant, to make structural repairs or replacements by reason of the application of laws, ordinances or other regulations of any governmental body after the Commencement Date, or by reason of any act, omission or default of the Tenant or those for whom the Tenant is in law responsible, then the Tenant will be liable for the total cost of those repairs or replacements plus fifteen percent (15%) of the total cost representing the Landlord's overhead.

Section 8.2 MAINTENANCE AND REPAIRS BY THE TENANT

(a) The Tenant will at all times, at its expense, maintain the whole of the Leased Premises including without limitation, electrical, lighting, wiring, plumbing fixtures and equipment within or exclusively serving the Leased Premises as would a prudent owner of similar Leased Premises having regard to size, age and location of the building, and the Tenant will make all needed repairs and replacements with due diligence and dispatch. The Tenant will provide its own janitorial services within the Leased Premises, at its sole cost and expense. Notwithstanding anything contained in this Lease, if any such repairs or replacements to the Leased Premises or to any Leasehold Improvements installed by or on behalf of the Tenant in the Leased Premises, affect the Structure of the Building, such work shall be performed only by the Landlord at the Tenant's sole cost and expense. Upon completion thereof, the Tenant shall pay to the Landlord, as Additional Rent within five (5) days after demand, both the Landlord's costs relating to such repairs or replacements including the fees of any architectural and engineering consultants plus a sum equal to fifteen

percent (15%) of the total cost hereof representing the Landlord's overhead and administrative costs.

(b) The Tenant will pay for the cost of replacement of glass broken on the Leased Premises including outside windows and doors of the perimeter of the Leased Premises.

(c) At the expiration or earlier end of the Term, the Tenant will surrender the Leased Premises to the Landlord in as good a condition as the Tenant is required to maintain them throughout the Term.

Section 8.3 LANDLORD'S APPROVAL OF THE TENANT'S REPAIRS

The Tenant will not make any repairs, alterations, replacements, decorations or improvements ("Alterations") to any part of the Leased Premises without first obtaining the Landlord's written approval. Subject to the foregoing, the Tenant may at any time and from time to time, at its sole expense, paint and decorate the interior of the Leased Premises as will, in the judgement of the Tenant, better adapt the Leased Premises for the purpose of its business; provided, however, that no changes, alterations, additions or improvements to the structure, any perimeter wall, the windows, the sprinkler system, the heating, ventilating, air conditioning, plumbing, electrical or mechanical equipment or the floor or the ceiling shall be made without the prior written consent of the Landlord and also provided that the Tenant will not, under any circumstance whatsoever, paint or cover any "sandblasted" wood or brick surfaces. All changes, alterations, additions and improvements, whether structural or otherwise, shall comply with all applicable statutes, regulations or by-laws of any municipal, provincial or other governmental authority. The Tenant shall pay to the Landlord the amount of the increase for any insurance coverage and/or municipal realty taxes to the extent that such increase is directly attributable to any action by the Tenant under this Article, and the Tenant covenants that such insurance shall not thereby be made liable to avoidance or cancellation by the insurer by reason of such changes, alterations, additions or improvements.

Any Alterations made by the Tenant without the prior consent of the Landlord or not made in accordance with the specifications approved by the Landlord will, if requested by the Landlord, be promptly removed by the Tenant at the Tenant's expense.

If, however, the proposed Alterations or any of them affect the structure or any of the electrical, mechanical or other base building systems of any part of the Building, the Alterations (or the appropriate portion of them) will be performed only by the Landlord, at the Tenant's expense, plus fifteen percent (15%) of the total cost representing the Landlord's overhead.

Section 8.4 REMOVAL AND RESTORATION BY THE TENANT

(a) All alterations, decorations, additions and improvements made by the Tenant, or made by the Landlord on the Tenant's behalf (other than the Tenant's trade fixtures) immediately become the property of the Landlord upon affixation or installation and will not be removed from the Leased Premises at any time unless permitted by the Landlord. Without limiting the generality of the foregoing, the Tenant acknowledges that all leasehold improvements including flooring, electrical fixtures, cupboards, hardware and any other fixture or improvement which the Landlord may provide with the Leased Premises, is the exclusive property of the Landlord and shall be maintained by the Tenant in the same manner as would a careful owner and shall be preserved and left intact by the Tenant at the expiration or earlier termination of the Term. The Tenant will, at the expiration, at its cost, remove all of its trade fixtures , and leave the Leased Premises in a broomswept and tidy condition.

(b) If the Tenant does not remove its trade fixtures at the end of the Term, the trade fixtures will, at the Landlord's option become the property of the Landlord and may be removed from the Leased Premises and sold or disposed of any the Landlord in such manner as it deems advisable.

Section 8.5 TENANT TO DISCHARGE ALL LIENS

If any construction or similar lien or encumbrances is made, filed or registered against title to the Building (or part of it) or against the Tenant's leasehold interest, as a result of any work, materials or services supplied or performed by or on behalf of the Tenant or otherwise in respect of the Leased Premises, the Tenant will immediately discharge it at the Tenant's expense. If the Tenant fails to discharge the lien within ten (10) business days after it is registered, then, in addition to any other right or remedy of the Landlord, the

Landlord may elect to discharge the lien by paying the amount claimed to be due, and any additional amounts as may be required at law or otherwise, into Court or directly to the lien claimant and the amount paid by the Landlord and all costs and expenses including all solicitor's fees incurred as a result of the lien including without limitation procuring its discharge plus interest at the rate of three (3) percentage points will be immediately paid by the Tenant to the Landlord.

Section 8.6 SIGNS AND ADVERTISING

The Tenant will not place or permit any notice, lettering or other signage on any part of the outside of the Building or in the interior of the Leased Premises which is visible from the outside of the Building or the Leased Premises without the Landlord's prior written consent, which consent may be unreasonably withheld. Notwithstanding the foregoing, subject to approval which may not be unreasonably withheld in respect of the first sign affixed pursuant to this Section 8.6, the Tenant may affix a single sign on the exterior of the Building with maximum dimensions of ten (10) feet by ten (10) feet or a single sign with a maximum diameter of ten (10) feet above the entrance of the Leased Premises. The modifications or replacements of the first sign. At the expiration of this Lease, the Tenant will remove all signs, pictures, advertisements, notices, or letterings from the Leased Premises at the Tenant ' s expense and will promptly repair all damages caused by its installation and removal.

Section 8.7 MEZZANINE

The Tenant acknowledges that if it elects to erect a mezzanine at any time during the Term or the renewal hereof within the Leased Premises, the Rentable Area of the Leased Premises shall be amended to include the area of the mezzanine. The Tenant further acknowledges that the Landlord shall have the option, but will not be obligated, to construct a mezzanine at the Tenant's sole cost plus administration fees.

ARTICLE 9
DAMAGE AND DESTRUCTION

Section 9.1 DESTRUCTION OF THE LEASED PREMISES

(a) If the Leased Premises are destroyed or damaged as a result of fire or other casualty, then if:

(i) the Leased Premises are rendered wholly or partially untenantable, this Lease will continue in effect and the Landlord will commence diligently to restore the Leased Premises to the extent only of the Landlord's Work set out in the Schedule attached as Schedule "C", and only Basic Rent (but not Additional Rent) will abate entirely or proportionately, as the case may be, to the portion of the Leased Premises rendered untenantable from the date of the destruction or damage until the Landlord has completed its restoration work; or

(ii) the Leased Premises are not rendered untenantable in whole or in part, this Lease will continue in effect, the Rent and other amounts payable by the Tenant will not abate and the Landlord will commence diligently to restore the Leased Premises to the extent required by this Section 9.1(a).

(b) Notwithstanding Section 9.1(a), if the Leased Premises are damaged or destroyed by any cause whatsoever, and if, in the opinion of the Landlord reasonably arrived at, the Leased Premises cannot be rebuilt or made fit for the purposes of the Tenant within ninety (90) days of the damage or destruction, the Landlord, instead of rebuilding or making the Leased Premises fit for the Tenant in accordance with Section 9.1(a) may, at its option, or the Tenant at its option may, elect to terminate this Lease by giving the Tenant or the Landlord, as the case may be, within thirty (30) days after the damage or destruction, notice of termination, and thereupon Rent will be apportioned and paid to the date of damage or destruction.

(c) Once the Landlord has substantially completed its restoration work the Landlord will forthwith notify the Tenant to that effect and, the Tenant will complete all

work required to fully restore the Leased Premises for business. Nothing in this
Section 9.1 requires the Landlord to rebuild the Leased Premises in the condition and state that existed before the damage, but the Leased Premises, as rebuilt, will have reasonably similar facilities and services to those in the Leased Premises prior to the damage.

Section 9.2 DESTRUCTION OF THE BUILDING

(a) Notwithstanding Section 9.1, if twenty-five percent (25%) or more of the total Rentable Area of the Building is damaged or destroyed (irrespective of whether the Leased Premises are damaged or destroyed) and if, in the opinion of the Landlord reasonably arrived at, the damaged or destroyed parts of the Building cannot be rebuilt or made fit for the purposes of the respective tenants of the space within ninety (90) days of the damage or destruction, then, the Landlord or the Tenant may, at its option (to be exercised by written notice to the Tenant or the Landlord, as the case may be, within sixty (60) days following the occurrence), elect to terminate this Lease sixty (60) days following such notice. All Rent will be payable without reduction or abatement subsequent to the destruction or damage and until the date of termination, unless the Leased Premises has been destroyed or damaged as well, in which event
Section 9.1 will apply.

(b) If any part of the Building is destroyed or damaged and the Landlord does not elect to terminate this Lease, the Landlord will commence diligently to restore the Building, but only to the extent of the Landlord's responsibilities pursuant to the terms of the various leases for the premises in the Building, and exclusive of any tenant's responsibilities set out therein. If the Landlord elects to restore the Building, the Landlord may restore according to plans and specifications and working drawings other than those used in the original construction of the Building.

Section 9.3 EXPROPRIATION

Both the Landlord and the Tenant agree to co-operate with the other regarding an expropriation of the Leased Premises or the Building or any part thereof, so that each may receive the maximum award to which they are respectively entitled at law. To the extent that any portion of the Building other than the Leased Premises is expropriated, then, the full proceeds accruing or awarded as a result will belong to the Landlord and the Tenant

will abandon or assign to the Landlord any rights which the Tenant may have or acquire by operation of law to those proceeds or awards and will execute all such documents as in the opinion of the Landlord are necessary to give effect to this intention.

ARTICLE 10
TRANSFER AND SALE

Section 10.1 TRANSFER

Despite any statutory provisions to the contrary, the Tenant shall have the right at any time or times during the Term to sublet or assign the Leased Premises or the Lease, as the case may be, in whole or in part subject to the Landlord's consent in writing which consent shall not be unreasonably withheld or delayed; provided, however, such consent to sublet or assign shall not relieve the Tenant from its obligations to pay rent and to fully observe and perform the Tenant's covenants according to the terms of this Lease unless it is specifically so agreed by the Landlord who shall be under no obligation whatsoever to agree to any request by the Tenant for release from its covenants and obligations. It will not be deemed unreasonable for the Landlord to consider any or all of the following factors before granting or withholding its consent:

(a) any covenants made by the Landlord with other tenants or proposed tenants of the Building;

(b) the financial background, status and business history of the proposed subtenant or assignee;

(c) whether the subtenant or assignee is at that time a tenant or occupant in the Building; (d) whether the subtenant or assignee is proposing to change in any way the use to which the Leased Premises will be put. No such consent to an

assignment or sublease shall be valid unless within ten (10) days after the execution thereof, the Tenant shall deliver to the Landlord:

i) a true copy of such assignment duly executed by the Tenant which must disclose any and all monetary payments or other consideration made or to be made;

ii) an instrument, in form satisfactory to the Landlord but in accordance with the provisions of the Lease, in the case of an assignment, duly executed by the assignee wherein such assignee shall assume the Tenant's obligations pursuant to this Lease and, in the case of a sublease, duly executed by the subtenant wherein such subtenant agrees not to do anything which would result in a breach by the Tenant of its obligations under this Lease;

iii) payment of the sum of $1,000.00 to the Landlord on account of the Landlord's legal and other expenses incurred in connection with the sublease or assignment;

iv) in the event of any subletting by the Tenant by virtue of which the Tenant receives a rental in the form of cash, goods, services or other consideration from the subtenant which is higher than the rental payable hereunder to the Landlord, the Tenant shall pay to the Landlord seventy-five percent (75%) of any such excess to the Landlord in addition to all rentals and other costs payable hereunder, and such excess for the period of time during which the said Subtenant remains in possession of the premises sublet to it. If the Tenant herein shall receive from any assignee of the Lease, either directly or indirectly, any consideration for the assignment of the Lease, either in the form of cash, goods, or services, the Tenant shall forthwith pay to the Landlord an amount equivalent to seventy-five percent (75%) of any such consideration. In determining whether the Tenant receives from the subtenant a rental which is higher than the rental payable hereunder to the Landlord or a consideration for

the assignment of the Lease, there shall be deducted from any excess rental or consideration otherwise determined any reasonable costs or expenses of the Tenant in completing the subletting or assignment transaction and any costs or expenses incurred by the Tenant in performing the Tenant' s Work and the unamortized costs and expenses of any other leasehold improvements paid for by the Tenant. All costs must have third party paid invoices or other reasonable evidence thereof presented to the Landlord before any deduction is permitted.

Notwithstanding the foregoing or anything else contained herein, the Landlord acknowledges and agrees that the Tenant (when it is not materially in default) may, from time to time, without the Landlord's consent but upon prior written notice to the Landlord assign the Lease and/or sublease all or part of the Leased Premises to: (a) an affiliate or associate (as defined in the Business CORPORATIONS ACT (Ontario), of Tucows International Corporation; (b) a corporation with which the Tenant amalgamates as part of a bona fide corporate reorganization of the Tenant; or (c) a bona fide lender to the Tenant or affiliate of the Tenant. Provided that in each instance, the Tenant and the Assignee or Sublessee shall otherwise comply with the provisions of clauses
10.1(i) (excluding particulars of monetary or other consideration) and 10.1(ii) above.

Section 10.2 ASSIGNMENT BY LANDLORD

If there is a sale, lease or other disposition by the Landlord of the Building or any part thereof, or the assignment by the Landlord of this Lease or any interest of the Landlord hereunder, and to the extent that the purchaser or assignee assumes the covenants and obligations of the Landlord hereunder, the Landlord will, thereupon and without further agreement, be relieved of all further liability with respect to its covenants and obligations.

Section 10.3 OPTION TO RENEW

If the Tenant:

1) is not then in material default under the Lease; and

2) gives the Landlord not less than nine (9) and not more than twelve (12) months' written notice prior to the expiration of the initial Term of the Tenant's intention to renew the Term;

then the Tenant shall have the right to renew the Term of this Lease upon the expiry of the initial Term for a period of five (5) years on the same terms and conditions as set out in the initial term except that:

i) there shall be no further right to renew;

ii) the Landlord shall have no obligation to pay to the Tenant any Tenant's allowance or do or perform any Landlord's Work in, on, to or for the Leased Premises; and

iii) the Basic Rent payable by the Tenant to the Landlord shall be the fair market rental for the Leased Premises at such time but in no event shall it be less than the annual Basic Rent payable during the last year of the original Term.

All other payments upon the part of the Tenant to be made in this Lease shall continue to be made during such renewal Term. In the event that the Landlord and the Tenant do not reach agreement on the rental to be paid for the renewal Term within three (3) months from the date of the notice from the Tenant, the option to renew shall be null and void.

Section 10.4 RIGHT OF REFUSAL

At any time during the Term or renewal thereof, the Tenant shall be entitled to give notice to the Landlord in writing that it requires additional space. From the date of receipt of such notice until the earlier of:

(a) the Tenant withdrawing such notice; or

(b) the expiration of the Term (including the renewal period, if exercised), the Tenant shall have the option to rent space in the Building. The Landlord shall notify the Tenant in writing when space will be vacant and the Tenant shall advise the Landlord in writing within five (5) business days after receipt of the Landlord's notice, whether it wishes to rent said space. If the Tenant fails to advise the Landlord in writing within five (5) business days then the Tenant's right of refusal shall be null and void. The Tenant shall be entitled to rent additional space on the same terms and conditions as this Lease including rights of renewal and Rent.

ARTICLE 11
ACCESS AND ALTERNATIONS

Section 11.1 RIGHT OF ENTRY

The Landlord and its agents have the right to enter the Leased Premises at all reasonable times upon reasonable prior notice, where possible, (except in the event of an emergency, when the Landlord can enter at any time and excluding regular periodic service and maintenance of equipment located within the Leased Premises contracted for by the Landlord and for which the Landlord receives no advance notice) to show them to prospective purchasers, lessees or mortgagees, and to examine them and make repairs, alterations or changes to the Leased Premises or the Building as the Landlord considers necessary including, without limitation, repairs, alterations or changes to the pipes, conduits, wiring, ducts and other installations in the Leased Premises where necessary to serve another part of the Building. For that purpose, the Landlord may take all required material into the Leased Premises and may have access to the ducts and access panels to mechanical shafts and the Landlord has the right to check, calibrate, adjust and balance controls and other parts of the heating, ventilating and air conditioning. The Rent will not abate while any repairs, alterations or changes are being made due to loss or interruption of the business of the Tenant or otherwise, and the Landlord will not be liable for any damage, injury or death caused to any Person, or to the property of the Tenant or of others located on the Leased Premises as a result of the entry provided that in all such events the Landlord takes reasonable steps to minimize the disruption to the Tenant's business in the Leased Premises.

ARTICLE 12
STATUS STATEMENT, ATTORNMENT AND SUBORDINATION

Section 12.1 STATUS STATEMENT

Within ten (10) days after written request by the Landlord, the Tenant will deliver in a form supplied by the Landlord, a status statement or a certificate to any proposed purchaser, assignee, lessor or mortgagee, or to the Landlord, which will contain such

acknowledgements and information, to the best of the Tenant's knowledge and belief, as is customarily called for in status statements and estoppel certificates delivered in conjunction with commercial tenancies.

Section 12.2 SUBORDINATION AND ATTORNMENT

(a) The Landlord shall use its reasonable and best efforts to obtain a non-disturbance agreement in favour of the Tenant from the holder of any Encumbrance on the Building in the Encumbrancer's usual form. Subject to the Tenant receiving a non-disturbance agreement referred to in the first sentence of this Section 12.2 from the holder of the Encumbrance, this Lease and the Tenant's rights hereunder are, and will at all times be, subordinate to all ground or underlying leases, mortgages, trust deeds or the charge or lien resulting from, or any instruments of, any financing, refinancing or collateral financing (collectively, an "Encumbrance") or any renewals or extensions thereof from time to time in existence against the Building or any part thereof. Upon request, the Tenant will subordinate this Lease in such form as the Landlord requires to any Encumbrance and, if requested, the Tenant will attorn to the holder of the Encumbrance so long as in each case the Encumbrancer enters into a non-disturbance agreement as referred to in the first sentence of this Section
12.2 (a) in favour of the Tenant. The Tenant agrees that it shall be responsible for the Encumbrancer's reasonable costs of obtaining a non-disturbance agreement, if any.

(b) The Tenant will, so long as the Encumbrancer enters into a non-disturbance agreement as referred to in the first sentence of this Section
12.2 (a) in favour of the Tenant, if possession is taken under, or any proceedings are brought for possession under or the foreclosure of, or in the event of the exercise of the power of sale under any Encumbrance, attorn to the Encumbrancer or the purchaser upon any such foreclosure, sale or other proceeding and recognize the Encumbrancer or the purchaser as the Landlord under this Lease.

ARTICLE 13
DEFAULT

Section 13.1 RIGHT TO RE-ENTER

(a) An "Event of Default" occurs whenever:

(i) any Rent is not paid when due and payable and the non-payment continues for five (5) days after written notice to the Tenant
(but if any Rent is not paid when due and payable on two (2) occasions (whether or not such non-payment becomes an Event of Default), any such non-payment shall thereafter immediately and without notice constitute an Event of Default if not paid when due and payable);

(ii) the Tenant fails to observe or perform any other of the terms, covenants or conditions of this Lease to be observed or performed by the Tenant (other than the terms, covenants or conditions set out below in subparagraph

(iii) for which no notice shall be required except as expressly provided therein), provided the Landlord first gives the Tenant ten (10) days' written notice of the Tenant's failure, or such shorter period of time as is otherwise provided in this Lease, and the Tenant within the ten (10) day or shorter period fails to commence diligently and thereafter to proceed diligently to cure its failure; or

(iv) any of the following events occurs:

(1) a report, statement or certificate delivered by the Tenant pursuant to this Lease is false or misleading in a material respect except for a misstatement that is the result of an inadvertent or unintentional error;

(2) the Tenant, or a Person carrying on business in a part of the Leased Premises, or an Indemnifier becomes bankrupt or insolvent or takes the benefit of any statute for bankrupt or insolvent debtors or makes any proposal, assignment or arrangement with its creditors;

(3) a receiver or a receiver and manager is appointed for all or a part of the property of the Tenant, or of another Person carrying on business in the Leased Premises, or of an Indemnifier and is not revoked within ten (10) days;

(4) steps are taken or proceedings are instituted for the dissolution, winding up or other termination of the Tenant's or the Indemnifier's existence or the liquidation of their respective assets (other than a bona fide corporate reorganization) and the Tenant has not diligently commenced the resistance of such steps or proceedings within ten (10) days after the same are taken or fails thereafter to proceed diligently to resist such steps or proceedings;

(5) the Tenant or the Indemnifier makes or attempts to make a bulk sale of any of its assets regardless of where they are situated (except for a bulk sale made to an Transferee when the Transfer is permitted under this Lease or has been consented to by the Landlord);

(6) property is sold, disposed or removed from the Leased Premises so that there does not remain sufficient property on the Leased Premises available for distraint, free and clear of any lien, charge or other encumbrance ranking ahead of the

Landlord's right of distress, to satisfy the Rent due or accruing for at least twelve (12) months;

(7) if the Tenant abandons or attempts to abandon the Leased Premises or the Tenant fails to carry on business in the Leased Premises in accordance with the terms of this Lease;

(8) the Tenant effects or attempts to effect a Transfer that is not permitted by this Lease; or

(9) this Lease or any material part of the Tenant's assets on the Leased Premises are taken or seized under a writ of execution, an assignment, pledge, charge, debenture, or other security instrument and same is not lifted within five
(5) days following written notice thereof to the Tenant.

(b) Upon the occurrence of an Event of Default which is continuing, (i) the full amount of the current month's and the next three (3) months' instalments of Rent will become due and payable, and (ii) the Landlord may re-enter and re-possess the Leased Premises and on such re-entry, this Lease and all of the Tenant's rights hereunder will terminate without liability on the part of the Landlord for loss or damage, and without prejudice to the Landlord's rights to recover arrears of Rent or damages for any previous breach by the Tenant of any covenant or condition of this Lease. On such a termination, (1) the Tenant will promptly (and in any case within ten (10) days after written notice requiring it to do so) remove all of its property from the Leased Premises, or (2) the Landlord may at any time remove all or part of the property from the Leased Premises and store it in a public warehouse or elsewhere at the cost of the Tenant. The Landlord will not be responsible for loss or damage to any of the Tenant's property regardless of how the loss or damage is caused, and regardless of negligence. If the Tenant fails to remove its property as required by clause
(1) above, or if it fails to pay the Landlord's costs of removal and storage within ten (10) days after written notice specifying those costs, the Tenant will be considered to have abandoned its property and the Landlord will be entitled to retain it or to sell or dispose of the

Tenant's property for the Landlord's own benefit. Notwithstanding any such termination, the Landlord shall be entitled to recover damages from the Tenant including, but not limited to, (a) damages for loss of Rent suffered by reason of this Lease having been prematurely terminated; (b) the cost of recovering the Leased Premises; and (c) solicitor's fees on a solicitor and his client basis.

Section 13.2 RIGHT TO RELET

(a) If the Landlord elects to re-enter the Leased Premises, or if it takes possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease or it may without terminating this Lease make any alterations and repairs as are necessary in order to relet the Leased Premises. Upon each reletting all rent received by the Landlord will be applied, first to the payment of any indebtedness other than Basic Rent or Additional Rent due hereunder; second, to the payment of any costs and expenses of reletting including brokerage fees and solicitor's fees and the costs of alterations and repairs; third, to the payment of Basic Rent and Additional Rent due and unpaid hereunder; and the residue, if any, will be held by the Landlord and applied in payment of future Rent as it becomes payable hereunder. No re-entry or taking possession of the Leased Premises will be construed as an election on its part to terminate this Lease unless a written notice of that intention is given to the Tenant.

Section 13.3 EXPENSES

If legal action is brought for recovery of possession of the Leased Premises, for the recovery of Basic Rent and Additional Rent or any other amount due under this Lease, or because of the breach of any other of the Tenant's obligations, the Tenant will pay to the Landlord all expenses incurred therefor, including a solicitor's fee (on a solicitor and his client basis), unless a court otherwise awards, plus fifteen percent (15%) of such expenses to cover the Landlord's overhead and administrative costs.

Section 13.4 WAIVER OF EXEMPTION FROM DISTRESS

The Tenant agrees that notwithstanding anything contained in the Landlord and Tenant Act (Ontario), or any statute or provision subsequently passed to take the place of or amend the Act, none of the goods and chattels of the

Tenant which are on or have at any time been on the Leased Premises will be exempt from levy by distress for Basic Rent or Additional Rent in arrears by the Tenant as provided for by any Sections of the said Act or any amendments thereto, and that if any claim is made for such exemption by the Tenant or if a distress is made by the Landlord, this covenant and agreement may be pleaded as an estoppel against the Tenant in any action brought to test the right to the levying upon any such goods as are named as exempted in any Sections of the said Act or amendments thereto; the Tenant waiving, as it hereby does, all and every benefit that could or might have accrued to the Tenant under and by virtue of any Sections of the said Act or any amendments thereto but for this covenant.

Section 13.5 LANDLORD'S RIGHTS

If the Tenant fails to pay any Additional Rent payable to a third party when due, the Landlord, after giving three (3) days' notice in writing to the Tenant, may, but will not be obligated to, pay all or any part of the same. If the Tenant is in default in the performance of any of its other covenants or obligations under this Lease (other than the payment of Basic Rent, Additional Rent or other sums required to be paid pursuant to this Lease), the Landlord may, but will not be obligated to, after giving ten (10) days' written notice to the Tenant of such default and the Tenant within such ten (10) day period fails to commence diligently and thereafter proceed diligently to perform such covenant or obligation, (or without notice in the case of an emergency), perform or cause to be performed any of the unperformed covenants or obligations, or any part thereof, and for such purpose may do such things as may be required including, without limitation, entering upon the Leased Premises and doing such things upon or in respect of the Leased Premises or any part thereof as the Landlord reasonably considers requisite or necessary. All expenses incurred and expenditures made by the Landlord plus a sum equal to fifteen percent (15%) representing the Landlord's overhead and administrative costs will be paid by the Tenant as Additional Rent forthwith upon demand. The Landlord shall have no liability to the Tenant for any loss or damage resulting from any such action or entry by the Landlord upon the Leased Premises under this Article 13 and same is not a re-entry or a breach of any covenant for quiet enjoyment contained in this Lease or imposed by law.

Section 13.6 REJECTION OF TENANT'S REPUDIATION

If an Event of Default occurs the Landlord may, instead of terminating this Lease, insist upon the performance of the covenantsand conditions of this Lease and in that case may do both or either of the following: (a) levy distress for arrears of Rent; and (b) take legal proceedings against the Tenant for both or either of (i) payment of Rent as it becomes due; and (ii) performance of the covenants and conditions of this Lease; all without prejudice, however, to the Landlord's right to terminate this Lease at any time should the Event of Default continue unremedied.

Mention in this Lease of any particular remedy of the Landlord in respect of the default by the Tenant does not preclude the Landlord from any other remedy in respect thereof, whether available at law or in equity or by statute or expressly provided for in this Lease. No remedy shall be exclusive or dependent upon any other remedy, but the Landlord may from time to time exercise any one or more of such remedies generally or in combination, such remedies being cumulative and not alternative.

Section 13.7 NO CONDONING OF DEFAULT

No condoning, excusing or overlooking by the Landlord or Tenant of any default, breach or non-observance by the Tenant or the Landlord at any time or times in respect of any covenant, proviso or condition herein contained shall operate as a waiver of the Landlord's or the Tenant's rights hereunder in respect of any continuing or subsequent default, breach or non-observance, or so as to defeat or affect in any way the rights of the Landlord or Tenant herein in respect of any such continuing or subsequent default or breach, and no waiver shall be inferred from or implied by anything done or omitted by the Landlord or the Tenant save only express waiver in writing.

ARTICLE 14
MISCELLANEOUS

Section 14.1 RULES AND REGULATIONS

The Landlord may adopt Rules and Regulations from time to time which shall be made a part of this Lease, and the Tenant will observe them. The Landlord reserves the right to amend or supplement the Rules and Regulations applicable to the Leased Premises or the Building as in the Landlord's judgment are needed for the safety, care, cleanliness and efficient operation of the Building. Notice of the Rules and Regulations and amendments and supplements, if any, will be given to the Tenant and the Tenant will thereupon observe them provided that they do not contradict any terms, covenants and conditions of this and shall be reasonable and have general application to all tenants of the Building. The Landlord shall enforce same in a reasonable and non-discriminatory manner against all tenants of the Building.

Section 14.2 INTENT AND INTERPRETATION

(a) Net Lease

The Tenant acknowledges that it is intended that this Lease is a completely carefree net lease to the Landlord, except as expressly herein set out, that the Landlord is not responsible during the Term for any costs, charges, expenses and outlays of any nature whatsoever arising from or relating to the Leased Premises, or the use and occupancy thereof and the Tenant will pay all charges, impositions, costs and expenses of every nature and kind relating to the Leased Premises except as expressly herein set out.

(b) Obligations as Covenants and Severability

Each obligation or agreement of the Landlord or the Tenant expressed in this Lease, even though not expressed as a covenant, is considered to be a covenant for all purposes. If any provision of this Lease is or becomes invalid, void, illegal or unenforceable, it shall be considered separate and severable from the Lease and the remaining provisions shall remain in force and be binding upon the parties as though such provision had not been included.

This Lease and the Schedules, and Riders, if any, attached Together with the Rules and Regulations set forth all covenants, promises, agreements, conditions or understandings, either oral or written, between them. No alteration or amendment to this Lease will be binding upon the Landlord or the Tenant unless in writing and signed by the Tenant and the Landlord.

(d) Governing Law

This Lease will be construed in accordance with and governed by the laws of the Province of Ontario.

(e) Time of the Essence

Time is of the essence of this Lease and of every part of it.

(f) Successors

The rights and obligations under this Lease extend to and bind the successors and assigns of the Landlord and, if Section 10.1 is complied with, the heirs, executors, administrators and permitted successors and assigns of the Tenant. If there is more than one Tenant, they are bound jointly and severally by this Lease.

Section 14.3 OVERHOLDING--NO TACIT RENEWAL

If the Tenant remains in possession of the Leased Premises after the end of the Term without having signed a new lease or an extension of Term agreement, there is no tacit renewal of this Lease or the Term, notwithstanding any statutory provisions or legal presumptions to the contrary, and the Tenant will be deemed to be occupying the Leased Premises as a tenant from month-to-month at a monthly Basic Rent equal to twice the monthly amount of Basic Rent payable during the last month of the Term, and otherwise, upon the same terms, covenants and conditions as are set forth in this Lease (including the payment of Additional Rent) so far as these are applicable to a monthly tenancy.

Section 14.4 TENANT PARTNERSHIP

If the Tenant is a partnership ("Tenant Partnership") each Person who is presently a member of the Tenant Partnership, and each Person who subsequently becomes a member of any successor Tenant Partnership will be and continue to be liable jointly and severally for the full performance of, and will be and continue to be subject to, the terms, covenants and conditions of this Lease, whether or not the Person ceases to be a member of the Tenant Partnership or successor Tenant Partnership.

Section 14.5 WAIVER

The waiver by either party of any breach of the other is not demmed to be a waiver of any preceding breach by the Tenant regardless of the Landlord's knowledge of the preceding breach at the time of acceptance of the Rent. No term, convenant or condition of this Lease is deemed to have been waived by the Landlord unless the waiver is in writing by the Landlord.

All Basic Rent and Additional Rent to be paid by the Tenant to the Landlord will be paid without any deduction, abatement, set-off or compensation whatsoever (except for the Basic Rent to the extent it may be abated pursuant to
Section 9.1), and the Tenant hereby waives the benefit of any statutory or other rights in respect of abatement, set-off or compensation in its favour at the time hereof or at any future time.

Section 14.6 ACCORD AND SATISFACTION

No payment by the Tenant or receipt by the Landlord of a lesser amount than the monthly payment of Rent stipulated is deemed to be other than on account of the earliest stipulated Rent, nor is any endorsement or statement on any cheque or any letter accompanying any cheque or payment as Rent deemed an acknowledgement of full payment of accord and satisfaction, and the Landlord may accept and cash any cheque or payment without prejudice to the Landlord's right to recover the balance of the Rent due or to pursue any other remedy provided in this Lease.

Section 14.7 FORCE MAJEURE

Notwithstanding anything in this Lease, if either party is bona fide delayed or hindered in or prevented from the performance of any term, covenant or act required hereunder by reason of inclement weather conditions; strikes; labour troubles; inability to procure materials or services; power failure; restrictive overnmental laws or regulations; riots; insurrection; sabotage; rebellion; war; act of God; or other reason whether of a like nature or not which is not the fault of the party delayed in performing work or doing acts required under the terms of this Lease, then the performance of that term, covenant or act is excused for the period of the delay and the party delayed will be entitled to perform that term, covenant or act within the appropriate time period after the expiration of the period of the delay. However, the provisions of this Section do not operate to excuse the Tenant after the Commencement Date from the prompt payment of Rent.

Section 14.8 NOTICES

Any notice, demand, request or other instrument which may be or is required to be given under this Lease will be delivered in person or sent by registered mail postage prepaid and will be addressed if to the Landlord, at 49 Bathurst Street, Suite 50, Toronto, Ontario, M5V 2P2, and if to the Tenant, at the Leased Premises. Any notice, demand, request or consent is conclusively deemed to have been given or made on the day upon which it is delivered, or, if mailed, then four (4) business days (excluding Saturdays, Sundays and statutory holidays) following the day of mailing, as the case may be. Either party may give written notice of any change of its address and thereafter the new address is deemed to be the address of that party for the giving of notices. If the postal service is interrupted or is substantially delayed, any notice, demand, request or other instrument will be delivered.

Section 14.9 REGISTRATION

Neither the Tenant nor any one on the Tenant's behalf or claiming under the Tenant will register this Lease. If either party intends to register a document for the purpose only of giving notice of this Lease or of any assignment or sublease of this Lease, then, upon request, both parties will join in the execution of a short form or notice of this Lease which will (i) be prepared by the Landlord or its solicitors at the Tenant's expense, and (ii) only

describe the parties, the Leased Premises and the Commencement Date and the expiration date of the Term, and any options to extend or renew the Term.

Section 14.10 ACCRUAL OF BASIC RENT AND ADDITIONAL RENT

Rent will be considered as annual and accruing from day-to-day and where it becomes necessary for any reason to calculate Rent for an irregular period of less than one (1) year, an appropriate apportionment and adjustment will be made.

Section 14.11 QUIET ENJOYMENT

If the Tenant pays the Rent and observes and performs all its terms, covenants and conditions, the Tenant will quietly hold and enjoy the Leased Premises for the Term without interruption by the Landlord twenty-four (24) hours a day, seven (7) days a week throughout the Term of the Lease and any renewals thereof, unless otherwise permitted under the terms of this Lease.

IN WITNESS WHEREOF, the Landlord and the Tenant have signed and sealed this Lease.

SIGNED, SEALED & DELIVERED               707932 ONTARIO LIMITED
in the presence of:


                                         Per: /s/ Marcy Lipson
                                              ------------------------

                                         TUCOWS INTERNATIONAL
                                         CORPORATION

                                         /s/ Edward Gray
                                         ------------------------


                                         I/We have the authority to bind
                                         the corporation

SCHEDULE "A"

FIRSTLY: All and singular those certain parcels or tracts of land and premises situate, lying and being in the City of Toronto, in the Municipality of Metropolitan Toronto and being composed of Lot Numbers 64, 65, 66, 67 and 68 on the easterly side of Dufferin Street, according to Plan No. 684 filed in the Land Registry Office for the Registry Division of Toronto (No. 63).

SECONDLY: All and singular those certain parcels or tracts of land and premises situate, lying and being in the City of Toronto, in the Municipality of Metropolitan Toronto and being composed of Lot Numbers 69, 70, 71, 72 and 73 on the easterly side of Dufferin Street, according to Plan No. 684 filed in the Land Registry Office for the Registry Division of Toronto (No. 63).

THIRDLY: All and singular that certain parcel or tract of land and premises' situate, lying and being in the City of Toronto, In the Municipality of Metropolitan Toronto, and being more particularly described as follows, namely:

Part of Block 7, a part of the Ordinance Lands conveyed by the Crown to the Corporation of the City of Toronto under Letters Patent dated the 13th day of May A.D. 1880; the boundaries of the said parcel of land being described as follows:

COMMENCING at a point in the latterly limit of Dufferin Street where the same would be intersected by the production westerly of the line of the southerly faces of the brick piers forming in part the southerly wall of the westerly part of the two storey brick building standing in September, 1941, upon the lands immediately adjoining to the north and west of the lands herein described, the said point of intersection being distant Two Hundred and Seventy-five feet (275') more or less, measured southerly along the said limit of Dufferin Street from the southerly limit of King Street West;

THENCE EASTERLY along the said production, to and along the line of the said southerly faces of piers, in all, a distance of Fifty-seven feet and Five and one-quarter inches (57' 5-1/4"),

more or less, to the westerly face of the westerly wall of the one storey brick building standing at the date hereinbefore last mentioned upon the said lands herein described;

THENCE NORTHERLY about parallel to the said limit of Dufferin Street, being along the westerly face of a brick pier and the production northerly thereof, in all, a distance of One Foot and Three and three-quarters inches (1' 3-3/4"), more or less, to the centre line of the One Foot and One and a half inch (1' 1-1/2") part of the said southerly wall;

THENCE EASTERLY along the said centre line. Seventeen feet and Eleven and one-quarter inches (17' ll-1/4"), more or less, to the point of intersection with the centre line of the One Foot and One and a half inch (1' 1-l/2") part et the easterly wall of the said westerly part of the brick building standing upon the lands immediately to the north and west of the lands herein described;

THBNCE NORTHERLY along the last mentioned centre line of Wall, being about parallel to the said limit of Dufferin Street, Two Hundred and Seven feet and seven and one-quarter inches (207' 7-1/4") more or less, to the point of intersection with the centre line of the Nine inch (9") part of the southerly wall of the northerly part o the said two storey brick building);

THENCE EASTERLY and about parallel to the said southerly limit of King Street West, being along the last mentioned centre line of wall, One Hundred and fifty-nine feet and six and a half inches (159' 6-1/2"), more or less, to the centre line of a brick pier forming a part of the last mentioned southerly wall;

THENCE NORTHERLY along the said centre line of pier, being parallel to the said limit of Dufferin Street Two and One-quarter inches (2-1/4") more or less, to the point of intersection with the centre line of the One Foot and one and a half inch (1' l-l/2") part of the last mentioned southerly wall;

THENCE EASTERLY along the last mentioned centre line of wall, and about parallel to the said southerly limit of King Street Meat, Sixty-five feet (65') more or less, to a point in the westerly limit of Mowat Avenue distant Sixty-five feet and Eleven inches (65' ll"), more or less, measured southerly thereon from the said southerly limit of King Street West;

THENCE SOUTHERLY along the said westerly limit of Mowat Avenue Two Hundred and Eighty-one feet and Four inches (281' 4"), more or less to the north easterly angle of the property known as The Asylum Farm Building Lot, being to the north-easterly angle of Lot Number 68, according to a plan filed as Number 684 in the Land Registry Office for the Registry Division of Toronto;

THENCE WESTERLY along the northerly limit of said Lot Number 68, to and along the northerly limit of Lot Number 69, according to the said plan, being along the said northerly limit of The Asylum farm Building Lot, in all, a distance of Two Hundred and ninety-nine feet and Ten and one-quarter inches (299' 10-1/4"), more or less, to the easterly limit of Dufferin Street aforesaid;

THENCE NORTHERLY along the last mentioned limit, Seventy-two feet and Three inches (72' 3") more or less, to the point of commencement;

RESERVING a right-of-way, at all times, for all persons now or hereafter entitled thereto, over, along and upon that part of the said lands hereinbefore described more particularly described as follows:

BEGINNING at the north-westerly angle of the westerly part of the said lands hereinbefore described, being a point in the said easterly limit of Dufferin Street distant Two hundred and seventy-five feet (275'), more or less, measured southerly thereon from the said southerly limit of King Street West;

THENCE EASTERLY along the northerly limit of the said westerly part of the lands hereinbefore described, fifty-seven feet and five and one-quarter inches (57' 5-1/4"), more or less, to the westerly face of the Westerly wall of the said one storey brick building standing in September, 1941, upon the said lands hereinbefore described;

THENCE SOUTHERLY along the said westerly face of wall, Thirty-eight feet and Four and three-quarter inches (38' 4-3/4"), more or less, to the northerly face of the northerly wall of a brick building standing at the date hereinbefore last mentioned;

THENCE WESTERLY along the last mentioned face of wall, Seven feet and six inches (7' 6"), more or less, to the westerly face of the westerly wall of the last mentioned building;

THENCE SOUTHERLY along the last mentioned westerly face of wall, Five feet and Eight and a half inches (5' 8-l/2") more or less, to the northerly face of the northerly wall of a two storey brick building standing at the date hereinbefore last mentioned upon the lands to the south of the lands over which a right of way is hereby reserved;

THENCE WESTERLY along the last mentioned face of wall and the production westerly thereof, in all, a distance of forty-nine Feet and One-quarter of an inch (49' 0-1/4"), more or less, to the easterly limit of Dufferin Street aforesaid;

THENCE NORTHERLY along the last mentioned limit, Forty-four feet (44'), more or less, to the place of Beginning;

TOGETHER WITH the right to maintain in their present position any parts of the said building which may encroach on or over the herein described parcel of land over which a right-of-way is reserved.

SCHEDULE "B"

FLOOR PLAN

SCHEDULE "C"

LANDLORD'S WORK

The Landlord shall finish the Leased Premises in the manner and colour standard to the Building which, without limiting the generality of the foregoing, will include the elements outlined below. All work not specifically described as Landlord's Work, including that work indicated as Tenant's Work in this Schedule "C" will be the sole responsibility of the Tenant. The Landlord will complete the work described below by January 1, 2000 if later than this date, the Landlord will work in conjunction with the Tenant's contractors.

1. Demising Walls: To be in either gypsum wallboard (with joints taped and sanded but not painted) or, at the Landlord's option, unfinished masonry, concrete or other suitable material.

2. Exterior Walls: Where required to enclose the Building, to be in glass, masonry, and/or concrete, at the Landlord's option, including exterior doors as indicated on the Building plans.

3. Floors: To be of smooth trowelled concrete ready to receive Tenant's floor finish.

4. Ceilings: Not to be provided. The area above the Leased Premises will be the exposed underside of overhead construction.

5. Electrical: The Landlord will provide the existing three (3) phase 200 amp 600 volt electrical service.

6. Plumbing: The Landlord will provide hot and cold water lines and drains capped to the location of the washrooms in a location determined by the Landlord acting reasonably.

7. Sprinklers: The existing sprinkler system will be provided by the Landlord with sufficient coverage to protect the total open Leased Premises area. Modifications required for dropped ceilings or special hazard requirements will be at the Tenant's expense.

8. H.V.A.C.: The Landlord will provide and install a complete H.V.A.C. system of sufficient capacity to suit the area of the Leased Premises including main trunk for open concept design. Location of H.V.A.C. units/systems to be determined by the Landlord. Distribution of H.V.A.C. to be Tenant's responsibility.

9. Fire Safety: Provide existing sprinkler system and all fire fighting equipment except smoke detectors and portable fire extinguishers where required by the building and fire departments.

TENANT'S WORK

The Tenant shall provide, at its sole expense, the items enumerated below together with any other work required for the finishing of the Leased Premises for the tenant's intended use.

1. Interior Finish: The Tenant will provide all interior partitioning, wall and floor and ceiling coverings, interior painting, and decorating.

2. Electrical: The Tenant will provide all electrical work beyond the point of the service entry to the Leased Premises, including:

(a) distribution panel, branch wiring, underfloor conduits (if any), outlets, receptacles, and switches.

(b) lamps, fixtures, emergency lighting, and related equipment.

3. H.V.A.C.: The Tenant will supply and install all distribution duct work for heating and air conditioning within the Leased Premises at its own expense.

4. Plumbing: The Tenant will provide all additional branch plumbing and drainage, mechanical exhaust, washroom fixtures, and accessories required by the Tenant for the washroom (s). The Tenant will also arrange and pay for installation of its hot water heater(s).

5. Exhaust Systems: Any required exhaust or special ventilating systems, including make-up air system, if so required are to be provided by the Tenant.

6. Fire Protection: The Tenant, at its own expense, will provide all fire fighting equipment, including smoke detectors, alarms, and portable fire extinguishers for the Leased Premises in types, quantities and locations as required by the building and fire departments. When the Tenant's occupancy requires fire-rated construction, the Tenant shall satisfy the governing codes for such fireproofing standards.

7. Performance of Tenant's Work: The following provisions are in addition to and do not waive any other provisions in this Schedule "C" or the provisions contained in the Lease between the Tenant and the Landlord:

(a) All Tenant's Work shall be performed in accordance with Landlord-approved Tenant drawings and specifications, and in accordance with all applicable governing codes and regulations. All drawings to be submitted for the Landlord's approval within thirty
(30) days of the unconditional acceptance of the Offer; each full day after thirty (30) days following the acceptance of this Offer that the Landlord is not in receipt of the Tenant's drawings shall result in the Commencement Date being postponed by one (1) full day without penalty to the Landlord. Before performing any Tenant's Work, the Tenant shall secure and demonstrate to the Landlord on demand, all necessary permits. Upon completion, the Tenant shall secure all applicable certificates of completion and occupancy.

(b) All Tenant's Work shall be completed with new materials. Material and workmanship shall be of a uniformly high quality performed in accordance with the very best standards of practice and subject to the approval of the

Landlord and/or its Architect/Engineer. Any damage to the Leased Premises or the Building caused by the Tenant, or any of its employees, contractors, or workmen, will be repaired forthwith by the Landlord at the Tenant's expense plus a fifteen percent (15%) administration fee.

(c) The Tenant and his contractor(s) shall not impose a greater load on any concrete floor than the design live load of 100 pounds per square foot uniformly distributed. No unusual loads may be suspended from the underside of the ceiling structure.

SCHEDULE "D"

DEFINITIONS

1. "Additional Rent" means all sums of money or charges required to be paid by the Tenant under this Lease (except Basic Rent and the Taxes payable pursuant to Section 3.2(b)) whether or not designated "Additional Rent" or payable to the Landlord.

2. "Building" means the building known municipally 78 Mowat Avenue, including the Common Areas and Facilities, and the areas and facilities serving the Building or having utility in connection therewith, as determined by the Landlord.

3. "Common Areas and Facilities" means (a) those areas, facilities, utilities, improvements, equipment and installations in the Building which, from time to time, are not designated or intended by the Landlord to be leased to tenants of the Building, and (b) those areas, facilities, utilities, improvements, equipment and installations which serve or are for the benefit of the Building, whether or not located within, adjacent to, or near the Building and which are designated from time to time by the Landlord as part of the Common Facilities, including, without limitation, all areas, facilities, utilities, improvements, equipment and installations which are provided or designated (and which may be changed from time to time) by the Landlord for the use or benefit of the tenants, their employees, customers and other invitees in common with others entitled to the use and benefit thereof in the manner and for the purposes permitted by this Lease.

4. "Landlord" means the party of the First Part and includes the Landlord and its duly authorized representatives.

5. "Mortgagee" means any mortgagee or chargee (including any trustee for bondholders), from time to time, of the Building or any part thereof, or the Landlord's or the owners of the Building's interest in them.

6. "Normal Business Hours" means the hours from 8:00 a.m. to 6:00 p.m. on Mondays to Fridays unless such a day is a holiday.

7.(a) "Operating Costs" means the total amounts incurred, paid or payable whether by the Landlord or by others on behalf of the Landlord for the maintenance, operation, repair, replacement, managing and administration of the Building (calculated as if the Building were fully occupied and operational during each Rental Year of the Term).

(b) Operating Costs include, without limitation and without duplication, the aggregate of:

(i) the total annual costs of insuring the Building and the improvements and equipment and other property servicing the Building from time to time as the Landlord, or the Mortgagee, from time to time determines;

(ii) window cleaning, exterior maintenance, snow removal, garbage and waste collection and disposal, recycling, and the costs of security and supervision;

(iii) the aggregate of the costs and amounts paid by the Landlord, to the extent such costs are not separately metered and paid for directly by individual tenants for (1) all fuel used in heating and the purchase or generation of steam for heating or other purposes; (2) all electricity furnished by the Landlord to the Building other than electricity furnished to and paid for by tenants; (3) all hot and cold water other than that chargeable to tenants; (4) climate control; (5) heating, ventilating and air conditioning portions of the Building; and(6) telephone and other utility costs, used in the maintenance and operation of the Building;

(iv) salaries, wages and other amounts paid or payable for management and other supervisory personnel including the Building manager and related staff and the total charges (including contributions and premiums for fringe benefits, unemployment insurance, and Workers' Compensation, pension plan contributions and similar premiums and contributions) of any independent

contractors or managers, engaged in the repair, care, maintenance and cleaning of the Building;

(v) the cost of the rental of any equipment and signs, and the cost of supplies, used by the Landlord in the maintenance and operation of the building;

(vi) all non-capital repairs (including major repairs) and replacements to and maintenance and operation of the Building (except for repairs or replacements of inherent structural defects or weaknesses), and the systems, facilities and equipment serving the Building (including without limitation, the components of the heating, ventilating and air conditioning systems serving the Building) including the Leased Premises;

(vii) depreciation or amortization, together with interest calculated at two percentage points above the prime rate charged to the Landlord by its chartered bank, on the costs, including repairs and replacements of the maintenance, cleaning, operating, heating, ventilating and air conditioning equipment, master utility meters and all other fixtures, equipment and facilities that are part of the Building and not intended to be leased to tenants, which, in accordance with sound accounting principles, are not fully expensed in the Rental Year in which they are incurred;

(viii) all business taxes and other Taxes, if any, from time to time payable by the Landlord with respect to the Common Areas and Facilities;

(ix) an administration fee of fifteen percent (15%) of the costs set out in this Paragraph 7(a)(i) through (vii), inclusive.

From the total of the above costs, there is deducted:

(aa) all net recoveries which reduce Operating Costs received by the Landlord from tenants as a result of any act, omission, default or negligence of such tenants or by reason of a breach by such tenants of provisions in their

respective leases (other than recoveries from such tenants under clauses in their respective leases requiring their contribution to Operating Costs);

(bb) net proceeds received by the Landlord from insurance policies taken, out by the Landlord to the extent that the proceeds relate to Operating Costs; and

(cc) the amount of any GST for which the Landlord liable on the purchase of goods and services in this Paragraph 7(a) and (b)(i) through (viii) which may be available to and claimed by the Landlord as an input tax credit in determining the Landlord's net tax liability or refund under the GST.

8. "Person", if the context allows, includes any person, firm, partnership or corporation, or any group of persons, firms, partnerships or corporations or any combination thereof.

9. "Proportionate Share" means a fraction to be calculated by the Landlord which has as its numerator the Rentable Area of the Leased Premises and as its denominator the Total Rentable Area of the Building and all Common Areas and Facilities.

10. "Rent" means all Basic Rent and Additional Rent. All Rent is payable without prior demand and without any deduction, abatement or set-off.

11. "Rental Year" means a period of time consisting of consecutive periods of twelve (12) calendar months unless otherwise stipulated by the Landlord.

12. "Taxes" means (a) all real property taxes, rates, duties and assessments (including local improvement taxes), impost charges or levies, whether general or special, that are levied, rated, charged or assessed against the Building or any part thereof from time to time by any lawful taxing authority, whether federal, provincial, municipal, school or otherwise, and any taxes or other amounts which are imposed in lieu of, or in addition to, any such real property taxes whether of the foregoing character or not and whether in existence at the Commencement Date or not, and any such real property taxes levied or assessed against

the Landlord or the owners on account of its interest in the Building or any part thereof, or their ownership thereof, as the case may be, calculated on the basis of the Building being assessed as a fully leased and operational building, and ( b) the costs and expenses incurred for consulting, appraisal, legal and other fees and expenses to the extent they are incurred in an attempt to minimize or reduce amounts mentioned in (a) or (b) above.

13. "Tenant" means the party of the Second Part. If there is more than one Tenant, any notice required or permitted by this Lease may be given by or to any one of them and has the same force and effect as if given by or to all of them. Any reference to "Tenant" includes, where the context allows, the servants, employees, agents, invitees and licensees of the Tenant and all others over whom the Tenant may reasonably be expected to exercise control.

EXHIBIT 10.10
LEASE

THIS LEASE made on this 3rd day of July, 2000, by and between Pier North Associates, hereafter referred to as "Lessor," the same having its principal office at 4184 Pier North Blvd. Suite A, P.O. Box 310289, Flint, Michigan, 48531, and Tucows.Com, Inc, a corporation having its principal office located at G-3255 Beecher Road, Suite 100, Flint, Mi 48532, hereafter referred to as "Lessee," by and through Scott Swedorski, Vice President, who is duly authorized to execute this Lease on behalf of Lessee.

WITNESSETH:

In consideration of the rents and covenants hereinafter set forth, the Lessor and Lessee agree as follows:

ARTICLE I

PREMISES

1.1 Lessor, in consideration of the rents to be paid and the covenants and agreements to be performed by Lessee, does hereby demise and lease unto Lessee the real estate and improvements (hereinafter referred to as "premises") situated in the Township of Mt. Morns, County of Genesee, and State of Michigan; said premises is contained within the Pier North Office Center (hereinafter referred to as "Center"), is described in Exhibit A (the same being attached hereto and made a part hereof), and is more commonly known as 4288 Pier North Boulevard, Suite A, Flint, MI 48504.

1.2 The building consists of approximately 20,000 square feet. The Premises consists of approximately 10,000 square feet. It is therefore agreed between the parties that for purposes of computing Lessee's proportional share of common area maintenance, taxes, and insurance expenses as hereinafter provided, Lessee will occupy 50.00% of the proposed building as of the Commencement Date of this Lease.

ARTICLE II

TERM OF LEASE

2.1 The primary term of this Lease shall be for a period of five (5) years and shall begin September 1, 2000, (Commencement Date). In the event the Commencement Date is other than the first day of a month, then the primary term of this Lease shall be deemed to be five (5) years from and after the first day of the month next following the Commencement Date. In the event the premises is not ready on September 1, 2000, the Commencement Date shall be the earlier of thirty days from the completion of Lessor's Work or when Lessee takes occupancy.

ARTICLE III

OPTION TO RENEW

3.1 Provided this Lease shall then be in full force and effect and Lessee is not then in default, Lessee shall have the option to renew this Lease for one (1) successive term of five (5) years; said option term being subject to the same terms, conditions and provisions as provided under the primary term of the Lease, except as hereinafter provided. Lessee shall notify Lessor of its election to exercise a renewal option in writing, no less than one hundred twenty (120) days prior to the expiration of the primary term in order for such election to be deemed timely.

ARTICLE IV

RENT

4.1 During the continuance of the primary term of this Lease, Lessee shall pay the Lessor as its minimum rental charge for rent of said premises the sum of $8,334.00 on the Commencement Date, and a like sum on the first (1st) day of each and every month thereafter, monthly in advance, during the primary term of this Lease; i.e., $100,000.00 per year. If the Commencement Date is a date other than the first (1st) day of a month, Lessee, on the Commencement Date, shall pay rent for the fractional month. All subsequent rental payments shall be due and payable on the first (1st) day of each and every month thereafter.

4.2 Lessee shall pay as additional rent any money and charges required to be paid pursuant to the terms of this Lease, whether or not the same may be designated "additional rent". If such amounts or charges are not paid at the time provided in this Lease, they shall nevertheless, if not paid when due, be collectible as rent thereafter

falling due, but nothing herein contained shall be deemed to suspend or delay the payment of any amount of money or charge at the time the same becomes due and payable hereunder, or limit any other remedy of Lessor.

4.3 All payments of rent or other money payable to Lessor shall be made to Lessor at P.0. Box 310289, Flint, Michigan, 48531, unless notified otherwise. Payment by check shall not be deemed as payment unless the check is honored forthwith by the bank upon which it is drawn, when presented for payment. Should Lessor not receive any rent or other payment obligation within seven (7) days when due, an automatic late payment administrative assessment of seven percent (7%) per annum on the unpaid amount shall then become due and payable to Lessor, without advance notice.

4.4 In the event Lessee exercises any of its options to renew this Lease, Lessee's annual and monthly rental due under paragraph 4.1 for the option term shall be adjusted to reflect changes in the Consumer Price Index U.S. City Average (1982-1984-100), All Items, for all Urban Consumers Index published by the United States Department of Labour's Bureau of Statistics. Should the Bureau discontinue the publication of the above Index, or publish the same less frequently, or alter the same in some other manner, then Lessor shall adopt a substitute index or substitute procedure which reasonably reflects and monitors consumer prices. The rent shall be adjusted in direct proportion and in the same direction to reflect the percentage change in the Index between the first month of the primary term and the last month of the primary term, provided however that in no event shall Lessee's minimum monthly and annual rental be over less than that paid in the primary term. The base Index shall be the published Index for the Commencement Date of the first year of the primary term of this Lease.

4.5 For example purposes only, if the primary term of the Lease is five years, the annual rent is $100.00, and the percentage change in the Consumer Price Index (CPI) is 20% between the first month of the primary term and the last month of the primary term, then the annual rent for the option term will be $120.00.

4.6 No payment by Lessee or receipt by Lessor of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed in accord and satisfaction, and Lessor shall accept such check or payment without prejudice to Lessor's right to recover the balance of such rent or pursue any other remedy provided in this Lease.

ARTICLE V

USE AND PURPOSE

5.1 The premises shall be continuously used and one hundred percent (100%) occupied only as a general office and for no other use or purpose without the prior written consent of the Lessor. At no time shall Lessee cause the premises to be used for any other purpose without Lessor's prior written approval. The premises shall not be used for any purpose in violation of any law, municipal ordinance or regulation. Lessee shall not use the premises in any manner which would cause the premises to be considered an extra or especially hazardous risk under a standard fire insurance policy. Any violation of this Article shall permit Lessor to terminate this Lease upon Lessee's default.

ARTICLE VI

HAZARDOUS WASTE

6.1 Use of Hazardous Substances. Lessee shall not cause or permit any Hazardous Substances to be brought upon, kept or used in or about the premises by Lessee, its agents, employees, contractors, licensees or invitees without the prior written consent of Lessor. "Hazardous Substances," as used herein, shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the removal of which is required or the use of which is regulated, restricted, prohibited or penalized by any "Environmental Law," which term shall mean any federal, state or local law, ordinance or regulation relating to pollution, protection of the environment or public health. "Premises" as used herein is defined elsewhere in the Lease, however, for purposes of this Article, "premises" is further defined to include all structures, fixtures, transformers, underground storage tanks, soil, groundwater and surface water at, in. on or under the premises defined in the Lease. Lessee must demonstrate to Lessor's satisfaction that such Hazardous Substances are necessary or useful to Lessee's business and will be used, kept and stored in a manner that complies with all laws regulating any such Hazardous Substances so brought upon or used or kept in or about the premises, and Lessee maintains high standards of quality control to prevent accidents, spills or releases. If Lessee breaches the obligations stated in the preceding sentence, or if the presence of Hazardous Substances on the premises caused or permitted by Lessee results in contamination of the premises, or if contamination of the premises by Hazardous Substances otherwise occurs for which Lessee is legally liable, either under any environmental law, or to Lessor for damage resulting therefrom then Lessee shall indemnify, defend and hold Lessor, and any property manager of the premises, harmless from any and all claims, judgments,

damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the promises, damages for the loss or restriction on use of rentable or usable space or of any amenity of the premises, damages arising from any adverse impact on marketing of space, damages to adjacent property, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Lease term as a result of such contamination. This indemnification of Lessor or property manager by Lessee includes, without limitation, costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any federal, state or local governmental agency because of Hazardous Substances present in, on or under the premises. Without limiting the foregoing, if the presence of any Hazardous Substances on the premises caused are permitted by Lessee results in arty contamination of the premises, Lessee shall promptly lake all actions at its sole expense as are necessary to return the premises to the condition existing prior to the introduction of any such Hazardous Substances to the premises; provided, however, that Lessor's approval of such actions shall first be obtained. The foregoing indemnity shall survive the expiration or earlier termination of the Lease.

6.2 Permitted Substances. Lessor hereby consents to the use or storage on the premises of the following Hazardous Substances for the uses and in amounts indicated, so long as they are used or stored in compliance with all Environmental Laws, good business practices and common sense, and subject to the indemnification provision in Section 6.1 above:

PERMITTED SUBSTANCE USE MAXIMUM PERMITTED QUANTITY

None.

Furthermore, such Permitted Substances shall be properly disposed of and all commercially reasonable cleanup procedures shall be diligently undertaken by Lessee.

6.3 Compliance with Law. Lessee, at Lessee's expense, shall comply with all laws, ordinances, regulations and requirements of federal, state, county and municipal authorities pertaining to Lessee's use of the premises and with the recorded covenants, conditions and restrictions, including, without limitation, all applicable federal, state and local laws, regulations or ordinances pertaining to air and water quality, Hazardous Substances (as defined herein), waste disposal, air emissions and other environmental matters, all zoning and other land use matters, and with any direction of any public officer, pursuant to law, which shall impose any duty upon Lessor or Lessee with respect to the Lessee's use or occupation of the premises.

6.4 Disclosure. At the commencement of this Lease, Lessee shall disclose to Lessor the names and amounts of all Hazardous Substances which Lessee intends to store, use or dispose of on the premises. Thereafter, on January 1 of each year, including January of the year after the termination of the Lease, Lessee shall disclose to Lessor the names, amounts and manner of disposition of any Hazardous Substances previously disclosed to Lessor, or which Lessee intends to store, use or dispose of on the premises.

6.5 Inspection. Lessor and its agents shall have the right, but not the duty, to inspect the premises during normal business hours, unless due to an emergency to determine whether Lessee is complying with the terms of the Lease. If Lessee us not in compliance with the Lease, Lessor shall have the right to enter upon the premises to remedy any contamination caused by Lessee's failure to comply, notwithstanding any other provision of the Lease. Lessor shall use its best efforts to minimize interference with Lessee's business but shall not be liable for any interference caused thereby.

6.6 Default. Any default under the terms of this Article shall be a material default under the Lease, enabling Lessor to exercise any of the remedies set forth in the Lease.

6.7 Assignment and Subletting. In the event Lessee requests Lessor's approval of Lessee's assignment or sublet of this Lease, it shall not be unreasonable for Lessor to withhold its consent to any assignment, encumbrance, sublease, or other transfer if a proposed transferee's anticipated use of the premises involves the generation, storage, use, treatment or disposal of any Hazardous Substances. No consent to any assignment or subletting shall constitute a further waiver of this section. Any such assignment or subletting without such consent shall be void and shall at Lessor's Option constitute a default under the Lease.

ARTICLE VII

ACCEPTANCE OF THE PREMISES

7.1 Lessee, upon Lessor's completion of the final Leasehold improvements shown on Exhibit A and described on Exhibit C, shall be deemed to have accepted the premises in its "as is" condition, subject to manufacturer's and contractor's warranties and Lessee having forty-five (45) days from the date of commencement to provide Lessor in writing, a "punch list" of items needing repair or completion. Lessor warrants, subject to the floor plan as shown in Exhibit A and the details of Lessor's Work on Exhibit C, that the heating, air conditioning, water, sewer, plumbing, and electrical systems are adequate for the demised premises, Lessor makes no other warranty with respect to the condition of

the premises and/or the mechanical condition of heating, air conditioning, water, sewer, plumbing, and electrical systems unless otherwise provided herein.

7.2 The Lessor will complete the work designated as "Lessor's Work" in Exhibit C attached to this Lease no later than 30 days before the Commencement Date. The Lessee shall be granted joint access to the Leased premises together with the Lessor's contractors within a reasonable time prior to the Commencement of Date of the Lease for the purpose of constructing the Lessee's Leasehold Improvements in conjunction with the Lessor's Work being performed, as defined herein, and without material interruption to Lessor and from Lessor, and preparing the Leased Premises for its intended use, free from Rent until the Commencement date.

ARTICLE VIII

UTILITY SERVICES

8.1 Lessor agrees to initially provide the necessary mains and conduits in order that water and sewer facilities, gas (if available) and electricity may be made initially available to the demised premises, and Lessee agrees to promptly pay for its use of the same.

8.2 Lessee shall, within thirty (30) days of its occupation of the premises, provide Lessor with written proof that all utilities to the premises have been placed in accounts naming Lessee as the sole account holder.

ARTICLE IX

ALTERATIONS, MAINTENANCE, AND REPAIR

9.1 Lessee, at its sole cost and expense, unless such condition is covered by manufacturer's or contractor's warranty, shall keep, maintain, replace, and repair the interior walls, ceilings, floors, all mechanical components of the premises such as but not limited to all electrical, plumbing, healing, air conditioning in good condition, reasonable wear and tear excepted, the necessity and/or extent of such maintenance, repair, replacement shall be based upon whatever Lessor may reasonably deem appropriate and customary. Lessee's maintenance, replacement, and repair obligations shall also include keeping in good condition and repair all doors, door frames, door checks, windows and window frames. It is the intent of the parties that this provision shall be all inclusive. Lessor shall not be called upon to make any maintenance, replacement, or repairs, whether or not the same are occasioned by the act or negligence of Lessee, its agents,

employees, invitees, licensees or contractors, except to the extent that Lessor is reimbursed therefor under any policy of insurance permitting waiver of subrogation in advance of loss. Lessor shall not be called upon to make any other improvements or repairs of any kind upon said premises and appurtenances after delivery of occupancy to Lessee as herein provided. Lessor shall warrant the replacement of the heating, air conditioning, and ventilation systems during the first five years of the initial term of this lease as long as the replacement was not necessitated by the negligence of Lessee, its employees, agents, or invitees. Furthermore, Lessor shall warrant the roof during the first five years of the initial term of this lease. Due to the nature of Lessee's business, Lessor acknowledges Lessee's need for proper heating and air conditioning.

9.2 Lessee shall keep and maintain the leased premises in a clean, sanitary, and safe condition and in accordance with the laws of the State of Michigan, and in accordance with all directions, rules and regulations of the health officer, fire marshal, building inspector, or other proper officials of the governmental agencies having, jurisdiction, at the sole cost and expense of Lessee, and Lessee shall comply with all requirements of law, ordinance and otherwise, affecting said premises. In the event a structural change is not directly required by Lessee's specific use, then Lessor shall be responsible for the cost and expense of said change.

9.3 Lessee at its own expense, shall install and maintain fire extinguishers devices as may be required from lime to time by any agency having jurisdiction thereof.

9.4 It is mutually understood and agreed that Lessee may alter the premises to adapt it for Lessee's use at Lessee's expense, contingent upon Lessee first obtaining the written approval of Lessee's alteration plans by Lessor including whether Lessor will require to remove said improvements at end of Lease. In the event of any Lessor approved alterations to the premises, is agreed that the same shall become at once a part of the realty and belong to the Lessor, with the exception of Lessee's trade fixtures. In event that as a part Lessor's approval of said alterations, Lessor requires Lessee to remove alterations, Lessee agrees to remove those alterations as are directed by Lessor upon the expiration or termination of this Lease. All removal expenses shall be borne by Lessee. Any damage to the premises caused by such removal shall be repaired and paid for by Lessee.

9.5 Lessee shall indemnify and save Lessor harmless from any and all expenses incurred for the alterations to the premises made by Lessee and/or in the performance of any of Lessee's repair, maintenance, or replacement obligations unless caused by the

wrongful or negligent act of Lessor, in which case Lessor shall indemnify Lessee. Furthermore, Lessee shall notify Lessor in writing of the names of all contractors, subcontractors, suppliers, and labourers providing goods and services of more than $2,500.00 in value, and the amount to be paid each for the services and/or supplies they are to provide to the premises for any alteration made therein or thereon and/or in the performance of any of Lessee's repair, maintenance, or replacement obligations. Lessee shall keep the demised premises free from any and all liens arising out of any work performed, materials famished, or obligations incurred by Lessee. Should any claim or lien arise from the supplies or services rendered for said alterations and/or in the performance of any of Lessee's repair, maintenance, or replacement obligations. Lessee shall cause the full and final discharge of such lien or claim within no more than ninety (90) days from Lessee discovering the same. Additionally, Lessee shall notify Lessor in writing within ten (10) days of receiving notice of such claim, or lien. Should Lessee fail to pay for any claim and/or cause the removal of any lien within ninety (90) days of Lessee's discovery of the same, Lessor may, at its option, declare this Lease in default and/or pay the amount of the claim or lien and add such amount to Lessee's next regularly scheduled rental payment and consider the same as additional rent. In the event, within the aforementioned ninety (90) days, Lessor is required by contractual obligation to remove lien, the Lessee shall provide a performance bond in the amount of the Lien to Lessor.

9.6 At the time office expiration of the tenancy created herein. Lessee shall surrender the premises in good condition, reasonable wear and tear, and loss by fire excepted. Any damage or injury sustained by any person because of mechanical, electrical, plumbing or any oilier equipment or installations performed by Lessee, or any other obligation of Lessee as herein provided, which replacement, maintenance or repair shall be the responsibility of Lessee, shall be paid for by Lessee, and Lessee shall indemnify and hold Lessor harmless from and against all claims, actions, damages and liability in connection therewith, including, but not limited to, actual attorney fees and other professional fees, and any other costs which Landlord might reasonably incur, likewise, any damage or injury sustained by any person because of mechanical, electrical, plumbing or any other equipment or installations performed by Lessor, or any other obligation of Lessor as herein provided, which replacement, maintenance or repair shall be the responsibility of Lessor, shall be paid for by Lessor, and Lessor shall indemnify and hold Lessee harmless from and against all claims, actions, damages and liability in connection therewith, including, but not limited to, actual attorney fees and other professional fees, and any other costs which Lessee might reasonably incur.

9.7 Any Lessor approved alteration to the premises must comply in all respects with federal, state, and local laws, including but not limited to the American Disabilities Act of 1990 and similar state and local requirements. Lessee agrees that it shall fully indemnify and hold Lessor totally free and harmless from any and all liability with respect to Lessee's failure to comply with the requirements of this section.

ARTICLE X

SIGNS, AWNINGS AND CANOPIES

10.1 Lessee shall not place or suffer to be placed or maintained on any exterior door, wall or window of the leased premises, whether temporary or permanent, any sign, awning or canopy, or advertising matter or other thing of any kind, and will not place or maintain any decoration, lettering or advertising matter, whether temporary or permanent, on the glass of any window or door of the leased premises without first obtaining Lessor's written approval and consent. Lessee further agrees to maintain any sign, awning, canopy, decoration, lettering, advertising matter or other thing, as may be approved by Lessor, in good condition and repair at all times.

ARTICLE XI

ACCESS TO PREMISES

11.1 Lessor, with 24 hour oral or written notice, except in the case of an emergency which notice shall not be required, may enter upon the premises at reasonable business hours for the purpose of inspection. If Lessor reasonably deems any repairs, maintenance, and/or replacement necessary (provided such repairs, maintenance, and/or replacement are the obligation of Lessee under this Lease) it may demand that Lessee make them, and if Lessee refuses or neglects forthwith to commence such repairs, maintenance, and/or replacement and complete the same within ten (10), days of such demand, unless necessitated by emergency, Lessor may make or cause to be made such repairs, maintenance, and/or replacement and shall not be responsible to Lessee for any reasonable loss, interruption, or damage that may accrue to its property or business by reason thereof. In such event. Lessee shall forthwith on demand pay Lessor the cost thereof as additional rental plus the sum of seven percent (7%) of such repairs, maintenance, and/or replacement for Lessor's administrative expenses incurred in processing the same.

ARTICLE XII

LESSOR'S ADVANCES

12.1 If Lessee shall default in any payment or expenditure required to be paid or expended by Lessee under the terms hereof. Lessor, at its option, may make such payment or expenditure, in which event the amount thereof shall be payable as rental to Lessor by Lessee on the next ensuing rent day, together with interest at seven (7) percent per annum from the date of such payment or expenditure by Lessor until repayment thereof. On default in such payment, Lessor shall have the same remedies on default in payment of rent.

ARTICLE XII

COMMON AREA MAINTENANCE

13.1 The use and occupancy by Lessee of the premises shall include the use, in common with all others to whom Lessor has granted or may hereafter grant right to use the same, of the common areas located within the Center and of such other facilities as may be designated from time to time; subject, however, to rules and regulations for the use thereof as prescribed from time to time by Lessor, which are uniform and non-discriminatory. Lessor may, at any time, close temporarily any common area to make repairs or changes, to prevent the acquisition of public rights in such area, or to discourage non-customer parking, and Lessor may do such other acts in and to the common areas as in its judgment may be desirable to improve the convenience thereof. Lessor specifically reserves the right to physically change exterior and interior common areas, if any, and to enclose or diminish such areas and to build and construct upon such common areas and any outlots as Lessor, in its sole discretion, may determine and to enlarge or eliminate common areas provided in no event shall Lessor materially interfere with the egress and ingress to the premises or its visibility from the roadway fronting the premises or lessen the current parking ratio.

13.2 For the purpose of this Article and wherever else used in this Lease, the common area shall be defined as to include, by way of illustration and not limitation, all parking areas, access roads and facilities which may be furnished by Lessor, in or near the Center; the same including employee parking areas, the truckway, or ways, driveways, loading docks and areas, delivery of packages, package pickup stations, pedestrian sidewalks, courts and ramps, landscaped and planting areas, retaining walls, stairways, bus-stops, first aid station, if any, lighting facilities, and all other area and improvements which may

be provided by Lessor for the general use in common of other tenants, their officers, agents, employees and customers.

13.3 Lessor agrees, at Lessor's initial cost and expense, to provide a hard surfaced, properly drained, adequately lighted, and landscaped parking area, or parking areas, together with the necessary access roads within the limits of the Center. Lessee acknowledges that it has inspected the same and agrees to accept the same in its "as is" condition subject to Lessee's final review upon the commencement of this lease. Lessor hereby grants to Lessee and Lessee's employees, agents, customers and invitees the right, during the term hereof, to use, in common with others entitled to the use thereof, the parking area or areas and access roads within the limits of the Center.

13.4 Lessor further agrees to operate, manage and maintain, replace and/or repair, during the term of this Lease, all parking areas, roads, sidewalks, landscaping, drainage and lighting facilities within the limits of the Center. The term maintenance or repair shall be construed to include such maintenance, repair, or replacement, as Lessor deems reasonably necessary. The manner in which such areas and facilities shall he maintained and the expenditures thereof shall be at the sole reasonable discretion of the Lessor and the use of such areas and facilities shall be subject to such reasonable regulations as Lessor shall make from time to time, provided that Lessor shall not unreasonably reduce or degrade either such areas or the access thereto.

13.5 Lessee agrees to pay to Lessor, in addition to its minimum monthly rent as provided in Article IV above, in the manner hereinafter provided, but not more often than once each calendar month, Lessee's proportionate share of all costs and expenses of every kind and nature paid or incurred by Lessor in operating, equipping, policing, and protecting, lighting, heating, insuring, repairing, replacing, and maintaining the building(s) and improvements of the Center and common areas of the Center, including the cost of insuring all property provided by Lessor which may at any time comprise the Center. Such costs and expenses shall include, but not be limited to, illumination and maintenance and replacement of Center signs and pylons, whether on or off the Center site, and the illumination and maintenance of off-site traffic signal lights and/or directional lights, cleaning, lighting, snow removal, line painting, resurfacing of parking areas and landscaping, premiums for liability and property insurance, exterior building painting, personal property taxes, pro-opening costs, supplies, holiday decorations, the cost of maintenance and replacement of equipment supplying music to the common areas, the reasonable depreciation of maintenance equipment used in the operation and maintenance of the common areas and project areas, and an amount equal to Lessee's

proportionate share of seven percent (7%) of the total of all of the foregoing costs and expenses to cover Lessor's administrative costs. During the initial term of this Lease, Lessee shall not be obligated to pay for tile replacement of items considered capital in nature under this paragraph. At Lessee's request and within 30 days after Lessee's receipt of statement from Lessor, Lessor will provide Lessee with copies of the original invoices of vendors for the period covered by aforementioned invoice.

13.6 Lessor will annually estimate the cost of common area maintenance and will notify Lessee of its pro rata share, which shall be paid to Lessor monthly, along with the minimum rent. Notwithstanding anything herein or elsewhere to the contrary, Lessee's obligations under this Section shall commence as of the date of Lessor's delivery of possession of the demised premises to Lessee. An itemized statement showing in reasonable detail all disbursements and charges will be furnished Lessee at least once a year but no more often than every three months and any over or under charges will be adjusted at that time. Any credit or deficiency based upon an annual estimation, shall be adjusted each year on a date determined appropriate by Lessor, with Lessee paying any deficiency in the form of additional rent due the following month, or, if a credit is due, in the form of a reduced maintenance payment for the appropriate number of months.

13.7 Nothing herein shall be construed to prohibit or in anyway restrict Lessor from renting out, splitting-off, or selling any portion of the Common Areas, without credit or right of set-off to Lessee so long as the same does not interfere with Lessee's use of the premises or parking areas.

13.8 Lessor shall have the right to add onto, modify, or further develop the Center without advance notice or approval of Lessee being first required and without credit or right of set-off to Lessee. Should the same occur however, and thus reduce Lessee's percentage of occupation of the Center, Lessee shall be notified of the same, and Lessee's share of the common expenses shall be adjusted proportionately.

ARTICLE XIV

RECIPROCAL PARKING RIGHTS

14.1 Lessee shall and does herein grant to Lessor and the employees, agents, service personnel, business invitees of Lessor, and the other tenants in the Center, the unrestricted right to use in common with Lessee, the employees, agents, service personnel, and business invitees of Lessee, the parking area as described on the attached Exhibit B.

14.2 It is further understood and agreed that Lessee shall and does herein grant to Lessor and the employees, agents, service personnel, business invitees of Lessor, and the other tenants of the Center, the unrestricted access to, from, and across the demised premises as described on the attached Exhibit B.

ARTICLE XV

PROPERTY TAXES AND LICENSE FEES

15.1 Lessee shall pay when due and before the assessment of any penalty or interest, all taxes, assessments and charge of any kind which shall be levied, assessed or charged upon any personal property located in the premises during the term of the Lease.

15.2 Lessee shall also pay all license fees that may be required by any governmental and/or regulatory authority.

15.3 Lessee shall pay to Lessor as additional rent during each lease year its proportional share of all real property taxes and current installment of assessments (both ordinary and extraordinary) payable by Lessor during each lease year with respect to the entire Center. Should the State of Michigan or any political subdivision thereof, or any governmental authority having jurisdiction thereover, impose a tax and/or assessment other than a franchise tax upon or against the rentals payable hereunder by Lessee to Lessor or receivable rentals either by way of substitution for taxes and assessments levied or assessed against such land and such buildings or in addition thereto, such tax and/or assessment shall be deemed to constitute a tax and/or assessment against such land and improvements for the purposes of this Section, and upon reasonable written notice from Lessor, Lessee shall be responsible for the same. However, this provision is not to be construed as imposing any liability on the Lessee for payment of any taxes, assessments, or other charges imposed by government authority upon the income of Lessor or upon the transfer or passing of any interest owed by Lessor in the premises, such as income, succession, or transfer taxes nor shall Lessee be obligated to pay any withholding, profit, or revenue taxes or charges levied upon the rents payable to Lessor.

15.4 Lessee shall pay Lessor such real estate taxes as additional rent within thirty (30) days after billing presented therefor by Lessor. In the event Lessee fails to pay said taxes as herein provided, Lessee shall also be responsible to Lessor for any penalty or interest that may be assessed pursuant to the late or non-payment of said taxes. In the alternative, at Lessor's election Lessor may annually estimate the cost of real estate taxes and special assessments as herein provided and notify Lessee of its pro rata share of the same, which shall be paid by Lessee to Lessor monthly, along with Lessee's minimum monthly rent.

Any credit or deficiency based upon an annual estimation, shall be adjusted each year on a date determined appropriate by Lessor, with Lessee paying any deficiency in the form of additional rent due the following month, or, if a credit is due, in the form of a reduced tax escrow payment for the appropriate number of months. Notwithstanding anything herein or elsewhere to the contrary, Lessee's obligations under this Section shall commence as of the commencement of Lease. Lessee shall pay all assessments (both ordinary and extraordinary) on a monthly basis.

15.5 In the event Lessor shall be required to escrow real estate taxes, Lessee shall pay the same as provided above. Interest income from the escrow fund, if any, shall be applied to the taxes payable.

ARTICLE XVI

INSURANCE AND INDEMNITY

16.1 Lessor and Lessee shall indemnify and hold the other harmless from any loss, liability or damages arising from or out of the failure of either to perform its duties and obligations under this lease. It is understood and agreed that all property kept, stored or maintained in the demised premises shall be so kept, stored or maintained at the risk of Lessee only. Lessee shall not suffer or give cause for the filing of any lien against the therein demised premises.

16.2 Lessor shall, during the entire term hereof, keep in full force and effect an extended comprehensive policy of property damage, fire, and public liability insurance with respect to the demised premises, Center, and the common areas which provides such insurance protection to Lessor, and in which the limits of liability are in an amount reasonably deemed adequate by Lessor to protect Lessor from each accident or occurrence for fire, bodily injury, property damages, and such other coverage as Lessor may reasonably deem necessary.

16.3 Lessee shall pay Lessor its pro-rata share of such insurance expenses as additional rent within thirty (30) days after billing presented therefor by Lessor. In the alternative, at Lessor's election, Lessor may annually estimate the cost of such insurance expenses as herein provided and notify Lessee of its pro rata share of the same, which shall be paid by Lessee to Lessor monthly, along with Lessee's minimum monthly rent. Any credit or deficiency based upon an annual estimation, shall be adjusted each year on a date determined appropriate by Lessor, with Lessee paying any deficiency in the form of additional rent due the following month, or, if a credit is due, in the form of a reduced insurance escrow payment for the appropriate number of months. Notwithstanding

anything herein or elsewhere to the contrary, Lessee's obligations under this Section shall commence as of the date of Lessor's delivery of possession of the demised premises to Lessee.

16.4 Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incidental to the perils insured against under this Article, which perils occur in, on or about the premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees, to the extent of any recovery by the injured party under such insurance. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in tins Lease.

ARTICLE XVII

NON-LIABILITY OF LESSOR

17.1 Lessor shall not be liable for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying any part of the Center of which the premises are a part unless such acts are caused by the wrongful misconduct or negligence of Lessor. Lessee shall be solely responsible for all injuries to persons and property resulting from any accident, explosion, leak or other cause arising in or about the use of the premises and its appurtenances, as hereinbefore stated.

ARTICLE XVIII

DESTRUCTION OF PREMISES

18.1 In the event of a total or partial destruction of the said premises during said term, from any cause. Lessor shall forthwith repair the same, provided Lessor determines that such repairs can be made within one hundred twenty (120) days, subject to force majeure and still be in accordance with the laws and regulations of State, Federal, County, and Municipal authorities, and Lessor shall provide for abstinent of rent to the extent the premises are uninhabitable.

18.2 If Lessor determines, at its reasonable, sole discretion and in a reasonable amount of time, that such repairs cannot be made within one hundred twenty (120) days, and subject to force majeure, this Lease may be terminated at the option of Lessor or Lessee.

ARTICLE XIX

ASSIGNMENT AND SUBLETTING

19.1 Lessee shall not assign this Lease, nor hypothecate or mortgage the same, or any interest herein, nor sublet the premises, or any part thereof, without the prior written consent of the Lessor, whose consent shall not be unreasonably withheld. Lessor may consent to an assignment or sublet if Lessor determines that, in the reasonable opinion of Lessor, the proposed assignee or sub-lessee is financially responsible and will not adversely affect the character and reputation of the adjacent premises owned by Lessor. In the event of a Lessor approved assignment, such assignment shall not relieve the Lessee of its obligations herein.

ARTICLE XX

MEMORANDUM OF LEASE

20.1 Since the panics herein intend that this Lease shall not be recorded, Lessor and Lessee agree to execute and record a short form Lease, entitled "Memorandum of Lease" at Lessor's request for the same.

ARTICLE XXI

RE-RENTING

21.1 For a period commencing one hundred nineteen (119) days prior to the termination of this Lease, Lessor may show the premises to prospective tenants, during reasonable hours and upon one (1) business day advance notice and during reasonable business hours.

ARTICLE XXII

MORTGAGES

22.1 Lessee shall execute any instrument necessary to evidence subordination of this Lease to any mortgage of Lessor. Lessee agrees that this Lease shall be subordinate to any mortgages or trust deeds that may hereafter be placed upon the premises, to any and all advances made or to be made under them, to the interest and all obligations secured by them, and to all renewals, replacements and extensions of them. Provided, however, that in the event of foreclosure, the mortgagee or beneficiary named in any such mortgages or trust deeds and any purchaser under any foreclosure sale shall recognize and honor all of

the Lessor's obligations under the Lease if Lessee is not then in default under the terms of this Lease. If any mortgagee or beneficiary elects to have this Lease superior in its mortgage or deed of trust and gives notice of its election to Lessee, then this Lease shall be superior to the lien of any mortgage or trust deed whether this Lease is dated or recorded before or after the mortgage or trust deed.

22.2 Lessee shall at any time and from time to time, upon not less than ten (10) days prior written notice from Lessor, execute, acknowledge, and deliver to Lessor a statement in writing certifying certain facts including, without limitation, that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the dates to which the rental, and security deposit, if any, and other charges, if any, are paid in advance, and acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, and that there are no events or conditions then in existence which, with the passage of time or notice or both, would constitute a default on the part of Lessor hereunder, or specifying such defaults, events, or conditions, if any are claimed. It is expressly understood and agreed that any prospective purchaser or encumbrancer of all or any portion of the premises shall be entitled to rely upon any such statement. Lessee's failure to execute and return said document than it shall be conclusive upon lessee that (i) this Lease is in full force and effect without modification except as may be represented by Lessor; (ii) that there are no uncured defaults in Lessor's performance; and (iii) that not more than two (2) months' rental has been paid in advance. If Lessee fails to deliver the certificate within ten (10) days, Lessee irrevocably constitutes and appoints Lessor as its special attorney-in-fact to execute and deliver the certificate to a third party.

ARTICLE XXIII

CHATTELS AND FIXTURES

23.1 Lessee shall have the right on the expiration of the Lease to remove any of its own fixtures, provided that any damages to the building occasioned by said removal shall be repaired at Lessee's expense. All electrical installations, plumbing installations, walls, partitions, or such other improvements as remain an integral part of the building shall not be removed.

ARTICLE XXIV

EMINENT DOMAIN

24.1 In the event all of Lessee's premises shall be taken or expropriated by public or quasi-public authority, this Lease shall terminate as of the date Lessee shall be deprived of the physical possession thereof, at no expense to Lessor and Lessee shall be relieved of future obligations under this Lease.

24.2 In the event that less than the whole premises shall be taken, or expropriated, and Lessor is unable or fails to provide adjacent property equally suitable, then the minimum rent shall be reduced in accordance with a ratio of the part taken. In the event, more than twenty-five (25%) percent of the premises is taken, then Lessee, at Lessee's sole discretion can terminate this lease.

24.3 In the event of a taking or expropriation of any portion of the premises, if this Lease shall not be terminated as hereinabove provided, this Lease shall continue as to that portion of the premises which shall not have been expropriated or taken and Lessor shall, promptly and with due diligence, restore the premises as nearly as practical to a complete unit of like quality and character as existed just prior to such expropriation. If Lessor reconstructs the building to its original size entirety with proceeds from the expropriation award, the rent shall be reinstated upon completion of the construction or Lessee's commencing business whichever occurs first.

24.4 The entire award of damages or compensation for the premises taken, or the amount paid pursuant to private purchase in lieu thereof, whether such condemnation or sale be total or partial, shall belong to and be the property of the Lessor, and the Lessee hereby assigns to Lessor any and all such award or purchase price. Nothing herein contained shall be deemed or construed to prevent Lessee from interposing and prosecuting, in any condemnation proceeding a claim for the value of loss of business or any trade fixtures installed in the demised premises by the Lessee and in the case of a partial condemnation of the demised premises, the cost, loss, or damages sustained by Lessee as the result of any alterations, modifications, or repairs which may be reasonably required of Lessee in order to place the remaining portion of the demised premises not so condemned in a suitable condition for Lessee's further occupancy.

ARTICLE XXV

COVENANTS OF LESSOR

25.1 Lessor covenants and warrants that Lessor has the lawful right and authority to make this Lease; and that Lessee, upon paying the rent herein reserved and performing and observing the covenants and conditions herein contained on Lessee's part to be performed and observed, shall and will peacefully and quietly have, hold and enjoy the premises for the full term of this Lease and any extensions thereof, except in the event of the taking of premises public or quasi-public authority as provided in Article XXIV above.

ARTICLE XXVI

INSOLVENCY

26.1 If any proceedings in bankruptcy or insolvency be filed against Lessee, or if any writ of attachment or writ of execution be levied upon the interest herein of Lessee and such proceedings or levy shall not be released or dismissed within thirty (30) days thereafter, or if any sale of the leasehold interest hereby created, or any part thereof, should be made under any execution or other judicial process, or if Lessee shall make any assignment for benefit of creditors or shall voluntarily institute bankruptcy or insolvency proceedings, Lessor at Lessor's election, may re-enter and take possession of said premises and remove all persons therefrom and Lessor may, at Lessor's option, terminate this Lease.

ARTICLE XXVII

SURRENDER OF PREMISES

27.1 Upon termination of this Lease, whether by lapse of time, cancellation pursuant to an election provided herein, forfeiture or otherwise, Lessee shall immediately surrender possession of the premises to Lessor in good and tenantable repair.

27.2 The Lessor and the Lessee further agree that notwithstanding any provision of law or any judicial decision to the contrary, no notice shall be required from either party to terminate this Lease on the expiration of the term hereof, anything contained or implied to the contrary notwithstanding. A hold over by the Lessee, its successors or lawful assigns, or lawful sublessees, beyond the expiration of said term, or any properly exercised renewal shall give rise to a tenancy from month-to-month only and said month to month tenancy shall be subject to the same terms and conditions as contained herein.

ARTICLE XXVIII

CURATIVE PROVISIONS

28.1 Lessee shall have ten (10) days after receipt of written notice from Lessor to cure any default in the payment of any sums herein required be made. In the event of any Lessor approved Lessee assignment or sublet. Lessor shall give written notice to Lessee of any default committed under this Lease by an assignee or sublessee of Lessee. Any notice which is to be given to Lessee hereunder shall be deemed sufficiently given if sent by Certified or Registered Mail, postage prepaid, to Lessee at the leased premises or at the principle office of Lessee. If Lessee fails to correct such defaults. Lessor may terminate this Lease after the ten (10) day period and retake possession of the premises. In the event the default is of such character as to require more than ten (10) days (any payment obligation excepted) to cure, Lessee shall proceed in a prudent and expeditious manner to cure said default; said period however shall not exceed thirty (30) days from the day of the initial default. Upon failure of the Lessee to follow through and satisfy said default within the thirty (30) day period. Lessor may terminate this Lease with a thirty (30) day notice.

28.2 The subsequent acceptance of rent hereunder by Lessor shall not be deemed a waiver of any preceding breach of any obligation hereunder by Lessee other than the failure to pay the particular payment so accepted, and the waiver of any breach of any covenant or condition by Lessor shall not constitute a waiver of any other breach regardless of knowledge thereof. Furthermore, acceptance of partial or late payment by Lessor of any payment obligation of Lessee, shall not be deemed a waiver of Lessee's breach for failure to pay said payment in a full and timely manner.

28.3 In the case suit shall be brought for recovery of possession of the leased premises, for the recovery of rent or any other amount due under the provision of this Lease, or because of the breach of any other covenant herein contained on the part of Lessee to be kept or performed, and a breach shall be established, both the Lessor and Lessee shall be responsible for its own legal costs and fees.

28.4 Lessee hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Lessee being evicted or dispossessed for any cause or in the event of Lessor obtaining possession of the leased premises, by reason of the violation by Lessee of any of the covenants or conditions of this Lease, or otherwise.

ARTICLE XXIX

SECURITY DEPOSIT

29.1 Lessor herewith acknowledges receipt of $2,000.00, which it is to retain as security for the faithful performance and observance of all the covenants, conditions, and agreements of this Lease, on the part of Lessee to be performed and observed, but in no event shall Lessor be obliged to apply the same upon rents or other charges in arrears or upon damages for Lessee's failure to perform the said covenants, conditions and agreements. Lessee shall provide Lessor with an additional $6,334.00 security deposit upon the commencement of this Lease.

29.2 Lessor may so apply the security at its option, but the same security shall in no event be construed as liquidated damages; and Lessor's right to the possession of the premises for non-payment of rent or for any other reason shall not in any event be affected by reason of the fact that Lessor holds this security. The said sum, if not applied toward the payment of rent in arrears or toward the payment of damages suffered by Lessor by reason of Lessee's breach of the covenants, conditions, and agreements of this Lease, shall be returned without interest to Lessee, when this Lease is terminated according to these terms. In no event shall said security deposit be returned until Lessee has vacated the premises and delivered possession of the same to Lessor.

ARTICLE XXX

NOTICES

30.1 Any notices or consent required to be given, by or on behalf of either party upon the other shall be in writing and shall be given by mailing such notices or consent by registered or certified mail, return receipt requested or overnight mail courier addressed to the Lessor as follows:

Pier North Associates
P.O. Box 310289
Flint, MI 48531

and to Lessee at:

Tucows.Com, Inc.
4288 Pier North Blvd.
Suite A
Flint, MI 48504

or at such other address as Lessor or Lessee may designate from lime to time in writing.

ARTICLE XXXI

APPLICABLE LAW AND CONSTRUCTION

31.1 The Laws of the State of Michigan shall govern the validity, performance and enforcement of this Lease. The invalidity or unenforceability of any provisions of this Lease shall not affect or impair any other provision. The submission of this document for examination does not constitute an offer to lease or a reservation of or option for the premises. Lessor and/or its agents will continue to offer the premises to other interested parties for lease and/or sale until a lease covering all or part of the premises has been fully executed. Lessee is advised that any actions taken by Lessee with respect to the premises prior to Lessee's receipt of a signed Lease by Lessor are at Lessee's own risk.

31.2 All negotiations, considerations, representations and understandings between the parties are incorporated herein and may be modified or altered only by agreement in writing between the parties. Lessee shall have no right to quit the premises, cancel, or rescind this Lease except as said right is expressly granted herein.

31.3 The headings of the several articles contained herein are for convenience only and do not define, limit or construe the contents of such articles.

31.4 This Lease has been negotiated by Lessor and Lessee and the Lease, together with all of the terms and provisions hereof, shall be deemed to have been prepared by both Lessor and Lessee.

31.5 Wherever used "Lessor" and "Lessee" shall be deemed to include the heirs, personal representatives, successors, sublessees, and assigns of said parties unless the content excludes such construction.

ARTICLE XXXII

RELATIONSHIP OF PARTIES

32.1 It is understood and agreed that the intent of this Lease is to establish a relationship of the parties hereto, that is of landlord and tenant.

ARTICLE XXXIII

MISCELLANEOUS

33.1 Time is of the essence of this Lease and of all the provisions hereof, except in respect to the delivery of possession of the demised premises at the commencement of the term hereof.

33.2 Any addenda or amendments to this Lease, including but not limited to the amendment fixing the term of this Lease, may be signed by only one (1) officer of Lessee.

33.3 Lessee shall fully indemnify and hold Lessor totally free and harmless from any and all liability with respect to any Lessee obligation as described in this Lease; said indemnification to include reasonable attorney fees and costs incurred by Lessor.

IN TESTIMONY WHEREOF, the parties have set their hands counterparts hereof of which shall have the same force and effect as if it were original, on the date(s) below written.

SIGNED IN THE PRESENCE OF:         LESSOR: PIER NORTH ASSOCIATES

                                   By /s/ GARY J. HURAND
----------------------------          ----------------------------------------
                                        Gary J. Hurand
----------------------------       Its: Authorized Partner


SIGNED IN THE PRESENCE OF:         LESSEE: TUCOWS

                                   By /s/ SCOTT SWEDORSKI
----------------------------          ----------------------------------------
                                        Scott Swedorski
----------------------------       Its: Vice President

(Lessor and Lessee Acknowledgments on following page)

LESSOR ACKNOWLEDGMENT

STATE OF MICHIGAN)
ss
COUNTY OF GENESEE)

On this 20th day of July, 2000, before me personally came Gary J. Hurand, to me known, who being by me duly sworn, did depose and say that he is the duly authorized agent of Lessor described above, that he has full authority to bind said Lessor, and that he has read and approved the terms and conditions as contained above on behalf of said Lessor.

GENESEE County, MI Notary Public
My Commission Expires 1/19/04

LESSEE ACKNOWLEDGMENT

STATE OF MICHIGAN)
ss
COUNTY OF GENESEE)

On this 19th day of July, 2000, before me personally came Scott Swedorski, to me known, who being by me duly sworn, did depose and say that he/she is the duly authorized agent of Lessee described above, that he/she has full authority to bind said Lessee, and that he/she has read and approved of the terms and conditions as contained above on behalf of said Lessee.

GENESEE County, MI Notary Public
My Commission Expires 7/5/04

Exhibit A

[GRAPHIC OF FLOOR PLAN OMITTED]

Exhibit B

[GRAPHIC OF MAP OMITTED]

EXHIBIT "C"

LESSOR'S WORK

The Lessor shall finish the Leased Premises in the manner and colour standard to the Building which, without limiting the generality of the foregoing, will include the elements outlined below. All work not specifically described as Lessor's Work, including that work indicated as Lessee's Work in this Exhibit C will be the sole responsibility of the Lessee. The Lessor will complete the work described below 30 days before the Commencement Date, if later than this date, the Lessor will work in conjunction with the Lessee's contractors.

1. Demising Walls: To be in either gypsum wallboard with joints taped, sanded and painted.

2. Floors: Entire floor must be levelled and carpet installed throughout the floor excluding the room shown in Exhibit "A". The Computer room will also be levelled and have tile installed throughout the floor.

3. Ceilings: The Lessor will build drop ceilings throughout the Tucows facility in material deemed appropriate by the Lessor.

4. Electrical: The Lessor will provide three (3) phase 200 amp 600 volt electrical services which is dedicated solely to the Tucows facility. Furthermore, the Lessor will provide a dedicated circuit every 75 square feet with 3-5 outlets spaced apart evenly for each circuit. The Lessor will install sufficient fluorescent lighting throughout the Tucows facility for comfortable visibility during any time of the day. Also, the Computer room will require a minimum of 5 dedicated circuits with 3 outlets per circuit.

5. Plumbing: The Lessor will provide hot and cold water lines and drains to the location of the washrooms in a location determined by the Lessor acting reasonably. Also the Lessor will provide hot and cold water lines and drains capped to the location of the kitchen in a location determined by the Lessor acting reasonably.

6. Washrooms: The Lessor will build the washrooms, including floor and wall tile installation, toilet and urinal installation, stall partition installation, sink and counter installation, hand dryer installation and paper towel dispenser installation.

7. Fire Safety: Provide all fire fighting equipment including smoke detectors and portable fire extinguishers where required by the building and fire departments.

8. Permits: The Lessor will insure the Tucows facility meets all Permits and zones for the area.

9. Project Management: Documentation outlining the details of the Lessor's Construction schedule and timeline shall be provided to the Lessee at the beginning of the Construction. If there are any significant adjustments in the details of the construction of the timeline, then Lessor must notify the Lessee in writing at the earliest possible convenience.

ADDENDUM TO THE LEASE

BETWEEN

PIER NORTH ASSOCIATES

AND

TUCOWS.COM

RIGHT OF FIRST REFUSAL. Landlord hereby grants to Tenant an on-going right of first refusal (the "Right of First Refusal") to lease any space which becomes available for lease within the Building (the "Refusal Space") during the Term, or any extensions or renewals. Landlord must give immediate notice to Tenant with regard to any space in the building available for lease as soon as such space becomes available. Tenant shall have five (5) business days after receipt of Landlord's Notice ("Landlord's Notice") to lease such space under the same terms and conditions set forth. If Tenant timely elects to lease the Refusal Space, then the base rental rate shall be the same as the then current Basic Rent under this Lease. The term of the lease for the Refusal Space shall be co-terminus with the term of this Lease. Upon Tenant's rejection or Tenants failure to respond in a timely manner. Landlord may offer such Refusal Space to a third party under the same or less favourable terms and conditions as set forth in Landlord's Notice, and, Tenant shall have no further right to lease the Refusal Space. Notwithstanding the foregoing, if Landlord intends to offer such third party terms and conditions for the Refusal Space more favourable than those originally offered to Tenant, Landlord shall offer to Tenant the more favourable terms and conditions first, to allow Tenant to exercise the option as provided in the above sentences.

EXHIBIT 21.1

Subsidiaries of Tucows Inc., a Pennsylvania corporation

1. Tucows (Delaware) Inc., a Delaware corporation, is a wholly owned subsidiary of Tucows.

2. Tucows.com Co., a Nova Scotia corporation, is a wholly owned subsidiary of Tucows (Delaware) Inc.

3. InfoLoans Corp., a Pennsylvania corporation, is a wholly owned subsidiary of Tucows.

4. Infonautics Corporation, a Pennsylvania corporation, is a wholly owned subsidiary of Tucows.

5. Infoprop, Inc., a Delaware corporation, is a wholly owned subsidiary of Infonautics Corporation.

6. InfoLoans2 Corp., a Delaware corporation, is a wholly owned subsidiary of Infonautics Corporation.

EXHIBIT 23.1

Consent of KPMG LLP

The Board of Directors
Tucows Inc.:

We hereby consent to the incorporation by reference in the Registration Statement (No. 333-74010) on Form S-8 of Tucows Inc. of our reports dated (i) February 1, 2002, except as to note 14 which is as of March 25, 2002, related to the consolidated financial statements of Tucows Inc. as of December 31, 2000 and 2001 and the period from May 4, 1999 (commencement of operations) to December 31, 1999 and for the years ended December 31, 2000 and 2001 and (ii) June 9, 2000 related to the financial statements of the Tucows Division of Tucows Interactive Limited for the period from January 1, 1999 to May 3, 1999, which reports appear in the December 31, 2001 Annual Report on Form 10-K of Tucows Inc.

/s/ KPMG LLP
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Toronto, Canada
April 1, 2002